Tutor Perini Corp (TPC) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Tutor Perini Corporation fourth-quarter and fiscal year 2015 earnings conference call. My name is Shea and I will be your coordinator for today. (Operator Instructions)

As a reminder, this conference is being recorded for replay purposes.

I will now turn the conference over to your host for today, Mr. Jorge Casado, Vice President of Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for your participation. Joining us on the call today are Ronald Tutor, our Chairman and CEO; and Gary Smalley, Executive Vice President and CFO. Before we discuss our results I would like to remind everyone that during today's call we will be making forward-looking statements which reflect our current synopsis of existing strengths and interests. There is an inherent risk that our actual results and experience could differ materially. You can find a discussion of our risk factors would eventually contribute to such differences in our annual report on Form 10-K which is being filed today, February 29, 2016. The Company assumes no obligation to update forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by law.

With that I will turn the call over to our Chairman and CEO, Ronald Tutor.

Thanks, Jorge. Good afternoon and thank you for joining us. As you are probably aware, we faced a number of unique and unfortunate challenges in 2015 that prevented us from achieving our budget expectations for the year.

The most significant of these were the project charges recorded at Five Star Electric. In particular, during the fourth quarter many of Five Star's project claims and changes were reviewed and restated at amounts below their previously reported levels. Based on certain developments during the quarter, including the lack of success or progress in certain negotiation efforts, we performed a detailed review and determined through that review process that Five Star management's expected recoveries on a number of projects were no longer achievable.

As a result, we took some necessary and significant charges on various projects' work in process. Based on certain management performance issues at Five Star, including a lack of discipline that led to these charges, I took action to replace certain key members of the management team with stronger, more effective and responsible personnel.

I believe that these changes, together with the detailed review we performed and our close ongoing coordination with the new management team, will result in better performance and accountability going forward at Five Star.

Other issues that impacted us in 2015 included the major loss on the Tower C concrete superstructure project in New York, which, of course, we referred to, I believe, in the second quarter; the Brightwater litigation charge pertaining to a long-standing lawsuit matter that predated our 2011 acquisition of Frontier-Kemper, for which our appeal was denied; and delays on both the SR-99 project in Seattle and the California high-speed rail project in Fresno.

Gary will discuss the impact of these as well as all our financials in more detail later.

Despite the challenges mentioned, there are positive things to report for the year. The civil segment's revenue grew a strong 12% for the year and they contributed the majority of the Company's pretax income, about $169 million before the Brightwater charge and corporate G&A.

In addition, the building segment's revenue grew 20% and they won a very large volume of new awards during the year, which resulted in strong backlog growth.

Finally, we are seeing a large volume of bidding opportunities in the years across our civil and building segments.

With the issues that affected us last year thankfully behind us, I am pleased to report that we are already off to an excellent start in 2016 with a major new award for the civil segment and another for the building segment.

The civil group was awarded the $663 million New York Metropolitan Transit Authority East Side access CM-007 project in late January. And the building group was awarded the $285 million Pechanga Resort and Casino expansion, a previous long-term customer in California, earlier this month.

The CMO project will transfer two very large caverns carved out of rock into a terminal station beneath the existing Grand Central terminal, with more than 12 miles of track work from Queens to Manhattan including eight tracks and four platforms. The project is beginning immediately and will continue for the next 3 1/2 years, bolstering our outlook for continued civil growth and profitability.

Our fourth-quarter results were highlighted by continued strong revenue growth and improved profitability in our building segment. In fact, this was the sixth consecutive quarter of double-digit revenue growth for the building group and the first year of double-digit revenue growth for the group since 2008. For the year the Company experience revenue growth, particularly in the civil and building segments, slightly offset by a revenue decline in the specialty contractors segment.

We have maintained our backlog at $7.5 [million] as of the end of 2015, a level consistent with that reported at the third quarter. As mentioned, we have already booked several significant new awards in 2016, so I expect our backlog to grow in the first quarter.

To put our backlog in context, at the time of the merger that created Tutor Perini, our backlog was $8.3 [billion], which was a record at the time.

So, as you can see, with recent new awards and others expected in the next quarter, we are approaching a new record backlog for the Company. More importantly, our mix of work in backlog today is vastly different than it was in 2008 when close to 90% of our work was comprised of building projects with much of those in Las Vegas.

Today nearly 2/3 of our backlog is comprised of higher-margin civil and specialty projects that are geographically dispersed.

That strong current backlog together with the large volume of pending awards and significant prospective work continues to support a favorable long-term outlook for growth. I will get into segment-specific details later regarding our backlog, pending [award] and prospective work.

The civil segment was active in the fourth quarter on various large projects including the New York MTA East Side access, namely CMO-6, CS-179 and CS-CQ32. As a sense of their value, that is close to $1 billion of existing work being prosecuted.

The Hudson Yards platform [from related], which is in the current budget of $600 million; the San Francisco Central Subway; and the Verrazano-Narrows Bridge upper deck replacement, amongst others. Work has finally commenced on the California high-speed rail, and in the first quarter the project is being prosecuted in many different locations as we begin to make up lost time.

Our civil work at Hudson Yards, namely the platform and the Amtrak tunnel extension, continues to make good progress. The tunnel extension and steel frame and foundation work on the platform should be substantially complete in the second quarter of this year, particularly the tunnel expansion, which will be complete, and the foundation and steel frame for buildings being built in the platform.

However, the balance of work, namely lighting, fire protection and ventilation on the platform will probably continue into mid-2017.

With respect to SR-99 or the Alaskan Way Viaduct, we completed the tunnel boring machine repairs and testing and successfully resumed tunneling operations just prior to Christmas. In mid-January the Washington state DOT issued a suspension order to our joint venture, mainly due to issues related to a sinkhole.

The suspension was lifted last week and we have since resumed tunneling operations. We believe that the suspension order was unnecessary, since the sinkhole occurred in a self-contained area constructed for the tunnel drive start. The incidence was promptly mitigated within hours, and it never opposed any risk for the public or adjacent structures. We reserved our rights during the suspension and will handle it accordingly.

In addition, our previously stated view remains unchanged with respect to culpability and ultimate outcome of this dispute over the tunnel boring machine repair and delay costs.

We are now focused on completing the tunnel drive and delivering a quality finished project. Our civil group has added a substantial amount of work recently on the lease on the East Coast, so any impact to our budget caused by the recent suspension is expected to be offset.

The building segment was very active in the fourth quarter, especially projects like the $800 million technology facility I mentioned previously in Northern California, the San Diego courthouse, a biotechnical facility in southern California, the Chumash Casino in central California and many other welding projects ongoing.

Our California building subsidiary, Rudolph and Sletten, rebounded with an excellent year in 2015. They accounted for more than half of the building segment's overall revenue and they continue to win significant new work, as recently announced.

In New York our work on various buildings at Hudson Yards continues to advance. Tower C is nearing its expected completion this spring. Of course, the Tower C Concrete, which we alluded to earlier, has already been completed. Work is well underway on Tower D in the retail gallery. We were awarded the Tower D contract and booked our portion of the scope in the backlog in the fourth quarter, in which we are managing the approximately $650 million work contained in Tower D.

We are within days of finalizing the contract for the retail gallery and expect to put that into backlog in the quarter with a projected value of $600 million.

As mentioned earlier, the specialty contractor segment experienced a quarter of significantly reduced profitability due to the charges contained within Five Star Electric.

Despite this, our electrical and mechanical businesses in New York continue to successfully support many of our building and civil projects as well as our New York civil MTA projects. Overall, we booked approximately $1.1 billion of new awards and adjustments to existing contracts, which resulted in an ending backlog of $7.5 [million] for the Company.

Our book-to-burn was 0.94, and our backlog composition is now 37% civil, 37% building and 26% special. Again, nearly 2/3 of our backlog continues to be higher-margin civil and specialty work.

Our pending awards at the end of the fourth quarter totaled $3.6 billion compared to $4.5 billion at the end of the third quarter. The decrease was mainly due to the award of Hudson Yards Tower D as well as a few other fourth-quarter awards.

Of the remaining pending awards, the retail gallery at Hudson Yards represents approximately $600 million and, in addition, several building projects in California and Florida.

Next I will discuss our fourth-quarter new awards and backlog by segment. Our civil segment had new awards and adjustments totaling $374 million and ended with a backlog of $2.7 billion, down 23% compared to the fourth quarter last year.

The largest civil awards included the $80 million MTA East Side Access and the $70 million US 301 Highway in Delaware.

I will also note that two weeks ago we were identified as the low bidder on another section of US Highway 301 in the amount of $35 million. And of course, subsequent to the fourth quarter as previously stated, we were awarded the $663 million New York MTA East Side Access CMO-07.

The building segment had new awards and adjustments totaling $577 million and ended with backlog of $2.8 [million], up 27% compared to fourth quarter last year. The largest building awards included $137 million of incremental funding for a biotechnology project in California, two luxury residential towers worth $131 million, and the Aqua Blue development project, all in Florida, and an $81 million healthcare and a $58 million retail facility expansion in California as well as the previously mentioned Tower D at Hudson Yards.

The specialty contractor segment had new awards and adjustments totaling $176 million and ended with a backlog of $1.9 billion, down 7% compared to fourth quarter last year.

Next I will talk about the volume of prospective project by segment. Overall, the volume has increased to $35 billion of projects expected to be bid and awarded over the next 12 to 18 months. We are, of course, tracking various new civil opportunity and continue to experience very strong demand from our services across customers from all our segments.

The civil segment's bidding volume has increased to $20 billion compared to $19 billion last quarter. The largest prospects include previously prequalified efforts for a $1.3 billion subway extension in Los Angeles, a $1.2 billion highway widening project in Orange County and a $450 million bridge in Washington, D.C.

In addition, there are various other significant project opportunities, West Coast to East Coast and even in Texas. The building segment's bidding volume continues to be $12 billion, including nearly $4 billion of opportunities for Rudolph and Sletten in California and another $4 billion for our South Florida operation as well as a significant NFL stadium in Los Angeles.

The specialty contractor segment continues to have a bidding volume of approximately $3 billion available, much of which is for various electrical and mechanical opportunities in New York City, where all of our subsidiaries are busy to a point of reaching capacity later this year.

Based on our backlog, recent awards and market outlook, we are confirming our guidance for 2016 with revenue expected to be in the range of $5.1 billion to $5.6 billion and diluted earnings per share of $1.90 to $2.20. The guidance assumes a tax rate of 41% and 49.6 million shares outstanding. Approximately 80% of revenue supporting our guidance is already in our fourth-quarter backlog.

I will now turn the call over to Gary Smalley to review the details of our financial results.

Thank you, Ron. Good afternoon, everyone. I will begin by discussing our results for the year, after which I will touch on the fourth-quarter results. I will then provide some comments on our balance sheet and cash flows, including the discussion of a recent amendment to our credit facility.

Revenue for the year was $4.9 billion, up 10% compared to last year and our highest annual revenue since 2009. A revenue increase was driven by strong double-digit growth in our civil and building groups. The civil segment's revenue was $1.9 billion in 2015, an increase of 12% compared to $1.7 billion in the prior year.

This was principally the result of progress on many projects in the New York area including the CMO-06 and CS-179 mass transit projects and the JFK runway project and increased activity on various projects in the Midwest. The increase was partially offset by decreased activity on certain tunnel projects on the West Coast.

The building segment's revenue for the year was $1.8 billion, up 20% compared to $1.5 billion in 2014. The growth was primarily driven by increased activity on various building project in California, including the large [Confidential] Technology campus and the San Diego courthouse. Increased activity on a large hospitality project in Florida was also a major contributor.

Specialty contractor segment revenue was $1.2 billion compared to $1.3 billion in 2014. The modest decline was primarily due to electrical projects at the World Trade Center, the mechanical projects at the United Nations in New York as well as decreased activity on various smaller electrical projects in the southern United States that have been impacted by the low price of oil. 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.

SG&A for the year was $251 million versus $264 million in 2014. Reduced compensation expense was the primary contributor to the lower G&A in 2015.

Our income from construction operations was $105 million compared to $242 million last year. The biggest contributors to the decrease were the $46 million in project charges that Ron mentioned at Five Star in the specialty contractor segment, the $24 million impact in 2015 of the loss recorded in the building segment for the Tower C concrete project and the non-cash $24 million Brightwater charge in the civil segment related to the adverse appellate court decision that Ron commented upon earlier.

In addition, delays on the SR-99 project impacted our 2015 civil segment results by approximately $8 million -- $18 million.

Civil segment income from construction operations was $145 million compared to $221 million in 2014. The decline was primarily due to the Brightwater charge, decreased activity on certain tunnel projects on the West Coast including the delays on SR-99, reduced activity on certain higher-margin projects as well as prior-year net favorable adjustments of $17 million related to two legal rulings.

The decline was partially offset by increased activity as well as favorable adjustments in 2015 totaling $14 million on the JFK runway project in New York. The resulting civil segment operating margin was 7.7% in 2015 compared to 13.1% in 2014. Excluding the Brightwater charge and the favorable adjustments on the JFK runway project, the civil segment operating margin in 2015 was 8.2%. Excluding the prior-year net favorable adjustment, civil segment operating margins would have been 12.2% in 2014.

Those certain higher-margin projects that were mentioned earlier contributed to the stronger segment margin in 2014.

The building segment had a loss from construction operations of $1 million in 2015 compared to income from construction operations of $25 million in 2014. The decrease was primarily due to the impact in 2015 of loss on the now complete Tower C concrete project and prior-year favorable adjustments that totaled $11 million for a large hospitality and gaming project.

Building segment operating margin was a negative 0.1% in 2015 compared to 1.6% in 2014. Excluding the impact of the Tower C concrete project loss, operating margin in 2015 was 1.3%. Excluding the prior-year favorable adjustments that I just mentioned, building segment operating margin in 2014 would have been 0.9%.

Specialty contractors' income from construction operations was $16 million compared to $51 million in 2014. The decrease was due to the charges on various Five Star Electric projects, none of which were individually material but which, again, collectively totaled $46 [million]. It is important to note that nearly all of these projects are complete or nearing completion.

Specialty contractor segment operating margin was 1.3% in 2015 compared to 3.9% in 2014. Excluding the impact of the Five Star project adjustments, specialty contractors segment operating margin would have been 4.8% in 2015.

Other income for the year was $12 million compared to other expense of $10 million in 2014. The improvement was principally due to reduced acquisition-related earn-out expense. Interest expense for the year was $44 million, a level essentially flat with what it was last year. Net income for 2015 was $45 million, down from last year's $108 million, mainly due to the reasons I previously mentioned that significantly impacted our operating income.

Our adjusted net income, which excludes the Brightwater charge, was $59 million. The various unfavorable impacts were modestly offset by a lower than anticipated tax rate for the year of 38.7% compared to 42.4% in 2014. The largest driver of the lower tax rate was positive resolution of certain state tax matters.

Our 2015 GAAP diluted earnings per share was $0.91 compared to $2.20 a year ago, slightly above the EPS range we provided on January 22 when we pre-announced preliminary 2015 EPS. Our adjusted EPS, which excludes a $0.28 impact for the Brightwater litigation, was $1.19. Aside from this non-GAAP adjustment, the other factors mentioned earlier that impacted our results in 2015 netted to $0.85. Our Five Star write-downs were $0.53. Tower C concrete charges, including the reversal of previously recognized profit, totaled $0.20 for 2015. The delays on SR-99 resulted in lower than expected EPS of about $0.20.

These were partially offset by favorable adjustments of $0.16 for the JFK runway project. Also you may recall that in 2014 we had some favorable adjustments for certain projects in the civil and building segments, which contributed $0.33 of the $2.20 of EPS reported last year.

Now for the fourth-quarter results -- revenue for the quarter remained strong at $1.2 billion, which is comparable to our fourth-quarter revenue of last year. Civil segment revenue was $441 million, down very slightly from $449 million for the same quarter last year, mainly due to reduced activity on the JFK runway project.

As we mentioned last quarter, that project was completed in Q3 of 2015, well ahead of schedule. Segment revenue reflected continued progress on many other projects in the New York area including CMO-06, CS-179, the Verrazano-Narrows bridge and the Amtrak tunnel extension as well as a number of bridge projects in the Midwest.

Building segment revenue for the fourth quarter was $477 million, up 13% compared to $422 million for the same quarter of 2014, as a result of the strong execution activity on a variety of projects including the large technology campus project and several other building projects in California and Florida.

Specialty contractors segment revenue was $283 million compared to $331 million for the same quarter last year. The decline was primarily due to reduced activity on certain mechanical projects in New York as well as electrical projects at the World Trade Center.

Despite the revenue reduction for the quarter, we are encouraged by the large volume of work already in backlog and underway, new work recently awarded in New York as well as a large volume of opportunities for additional work throughout the segment.

Our fourth-quarter G&A was $51 million compared to $65 million for the same quarter of last year. Again, the decrease was principally due to lower performance-based incentive compensation.

Fourth-quarter operating income was $15 million compared to $64 million in the same quarter of last year, which resulted in operating margin of 1.3% this quarter compared to 5.4% for the fourth quarter of 2014. The reduction in operating income and operating margin was mostly due to the charges on the various Five Star projects and, to a lesser extent, due to delays on the SR-99 project and the slow pace on the California high-speed rail project that, as Ron said earlier, will be picking up steam this year.

Other income in the fourth quarter was approximately $7 million. This reflects reduced acquisition-related earnout expense. Interest expense for the fourth quarter was $11 million compared to $12 million for the same quarter last year. Net income for the fourth quarter was $9 million, down from last year's $28 million, mainly due to the Five Star Electric charges and delays on the SR-99 project, partially offset by a lower tax rate for the quarter of 25.5% compared to almost 49% for the fourth quarter of 2014.

As we mentioned, the lower tax rate was mainly the result of the positive resolution of certain state income tax issues. Our fourth-quarter diluted EPS was $0.18 compared to $0.56 a year ago.

Let's shift gears now and talk about our balance sheet and cash flows. Our project working capital grew 6% in 2015, actually lower than our revenue growth. While our accounts receivable at year-end actually declined slightly year-over-year in spite of the Company's 10% revenue growth, the increase in costs and earnings in excess of billings during the year well exceeded the growth rate.

The increase in the cost in excess account has certainly gotten our attention and we are working hard to drive it down. Note that just three years ago, the cost in excess balance was about half of what it currently is. We expect to reach that level by no later than the fourth quarter of 2017.

We are focused on and making significant progress in resolving numerous claims and unapproved change orders as well as billing and collecting other unbilled amounts, which will allow us to convert these unbilled costs to cash.

With this focus in the traction we are getting from our efforts, we are optimistic that the cash provided by operating activities for 2016 will grow significantly from the $14 million of operating cash flow that we generated in 2015. We know that our focus on working capital management, especially converting our unbilled cost to cash, also enabled us to achieve our goal of reducing our indebtedness.

Our total debt as of December 31, 2015 was $823 million compared to $865 million at the end of 2014. This decline was due to -- as we continue to pay down our obligations. However, we are not satisfied with reducing debt by only $42 million a year, as we did in 2015.

As we make significant progress in monetizing our unbilled costs, we expect to significantly reduce our outstanding debt, consistent with the previously mentioned collection.

Continuing with the debt discussion, last week we finalized an amendment to our existing credit facility, which includes our term loan and revolver. You can read about the details of the new agreement in our 10-K that we filed this afternoon, but I want to give you some background on the amendment.

You may recall that in the third quarter of last year we breached the debt covenant. It was a leverage ratio as a result of the unexpected court decision on the legacy Brightwater litigation matter that was announced shortly before we filed.

We received the waiver from our syndicate of banks very quickly, but we communicated to all of them at that time and they understood and agreed that we would need to come back to them for an amendment to the credit agreement carving out the impact of the Brightwater court decision. This was because our debt covenants are on a rotating four-quarter basis, so an adverse earnings impact like Brightwater or the Tower C concrete project before it or the Five Star charges after it will stay with us for a rotating four quarters, no matter how healthy our backlog or current-period earnings are.

So, with the magnitude of the Five Star write-downs in the fourth quarter, we needed another waiver for the fourth quarter and an amendment to carve out Brightwater and reset the covenants to allow us some headroom so that we will not reach any covenant in future quarters.

Again, the cumulative impact of Tower C concrete, Brightwater and Five Star made this necessary, along with the rolling four-quarter nature of the covenant tests. We finalized the waiver and amendment last week with the unanimous consent of the banks.

The fees and follow-up costs for the waiver and amendment for the fourth quarter were significantly higher than just the waiver for the third quarter, but most of these costs relate to the amendment and can be capitalized and amortized in accordance with GAAP, thereby reducing the current-year earnings impact.

Again, you can read about the details in the 10-K, but under the amendment our borrowing costs will be elevated in a tiered structure until we meet the covenant requirements for the credit facility that apply to us prior to the amendment.

And besides carving out Brightwater and resetting the leverage ratio covenant, we also have new covenants that we need to comply with, including some around liquidity and additional principal payment requirements that kick in, in the fourth quarter of this year. The maturity of the facility has also changed so it now expires in May of 2018 instead of June of 2019.

We expect to be able to meet the new covenants outlined in the amendment, and the required additional [principle] requirements are actually lower, we will say slower, than what we are targeting internally for the paydown of our debt.

Lastly, I should add that the additional expenses associated with the amendment have been considered and have not resulted in a change to our $1.90-$2.20 guidance for 2016 that Ron indicated earlier and we are confirming.

This concludes my prepared remarks. I will now turn the call back over to Ron.

Thanks, Gary. While I am obviously disappointed with the financial results for 2015, I feel good that the issues which impacted us and we mentioned specifically are behind us and our path is clear to return to normal growth and some increased profitability. Our civil markets are continuing to grow, as evidenced by the increased volume of bidding opportunities. And we continue to maintain a significant part of that growth as we deliver the profits we expect.

We believe the new highway bill will be realized in the near future. And that should only add to the growth we expect. The building markets are stronger than ever in California, New York and Florida, which are our primary building markets, where several major projects are pending and we believe some significant announcements we will make in the next 60 to 90 days, particularly in Florida.

Specialty contractor segment margins are increasing with particular respect to New York City, where there is simply more work than there are qualified contractors able to build it.

Finally, because of our strong backlog, the recent new awards and the significant opportunities across all our business, the outlook for 2016 and beyond remains strong.

With that, I will turn it over to the operator for the usual question-and-answers. Thank you.

(Operator Instructions) Steven Fisher, UBS.

Gary, thanks for the comments on the balance sheet. But maybe can you just give us a little more detail on the expected work down of the costs in excess of billings? As of Q3 you had a fairly even split between unbilled costs, unapproved change orders and claims.

So how does that look as of the end of the year? And how do you see that getting worked down? Is this going to be more 2017 weighted versus 2016? I know you gave by Q4 of 2017 it would be cut in half, but just a little more detail on that, please.

Yes. I think when you look at the K, Steve, you will find that there's a little bit more in claims than in unapproved change orders, so a bit of a shift from Q3. This is part of the normal course of resolution with some of the change orders being disputed and shifting to claims.

On a go-forward basis, as I mentioned, we have a collection plan and we are very much focused, it's a full core press on resolving our claims and unapproved change orders. With respect to what our targets are, I will defer to Ron on that and let him help out this part.

Well, since that seems to be my primary job right now, the reality is that our specialty group has developed about half of all of our unbilled receivables, outstanding changes, and as a result the collections lie primarily there.

I've taken over Five Star Electric. I give the orders on a day-to-date basis. And I am engaging with Five Star and WDF and, to a much lesser extent, the other specialty contractors. With the collection of monies due, I think to reduce our unbilled receivables in half by the end of 2017, in my mind, is a worst-case scenario.

I expect to reduce it significantly more than that. And the real issues are the residue of the World Trade Center, where Five Star was directed to proceed with an enormous amount of extra work. They did not get commitments of payments, and we woke up and we had $100 million of costs tied up in a project where we were doing extra work and performing changes with lags in payment that were just unacceptable.

Simply put, I have replaced all of the key people at Five Star with the exception of two senior operating executives and am in the process of reorganizing so such a thing cannot take place. To the credit of most of our owners, they understand. And I believe a significant part of those unbilled will be removed this year. And whatever isn't should be accomplished no later than midyear 2017.

As far as some of the significant claims within our civil work group, although I am intimately familiar and support them, we believe there is an opportunity to settle a number of them this year. So our goal is to do more than cut that $900 million in unbilled receivables, change orders in process, etc.

Our absolute mandate is to reduce that by more than half with an outside date of 2017. So you can judge me on how well we do that.

That's helpful. And how do you specifically expect to work down the debt? And if you do generate these collections over the course of the next two years, it sounds like you will pay down the debt as you go along. Is that right? Is that going to be reductions of the revolving outstandings (multiple speakers) or do you pay down the term loan --

As we receive the money, and I believe our collections will be heavily weighted to 2016, with a significant part of that money collected in 2016, a major part of that will go to reduce debt and reduce our requirements for the bank facility and as a result, all the stress that goes along with it.

Okay, and maybe one last question on the cash flow -- just how are you guys thinking about cash flow generation on an ongoing basis, once you get this worked off? I guess the civil business still being pretty strong and ramping, can you do one times net income and operating cash flow, or is there going to be more of a drag here?

How should we think about what the business can generate on an ongoing basis in normalized operations?

I think with the goal being to reduce the unbilled receivables to a fraction of what they are currently by next year, I think the real impetus here in management is to take away control of cash flow from our subsidiaries, mandate results and, to the extent practical, minimize litigation but, more importantly, collect billings, resolve changes; and if they can't be, take harsh steps with our owners to enforce collections and resolve, so we never find ourselves in this absurd situation again.

And what I'd like to believe, that if we can make $2 or more continuing forward, and hopefully more, that it won't be paper; it will not be in unbilled receivables, it will be in cash. That is the goal.

Okay, thank you.

Tate Sullivan, Sidoti & Company.

Thank you for the detail on the revised terms of the credit facility, too, and congratulations on that. Just can we talk about, on pending orders in pipeline, a little bit?

Sure.

You said the retail gallery should be coming this current quarter, and independent order balance of $3.6 billion do you still include Tower D and Hudson Yards in there, or am I wrong?

Tower D is already executed. We have an executed contract for Tower D. We are in hopes that within the next two weeks we will sign the contract for the retail gallery at Hudson Yards.

Excuse me. How about -- I meant Tower E. Excuse me. Is Tower E still in it?

Right now I don't know what the situation is with Tower [D]. And if I had to hazard a guess, we wouldn't be doing Tower E.

Okay. And by working on so many parts of the Hudson Yards project, are you in a great position to keep working on the Gateway project if it comes to fruition? And can you give an update on that project, too?

You are talking about the Amtrak tunnel --

Yes.

-- as it goes forward. Well, we have negotiated two major contracts with Amtrak. We are in hopes of one more through the balance of ground before it hits us. And we think we are very well situated to take a significant role in that project as you know its size. And we have taken the track tunnel all the way across Hudson Yards and are looking at hopefully taking the next part of the way, right up to, in fact, the Hudson.

Great. Thank you very much.

John Rogers, D.A. Davidson.

Ron, with the changes in the specialty segment you made now, what is a reasonable margin expectation for that business over the next couple of years, as you work your way through it?

Prior to G&A, you mean?

Yes.

Or net profit after their respective G&As?

Either way.

Well, let me -- so you don't try to figure out their G&As, they should regularly deliver between 6% and 7.5%, pretax. A business that can't deliver that in that specialty group we shouldn't be in.

Okay, thank you. And then on the buildings business now, especially with Rudolph and Sletten and some of the projects in Florida where you've got more of, I guess, a control position, and the strength of the market, can we ever see margins there back into the -- maybe not mid-single digits but 3%-4% range? Is that possible?

Well (laughs), let's just say the double-digit margins we earned on the McCarran Airport at $1.2 billion are a thing of the past because, unfortunately, it doesn't appear that any building owners, public or private, will ever go to competitive bids.

So I'm afraid, like it or not, the building business will be limited in the near future to, at the outside, 4%. And that will be more the exception, and I think 3% will be more the rule.

New York City has a significantly lower margin attached to its work, but I continually rationalize it because everything there costs twice as much. You achieve more return on your management because of the cost of the work.

Okay.

But it's really not -- it just really is what it is. It's a very low-margin, low-risk but low-margin business.

Okay, that's helpful. And then just on the Seattle SR-99 project, you mentioned the shortfall in 2015. That project, I assume, is still profitable, though, at this point and expected to be?

It still is, and we are reviewing those costs now. We are again driving tunnel as we speak and hopefully we will be able to maintain that drive so that in 2017 we can complete the project. But inasmuch as it's the biggest tunnel ever driven in North America, there is a certain measure of risk that goes along with it.

Thank you, I appreciate it.

Mike Shlisky, Seaport Global.

Wanted to ask a quick question about the East Side access project. You said it's going to take 3 1/2 years to get done. Can you just give us a sense for how it's going to ramp, the timing of when you think it will have its best margins, what part of that 3 1/2 years? I guess not the very last quarter but obviously, but just the full life of the project?

That job will start out very quickly and we believe we will be going full tilt by May 1. We will probably start to work in April, ramp up rapidly. It's an existing chamber where we can go to work right away, and I would think that $663 million will essentially have to be completed within three years or 39 months because, really, the last six months are more commissioning, startup and turnover than they are actual work. So it should be some intense revenue generation over the next 2 1/2 to 3 years.

Got it. I also wanted to touch on specialty just for a second. You mentioned there was probably more work than there are folks to do the work in certain parts of the country, in your business.

Are you getting any pushback on the cost of labor? And are people asking for or getting raises, if they have the ability to do that? Or are you finding you can keep your cost under control or at least pass it along to customers?

Well, keep in mind that we are a union contractor, primarily in New York City. So we have no issues with our managers and our supervision because they are Company managers and employees. When you refer to the labor in the field, which drives most of our major awards, they are all in New York City building trades' unions.

And their costs are just extraordinarily high. And that's a given. However, that's what we abide by because we are a union contractor.

Now, there is no question. There is a significant movement in New York City for much of the smaller work, even including work in Manhattan, that is going nonunion.

Tutor Perini does not participate as a nonunion contractor. However, that is the option that owners look at. However, in fairness, all of the megaprojects as well as almost all of the public works still maintains a union commitment through project labor agreements and the labor minimums established within the contracts.

So, our public sector work in New York City is protected as far as being union going forward. And I don't think you'll see any nonunion contractors building $500 million and up type buildings.

But there's no question the $100 million and $150 million buildings are looking at nonunion alternatives as we speak.

Great. My last question, Gary, this is for you. [Process is in the case] somewhere. But your other assets, other long-term assets, just wanted to make sure I knew -- there is a pretty big jump in that quarter over quarter and from the prior year. I'm not sure what that's all about. Maybe you could just explain the jump to $200 million there?

I don't recall offhand, Mike. I'll have to get back to you on that.

Why don't we find out, and maybe you can call us and -- (multiple speakers).

There's nothing unusual in that account, Mike.

Okay. We'll follow-up off-line. I do so much, guys.

Andrew Casella, Deutsche Bank.

First, when you look at the capital structure and now I guess the maturity of the term loan is going to be before the notes, but how are you guys thinking about refinancing? I would [intimate] the strategy is to get rid of some of this trapped cash and then pay down debt and then refinance.

But what's the potential target? And clearly there has been some backing up of yields, so just curious about how you guys thinking about when, timing-wise, you would potentially address the maturities in the capital structure.

We expect to pay off the term loans by 2017 and reduce the revolver needs. And then my guess is probably in the first quarter of 2017, depending if my collections are as successful as I expect them to be, then we will address the bond issues in terms of the reduction of that debt and then the refinancing of the balance or just how to do it.

But the key element is nothing more than a collection of all the money that (expletive) people owe us everywhere. And whatever it takes to collect it, be assured we will collect it. And in so doing, we will reduce debt to a level that is easily handled.

Got it. And going forward, clearly you guys attribute some of that growth in the costs in excess to the World Trade Center, but what's a normalized level of working capital for that line item, if you were to throw out a number?

I lost you. A normal level of working capital for what?

Just on a go-forward basis, since you've attribute a lot about the inflation in that line item to the World Trade Center.

Unfortunately, ours is a business with a certain level of claims and litigation that you can never get away from. We have had a history of always winning, with very few exceptions. But candidly, you have to be prepared to always carry $200 million to $250 million of claims and/or litigation. And [stayed] such, you are always cleaning them up in hopes of reducing it, but you are never, ever completely out of it when you have 500 contracts all over the US with 200 different owners. It's just part of the business.

However, there really is no excuse for the level it got to. And the real key commitment has to be to reduce it back to what we talked about and what it should have always been.

Got it, that's helpful color. And if you could just comment on your backlog. Clearly, there's a lot of different pockets of stress in the world with commodity deflation, etc. Do you have any direct/indirect exposure to either municipalities that are heavily invested in the outcome of oil prices? Or if you could just comment on any concerns about counterparties, etc.

We really have -- nothing we do has anything to do with oil prices. The closest thing I could think of is our Fisk Electric Group in Texas had maybe $70 million or $80 million in contracts with Exxon at their expansion. They have been tabled or reduced.

Everywhere else the truth of it is the oil collapse has been a boon to our profitability because we've got many of these long-term oil contracts that have $4 a gallon fuel prices that we are buying for $2 a gallon on our civil work. So it has had no negative impact.

If anything, laughingly, it has had a positive impact because none of our public agencies have anything to do with oil. There's this all tax based and Washington, D.C. driven grants. So if we see that infrastructure continuing to ramp up, regardless of a Republican or Democratic President, about the only thing the parties can agree on is rebuild the infrastructure.

Sure, thank you. And then just finally, just a housekeeping item, CapEx budget for this year -- any particular number you guys are thinking about?

Nothing significant. Most of our CapEx today revolves around replacing vehicles which might be $3 million to $5 million a year, or buying equipment for a specific job where the cost of all the equipment purchased and written off is in the project contract.

So I don't see CapEx as a big item.

We don't expect it to be more than $20 million for 2016. That's where we have it right now.

Okay. This is a huge help. Thanks again, guys, and good luck.

Steven Fisher, UBS.

Just a couple of follow-ups here. Can you just set the stage a little more clearly on seasonality because historically we have had a little volatility around that, particularly in Q1, because Q1 typically is usually a little depressed due to weather, but this year the weather has been kind of mild. So is this Q1 like a 2012 and 2015 or more like a 2013 and 2014?

And the second question is, do you expect revenues to grow in each of your segments this year?

I think we have projected growth. I don't recall exactly, but -- you responded to growth. As far as the first quarter, other than New York City, which has been its usual poor, we've had good weather. And I don't expect the first quarter to be as bad as our worst first quarters. What did we project first quarter, [$0.13]?

No. We projected --

What's this year?

Probably closer to a [2 point]. (multiple speakers)

We don't see the first quarter as being a difficult bogey this year. We've had good weather and good results.

Okay. Thanks a lot.

Even though I don't know that I'm supposed to respond to that. Hell, I don't know what I'm supposed to answer any more. I get too forthright and then the lawyers yell at me.

Well, we appreciate the color. Thanks, Ron.

To answer your question, Steven, on revenue growth we expect there to be more revenue growth in civil and building than in specialty, but all of them will nose up somewhat. That's answering the question to the lower end of the range. As you get up the range, then there will be growth across all segments and more significant growth.

Okay. Thanks, Gary.

John Rogers, D.A. Davidson.

Maybe for Gary as well, what do you expect for D&A this year, depreciation and amortization?

Yes, what we are looking at right now -- together we are looking at about $46 million. So that's about $2 million higher than what we had in 2015.

Okay, okay. And then the second part of it, maybe for Ron -- and I know you don't want to negotiate over the phone. But have you assumed that you are going to have to take any sort of discount to what you are asking for on some of these received to accelerate the collections, as you negotiate those?

Certain ones, yes. Others, no. But I've contemplated the effect of all of it.

What it simply is changing is our owners will have to deal with me, as opposed to some of our people who are no longer with the Company. There is virtually no one left at Five Star that dealt with these issues. And it is me and an individual I appointed as an interim CEO, and I am there every week.

We will collect all of that money or, any owner that's listening in on the call, you are [forthrightly] forewarned.

All right. Well, I look forward to that. Thanks, Ron.

So do I.

Mike Shlisky, Seaport Global.

I just wanted to ask a quick question on repayment of debt. That's your guidance assume at the outset now, at this point, that there is no debt repaid? And as you collect stuff, you will be able to raise your guidance could Marc or is there some element of debt repayment and interest reduction in the 2015 guidance already?

We have been fairly conservative in what we expected in our debt paydown for the year. So there is a very minor amount that we have put out there. But anything that we do pay down, as we get these collections in, as we resolve these change orders and claims, that should go to reducing our interest expense. So we have assumed a little bit, but not a substantial amount.

Okay, great. Thanks.

At this time we have no further questions. I will turn the call back over to Ron Tutor for closing comments.

Thank you, everybody. We will catch you next quarter and I appreciate your patience.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.