TUTOR PERINI CORP - Annual Report: 2015 (Form 10-K)

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FORM 10-K

 

United States Securities and Exchange Commission

Washington, DC 20549

 

(Mark One)

 

 

For the fiscal year ended December 31, 2015.

 

 

For the transition period from-to-.

 

Commission File No. 1-6314

 

Tutor Perini Corporation

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

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

 

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ☐  No  ☒ 

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐  No  ☒

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate 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  ☒  No  ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

 

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 definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

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

 

The aggregate market value of voting Common Stock held by non-affiliates of the registrant was $829,622,621 as of June 30, 2015, the last business day of the registrant’s most recently completed second fiscal quarter.

 

The number of shares of Common Stock, $1.00 par value per share, outstanding at February 23, 2016 was 49,072,710.

 

Documents Incorporated by Reference

 

Portions of the definitive proxy statement relating to the registrant’s annual meeting of stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K

 

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TUTOR PERINI CORPORATION

 

2015 ANNUAL REPORT ON FORM 10-K

 

TABLE OF CONTENTS

 

 

 

 

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PART I.

 

Forward-Looking Statements

 

The statements contained in this Annual Report on Form 10-K 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 (the “Exchange Act”), including without limitation, statements regarding our management’s expectations, hopes, beliefs, intentions or strategies regarding the future and statements regarding future guidance or estimates and non-historical performance. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effects on us. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. 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 are listed and discussed in Item 1A. Risk Factors, below. We undertake no obligation to 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 1. BUSINESS

 

General

 

Tutor Perini Corporation, formerly known as Perini Corporation, was incorporated in 1918 as a successor to businesses which had been engaged in providing construction services since 1894. Tutor Perini Corporation and its consolidated subsidiaries (“Tutor Perini,” “Company,” “we,” “us,” and “our,” unless the context indicates otherwise) is a leading construction company, based on revenue, as ranked by Engineering News-Record (“ENR”), offering diversified general contracting, construction management and design-build services to private customers and public agencies throughout the world. Our corporate headquarters are in Sylmar, California, and we have various other principal office locations throughout the United States and certain U.S. territories (see Item 2. Properties for a listing of our major facilities). Our common stock is listed on the New York Stock Exchange under the symbol “TPC”. We are incorporated under the laws of the Commonwealth of Massachusetts.

 

We and our predecessors have provided construction services since 1894 and have established a strong reputation within our markets by executing large, complex projects on time and within budget, while adhering to strict quality control measures. We offer general contracting, pre-construction planning and comprehensive project management services, including the planning and scheduling of the manpower, equipment, materials and subcontractors required for a project. We also offer self-performed construction services, including site work, concrete forming and placement, steel erection, electrical, mechanical, plumbing, and heating, ventilation and air conditioning (HVAC). During 2015, we performed work on more than  1,500 construction projects.

 

Our business is conducted through three basic segments: Civil, Building and Specialty Contractors, as described below in the “Business Segment Overview.”

 

Historically, we have been recognized as one of the leading building contractors in the United States, as evidenced by our performance on several of the largest hospitality and gaming projects, including CityCenter and the Cosmopolitan Casino and Resort, and large transportation projects, such as the McCarran International Airport Terminal 3 in Las Vegas, Nevada. In 2008, we embarked upon a strategy to better align our business to pursue markets with higher profit margins and the best long-term growth potential, while maintaining our presence as a leading contractor in the general building market. In September 2008, we completed a merger with Tutor-Saliba Corporation (“Tutor-Saliba”) to provide us with enhanced opportunities for growth not available to us on a stand-alone basis through increased size, scale, bonding capacity, immediate access to multiple geographic regions, management capabilities, complementary assets and expertise in large civil projects. The success of the Tutor-Saliba merger and the execution of the Company’s strategy to focus on capturing higher-margin civil projects are best illustrated by the significant growth we have experienced in our Civil segment over the past five years.

 

In 2010 and 2011, we took advantage of opportunities to expand our Company vertically and geographically through the strategic acquisitions of seven companies with demonstrated success in their respective markets. These acquisitions strengthened our geographic presence in our Building and Civil segments and also significantly increased our specialty contracting capabilities. In 2011, we completed an internal reorganization of our reporting segments with the creation of the Specialty Contractors segment, which we describe below. Furthermore, during 2014, we completed a reorganization, which resulted in the elimination of the Management Services segment. The Management Services segment formerly consisted of two subsidiary companies, Black Construction and Perini Management Services, which have since been included in the Civil and Building segments, respectively.

 

We believe that the successful completion of our acquisition strategy has enabled us to realize cross-selling opportunities across an expanded geographic footprint, while continuing to focus on vertical integration through increased self-performed work capabilities, thus further improving profitability and providing greater stability during economic cycles.

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Business Segment Overview

 

Civil Segment

 

Our Civil segment specializes in public works construction and the repair, replacement and reconstruction of infrastructure across most of the major geographic regions of the United States. Our civil contracting services include construction and rehabilitation of highways, bridges, mass-transit systems, and water management and wastewater treatment facilities.

 

The Civil segment is comprised of the Company’s legacy heavy civil construction operations (civil operations of the former Perini Corporation and Tutor-Saliba, including Black Construction) and three companies acquired by the Company in 2011. Frontier-Kemper is a heavy civil contractor engaged in: 1) the constructing of tunnels for highways, railroads, subways and rapid transit systems, shafts and other facilities for water supply, wastewater transport and hydroelectric projects, and 2) the developing and equipping of mines with innovative hoisting, elevator and vertical conveyance systems. Lunda Construction is a heavy civil contractor engaged in the construction, rehabilitation and maintenance of bridges, railroads and other civil structures throughout the United States. Becho is engaged in drilling, foundation and excavation support for shoring, bridges, piers, roads and highway projects, primarily in the southwestern United States. We believe that the Company has benefitted through these acquisitions by allowing us to expand our geographic presence, enhance our civil construction capabilities and add experienced management with a proven, successful track record.

 

Our Civil segment’s customers primarily award contracts through one of two methods: the traditional public “competitive bid” method, in which price is the major determining factor, or through a request for proposals where contracts are awarded based on a combination of technical capability and price.

 

Traditionally, our Civil segment’s customers require each contractor to pre-qualify for construction business by meeting criteria that include technical capabilities and financial strength. Our financial strength and outstanding record of performance on challenging civil works projects often enable us to pre-qualify for projects in situations where smaller, less diversified contractors are unable to meet the qualification requirements. We believe this is a competitive advantage that makes us an attractive partner on the largest, most complex infrastructure projects and prestigious design-build, or DBOM (design-build-operate-maintain) contracts, which combine the nation’s top contractors with engineering firms, equipment manufacturers and project development consultants in a competitive bid selection process to execute highly sophisticated projects.

 

In its 2015 rankings, ENR ranked us as the nation’s fourth largest domestic heavy contractor, fourth largest contractor in the transportation market and fourteenth largest contractor overall.

 

We believe the Civil segment provides significant opportunities for growth due to the age and condition of existing infrastructure coupled with large government funding sources aimed at the replacement and repair of aging U.S. infrastructure and popular, often bipartisan, support from the public and elected officials for infrastructure improvement programs. Funding for major civil infrastructure projects is typically provided through a combination of one or more of the following: local, regional, state, and federal loans; grants; other direct allocations sourced through tax revenue; bonds; and user fees.

 

We have been active in civil construction since 1894 and believe we have a particular expertise in large, complex civil construction projects. We have completed or are currently working on some of the most significant civil construction projects in the United States. For example, we are currently working on various segments of the East Side Access project in New York City; the first segment of the California High-Speed Rail project; the Alaskan Way Viaduct Replacement (SR-99 bored tunnel) project in Seattle, Washington; the Third Street Light Rail-Central Subway project in San Francisco, California; the platform over the eastern rail yard and the Amtrak Tunnel at Hudson Yards in New York City; the rehabilitation of the Verrazano-Narrows Bridge in New York; the New Irvington Tunnel in Fremont, California; and the construction of express toll lanes along I-95 in Maryland. We have also performed runway widening and reconstruction projects at the John F. Kennedy International Airport in Queens, New York and the Caldecott Tunnel Fourth Bore project near Oakland, California.  

 

Building Segment

 

Our Building segment has significant experience providing services to a number of specialized building markets for private and public works customers, including the hospitality and gaming, transportation, health care,  corporate and municipal offices, sports and entertainment, education, correctional facilities, biotech, pharmaceutical, industrial and high-tech markets. We believe the success of the Building segment results from our proven ability to manage and perform large, complex projects with aggressive fast-track schedules, elaborate designs and advanced mechanical, electrical and life safety systems, while providing accurate budgeting and strict quality control. Although price is a key competitive factor, we believe our strong reputation, long-standing customer relationships and significant level of repeat and referral business have enabled us to achieve our leading position.

 

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The Building segment is comprised of several operating units that provide general contracting, design-build, preconstruction and construction services in various regions of the United States. Tutor Perini Building Corp. focuses on large, complex building projects nationwide, including significant projects in the hospitality and gaming, commercial office, education, government facilities, and multi-unit residential markets. Rudolph and Sletten focuses on large, complex projects in California in the commercial office, technology, industrial, education, and government facilities markets. Roy Anderson Corp. (formerly known as Anderson Companies) provides its services, including disaster rapid response services, to public and private customers primarily throughout the southeastern United States. Perini Management Services provides diversified construction and design-build services to U.S. military and government agencies, as well as to surety companies and multi-national corporations in the United States and locations overseas. We believe that our national resources and strong résumé of notable projects will enable future growth on large, complex building projects.

 

In its 2015 rankings, ENR ranked us as the tenth largest general building contractor in the United States. We are a recognized leader in the hospitality and gaming market, specializing in the construction of high-end resorts and casinos. We work with hotel operators, Native American tribal councils, developers and architectural firms to provide diversified construction services to meet the challenges of new construction and renovation of hotel and resort properties. We believe that our reputation for completing projects on time is a significant competitive advantage in this market, as any delay in project completion could result in significant loss of revenue for the customer.

 

We have recently completed, or are currently working on, large private and public building projects across a wide array of building end markets, including commercial offices, multi-unit residential, health care,  hospitality and gaming transportation, education, and entertainment. Specific projects include: a large office and research and development building in northern California for a confidential technology customer; the Panorama Tower in Miami, Florida; Tower C, Tower D and the Retail Gallery at Hudson Yards and the George Washington Bridge Bus Station redevelopment in New York City; the Washington Hospital expansion in Fremont, California; the Graton Rancheria Resort and Casino in Rohnert Park, California; the Chumash Casino Resort expansion in Santa Ynez, California; the Scarlet Pearl Casino Resort in D’Iberville, Mississippi; the Broadway Plaza retail development in Walnut Creek, California; Kaiser Hospital Buildings in San Leandro and Redwood City, California; and courthouses in San Bernardino and San Diego, California and Broward County, Florida. As a result of our reputation and track record, we were previously awarded and completed contracts for several marquee projects in the hospitality and gaming market, including the Resorts World New York Casino in Jamaica, New York, and CityCenter, The Cosmopolitan Resort and Casino, the Wynn Encore Hotel and Planet Hollywood, all in Las Vegas, Nevada. These projects span a wide array of building end markets and illustrate our Building segment’s résumé of successfully completed large-scale public and private projects.

 

Specialty Contractors Segment

 

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

 

The Specialty Contractors segment is comprised of several operating units that provide unique services in various regions of the United States. Five Star Electric is one of the largest specialty contractors in New York City providing construction services in the electrical sector, including power, lighting, fire alarm, security, telecommunications, low voltage and wireless systems. Five Star Electric has established itself as an industry leader performing work in both the public and private sectors including high-end residential, hotel and commercial towers, transportation, water treatment plants, schools and universities, health care, retail, sports and government facilities. Fisk Electric covers many of the major commercial, transportation and industrial electrical construction markets in the southwestern and southeastern United States, with the ability to cover other attractive markets nationwide. Fisk’s expertise is in technology design and the development of electrical and technology systems for major projects spanning a broad variety of project types, including commercial office buildings, sports arenas, hospitals, research laboratories, hotels and casinos, convention centers, manufacturing plants, refineries and water and wastewater treatment facilities. WDF, Nagelbush and Desert Mechanical each provide mechanical, plumbing, HVAC and fire protection services to a range of customers in a wide variety of markets, including transportation, commercial/industrial, schools and universities and residential. WDF services the New York City metropolitan region, Nagelbush operates primarily in Florida and Desert Mechanical operates primarily in the western United States. Superior Gunite specializes in pneumatically placed structural concrete utilized in infrastructure projects nationwide, such as bridges, dams, tunnels and retaining walls.

 

In its 2015 rankings, ENR ranked us as the fifth largest electrical contractor1, tenth largest mechanical contractor and seventh largest specialty contractor1 in the United States. Through Five Star Electric and WDF collectively, we are also the largest specialty contractor in the New York City metropolitan area.

 

1 This ranking represents the collective revenue of the Company’s specialty contracting subsidiaries as reported to ENR.

 

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We have recently completed, or are currently working on, several electrical and mechanical projects at the World Trade Center and at Hudson Yards in New York City; two signal system modernization projects in New York City; and the new hospital at the University of Texas Southwestern Medical Center. This segment has supported, or is currently supporting, several large projects in our Building and Civil segments, including the Alaskan Way Viaduct Replacement (SR-99 bored tunnel) project in Seattle, Washington; the McCarran International Airport Terminal 3 in Las Vegas, Nevada; the Resorts World New York Casino in Jamaica, New York; various segments of the Greenwich Street Corridor and East Side Access projects in New York City; the Caldecott Tunnel Fourth Bore project near Oakland, California; the New Irvington Tunnel in Fremont, California; and several marquee projects in the hospitality and gaming market, including CityCenter, The Cosmopolitan Resort and Casino and Planet Hollywood, all in Las Vegas, Nevada.

 

The majority of work performed by our Specialty Contractors units is contracted directly with state and local municipal agencies, real estate developers, general contractors, commercial and industrial customers and school districts.  A smaller, but growing, component of its work is performed as a subcontractor to the Company’s Building and Civil segments.

 

Markets and Customers

 

We provide diversified construction services to a variety of end markets and customers. The following tables set forth certain reportable segment information relating to the Company’s operation for the years ended December 31, 2015, 2014 and 2013.

 

 

 

 

 

 

 

 

 

 

 

 

 

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State and Local Government Agencies. Our state and local government customers include state transportation departments, metropolitan authorities, cities, municipal agencies, school districts and public universities. We provide services to our state and local customers primarily pursuant to contracts awarded through competitive bidding processes. Our building construction services for state and local government customers have included judicial and correctional facilities, schools and dormitories, health care facilities, convention centers, parking structures and other municipal buildings. Our civil contracting and building construction services are provided in locations throughout the country.

 

Private Owners. Our private customers include real estate developers, health care companies, technology companies, hospitality and gaming resort owners, Native American sovereign nations, public corporations and private universities. We provide services to our private customers through negotiated contract arrangements, as well as through competitive bids.

 

Federal Government Agencies. Our federal government customers include the U.S. State Department, the U.S. Navy, the U.S. Army Corps of Engineers, the U.S. Air Force and the National Park Service. We provide services to federal agencies primarily pursuant to contracts for specific or multi-year assignments that involve new construction or infrastructure repairs or improvements. A portion of our revenue from federal agencies is derived from projects in overseas locations. We expect this to continue for the foreseeable future as a result of our experience and strong relationships with federal agencies, together with anticipated expenditures for defense, diplomatic and security-related construction work.

 

Most federal, state and local government contracts contain provisions that permit the termination of contracts, in whole or in part, for the convenience of the government, among other reasons.

 

For additional information on measures of profit or loss and total assets, for both the United States and foreign and U.S. territories, see Note 9 of the Notes to Consolidated Financial Statements.

 

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Backlog

 

Backlog in our industry is a measure of the total value of work that is remaining to be performed on contracts awarded. We include a construction project in our backlog when a contract is awarded or a letter of commitment is obtained and we believe adequate funding is in place. As a result, we believe our backlog is firm, though cancellations or scope adjustments may occur. Historically, we have not been negatively impacted by material cancellations or scope adjustments. Our backlog by segment and end market is as follows:

 

 

 

 

 

 

We estimate that approximately $4.4 billion, or 59%, of our backlog as of December 31, 2015 will be recognized as revenue in 2016.

 

 

 

 

 

 

 

 

 

 

 

 

 

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Types of Contracts

 

The general contracting and management services we provide consist of planning and scheduling the manpower, equipment, materials and subcontractors required for the timely completion of a project in accordance with the terms, plans and specifications contained in a construction contract. We provide these services by entering into traditional general contracting arrangements, such as fixed price, guaranteed maximum price and cost plus fee contracts. These contract types and the risks generally inherent therein are discussed below:

 

Fixed price contracts account for a substantial portion of our revenue and are expected to continue to represent a sizeable percentage of both total revenue and backlog. The composition of revenue and backlog by type of contract for fiscal years 2015, 2014 and 2013 is as follows:

 

 

 

 

 

 

 

 

 

Competition

 

The markets in which we compete include numerous competitors. In the small to mid-sized work that we have targeted, we have continued to experience strong pricing competition from our competitors. However, much of the work that we target is for larger, more complex projects where there are fewer active market participants because of the enhanced capabilities and resources required to perform the work. As a result, on these larger projects we typically face fewer competitors. However, over the past year we have seen increased competition especially from foreign competitors that have been pursuing major projects in the United States due to the relatively larger size and number of U.S. opportunities. We anticipate that the increased level of foreign competition will persist for the foreseeable future. 

 

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In our Civil segment, we compete principally with large civil construction firms, including Dragados USA; Flatiron Construction Corp.; Fluor Corp.; Granite Construction; Kiewit Corp.; Skanska USA; Traylor Bros., Inc.; and The Walsh Group. In our Building segment, we compete with a variety of national and regional contractors. Our primary competitors are AECOM (through its acquisitions of Tishman Construction and Hunt Construction Group); Balfour Beatty Construction; Clark Construction Group; DPR Construction; Gilbane, Inc.; Hensel Phelps Construction Co.; McCarthy Building Companies, Inc.; Skanska USA; Suffolk Construction; Turner Construction Co.; The Walsh Group; and The Whiting-Turner Contracting Co. In our Specialty Contractors segment, we compete principally with various regional and local electrical, mechanical and plumbing subcontractors. We believe price, experience, reputation, responsiveness, customer relationships, project completion track record, schedule control, risk management and quality of work are key factors customers consider when awarding contracts.

 

Construction Costs

 

If prices for materials, labor or equipment increase excessively, provisions in certain types of contracts often shift all or a major portion of any adverse impact to the customer. In our fixed price contracts, we attempt to insulate ourselves from the unfavorable effects of inflation, when possible, by incorporating escalating wage and price assumptions into our construction cost estimates, by obtaining firm fixed price quotes from major subcontractors and material suppliers, and by purchasing required materials early in the project schedule. Construction and other materials used in our construction activities are generally available locally from multiple sources and have been in adequate supply during recent years. Labor resources for our domestic projects are largely obtained through various labor unions with which we are associated. We have not experienced significant labor shortages in recent years, nor do we expect to in the future. We employ expatriate and local labor in selected overseas areas.

 

Environmental Matters

 

Our properties and operations are subject to federal, state and municipal laws and regulations relating to the protection of the environment, including requirements for water discharges; air emissions; the use, management and disposal of solid or hazardous materials or wastes; and the cleanup of contamination. In certain circumstances, we may also be required to hire subcontractors to dispose of hazardous materials encountered on a project in accordance with a plan approved in advance by the owner. We believe that we are in substantial compliance with all applicable environmental laws and regulations, and we continually evaluate whether we must take additional steps to ensure compliance with those laws and regulations. However, future requirements or amendments to current laws or regulations imposing more stringent requirements could require us to incur additional costs to maintain or achieve compliance.

 

In addition, some environmental laws, such as the U.S. federal “Superfund” law and similar state statutes, can impose liability for the entire cost of cleanup of contaminated sites upon any of the current or former owners or operators or upon parties who generated waste at, or sent waste to, these sites, regardless of who owned the site at the time of the release or the lawfulness of the original disposal activity. Contaminants have been detected at some of the sites that we own and where we worked as a contractor in the past, and we have incurred costs for the investigation and remediation of hazardous substances. We believe that our liability for these sites is not material, either individually or in the aggregate, and have pollution liability insurance available for such matters, and we receive indemnification from customers to cover the risks associated with environmental remediation.

 

Insurance and Bonding

 

All of our properties and equipment, as well as those of our joint ventures, are covered by insurance, in amounts that we believe are consistent with our risk of loss and industry practice. Our wholly owned subsidiary, PCR Insurance Company, issues deductible reimbursement policies for subcontractor default insurance, auto liability, general liability and workers’ compensation insurance, allowing us to centralize our claims and risk management functions to reduce our insurance-related costs.

 

As a normal part of the construction business, we are often required to provide various types of surety bonds as an additional level of security of our performance. We also require many of our higher-risk subcontractors to provide surety bonds as security for payment of subcontractors and suppliers and to guarantee their performance. As an alternative to traditional surety bonds, we also have purchased subcontractor default insurance for certain construction projects to insure against the risk of subcontractor default.

 

Employees

 

The number of our employees varies based on the number of active projects, the type and magnitude of those projects, as well as our position within the lifecycle of those projects. Our total number of employees as of December 31, 2015 was 10,626.  

 

We are signatory to numerous local and regional collective bargaining agreements, both directly and through trade associations, as a union contractor. These agreements cover all necessary union crafts and are subject to various renewal dates. Estimated amounts for wage escalation related to the expiration of union contracts are included in our bids on various projects and, as a result, the expiration of any union contract in the next fiscal year is not expected to have any material impact on us. During the past several years, we have not experienced any significant work stoppages caused by our union employees.

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Financial information about geographic areas is discussed in Note 9 to the Consolidated Financial Statements under the heading “Geographic Information”.

 

Available Information

 

Our website address is www.tutorperini.com. In the ‘‘Investor Relations’’ portion of our website, under “Financial Reports,” subsection ‘‘SEC Filings,’’ you may obtain free electronic copies of our annual reports on Form 10-K, quarterly reports on Form 10‑Q, current reports on Form 8-K and all amendments to those reports, as well as reports under Section 16 of the Exchange Act of transactions in our stock by our directors and executive officers. These reports are made available on our website as soon as reasonably practicable after we electronically file them with the Securities and Exchange Commission (“SEC”). These reports, and any amendments to them, are also available at the Internet website of the SEC, http://www.sec.gov. The public may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. In order to obtain information about the operation of the Public Reference Room, you may call 1-800-732-0330. We also maintain various documents, including our Code of Business Conduct and Ethics, Corporate Governance Guidelines and the charters of the Committees of our Board of Directors in the “Corporate Governance” portion of our website.

  

ITEM 1A. RISK FACTORS

 

We are subject to a number of known and unknown risks and uncertainties that could have a material adverse effect on our operations. Set forth below, and elsewhere in this report, are descriptions of the risks and uncertainties that could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report and could have a material adverse effect on our financial condition, results of operations and cash flows.

 

A significant slowdown or decline in economic conditions could adversely affect our operations.

 

Although economic conditions in the United States have gradually improved following several challenging years during the aftermath of the global economic downturn in 2008, any significant future decline in economic conditions, or uncertainty regarding the economic outlook, could result in a decline in demand for infrastructure projects and commercial building developments. In addition, any renewed instability in the financial and credit markets could negatively impact our customers’ ability to pay us on a timely basis, or at all, for work on projects already under construction, could cause our customers to delay or cancel construction projects in our backlog or could create difficulties for customers to obtain adequate financing to fund new construction projects. Such consequences could have an adverse impact on our future operating results. Lastly, we are more susceptible to adverse economic conditions in California and New York, as a significant portion of our operations are concentrated in those states.

 

The level of federal, state and local government spending for infrastructure and other public projects could adversely affect the number of projects available to us in the future.

 

The civil construction and public-works building markets are dependent on the amount of work funded by various government agencies, which depends on many factors including: the condition of the existing infrastructure and buildings; the need for new or expanded infrastructure and buildings; and federal, state and local government spending levels. As a result, our future operating results could be negatively impacted by any decrease in demand for public projects or decrease or delay in government funding, which could result from a variety of factors, including delays in the sale of voter-approved bonds, budget shortfalls, credit rating downgrades or long-term impairment in the ability of state and local governments to raise capital in the municipal bond market.

 

Competition for new project awards is intense and our failure to compete effectively could reduce our market share and profits.

 

New project awards are determined through either a competitive bid basis or on a negotiated basis. Projects are generally awarded based upon price but often take into account other factors, such as technical approach and qualifications, duration of project execution and past performance on similar projects completed. Within our industry, we compete with many international, regional and local construction firms. Some of these competitors have achieved greater market penetration than we have in the markets in which we compete, and some have greater resources than we do. If we are unable to compete successfully in such markets, our relative market share and profits could be reduced.

 

If we are unable to accurately estimate the overall risks, revenue or costs on a contract, we may achieve a lower than anticipated profit or incur a loss on that contract.

 

Accounting for contract related revenue and costs requires management to make significant estimates and assumptions that may change significantly throughout the project lifecycle, resulting in a material impact to our consolidated financial statements. In addition, cost overruns on fixed price and GMP contracts may result in lower profits or losses.

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We have a substantial amount of indebtedness which could adversely affect our financial position and prevent us from fulfilling our obligations under our debt agreements.

 

We currently have, and expect to continue to have, a substantial amount of indebtedness. As of December 31, 2015, we had total debt of $823.4 million under our Senior Notes, Credit Agreement and other indebtedness. If we are unable to meet the terms of the financial covenants or fail to comply with any of the other restrictions contained in our indentures, an event of default could occur causing the debt related to that indenture to become immediately due. If such acceleration occurs, we may not be able to repay such indebtedness as required. Since indebtedness under our Credit Agreement is secured by substantially all of our assets, acceleration of this debt could result in foreclosure of those assets and a negative impact on our operations. In addition, a failure to meet the terms of our Credit Agreement could result in a reduction of future borrowing capacity under the Credit Agreement, causing a loss of liquidity. A loss of liquidity could adversely impact our ability to execute projects in our backlog, obtain new projects, engage subcontractors, and attract and retain key employees.

 

We may not fully realize the revenue value reported in our backlog due to cancellations or reductions in scope.

 

As of December 31, 2015, our backlog of uncompleted construction work was approximately $7.5 billion. The revenue projected in our backlog may not be realized or, if realized, may not result in profits. For example, the cancellation or reduction in scope of any project in our backlog could have a material adverse effect on our financial condition, results of operations and cash flows.

 

We are subject to significant legal proceedings which, if determined adversely to us, could harm our reputation, preclude us from bidding on future projects and/or have a material effect on us. We also may invest significant working capital on projects while legal proceedings are being settled.

 

We are involved in various lawsuits, including the legal proceedings described under Item 3. Legal Proceedings. Litigation is inherently uncertain, and it is not possible to accurately predict what the final outcome will be of any legal proceeding. We must make certain assumptions and rely on estimates,  which are inherently subject to risks and uncertainties,  regarding potential outcomes of legal proceedings in order to determine an appropriate contingent liability and charge to income. Any result that is materially different than our estimates could have a material adverse effect on our financial condition, results of operations and cash flows. In addition, any adverse judgments could harm our reputation and preclude us from bidding on future projects.

 

We occasionally bring claims against project owners for additional cost exceeding the contract price or for amounts not included in the original contract price. When these types of events occur and unresolved claims are pending, we may invest significant working capital in projects to cover cost overruns pending the resolution of the relevant claims. A failure to promptly recover on these types of claims could have a material effect on our liquidity and financial results.

 

Our contracts require us to perform extra, or change order, work, which can result in disputes or claims and adversely affect our working capital, profits and cash flows.

 

Our contracts generally require us to perform extra, or change order, work as directed by the customer even if the customer has not agreed in advance on the scope or price of the work to be performed. This process may result in disputes or claims over whether the work performed is beyond the scope of work directed by the customer and/or exceeds the price the customer is willing to pay for the work performed. To the extent we do not recover our costs for this work or there are delays in the recovery of these costs, our cash flows and working capital could be adversely impacted.

 

Our actual results could differ from the assumptions and estimates used to prepare our financial statements.

 

In preparing our financial statements, we are required under accounting principles generally accepted in the United States (“GAAP”) to make estimates and assumptions as of the date of the financial statements. These estimates and assumptions affect the reported values of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities. Areas requiring significant estimates by our management include:

 

• recognition of contract revenue, costs, profits or losses in applying the principles of percentage-of-completion accounting;

• recognition of revenue related to project incentives or awards we expect to receive;

• recognition of recoveries under contract change orders or claims;

• estimated amounts for expected project losses, warranty costs, contract close-out or other costs;

• collectability of billed and unbilled accounts receivable;

• asset valuations;

• income tax provisions and related valuation allowances;

• determination of expense and potential liabilities under pension and other post-retirement benefit programs; and

• accruals for other estimated liabilities, including litigation and insurance revenue/reserves.

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Our actual business and financial results could differ from our estimates of such results, which could have a material negative impact on our financial condition and reported results of operations.

 

The construction services industry is highly schedule driven, and our failure to meet the schedule requirements of our contracts could adversely affect our reputation and/or expose us to financial liability.

 

Many of our contracts are subject to specific completion schedule requirements. Any failure to meet contractual schedule requirements could subject us to liquidated damages, liability for our customer’s actual cost arising out of our delay and damage to our reputation.

 

We require substantial personnel, including construction and project managers and specialty subcontractor resources to execute and perform our contracts in backlog. The successful execution of our business strategies is also dependent upon our ability to attract, retain and implement succession plans for key officers.

 

Our ability to execute and perform on our contracts in backlog depends in large part upon our ability to hire and retain highly skilled personnel, including project and construction management and trade labor resources, such as carpenters, masons and other skilled workers.  In the event we are unable to attract, hire and retain the requisite personnel and subcontractors necessary to execute and perform our backlog, we may experience delays in completing projects in accordance with project schedules or an increase in expected costs, both of which could have a material adverse effect on our financial results, our reputation and our relationships. In addition, if we lack the personnel and specialty subcontractors necessary to perform on our current contract backlog, we may find it necessary to curtail our pursuit of new projects.

 

The execution of our business strategies also substantially depends on our ability to retain several key members of our management. Losing any of these individuals could adversely affect our business. The majority of these key officers are not bound by employment agreements. Volatility or lack of positive performance in our stock price may adversely affect our ability to retain key staff to whom we have provided share-based compensation. Additionally, because a substantial portion of our key executives' compensation is placed "at risk" and linked to the performance of our business, when our operating results are negatively impacted, we are at greater risk of employee turnover. If we lose our existing key executives and are unable to execute a succession plan our operating results would likely be harmed.

 

Systems and information technology interruption and breaches in data security could adversely impact our ability to operate and negatively impact our operating results.

 

We are reliant on computer and other information technology that could be interrupted or damaged by a  variety of factors including, but not limited to, cyber-attacks, natural disasters, power loss, telecommunications failures, acts of war, computer viruses and physical damage. The resulting consequences could include a loss of critical data, a delay in operations or an unintentional disclosure of confidential information, any of which could have a material impact to our Company and its consolidated financial statements.

 

Our participation in construction joint ventures exposes us to liability and/or harm to our reputation for failures by our partners.

 

As part of our business, we enter into joint venture arrangements typically to jointly bid on and execute particular projects, thereby reducing our risk profile while enhancing the execution capability and financial reward of project teams. Success on these joint projects depends in large part on whether our joint venture partners satisfy their contractual obligations. We and our joint venture partners are generally jointly and severally liable for all liabilities and obligations of our joint ventures. If a joint venture partner fails to perform or is financially unable to bear its portion of required capital contributions or other obligations, including liabilities stemming from lawsuits, we could be required to make additional investments, provide additional services or pay more than our proportionate share of a liability to make up for our partner’s shortfall. Further, if we are unable to adequately address our partner’s performance issues, the customer may terminate the project, which could result in legal liability to us, harm our reputation, reduce our profit on a project or, in some cases, result in a loss.

 

We are subject to a number of risks as a U.S. government contractor, which could harm our reputation, result in fines or penalties against us and/or adversely impact our financial condition.

 

Failure to comply with laws and regulations related to government contracts could result in contract termination, suspension or debarment from contracting with the U.S. government, civil fines and criminal prosecution, any of which could have a material impact on our consolidated financial statements and future financial condition and performance.

 

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Weather can significantly affect our revenue and profitability.

 

Inclement weather conditions, such as significant storms and unusual temperatures, can impact our ability to perform work. Adverse weather conditions can cause delays and increases in project costs, resulting in variability in our revenue and profitability.

 

In connection with mergers and acquisitions, we have recorded goodwill and other intangible assets that could become impaired and adversely affect our operating results. Assessing whether impairment has occurred requires us to make significant judgments and assumptions about the future, which are inherently subject to risks and uncertainties, and if actual events turn out to be materially less favorable than the judgments we make and the assumptions we use, we may be required to record impairment charges in the future.

 

We had approximately $635.4 million of goodwill and indefinite-lived intangible assets recorded on our Consolidated Balance Sheet as of December 31, 2015. We assess these assets for impairment annually, or more often if required. Our assessments involve a number of estimates and assumptions that are inherently subjective, require significant judgment and regard highly uncertain matters that are subject to change. The use of different assumptions or estimates could materially affect the determination as to whether or not an impairment has occurred. In addition, if future events are materially less favorable than what we assumed or estimated in our impairment analysis, we may be required to record impairment charge, which could have a material impact on our consolidated financial statements.

 

Our international operations expose us to economic, political and other risks, as well as uncertainty related to U.S. Government funding, which could adversely affect our revenue and earnings.

 

For the year ended December 31, 2015, we derived approximately $226.3 million of revenue from our work on projects located outside of the United States. Our international operations expose us to risks inherent in doing business in certain hostile regions outside the United States, including: political risks; risks of loss due to acts of war; unstable economic, financial and market conditions; potential incompatibility with foreign subcontractors and vendors; foreign currency controls and fluctuations; trade restrictions; logistical challenges; variations in taxes; and changes in labor conditions, labor strikes and difficulties in staffing and managing international operations. Failure to successfully manage risks associated with our international operations could result in higher operating costs than anticipated or could delay or limit our ability to generate revenue and income from construction operations in key international markets.

 

The U.S. federal government has approved various spending bills for the construction of defense- and diplomacy-related projects and has allocated significant funds to the defense of U.S. interests around the world from the threat of terrorism. The federal government has also approved funds for development in conjunction with the relocation of military personnel into Guam. However, federal government funding levels for construction projects in the Middle East have decreased significantly over the past few years as the U.S. government has reduced the number of military troops and support personnel in the region. As a result, we have seen a decrease in the number and size of federal government projects available to us in this region. Any decrease in U.S. federal government funding for projects in Guam or in other U.S. Territories or countries in which we are pursuing work may result in project delays or cancellations, which could reduce our revenue and earnings.

 

Conflicts of interest may arise involving certain of our directors.

 

As of December 31, 2015, our chairman and chief executive officer, Ronald N. Tutor and three trusts controlled by Mr. Tutor (the “Tutor Group”) owned approximately 18% of the outstanding shares of our common stock. Under the terms of Mr. Tutor’s employment agreement, he has the right to designate one nominee for election as a member of the Company’s Board of Directors so long as the Tutor Group owns at least 11.25% of the outstanding shares of the Company’s common stock. As of the date of this Form 10-K, there are 11 current directors, one of whom was appointed by Mr. Tutor in November 2013. Mr. Tutor will be able to exert significant influence over the outcome of a range of corporate matters, including significant corporate transactions requiring a shareholder vote, such as a merger or a sale of the Company or its assets. This concentration of ownership and influence in management and Board decision-making also could harm the price of our common stock by, among other things, discouraging a potential acquirer from seeking to acquire shares of our common stock or otherwise attempting to obtain control of the Company.

  

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

  

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ITEM 2. PROPERTIES

 

We have office facilities and equipment yards in the following locations, which we believe are suitable and adequate for our current needs:

 

 

 

 

 

 

  

 

ITEM 3. LEGAL PROCEEDINGS

 

Legal Proceedings are set forth in Note 7 of the Notes to Consolidated Financial Statements and are incorporated herein by reference.

  

ITEM 4. MINE SAFETY DISCLOSURES

 

We do not own or operate any mines; however, we may be considered a  mine operator under the Federal Mine Safety and Health Act of 1977 because we provide construction-related services for customers in the mining industry.  Accordingly, we provide information concerning mine safety violations and other mining regulation matters in Exhibit 95 to this Form 10-K. For the year ended December 31, 2015, revenue from mine construction services was $28.3 million.

  

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PART II.

 

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Our common stock is traded on the New York Stock Exchange under the symbol “TPC”. The quarterly market high and low sales prices for our common stock in 2015 and 2014 were as follows:

 

 

 

Holders

 

At February 23, 2016, there were 465 holders of record of our common stock, including holders of record on behalf of an indeterminate number of beneficial owners.

 

Dividends and Issuer Purchases of Equity Securities

 

Our current debt agreements restrict us from paying dividends or repurchasing stock. Therefore, we did not pay dividends or repurchase stock during the year ended December 31, 2015, nor do we have any immediate plans to do so.

 

Issuance of Unregistered Securities

 

None.

 

Performance Graph

 

The performance graph required by this Item 5 is hereby incorporated by reference from our definitive proxy statement to be filed within 120 days after the end of fiscal year 2015.

  

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ITEM 6. SELECTED FINANCIAL DATA

 

Selected Consolidated Financial Information

 

The following selected financial data should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 15. Exhibits and Financial Statement Schedules in this Annual Report. The following table presents selected financial data for the last five years. This selected financial data should be read in conjunction with the consolidated financial statements and related notes included in Item 15. Exhibits and Financial Statement Schedules.

 

 

 

 

 

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The Company's results for the year ended December 31, 2014 included a positive impact related to changes in the estimated recoveries for two Civil segment projects and a Building segment hospitality and gaming project, resulting in a $0.33 increase in diluted EPS.

 

The Company's diluted EPS during the years ended December 31, 2013 and 2012 were positively impacted by $0.18 and $0.16, respectively, because of changes in the estimated recovery for the same hospitality and gaming project.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included in Item 15. Exhibits and Financial Statement Schedules in this Annual Report. This discussion contains forward-looking statements, which involve risks and uncertainties. For cautions about relying on such forward-looking statements, please refer to the section entitled “Forward-Looking Statements” at the beginning of this Annual Report immediately prior to Item 1. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors, including but not limited to those discussed in Item 1A. Risk Factors and elsewhere in this Annual Report.

 

Executive Overview

 

Consolidated revenue for 2015 was $4.9 billion compared to $4.5 billion for 2014. This improvement was driven by increased volume in our Building and Civil segments, with various building projects in California and two large mass-transit projects in New York being the largest contributors.

 

Consolidated revenue for 2014 was $4.5 billion compared to $4.2 billion for 2013. This increase was primarily due to higher project execution activities in our Civil and Specialty Contractors segments, including civil projects at Hudson Yards in New York, mass-transit projects in California and New York, bridge projects in the Midwest and New York and specialty contracting projects on the East Coast. The increase was partially offset by decreased activity on hospitality and gaming projects in various states, health care projects in California, and tunnel projects on the West Coast.

 

Income from construction operations for 2015 was $105.4 million compared to $241.7 million for 2014. The decrease was primarily due to significant project charges recorded for various Five Star Electric projects in New York in the Specialty Contractors segment, decreased activity on certain higher-margin civil projects, unfavorable adjustments related to the estimate of costs to complete an office building project in New York and the adverse Brightwater litigation-related charge for a legacy civil project (see the Brightwater Matter in Note 7 of the Notes to Consolidated Financial Statements).

 

Income from construction operations for 2014 was $241.7 million compared to $203.8 million for 2013. This increase was primarily due to the volume increase that year as discussed above and net favorable adjustments to anticipated recoveries associated with two legal rulings issued in 2014.

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The effective tax rate was 38.7%,  42.4% and 37.5% for 2015,  2014 and 2013, respectively. The 2015 rate was favorably impacted by the resolution of certain state tax matters. The 2014 rate was unfavorably impacted by increased activity in higher state tax jurisdictions and higher non‑deductible compensation expense. The 2013 rate was favorably impacted by certain discrete items mainly related to favorable federal and state tax audit settlements.

 

Earnings per diluted share was $0.91,  $2.20 and $1.80 in 2015,  2014 and 2013, respectively. The primary reasons for the earnings decline in 2015 were the various above-mentioned factors that impacted income from construction operations. The earnings improvement in 2014 compared to 2013 was primarily due to the 2014 consolidated revenue increases discussed above, certain higher-margin civil projects, net favorable adjustments associated with two legal rulings, and favorable adjustments for a large hospitality and gaming building project.

 

Consolidated new awards in 2015 were $4.6 billion compared to $5.4 billion in 2014 and $5.5 billion in 2013. The Building segment was the major contributor of new awards during 2015. New awards in 2014 were generally balanced across all three segments, with the Building segment contributing a modestly higher volume. The Civil segment was the dominant contributor of new awards during 2013.

 

Consolidated backlog was $7.5 billion, $7.8 billion and $7.0 billion as of December 31, 2015,  2014 and 2013, respectively. The strong backlog at the end of 2015 was primarily due to significant new awards in the Building segment, partially offset by the work off of backlog outpacing new awards in the Civil and Specialty Contractors segments. As of December 31, 2015, the mix of backlog by segment was approximately 37%,  37% and 26% for the Civil, Building and Specialty Contractors segments, respectively. The increased backlog at the end of 2014 was the result of significant new awards that outpaced revenue across all segments.

 

Projects in the Civil segment’s backlog typically convert to revenue over a period of three to five years, whereas projects for the Building and Specialty Contractors segments typically convert to revenue over a period of one to three years. We estimate that approximately $4.4 billion, or 59% of our backlog as of December 31, 2015 will be recognized as revenue in 2016.

 

 

 

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In addition to our existing backlog, as of December 31, 2015, we had approximately $3.6 billion of pending contract awards, including up to $1.5 billion in total construction value to be managed for various future phases of the Hudson Yards project, $663 million for a large mass-transit project in New York (that was subsequently awarded in January 2016), approximately $845 million for seven building projects in California and approximately $300 million for two building projects in Florida (one of which was also subsequently awarded in January 2016). We expect to be awarded many of these projects in 2016.

 

The outlook is favorable for our Company’s growth over the next several years. In addition to our large volume of backlog and pending awards, we expect significant new award activity based on long-term capital spending plans by various state, local and federal customers, favorable budget trends and typically bipartisan support for infrastructure investments. For example, the recently enacted $305-billion Fixing America’s Surface Transportation (FAST) Act, the first long-term transportation funding bill in the past 10 years, is expected to provide state and local agencies with federal funding for numerous highway, bridge and mass-transit projects for 2016 through 2020. In addition, several very large, long-duration civil infrastructure programs with which we are already involved are progressing, such as California’s High-Speed Rail system and the New York Metropolitan Transportation Authority’s East Side Access project. Planning and early projects are also underway related to Amtrak’s Northeast Corridor Improvements, including the Gateway Program, which will eventually bring new rail tunnels beneath the Hudson River to connect service between New Jersey and New York’s Penn Station. Finally, sustained low interest rates and capital costs are expected to drive high demand and continued spending by private and public customers on building infrastructure projects.

 

For a more detailed discussion of operating performance of each business segment, corporate general and administrative expense and other items, see “Results of Segment Operations” and “Corporate, Tax and Other Matters” below.

   

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Non-GAAP Measures

 

Our consolidated financial statements are presented based on GAAP. We sometimes use non-GAAP measures of income from operations, net income, EPS and other measures that we believe are appropriate to enhance an overall understanding of our historical financial performance and future prospects. We are providing the below non-GAAP measures to disclose additional information to facilitate the comparison of past and present operations, as they are among the indicators that management uses as a basis for evaluating the Company’s financial performance, as well as for forecasting future periods. As such, management believes that these non-GAAP measures can be useful in measuring operating performance and should 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 U. S. GAAP, and they should be considered in addition to, and not in lieu of, our GAAP results. The non-GAAP measures that we provide may not be comparable to other similarly titled measures of other companies.

 

The following table presents a reconciliation of reported income from construction operations under GAAP to adjusted income from construction operations for the year ended December 31, 2015.

 

 

 

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The following table presents a reconciliation of reported net income and reported diluted EPS under GAAP to adjusted net income and adjusted diluted EPS for the year ended December 31, 2015.

 

 

 

There were no non-GAAP adjustments for the years ended December 31, 2014 and 2013.

  

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Results of Segment Operations

 

The Company provides professional services to private and public customers in the fields of construction and construction management, including specialty construction services involving electrical, mechanical, heating, ventilation and air conditioning (HVAC), plumbing and pneumatically placed concrete primarily in the United States and its territories and in certain other international locations. The Company’s three principal business segments are: Civil, Building and Specialty Contractors. For more information on these business segments, see “Item 1. – Business” above.

 

Civil Segment

 

Revenue and income from construction operations for the Civil segment are summarized as follows:

 

 

 

Revenue for 2015 increased 12% compared to 2014, principally due to progress on many projects in the New York area, including the CM006 and CS179 mass-transit projects, and increased activity on various bridge projects in the Midwest. This increase was partially offset by decreased activity on certain tunnel projects on the West Coast. Revenue for 2014 increased 17% compared to 2013, primarily driven by increased activity on the Amtrak tunnel and the platform projects at Hudson Yards in New York, various mass-transit projects in California and New York, various bridge projects in the Midwest and New York, and a runway reconstruction project in New York. This increase was partially offset by decreased activity on certain tunnel projects on the West Coast, certain highway projects on the East Coast and an airport parking apron project in Guam.

 

Income from construction operations declined 34% in 2015 compared to 2014, primarily due to reduced activity on certain higher-margin projects, the aforementioned Brightwater litigation-related charge of $23.9 million, decreased activity on certain tunnel projects on the West Coast, as well as net favorable adjustments in 2014 of $16.5 million to anticipated recoveries associated with two legal rulings. This decline was partially offset by increased activity, as well as favorable adjustments totaling $13.7 million on a runway reconstruction project in New York. Income from construction operations increased 24% in 2014 compared to 2013. The increase was primarily due to the revenue increase discussed above for 2014 and the net favorable adjustments in 2014 mentioned above to anticipated recoveries associated with two legal rulings. This increase was partially offset by reduced activity on certain higher-margin projects.

 

Operating margin was 7.7% in 2015, compared to 13.1% in 2014 and 12.3% in 2013. The margin decline in 2015 and margin increase in 2014 were due to the reasons discussed above regarding changes in revenue and income from construction operations. Excluding the Brightwater litigation-related charge and favorable adjustments for the runway project in New York, operating margin in 2015 was 8.2%. Excluding the net favorable adjustments mentioned above, operating margin was 12.2% in 2014. The higher operating margins in the 12% range in 2013 and 2014 were primarily driven by significant work performed on certain higher-margin projects.

 

New awards in the Civil segment totaled $1.1 billion in 2015,  $1.7 billion in 2014 and $3.0 billion in 2013. New awards in 2015 included a mass-transit project in New York valued at $80 million, highway projects in Delaware, Maryland and Pennsylvania valued at $70 million, $60 million and $58 million, respectively, and a tunnel extension project in New York worth $56 million. New awards in 2014 included two mass-transit projects in New York collectively valued at $844 million, a runway reconstruction project in New York valued at $243 million and three bridge projects in Wisconsin and Minnesota collectively valued at $181 million. New awards in 2013 included a mass-transit project valued at $840 million and our $511 million share of a joint-venture mass-transit project, both in California, a concrete and steel platform project in New York worth $510 million, our approximately $200 million share of a joint-venture bridge project between Minnesota and Wisconsin, two Wisconsin highway projects collectively valued at $191 million, and a $133 million tunnel project and $102 million bridge project, both in New York.

 

Backlog for the Civil segment was $2.7 billion as of December 31, 2015, compared to $3.6 billion as of December 31, 2014 and $3.5 billion as of December 31, 2013. Civil segment backlog is expected to grow in early 2016, primarily the result of a new award in January 2016 for a $663 million mass-transit project in New York. The segment continues to experience strong demand reflected in a large pipeline of prospective projects and supported by favorable budget trends, agencies’ long-term spending plans and the recently enacted, five-year, $305-billion FAST Act. In particular, there are a number of large prospective civil projects expected to be bid beginning in the middle of 2016, with subsequent awards anticipated in the second half of the year or early 2017. The Civil segment is well positioned to capture its share of these prospective projects. However, the segment faces continued strong competition from various other firms, including occasional aggressive bids from foreign competitors.

 

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Building Segment

 

Revenue and income from construction operations for the Building segment are summarized as follows:

 

 

 

 

Revenue for 2015 increased 20% compared to 2014, primarily driven by increased activity on various commercial office, technology, government, education and retail building projects in California. Revenue for 2014 decreased 3% compared to 2013, principally driven by decreased activity on hospitality and gaming projects in California, Arizona, Nevada, Louisiana, and Pennsylvania, health care projects in California, and a containerized housing project in Iraq. This decrease was partially offset by increased activity on certain mixed-use facility projects in New York (including Hudson Yards), California, and Louisiana, and an industrial project in California.

 

Income from construction operations declined 105% in 2015 compared to 2014, primarily due to unfavorable adjustments totaling $24.3 million to the estimated cost to complete an office building project in New York and favorable adjustments in 2014 totaling $11.4 million for a large hospitality and gaming project. Income from construction operations was stable in 2014 compared to 2013. There were also favorable adjustments in 2013 totaling $13.8 million for the same large hospitality and gaming project.

 

Operating margin was -0.1% in 2015, compared to 1.6% in 2014 and 1.6% in 2013. The margin decline in 2015 was principally due to the factors discussed above that caused the significant decline in income from construction operations. Excluding the impact of the above-mentioned unfavorable adjustments for the office building project, operating margin in 2015 was 1.3%. The higher operating margins in 2014 and 2013 were primarily driven by relatively stable revenue in both years, as well as the favorable adjustments mentioned above in both years. Excluding these favorable adjustments, operating margins in 2014 and 2013 were 0.9% and 0.7%, respectively.

 

New awards in the Building segment totaled $2.4 billion in 2015, $1.9 billion in 2014 and $1.2 billion in 2013. New awards in 2015 included a technology research and development office facility project valued at $800 million and $230 million of incremental funding for a biotechnology facility project, both in California, and a hospitality building project in Pennsylvania worth $239 million. New awards in 2014 included a multi-unit residential tower project in Florida worth $255 million, two hospitality and gaming projects in Mississippi and California collectively valued at $225 million and a health care facility project in California valued at $211 million. New awards in 2013 included a concrete package for an office tower valued at $143 million and a bus station redevelopment project worth $100 million, both in New York.

 

Backlog for the Building segment was $2.8 billion as of December 31, 2015, compared to $2.2 billion as of December 31, 2014 and $1.8 billion as of December 31, 2013. The strong backlog growth in 2015 was due to the large volume of new awards, especially for projects in California. The Building segment has a large volume of pending awards for projects in California and Florida, as well as a large pipeline of prospective projects. Strong demand is expected due to continued customer spending supported by sustained low interest rates. The Building segment is well positioned to capture its share of prospective projects based on strong customer relationships and a long-term reputation for excellence in delivering high-quality projects on time and within budget. The Company expects the Building segment to experience strong revenue growth and return to profitability in 2016. The increased backlog in 2014 was due to a large volume of new awards primarily in California and Florida.

 

Specialty Contractors Segment

 

Revenue and income from construction operations for the Specialty Contractors segment are summarized as follows:

 

 

 

 

Revenue for 2015 decreased 6% compared to 2014, primarily due to decreased activity on various smaller electrical projects in the southern United States that have been impacted by the low price of oil, electrical projects at the World Trade Center and mechanic projects at the United Nations in New York. This decrease was partially offset by increased activity on various electrical projects at Hudson Yards, two large mass-transit projects and various other electrical, mechanical and concrete placement projects, all in New York. Revenue for 2014 increased 10% compared to 2013, principally driven by increased activity on various mechanical projects on the East Coast, two signal system modernization projects in New York, and various electrical projects in the southern United States. This increase was partially offset by Hurricane Sandy-related projects performed.

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Income from construction operations declined 69% in 2015 compared to 2014, primarily due to unfavorable adjustments totaling $45.6 million on various Five Star Electric projects in New York, none of which were individually material. Nearly all of these projects are complete or nearing completion. Income from construction operations increased 4% in 2014 compared to 2013. This increase was principally the result of the 2014 revenue growth discussed above and improved financial performance in two business units. This increase was partially offset by a favorable settlement in 2013 related to a large hospitality and gaming electrical subcontract.

 

Operating margin was 1.3% in 2015, compared to 3.9% in 2014 and 4.1% in 2013. The margin decline in 2015 was principally due to the unfavorable adjustments on various Five Star Electric projects. Excluding the impact of these adjustments, operating margin in 2015 was 4.8%.

 

New awards in the Specialty Contractors segment totaled $1.1 billion in 2015,  $1.7 billion in 2014 and $1.3 billion in 2013. New awards in 2015 included an electrical subcontract valued at $90 million for a mass-transit project in New York and an electrical subcontract valued at $73 million for a Hudson Yards office tower in New York. New awards in 2014 included a $321 million electrical subcontract for a mass-transit project in New York and two contracts totaling $175 million for electrical work on other mass-transit projects in New York and California. New awards in 2013 included two electrical contracts for an office tower and the platform at Hudson Yards, collectively valued at $82 million.

 

Backlog for the Specialty Contractors segment was $1.9 billion as of December 31, 2015, compared to $2.1 billion as of December 31, 2014 and $1.7 billion as of December 31, 2013. The Specialty Contractors segment has a significant pipeline of prospective projects, with demand for its services supported by strong continued spending on civil and building projects. The Specialty Contractors segment is well positioned to capture its share of prospective projects based on the size and scale of our business units that operate in New York, Texas, Florida and California and the strong reputation held by these business units for high-quality work on larger, complex projects. The increased backlog in 2014 was due to a large volume of new awards, particularly for mass-transit projects in New York.

 

Corporate, Tax and Other Matters

 

Corporate General and Administrative Expense

 

Corporate general and administrative expenses was $54.2 million in 2015,  $54.6 million in 2014 and $47.4 million in 2013. In 2015, there was lower performance-based incentive compensation expense compared to 2014, but it was offset by increased depreciation expense. The lower corporate general and administrative expense in 2013 compared to 2014 was primarily due to lower performance-based incentive compensation expense.

 

Other Income (Expense), Interest Expense and Provision for Income Taxes

 

 

 

Other income (expense), net, improved by $22.0 million in 2015 compared to 2014, and by $9.1 million in 2014 compared to 2013. The improvement in both years was primarily due to decreases in contingent earn-out liabilities related to past business acquisitions.

 

The effective income tax rate was 38.7% for the year ended December 31, 2015 compared to 42.4% for 2014.  The largest contributor to the decreased tax rate in 2015 was the resolution of certain state tax matters. The effective income tax rate was 42.4% for the year ended December 31, 2014 compared to 37.5% for 2013. The largest contributor to the higher tax rate in 2014 was increased net income and increased activity in higher state tax jurisdictions. Higher non‑deductible compensation expense also contributed to this increase.

  

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Liquidity and Financial Condition

 

Liquidity is provided by available cash and cash equivalents, cash generated from operations, credit facilities and access to capital markets. We have a committed line of credit totaling $300 million, which may be used for revolving loans, letters of credit and/or general purposes. We believe that for at least the next 12 months, cash generated from operations, along with our unused credit capacity of $141.8 million and cash position, is sufficient to support operating requirements. 

 

Cash and Working Capital

 

Cash and cash equivalents were $75.5 million as of December 31, 2015 compared to $135.6 million as of December 31, 2014, with balances including cash held by us and available for general corporate purposes of $18.4 million and $40.8 million, respectively, and our proportionate share of cash held by joint ventures, available only for joint venture-related uses including distributions to joint venture partners, of $57.0 million and $94.7 million, respectively. In addition, our restricted cash, held primarily to secure insurance-related contingent obligations, was $45.9 million and $44.4 million, as of December 31, 2015 and 2014, respectively.

 

During the year ended December 31, 2015, we generated $14.1 million in cash from operating activities. This was primarily due to final payments related to a settlement of a dispute for the CityCenter project in Las Vegas and on a settlement related to another completed building project. During the year, we also funded significant working capital associated with claims and unapproved change orders which was partially offset by an increase in accounts payable. We are focused on increasing our available cash and improving our liquidity by resolving various claims and unapproved change orders, as well as billing and collecting other amounts in cost and estimated earnings in excess of billings. We utilized $32.4 million in cash from investing activities due mainly to the purchase of construction equipment. We used $41.8 million in cash from financing activities, due primarily to borrowings under our revolving facility offset by cash used for scheduled debt repayments.

 

During 2014, we used $56.7 million in cash from operating activities due primarily to the timing of collections in the Specialty and Building segments and cash payments for interest on our outstanding debt and income taxes. We used $27.0 million in cash from investing activities due primarily to the purchase of construction equipment of $75.0 million offset by the proceeds from the sale of our auction rate securities of $44.5 million, and proceeds from the sale of construction equipment of $5.3 million. We received $99.3 million in cash from financing activities, due primarily to borrowings under our revolving facility offset by cash used for scheduled debt repayments and business acquisition related payments.

 

During 2013, we generated $50.7 million in cash from operating activities, due primarily to earnings sources and payments received related to the CityCenter matter, offset by cash paid for interest and taxes and payments related to the Brightwater matter. We used $43.6 million in cash from investing activities, due primarily to the purchase of construction equipment of $42.4 million. We used $55.2 million in cash from financing activities, due primarily to net debt repayments of $23.5 million and business acquisition related payments of $31.0 million.

 

As of December 31, 2015, we had working capital of $1.2 billion, a ratio of current assets to current liabilities of 1.79 and a ratio of debt to equity of 0.58 compared to working capital of $1.1 billion, and a ratio of current assets to current liabilities of 1.82 and a ratio of debt to equity of 0.63 at December 31, 2014.

 

Debt

 

Senior Notes

 

In October 2010, we issued $300 million of 7.625% senior unsecured notes (the “Senior Notes”) due November 1, 2018 and received proceeds of $293 million, net of debt discounts and issuance costs. Interest on the Senior Notes is payable semi-annually on May 1 and November 1 of each year. We may redeem the Senior Notes at a redemption price equal to 101.9 percent of their principal amount prior to October 31, 2016 and subsequently without a redemption premium. However, if a change of control triggering event occurs, as defined by the terms of the indenture, we are required to offer to redeem the notes at a redemption price equal to 101 percent of their principal amount. At the date of any redemption, any accrued and unpaid interest is also due. In addition, the indenture for the Senior Notes provides for customary events of default such as restrictions on the payment of dividends and share repurchases.

 

Credit Agreement – Revolving Credit Facility and Term Loan

 

In June 2014, the Company entered into a Sixth Amended and Restated Credit Agreement (the “Original Facility”), restructuring its former $300 million Revolving Credit Facility and $200 million Term Loan, and providing for a $300 million revolving credit facility and a $250 million term loan (the “Original Term Loan”), both originally maturing on June 5, 2019. The obligations under the Original Facility are secured by a lien on substantially all real and personal property of the Company and its subsidiaries party thereto. See Note 5 of the Notes to Consolidated Financial Statements for a more detailed discussion of the terms of the Original Facility.

 

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Amended Credit Agreement

 

As a result of the Company’s financial results for the fiscal year ended December 31, 2015, which included the previously reported $23.9 million non-cash, pre-tax charge from an adverse ruling on the Brightwater litigation matter in the third quarter as well as $45.6 million of pre-tax charges in the third and fourth quarters for Five Star Electric, the Company was not in compliance with the required consolidated leverage ratio and consolidated fixed charge coverage ratio under the Original Facility, which are both calculated on a rolling four quarter basis.

 

The table below presents our actual and required consolidated fixed charge coverage ratio and consolidated leverage ratio under the Original Facility for the December 31, 2015 quarter:

 

 

 

On February 26, 2016, we entered into Waiver and Amendment No. 1 (the “Amendment”) to the Original Facility (collectively, the “Credit Facility”) with Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer and a syndicate of other lenders. In the Amendment, the lenders waived these covenant violations and modified certain provisions of the Original Facility. As a result of the Amendment, both the Revolver and the Term Loan will now mature on May 1, 2018. The Term Loan principal payments have also been modified to include certain additional principal payments which will be applied against the balloon payment. Borrowings under the Credit Facility bear interest, based either on Bank of America’s prime lending rate, plus an applicable margin, or the London Interbank Offered Rate (“LIBOR”), plus an applicable margin. Under the terms of the Amendment, for so long as the Company’s consolidated leverage ratio is greater than 3.5:1.0, it will not be permitted to make LIBOR-based borrowings under the Revolver and will be subject to an increased interest rate on borrowings. The interest rate will be 100 to 200 basis points higher than the highest pricing tier under the Original Facility depending on the Company’s consolidated leverage ratio. The Company also will be subject to increased commitment fees at these higher leverage ratio levels. The Amendment removes the accordion feature of the Original Facility, which would have allowed for additional borrowings of up to $300 million.

 

The Amendment also modifies several of the covenants in the Original Facility, including the Company’s maximum allowable consolidated leverage ratio to be at 4.25:1.00 in the first quarter of 2016, stepping down to 4.00:1.00 in the second and third quarters of 2016 and then returning to the Original Facility’s range of 3.25:1.00 to 3.00:1.00 beginning with the fourth quarter of 2016. The Credit Facility will continue to require the Company to maintain a minimum consolidated fixed charge coverage ratio of 1.25:1.00. Other usual and customary covenants for credit facilities of this type (such as, restrictions on the payment of dividends and share repurchases) were carried over from the Original Facility (subject to certain modifications made in the Amendment).The Amendment adds covenants regarding the Company’s liquidity, including a cap on the cash balance in the Company’s bank account and a weekly minimum liquidity requirement (based on specified available cash balances and availability under the Revolver). The Amendment also requires the Company to achieve certain quarterly cash collection milestones and increases the lenders’ collateral package.

 

Please refer to Note 5 of the Notes to Consolidated Financial Statements for a more detailed discussion for the terms of the Amendment.

 

The Term Loan balance was $223.8 million at December 31, 2015. The next quarterly Term Loan payment under the Credit Facility is due and payable in March of 2016.

 

We had $158.0 million of outstanding borrowings under our Revolver as of December 31, 2015 and $130.0 million of outstanding borrowings under our Revolver as of December 31, 2014. We utilized the Revolver for letters of credit in the amount of $0.2 million as of December 31, 2015 and $1.0 million under the Revolver as of December 31, 2014. Accordingly, as of December 31, 2015, we had $141.8 million available to borrow under the Revolver

 

There were no other material changes in our contractual debt obligations as of December 31, 2015. As of the filing date of this Form 10-K and giving effect to the Amendment, we are in compliance and expect to continue to be in compliance with the modified financial covenants under the Credit Facility.

 

Equipment financing and mortgages

 

We have certain loans entered into for the purchase of specific property, plant and equipment and secured by the assets purchased. The aggregate balance of equipment financing loans was approximately $70.6 million and $102.0 million at December 31, 2015 and 2014, respectively, with interest rates ranging from 2.12% to 4.85% and scheduled payments of principal and interest over periods up to five years. The aggregate balance of transportation equipment financing loans was approximately $45.0 million and $40.6 million at December 31, 2015 and 2014, respectively, with interest rates ranging from a fixed 3.35% to the London Interbank Offered Rate

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(“LIBOR”) plus 3% and equal monthly installment payments over periods up to ten years and final balloon payments of $12.4 million in 2021 and $6.2 million in 2022 on the remaining loans outstanding at December 31, 2015. The aggregate balance of mortgage loans was approximately $17.7 million and $18.9 million at December 31, 2015 and 2014, respectively, with interest rates based on LIBOR plus applicable margins up to 3% or prime less 1.0%, depending on the loan, and equal monthly installment payments of periods up to ten years with additional balloon payments of $5.6 million in 2016, $2.6 million in 2018 and $6.7 million in 2023.

 

During 2011, we issued approximately $21.7 million of 5% promissory notes in conjunction with an acquisition. We paid all outstanding principal and accrued interest on these notes in 2015.

 

Off-Balance Sheet Arrangements

 

None

 

Contractual Obligations

 

Our outstanding contractual obligations as of December 31, 2015 are summarized in the following table:

 

 

 

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Critical Accounting Policies

 

Our discussion and analysis of our financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with GAAP. Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements. The preparation of the Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Estimates are based on information available through the date of the issuance of the financial statements;  accordingly, actual results in future periods could differ from these estimates. Significant judgments and estimates used in the preparation of the Consolidated Financial Statements apply to the following critical accounting policies:

 

Method of Accounting for Contracts —  Contract revenue is recognized on the percentage-of-completion method based on contract cost incurred to date compared to total estimated contract cost. The estimates used in the percentage-of-completion method during the contract performance period require judgment and assumptions regarding both future events and the evaluation of contingencies such as the impact of change orders, liability claims, other contract disputes, the achievement of contractual performance standards, and potential variances in project schedule and costs. Changes to the total estimated contract cost for a given project are recognized in the period in which they are determined.

 

In certain instances, we provide guaranteed completion dates and/or achievement of other performance criteria. Failure to meet schedule or performance guarantees could result in unrealized incentive fees or liquidated damages. In addition, depending on the type of contract, increases in contract cost related to the remediation of deficiencies can result in non-recoverable cost, which could exceed revenue realized from the projects. The Company generally provides limited warranties for work performed, with warranty periods typically extending for a limited duration following substantial completion of the Company’s work on a project. Historically, warranty claims have not resulted in material costs incurred.

 

Claims arising from construction contracts have been made against the Company by customers, and the Company has made claims against customers for cost incurred in excess of current contract provisions. The Company recognizes revenue, but not profit, for certain significant claims when it is determined that recovery of incurred cost is probable and the amounts can be reliably estimated. These requirements are satisfied under GAAP’s Accounting Standards Codification (“ASC”) 605-35-25 when the contract or other evidence provides a legal basis for the claim, additional costs were caused by circumstances that were unforeseen at the contract date

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and not the result of deficiencies in the Company’s performance, claim-related costs are identifiable and considered reasonable in view of the work performed, and evidence supporting the claim is objective and verifiable.

 

Recoverability of Goodwill — As of December 31, 2015, our goodwill balance was $585.0 million. Goodwill is not amortized to earnings, but instead is reviewed for impairment at a reporting unit level annually, or more often if there are indicators between the annual review dates that signal that impairment is probable. The Civil, Building and Specialty Contractors segments each represent a reporting unit. We perform our annual quantitative impairment assessment during the fourth quarter of each year using an income approach (discounted cash flow method) and a market approach. The income approach is based on assumptions about future events including the positive impact of the FAST Act, the strength and growth of the U.S. economy and the overall backlog of domestic projects. Accordingly, the fair value of the reporting units could be negatively impacted by competition seeking to benefit from the increased growth in construction in the United States and/or delays in the bidding or awarding of contracts caused by issues related to economic, political or other bureaucratic factors. In addition, the fair values of the reporting units could be positively impacted by an expedited award cycle driven by the need to address critical domestic infrastructure issues and/or an improvement in the U.S. economy that exceeds current expectations. The market approach is based on assumptions about how market data relates to the Company. Future deviations from our assumptions or the use of different assumptions could have a material impact on our valuations. Lastly, we assess the reasonableness of the estimated fair value of our reporting units by comparing the estimated implied control premium for our Company to observable market information. The quantitative assessment performed in 2015 resulted in an estimated fair value for each of our reporting units that exceeded their respective net book values; therefore, no impairment charge was necessary for 2015.  A summary of key information and assumptions related to our 2015 quantitative impairment assessment is as follows:

 

 

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New Accounting Pronouncements —  For discussion of recently adopted accounting standards and updates, see Note 1 of the Notes to Consolidated Financial Statements.

  

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Interest rate risk is our primary market risk exposure. Borrowing under our Credit Agreement and certain other debt obligations have variable interest rates and are therefore subject to interest rate risk. As of December 31, 2015, we had approximately $374.7 million of net borrowings with variable interest rates, after excluding borrowings with effective fixed interest rates due to an interest rate swap agreement. If short-term floating interest rates were to increase by 0.50%, interest on these borrowings would increase by approximately $1.9 million.

  

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The Report of Independent Registered Public Accounting Firm, Consolidated Financial Statements and Supplementary Schedules are set forth in Item 15 in this Annual Report on Form 10-K and are incorporated herein by reference.

  

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

  

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures — An evaluation, of the effectiveness of the design and operation of our disclosure controls and procedures as defined by Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of December 31, 2015 was made under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2015, our disclosure controls and procedures were effective, in that they provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act were recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures are designed to ensure that information we are required to disclose in such reports is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

 

Management’s Report on Internal Control over Financial Reporting — Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining an adequate system of internal control over financial reporting as such term is defined in Exchange Act Rules 13a—15(f). In designing and evaluating our system of internal control over financial reporting, we recognize that inherent limitations exist in any control system no matter how well designed and operated, and we can only provide reasonable, not absolute, assurance of achieving the desired control objectives. In making this assessment, management utilized the criteria issued in Internal Control — Integrated Framework (2013) by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission.  Based on this assessment, management concluded that, as of December 31, 2015, our internal control over financial reporting was effective based on those criteria.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.

 

Deloitte & Touche LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on the Company’s internal control over financial reporting as of December 31, 2015. This report appears on page 29 of this Form 10-K.

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

Tutor Perini Corporation

Sylmar, California

 

We have audited the internal control over financial reporting of Tutor Perini Corporation and subsidiaries (the "Company") as of December 31, 2015, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

 

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2015 of the Company and our report dated February 29, 2016 expressed an unqualified opinion on those financial statements.

 

/s/ Deloitte & Touche LLP

 

Los Angeles, California

 

February 29, 2016

 

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Changes in Internal Control over Financial Reporting — There were no changes in our internal control over financial reporting for the fiscal quarter ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

Amended Credit Agreement

 

We are party to the Sixth Amended and Restated Credit Facility (the “Original Facility”) providing a $300 million revolving credit facility and a $250 million term loan (the “Term Loan”) with Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer and a syndicate of other lenders. On February 26, 2016, we entered into Waiver and Amendment No. 1 to the Original Facility (the “Amendment” together with the Original Agreement, the “Credit Facility”), providing the Company with certain waivers and amending certain material terms of the Original Facility, including increasing the applicable margin for determining the interest rate that the Company pays on borrowings under the Credit Facility, reducing the term of the Credit Facility by one year to May 1, 2018, modifying certain covenants and other provisions, including the consolidated leverage ratio covenant, and adding certain other provisions, including certain liquidity requirements, and adjusting principal amortization on the Term Loan. The Amendment also requires the Company to achieve certain quarterly cash collection milestones and increases the lenders’ collateral package. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and Note 5 of the Notes to Consolidated Financial Statements for a more detailed discussion for the terms of the Amendment. 

 

The foregoing description of the Amendment does not constitute a complete summary and is qualified by reference in its entirety to the full text of the Amendment, a copy which is filed herewith as Exhibit 10.14.

  

PART III.

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The information required by this Item 10 is hereby incorporated by reference from our definitive proxy statement to be filed within 120 days after the end of fiscal year 2015.

  

ITEM 11. EXECUTIVE COMPENSATION

 

The information required by this Item 11 is hereby incorporated by reference from our definitive proxy statement to be filed within 120 days after the end of fiscal year 2015.

  

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The information required by this Item 12 is hereby incorporated by reference from our definitive proxy statement to be filed within 120 days after the end of fiscal year 2015.

  

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

The information required by this Item 13 is hereby incorporated by reference from our definitive proxy statement to be filed within 120 days after the end of fiscal year 2015.

  

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The information required by this Item 14 is hereby incorporated by reference from our definitive proxy statement to be filed within 120 days after the end of fiscal year 2015.  

  

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PART IV.

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

 

 

Our consolidated financial statements as of December 31, 2015 and 2014 and for each of the three years in the period ended December 31, 2015 and the notes thereto, together with the report of the independent registered public accounting firm on those consolidated financial statements are hereby filed as part of this Annual Report on Form 10-K, beginning on page F-1.

 

 

All consolidated financial statement schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in the Consolidated Financial Statements and in the Notes thereto.

 

 

 

EXHIBIT INDEX

 

The following designated exhibits are, as indicated below, either filed herewith or have heretofore been filed with the SEC under the Securities Act of 1933 or the Securities Act of 1934 and are referred to and incorporated herein by reference to such filings.

 

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*Management contract or compensatory arrangement required to be filed as an exhibit pursuant to Item 15(a)(3) of Form 10-K

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.