UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2020
or
OR
☐TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 1-6314
Tutor Perini Corporation
(Exact nameName of registrantRegistrant as specifiedSpecified in its charter)
Charter)
MASSACHUSETTS | 04-1717070 | |
(State or Incorporation or | (I.R.S. Employer | |
15901 OLDEN STREET, SYLMAR, CALIFORNIA | 91342-1093 | |
(Address of Principal Executive Offices) | (Zip Code) |
15901 OLDEN STREET, SYLMAR, CALIFORNIA 91342-1093
(Address of principal executive offices)
(Zip code)
(818) 362-8391
(Registrant’s telephone number, including area code)Telephone Number, Including Area Code)
None
(Former name, former addressName, Former Address and former fiscal year,Former Fiscal Year, if changed since last report)Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $1.00 par value | TPC | The New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☒ | Accelerated filer ☐ | |
Non-accelerated filer ☐ | Smaller reporting company ☐ | |
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Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of common stock, $1.00 par value per share, of the registrant outstanding at November 3, 2017April 30, 2020 was 49,781,010.50,577,111.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
Page Numbers | |||
3 | |||
4 | |||
5 | |||
6 | |||
Notes to Condensed Consolidated Financial Statements (Unaudited) | 7 - 25 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 - 33 | ||
33 | |||
33 | |||
33 | |||
33 | |||
34 | |||
34 | |||
34 | |||
35 |
PART I. – FINANCIAL INFORMATION
Item 1. – Financial Statements
TUTOR PERINI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
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| Three Months Ended |
| Nine Months Ended | Three Months Ended | ||||||||||||
| September 30, |
| September 30, | March 31, | ||||||||||||
(in thousands, except per common share amounts) | 2017 |
| 2016 |
| 2017 |
| 2016 | 2020 | 2019 | |||||||
REVENUE | $ | 1,199,505 |
| $ | 1,332,978 |
| $ | 3,564,140 |
| $ | 3,726,477 | $ | 1,250,729 | $ | 958,487 | |
COST OF OPERATIONS |
| (1,081,254) |
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| (1,208,310) |
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| (3,240,332) |
| (3,386,947) | (1,139,649) | (870,017) | ||||
GROSS PROFIT |
| 118,251 |
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| 124,668 |
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| 323,808 |
| 339,530 | 111,080 | 88,470 | ||||
General and administrative expenses |
| (69,179) |
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| (63,749) |
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| (203,674) |
| (189,660) | (63,853) | (65,557) | ||||
INCOME FROM CONSTRUCTION OPERATIONS |
| 49,072 |
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| 60,919 |
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| 120,134 |
| 149,870 | 47,227 | 22,913 | ||||
Other income, net |
| 967 |
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| 2,048 |
| 42,373 |
| 5,214 | 481 | 422 | |||||
Interest expense |
| (15,643) |
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| (15,041) |
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| (53,726) |
| (44,655) | (16,436) | (16,425) | ||||
INCOME BEFORE INCOME TAXES |
| 34,396 |
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| 47,926 |
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| 108,781 |
| 110,429 | 31,272 | 6,910 | ||||
Provision for income taxes |
| (9,096) |
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| (19,125) |
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| (37,084) |
| (44,868) | ||||||
Income tax expense | (5,134) | (2,188) | ||||||||||||||
NET INCOME |
| 25,300 |
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| 28,801 |
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| 71,697 |
| 65,561 | 26,138 | 4,722 | ||||
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
| (1,716) |
|
| ��— |
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| (4,253) |
| — | 8,767 | 5,078 | ||||
NET INCOME ATTRIBUTABLE TO TUTOR PERINI CORPORATION | $ | 23,584 |
| $ | 28,801 |
| $ | 67,444 |
| $ | 65,561 | |||||
BASIC EARNINGS PER COMMON SHARE | $ | 0.47 |
| $ | 0.59 |
| $ | 1.36 |
| $ | 1.33 | |||||
DILUTED EARNINGS PER COMMON SHARE | $ | 0.47 |
| $ | 0.57 |
| $ | 1.33 |
| $ | 1.32 | |||||
NET INCOME (LOSS) ATTRIBUTABLE TO TUTOR PERINI CORPORATION | $ | 17,371 | $ | (356) | ||||||||||||
BASIC EARNINGS (LOSS) PER COMMON SHARE | $ | 0.35 | $ | (0.01) | ||||||||||||
DILUTED EARNINGS (LOSS) PER COMMON SHARE | $ | 0.34 | $ | (0.01) | ||||||||||||
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING: |
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BASIC |
| 49,775 |
| 49,185 |
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| 49,602 |
| 49,132 | 50,338 | 50,098 | |||||
DILUTED |
| 50,587 |
| 50,100 |
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| 50,768 |
| 49,649 | 50,836 | 50,098 |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
UNAUDITED
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| Three Months Ended |
| Nine Months Ended | Three Months Ended | ||||||||||||
| September 30, |
| September 30, | March 31, | ||||||||||||
(in thousands) | 2017 |
| 2016 |
| 2017 |
| 2016 | 2020 | 2019 | |||||||
NET INCOME | $ | 25,300 |
| $ | 28,801 |
| $ | 71,697 |
| $ | 65,561 | $ | 26,138 | $ | 4,722 | |
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OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: |
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Defined benefit pension plan adjustments |
| 269 |
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| 248 |
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| 806 |
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| 819 | 423 | 330 | |||
Foreign currency translation adjustments |
| 726 |
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| (411) |
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| 1,321 |
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| 261 | (4,013) | 348 | |||
Unrealized gain (loss) in fair value of investments |
| 12 |
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| (79) |
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| (12) |
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| (224) | |||||
Unrealized loss in fair value of interest rate swap |
| — |
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| — |
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| — |
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| (24) | |||||
Unrealized gain in fair value of investments | 542 | 673 | ||||||||||||||
TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX |
| 1,007 |
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| (242) |
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| 2,115 |
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| 832 | (3,048) | 1,351 | |||
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COMPREHENSIVE INCOME |
| 26,307 |
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| 28,559 |
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| 73,812 |
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| 66,393 | 23,090 | 6,073 | |||
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
| (1,716) |
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| — |
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| (4,253) |
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| — | 6,747 | 5,180 | |||
COMPREHENSIVE INCOME ATTRIBUTABLE TO TUTOR PERINI CORPORATION | $ | 24,591 |
| $ | 28,559 |
| $ | 69,559 |
| $ | 66,393 | $ | 16,343 | $ | 893 |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
As of March 31, | As of December 31, | ||||
(in thousands, except share and per share amounts) | 2020 | 2019 | |||
ASSETS | |||||
CURRENT ASSETS: | |||||
Cash and cash equivalents ($86,126 and $103,850 related to variable interest entities ("VIEs")) | $ | 198,122 | $ | 193,685 | |
Restricted cash | 5,956 | 8,416 | |||
Restricted investments | 75,409 | 70,974 | |||
Accounts receivable ($80,794 and $91,090 related to VIEs) | 1,501,557 | 1,354,519 | |||
Retainage receivable ($86,033 and $89,132 related to VIEs) | 573,151 | 562,375 | |||
Costs and estimated earnings in excess of billings ($30,739 and $22,764 related to VIEs) | 1,155,202 | 1,123,544 | |||
Other current assets ($55,458 and $58,128 related to VIEs) | 211,501 | 197,473 | |||
Total current assets | 3,720,898 | 3,510,986 | |||
PROPERTY AND EQUIPMENT ("P&E"), net of accumulated depreciation of $401,805 and $388,147 (net P&E of $41,474 and $49,919 related to VIEs) | 502,611 | 509,685 | |||
GOODWILL | 205,143 | 205,143 | |||
INTANGIBLE ASSETS, NET | 149,458 | 155,270 | |||
OTHER ASSETS | 108,296 | 104,693 | |||
TOTAL ASSETS | $ | 4,686,406 | $ | 4,485,777 | |
LIABILITIES AND EQUITY | |||||
CURRENT LIABILITIES: | |||||
Current maturities of long-term debt | $ | 184,954 | $ | 124,054 | |
Accounts payable ($78,304 and $93,848 related to VIEs) | 744,222 | 682,699 | |||
Retainage payable ($16,333 and $13,967 related to VIEs) | 272,533 | 252,181 | |||
Billings in excess of costs and estimated earnings ($421,236 and $422,847 related to VIEs) | 891,164 | 844,389 | |||
Accrued expenses and other current liabilities ($16,008 and $25,402 related to VIEs) | 197,582 | 206,533 | |||
Total current liabilities | 2,290,455 | 2,109,856 | |||
LONG-TERM DEBT, less current maturities, net of unamortized discount and debt issuance costs totaling $20,259 and $23,343 | 717,379 | 710,422 | |||
DEFERRED INCOME TAXES | 37,580 | 35,686 | |||
OTHER LONG-TERM LIABILITIES | 198,064 | 199,288 | |||
TOTAL LIABILITIES | 3,243,478 | 3,055,252 | |||
COMMITMENTS AND CONTINGENCIES (NOTE 11) |
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EQUITY | |||||
Stockholders' equity: | |||||
Preferred stock - authorized 1,000,000 shares ($1 par value), NaN issued | — | — | |||
Common stock - authorized 75,000,000 shares ($1 par value), issued and outstanding 50,541,480 and 50,278,816 shares | 50,577 | 50,279 | |||
Additional paid-in capital | 1,120,487 | 1,117,972 | |||
Retained earnings | 331,362 | 313,991 | |||
Accumulated other comprehensive loss | (43,128) | (42,100) | |||
Total stockholders' equity | 1,459,298 | 1,440,142 | |||
Noncontrolling interests | (16,370) | (9,617) | |||
TOTAL EQUITY | 1,442,928 | 1,430,525 | |||
TOTAL LIABILITIES AND EQUITY | $ | 4,686,406 | $ | 4,485,777 |
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| As of September 30, |
| As of December 31, | ||
(in thousands, except share and per share amounts) | 2017 |
| 2016 | ||
ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents ($79,111 and $0 related to variable interest entities ("VIEs")) | $ | 221,878 |
| $ | 146,103 |
Restricted cash |
| 17,424 |
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| 50,504 |
Restricted investments |
| 48,775 |
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| — |
Accounts receivable ("AR") including retainage of $574,710 and $569,391 (AR of $36,317 and $0 related to VIEs) |
| 1,857,870 |
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| 1,743,300 |
Costs and estimated earnings in excess of billings |
| 902,312 |
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| 831,826 |
Other current assets |
| 70,781 |
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| 66,023 |
Total current assets |
| 3,119,040 |
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| 2,837,756 |
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $345,546 and $313,783 |
| 447,588 |
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| 477,626 |
GOODWILL |
| 585,006 |
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| 585,006 |
INTANGIBLE ASSETS, NET |
| 90,340 |
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| 92,997 |
OTHER ASSETS |
| 40,811 |
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| 45,235 |
TOTAL ASSETS | $ | 4,282,785 |
| $ | 4,038,620 |
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LIABILITIES AND EQUITY |
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CURRENT LIABILITIES: |
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Current maturities of long-term debt | $ | 30,951 |
| $ | 85,890 |
Accounts payable ("AP") including retainage of $267,110 and $258,294 (AP of $4,826 and $0 related to VIEs) |
| 949,675 |
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| 994,016 |
Billings in excess of costs and estimated earnings ($91,750 and $0 related to VIEs) |
| 403,635 |
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| 331,112 |
Accrued expenses and other current liabilities |
| 124,385 |
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| 107,925 |
Total current liabilities |
| 1,508,646 |
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| 1,518,943 |
LONG-TERM DEBT, less current maturities, net of unamortized |
| 855,325 |
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| 673,629 |
DEFERRED INCOME TAXES |
| 132,335 |
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| 131,007 |
OTHER LONG-TERM LIABILITIES |
| 155,553 |
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| 162,018 |
TOTAL LIABILITIES |
| 2,651,859 |
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| 2,485,597 |
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CONTINGENCIES AND COMMITMENTS (NOTE 7) |
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EQUITY |
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Stockholders' Equity: |
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Preferred stock - authorized 1,000,000 shares ($1 par value), none issued |
| — |
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| — |
Common stock - authorized 75,000,000 shares ($1 par value), |
| 49,781 |
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| 49,211 |
Additional paid-in capital |
| 1,080,371 |
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| 1,075,600 |
Retained earnings |
| 541,069 |
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| 473,625 |
Accumulated other comprehensive loss |
| (43,298) |
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| (45,413) |
Total Stockholders' Equity |
| 1,627,923 |
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| 1,553,023 |
Noncontrolling interests |
| 3,003 |
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| — |
TOTAL EQUITY |
| 1,630,926 |
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| 1,553,023 |
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TOTAL LIABILITIES AND EQUITY | $ | 4,282,785 |
| $ | 4,038,620 |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
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| Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||
(in thousands) | 2017 |
| 2016 | 2020 | 2019 | |||||
Cash Flows from Operating Activities: |
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Net income | $ | 71,697 |
| $ | 65,561 | $ | 26,138 | $ | 4,722 | |
Adjustments to reconcile net income to net cash provided by operating activities: |
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Adjustments to reconcile net income to net cash used in operating activities: | ||||||||||
Depreciation |
| 37,806 |
| 44,638 | 16,999 | 12,831 | ||||
Amortization of intangible assets |
| 2,657 |
| 2,657 | 5,812 | 886 | ||||
Share-based compensation expense |
| 16,057 |
| 10,109 | 4,244 | 5,506 | ||||
Excess income tax benefit from share-based compensation |
| — |
| (10) | ||||||
Change in debt discounts and deferred debt issuance costs |
| 14,725 |
| 7,124 | ||||||
Change in debt discount and deferred debt issuance costs | 3,486 | 3,174 | ||||||||
Deferred income taxes |
| 642 |
| (8,636) | 2,474 | 142 | ||||
(Gain) loss on sale of property and equipment |
| (376) |
| 300 | ||||||
Gain on sale of property and equipment | (461) | (107) | ||||||||
Changes in other components of working capital | (90,884) | (154,192) | ||||||||
Other long-term liabilities |
| (2,876) |
| (8,555) | 1,061 | 2,177 | ||||
Other |
| 4,785 |
| (353) | ||||||
Changes in other components of working capital |
| (143,213) |
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| (18,669) | |||||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
| 1,904 |
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| 94,166 | |||||
Other, net | (2,876) | 76 | ||||||||
NET CASH USED IN OPERATING ACTIVITIES | (34,007) | (124,785) | ||||||||
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Cash Flows from Investing Activities: |
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Acquisition of property and equipment excluding financed purchases |
| (9,712) |
| (10,273) | ||||||
Acquisition of property and equipment | (11,693) | (14,412) | ||||||||
Proceeds from sale of property and equipment |
| 1,440 |
| 1,139 | 583 | 201 | ||||
Investments in securities restricted in use |
| (48,657) |
| — | ||||||
Change in restricted cash |
| 33,080 |
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| (2,872) | |||||
Investment in securities | (9,696) | (8,357) | ||||||||
Proceeds from maturities and sales of investments in securities | 6,211 | 3,324 | ||||||||
NET CASH USED IN INVESTING ACTIVITIES |
| (23,849) |
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| (12,006) | (14,595) | (19,244) | |||
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Cash Flows from Financing Activities: |
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Proceeds from issuance of convertible notes |
| — |
| 200,000 | ||||||
Proceeds from debt |
| 1,991,457 |
| 1,003,092 | 348,688 | 394,000 | ||||
Repayment of debt |
| (1,866,072) |
| (1,174,679) | (283,915) | (259,691) | ||||
Excess income tax benefit from share-based compensation |
| — |
| 10 | ||||||
Issuance of common stock and effect of cashless exercise |
| (11,147) |
| (423) | ||||||
Cash payments related to share-based compensation | (694) | (2,364) | ||||||||
Distributions paid to noncontrolling interests |
| (2,500) |
| — | (13,500) | (4,000) | ||||
Contributions from noncontrolling interests |
| 1,250 |
| — | — | 2,798 | ||||
Debt issuance and extinguishment costs |
| (15,268) |
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| (14,868) | |||||
NET CASH PROVIDED BY FINANCING ACTIVITIES |
| 97,720 |
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| 13,132 | 50,579 | 130,743 | |||
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Net increase in cash and cash equivalents |
| 75,775 |
| 95,292 | ||||||
Cash and cash equivalents at beginning of period |
| 146,103 |
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| 75,452 | |||||
Cash and cash equivalents at end of period | $ | 221,878 |
| $ | 170,744 | |||||
Net increase (decrease) in cash, cash equivalents and restricted cash | 1,977 | (13,286) | ||||||||
Cash, cash equivalents and restricted cash at beginning of period | 202,101 | 119,863 | ||||||||
Cash, cash equivalents and restricted cash at end of period | $ | 204,078 | $ | 106,577 |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
The Condensed Consolidated Financial Statements do not include footnotes and certain financial information normally presented annually under generally accepted accounting principles generally accepted in the United States (“GAAP”). Therefore, they should be read in conjunction with the audited consolidated financial statements and the related notes included in the Company’sTutor Perini Corporation’s (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2016. 2019. The results of operations for the three and nine months ended September 30, 2017March 31, 2020 may not be indicative of the results that will be achieved for the full year ending December 31, 2017.2020.
In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, including those of a normal recurring nature, necessary to present fairly the Company’s consolidated financial position as of September 30, 2017March 31, 2020 and its consolidated resultsstatements of operations and cash flows for the interim periods presented. All significant intercompanyIntercompany balances and transactions of consolidated subsidiaries have been eliminated. There were no material events that occurred subsequent to the date of the financial statements up to the filing of this Form 10-Q.
(2) Recent Accounting Pronouncements
In May 2014,June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606)2016-13, Measurement of Credit Losses on Financial Instruments, as amended byand issued subsequent ASUsamendments to the initial guidance within ASU 2019-04 and ASU 2019-05 (collectively, “ASU 2014-09”2016-13”). ASU 2014-09 amends the existing accounting standards for revenue recognition and establishes principles for recognizing revenue upon the transfer of promised goods or services to customers based on the expected consideration to be received in exchange for those goods or services. The guidance will be effective for the Company as of January 1, 2018. The amendments may be applied retrospectively to each prior period presented or with the cumulative effect recognized as of the date of initial application (modified retrospective method). The Company expects to adopt this new standard using the modified retrospective method. The Company is currently reviewing contracts in order to determine the impact, if any, that the adoption of ASU 2014-09 will have on its consolidated financial statements. Based on the Company’s evaluation of ASU 2014-09, the Company currently does not expect it to have a material impact on its results of operations. The Company is identifying and implementing changes to the Company’s business processes, systems and internal controls to support the adoption of this new standard and the related disclosure requirements. The adoption of the standard is also expected to impact the presentation of the consolidated balance sheet. The impact primarily relates to reclassifications among financial statement accounts to align with the new standard. The Company will continue its evaluation of ASU 2014-09 (including how it may impact future contracts, as well as any new or emerging interpretations of the standard) through the date of adoption.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, seeking to eliminate diversity in practice related to how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in ASU 2016-15 address eight specific cash flow issues including2016-13 replace the classificationincurred loss impairment methodology with the current expected credit loss model, which requires consideration of debt prepaymenta broader range of reasonable and extinguishment costs in the cash flow statement. The amendments in ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period provided any adjustments should be reflected as of the beginning of the fiscal year that includes the interim period. supportable information to estimate credit losses. The Company adopted this accounting standard during the three months ended September 30, 2017 and has applied the provisions retrospectively to the beginning of the fiscal years presented in the Condensed Consolidated Financial Statements.ASU effective January 1, 2020. The adoption of this guidanceASU 2016-13 did not have a material impact on the Company’s consolidated financial statements.position, results of operations or cash flows.
New accounting pronouncements requiring implementation in future periods are discussed below.
In May 2017,December 2019, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”), modifying Accounting Standards Codification (“ASC”) 740, Income Taxes (“ASC 740”). ThisThe amendments in ASU clarifies the scope of modification accounting under Topic 718 with respect to changes2019-12, among other things, remove certain exceptions to the terms or conditions of a share-based payments award. Under this new guidance, modification accounting would not apply if a change to an award does not affectgeneral principles in ASC 740 and seek more consistent application by clarifying and amending the total current fair value, vesting conditions or the classification of the award. This guidance will beexisting guidance. ASU 2019-12 is effective for the Company as of January 1, 2018, with early adoption permitted.interim and annual reporting periods beginning after December 15, 2020. The Company doesis currently evaluating the new standard, which is not expect the adoption of this ASUexpected to have a material impact on its consolidatedthe Company’s financial statements.position, results of operations or cash flows.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The amendments in ASU 2020-04 provide temporary optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships and other transactions to ease the potential accounting and financial reporting burden associated with transitioning away from reference rates that are expected to be discontinued, including the London Interbank Offered Rate (“LIBOR”). ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the new standard, which is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
(3) Revenue
Disaggregation of Revenue
The following tables disaggregate revenue by end market, customer type and contract type, which the Company believes best depict how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors for the three months ended March 31, 2020 and 2019.
Three Months Ended | ||||||
March 31, | ||||||
(in thousands) | 2020 | 2019 | ||||
Civil segment revenue by end market: | ||||||
Mass transit | $ | 297,143 | $ | 146,250 | ||
Bridges | 52,184 | 69,307 | ||||
Highways | 32,582 | 41,043 | ||||
Tunneling | 25,955 | 34,940 | ||||
Water | 23,744 | 9,668 | ||||
Military defense facilities | 23,610 | 10,281 | ||||
Other | 31,411 | 22,005 | ||||
Total Civil segment revenue | $ | 486,629 | $ | 333,494 |
Three Months Ended | ||||||
March 31, | ||||||
(in thousands) | 2020 | 2019 | ||||
Building segment revenue by end market: | ||||||
Commercial and industrial facilities | $ | 133,049 | $ | 109,353 | ||
Hospitality and gaming | 118,987 | 69,310 | ||||
Municipal and government | 69,502 | 61,962 | ||||
Mass transit | 57,847 | 29,177 | ||||
Health care facilities | 35,889 | 80,227 | ||||
Education facilities | 31,622 | 42,528 | ||||
Mixed use | 9,972 | 15,274 | ||||
Other | 24,896 | 25,635 | ||||
Total Building segment revenue | $ | 481,764 | $ | 433,466 |
Three Months Ended | ||||||
March 31, | ||||||
(in thousands) | 2020 | 2019 | ||||
Specialty Contractors segment revenue by end market: | ||||||
Mass transit | $ | 148,671 | $ | 81,394 | ||
Commercial and industrial facilities | 53,505 | 44,023 | ||||
Multi-unit residential | 26,493 | 11,389 | ||||
Education facilities | 16,557 | 11,580 | ||||
Mixed use | 13,802 | 10,669 | ||||
Health care facilities | 2,522 | 11,652 | ||||
Other | 20,786 | 20,820 | ||||
Total Specialty Contractors segment revenue | $ | 282,336 | $ | 191,527 |
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | ||||||||||||||||||||||
Specialty | Specialty | ||||||||||||||||||||||
(in thousands) | Civil | Building | Contractors | Total | Civil | Building | Contractors | Total | |||||||||||||||
Revenue by customer type: | |||||||||||||||||||||||
State and local agencies | $ | 396,045 | $ | 146,016 | $ | 132,873 | $ | 674,934 | $ | 257,107 | $ | 144,686 | $ | 97,071 | $ | 498,864 | |||||||
Federal agencies | 36,661 | 31,973 | 9,756 | 78,390 | 23,158 | 40,151 | 7,769 | 71,078 | |||||||||||||||
Private owners | 53,923 | 303,775 | 139,707 | 497,405 | 53,229 | 248,629 | 86,687 | 388,545 | |||||||||||||||
Total revenue | $ | 486,629 | $ | 481,764 | $ | 282,336 | $ | 1,250,729 | $ | 333,494 | $ | 433,466 | $ | 191,527 | $ | 958,487 |
Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | ||||||||||||||||||||||
Specialty | Specialty | ||||||||||||||||||||||
(in thousands) | Civil | Building | Contractors | Total | Civil | Building | Contractors | Total | |||||||||||||||
Revenue by contract type: | |||||||||||||||||||||||
Fixed price | $ | 408,971 | $ | 105,598 | $ | 248,516 | $ | 763,085 | $ | 242,867 | $ | 114,359 | $ | 155,264 | $ | 512,490 | |||||||
Guaranteed maximum price | 308 | 237,773 | 2,549 | 240,630 | 2,233 | 207,131 | 3,606 | 212,970 | |||||||||||||||
Unit price | 71,358 | 534 | 21,151 | 93,043 | 84,878 | 5,228 | 19,003 | 109,109 | |||||||||||||||
Cost plus fee and other | 5,992 | 137,859 | 10,120 | 153,971 | 3,516 | 106,748 | 13,654 | 123,918 | |||||||||||||||
Total revenue | $ | 486,629 | $ | 481,764 | $ | 282,336 | $ | 1,250,729 | $ | 333,494 | $ | 433,466 | $ | 191,527 | $ | 958,487 |
Changes in Contract Estimates that Impact Revenue
Changes to the total estimated contract revenue or cost for a given project, either due to unexpected events or revisions to management’s initial estimates, are recognized in the period in which they are determined. Revenue recognized during the three month periods ended March 31, 2020 and 2019 related to performance obligations satisfied (or partially satisfied) in prior periods was immaterial.
Remaining Performance Obligations
Remaining performance obligations represent the transaction price of firm orders for which work has not been performed and exclude unexercised contract options. As of March 31, 2020, the aggregate amounts of the transaction prices allocated to the remaining performance obligations of the Company’s construction contracts were $5.2 billion, $1.9 billion and $2.2 billion for the Civil, Building and Specialty Contractors segments, respectively. As of March 31, 2019, the aggregate amounts of the transaction prices allocated to the remaining performance obligations of the Company’s construction contracts were $4.5 billion, $2.0 billion and $1.8 billion for the Civil, Building and Specialty Contractors segments, respectively. The Company typically recognizes revenue on Civil segment projects over a period of three to five years, whereas for projects in the Building and Specialty Contractors segments, the Company typically recognizes revenue over a period of one to three years.
(4) Contract Assets and Liabilities
The Company classifies contract assets and liabilities that may be settled beyond one year from the balance sheet date as current, consistent with the length of time of the Company’s project operating cycle.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
Contract assets include amounts due under retainage provisions, costs and estimated earnings in excess of billings and capitalized contract costs. The amounts as included on the Condensed Consolidated Balance Sheets consisted of the following:
As of March 31, | As of December 31, | |||||
(in thousands) | 2020 | 2019 | ||||
Retainage receivable | $ | 573,151 | $ | 562,375 | ||
Costs and estimated earnings in excess of billings: | ||||||
Claims | 717,409 | 705,993 | ||||
Unapproved change orders | 356,854 | 362,264 | ||||
Other unbilled costs and profits | 80,939 | 55,287 | ||||
Total costs and estimated earnings in excess of billings | 1,155,202 | 1,123,544 | ||||
Capitalized contract costs | 83,509 | 80,294 | ||||
Total contract assets | $ | 1,811,862 | $ | 1,766,213 |
Retainage receivable represents amounts invoiced to customers where payments have been partially withheld pending the completion of certain milestones, satisfaction of other contractual conditions or the completion of the project. Retainage agreements vary from project to project, and balances could be outstanding for several months or years depending on a number of circumstances such as contract-specific terms, project performance and other variables that may arise as the Company makes progress toward completion.
Costs and estimated earnings in excess of billings represent the excess of contract costs and profits (or contract revenue) over the amount of contract billings to date and are classified as a current asset. Costs and estimated earnings in excess of billings result when either: (1) the appropriate contract revenue amount has been recognized over time in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”), but a portion of the revenue recorded cannot be billed currently due to the billing terms defined in the contract, or (2) costs are incurred related to certain claims and unapproved change orders. Claims occur when there is a dispute regarding both a change in the scope of work and the price associated with that change. Unapproved change orders occur when a change in the scope of work results in additional work being performed before the parties have agreed on the corresponding change in the contract price. The Company routinely estimates recovery related to claims and unapproved change orders as a form of variable consideration at the most likely amount it expects to receive and to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Claims and unapproved change orders are billable upon the agreement and resolution between the contractual parties and after the execution of contractual amendments. Increases in claims and unapproved change orders typically result from costs being incurred against existing or new positions; decreases normally result from resolutions and subsequent billings. As discussed in Note 11, the resolution of these claims and unapproved change orders may require litigation or other forms of dispute resolution proceedings. Other unbilled costs and profits are billable in accordance with the billing terms of each of the existing contractual arrangements and, as such, the timing of contract billing cycles can cause fluctuations in the balance of unbilled costs and profits. Ultimate resolution of other unbilled costs and profits typically involves incremental progress toward contractual requirements or milestones.
Capitalized contract costs primarily represent costs to fulfill a contract that (1) directly relate to an existing or anticipated contract, (2) generate or enhance resources that will be used in satisfying performance obligations in the future and (3) are expected to be recovered through the contract, and are included in other current assets. Capitalized contract costs are generally expensed to the associated contract over the period of anticipated use on the project. During the three months ended March 31, 2020 and 2019, $10.3 million and $5.7 million, respectively, of previously capitalized contract costs were amortized and recognized as expense on the related contracts.
Contract liabilities include amounts owed under retainage provisions and billings in excess of costs and estimated earnings. The amount as reported on the Condensed Consolidated Balance Sheets consisted of the following:
As of March 31, | As of December 31, | |||||
(in thousands) | 2020 | 2019 | ||||
Retainage payable | $ | 272,533 | $ | 252,181 | ||
Billings in excess of costs and estimated earnings | 891,164 | 844,389 | ||||
Total contract liabilities | $ | 1,163,697 | $ | 1,096,570 |
Retainage payable represents amounts invoiced to the Company by subcontractors where payments have been partially withheld pending the completion of certain milestones, other contractual conditions or upon the completion of the project. Generally, retainage payable is not remitted to subcontractors until the associated retainage receivable from customers is collected.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
Billings in excess of costs and estimated earnings represent the excess of contract billings to date over the amount of contract costs and profits (or contract revenue) recognized to date. The balance may fluctuate depending on the timing of contract billings and the recognition of contract revenue. Revenue recognized during the three months ended March 31, 2020 and 2019 and included in the opening billings in excess of costs and estimated earnings balances for each period totaled $429.5 million and $301.0 million, respectively.
(5) Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the amounts shown in the Condensed Consolidated Statements of Cash Flows:
As of March 31, | As of December 31, | |||||
(in thousands) | 2020 | 2019 | ||||
Cash and cash equivalents available for general corporate purposes | $ | 80,904 | $ | 43,760 | ||
Joint venture cash and cash equivalents | 117,218 | 149,925 | ||||
Cash and cash equivalents | 198,122 | 193,685 | ||||
Restricted cash | 5,956 | 8,416 | ||||
Total cash, cash equivalents and restricted cash | $ | 204,078 | $ | 202,101 |
Cash equivalents include short-term, highly liquid investments with maturities of three months or less when acquired. Cash and cash equivalents consist of amounts available for the Company’s general purposes, the Company’s proportionate share of cash held by the Company’s unconsolidated joint ventures and 100% of amounts held by the Company’s consolidated joint ventures. In both cases, cash held by joint ventures is available only for joint venture-related uses, including future distributions to joint venture partners.
Amounts included in restricted cash are primarily held as collateral to secure insurance-related contingent obligations, such as insurance claim deductibles, in lieu of letters of credit.
(6) Earnings Per Common Share (EPS)
Basic EPS and diluted EPS are calculated by dividing net income attributable to Tutor Perini Corporation by the following: for basic EPS, the weighted-average number of common shares outstanding during the period; and for diluted EPS, the sum of the weighted-average number of both outstanding common shares and potentially dilutive securities, which for the Company can include restricted stock units, unexercised stock options and the Convertible Notes, as defined in Note 6. The Company calculates9. In accordance with ASC 260, Earnings Per Share, the effectsettlement of these potentially dilutive securities using the treasury stock method.
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| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
(in thousands, except per common share amounts) | 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Net income attributable to Tutor Perini Corporation | $ | 23,584 |
| $ | 28,801 |
| $ | 67,444 |
| $ | 65,561 |
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Weighted-average common shares outstanding, basic |
| 49,775 |
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| 49,185 |
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| 49,602 |
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| 49,132 |
Effect of dilutive restricted stock units and stock options |
| 812 |
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| 915 |
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| 1,166 |
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| 517 |
Weighted-average common shares outstanding, diluted |
| 50,587 |
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| 50,100 |
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| 50,768 |
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| 49,649 |
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Earnings per common share: |
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Basic earnings per common share | $ | 0.47 |
| $ | 0.59 |
| $ | 1.36 |
| $ | 1.33 |
Diluted earnings per common share | $ | 0.47 |
| $ | 0.57 |
| $ | 1.33 |
| $ | 1.32 |
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Anti-dilutive shares not included above |
| 912 |
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| 610 |
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| 752 |
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| 1,339 |
With regard to diluted EPS and the impact of the Convertible Notes on the diluted EPS calculation, because the Company has the intent and ability to settle the principal amount of the Convertible Notes in cash, per Accounting Standards Codification (“ASC”) 260, Earnings Per Share, the settlement of the principal amount has no impact on diluted EPS.EPS because the Company has the intent and ability (due to its available liquidity and anticipated collections) to settle the principal amount in cash. See Note 9 for further discussion of the Convertible Notes. The Company calculates the effect of the potentially dilutive restricted stock units and stock options using the treasury stock method.
Three Months Ended March 31, | |||||
(in thousands, except per common share data) | 2020 | 2019 | |||
Net income (loss) attributable to Tutor Perini Corporation | $ | 17,371 | $ | (356) | |
Weighted-average common shares outstanding, basic | 50,338 | 50,098 | |||
Effect of dilutive restricted stock units and stock options | 498 | — | |||
Weighted-average common shares outstanding, diluted | 50,836 | 50,098 | |||
Net income (loss) attributable to Tutor Perini Corporation per common share: | |||||
Basic | $ | 0.35 | $ | (0.01) | |
Diluted | $ | 0.34 | $ | (0.01) | |
Anti-dilutive securities not included above | 2,209 | 4,518 |
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
For the three months ended March 31, 2019, all outstanding restricted stock units and stock options were excluded from the calculation of weighted-average diluted shares outstanding due to the net loss for the period.
(7) Income Taxes
The Company’s effective income tax rate was 16.4% for the three months ended March 31, 2020 and 31.7% for the three months ended March 31, 2019. The decrease in the effective income tax rate for the three and nine months ended September 30, 2017March 31, 2020 primarily reflects the favorable impact of the 2019 net operating loss (“NOL”), which is allowed to be carried back up to five years as a result of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), enacted on March 27, 2020. Under the CARES Act, the Company’s NOL generated in 2019 may be carried back to tax years when the federal statutory tax rate was 26.4% and 34.1%35% rather than the current rate of 21%, respectively, comparedconsequently generating a larger tax benefit from the NOL than that recognized prior to 39.9% and 40.6%the enactment of the CARES Act. The favorable impact resulting from the enactment of the CARES Act was partially offset by the unfavorable impact of the vesting of restricted stock units for which a large portion of the three and nine months ended September 30, 2016, respectively. share-based compensation expense recognized in prior periods will not be deductible for income tax purposes. The effective tax rate for both of the 2017 periods2019 period was favorably impacted by immaterial unfavorable nonrecurring items recognized during the releaseperiod. In addition, the effective tax rates for both periods also reflect increases due to state income taxes and decreases due to impacts of tax liabilities as a result of a statute expiration and earnings attributable to noncontrolling interests for which income taxes are not the responsibility of the Company.
(8) Goodwill and Intangible Assets
Goodwill
The effective tax ratefollowing table presents the changes in the carrying amount of goodwill since its inception through March 31, 2020:
Specialty | |||||||||||
(in thousands) | Civil | Building | Contractors | Total | |||||||
Gross goodwill | $ | 492,074 | $ | 424,724 | $ | 156,193 | $ | 1,072,991 | |||
Accumulated impairment | (286,931) | (424,724) | (156,193) | (867,848) | |||||||
Balance as of December 31, 2019 | 205,143 | — | — | 205,143 | |||||||
Current year activity | — | — | — | — | |||||||
Balance as of March 31, 2020 | $ | 205,143 | $ | — | $ | — | $ | 205,143 |
The Company tests the goodwill allocated to its reporting units for impairment annually on October 1, or more frequently if events or circumstances indicate it is more likely than not that the nine months ended September 30, 2017fair value of a reporting unit is less than its carrying amount. The Company performed its annual impairment test in the fourth quarter of 2019 using a weighted-average of an income and a market approach. These approaches utilize various valuation assumptions, and small changes to the assumptions could have a significant impact on the concluded fair value. Based on this assessment, the Company concluded goodwill was also favorably impacted by0t impaired since the tax benefits associated with share-based compensation. estimated fair value of the Civil reporting unit exceeded its carrying value. In addition, the Company determined that no triggering events occurred and no circumstances changed since the date of our annual impairment test that would more likely than not reduce the fair value of the Civil reporting unit below its carrying amount.
During the first quarter of 2017,2020, the novel coronavirus (“COVID-19”) pandemic, as well as the actions taken to contain and mitigate its public health effects, caused disruptions in domestic and global economies and financial markets. The vast majority of the Company’s projects, especially in its Civil reporting unit, have been designated as essential business, which allows the Company recognized tax benefits associated with share-based compensation underto continue its work on those projects. As such, the provisionsCompany’s and its Civil reporting unit’s operations were not significantly impacted during the three months ended March 31, 2020. However, due to the fluidity of ASU 2016-09, Improvementthe pandemic, uncertainties as to Employee Share-Based Payment Accounting,its scope and duration, and ongoing changes in the way that governments, businesses and individuals react and respond to the COVID-19 pandemic, the Company is unable at this time to accurately predict the pandemic’s future impact on the Company’s business, financial condition or performance. Among other things, governments could prohibit the continuation of certain projects that to date have been designated as discussed“essential” or could impose health, safety and other operational requirements on such projects that could result in Note 9. This tax benefit isdelays to or suspensions of such projects. In addition, employees and contractors working on such projects could be unable or unwilling to continue working on them, perhaps for extended periods. The COVID-19 pandemic also could negatively affect the ability of counterparties or joint venture partners to make required payments on a timely basis or at all.
The Company will continue to monitor events and circumstances for changes that indicate the Civil reporting unit goodwill would need to be reevaluated for impairment during future interim periods prior to the annual impairment test. These future events and
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
circumstances include, but are not limited to, changes in the overall financial performance of the Civil reporting unit, impacts to our business as a result of a greater tax deductionthe COVID-19 pandemic, as well as other quantitative and qualitative factors which could indicate potential triggering events for share-based compensationpossible impairment.
Intangible Assets
Intangible assets consist of the following:
As of March 31, 2020 | Weighted | |||||||||||||
Accumulated | Average | |||||||||||||
Accumulated | Impairment | Carrying | Amortization | |||||||||||
(in thousands) | Cost | Amortization | Charge | Value | Period | |||||||||
Trade names (non-amortizable) | $ | 117,600 | $ | — | $ | (67,190) | $ | 50,410 | Indefinite | |||||
Trade names (amortizable) | 74,350 | (21,889) | (23,232) | 29,229 | 20 years | |||||||||
Contractor license | 6,000 | — | (6,000) | — | N/A | |||||||||
Customer relationships | 39,800 | (21,311) | (16,645) | 1,844 | 12 years | |||||||||
Construction contract backlog | 149,290 | (81,315) | — | 67,975 | 3 years | |||||||||
Total | $ | 387,040 | $ | (124,515) | $ | (113,067) | $ | 149,458 |
As of December 31, 2019 | Weighted | |||||||||||||
Accumulated | Average | |||||||||||||
Accumulated | Impairment | Carrying | Amortization | |||||||||||
(in thousands) | Cost | Amortization | Charge | Value | Period | |||||||||
Trade names (non-amortizable) | $ | 117,600 | $ | — | $ | (67,190) | $ | 50,410 | Indefinite | |||||
Trade names (amortizable) | 74,350 | (21,267) | (23,232) | 29,851 | 20 years | |||||||||
Contractor license | 6,000 | — | (6,000) | — | N/A | |||||||||
Customer relationships | 39,800 | (21,048) | (16,645) | 2,107 | 12 years | |||||||||
Construction contract backlog | 149,290 | (76,388) | — | 72,902 | 3 years | |||||||||
Total | $ | 387,040 | $ | (118,703) | $ | (113,067) | $ | 155,270 |
Amortization expense for awards that vested or were exercisedeach of the quarters ended March 31, 2020 and 2019 was $5.8 million and $0.9 million, respectively. As of March 31, 2020, amortization expense is estimated to be $25.6 million for the remainder of 2020, $26.4 million in 2021, $24.6 million in 2022 and $2.5 million per year for the years 2023 through 2025.
The Company performed an annual impairment assessment of its non-amortizable trade names in the firstfourth quarter of 2017 relative2019 using a qualitative approach to determine whether conditions existed to indicate that it is more likely than not that the share-based compensation expense recognized under GAAP for these same awards. The effective tax rate forfair value of trade names is less than their carrying values. Based on this assessment, the third quarterCompany concluded that it was more likely than not that the fair value of 2016the non-amortizable trade names was favorably impacted by return-to-provision adjustments.greater than their carrying values, and therefore a quantitative analysis was not required. In addition, no triggering events occurred and no circumstances changed since the date of our annual impairment test that would indicate any additional impairment of the Company’s non-amortizable trade names.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
Costs and estimated earnings in excess of billings,NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
(9) Financial Commitments
Long-Term Debt
Long-term debt as reported on the Condensed Consolidated Balance Sheets consisted of the following:
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| As of September 30, |
| As of December 31, | ||
(in thousands) | 2017 |
| 2016 | ||
Claims | $ | 505,069 |
| $ | 477,425 |
Unapproved change orders |
| 295,204 |
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| 207,475 |
Other unbilled costs and profits |
| 102,039 |
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| 146,926 |
Total costs and estimated earnings in excess of billings | $ | 902,312 |
| $ | 831,826 |
As of March 31, | As of December 31, | ||||
(in thousands) | 2020 | 2019 | |||
2017 Senior Notes | $ | 494,585 | $ | 494,365 | |
2017 Credit Facility | 175,000 | 114,000 | |||
Convertible Notes | 185,156 | 182,292 | |||
Equipment financing and mortgages | 44,861 | 39,159 | |||
Other indebtedness | 2,731 | 4,660 | |||
Total debt | 902,333 | 834,476 | |||
Less: Current maturities | 184,954 | 124,054 | |||
Long-term debt, net | $ | 717,379 | $ | 710,422 |
Claims and unapproved change orders are billable upon the resolution of any disputed or open items between the contractual parties and the execution of contractual amendments. Increases in claims and unapproved change orders typically result from costs being incurred against existing or new positions where recovery is concluded to be both probable and reliably estimable; decreases normally result from resolutions and subsequent billings. For both claims and unapproved change orders, the Company recognizes revenue, but
8
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
not profit. Other unbilled costs and profits are billable in accordance with the billing terms of each of the existing contractual arrangements and, as such, the timing of contract billing cycles can cause fluctuations in the balance of unbilled costs and profits. Ultimate resolution of other unbilled costs and profits typically involves the passage of time and, often, incremental progress toward contractual requirements or milestones.
(6) Financial Commitments
Long-Term Debt
Long-term debt consisted of the following as of the dates of the Condensed Consolidated Balance Sheets presented:
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| As of September 30, |
| As of December 31, | ||
(in thousands) | 2017 |
| 2016 | ||
2017 Senior Notes | $ | 492,545 |
| $ | — |
2017 Credit Facility |
| 146,942 |
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| — |
2010 Senior Notes |
| — |
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| 298,120 |
2014 Revolver |
| — |
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| 147,990 |
Term Loan |
| — |
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| 54,650 |
Convertible Notes |
| 159,314 |
|
| 152,668 |
Equipment financing, mortgages and acquisition-related notes |
| 83,156 |
|
| 101,558 |
Other indebtedness |
| 4,319 |
|
| 4,533 |
Total debt |
| 886,276 |
|
| 759,519 |
Less – current maturities |
| (30,951) |
|
| (85,890) |
Long-term debt, net | $ | 855,325 |
| $ | 673,629 |
The following table reconciles the outstanding debt balance to the reported debt balances as of September 30, 2017March 31, 2020 and December 31, 2016:2019:
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|
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|
|
|
|
|
|
|
|
| As of September 30, 2017 |
| As of December 31, 2016 | ||||||||||||||
(in thousands) | Outstanding Long-Term Debt |
| Unamortized Discounts and Issuance Costs |
| Long-Term Debt, as reported |
| Outstanding Long-Term Debt |
| Unamortized Discounts and Issuance Costs |
| Long-Term Debt, as reported | ||||||
2017 Senior Notes | $ | 500,000 |
| $ | (7,455) |
| $ | 492,545 |
| $ | — |
| $ | — |
| $ | — |
2017 Credit Facility |
| 153,500 |
|
| (6,558) |
|
| 146,942 |
|
| — |
|
| — |
|
| — |
2010 Senior Notes |
| — |
|
| — |
|
| — |
|
| 300,000 |
|
| (1,880) |
|
| 298,120 |
2014 Revolver |
| — |
|
| — |
|
| — |
|
| 152,500 |
|
| (4,510) |
|
| 147,990 |
Term Loan |
| — |
|
| — |
|
| — |
|
| 57,000 |
|
| (2,350) |
|
| 54,650 |
Convertible Notes |
| 200,000 |
|
| (40,686) |
|
| 159,314 |
|
| 200,000 |
|
| (47,332) |
|
| 152,668 |
As of March 31, 2020 | As of December 31, 2019 | ||||||||||||||||
(in thousands) | Outstanding Long-Term Debt | Unamortized Discount and Issuance Costs | Long-Term Debt, as reported | Outstanding Long-Term Debt | Unamortized Discount and Issuance Costs | Long-Term Debt, as reported | |||||||||||
2017 Senior Notes | $ | 500,000 | $ | (5,415) | $ | 494,585 | $ | 500,000 | $ | (5,635) | $ | 494,365 | |||||
Convertible Notes | 200,000 | (14,844) | 185,156 | 200,000 | (17,708) | 182,292 |
Debt TransactionsThe unamortized issuance costs related to the 2017 Credit Facility were $3.3 million and $3.7 million as of March 31, 2020 and December 31, 2019, respectively, and are included in other assets in the Condensed Consolidated Balance Sheets.
2017 Senior Notes
On April 20, 2017, the Company issued $500 million in aggregate principal amount of 6.875% Senior Notes due 2025 (the “2017 Senior Notes”) in a private placement.placement offering. Interest on the 2017 Senior Notes is payable in arrears semi-annually in May and November of each year, beginning in November 2017.
Prior to May 1, 2020, the Company may redeemcould have redeemed the 2017 Senior Notes at a redemption price equal to 100% of their principal amount plus a “make-whole” premium described in the indenture. In addition, prior to May 1, 2020, the Company may redeemalso could have redeemed up to 40% of the original aggregate principal amount of the notes at a redemption price of 106.875% of their principal amount with the proceeds received by the Company from any offering of the Company’s equity. AfterSince May 1, 2020, the Company may redeem the 2017 Senior Notes at specified redemption prices described in the indenture. Upon a change of control, holders of the 2017 Senior Notes may require the Company to repurchase all or part of the 2017 Senior Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the redemption date.
9
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
The 2017 Senior Notes are senior unsecured obligations of the Company and are guaranteed by substantially all of the Company’s existing and future subsidiaries that also guarantee obligations under the Company’s 2017 Credit Facility, as defined below. In addition, the indenture for the 2017 Senior Notes provides for customary covenants, including events of default and restrictions on the payment of dividends and share repurchases.
2017 Credit Facility
On April 20, 2017, the Company entered into a credit agreement (the “2017 Credit Facility”) with SunTrust Bank, now known as Truist Bank, as Administrative Agent, Swing Line Lender and L/C Issuer and a syndicate of other lenders. The 2017 Credit Facility provides for a $350 million revolving credit facility (the “2017 Revolver”) and a sublimit for the issuance of letters of credit and swingline loans up to the aggregate amount of $150 million and $10 million, respectively, both maturing on April 20, 2022 unless any
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
of the Convertible Notes, as defined below, are outstanding on December 17, 2020, in which case all such borrowings will mature on December 17, 2020 (subject to certain further exceptions). In addition,(the “spring-forward provision”), provided however (i) if the Convertible Notes are refinanced in full with the proceeds of permitted refinancing indebtedness in accordance with the terms of the 2017 Credit Facility, the maturity date for the 2017 Credit Facility will remain April 20, 2022 and (ii) if the Company issues “New Convertible Notes” (as defined in the 2017 Credit Facility) and retires the Convertible Notes in full, the maturity date for the 2017 Credit Facility will be the earlier of (x) April 20, 2022 or (y) 90 days prior to the maturity date for such New Convertible Notes. The 2017 Credit Facility also permits additional borrowings in an aggregate amount of $150 million, which can be in the form of increased capacity on the 2017 Revolver or the establishment of one or more term loans.
Borrowings under the 2017 Revolver bear interest, at the Company’s option, at a rate equal to a margin over (a) the London Interbank Offered Rate (“LIBOR”)LIBOR plus a margin of between 1.50% and 3.00% or (b) a base rate (determined by reference to the highest of (i) the administrative agent’s prime lending rate, (ii) the federal funds effective rate plus 50 basis points, (iii) the LIBOR rate for a one-month interest period plus 100 basis points and (iv) 0%), plus a margin of between 0.50% and 2.00%, in each case based on the Consolidated Leverage Ratio (as defined in the 2017 Credit Facility). In addition to paying interest on outstanding principal under the 2017 Credit Agreement,Facility, the Company will pay a commitment fee to the lenders under the 2017 Revolver in respect of the unutilized commitments thereunder. The Companywill pay customary letter of credit fees. If an event of default occurs and is continuing, the otherwise applicable margin and letter of credit fees will be increased by 2% per annum. The weighted-average annual interest rate on borrowings under the 2017 Revolver was approximately 3.86%4.20% during the first ninethree months of 2017.ended March 31, 2020.
The 2017 Credit Facility contains customary covenants for credit facilities of this type, including maximum consolidated leverage ratios ranging from 4.00:1.00 to 3.25:1.00 over the life of the facility and a minimum consolidated fixed charge coverage ratio of 1.25:1.00. On May 7, 2019, certain provisions of the 2017 Credit Facility were amended, including setting the maximum leverage ratio at 3.50:1.00 for the remainder of its term, thus eliminating the step down from 3.50:1:00 to 3.25:1.00. Substantially all of the Company’s subsidiaries unconditionally guarantee the obligations of the Company under the 2017 Credit Facility; additionally, the obligations are secured by a lien on all personal property of the Company and its subsidiaries guaranteeing these obligations.
As of September 30, 2017,March 31, 2020, there was $197$175 million available under the 2017 Revolver, and the Company had not utilized the 2017 Credit Facility for letters of credit. The Company was in compliance with the financial covenants under the 2017 Credit Facility as of September 30, 2017.March 31, 2020.
Repurchase and RedemptionAs a result of 2010 Seniorthe spring-forward provision mentioned above, the facility will mature on December 17, 2020 if the Convertible Notes and Termination of 2014 Credit Facility
On April 20, 2017,remain outstanding at that time. The Company does not have call rights that allow it to unilaterally redeem the Convertible Notes. However, the Company used proceedsintends to seek to repurchase the Convertible Notes in 2020 using available liquidity. Subject to certain limitations, the Company is permitted to utilize available credit capacity from the 2017 Senior Notes and 2017 RevolverCredit Facility to repurchase or redeem its 2010 Senior Notes, to pay off its Term Loan and 2014 Revolver, and to pay accrued but unpaid interest and fees. In addition, the indenture governing the 2010 Senior Notes was satisfied and discharged, andConvertible Notes. Alternatively, the Company terminatedmay pursue amendment of the 2014 Credit Facility.
2010 Senior Notes
On October 20, 2010, the Company issued $300 million of 7.625% Senior Notes due November 1, 2018 (the “2010 Senior Notes”) in a private placement offering. As discussed above, on April 20, 2017 the Company repurchased or redeemed the 2010 Senior Notes in full and the related indenture was satisfied and discharged.
2014 Credit Facility
On June 5, 2014, the Company entered into a Sixth Amended and Restated Credit Agreement, as amended (the “2014 Credit Facility”), with Bank of America, N.A. as Administrative Agent, Swing Line Lender and L/C Issuer and a syndicate of other lenders. The 2014 Credit Facility provided for a $300 million revolving credit facility (the “2014 Revolver”), a $250 million term loan (the “Term Loan”) and a sublimit forand/or exchange the issuance of letters of credit upConvertible Notes. The Company continues to assess its various alternatives to determine the financial strategy best suited to the aggregate amount of $150 million, all maturing on May 1, 2018. Borrowings under bothCompany’s needs and that will provide the 2014 Revolvermost favorable terms, taking into account the Company’s liquidity requirements and anticipated cash flows. Due to the Term Loan bore interest based either on Bank of America’s prime lending rate orspring-forward provision in the London Interbank Offered Rate (“LIBOR”), each plus an applicable margin ranging from 1.25% to 3.00%, contingent upon the latest Consolidated Leverage Ratio.
10
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
As discussed above, on April 20, 2017 the Company repaidCredit Facility, all borrowings under the 2014 Credit Facility and concurrently terminatedfacility are included in “Current maturities of long-term debt” on the facility.Condensed Consolidated Balance Sheet as of March 31, 2020.
Convertible Notes
On June 15, 2016, the Company issued $200 million of 2.875% Convertible Senior Notes due June 15, 2021 (the “Convertible Notes”) in a private placement offering. The Convertible Notes are unsecured obligations of the Company and do not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by the Company. The Convertible Notes bear interest at a rate of 2.875% per year, payable in cash semi-annually in June and December. If the Convertible Notes remain outstanding at maturity, at the Company’s election, the Company may pay off the notes with cash, shares of its common stock or a combination thereof.
Prior to January 15, 2021, the Convertible Notes will be convertible only under the following circumstances: (1) during the five business day period after any ten10 consecutive trading day period in which the trading price per $1,000 principal amount of Convertible Notes for such trading day was less than 98% of the product of the last reported sale price of ourthe Company’s common stock and the conversion rate on each such trading day; (2) if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion rate of 33.0579 (or $39.32) on each applicable trading day; or (3) upon the occurrence of specified corporate events. On or after January 15, 2021 until the close of business on the second scheduled
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
trading day immediately preceding the maturity date, holders may convert all or any portion of their notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.
The Convertible Notes will be convertible at an initial conversion rate of 33.0579 shares of the Company’s common stock per $1,000 principal amount of the Convertible Notes, which is equivalent to an initial conversion price of approximately $30.25. The conversion rate will be subject to adjustment for some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, the Company is required to increase, in certain circumstances, the conversion rate for a holder who elects to convert their Convertible Notes in connection with such a corporate event including customary conversion rate adjustments in connection with a “make-whole fundamental change” described in the indenture. Upon conversion, and at the Company’s election, the Company may satisfy its conversion obligation by paying or delivering, as applicable,with cash, shares of its common stock or a combination of cash and shares of its common stock.thereof. As of September 30, 2017,March 31, 2020, the conversion provisions of the Convertible Notes have not been triggered.
11
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
Interest Expense
Interest expense as reported in the Condensed Consolidated Statements of Operations consistsconsisted of the following:
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| |||||||
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| |||||||
| Three Months Ended |
| Nine Months Ended | Three Months Ended | ||||||||||||
| September 30, |
| September 30, | March 31, | ||||||||||||
(in thousands) | 2017 |
| 2016 |
| 2017 |
| 2016 | 2020 | 2019 | |||||||
Cash interest expense: |
|
|
|
|
|
|
|
|
|
| ||||||
Interest on 2017 Senior Notes | $ | 8,593 |
| $ | — |
| $ | 15,373 |
| $ | — | $ | 8,594 | $ | 8,594 | |
Interest on 2017 Credit Facility |
| 2,035 |
|
| — |
| 3,526 |
| — | 2,415 | 2,645 | |||||
Interest on 2010 Senior Notes |
| — |
|
| 5,719 |
| 6,926 |
| 17,156 | |||||||
Interest on 2014 Credit Facility |
| — |
|
| 3,553 |
| 4,455 |
| 15,943 | |||||||
Interest on Convertible Notes |
| 1,438 |
|
| 1,438 |
| 4,313 |
| 1,677 | 1,437 | 1,438 | |||||
Other interest |
| 802 |
|
| 556 |
| 2,495 |
| 2,755 | 504 | 574 | |||||
Cash portion of loss on extinguishment |
| — |
|
| — |
|
| 1,913 |
| — | ||||||
Total cash interest expense |
| 12,868 |
|
| 11,266 |
|
| 39,001 |
| 37,531 | 12,950 | 13,251 | ||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Non-cash interest expense:(a) |
|
|
|
|
|
|
|
|
| |||||||
Amortization of discount and debt issuance costs on Convertible Notes | 2,864 | 2,608 | ||||||||||||||
Amortization of debt issuance costs on 2017 Credit Facility | 402 | 361 | ||||||||||||||
Amortization of debt issuance costs on 2017 Senior Notes |
| 185 |
|
| — |
| 326 |
| — | 220 | 205 | |||||
Amortization of debt issuance costs on 2017 Credit Facility |
| 322 |
|
| — |
| 603 |
| — | |||||||
Amortization of discount and debt issuance costs on 2010 Senior Notes |
| — |
|
| 251 |
| 308 |
| 750 | |||||||
Amortization of debt issuance costs on 2014 Credit Facility |
| — |
|
| 1,458 |
| 1,703 |
| 3,969 | |||||||
Amortization of discount and debt issuance costs on Convertible Notes |
| 2,268 |
|
| 2,066 |
| 6,646 |
| 2,405 | |||||||
Non-cash portion of loss on extinguishment |
| — |
|
| — |
|
| 5,139 |
| — | ||||||
Total non-cash interest expense |
| 2,775 |
|
| 3,775 |
|
| 14,725 |
| 7,124 | 3,486 | 3,174 | ||||
|
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|
|
|
|
|
|
|
|
| ||||||
Total interest expense | $ | 15,643 |
| $ | 15,041 |
| $ | 53,726 |
| $ | 44,655 | $ | 16,436 | $ | 16,425 |
____________________________________________________________________________________________________
(a)The combination of cash and non-cash interest expense produces effective interest rates that are higher than contractual rates. Accordingly, the effective interest rates for the 2017 Senior Notes and the Convertible Notes were 7.13% and 9.39%, respectively, for the ninethree months ended September 30, 2017.March 31, 2020.
(7) Contingencies(10) Leases
The Company leases certain office space, construction and Commitmentsoffice equipment, vehicles and temporary housing generally under non-cancelable operating leases. Leases with an initial term of one year or less are not recorded on the balance sheet, and the Company generally recognizes lease expense for these leases on a straight-line basis over the lease term. As of March 31, 2020, the Company’s operating leases have remaining lease terms ranging from less than one year to 10 years, some of which include options to renew the leases. The exercise of lease renewal options is generally at the Company’s sole discretion. The Company’s leases do not contain any material residual value guarantees or material restrictive covenants.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
The following table presents components of lease expense for the three months ended March 31, 2020 and 2019:
Three Months Ended | ||||||
March 31, | ||||||
(in thousands) | 2020 | 2019 | ||||
Operating lease expense | $ | 3,767 | $ | 3,781 | ||
Short-term lease expense(a) | 17,265 | 16,571 | ||||
21,032 | 20,352 | |||||
Less: Sublease income | 329 | 259 | ||||
Total lease expense | $ | 20,703 | $ | 20,093 |
____________________________________________________________________________________________________
(a)Short-term lease expense includes all leases with lease terms ranging from less than one month to one year. Short-term leases include, among other things, construction equipment rented on an as-needed basis as well as temporary housing.
The following table presents supplemental balance sheet information related to operating leases:
As of March 31, | As of December 31, | |||||
(dollars in thousands) | Balance Sheet Line Item | 2020 | 2019 | |||
Assets | ||||||
ROU assets | Other assets | $ | 37,262 | $ | 40,156 | |
Total lease assets | $ | 37,262 | $ | 40,156 | ||
Liabilities | ||||||
Current lease liabilities | Accrued expenses and other current liabilities | $ | 10,511 | $ | 11,392 | |
Long-term lease liabilities | Other long-term liabilities | 29,883 | 31,900 | |||
Total lease liabilities | $ | 40,394 | $ | 43,292 | ||
Weighted-average remaining lease term (in years) | 4.9 | 5.0 | ||||
Weighted-average discount rate | 5.99% | 5.96% |
The following table presents supplemental cash flow information and non-cash activity related to operating leases:
Three Months Ended | ||||||
March 31, | ||||||
(in thousands) | 2020 | 2019 | ||||
Operating cash flow information: | ||||||
Cash paid for amounts included in the measurement of lease liabilities | $ | (3,770) | $ | (3,765) | ||
Non-cash activity: | ||||||
ROU assets obtained in exchange for lease liabilities | $ | 132 | $ | 1,798 |
The following table presents maturities of operating lease liabilities on an undiscounted basis as of March 31, 2020:
Year (in thousands) | Operating Leases | ||
2020 (excluding the three months ended March 31, 2020) | $ | 9,948 | |
2021 | 9,438 | ||
2022 | 8,034 | ||
2023 | 6,761 | ||
2024 | 5,093 | ||
Thereafter | 7,618 | ||
Total lease payments | 46,892 | ||
Less: Imputed interest | 6,498 | ||
Total | $ | 40,394 |
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
(11) Commitments and Contingencies
The Company and certain of its subsidiaries are involved in litigation and areother legal proceedings and forms of dispute resolution in the ordinary course of business, including but not limited to disputes over contract payment and/or performance-related issues (such as disagreements regarding delay or a change in the scope of work of a project and/or the price associated with that change) and other matters incidental to the Company’s business. In accordance with ASC 606, the Company makes assessments of these types of matters on a routine basis and, to the extent permitted by ASC 606, estimates and records recovery related to these matters as a form of variable consideration at the most likely amount the Company expects to receive, as discussed further in Note 4. In addition, the Company is contingently liable for commitmentslitigation, performance guarantees and performance guaranteesother commitments arising in the ordinary course of business. The Companybusiness, which are accounted for in accordance with ASC 450, Contingencies. Management reviews these matters regularly and certain ofupdates or revises its customers have made claims arising from the performance under their contracts. The Company recognizes certain significant claims for recovery of incurred cost when it is probable that the claim will result in additional contract revenueestimates as warranted by subsequent information and when the amount of the claim can be reliably estimated.developments. These assessments require judgments concerning matters that are inherently uncertain, such as litigation developments and outcomes, the anticipated outcome of negotiations the number of future claims, and the estimated cost of both pendingresolving disputes. Consequently, these assessments are estimates, and future claims.actual amounts may vary from such estimates. In addition, because most contingenciessuch matters are typically resolved over long periods of time, the Company’s assets and liabilities may change inover time should the future due to various factors.circumstances dictate. The description of the legal proceedings listed below include management’s assessment of those proceedings. Management believes that, based on current information and discussions with the Company’s legal counsel, the ultimate resolution of theseother matters is not expected to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
Several matters are in the litigation and dispute resolution process. The following discussion provides a background and current statusA description of the more significant matters.
Long Island Expressway/Cross Island Parkway Matter
The Company reconstructed the Long Island Expressway/Cross Island Parkway Interchange for the New York State Department of Transportation (the “NYSDOT”). The $130 million project was substantially completed in January 2004 and was accepted by the NYSDOT as complete in February 2006. The Company incurred significant added costs in completing its work and suffered extended schedule costs due to numerous design errors, undisclosed utility conflicts, lack of coordination with local agencies andmaterial pending legal proceedings, other interferences for which the Company believes the NYSDOT is responsible.
12
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
In March 2011, the Company filed its claim and complaint with the New York State Court of Claims and servedthan ordinary routine litigation incidental to the New York State Attorney General’s Office, seeking damages in the amount of $53.8 million. In May 2011, the NYSDOT filed a motion to dismiss the Company’s claim on the grounds that the Company had not provided required documentation for project closeout and filing of a claim. In September 2011, the Company reached agreement on final payment with the Comptroller’s Office on behalf of the NYSDOT, which resulted in an amount of $0.5 million payable to the Company and formally closed out the project allowing the Company to re-file its claim. The Company re-filed its claim in the amount of $53.8 million with the NYSDOT in February 2012 and with the Court of Claims in March 2012. In May 2012, the NYSDOT served its answer and counterclaims in the amount of $151 million alleging fraud in the inducement and punitive damages related to disadvantaged business enterprise (“DBE”) requirements for the project. The Court subsequently ruled that NYSDOT’s counterclaims may only be assertedis as a defense and offset to the Company’s claims and not as affirmative claims. In November 2014, the Appellate Division First Department affirmed the dismissal of the City’s affirmative defenses and affirmative counterclaims based on DBE fraud. The Company does not expect the counterclaims to have any material effect on its consolidated financial statements.follows:
Management has made an estimate of the total anticipated recovery on this project, and such estimate is included in revenue recorded to date. To the extent new facts become known or the final recovery included in the claim settlement varies from the estimate, the impact of the change will be reflected in the consolidated financial statements at that time.
Fontainebleau Matter
Desert Mechanical, Inc. (“DMI”) and Fisk Electric Company (“Fisk”), wholly owned subsidiaries of the Company, were subcontractors on the Fontainebleau Project in Las Vegas (“Fontainebleau”), a hotel/casino complex with approximately 3,800 rooms. In June 2009, Fontainebleau filed for bankruptcy protection, under Chapter 11 of the U.S. Bankruptcy Code, in the Southern District of Florida.
DMI and Fisk filed liens in Nevada for approximately $44 million, representing unreimbursed costs to date and lost profits, including anticipated profits. Other unaffiliated subcontractors have also filed liens. In June 2009, DMI filed suit against Turnberry West Construction, Inc., the general contractor, in the 8th Judicial District Court, Clark County, Nevada (the “District Court”), and in May 2010, the court entered an order in favor of DMI for approximately $45 million.
In January 2010, the Bankruptcy Court approved the sale of the property to Icahn Nevada Gaming Acquisition, LLC, and this transaction closed in February 2010. As a result of a July 2010 ruling relating to certain priming liens, there was approximately $125 million set aside from this sale that is available for distribution to satisfy the creditor claims based on seniority. At that time, the total estimated sustainable lien amount was approximately $350 million. The project lender filed suit against the mechanic’s lien claimants, including DMI and Fisk, alleging that certain mechanic’s liens are invalid and that all mechanic’s liens are subordinate to the lender’s claims against the property. The Nevada Supreme Court ruled in October 2012 in an advisory opinion at the request of the Bankruptcy Court that lien priorities would be determined in favor of the mechanic lien holders under Nevada law.
In October 2013, a settlement was reached by and among the Statutory Lienholders and the other interested parties. The Bankruptcy Court appointed a mediator to facilitate the execution of that settlement agreement, but the parties were unable to settle. During the third quarter of 2017, DMI filed a motion seeking permission to file an action in Nevada; the motion was granted by the Bankruptcy Court.
Management has made an estimate of the total anticipated recovery on this project, and such estimate is included in revenue recorded to date. To the extent new facts become known or the final recovery included in the claim settlement varies from the estimate, the impact of the change will be reflected in the consolidated financial statements at that time.
Honeywell Street/Queens Boulevard Bridges Matter
In 1999, the Company was awarded a contract for reconstruction of the Honeywell Street/Queens Boulevard Bridges project for the City of New York (the “City”). In June 2003, after substantial completion of the project, the Company initiated an action to recover $8.8 million in claims against the City on behalf of itself and its subcontractors. In March 2010, the City filed counterclaims for $74.6 million and other relief, alleging fraud in connection with the DBE requirements for the project. In May 2010, the Company served the City with its response to the City’s counterclaims and affirmative defenses. In August 2013, the Court granted the Company’s motion to dismiss the City’s affirmative defenses and counterclaims relating to fraud.
13
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
In January 2017, the Court granted the City’s motion for summary judgment and dismissed the Company’s claim against the City. The Company has filed a notice of appeal. The Court also granted the Company’s motion for summary judgment for release of retention plus interest from 2010 for an aggregate amount of approximately $1.2 million.
The Company does not expect ultimate resolution of this matter to have a material effect on its consolidated financial statements.
Westgate Planet Hollywood Matter
Tutor-Saliba Corporation (“TSC”), a wholly owned subsidiary of the Company, was contracted to construct a timeshare development project in Las Vegas, which was substantially completed in December 2009. The Company’s claims against the owner, Westgate Planet Hollywood Las Vegas, LLC (“WPH”), relate to unresolved owner change orders and other claims. The Company filed a lien on the project in the amount of $23.2 million and filed its complaint with the District Court, Clark County, Nevada. Several subcontractors have also recorded liens, some of which have been released by bonds and some of which have been released as a result of subsequent payment. WPH has posted a mechanic’s lien release bond for $22.3 million.
WPH filed a cross-complaint alleging non-conforming and defective work for approximately $51 million, primarily related to alleged defects, misallocated costs and liquidated damages. WPH revised the amount of their counterclaims to approximately $45 million.
Following multiple post-trial motions, final judgment was entered in this matter on March 20, 2014. TSC was awarded total judgment in the amount of $19.7 million on its breach of contract claim, which includes an award of interest up through the date of judgment, plus attorney’s fees and costs. WPH was awarded total judgment in the amount of $3.1 million on its construction defect claims, which includes interest up through the date of judgment. WPH and its Sureties have filed a notice of appeal. TSC has filed a notice of appeal on the defect award. In July 2014, the Court ordered WPH to post an additional supersedeas bond on appeal, in the amount of $1.7 million, in addition to the lien release bond of $22.3 million, which increases the security up to $24.0 million. In May 2017, the Nevada Supreme Court issued its ruling on the appeal by WPH and its Sureties. With only minor adjustments, the Nevada Supreme Court affirmed the lower district court’s judgment, and following further proceedings in the lower district court, the anticipated final recovery to the Company is estimated to exceed $20 million, including interest and recovery of certain attorneys’ fees and costs.
The Company does not expect ultimate resolution of this matter to have any material effect on its consolidated financial statements. Management has made an estimate of the total anticipated recovery on this project and such estimate is included in revenue recorded to date. To the extent new facts become known or the final recovery included in the claim settlement varies from the estimate, the impact of the change will be reflected in the consolidated financial statements at that time.
U.S. Department of Commerce, National Oceanic and Atmospheric Administration Matter
Rudolph and Sletten, Inc. (“R&S”), a wholly owned subsidiary of the Company, entered into a contract with the United States Department of Commerce, National Oceanic and Atmospheric Administration (“NOAA”) for the construction of a 287,000 square-foot facility for NOAA’s Southwest Fisheries Science Center Replacement Headquarters and Laboratory in La Jolla, California. The contract work began on May 24, 2010 and was substantially completed in September 2012. R&S incurred significant additional costs as a result of design errors and omissions, NOAA’s unwillingness to correct design flaws in a timely fashion and a refusal to negotiate the time and pricing associated with change order work. R&S filed claims against NOAA for contract adjustments related to the unresolved owner change orders, delays, design deficiencies and other claims.
In March 2017, the parties agreed to a proposed settlement, which was subsequently approved and paid by the government in the third quarter of 2017. The settlement did not have a material impact on the Company’s financial results for the three and nine months ended September 30, 2017.
Five Star Electric Matter
In the third quarter of 2015, Five Star Electric Corp. ("(“Five Star"Star”), a wholly owned subsidiary of the Company that was acquired in 2011, entered into a tolling agreement (which has since expired) related to an ongoing investigation being conducted by the United States Attorney’s Office for the Eastern District of New York (“USAO EDNY”). Five Star has been cooperating with the USAO EDNY since late June 2014, when it was first made aware of the investigation, and has provided information requested by the government related to its use of certain minority-owned, women-owned, small and disadvantaged business enterprises and certain of Five Star’s employee compensation, benefit and tax practices.
14
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
As of September 30, 2017,March 31, 2020, the Company cannot predict the ultimate outcome of the investigation and cannot reasonably estimate the potential loss or range of loss that Five Star or the Company may incur or the impact of the results of the investigation on Five Star or the Company.
Alaskan Way Viaduct Matter
In January 2011, Seattle Tunnel Partners (“STP”), a joint venture between Dragados USA, Inc. and the Company, entered into a design-build contract with the Washington State Department of Transportation (“WSDOT”) for the construction of a large diameter bored tunnel in downtown Seattle, King County, Washington to replace the Alaskan Way Viaduct, also known as State Route 99. The Company has a 45% interest in STP.
The construction of the large diameter bored tunnel required the use of a tunnel boring machine (“TBM”). In December 2013, the TBM struck a steel pipe, installed by WSDOT as a well casing for an exploratory well. The TBM was significantly damaged and was required to be shut down for repair.repaired. STP has asserted that the steel pipe casing was a differing site condition that WSDOT failed to properly disclose. The Disputes Review Board mandated by the contract to hear disputes issued a decision finding the steel casing was a Type I (material) differing site condition. WSDOT hasdid not acceptedaccept that finding.
The TBM was insured under a Builder’s Risk Insurance Policy (the “Policy”) with Great Lakes Reinsurance (UK) PLC and a consortium of other insurers (the “Insurers”). STP submitted the claims to the Insurers and requested interim payments under the Policy. The Insurers refused to pay and denied coverage. In June 2015, STP filed a lawsuit in the King County Superior Court, State of Washington (“Washington Superior Court”) seeking declaratory relief concerning contract interpretation, as well as damages as a result of the Insurers’ breach of their obligations under the terms of the Policy. STP is also asserting extra-contractual and statutory claims against the Insurers. WSDOT is deemed a plaintiff since WSDOT is an insured under the Policy and had filed its own claim for damages. Hitachi Zosen (“Hitachi”), the manufacturer of the TBM, has also joined the case as a plaintiff for costs incurred to repair the damages to the TBM. Trial
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
In September 2018, rulings received on pre-trial motions effectively limited potential recovery under the Policy for STP, WSDOT and Hitachi. However, on December 19, 2018, the Court of Appeal granted the Company’s request for a discretionary appeal of those rulings. The appeal is scheduled for October 2018. Discovery is ongoing.expected to be heard in mid to late 2020. STP submitted damages to the Insurers in the King County lawsuit in the amount of $532 million. STP also sought these damages from WSDOT related to the pipe-strike by the TBM in a related lawsuit in Thurston County (see following paragraph).
In March 2016, WSDOT filed a complaint against STP in Thurston County Superior Court foralleging breach of contract, alleging STP’s delaysseeking $57.2 million in delay-related damages and failure to perform andseeking declaratory relief concerning contract interpretation. STP filed its answer to WSDOT’s complaint and filed a counterclaim against WSDOT and Hitachi. TrialHitachi, as the TBM designer, seeking damages of $667 million. On October 3, 2019, STP and Hitachi entered into a settlement agreement which released and dismissed the claims that STP and Hitachi had against each other. The jury trial between STP and WSDOT commenced on October 7, 2019 and concluded on December 13, 2019, with a jury verdict in favor of WSDOT awarding them $57.2 million in damages. Judgment was entered on January 10, 2020, and a notice of appeal was filed by STP on January 17, 2020. The appeal is setexpected to be heard in 2021.
The Company recorded the impact of the jury verdict during the fourth quarter of 2019, resulting in a pre-tax charge of $166.8 million. The charge includes a pre-tax accrual of $25.7 million (which is the Company’s 45% proportionate share of the $57.2 million in damages awarded by the jury to WSDOT). Payment of damages will only be made if the adverse verdict is upheld on appeal, as the payment is secured by a bond for the course of the appeal. Other than the possible future payment in cash of $25.7 million in damages, the charge is for non-cash write-downs primarily related to the costs and estimated earnings in excess of billings and receivables that the Company previously recorded to reflect its expected recovery in this case.
With respect to STP’s direct and indirect claims against the Insurers, management has included in receivables an estimate of the total anticipated recovery concluded to be probable.
George Washington Bridge Bus Station Matter
In August 2013, Tutor Perini Building Corporation (“TPBC”) entered into a contract with the George Washington Bridge Bus Station Development Venture, LLC (the “Developer”) to renovate the George Washington Bridge Bus Station, a mixed-use facility owned by the Port Authority of New York and New Jersey (the “Port Authority”) that serves as a transit facility and retail space. The $100 million project experienced significant design errors and associated delays, resulting in damages to TPBC and its subcontractors, including WDF and Five Star, wholly owned subsidiaries of the Company. The project reached substantial completion on May 16, 2017.
On February 26, 2015, the Developer filed a demand for arbitration, subsequently amended, seeking $30 million in alleged damages and declaratory relief that TPBC’s requests for additional compensation are invalid due to lack of notice. TPBC denied the Developer’s claims and filed a counterclaim in March 2018. TPBC seeks in excess of $113 million in the arbitration, which includes unpaid contract balance claims, the return of $29 million retained by the Developer in alleged damages, as well as extra work claims, pass-through claims and delay claims.
Hearings on the merits commenced on September 24, 2018 before the arbitration panel. On June 2018. Discovery4, 2019, the arbitration panel, as confirmed by the U.S. District Court in the Southern District of New York, issued a writ of attachment for $23 million of the $29 million discussed above. On October 7, 2019, the Developer filed for bankruptcy protection in the Southern District of New York under Chapter 11 of the Bankruptcy Code. The filing for bankruptcy stayed the pending arbitration proceedings. TPBC appeared in the bankruptcy proceedings on October 8, 2019 and filed a Proof of Claim in the amount of $113 million on December 13, 2019. On May 13, 2020, the bankruptcy court will conduct a hearing to determine whether the lenders or the contractors are entitled to the proceeds of any sale of the leasehold, which is ongoing.the only property in the Developer’s bankruptcy estate, according to the bankruptcy filings. However, as of May 1, 2020, the sale of the leasehold has been delayed due to the COVID-19 pandemic.
Separately, on July 2, 2018, TPBC filed a lawsuit against the Port Authority, as owner of the project, and STV Incorporated, as designer, seeking the same $113 million in damages. On August 20, 2018, the Port Authority filed a motion to dismiss, which was denied by the court on July 1, 2019. The Port Authority appealed this decision on July 15, 2019. On December 2, 2019, the Court of Appeal denied the Port Authority’s request to stay the trial court action pending the appeal. As a result, the lawsuit is proceeding against the Port Authority before the trial court. On January 13, 2020, the court dismissed STV Incorporated from the case.
On January 27, 2020, the Company filed separate litigation in the U.S. District Court for the Southern District of New York in which the Company asserted claims against individual owners of the Developer for their wrongful conversion of project funds and against certain lenders that received interest payments from project funds and other amounts earmarked to pay the contractors. On
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
April 20, 2020, motions to dismiss the case were filed on behalf of the defendants.
As of September 30, 2017,March 31, 2020, the Company has concluded that the potential for a material adverse financial impact due to the Insurers’ denial of coverage and WSDOT’s legal actionsDeveloper’s claims is neither probable nor remote, and the potential loss or range of loss is not reasonably estimable.remote. With respect to STP’sTPBC’s claims against the Insurers, WSDOTDeveloper and Hitachi,the Port Authority, management has includedmade an estimate of the total anticipated recovery concluded to be both probableon this project, and reliably estimable,such estimate is included in receivables or costs and estimated earnings in excess of billingsrevenue recorded to date. To the extent new facts become known or the final recoveries vary from the estimate, the impact
(12) Share-Based Compensation
As of the change will be reflected in the financial statements at that time.
(8) Other Income, Net
On MayMarch 31, 2017, the Company entered into a settlement agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”), as successor in interest to Banc2020, there were 1,379,266 shares of America Securities LLC and Bank of America, N.A. (collectively “BofA”), to resolve the pending litigation between the Company and Merrill Lynch. The litigation, which was filed by the Company in 2011, related to the purchase by the Company of certain auction-rate securities from BofA.
On June 6, 2017, the Company received the $37.0 million cash settlement payment agreed to in the settlement agreement, and the pending litigation was dismissed with prejudice. Neither party made any admission of liability or wrongdoing, and the settlement agreement includes mutual releases of all claims and liabilities related to the subject matter of the pending litigation.
The Company recognized the settlement as a gain during the second quarter of 2017 and reported it as a component of other income, net in its Condensed Consolidated Statement of Operationscommon stock available for the nine months ended September 30, 2017.
15
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
(9) Share-Based Compensation
On April 3, 2017, the Company adoptedgrant under the Tutor Perini Corporation Omnibus Incentive Compensation Plan (“Compensation Plan”), which was approved by the Company’s shareholders on May 24, 2017. The Compensation Plan provides for various types of share-based grants, including restricted and unrestricted stock units and stock options. Restricted and unrestricted stock units give the holder the right to exchange their stock units for shares of the Company’s common stock on a one-for-one basis. Stock options give the holder the right to purchase shares of the Company’s common stock at an exercise price equal to the fair value of the Company’s common stock on the date of the stock option’s award. Restricted stock units and stock options are usually subject to certain service and performance conditions and may not be sold or otherwise transferred until those restrictions have been satisfied; however, unrestricted stock units have no such restrictions. The term for stock options is limited to 10 years from the date of grant. The Compensation Plan allows for 2,335,000 shares of the Company’s common stock to be issued. As of September 30, 2017, there were 1,839,364 shares available to be granted under this plan.
The Company’s Amended and Restated Tutor Perini Corporation Long-Term Incentive Plan (“Incentive Plan”) is still active. The Incentive Plan is described, and informational disclosures are provided, in the Notes to Consolidated Financial Statements included in the Form 10-K for the year ended December 31, 2016. As of September 30, 2017, there were 405,529 shares authorized to be issued under the Incentive Plan; however, as discussed in the Company’s Definitive Proxy Statement (Schedule 14A) filed on April 13, 2017, the Company will not issue these shares. As of September 30, 2017, the Incentive Plan had an aggregate of 4,360,018 of restricted stock units and stock options from outstanding, historical awards that either have not vested or have vested but have not been exercised.
Plan. During the first ninethree months of 20172020 and 2016,2019, the Company issued in total from both the Compensation Plan and the Incentive Plan, the following share-based instruments: (1) restricted stock units of 1,055,000totaling 75,000 and 483,387 at175,000 with weighted-average fair values per share prices of $30.03$13.93 and $19.14,$20.41, respectively; and (2) stock options totaling 75,000 and 85,000 with weighted-average fair values per share of 530,000$3.94 and 274,000 at$7.57, respectively, and weighted-average per share exercise prices of $24.64$25.70 and $16.20, respectively; (3)$25.62, respectively.
The fair value of restricted and unrestricted stock units is based on the closing price of 99,155the Company’s common stock on the New York Stock Exchange on the date of the grant and 64,603 atthe fair value of stock options is based on the Black-Scholes model. The fair value of stock options granted during the first three months of 2020 was determined using the Black-Scholes model based on the following weighted-average per share pricesassumptions: (i) expected life of $26.266.0 years, (ii) expected volatility of 44.91%, (iii) risk-free rate of 1.56%, and $21.67, respectively.(iv) 0 quarterly dividends. Certain performance-based awards contain market condition components and are valued on the date of grant using a Monte Carlo simulation model.
Effective January 1, 2017,
For the three months ended March 31, 2020 and 2019, the Company prospectively adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718), which simplifies several aspectsrecognized, as part of the accountinggeneral and administrative expenses, costs for share-based payment transactions, includingarrangements totaling $4.5 million and $5.5 million, respectively. As of March 31, 2020, the accounting for the income tax effectbalance of share-based transactions and the forfeiture of share-based instruments. Upon this adoption, the Company elected an accounting policy requiring forfeitures of share-based instruments to be accounted for upon occurrence. As a result, the Company will recognize the full grant-date fair value of share-based awards throughout the requisite service period, with any adjustments for forfeitures recognized only if and when a forfeiture occurs. This policy notwithstanding, the Company will continue to assess the probability that performance targets will be achieved, and will adjustunamortized share-based compensation expense accordingly. During the nine months ended September 30, 2017, a total of 20,985 performance-based restricted stock units, withwas $18.1 million, which is expected to be recognized over a weighted-average per share priceperiod of $23.91, and 19,466 performance-based stock options, with a weighted-average per share exercise price of $26.56, were forfeited; however, the impact of these forfeitures was not recognized during this period because it was previously recognized in the fourth quarter of 2016 in accordance with the provisions of ASC 718, Compensation-Stock Compensation.1.8 years.
16
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
(10) (13) Employee Pension Plans
The Company has a defined benefit pension plan and an unfunded supplemental retirement plan. Effective SeptemberJune 1, 2004, all benefit accruals under these plans were frozen; however, the current vested benefit was preserved. The pension disclosure presented below includes aggregated amounts for both of the Company’s plans.
The following table sets forth a summary of the net periodic benefit cost for the three and nine months ended September 30, 2017March 31, 2020 and 2016:2019:
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| Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||
(in thousands) | 2017 |
| 2016 |
| 2017 |
| 2016 | 2020 | 2019 | |||||||
Interest cost | $ | 975 |
| $ | 1,053 |
| $ | 2,925 |
| $ | 3,159 | $ | 758 | $ | 948 | |
Expected return on plan assets |
| (1,088) |
| (1,203) |
| (3,264) |
| (3,609) | (1,006) | (1,043) | ||||||
Amortization of net loss |
| 456 |
| 427 |
| 1,368 |
| 1,281 | 592 | 463 | ||||||
Other |
| 213 |
| 150 |
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| 639 |
| 450 | 231 | 225 | |||||
Net periodic benefit cost | $ | 556 |
| $ | 427 |
| $ | 1,668 |
| $ | 1,281 | $ | 575 | $ | 593 |
The Company contributed $2.0$1.3 million and $1.3$0.7 million to its defined benefit pension plan during the nine monthsthree-month periods ended September 30, 2017March 31, 2020 and 2016,2019, respectively, and expects to contribute an additional $0.6$2.8 million later in 2017.by the end of 2020.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
(14) Fair Value Measurements
The fair value hierarchy established by ASC 820, Fair Value Measurement, prioritizes the use of inputs used in valuation techniques into the following three levels:
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Level 1 inputs are observable quoted prices in active markets for identical assets or liabilities
Level 2 inputs are observable, either directly or indirectly, but are not Level 1 inputs
Level 3 inputs are unobservable
The following fair value hierarchy table presents the Company’s assets that are measured at fair value on a recurring basis as of September 30, 2017March 31, 2020 and December 31, 2016:2019:
As of March 31, 2020 | As of December 31, 2019 | |||||||||||||||||||||||
Fair Value Hierarchy | Fair Value Hierarchy | |||||||||||||||||||||||
(in thousands) | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Cash and cash equivalents(a) | $ | 198,122 | $ | — | $ | — | $ | 198,122 | $ | 193,685 | $ | — | $ | — | $ | 193,685 | ||||||||
Restricted cash(a) | 5,956 | — | — | 5,956 | 8,416 | — | — | 8,416 | ||||||||||||||||
Restricted investments(b) | — | 75,409 | — | 75,409 | — | 70,974 | — | 70,974 | ||||||||||||||||
Investments in lieu of retainage(c) | 94,519 | 1,103 | — | 95,622 | 89,572 | 1,219 | — | 90,791 | ||||||||||||||||
Total | $ | 298,597 | $ | 76,512 | $ | — | $ | 375,109 | $ | 291,673 | $ | 72,193 | $ | — | $ | 363,866 |
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(in thousands) |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||
Cash and cash equivalents (a) |
| $ | 221,878 |
| $ | — |
| $ | — |
| $ | 221,878 |
| $ | 146,103 |
| $ | — |
| $ | — |
| $ | 146,103 |
Restricted cash (a) |
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| 17,424 |
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Investments in lieu of retainage (b) |
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| 59,161 |
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| 46,855 |
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| 4,411 |
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| 51,266 |
Total |
| $ | 295,404 |
| $ | 3,059 |
| $ | — |
| $ | 298,463 |
| $ | 243,462 |
| $ | 4,411 |
| $ | — |
| $ | 247,873 |
(a)Includes money market funds and short-term investments with original maturity dates of three months or less.less when acquired.
(b)Restricted investments, as of March 31, 2020, consist of investments in corporate debt securities of $35.6 million, U.S. government agency securities of $38.3 million and corporate certificates of deposits of $1.5 million with maturities of up to five years, and are valued based on pricing models, which are determined from a compilation of primarily observable market information, broker quotes in non-active markets or similar assets and are therefore classified as Level 2 assets. As of December 31, 2019, restricted investments consisted of investments in corporate debt securities of $35.8 million, U.S. government agency securities of $33.8 million and corporate certificates of deposits of $1.4 million with maturities of up to five years. The amortized cost of these available-for-sale securities at March 31, 2020 and December 31, 2019 was not materially different from the fair value.
(c)Investments in lieu of customer retainage are included in accountsretainage receivable and as of March 31, 2020 are comprised of money market funds of $94.5 million and municipal bonds the majority of which are rated A3 or better.$1.1 million. The fair values of the money market funds are measured using quoted market prices; therefore, they are classified as Level 1 assets. The fair values of municipal bonds are measured using readily available pricing sources for comparable instruments; therefore, they are classified as Level 2 assets. AllAs of December 31, 2019, investments in lieu of retainage consisted of money market funds of $89.6 million and municipal bonds of $1.2 million. The amortized cost of these available-for-sale securities at March 31, 2020 and December 31, 2019 was not materially different from the above investments are available-for-sale securities.fair value.
The Company did not have material transfers between Levels 1 and 2 during the nine months ended September 30, 2017 or 2016.
The carrying values of receivables, payables and other amounts arising out of normal contract activities, including retainage, which may be settled beyond one year, are estimated to approximate fair value. The Company has restricted investments with an aggregate fair value of $48.7 million as of September 30, 2017, determined using Level 2 inputs. Restricted investments are held as collateral to secure insurance related contingent obligations. They are comprised of various corporate bonds and bank notes that are rated A3 or better and have maturities within the Company’s operating cycle. These restricted investments are held-to-maturity securities carried at amortized cost of $48.8 million as of September 30, 2017. Of the Company’s long-term debt, the fair value of the 2017 Senior Notes was $416.3 million and $485.0 million as of September 30, 2017 was $537.5 million.March 31, 2020 and December 31, 2019, respectively. The fair value of the 2010 Senior Notes as of December 31, 2016 was $302.6 million; the 2010 Senior Notes were redeemed in the second quarter of 2017, as discussed in Note 6. The fair value of the
17
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
Convertible Notes was $231.9$184.5 million and $228.4$193.4 million as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively. The fair values of the 2017 Senior Notes, 2010 Senior Notes and Convertible Notes were determined using Level 1 inputs, specifically current observable market prices. The reported value of the Company’s remaining long-term debt at September 30, 2017borrowings approximates fair value as of March 31, 2020 and December 31, 2016 approximates fair value.2019.
(12) (15) Variable Interest Entities (“VIE”)(VIEs)
From time to time theThe Company may form joint ventures or partnerships with third parties for the execution of single contracts or projects. In accordance with ASC 810, Consolidation(“ASC 810”), the Company assesses its partnerships and joint ventures at inception to determine if any meet the qualifications of a VIE. The Company considers a joint venture a VIE if either (a) the total equity investment is not sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) characteristics of a controlling financial interest are missing (either the ability to make decisions through voting or other rights, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity), or (c) the voting rights of the equity holders are not proportional to their obligations to absorb the expected losses of the entity and/or their rights to receive the expected residual returns of the entity, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. Upon the occurrence of certain events outlined in ASC 810, the Company reassesses its initial determination of whether the joint venture is a VIE.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
ASC 810 also requires the Company to determine whether it is the primary beneficiary of the VIE. The Company concludes that it is the primary beneficiary and consolidates the VIE if the Company has both (a) the power to direct the economically significant activities of the VIE and (b) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. The Company considers the contractual agreements that define the ownership structure, distribution of profits and losses, risks, responsibilities, indebtedness, voting rights and board representation of the respective parties in determining if the Company is the primary beneficiary. The Company also considers all parties that have direct or implicit variable interests when determining whether it is the primary beneficiary. In accordance with ASC 810, management’s assessment of whether the Company is the primary beneficiary of a VIE is performed continuously.
As of September 30, 2017,March 31, 2020, the Company had consolidatedunconsolidated VIE-related current assets of $115.4 million and liabilities of $96.9$0.7 million all of which are classified as current and are$0.7 million, respectively, included in the Company’s Condensed Consolidated Balance Sheet. As of December 31, 2019, the Company had unconsolidated VIE-related current assets and liabilities of $1.5 million and $1.4 million, respectively, included in the Company’s Condensed Consolidated Balance Sheet. The Company’s maximum exposure to loss as a result of its investments in unconsolidated VIEs is typically limited to the aggregate of the carrying value of the investment and future funding commitments. There were no future funding requirements for the unconsolidated VIEs as of March 31, 2020.
One largeAs of March 31, 2020, the Company’s Condensed Consolidated Balance Sheet included current and noncurrent assets of $339.1 million and $43.3 million, respectively, as well as current liabilities of $531.9 million related to the operations of its consolidated VIEs. As of December 31, 2019, the Company’s Condensed Consolidated Balance Sheet included current and noncurrent assets of $365.0 million and $52.0 million, respectively, as well as current liabilities of $556.1 million related to the operations of its consolidated VIEs.
Below is a discussion of some of the Company’s more significant or unique VIEs.
The Company established a joint venture that the Company is consolidating was established to construct the Purple Line SegmentExtension Section 2 Extension project, a $1.4 billion(Tunnels and Stations) and Section 3 (Stations) mass-transit projectprojects in Los Angeles, California.California with a combined value of approximately $2.8 billion. The Company has a 75% interest in the joint venture with the remaining 25% held by O&G Industries, Inc. The joint venture was initially financed with contributions from the partners and, per the terms of the joint venture agreement, the partners may be required to provide additional capital contributions in the future. The Company has determined that this joint venture is a VIE for which the Company is the primary beneficiary.
(13) The Company also established a joint venture with Parsons Corporation (“Parsons”) to construct the Newark Liberty International Airport Terminal One project, a $1.4 billion transportation infrastructure project in Newark, New Jersey. The Company has an 80% interest in the joint venture with the remaining 20% held by Parsons. The joint venture was initially financed with contributions from the partners and, per the terms of the joint venture agreement, the partners may be required to provide additional capital contributions in the future. The Company has determined that this joint venture is a VIE for which the Company is the primary beneficiary.
(16) Changes in Equity
A reconciliation of the changes in equity for the three months ended March 31, 2020 and 2019 is provided below:
Three Months Ended March 31, 2020 | |||||||||||||||||
Accumulated | |||||||||||||||||
Additional | Other | ||||||||||||||||
Common | Paid-in | Retained | Comprehensive | Noncontrolling | Total | ||||||||||||
(in thousands) | Stock | Capital | Earnings | Loss | Interests | Equity | |||||||||||
Balance - December 31, 2019 | $ | 50,279 | $ | 1,117,972 | $ | 313,991 | $ | (42,100) | $ | (9,617) | $ | 1,430,525 | |||||
Net income | — | — | 17,371 | — | 8,767 | 26,138 | |||||||||||
Other comprehensive loss | — | — | — | (1,028) | (2,020) | (3,048) | |||||||||||
Share-based compensation | — | 3,507 | — | — | — | 3,507 | |||||||||||
Issuance of common stock, net | 298 | (992) | — | — | — | (694) | |||||||||||
Distributions to noncontrolling interests | — | — | — | — | (13,500) | (13,500) | |||||||||||
Balance - March 31, 2020 | $ | 50,577 | $ | 1,120,487 | $ | 331,362 | $ | (43,128) | $ | (16,370) | $ | 1,442,928 |
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
Three Months Ended March 31, 2019 | |||||||||||||||||
Accumulated | |||||||||||||||||
Additional | Other | ||||||||||||||||
Common | Paid-in | Retained | Comprehensive | Noncontrolling | Total | ||||||||||||
(in thousands) | Stock | Capital | Earnings | Loss | Interests | Equity | |||||||||||
Balance - December 31, 2018 | $ | 50,026 | $ | 1,102,919 | $ | 701,681 | $ | (45,449) | $ | (21,288) | $ | 1,787,889 | |||||
Net income (loss) | — | — | (356) | — | 5,078 | 4,722 | |||||||||||
Other comprehensive income | — | — | — | 1,249 | 102 | 1,351 | |||||||||||
Share-based compensation | — | 4,783 | — | — | — | 4,783 | |||||||||||
Issuance of common stock, net | 154 | (2,518) | — | — | — | (2,364) | |||||||||||
Contributions from noncontrolling interests | — | — | — | — | 2,798 | 2,798 | |||||||||||
Distributions to noncontrolling interests | — | — | — | — | (4,000) | (4,000) | |||||||||||
Balance - March 31, 2019 | $ | 50,180 | $ | 1,105,184 | $ | 701,325 | $ | (44,200) | $ | (17,310) | $ | 1,795,179 |
(17) Other Comprehensive Income (Loss)
ASC 220, Comprehensive Income, establishes standards for reporting and displaying comprehensive income and its components in the consolidated financial statements. The Company reports the change in pension benefit plan assets/liabilities, cumulative foreign currency translation and change in fair value of investments and change in fair value of an interest rate swap as components of accumulated other comprehensive lossincome (loss) (“AOCI”).
The tax effects of the components of other comprehensive income (loss) and the related tax effects for the three months ended September 30, 2017March 31, 2020 and 2016 are2019 were as follows:
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| Three Months Ended |
| Three Months Ended | Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||
| September 30, 2017 |
| September 30, 2016 | March 31, 2020 | March 31, 2019 | |||||||||||||||||||||||||||||
(in thousands) | Before-Tax Amount |
| Tax Expense |
| Net-of-Tax Amount |
| Before-Tax Amount |
| Tax (Expense) Benefit |
| Net-of-Tax Amount | Before-Tax Amount | Tax (Expense) Benefit | Net-of-Tax Amount | Before-Tax Amount | Tax (Expense) Benefit | Net-of-Tax Amount | |||||||||||||||||
Other comprehensive income (loss): |
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Defined benefit pension plan adjustments | $ | 456 |
| $ | (187) |
| $ | 269 |
| $ | 427 |
| $ | (179) |
| $ | 248 | $ | 591 | $ | (168) | $ | 423 | $ | 463 | $ | (133) | $ | 330 | |||||
Foreign currency translation adjustments |
| 1,232 |
| (506) |
| 726 |
| (708) |
| 297 |
| (411) | (4,927) | 914 | (4,013) | 479 | (131) | 348 | ||||||||||||||||
Unrealized gain (loss) in fair value of investments |
| 21 |
| (9) |
| 12 |
|
| (145) |
| 66 |
| (79) | |||||||||||||||||||||
Unrealized gain in fair value of investments | 757 | (215) | 542 | 858 | (185) | 673 | ||||||||||||||||||||||||||||
Total other comprehensive income (loss) |
| 1,709 |
| (702) |
| 1,007 |
|
| (426) |
| 184 |
| (242) | (3,579) | 531 | (3,048) | 1,800 | (449) | 1,351 | |||||||||||||||
Other comprehensive income (loss) attributable to Tutor Perini Corporation | $ | 1,709 |
| $ | (702) |
| $ | 1,007 |
| $ | (426) |
| $ | 184 |
| $ | (242) | |||||||||||||||||
Less: Other comprehensive income (loss) attributable to noncontrolling interests(a) | (2,020) | — | (2,020) | 102 | — | 102 | ||||||||||||||||||||||||||||
Total other comprehensive income (loss) attributable to Tutor Perini Corporation | $ | (1,559) | $ | 531 | $ | (1,028) | $ | 1,698 | $ | (449) | $ | 1,249 |
(a)The only component of other comprehensive income (loss) attributable to noncontrolling interests is foreign currency translation.
The tax effects of the components of other comprehensive income (loss) for the nine months ended September 30, 2017 and 2016 are as follows:
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| Nine Months Ended | ||||||||||||||
| September 30, 2017 |
| September 30, 2016 | ||||||||||||||
(in thousands) | Before-Tax Amount |
| Tax (Expense) Benefit |
| Net-of-Tax Amount |
| Before-Tax Amount |
| Tax (Expense) Benefit |
| Net-of-Tax Amount | ||||||
Other comprehensive income: |
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Defined benefit pension plan adjustments | $ | 1,368 |
| $ | (562) |
| $ | 806 |
| $ | 1,280 |
| $ | (461) |
| $ | 819 |
Foreign currency translation adjustment |
| 2,242 |
|
| (921) |
|
| 1,321 |
|
| 500 |
|
| (239) |
|
| 261 |
Unrealized loss in fair value of investments |
| (20) |
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| 8 |
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| (12) |
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| (403) |
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| 179 |
|
| (224) |
Unrealized loss in fair value of interest rate swap |
| — |
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| — |
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| — |
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| (45) |
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| 21 |
|
| (24) |
Total other comprehensive income |
| 3,590 |
|
| (1,475) |
|
| 2,115 |
|
| 1,332 |
|
| (500) |
|
| 832 |
Other comprehensive income attributable to Tutor Perini Corporation | $ | 3,590 |
| $ | (1,475) |
| $ | 2,115 |
| $ | 1,332 |
| $ | (500) |
| $ | 832 |
The changes in AOCI balances by component (after tax) attributable to Tutor Perini Corporation during the three and nine months ended September 30, 2017 areMarch 31, 2020 and 2019 were as follows:
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| Three Months Ended September 30, 2017 | Three Months Ended March 31, 2020 | ||||||||||||||||||||
| Defined |
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| Unrealized |
| Accumulated | Defined | Unrealized | Accumulated | ||||||||||||
| Benefit |
| Foreign |
| Gain in |
| Other | Benefit | Foreign | Gain (Loss) in | Other | |||||||||||
| Pension |
| Currency |
| Fair Value of |
| Comprehensive | Pension | Currency | Fair Value of | Comprehensive | |||||||||||
(in thousands) | Plan |
| Translation |
| Investments, Net |
| Loss | Plan | Translation | Investments, Net | Income (Loss) | |||||||||||
Attributable to Tutor Perini Corporation: |
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Balance as of June 30, 2017 | $ | (40,328) |
| $ | (4,269) |
| $ | 292 |
| $ | (44,305) | |||||||||||
Other comprehensive gain before reclassifications |
| — |
| 726 |
| 12 |
| 738 | ||||||||||||||
Balance as of December 31, 2019 | $ | (37,826) | $ | (5,371) | $ | 1,097 | $ | (42,100) | ||||||||||||||
Other comprehensive income (loss) before reclassifications | — | (1,993) | 546 | (1,447) | ||||||||||||||||||
Amounts reclassified from AOCI | 423 | — | (4) | 419 | ||||||||||||||||||
Total other comprehensive income (loss) | 423 | (1,993) | 542 | (1,028) | ||||||||||||||||||
Balance as of March 31, 2020 | $ | (37,403) | $ | (7,364) | $ | 1,639 | $ | (43,128) | ||||||||||||||
Attributable to Tutor Perini Corporation: | ||||||||||||||||||||||
Balance as of December 31, 2018 | $ | (38,670) | $ | (6,315) | $ | (464) | $ | (45,449) | ||||||||||||||
Other comprehensive income before reclassifications | — | 246 | 665 | 911 | ||||||||||||||||||
Amounts reclassified from AOCI |
| 269 |
| — |
| — |
| 269 | 330 | — | 8 | 338 | ||||||||||
Total other comprehensive income |
| 269 |
| 726 |
| 12 |
| 1,007 | 330 | 246 | 673 | 1,249 | ||||||||||
Balance as of September 30, 2017 | $ | (40,059) |
| $ | (3,543) |
| $ | 304 |
| $ | (43,298) | |||||||||||
Balance as of March 31, 2019 | $ | (38,340) | $ | (6,069) | $ | 209 | $ | (44,200) |
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| Nine Months Ended September 30, 2017 | ||||||||||
| Defined |
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| Unrealized |
| Accumulated | ||||
| Benefit |
| Foreign |
| Gain (Loss) in |
| Other | ||||
| Pension |
| Currency |
| Fair Value of |
| Comprehensive | ||||
(in thousands) | Plan |
| Translation |
| Investments, Net |
| Loss | ||||
Attributable to Tutor Perini Corporation: |
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Balance as of December 31, 2016 | $ | (40,865) |
| $ | (4,864) |
| $ | 316 |
| $ | (45,413) |
Other comprehensive gain (loss) before reclassifications |
| — |
|
| 1,321 |
|
| (12) |
|
| 1,309 |
Amounts reclassified from AOCI |
| 806 |
|
| — |
|
| — |
|
| 806 |
Total other comprehensive income (loss) |
| 806 |
|
| 1,321 |
|
| (12) |
|
| 2,115 |
Balance as of September 30, 2017 | $ | (40,059) |
| $ | (3,543) |
| $ | 304 |
| $ | (43,298) |
19
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
The changes in AOCI balance by component (after tax) for the three and nine months ended September 30, 2016 are as follows:
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| Three Months Ended September 30, 2016 | |||||||||||||
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| Unrealized |
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| Defined |
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| Unrealized |
| Gain (Loss) in |
| Accumulated | |||||
| Benefit |
| Foreign |
| Gain (Loss) in |
| Fair Value of |
| Other | |||||
| Pension |
| Currency |
| Fair Value of |
| Interest Rate |
| Comprehensive | |||||
(in thousands) | Plan |
| Translation |
| Investments, Net |
| Swap, Net |
| Loss | |||||
Attributable to Tutor Perini Corporation: |
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Balance as of June 30, 2016 | $ | (37,671) |
| $ | (3,931) |
| $ | 511 |
| $ | — |
| $ | (41,091) |
Other comprehensive loss before reclassifications |
| — |
|
| (411) |
|
| (79) |
|
| — |
|
| (490) |
Amounts reclassified from AOCI |
| 248 |
|
| — |
|
| — |
|
| — |
|
| 248 |
Total other comprehensive income (loss) |
| 248 |
|
| (411) |
|
| (79) |
|
| — |
|
| (242) |
Balance as of September 30, 2016 | $ | (37,423) |
| $ | (4,342) |
| $ | 432 |
| $ | — |
| $ | (41,333) |
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| Nine Months Ended September 30, 2016 | |||||||||||||
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| Unrealized |
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| Defined |
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| Unrealized |
| Gain (Loss) in |
| Accumulated | |||||
| Benefit |
| Foreign |
| Gain (Loss) in |
| Fair Value of |
| Other | |||||
| Pension |
| Currency |
| Value of |
| Interest Rate |
| Comprehensive | |||||
(in thousands) | Plan |
| Translation |
| Investments, Net |
| Swap, Net |
| Loss | |||||
Attributable to Tutor Perini Corporation: |
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Balance as of December 31, 2015 | $ | (38,242) |
| $ | (4,603) |
| $ | 656 |
| $ | 24 |
| $ | (42,165) |
Other comprehensive gain (loss) before reclassifications |
| — |
|
| 261 |
|
| (224) |
|
| (24) |
|
| 13 |
Amounts reclassified from AOCI |
| 819 |
|
| — |
|
| — |
|
| — |
|
| 819 |
Total other comprehensive income (loss) |
| 819 |
|
| 261 |
|
| (224) |
|
| (24) |
|
| 832 |
Balance as of September 30, 2016 | $ | (37,423) |
| $ | (4,342) |
| $ | 432 |
| $ | — |
| $ | (41,333) |
The significant items reclassified out of AOCI and the corresponding location and impact on the Condensed Consolidated Statement of Operations are as follows:
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| Location in |
| Three Months Ended |
| Nine Months Ended | ||||||||
|
| Condensed Consolidated |
| September 30, |
| September 30, | ||||||||
(in thousands) |
| Statements of Operations |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Defined benefit pension plan adjustments |
| Various accounts(a) |
| $ | 456 |
| $ | 427 |
| $ | 1,368 |
| $ | 1,280 |
Income tax benefit |
| Provision for income taxes |
|
| (187) |
|
| (179) |
|
| (562) |
|
| (461) |
Net of tax |
|
|
| $ | 269 |
| $ | 248 |
| $ | 806 |
| $ | 819 |
(a)Defined benefit pension plan adjustments were reclassified to cost of operations and general and administrative expenses.
20
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
(14) (18) Business Segments
The Company offers general contracting, pre-construction planning and comprehensive project management services, including planning and scheduling of manpower, equipment, materials and subcontractors required for the timely completion of a project in accordance with the terms and specifications contained in a construction contract. The Company also offers self-performed construction services: site work;work, concrete forming and placement;placement, steel erection; electrical; mechanical; plumbing;erection, electrical, mechanical, plumbing, and heating,HVAC (heating, ventilation and air conditioning (HVAC)conditioning). As described below, ourthe Company’s business is conducted through three3 segments: Civil, Building and Specialty Contractors. These segments are determined based on how the Company’s Chairman and Chief Executive Officer (chief operating decision maker) aggregates business units when evaluating performance and allocating resources.
The Civil segment specializes in public works construction and the replacement and reconstruction of infrastructure. The civil contracting services provided by the Civil segment include construction and rehabilitation of highways, bridges, tunnels, mass-transit systems, and water management and wastewater treatment facilities.
The Building segment has significant experience providing services for private and public works customers in a number of specialized building markets, including: high-rise residential, hospitality and gaming, transportation, health care, commercial and government offices, sports and entertainment, education, correctional facilities, biotech, pharmaceutical, industrial and high-tech.technology.
The Specialty Contractors segment specializes in electrical, mechanical, plumbing, HVAC, fire protection systems and pneumatically placed concrete for a full range of civil and building construction projects in the industrial, commercial, hospitality and gaming, and mass-transit end markets. This segment provides the Company with unique strengths and capabilities that allow the Company to position itself as a full-service contractor with greater control over scheduled work, project delivery, and cost and risk management.
To the extent that a contract is co-managed and co-executed among segments, the Company allocates the share of revenues and costs of the contract to each segment to reflect the shared responsibilities in the management and execution of the project.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
The following tables set forth certain reportable segment information relating to the Company’s operations for the three and nine months ended September 30, 2017March 31, 2020 and 2016:2019:
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| Reportable Segments |
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| Reportable Segments | ||||||||||||||||||||||||||
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| Consolidated | Specialty | Consolidated | |||||||||||||||||
(in thousands) | Civil |
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| Building |
| Contractors |
| Total |
| Corporate |
| Total | Civil | Building | Contractors | Total | Corporate | Total | ||||||||||||||||
Three Months Ended September 30, 2017 |
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Three Months Ended March 31, 2020 | ||||||||||||||||||||||||||||||||||
Total revenue | $ | 458,487 |
| $ | 500,420 |
| $ | 310,137 |
| $ | 1,269,044 |
| $ | — |
| $ | 1,269,044 | $ | 580,087 | $ | 505,082 | $ | 282,452 | $ | 1,367,621 | $ | — | $ | 1,367,621 | |||||
Elimination of intersegment revenue |
| (62,667) |
|
| (6,872) |
|
| — |
|
| (69,539) |
|
| — |
|
| (69,539) | (93,458) | (23,318) | (116) | (116,892) | — | (116,892) | |||||||||||
Revenue from external customers | $ | 395,820 |
| $ | 493,548 |
| $ | 310,137 |
| $ | 1,199,505 |
| $ | — |
| $ | 1,199,505 | $ | 486,629 | $ | 481,764 | $ | 282,336 | $ | 1,250,729 | $ | — | $ | 1,250,729 | |||||
Income from construction operations | $ | 38,144 |
| $ | 14,058 |
| $ | 14,575 |
| $ | 66,777 |
| $ | (17,705) | (a) | $ | 49,072 | |||||||||||||||||
Income (loss) from construction operations | $ | 46,121 | $ | 3,516 | $ | 8,279 | $ | 57,916 | $ | (10,689) | (a) | $ | 47,227 | |||||||||||||||||||||
Capital expenditures | $ | 1,248 |
| $ | 36 |
| $ | 81 |
| $ | 1,365 |
| $ | 164 |
| $ | 1,529 | $ | 11,192 | $ | 12 | $ | 473 | $ | 11,677 | $ | 16 | $ | 11,693 | |||||
Depreciation and amortization (b) | $ | 5,213 |
| $ | 502 |
| $ | 1,166 |
| $ | 6,881 |
| $ | 2,824 |
| $ | 9,705 | $ | 18,616 | $ | 427 | $ | 993 | $ | 20,036 | $ | 2,775 | $ | 22,811 | |||||
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Three Months Ended September 30, 2016 |
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Three Months Ended March 31, 2019 | ||||||||||||||||||||||||||||||||||
Total revenue | $ | 506,100 |
| $ | 560,795 |
| $ | 331,613 |
| $ | 1,398,508 |
| $ | — |
| $ | 1,398,508 | $ | 383,622 | $ | 436,243 | $ | 191,527 | $ | 1,011,392 | $ | — | $ | 1,011,392 | |||||
Elimination of intersegment revenue |
| (47,277) |
|
| (18,253) |
|
| — |
|
| (65,530) |
|
| — |
|
| (65,530) | (50,128) | (2,777) | — | (52,905) | — | (52,905) | |||||||||||
Revenue from external customers | $ | 458,823 |
| $ | 542,542 |
| $ | 331,613 |
| $ | 1,332,978 |
| $ | — |
| $ | 1,332,978 | $ | 333,494 | $ | 433,466 | $ | 191,527 | $ | 958,487 | $ | — | $ | 958,487 | |||||
Income from construction operations | $ | 50,307 |
| $ | 13,296 |
| $ | 11,084 |
| $ | 74,687 |
| $ | (13,768) | (a) | $ | 60,919 | |||||||||||||||||
Income (loss) from construction operations | $ | 41,745 | $ | 3,133 | $ | (7,488) | $ | 37,390 | $ | (14,477) | (a) | $ | 22,913 | |||||||||||||||||||||
Capital expenditures | $ | 1,342 |
| $ | 79 |
| $ | 54 |
| $ | 1,475 |
| $ | 117 |
| $ | 1,592 | $ | 14,012 | $ | 55 | $ | 123 | $ | 14,190 | $ | 222 | $ | 14,412 | |||||
Depreciation and amortization (b) | $ | 12,669 |
| $ | 541 |
| $ | 1,243 |
| $ | 14,453 |
| $ | 2,886 |
| $ | 17,339 | $ | 9,370 | $ | 503 | $ | 1,064 | $ | 10,937 | $ | 2,780 | $ | 13,717 |
____________________________________________________________________________________________________
(a)Consists primarily of corporate general and administrative expenses.
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21
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
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| Specialty |
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| Consolidated | ||
(in thousands) | Civil |
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| Building |
| Contractors |
| Total |
| Corporate |
| Total | |||||
Nine Months Ended September 30, 2017 |
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Total revenue | $ | 1,363,850 |
| $ | 1,520,356 |
| $ | 907,690 |
| $ | 3,791,896 |
| $ | — |
| $ | 3,791,896 |
Elimination of intersegment revenue |
| (190,873) |
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| (36,883) |
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| — |
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| (227,756) |
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| — |
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| (227,756) |
Revenue from external customers | $ | 1,172,977 |
| $ | 1,483,473 |
| $ | 907,690 |
| $ | 3,564,140 |
| $ | — |
| $ | 3,564,140 |
Income from construction operations | $ | 128,176 |
| $ | 25,035 |
| $ | 15,330 |
| $ | 168,541 |
| $ | (48,407) | (a) | $ | 120,134 |
Capital expenditures | $ | 8,665 |
| $ | 184 |
| $ | 374 |
| $ | 9,223 |
| $ | 489 |
| $ | 9,712 |
Depreciation and amortization (b) | $ | 26,767 |
| $ | 1,533 |
| $ | 3,551 |
| $ | 31,851 |
| $ | 8,612 |
| $ | 40,463 |
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Nine Months Ended September 30, 2016 |
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Total revenue | $ | 1,378,531 |
| $ | 1,594,946 |
| $ | 932,288 |
| $ | 3,905,765 |
| $ | — |
| $ | 3,905,765 |
Elimination of intersegment revenue |
| (118,143) |
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| (61,145) |
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| — |
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| (179,288) |
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| — |
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| (179,288) |
Revenue from external customers | $ | 1,260,388 |
| $ | 1,533,801 |
| $ | 932,288 |
| $ | 3,726,477 |
| $ | — |
| $ | 3,726,477 |
Income from construction operations | $ | 129,028 |
| $ | 38,969 |
| $ | 25,910 |
| $ | 193,907 |
| $ | (44,037) | (a) | $ | 149,870 |
Capital expenditures | $ | 8,499 |
| $ | 381 |
| $ | 798 |
| $ | 9,678 |
| $ | 595 |
| $ | 10,273 |
Depreciation and amortization (b) | $ | 33,200 |
| $ | 1,647 |
| $ | 3,811 |
| $ | 38,658 |
| $ | 8,637 |
| $ | 47,295 |
(a)Consists primarily of corporate general and administrative expenses.
(b)Depreciation and amortization is included in income (loss) from construction operations.
During the nine months ended September 30, 2016, the Company recorded net favorable adjustments totaling $3.0 million in income from construction operations ($0.04 per diluted share) for various Five Star Electric projects in New York in the Specialty Contractors segment. The net impact included material adjustments related to two electrical subcontract projects: a favorable adjustment of $14.0 million for a completed project ($0.17 per diluted share) and an unfavorable adjustment of $13.8 million for a project that was nearly complete ($0.17 per diluted share). These were the only changes in estimates considered material to the Company’s results of operations during the periods presented herein.
A reconciliation of segment results to the consolidated income before income taxes is as follows:
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| Three Months Ended September 30, |
| Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||
(in thousands) | 2017 |
| 2016 |
| 2017 |
| 2016 | 2020 | 2019 | |||||||
Income from construction operations | $ | 49,072 |
| $ | 60,919 |
| $ | 120,134 |
| $ | 149,870 | $ | 47,227 | $ | 22,913 | |
Other income, net |
| 967 |
| 2,048 |
| 42,373 |
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| 5,214 | 481 | 422 | |||||
Interest expense |
| (15,643) |
| (15,041) |
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| (53,726) |
|
| (44,655) | (16,436) | (16,425) | ||||
Income before income taxes | $ | 34,396 |
| $ | 47,926 |
| $ | 108,781 |
| $ | 110,429 | $ | 31,272 | $ | 6,910 |
Total assets by segment arewere as follows:follows:
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| As of | As of | ||||
(in thousands) | September 30, 2017 |
| December 31, 2016 | March 31, 2020 | December 31, 2019 | |||||
Civil | $ | 2,273,486 |
| $ | 2,152,123 | $ | 2,877,417 | $ | 2,791,402 | |
Building |
| 889,136 |
| 917,317 | 1,094,207 | 995,298 | ||||
Specialty Contractors |
| 757,103 |
| 813,851 | 659,629 | 635,180 | ||||
Corporate and other (a) |
| 363,060 |
| 155,329 | 55,153 | 63,897 | ||||
Total assets | $ | 4,282,785 |
| $ | 4,038,620 | $ | 4,686,406 | $ | 4,485,777 |
____________________________________________________________________________________________________
(a)Consists principally of cash, equipment, tax-related assets and insurance-related assets, offset by the elimination of assets related to intersegment revenue.
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TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
(15) Related Party Transactions
Raymond R. Oneglia, Vice Chairman of O&G Industries, Inc. (“O&G”), is a director of the Company. The Company occasionally forms construction project joint ventures with O&G. Currently, the Company has two joint ventures with O&G for infrastructure projects in the northeastern United States that are both complete. In addition, the Company has a 75% interest in a newly formed joint venture with O&G (as the 25% interest holder) for a project in Los Angeles, California. O&G may provide equipment and services to these joint ventures on customary trade terms; related payments made by the joint ventures to O&G during the three and nine months ended September 30, 2017 and 2016 were immaterial.
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TUTOR PERINI CORPORATION AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discusses our financial position as of September 30, 2017March 31, 2020 and the results of our operations for the three and nine months ended September 30, 2017March 31, 2020 and should be read in conjunction with other information, including the unaudited Condensed Consolidated Financial Statements and notes contained herein as well asincluded in Part I, Item 1, Financial Information, of this Quarterly Report on Form 10-Q, the audited consolidated financial statements and accompanying notes to our Annual Report on Form 10-K for the year ended December 31, 2016.2019, and the information contained under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 and in Part II, Item 1A below.
Forward-Looking Statements
This Quarterly Report on Form 10-Q, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results, which are intended to be covered by the safe harbor provision for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are statements that could be deemed forward-looking statements. Words such as “achieve,” “anticipate,” “assumes,” “believes,” “continue,” “could,” “estimate,” “expects,” “forecast,” “hope,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “would,” variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Although such statements are based on currently available financial and economic data as well as management’s estimates and expectations, forward-looking statements are inherently uncertain and involve risks and uncertainties that could cause our actual results to differ materially from what may be inferred from the forward-looking statements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors potentially contributing to such differences include, among others:
The impact of the COVID-19 pandemic and related events that are beyond our control, including possible effects on our business and operations, customers and suppliers, and employees, contractors and subcontractors, which could affect adversely our projects and the geographic regions in which we conduct business; A significant slowdown or decline in economic conditions; Revisions of estimates of contract risks, revenue or costs; the timing of new awards; or the pace of project execution may result in losses or lower than anticipated profit; Unfavorable outcomes of existing or future litigation or dispute resolution proceedings against customers (project owners, developers, general contractors, etc.), subcontractors or suppliers, as well as failure to promptly recover significant working capital invested in projects subject to such matters; The requirement to perform extra, or change order, work resulting in disputes or claims or adversely affecting our working capital, profits and cash flows; Risks and other uncertainties associated with assumptions and estimates used to prepare financial statements; Inability to retain key members of our management, to hire and retain personnel required to complete projects or implement succession plans for key officers; Failure to meet contractual schedule requirements, which could result in higher costs and reduced profits or, in some cases, exposure to financial liability for liquidated damages and/or damages to customers; Failure to meet our obligations under our debt agreements; Decreases in the level of government spending for infrastructure and other public projects; Downgrades in our credit ratings; Failure of our joint venture partners to perform their venture obligations, which could impose additional financial and performance obligations on us, resulting in reduced profits or losses; Client cancellations of, or reductions in scope under, contracts reported in our backlog; Increased competition and failure to secure new contracts; Impairment of our goodwill or other indefinite-lived intangible assets; The impact of inclement weather conditions on projects; Possible systems and information technology interruptions, including due to cyberattack, systems failures or other similar events; Failure to comply with laws and regulations related to government contracts; Potential dilutive impact of our Convertible Notes in our diluted earnings per share calculation; Economic, political and other risks, including civil unrest, security issues, labor conditions, corruption and other unforeseeable events in countries where we do business, resulting in unanticipated losses; Uncertainty from the expected discontinuance of the London Interbank Offered Rate and transition to any other interest rate benchmark; and |
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Conversion of our outstanding Convertible Notes that could dilute ownership interests of existing stockholders and could adversely affect the market price of our common stock.
Executive Overview
COVID-19 Update
In the first quarter of 2020, a novel strain of coronavirus, COVID-19, was declared a pandemic. Efforts in the United States to prevent the spread of COVID-19 and mitigate its impacts intensified during March 2020. All 50 states in the United States have declared states of emergency, and various countries around the world, including the United States, have taken steps to restrict travel. Many states and cities within the United States have also enacted temporary closures of businesses, issued stay-at-home orders and taken other restrictive measures in response to the pandemic. These actions and measures have been changing frequently, and often on a daily basis.
For the three months ended March 31, 2020, the COVID-19 pandemic did not have a significant impact on our business. The vast majority of our projects have been considered essential business activities, which has allowed our projects to continue while implementing new health and safety requirements. However, some of our projects, primarily for private (commercial) customers in our Building and Specialty Contractors segments, have experienced or continue to experience temporary suspensions or reduced project activities as a result of the COVID-19 pandemic. The greatest financial impact to the Company thus far has been in New York and California, primarily due to temporary suspensions, the impact of new social distancing and other health and safety requirements, and in some cases employee and subcontractor absences.
Due to the fluidity of the COVID-19 pandemic, uncertainties as to its scope and duration, and ongoing changes in the way that governments, businesses and individuals react and respond to the pandemic, the Company is unable at this time to accurately predict the pandemic’s future impact on the Company’s business, results of operations, financial condition or liquidity. Among other things, governments could prohibit the continuation of certain projects that to date have been designated as “essential” or could impose health, safety and other operational requirements on such projects that could result in delays to or suspensions of such projects. In addition, employees and contractors working on such projects could be unable or unwilling to continue working on them, perhaps for extended periods. The COVID-19 pandemic also could negatively affect the ability of counterparties or joint venture partners to make required payments on a timely basis or at all.
Operating Results
Consolidated revenue for the three and nine months ended September 30, 2017March 31, 2020 was $1.2$1.3 billion, and $3.6 billionup 30% compared to
$1.3 $1.0 billion and $3.7 billion, respectively, for the same periodsperiod in 2016. 2019. The decrease for both periodsstrong growth was principally duemostly attributable to reduced project executionincreased activities on various Civil segmentinfrastructure projects in New York, Washingtonthe Civil and the Midwest, and certain Building segment projects in California and Florida, all of which are completed or nearing completion. The decrease was partially offset by increased activity on certain mass-transit projects in New York and California, as well as certain hospitality and gaming projects in California and Maryland. Revenue for the third quarter of 2017 was lower than expected, mainly due to certain delays in the timing ofSpecialty Contractors segments.
24
new awards and project execution activities for previously awarded projects, which are expected to shift the timing of those revenue contributions to 2018.
Income from construction operations for the three and nine months ended September 30, 2017first quarter of 2020 was $49.1$47.2 million, and $120.1 million, a decrease of $11.8 million, or 19%, and $29.7 million, or 20%, respectively,more than double when compared to $22.9 million for the same periodsperiod in 2016. 2019. The decrease for the three months ended September 30, 2017 was principally due to reduced project execution activities on various projects in the Midwest and Washington, which are completed or nearing completion. For the nine months ended September 30, 2017, the decreaseincrease was primarily driven by the impact of unfavorable project adjustments recorded in the second quarter of 2017improved performance on certain mechanicalvarious projects in New York in the Specialty Contractors segment, none of which were individually material, as well as higher general and administrative expenses primarily due to higher compensation-related expenses in anticipation of a substantially highercontributions associated with volume of new work.growth across all segments.
The effective tax rate was 16.4% for the three and nine months ended September 30, 2017 was 26.4% and 34.1% respectively,March 31, 2020, compared to 39.9% and 40.6%31.7% for the three and nine months ended September 30, 2016.comparable period in 2019. See Corporate, Tax and Other Mattersbelow for a detailed discussion of the changes in the effective tax rate.
EarningsDiluted earnings per diluted share for the three and nine months ended September 30, 2017March 31, 2020 was $0.47 and $1.33, respectively,$0.34 compared to $0.57 and $1.32 for three and nine months ended September 30, 2016. The decreasea loss per share of $0.01 for the thirdsame quarter of 20172019. The increase was primarily due to the factors mentioneddiscussed above that drove changesthe increases in revenue and income from construction operations partially offset by a lower effective tax rate. The increase for the 2017 nine-month period was primarily due to a gain on a $37.0 million ($0.44 per diluted share) legal settlement in the second quarter of 2017 (see Note 8 of the Notes to the Condensed Consolidated Financial Statements) and a lower effective tax rate for the nine-month period, mostly offset by the projects that resulted in the decreases in revenue and income from construction operations discussed above. .
Consolidated new awards for the three and nine months ended September 30, 2017 were $1.1March 31, 2020 totaled $0.6 billion and $4.8 billion, respectively, compared to $0.8 billion and $3.0$3.2 billion for the threesame period in 2019. The lower volume of new awards in the current year period was due to the timing of bidding for and nine months ended September 30, 2016. awards of prospective project opportunities, which the Company expects will occur later in 2020, whereas the prior year period included a record volume of new awards. The Civil segment wasSpecialty Contractors and Building segments were the major contributorprimary contributors to the new award activity in both periods, with civil awards comprising more than halfthe first quarter of all2020. The most significant new awards for the first nine months of 2017. were three military projects in North Carolina and Florida collectively totaling $133 million and a $64 million mining project in Alabama.
Consolidated backlog as of September 30, 2017March 31, 2020 was $7.5$10.6 billion compared to $6.2$11.2 billion at December 31, 2016. The significant backlog growth since2019. Backlog declined in the endfirst quarter of 2016 has been attributable to2020 as a largeresult of revenue not being fully offset by the volume of new awards booked during the first nine months of 2017, particularly as a result of continued strong demand for civil construction services.. As of September 30, 2017,March 31, 2020, the mix of backlog by segment was approximately 58%54% for Civil, 21%24% for Building and 21%22% for Specialty Contractors.
The following table presents the Company’s backlog by business segment, reflecting changes from December 31, 20162019 to September 30, 2017:March 31, 2020:
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| Backlog at |
| New |
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(in millions) | December 31, 2016 |
| Awards(a) |
| Recognized |
| September 30, 2017 | ||||
Civil | $ | 2,672.1 |
| $ | 2,808.3 |
| $ | (1,173.0) |
| $ | 4,307.4 |
Building |
| 1,981.2 |
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| 1,101.0 |
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| (1,483.5) |
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| 1,598.7 |
Specialty Contractors |
| 1,573.8 |
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| 929.4 |
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| (907.6) |
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| 1,595.6 |
Total | $ | 6,227.1 |
| $ | 4,838.7 |
| $ | (3,564.1) |
| $ | 7,501.7 |
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Backlog at | New | Revenue | Backlog at | ||||||||
(in millions) | December 31, 2019 | Awards(a) | Recognized | March 31, 2020(b) | |||||||
Civil | $ | 6,037.2 | $ | 178.5 | $ | (486.6) | $ | 5,729.1 | |||
Building | 2,790.3 | 183.0 | (481.8) | 2,491.5 | |||||||
Specialty Contractors | 2,393.6 | 225.7 | (282.3) | 2,337.0 | |||||||
Total | $ | 11,221.1 | $ | 587.2 | $ | (1,250.7) | $ | 10,557.6 |
(a)New awards consist of the original contract price of projects added to backlog plus or minus subsequent changes to the estimated total contract price of existing contracts.
(b)Backlog may differ from the transaction prices allocated to the remaining performance obligations as disclosed in Note 3 of the Notes to Condensed Consolidated Financial Statements. Such differences relate to the timing of executing a formal contract or receiving a notice to proceed. More specifically, backlog sometimes may include awards for which a contract has not yet been executed or a notice to proceed has not been issued, but for which there are no remaining major uncertainties that the project will proceed (e.g., adequate funding is in place).
While we did not experience significant adverse impacts to our business related to the COVID-19 pandemic in the first quarter of 2020, the situation remains fluid and uncertain, and therefore, the Company cannot assess the degree to which it might experience future adverse impacts. The growthgeneral outlook for the CompanyCompany’s growth in 2020 and over the next several years remains very favorable, particularly forin the Civil segment.and Specialty Contractors segments, but the impact of the COVID-19 pandemic could adversely impact future performance and operations. In addition, the Company’s pace of growth could be impacted by project delays or the timing of project commencements, ramp-up activities and completions, as the Company has experienced in recent years. We anticipate that we will continue to the large current backlog, we expectwin our share of significant new awards based onresulting from long-term capital spending plans by various state, local and federal customers, and typicallyas well as bipartisan support for infrastructure investments.investments and limited competition for some of the largest project opportunities. In November 2016,recent elections, voters in numerous states approved dozens of long-term transportation funding measures totaling approximately $200 billion which have yet to have a significant impact on the Company’s bidding activities.in long-term funding. The largest of these were in Los Angeles County, where Measure M, a half-cent sales tax increase, was approved and is expected to generate $120 billion of funding over the next 40 years, and in Seattle, Washington, where Sound Transit 3 was passed and is expected to generate $54 billion of funding over the next 25 years for regional transportation projects. In addition, in April 2017 California enacted into law a $52 billion, 10-year transportation bill. This new long-term funding measure should lead to various new civil project opportunities in California beginning in 2018. Furthermore, the Trump administration continues to plan a significant infrastructure investment program and is preparing to present its plan for approval and funding. The $305 billion Fixing America’s Surface Transportation Act (FAST Act) is also expected to provideyears. As state and local agenciesgovernments respond to the economic burdens of the COVID-19 pandemic, they may delay or cancel planned infrastructure investments. They also may face reduced revenues from income and sales taxes, fuel taxes and tolls. The extent of such effects, their duration, and how state and local governments will respond remains uncertain, just as the scope and duration of the COVID-19 pandemic remains uncertain. The possibility of additional federal financial assistance or stimulus programs directed toward assisting state and local governments or specifically targeting significant investments in infrastructure have been discussed as possible additional pieces of the federal government’s ongoing response to the COVID-19 pandemic. Such additional federal financial assistance or stimulus programs could favorably impact the Company’s current work and prospective opportunities. However, the timing and significance of such additional federal government actions, if any, remain uncertain.In addition, several large, long-duration civil infrastructure programs with federal funding for numerous highway, bridgewhich we are already involved continue to progress. Finally, the COVID-19 pandemic’s dramatic impact on the U.S. economy has led to interest rates that once again are at record low levels and mass-transit projects through 2020. Finally, amay be conducive to continued, low interest rate environment should sustain high demand and continuedpotentially increased, spending by private and public customers on infrastructure projects.
For a more detailed discussion of operating performance of each business segment, corporate general and administrative expenseexpenses and other items, see Results of Segment Operations, Corporate, Tax and Other Matters and Liquidity and Financial Condition Capital Resources below.
Results of Segment Operations
The results of our Civil, Building and Specialty Contractors segments are discussed below.
Civil Segment
Revenue and income from construction operations for the Civil segment are summarized as follows:
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| Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||
(in millions) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | 2020 | 2019 | |||||||
Revenue |
| $ | 395.8 |
| $ | 458.8 |
| $ | 1,173.0 |
| $ | 1,260.4 | $ | 486.6 | $ | 333.5 | |
Income from construction operations |
| 38.1 |
| 50.3 |
| 128.2 |
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| 129.0 | 46.1 | 41.8 |
Revenue for the three and nine months ended September 30, 2017 decreased 14% and 7%, respectively,March 31, 2020 increased 46% compared to the same periodsperiod in 2016. 2019. The decrease for both periodsrevenue growth was primarily due to reducedincreased project execution activities on certainseveral mass-transit projects in New YorkCalifornia, Minnesota and a tunnel project in Washington, partially offset by increased volume on another mass-transit project in New York. For the nine-month period, revenue on a new mass-transit project in California was offset by decreased activity on various bridge projects in the Midwest.
Income from construction operations for the three and nine months ended September 30, 2017 decreased 24% and 1%, respectively,March 31, 2020 increased 10% compared to the same periods last year. The decrease forperiod in 2019, primarily because of the third quarterabsence of 2017 was principallya prior year immaterial favorable adjustment on a project in California, but also due to the volume changes discussed above.impact of incremental non-cash amortization expense related to the increased equity interest in a joint venture that the Company acquired in the fourth quarter of 2019.
Operating margin was 9.6% and 10.9%, respectively,9.5% for the three and nine months ended September 30, 2017March 31, 2020 compared to 11.0% and 10.2%12.5% for the same periodsperiod in 2016. 2019. The operating margin decrease for the third quarter of 2017 was primarily dueattributable to reduced profitability on various bridge projectsthe factors mentioned above that drove the changes in the Midwest. The margin increase for the nine months ended September 30, 2017 was principally due to certain mass-transit projects in Californiarevenue and New York that had higher volume and profit margins in the current year nine-month period.income from construction operations.
New awards in the Civil segment totaled $463$179 million and $2.8for the three months ended March 31, 2020 compared to $1.7 billion for the three and nine months ended September 30, 2017 compared to $284 million and $1.3 billion, respectively, for the three and nine months ended September 30, 2016. Newsame period in 2019. The lower volume of new awards in the thirdcurrent year period was due to the timing of bidding for and awards of prospective project opportunities, which the Company expects will occur later in 2020, whereas the prior year period included several new awards, most notably the $1.4 billion Purple Line Section 3 Stations project in California. The Civil segment’s most significant new award in the first quarter of 2017 included2020 was a joint-venture tunnel project for a hydroelectric generating station in British Columbia, Canada, valued at $274$64 million a joint-venture bridgemining project in Minnesota, for whichAlabama. Several large Civil segment opportunities are expected to bid and potentially be awarded to the Company’s portion is valued at $90 million, and a military training range project in Guam worth $78 million.Company later this year.
Backlog for the Civil segment was $4.3$5.7 billion as of September 30, 2017, up $1.5March 31, 2020 compared to $6.5 billion or 54%,as of March 31, 2019. The higher backlog in the prior year period was primarily driven by the Purple Line Section 3 Stations project mentioned above. The decrease in backlog when compared to the backlog asprior year period was the result of September 30, 2016. Civilstrong revenue growth for the segment backlog may continue to grow based on the volume and anticipated timing of other prospects expected to be awarded later this year or in early 2018.that was not fully offset by new awards. The segment continues to experience elevatedstrong demand reflected in a large, multi-year pipeline of prospective projects, which are supported by substantial anticipated funding from various voter-approved transportation measures; California’s recently enacted $52 billion, 10-year transportation bill; the considerable infrastructure investment program expected from the Trump administration; the $305 billion FAST Act;measures and public agencies’ long-term spending plans. The Civil segment is well positionedwell-positioned to capturecontinue capturing its share of these prospective projects. The segment, however, faces continued strong competition from both foreign and domestic competitors.
Building Segment
Revenue and income from construction operations for the Building segment are summarized as follows:
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| Three Months Ended September 30, |
| Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||
(in millions) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | 2020 | 2019 | |||||||
Revenue |
| $ | 493.5 |
| $ | 542.5 |
| $ | 1,483.5 |
| $ | 1,533.8 | $ | 481.8 | $ | 433.5 | |
Income from construction operations |
| 14.1 |
| 13.3 |
| 25.0 |
| 39.0 | 3.5 | 3.1 |
Revenue for the three months ended September 30, 2017 decreased 9%March 31, 2020 increased 11% compared to the same period in 2016. 2019. The decreaserevenue growth was primarily driven by reduceddue to increased project execution activities on a biotechnology project and a courthouse project in California, both of which are substantially complete. The decrease was partially offset by increased activity on a hospitality and gaming project in California. Revenue for the nine months ended September 30, 2017 decreased a modest 3% compared to revenue for the same period last year.Oklahoma.
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Income from construction operations for the three months ended September 30, 2017March 31, 2020 increased 6% compared to the third quarter of 2016. The increase was primarily due to favorable adjustments as a result of progress towards completion on a technology project in California, partially offset by reduced activity on the above-mentioned biotechnology project in California. Income from construction operations for the nine months ended September 30, 2017 decreased 36%12% compared to the same period in 2016. The decrease was principally due to favorable closeout2019, consistent with the revenue growth and, in particular, the increased activities in the first quarter of 2016 on two projects in New York and reduced activity on the above-mentioned biotechnologyhospitality and gaming project in California, partially offset by the improved performance on the technology project, also in California.mentioned above.
Operating margin was 2.8% and 1.7%0.7% for the three and nine months ended September 30, 2017, respectively,March 31, 2020 compared to 2.5%0.7% for both the three and nine months ended September 30, 2016. The margin changes for bothsame period in 2019. Both periods were primarily due to the reasons discussed above that drove the decrease in revenue and variances in income from construction operations.negatively impacted by immaterial project adjustments on certain projects as they progressed towards completion.
New awards in the Building segment totaled $284$183 million andfor the three months ended March 31, 2020 compared to $1.1 billion for the three and nine months ended September 30, 2017 compared to $270 million and $982 million, respectively, for the three and nine months ended September 30, 2016. Newsame period in 2019. The lower volume of new awards in the thirdfirst quarter of 20172020 was due to the timing of prospective project
opportunities, which are expected to be awarded later in the year, whereas the first quarter of 2019 included a U.S. embassy renovationseveral sizeable new awards, such as the Choctaw Casino and Resort project in Uruguay valued at $87 millionOklahoma, a large hospitality and $49 million of early scope tasks for a new technology office buildinggaming project in California which is eventually anticipated to be worth approximately $500 million onceand the remaining funding is released.Southland Gaming Casino and Hotel project in Arkansas. Significant new awards and contract adjustments in the first quarter of 2020 included three military projects in North Carolina and Florida collectively totaling $133 million.
Backlog for the Building segment was $1.6$2.5 billion as of September 30, 2017March 31, 2020 compared to $2.2$3.0 billion as of September 30, 2016. March 31, 2019. The backlog declinedecrease was due todriven by revenue recognitiongrowth for the segment that outpacedwas not fully offset by new awards since the end of the third quarter of 2016. awards.The Building segment continues to have a large pipelinevolume of prospective projects some of which areacross various end markets and geographic locations. Barring any adverse impacts from the COVID-19 pandemic, demand for our building construction services is expected to be selected and awarded by customers later in this year or in early 2018. Sustained demand is expectedcontinue due to ongoing customer spendingsupported by a lowfavorable interest rate environment. The Building segment is well positioned to capture its share of prospective projects based on its customer relationships and long-term reputation for excellence in delivering high-quality projects on time and within budget.
Specialty Contractors Segment
Revenue and income (loss) from construction operations for the Specialty Contractors segment are summarized as follows:
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| Three Months Ended September 30, |
| Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||
(in millions) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | 2020 | 2019 | |||||||
Revenue |
| $ | 310.1 |
| $ | 331.6 |
| $ | 907.7 |
| $ | 932.3 | $ | 282.3 | $ | 191.5 | |
Income from construction operations |
| 14.6 |
| 11.1 |
| 15.3 |
| 25.9 | |||||||||
Income (loss) from construction operations | 8.3 | (7.5) |
Revenue for the first quarter of 2020 increased 47% compared to the first quarter of 2019. The revenue growth was principally driven by increased project execution activities on the Newark Airport Terminal One project in New Jersey and certain electrical and mechanical projects in New York.
Income from construction operations for the first quarter of 2020 was $8.3 million compared to a loss from construction operations of $7.5 million for the three months ended September 30, 2017 decreased 6% compared toMarch 31, 2019. The increase in income from construction operations was primarily driven by the same periodvolume changes mentioned above in 2016. The decreasethe explanation for the third quarterrevenue growth, as well as the absence of 2017 was primarily due to reduced project execution activitiesprior year unfavorable closeout adjustments on variouscertain electrical and mechanical projects in New York as certain projects have completed or are nearing completion and newer projects have yet to fully ramp up. The decreasetotaling $13.6 million, none of which were individually material.
Operating margin was partially offset by increased activity on various electrical projects in the southern United States and in California. Revenue for the nine months ended September 30, 2017 decreased slightly by 3% compared to revenue for the same period last year.
Income from construction operations increased 32%2.9% for the three months ended September 30, 2017March 31, 2020 compared to (3.9)% for the same period in 2016. 2019. The increasemargin change was duemainly attributable to the aforementioned drivers of the increases in part to improved project profitability on various newer electrical projects in New York, as well as the increased activity mentioned above on various electrical projects in the southern United Statesrevenue and in California. Incomeincome (loss) from construction operations for the nine months ended September 30, 2017 decreased 41% compared to the same period last year. The decrease was primarily due to the impact of unfavorable project adjustments recorded in the second quarter of 2017 on certain mechanical projects in New York, none of which were individually material..
Operating margin was 4.7% and 1.7% for the three and nine months ended September 30, 2017, respectively, compared to 3.3% and 2.8% for the three and nine months ended September 30, 2016, respectively. The margin changes for both periods were primarily due to the above-mentioned factors that impacted revenue and income from construction operations.
New awards in the Specialty Contractors segment totaled $394 million and $929$226 million for the three and nine months ended September 30, 2017March 31, 2020 compared to $206$479 million and $660 million, respectively, for the three and nine months ended September 30, 2016. New awardssame period in the third quarter of 2017 included a $154 million electrical subcontract for a mass-transit project in California, approximately $65 million for various smaller electrical projects in the southern United States and $52 million for three new mechanical projects in New York.2019.
Backlog for the Specialty Contractors segment was $1.6$2.3 billion as of September 30, 2017March 31, 2020, up 11% compared to $1.7$2.1 billion as of September 30, 2016. March 31, 2019. The Specialty Contractors segment continues to have a significant pipeline of prospective projects, withgrowth was driven by strong demand from public and private customers for itsour electrical and mechanical services supported by continued spending on numerous civil and building projects. The Specialty Contractors segment shouldcontinues to be increasingly focused on servicing the Company’s growing backlog of large Civil and Building segment projects, but it also remains well-positioned to capture its
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share of prospectivenew projects based onfor external customers, leveraging the size and scale of itsour 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 large, complex projects.
Corporate, Tax and Other Matters
Corporate General and Administrative Expenses
Corporate general and administrative expenses were $17.7 million and $48.4$10.7 million during the three and nine months ended September 30, 2017March 31, 2020 compared to $13.8 million and $44.0$14.8 million during the three and nine months ended September 30, 2016.March 31, 2019. The increases weredecrease was primarily due to higherlower compensation-related expenses.
Other Income, Net, Interest Expense and Provision for Income TaxesTax Expense
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| Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||
(in millions) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | 2020 | 2019 | ||||||||
Other income, net |
| $ | 1.0 |
| $ | 2.0 |
| $ | 42.4 |
| $ | 5.2 | $ | 0.5 | $ | 0.4 | ||
Interest expense |
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| (15.0) |
| (53.7) |
| (44.7) | (16.4) | (16.4) | |||||||
Provision for income taxes |
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| (9.1) |
| (19.1) |
| (37.1) |
| (44.9) | |||||||||
Income tax expense | (5.1) | (2.2) |
Other income, net increased $37.2 million for the nine months ended September 30, 2017 compared to the same period in 2016. The increase was primarily due to a $37.0 million legal settlement received during the second quarter of 2017, as discussed in Note 8 of the Notes to the Condensed Consolidated Financial Statements.
Interest expense increased $9.0 million for the nine months ended September 30, 2017 compared to the same period in 2016. The increase was principally due to non-cash extinguishment costs related to our debt restructuring transactions in April 2017, as well as increased non-cash interest charges from the amortization of debt discount and issuance costs.
The Company’s effective income tax rate for the three and nine months ended September 30, 2017March 31, 2020 was 26.4% and 34.1%, respectively,16.4% compared to 39.9% and 40.6%31.7% for the three and nine months ended September 30, 2016, respectively.same period in 2019. The favorabledecrease in the effective income tax rate for boththe 2020 period primarily reflects the favorable impact of the 2017 periods was primarily due2019 net operating loss (“NOL”), which is allowed to the release of tax liabilitiesbe carried back up to five years as a result of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), enacted on March 27, 2020. Under the CARES Act, the Company’s NOL generated in 2019 may be carried back to tax years when the federal statutory tax rate was 35% rather than the current rate of 21%, consequently generating a statute expiration and earnings attributablelarger tax benefit from the NOL than that recognized prior to noncontrolling intereststhe enactment of the CARES Act. The favorable impact resulting from the enactment of the CARES Act was partially offset by the unfavorable impact of the vesting of restricted stock units for which a large portion of the share-based compensation expense recognized in prior periods will not be deductible for income tax purposes. For a further discussion of income taxes, are not the responsibility of the Company. The effective tax rate for the nine months ended September 30, 2017 was also favorably impacted by the tax benefits associated with share-based compensation. During the first quarter of 2017, the Company recognized tax benefits associated with share-based compensation under the provisions of ASU 2016-09, as discussed inrefer to Note 97 of the Notes to the Condensed Consolidated Financial Statements.The effective tax rate for the third quarter of 2016 was favorably impacted by various return-to-provision adjustments.
Liquidity and Capital Resources
Liquidity is provided by available cash and cash equivalents, cash generated from operations, credit facilities and access to capital markets. On April 20, 2017, we issued $500 millionWe have a committed line of senior notes and entered into a new credit facility with atotaling $350 million, revolver. Wewhich may be used the net proceeds to repurchase for revolving loans, letters of credit and/or redeem our 2010 Senior Notes in full and repay all borrowings under our 2014 Credit Facility.general purposes. We believe that the increased liquidity that resultedcash generated from this refinancingoperations, along with our unused credit capacity of $175 million and available cash balances as of March 31, 2020, will helpbe sufficient to fund any working capital needs for the significant number of project opportunitiesnext 12 months, provided that we see overare not adversely impacted by unanticipated future events, including the next several years, especiallyCOVID-19 pandemic as discussed in COVID-19 Update above. In addition, liquidity will be positively impacted in 2020 by certain provisions of the CARES Act, which will enable the Company to accelerate the collection of tax refunds associated with the 2019 NOL carryback and allow the deferral of certain 2020 Social Security payroll tax liabilities until the end of 2021 and 2022. As discussed in the section entitled Debt below, we intend to seek to repurchase the Convertible Notes in 2020 using available liquidity. Subject to certain limitations, we are permitted to utilize available credit capacity from our Civil segment.2017 Credit Facility to repurchase the Convertible Notes. Alternatively, we may pursue amendment of the 2017 Credit Facility and/or exchange the Convertible Notes.
Cash and Working Capital
Cash and cash equivalents were $221.9$198.1 million as of September 30, 2017March 31, 2020 compared to $146.1$193.7 million as of December 31, 2016.2019. Cash immediately available for general corporate purposes was $84.2$80.9 million and $49.5$43.8 million as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively, with the remainder being amounts held by our consolidated joint ventures and also our proportionate share of cash related toheld by our unconsolidated joint ventures. Cash held by our joint ventures which was available only for joint venture-related uses, including distributions to joint venture partners. In addition, our restricted cash and restricted investments, held primarily to secure insurance-related contingent obligations, totaled $66.2$81.4 million as of September 30, 2017March 31, 2020 compared to $50.5$79.4 million as of December 31, 2016.2019.
During the ninethree months ended September 30, 2017,March 31, 2020, net cash provided byused in operating activities was $1.9$34.0 million ($36.5 million for the third quarter of 2017) due primarily to investments in project working capital partially offset by cash generated from earnings sources, mostlysources. The change in working capital primarily reflects an increase in accounts receivable due to timing of collections, partially offset by increased investmentan increase in project working capital. The changeaccounts payable due to timing of payments to suppliers and subcontractors. During the three months ended March 31, 2019, net cash used in operating activities was $124.8 million due primarily to investments in project working capital that exceeded cash generated from earnings sources. The change in working capital primarily reflects increasesreflected an increase in accounts receivable due to timing of collections.
Cash flow from operating activities increased $90.8 million when comparing the first three months of 2020 with the same period of 2019. The improvement in the 2020 period primarily reflects a current year increase in accounts payable compared to a decrease in the prior year due to favorable timing of payments to suppliers and costs and estimated earnings in excess of billings, partially offset by ansubcontractors, along with a larger increase in billings in excess of costs and estimated earnings. Other changes included reductions in accounts payable due to the timing of payments to vendors and subcontractors. In the first nine months of 2016, $94.2 million in cash was provided from operating activities, due primarily to favorable operating resultsearnings, partially offset by changes in net investment in project working capital.
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The $92.3 million reduction in cash flow from operations for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 reflects the unfavorable timing of payments of payables and changes in costs and estimated earnings in excess of billings, offset by changesa larger increase in accounts receivable and billings in excess of costs and estimated earnings. the current year period.
During the first nine months of 2017, our net cashCash used for investing activities during the first three months of $23.82020 and 2019 was $14.6 million was due primarily to $48.7and $19.2 million, for the investment of restricted funds to obtain a higher return and the use of $9.7 million for the acquisition of property and equipment, partially offset by a $33.1 million decrease in restricted cash. Net cash used by investing activities for the comparable period in 2016 was $12.0 million,respectively, primarily due to the acquisition of property and equipment.equipment for projects and investment in securities.
For the first ninethree months of 2017,2020, net cash provided by financing activities was $97.7$50.6 million, which was primarily due todriven by increased net borrowings of $125.4$64.8 million partially offset by the use$13.5 million of $15.3 million for debt issuance and extinguishment costs relatedcash distributions to the debt restructuring transactions in April 2017 and $11.1 million for tax payments related to the net settlementnoncontrolling interests. Net cash
provided by financing activities for the comparable period of 2016 in 2019 was $13.1$130.7 million, which was principally due toprimarily driven by increased net borrowings of $28.4 million, partially offset by $14.9 million in debt issuance costs associated with amendments to our 2014 Credit Facility and the issuance of $200.0 million of Convertible Notes in June 2016.$134.3 million.
At September 30, 2017,March 31, 2020, we had working capital of $1.6$1.4 billion, a ratio of current assets to current liabilities of 2.071.62 and a ratio of debt to equity of 0.54,0.63, compared to working capital of $1.3$1.4 billion, a ratio of current assets to current liabilities of 1.871.66 and a ratio of debt to equity of 0.490.58 at December 31, 2016.2019.
Debt
Summarized below are the key terms of the 2017 Credit Facility as of March 31, 2020. For additional information regarding our outstanding debt, refer to Note 9 of the Notes to Condensed Consolidated Financial Statements, as applicable.
2017 Credit Facility
On April 20, 2017, we entered into a credit agreement (the “2017 Credit Facility”) with SunTrust Bank, now known as Truist Bank, as Administrative Agent, Swing Line Lender and L/C Issuer and a syndicate of other lenders. The 2017 Credit Facility provides for a $350 million revolving credit facility (the “2017 Revolver”) and a sublimit for the issuance of letters of credit and swingline loans up to the aggregate amount of $150 million and $10 million, respectively, both maturing on April 20, 2022 unless any of the Convertible Notes are outstanding on December 17, 2020, in which case all such borrowings will mature on December 17, 2020 (subject to certain further exceptions). In addition,(the “spring-forward provision”), provided however (i) if the Convertible Notes are refinanced in full with the proceeds of permitted refinancing indebtedness in accordance with the terms of the 2017 Credit Facility, the maturity date for the 2017 Credit Facility will remain April 20, 2022 and (ii) if the Company issues “New Convertible Notes” (as defined in the 2017 Credit Facility) and retires the Convertible Notes in full, the maturity date for the 2017 Credit Facility will be the earlier of (x) April 20, 2022 or (y) 90 days prior to the maturity date for such New Convertible Notes. The 2017 Credit Facility also permits additional borrowings in an aggregate amount of $150 million, which can be in the form of increased capacity on the 2017 Revolver or the establishment of one or more term loans. On May 7, 2019, certain provisions of the 2017 Credit Facility were amended, including setting the maximum leverage ratio at 3.50:1.00. For additional information regarding the terms of our 2017 Credit Facility, refer to Note 69 of the Notes to Condensed Consolidated Financial Statements.
As a result of the spring-forward provision mentioned above, the facility will mature on December 17, 2020 if the Convertible Notes remain outstanding at that time. The Company does not have call rights that allow it to unilaterally redeem the Convertible Notes. However, the Company intends to seek to repurchase the Convertible Notes in 2020 using available liquidity. Subject to certain limitations, the Company is permitted to utilize available credit capacity from the 2017 Credit Facility to repurchase the Convertible Notes. Alternatively, the Company may pursue amendment of the 2017 Credit Facility and/or exchange the Convertible Notes. The Company continues to assess its various alternatives to determine the financial strategy best suited to the Company’s needs and that will provide the most favorable terms, taking into account the Company’s liquidity requirements and anticipated cash flows. Due to the spring-forward provision in the 2017 Credit Facility, all borrowings under the facility are included in “Current maturities of long-term debt” on the Condensed Consolidated Balance Sheet as of March 31, 2020.
The table below presents our actual and required consolidated fixed charge coverage ratio and consolidated leverage ratio under the 2017 Credit Facility for the period, which are calculated on a rolling four-quarter basis:
Twelve Months Ended | ||||
Actual | Required | |||
Fixed charge coverage ratio |
| > or = 1.25 : 1.00 | ||
Leverage ratio |
| < or = |
As of the filing date of this Form 10-Q,March 31, 2020, we arewere in compliance and expect to continue to be in compliance with the covenants under the 2017 Credit Facility.
2017 Senior Notes Contractual Obligations
On April 20, 2017, we issued $500 million in aggregate principal amount of 6.875% Senior Notes due 2025 (the “2017 Senior Notes”) in a private placement. Interest on the 2017 Senior Notes is payable in arrears semi-annually on May 1 and November 1 of each year, beginning on November 1, 2017. For additional information regarding the terms of our 2017 Senior Notes, refer to Note 6 of the Notes to Condensed Consolidated Financial Statements.
Repurchase and Redemption of 2010 Senior Notes and Termination of 2014 Credit Facility
We used proceeds from the 2017 Senior Notes and 2017 Revolver to repurchase or redeem our 2010 Senior Notes, to pay off our Term Loan and 2014 Revolver, and to pay accrued but unpaid interest and fees. In addition, we satisfied and discharged the indenture governing the 2010 Senior Notes and terminated the 2014 Credit Facility.
Aside from the discussion above, thereThere have been no significantmaterial changes in our contractual obligations from thatthose described in our Annual Report on Form 10-K for the year ended December 31, 2016.2019.
Off-Balance Sheet Arrangements
None.
Off-Balance Sheet Arrangements
None
Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2016.2019. Our critical accounting policies are also identified and discussed in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2016.2019. See Note 8 of the Notes to Condensed Consolidated Financial Statements for a detailed discussion of our accounting policies related to goodwill.
Recently Issued Accounting Pronouncements
See Note 2 of the Notes to Condensed Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in our exposure to market risk from that described in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2016.2019.
Item 4. Controls and Procedures
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 the end of the period covered by this Quarterly Report on Form 10-Q 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 the Company’s disclosure controls and procedures (a) were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
In the ordinary course of our business, we are involved in various legal proceedings. We discloseddisclose information about certain of ourpending legal proceedings inpursuant to SEC rules and as we otherwise determine to be appropriate. For information on such pending matters, see Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2016. For an update to those disclosures, see Notes 7 and 82019, updated by Note 11 of the Notes to the Condensed Consolidated Financial Statements.Statements included in this Quarterly Report on Form 10-Q.
There have been no material changesThe risk factor discussed below is intended to oursupplement the risk factors aspreviously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016. 2019.
The COVID-19 pandemic could adversely impact our business, financial condition or results of operations.
The COVID-19 pandemic has created volatility, uncertainty and economic disruption for the Company, our customers, subcontractors and suppliers, and the markets in which we do business. The scope and impact of the COVID-19 pandemic changed quickly during the first few months of 2020, and shelter-in-place rules and other limitations on conducting business generally did not come into effect in geographies where we do business until March 2020. Even where such rules and limitations have been implemented, only certain projects, primarily for private (commercial) customers in our Building and Specialty Contractors segments, have experienced temporary delays. The vast majority of the Company’s projects, especially in the Civil segment, have been designated as essential business, which allows the Company to continue work on those projects. Consequently, the Company’s operations were not significantly impacted during the three months ended March 31, 2020. However, health and economic conditions in the United States have continued to change, and in many instances have worsened, and changing conditions as well as the reactions of government and
customers to such changes could adversely affect our business, possibly for a sustained period. It is too early to assess the full impact that the COVID-19 pandemic, and the actions taken in response to it, will have on our employees, our operating segments and practices, our customers, subcontractors and suppliers, and the regions that we serve, or on our financial condition and results of operations as a whole.
The full impact depends on many factors that are uncertain or not yet identifiable, and in many cases are out of our control. These factors could include, among other things: (1) the duration of the COVID-19 pandemic and the types and magnitude of adverse impacts on the U.S. and global economies; (2) the health and welfare of our employees, and those of our customers, subcontractors and suppliers; (3) evolving business and government actions in response to the pandemic, including stay-at-home measures, changes to what are considered “essential” businesses, social distancing measures, travel bans and additional health and safety requirements that we may be required to observe in order to continue working on our projects; (4) the varying impact that the pandemic may have on industries we serve and on government spending for infrastructure projects, including reduced government spending on infrastructure as a result of lower revenues from taxes and tolls; (5) the response of our customers or prospective customers to the pandemic, including delays, stoppages or terminations of existing projects or potential new awards; (6) increases in our receivables if our customers fail to pay, delay making payments, request financial concessions or if we experience delays in resolving claims and disputes (e.g., delays in court proceedings or settlement discussions); (7) limitations and higher costs associated with obtaining financing; (8) potential challenges with suppliers that could limit the availability or cost of materials; (9) potential interruptions to our information systems and technology or breaches in our data security due to increasing use of remote communications and access; and (10) the timing of finding effective treatments, a vaccine or a cure for COVID-19. Such events may result in fewer projects or delays in projects or bidding opportunities. Any of these events and others we have not yet identified could cause or contribute to the risks and uncertainties facing the Company and our customers and could materially adversely affect our business or portions thereof, and our financial condition, results of operations and/or stock price.
Item 4. Mine Safety Disclosures
Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires domestic mine operators to disclose violations and orders issued under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”) by the federal Mine Safety and Health Administration. We do not act as the owner of any mines but we may act as a mining operator as defined under the Mine Act where we may be an independent contractor performing services or construction of such mine.
Information concerningFor the quarter ended March 31, 2020, we do not have any mine safety violations or other regulatory matters required byto disclose pursuant to Section 1503(a) of the Dodd-Frank Act andor Item 104 of Regulation S-K is included in Exhibit 95.S-K.
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None.
Exhibits | Description |
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| XBRL Taxonomy Extension Schema Document. |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. |
104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, formatted in Inline XBRL (included as Exhibit 101). |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Tutor Perini Corporation | ||
Dated: |
| /s/Gary G. Smalley |
Gary G. Smalley | ||
Executive Vice President and Chief Financial Officer |