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 June 30, 2018March 31, 2019
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:Number 1-6314
Tutor Perini Corporation
(Exact nameName of registrantRegistrant as specifiedSpecified in its charter)
Charter)
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MASSACHUSETTS |
| 04-1717070 |
Incorporation or |
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15901 OLDEN STREET, SYLMAR, CALIFORNIA | 91342-1093 | |
Address of Principal Executive Offices | Zip Code |
15901 OLDEN STREET, SYLMAR, CALIFORNIA 91342-1093(818) 362-8391
(Address of principal executive offices)
(Zip code)Registrant’s Telephone Number, Including Area Code
(818) 362-8391None
(Registrant’s telephone number, including area code)
(Former name, former addressName, Former Address and former fiscal year,Former Fiscal Year, if changed since last report)Changed Since Last Report
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically 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” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer ☒ | Accelerated filer ☐ | |
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| Smaller reporting company ☐ |
Emerging growth company ☐ |
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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 ActAct. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $1.00 par value | TPC | The New York Stock Exchange |
The number of shares of common stock, $1.00 par value per share, of the registrant outstanding at August 1, 2018May 2, 2019 was 50,016,328.
50,180,225.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
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| Notes to Condensed Consolidated Financial Statements (Unaudited) | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||
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2
PART I. – FINANCIAL INFORMATION
Item 1. – Financial Statements
TUTOR PERINI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
UNAUDITED
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| Three Months Ended |
| Six Months Ended | Three Months Ended | ||||||||||||
| June 30, |
| June 30, | March 31, | ||||||||||||
(in thousands, except per common share amounts) | 2018 |
| 2017 |
| 2018 |
| 2017 | 2019 |
| 2018 | ||||||
REVENUE | $ | 1,120,085 |
| $ | 1,247,274 |
| $ | 2,148,241 |
| $ | 2,364,635 | $ | 958,487 |
| $ | 1,028,156 |
COST OF OPERATIONS |
| (1,001,445) |
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| (1,144,436) |
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| (1,962,533) |
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| (2,159,078) |
| (870,017) |
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| (961,088) |
GROSS PROFIT |
| 118,640 |
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| 102,838 |
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| 185,708 |
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| 205,557 |
| 88,470 |
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| 67,068 |
General and administrative expenses |
| (63,825) |
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| (68,793) |
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| (131,818) |
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| (134,495) |
| (65,557) |
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| (67,993) |
INCOME FROM CONSTRUCTION OPERATIONS |
| 54,815 |
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| 34,045 |
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| 53,890 |
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| 71,062 | |||||
INCOME (LOSS) FROM CONSTRUCTION OPERATIONS |
| 22,913 |
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| (925) | |||||||||||
Other income, net |
| 1,050 |
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| 40,990 |
| 1,830 |
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| 41,406 |
| 422 |
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| 780 | |
Interest expense |
| (15,998) |
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| (22,519) |
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| (31,063) |
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| (38,083) |
| (16,425) |
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| (15,065) |
INCOME BEFORE INCOME TAXES |
| 39,867 |
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| 52,516 |
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| 24,657 |
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| 74,385 | |||||
Provision for income taxes |
| (11,971) |
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| (19,883) |
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| (7,703) |
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| (27,988) | |||||
NET INCOME |
| 27,896 |
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| 32,633 |
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| 16,954 |
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| 46,397 | |||||
INCOME (LOSS) BEFORE INCOME TAXES |
| 6,910 |
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| (15,210) | |||||||||||
Income tax (expense) benefit |
| (2,188) |
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| 4,268 | |||||||||||
NET INCOME (LOSS) |
| 4,722 |
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| (10,942) | |||||||||||
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
| 3,013 |
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| 2,537 |
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| 4,195 |
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| 2,537 |
| 5,078 |
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| 1,182 |
NET INCOME ATTRIBUTABLE TO TUTOR PERINI CORPORATION | $ | 24,883 |
| $ | 30,096 |
| $ | 12,759 |
| $ | 43,860 | |||||
BASIC EARNINGS PER COMMON SHARE | $ | 0.50 |
| $ | 0.61 |
| $ | 0.26 |
| $ | 0.89 | |||||
DILUTED EARNINGS PER COMMON SHARE | $ | 0.49 |
| $ | 0.59 |
| $ | 0.25 |
| $ | 0.86 | |||||
NET LOSS ATTRIBUTABLE TO TUTOR PERINI CORPORATION | $ | (356) |
| $ | (12,124) | |||||||||||
BASIC LOSS PER COMMON SHARE | $ | (0.01) |
| $ | (0.24) | |||||||||||
DILUTED LOSS PER COMMON SHARE | $ | (0.01) |
| $ | (0.24) | |||||||||||
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING: |
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BASIC |
| 49,946 |
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| 49,735 |
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| 49,880 |
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| 49,510 |
| 50,098 |
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| 49,814 |
DILUTED |
| 50,440 |
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| 50,755 |
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| 50,127 |
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| 50,853 |
| 50,098 |
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| 49,814 |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
3
TUTOR PERINI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
UNAUDITED
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| Three Months Ended |
| Six Months Ended | Three Months Ended | ||||||||||||
| June 30, |
| June 30, | March 31, | ||||||||||||
(in thousands) | 2018 |
| 2017 |
| 2018 |
| 2017 | 2019 |
| 2018 | ||||||
NET INCOME | $ | 27,896 |
| $ | 32,633 |
| $ | 16,954 |
| $ | 46,397 | |||||
NET INCOME (LOSS) | $ | 4,722 |
| $ | (10,942) | |||||||||||
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OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: |
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Defined benefit pension plan adjustments |
| 354 |
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| 269 |
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| 735 |
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| 537 |
| 330 |
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| 381 |
Foreign currency translation adjustments |
| (634) |
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| 649 |
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| (1,808) |
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| 595 |
| 348 |
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| (1,174) |
Unrealized loss in fair value of investments |
| (929) |
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| (3) |
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| (1,014) |
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| (24) | |||||
Unrealized gain (loss) in fair value of investments |
| 673 |
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| (85) | |||||||||||
TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX |
| (1,209) |
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| 915 |
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| (2,087) |
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| 1,108 |
| 1,351 |
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| (878) |
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COMPREHENSIVE INCOME |
| 26,687 |
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| 33,548 |
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| 14,867 |
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| 47,505 | |||||
COMPREHENSIVE INCOME (LOSS) |
| 6,073 |
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| (11,820) | |||||||||||
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
| 3,013 |
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| 2,537 |
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| 4,195 |
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| 2,537 |
| 5,180 |
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| 1,182 |
COMPREHENSIVE INCOME ATTRIBUTABLE TO TUTOR PERINI CORPORATION | $ | 23,674 |
| $ | 31,011 |
| $ | 10,672 |
| $ | 44,968 | |||||
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO TUTOR PERINI CORPORATION | $ | 893 |
| $ | (13,002) |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
4
TUTOR PERINI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
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| As of June 30, |
| As of December 31, | As of March 31, |
| As of December 31, | ||||
(in thousands, except share and per share amounts) | 2018 |
| 2017 | 2019 |
| 2018 | ||||
ASSETS |
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| ASSETS | ||||
CURRENT ASSETS: |
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Cash and cash equivalents ($53,575 and $53,067 related to variable interest entities (VIEs)) | $ | 138,569 |
| $ | 192,868 | |||||
Cash and cash equivalents ($38,485 and $43,131 related to VIEs) | $ | 101,482 |
| $ | 116,075 | |||||
Restricted cash |
| 3,434 |
| 4,780 |
| 5,095 |
| 3,788 | ||
Restricted investments |
| 52,900 |
| 53,014 |
| 63,937 |
| 58,142 | ||
Accounts receivable ($57,008 and $30,003 related to VIEs) |
| 1,272,932 |
| 1,265,717 | ||||||
Retainage receivable ($24,288 and $12,410 related to VIEs) |
| 490,751 |
| 535,939 | ||||||
Accounts receivable ($54,791 and $62,482 related to VIEs) |
| 1,347,881 |
| 1,261,072 | ||||||
Retainage receivable ($45,618 and $36,724 related to VIEs) |
| 490,132 |
| 478,744 | ||||||
Costs and estimated earnings in excess of billings |
| 1,044,233 |
| 932,758 |
| 1,168,675 |
| 1,142,295 | ||
Other current assets ($35,657 and $0 related to VIEs) |
| 141,472 |
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| 89,316 | |||||
Other current assets ($33,666 and $30,185 related to VIEs) |
| 124,303 |
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| 115,527 | |||||
Total current assets |
| 3,144,291 |
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| 3,074,392 |
| 3,301,505 |
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| 3,175,643 |
PROPERTY AND EQUIPMENT ("P&E"), net of accumulated depreciation of $337,101 and $359,188 (net P&E of $41,150 and $11,641 related to VIEs) |
| 490,614 |
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| 467,499 | |||||
PROPERTY AND EQUIPMENT (P&E), net of accumulated depreciation of $355,939 and $343,735 (net P&E of $51,128 and $51,508 related to VIEs) |
| 492,929 |
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| 490,669 | |||||
GOODWILL |
| 585,006 |
| 585,006 |
| 585,006 |
| 585,006 | ||
INTANGIBLE ASSETS, NET |
| 87,683 |
| 89,454 |
| 85,026 |
| 85,911 | ||
OTHER ASSETS |
| 50,171 |
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| 47,772 |
| 91,804 |
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| 50,523 |
TOTAL ASSETS | $ | 4,357,765 |
| $ | 4,264,123 | $ | 4,556,270 |
| $ | 4,387,752 |
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LIABILITIES AND EQUITY |
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| LIABILITIES AND EQUITY | |||||
CURRENT LIABILITIES: |
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Current maturities of long-term debt | $ | 28,105 |
| $ | 30,748 | $ | 11,921 |
| $ | 16,767 |
Accounts payable ($44,118 and $19,243 related to VIEs) |
| 625,436 |
| 699,971 | ||||||
Accounts payable ($29,210 and $18,070 related to VIEs) |
| 597,498 |
| 621,728 | ||||||
Retainage payable |
| 236,545 |
| 261,820 |
| 221,028 |
| 211,956 | ||
Billings in excess of cost and estimated earnings ($240,545 and $120,952 related to VIEs) |
| 574,392 |
| 456,869 | ||||||
Accrued expenses and other current liabilities |
| 134,264 |
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| 132,438 | |||||
Billings in excess of costs and estimated earnings ($244,617 and $263,764 related to VIEs) |
| 579,000 |
| 573,190 | ||||||
Accrued expenses and other current liabilities ($35,851 and $34,828 related to VIEs) |
| 173,827 |
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| 174,325 | |||||
Total current liabilities |
| 1,598,742 |
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| 1,581,846 |
| 1,583,274 |
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| 1,597,966 |
LONG-TERM DEBT, less current maturities, net of unamortized discounts and debt issuance costs totaling $40,437 and $45,631 |
| 794,509 |
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| 705,528 | |||||
LONG-TERM DEBT, less current maturities, net of unamortized discounts and debt issuance costs totaling $32,185 and $34,998 |
| 886,705 |
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| 744,737 | |||||
DEFERRED INCOME TAXES |
| 106,284 |
| 108,504 |
| 106,113 |
| 105,521 | ||
OTHER LONG-TERM LIABILITIES |
| 145,764 |
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| 163,465 |
| 184,999 |
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| 151,639 |
TOTAL LIABILITIES |
| 2,645,299 |
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| 2,559,343 |
| 2,761,091 |
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| 2,599,863 |
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COMMITMENTS AND CONTINGENCIES (NOTE 9) |
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COMMITMENTS AND CONTINGENCIES (NOTE 10) |
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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 |
| — |
| — |
| — |
| — | ||
Common stock - authorized 75,000,000 shares ($1 par value), issued and outstanding 50,010,863 and 49,781,010 shares |
| 50,011 |
| 49,781 | ||||||
Common stock - authorized 75,000,000 shares ($1 par value), issued and outstanding 50,180,225 and 50,025,996 shares |
| 50,180 |
| 50,026 | ||||||
Additional paid-in capital |
| 1,093,874 |
| 1,084,205 |
| 1,105,184 |
| 1,102,919 | ||
Retained earnings |
| 631,004 |
| 622,007 |
| 701,325 |
| 701,681 | ||
Accumulated other comprehensive loss |
| (44,805) |
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| (42,718) |
| (44,200) |
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| (45,449) |
Total stockholders' equity |
| 1,730,084 |
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| 1,713,275 |
| 1,812,489 |
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| 1,809,177 |
Noncontrolling interests |
| (17,618) |
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| (8,495) |
| (17,310) |
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| (21,288) |
TOTAL EQUITY |
| 1,712,466 |
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| 1,704,780 |
| 1,795,179 |
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| 1,787,889 |
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TOTAL LIABILITIES AND EQUITY | $ | 4,357,765 |
| $ | 4,264,123 | $ | 4,556,270 |
| $ | 4,387,752 |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
5
TUTOR PERINI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
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| Six Months Ended June 30, | Three Months Ended March 31, | ||||||||
(in thousands) | 2018 |
| 2017 | 2019 |
| 2018 | ||||
Cash Flows from Operating Activities: |
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Net income | $ | 16,954 |
| $ | 46,397 | |||||
Adjustments to reconcile net income to net cash used in operating activities: |
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Net income (loss) | $ | 4,722 |
| $ | (10,942) | |||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
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Depreciation |
| 19,393 |
| 28,987 |
| 12,831 |
| 9,301 | ||
Amortization of intangible assets |
| 1,771 |
| 1,771 |
| 886 |
| 886 | ||
Share-based compensation expense |
| 12,063 |
| 10,420 |
| 5,506 |
| 6,081 | ||
Change in debt discounts and deferred debt issuance costs |
| 5,914 |
| 11,950 |
| 3,174 |
| 2,927 | ||
Deferred income taxes |
| 116 |
| (1) |
| 142 |
| 186 | ||
Loss (gain) on sale of property and equipment |
| 1,474 |
| (349) | ||||||
(Gain) loss on sale of property and equipment |
| (107) |
| 1,471 | ||||||
Changes in other components of working capital |
| (113,887) |
| (132,779) |
| (154,192) |
| (84,272) | ||
Other long-term liabilities |
| (5,276) |
| (2,801) |
| 2,177 |
| 1,139 | ||
Other, net |
| (902) |
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| 1,785 |
| 76 |
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| (180) |
NET CASH USED IN OPERATING ACTIVITIES |
| (62,380) |
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| (34,620) |
| (124,785) |
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| (73,403) |
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Cash Flows from Investing Activities: |
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Acquisition of property and equipment |
| (48,303) |
| (8,183) |
| (14,412) |
| (19,970) | ||
Proceeds from sale of property and equipment |
| 4,120 |
| 1,336 |
| 201 |
| 3,303 | ||
Investment in securities |
| (8,549) |
| (9,297) |
| (8,357) |
| (3,288) | ||
Proceeds from maturities and sales of investments in securities |
| 7,982 |
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| — |
| 3,324 |
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| 3,007 |
NET CASH USED IN INVESTING ACTIVITIES |
| (44,750) |
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| (16,144) |
| (19,244) |
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| (16,948) |
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Cash Flows from Financing Activities: |
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Proceeds from debt |
| 1,246,677 |
| 1,276,457 |
| 394,000 |
| 665,000 | ||
Repayment of debt |
| (1,165,283) |
| (1,171,954) |
| (259,691) |
| (586,559) | ||
Business acquisition related payment |
| (15,951) |
| — | ||||||
Issuance of common stock and effect of cashless exercise |
| (2,458) |
| (10,809) | ||||||
Cash payments related to share-based compensation |
| (2,364) |
| (2,308) | ||||||
Distributions paid to noncontrolling interests |
| (12,500) |
| (2,500) |
| (4,000) |
| (5,000) | ||
Contributions from noncontrolling interests |
| 1,000 |
| 1,250 |
| 2,798 |
| — | ||
Debt issuance and extinguishment costs |
| — |
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| (13,309) | |||||
NET CASH PROVIDED BY FINANCING ACTIVITIES |
| 51,485 |
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| 79,135 |
| 130,743 |
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| 71,133 |
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Net increase (decrease) in cash, cash equivalents and restricted cash |
| (55,645) |
| 28,371 | ||||||
Net decrease in cash, cash equivalents and restricted cash |
| (13,286) |
| (19,218) | ||||||
Cash, cash equivalents and restricted cash at beginning of period |
| 197,648 |
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| 196,607 |
| 119,863 |
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| 197,648 |
Cash, cash equivalents and restricted cash at end of period | $ | 142,003 |
| $ | 224,978 | $ | 106,577 |
| $ | 178,430 |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
6
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
The Condensed Consolidated Financial Statements do not include footnotes and certain financial information normally presented annually under generally accepted accounting principles in the United States (“GAAP”). Therefore, they should be read in conjunction with the audited consolidated financial statements and the related notes included in Tutor Perini Corporation’s (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2017.2018. The results of operations for the three and six months ended June 30, 2018March 31, 2019 may not be indicative of the results that will be achieved for the full year ending December 31, 20182019.
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 ofJune 30, 2018 March 31, 2019 and its consolidated statements of incomeoperations and cash flows for the interim periods presented. All significant intercompanyIntercompany balances and transactions of consolidated subsidiaries have been eliminated.
(2) Recent Accounting Pronouncements
New accounting pronouncements implementedadopted by the Company during the sixthree months ended June 30, 2018March 31, 2019 are discussed below.
In May 2014,August 2018, the Financial Accounting Standards BoardSecurities and Exchange Commission (“FASB”SEC”) issued Accounting Standardsadopted the final rule under SEC Release No. 33-10532, “Disclosure Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), as amended by subsequent ASUs (collectively, “ASC 606”). ASC 606 amendsand Simplification,” adopting amendments to certain disclosure rules that were redundant, duplicative, overlapping, outdated, or superseded, in light of other SEC disclosure requirements, GAAP or changes in the existing accounting standardsinformation environment. The amendments expanded the disclosure requirements relating to the analysis of equity for revenue recognitioninterim financial statements. Under the amendments, an analysis of the changes in each caption of stockholders’ equity and establishes principlesnoncontrolling interests presented in the balance sheet must be provided in a note or separate statement. The analysis must present a reconciliation of the beginning balance to the ending balance of each period for recognizing revenue upon the transferwhich a statement of promised goods or services to customers based on the expected considerationearnings is required to be received in exchange for those goods or services.filed. The final rule was effective on November 5, 2018. The Company adopted this ASUthe final rule effective January 1, 2018 using the modified retrospective transition method. The Company recognized the cumulative effect of initially applying the new revenue standard to all contracts not yet completed or substantially completed as of January 1, 2018 as an immaterial reduction to beginning retained earnings. The impact of adoption on the Company’s opening balance sheet was primarily related to the deferral of costs incurred to fulfill certain contracts that were previously recorded in income in the period incurred, but under the new standard will be capitalized and amortized over the period of contract performance. The prior year comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods; however, certain balances have been reclassified to conform to the current year presentation.
The effect of the changes made to the Company’s consolidated January 1, 2018 balance sheet for the adoptionfirst quarter of ASC 606 were as follows:
|
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|
|
|
|
|
|
|
|
| ||||||
|
|
|
| Adjustments |
|
|
| |
BALANCE SHEET | Balance as of |
| due to |
| Balance as of | |||
(in thousands) | December 31, 2017(a) |
| ASC 606 |
| January 1, 2018 | |||
ASSETS |
|
|
|
|
|
|
|
|
Accounts receivable(b) | $ | 1,801,656 |
| $ | (535,939) |
| $ | 1,265,717 |
Retainage receivable(b) |
| — |
|
| 535,939 |
|
| 535,939 |
Other current assets |
| 89,316 |
|
| 32,773 |
|
| 122,089 |
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable(b) |
| 961,791 |
|
| (261,820) |
|
| 699,971 |
Retainage payable(b) |
| — |
|
| 261,820 |
|
| 261,820 |
Billings in excess of costs and estimated earnings |
| 456,869 |
|
| 39,785 |
|
| 496,654 |
Deferred income taxes |
| 108,504 |
|
| (1,537) |
|
| 106,967 |
|
|
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
|
|
|
Retained earnings |
| 622,007 |
|
| (3,762) |
|
| 618,245 |
Noncontrolling interests |
| (8,495) |
|
| (1,714) |
|
| (10,209) |
|
|
|
|
7
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
In accordance with the new revenue standard requirements, the disclosure of the impacts of adoption on the Condensed Consolidated Statement of Income and Condensed Consolidated Balance Sheet were as follows:
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|
|
|
|
| Three Months Ended June 30, 2018 | |||||||
|
|
|
| Balance Without |
|
| |||
STATEMENT OF INCOME |
|
|
| Adoption of |
| Effect of | |||
(in thousands) |
| As Reported |
| ASC 606 |
| Change | |||
REVENUE |
| $ | 1,120,085 |
| $ | 1,126,925 |
| $ | (6,840) |
COST OF OPERATIONS |
|
| (1,001,445) |
|
| (1,007,258) |
|
| 5,813 |
GROSS PROFIT |
|
| 118,640 |
|
| 119,667 |
|
| (1,027) |
General and administrative expenses |
|
| (63,825) |
|
| (63,825) |
|
| — |
INCOME FROM CONSTRUCTION OPERATIONS |
|
| 54,815 |
|
| 55,842 |
|
| (1,027) |
Other income, net |
|
| 1,050 |
|
| 1,050 |
|
| — |
Interest expense |
|
| (15,998) |
|
| (15,998) |
|
| — |
INCOME BEFORE INCOME TAXES |
|
| 39,867 |
|
| 40,894 |
|
| (1,027) |
Provision for income taxes |
|
| (11,971) |
|
| (12,211) |
|
| 240 |
NET INCOME |
|
| 27,896 |
|
| 28,683 |
|
| (787) |
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
|
| 3,013 |
|
| 3,213 |
|
| (200) |
NET INCOME ATTRIBUTABLE TO TUTOR PERINI CORPORATION |
| $ | 24,883 |
| $ | 25,470 |
| $ | (587) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended June 30, 2018 | |||||||
|
|
|
| Balance Without |
|
| |||
STATEMENT OF INCOME |
|
|
| Adoption of |
| Effect of | |||
(in thousands) |
| As Reported |
| ASC 606 |
| Change | |||
REVENUE |
| $ | 2,148,241 |
| $ | 2,157,193 |
| $ | (8,952) |
COST OF OPERATIONS |
|
| (1,962,533) |
|
| (1,970,113) |
|
| 7,580 |
GROSS PROFIT |
|
| 185,708 |
|
| 187,080 |
|
| (1,372) |
General and administrative expenses |
|
| (131,818) |
|
| (131,818) |
|
| — |
INCOME FROM CONSTRUCTION OPERATIONS |
|
| 53,890 |
|
| 55,262 |
|
| (1,372) |
Other income, net |
|
| 1,830 |
|
| 1,830 |
|
| — |
Interest expense |
|
| (31,063) |
|
| (31,063) |
|
| — |
INCOME BEFORE INCOME TAXES |
|
| 24,657 |
|
| 26,029 |
|
| (1,372) |
Provision for income taxes |
|
| (7,703) |
|
| (8,055) |
|
| 352 |
NET INCOME |
|
| 16,954 |
|
| 17,974 |
|
| (1,020) |
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
|
| 4,195 |
|
| 4,355 |
|
| (160) |
NET INCOME ATTRIBUTABLE TO TUTOR PERINI CORPORATION |
| $ | 12,759 |
| $ | 13,619 |
| $ | (860) |
8
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of June 30, 2018 | |||||||
|
|
|
| Balance Without |
|
| |||
BALANCE SHEET |
|
|
| Adoption of |
| Effect of | |||
(in thousands) |
| As Reported |
| ASC 606 |
| Change | |||
ASSETS |
|
|
|
|
|
|
|
|
|
Accounts receivable(a) |
| $ | 1,272,932 |
| $ | 1,762,442 |
| $ | (489,510) |
Retainage receivable(a) |
|
| 490,751 |
|
| — |
|
| 490,751 |
Costs and estimated earnings in excess of billings |
|
| 1,044,233 |
|
| 1,044,395 |
|
| (162) |
Other current assets |
|
| 141,472 |
|
| 101,119 |
|
| 40,353 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
Accounts payable(a) |
| $ | 625,436 |
| $ | 861,981 |
| $ | (236,545) |
Retainage payable(a) |
|
| 236,545 |
|
| — |
|
| 236,545 |
Billings in excess of costs and estimated earnings |
|
| 574,392 |
|
| 524,576 |
|
| 49,816 |
Accrued expenses and other current liabilities |
|
| 134,264 |
|
| 134,896 |
|
| (632) |
Deferred income taxes |
|
| 106,284 |
|
| 107,540 |
|
| (1,256) |
|
|
|
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
|
|
|
|
Retained earnings |
| $ | 631,004 |
| $ | 635,626 |
| $ | (4,622) |
Noncontrolling interests |
|
| (17,618) |
|
| (15,744) |
|
| (1,874) |
|
|
2019. The adoption of ASC 606 had no impact on the cash flows used in operating activities in the Company’s Condensed Consolidated Statement of Cash Flows.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires restricted cash to be included with cash and cash equivalent balances in the statement of cash flows. The Company retrospectively adopted this ASU effective January 1, 2018. The adoption of this ASU resulted in a decrease of net cash used in investing activities of $1.5 million for the six months ended June 30, 2017.
In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU clarifies the scope of modification accounting under Topic 718 with respect to changes 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 affect the total current fair value, vesting conditions or the classification of the award. The Company adopted this ASU effective January 1, 2018. The adoption of this ASUfinal rule did not have a materialan impact on the Company’s consolidated financial statements.
In March 2018, the FASB issued ASU 2018-05,position or results of operations. See Note 15, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118Changes in Equity. This ASU provides guidance for companies that may not have completed their accounting, for the income tax effects of the Tax Cut and Jobs Act of 2017 (the “Tax Act”) in the period of enactment. Staff Accounting Bulletin (“SAB”) No. 118 provides for a provisional one year measurement period to finalize the accounting for certain income tax effects related to the Tax Act and requires disclosure of the reasons for incomplete accounting. The Company applied the guidance provided in SAB No. 118 in 2017 and adopted this ASU effective January 1, 2018. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.new required disclosures.
New accounting pronouncements requiring implementation in future periods are discussed below.
In February 2016, the FASBFinancial Accounting Standards Board issued ASUAccounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), as amended and supplemented by subsequent ASUs (collectively, “ASU 2016-02”“ASC 842”). ASU 2016-02ASC 842 amends the existing guidance in Accounting Standards Codification (“ASC”) 840, Leases. This ASU requires, among other things, the recognition of lease right-of-use (“ROU”) assets and lease liabilities by lessees for those leases currently classified as operating leases. ASU 2016-02 allowsASC 842 allowed companies to adopt the new standard by applying either applying a modified retrospective method to the beginning of the earliest period presented in the financial statements or an optional transition method to initially apply the standard on January 1, 2019 and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company expects to adoptadopted the standard using the optional transition method. Under this method, financial results reported in periods prior to 2019 are unchanged. The Company elected the package of practical expedients which provides relief from having to reassess (1) whether any expired or existing contracts contain leases, (2) lease classification (as operating or financing) for any expired or existing leases, and (3) initial direct costs for any existing leases. The Company also elected to separate non-lease components from lease components. Based on the Company’s evaluation of ASC 842, the adoption on January 1, 2019 resulted in an increase of $43.3 million to its assets and liabilities on the Condensed Consolidated Balance Sheets with no impact to its results of operations or cash flows.
7
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
The effects of the changes made to the Company’s January 1, 2019 consolidated balance sheet for the adoption of ASC 842 were as follows:
|
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|
|
|
|
|
|
|
|
| ||||||
BALANCE SHEET | Balance as of |
| Adjustments due to |
| Balance as of | |||
(in thousands) | December 31, 2018(a) |
| ASC 842 |
| January 1, 2019 | |||
ASSETS |
|
|
|
|
|
|
|
|
Other assets(b) | $ | 50,523 |
| $ | 43,273 |
| $ | 93,796 |
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities(b) | $ | 174,325 |
| $ | 11,569 |
| $ | 185,894 |
Other long-term liabilities(b) |
| 151,639 |
|
| 31,704 |
|
| 183,343 |
(a) | Balance as previously reported on the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. |
(b) | Prior to the adoption of ASC 842, operating lease ROU assets and current and long-term operating lease liabilities were not recorded on the Condensed Consolidated Balance Sheets. |
In accordance with the new lease standard requirements, the impacts of adoption on the Condensed Consolidated Balance Sheet were as follows:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of March 31, 2019 | |||||||
|
|
|
| Balance Without |
|
| |||
BALANCE SHEET |
|
|
| Adoption of |
| Effect of | |||
(in thousands) |
| As Reported |
| ASC 842 |
| Change | |||
ASSETS |
|
|
|
|
|
|
|
|
|
Other assets(a) |
| $ | 91,804 |
| $ | 49,916 |
| $ | 41,888 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities(a) |
| $ | 173,827 |
| $ | 162,383 |
| $ | 11,444 |
Other long-term liabilities(a) |
|
| 184,999 |
|
| 154,555 |
|
| 30,444 |
(a) | Prior to the adoption of ASC 842, operating lease ROU assets and current and long-term operating lease liabilities were not recorded on the Condensed Consolidated Balance Sheets. |
For the three months ended March 31, 2019, the new requirements of ASC 842 did not have an impact on the Company’s results of operations or cash flows.
(3) Revenue
Disaggregation of Revenue
The following tables disaggregate revenue by end market, customer type and contract type, which the Company believes best depict how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors for the three months ended March 31, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended | ||||
|
| March 31, | ||||
(in thousands) |
| 2019 |
| 2018 | ||
Civil segment revenue by end market: |
|
|
|
|
|
|
Mass transit |
| $ | 146,250 |
| $ | 150,126 |
Bridges |
|
| 69,307 |
|
| 62,811 |
Highways |
|
| 41,043 |
|
| 17,257 |
Tunneling |
|
| 34,940 |
|
| 8,701 |
Other |
|
| 41,954 |
|
| 24,219 |
Total Civil segment revenue |
| $ | 333,494 |
| $ | 263,114 |
8
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended | ||||
|
| March 31, | ||||
(in thousands) |
| 2019 |
| 2018 | ||
Building segment revenue by end market: |
|
|
|
|
|
|
Commercial and industrial facilities |
| $ | 109,353 |
| $ | 173,747 |
Health care facilities |
|
| 80,227 |
|
| 75,081 |
Municipal and government |
|
| 61,962 |
|
| 50,452 |
Hospitality and gaming |
|
| 47,957 |
|
| 81,765 |
Education facilities |
|
| 42,528 |
|
| 32,482 |
Mixed use |
|
| 36,627 |
|
| 41,777 |
Mass transit |
|
| 29,177 |
|
| — |
Other |
|
| 25,635 |
|
| 34,937 |
Total Building segment revenue |
| $ | 433,466 |
| $ | 490,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended | ||||
|
| March 31, | ||||
(in thousands) |
| 2019 |
| 2018 | ||
Specialty Contractors segment revenue by end market: |
|
|
|
|
|
|
Mass transit |
| $ | 81,394 |
| $ | 75,182 |
Commercial and industrial facilities |
|
| 44,023 |
|
| 39,339 |
Health care facilities |
|
| 11,652 |
|
| 16,365 |
Education facilities |
|
| 11,580 |
|
| 25,304 |
Multi-unit residential |
|
| 11,389 |
|
| 23,089 |
Mixed use |
|
| 10,669 |
|
| 47,857 |
Transportation |
|
| 6,435 |
|
| 33,985 |
Other |
|
| 14,385 |
|
| 13,680 |
Total Specialty Contractors segment revenue |
| $ | 191,527 |
| $ | 274,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended March 31, 2019 | ||||||||||
|
|
|
|
|
|
|
| Specialty |
|
|
| |
(in thousands) |
| Civil |
| Building |
| Contractors |
| Total | ||||
Revenue by customer type: |
|
|
|
|
|
|
|
|
|
|
|
|
State and local agencies |
| $ | 257,107 |
| $ | 144,686 |
| $ | 97,071 |
| $ | 498,864 |
Federal agencies |
|
| 23,158 |
|
| 40,151 |
|
| 7,769 |
|
| 71,078 |
Private owners |
|
| 53,229 |
|
| 248,629 |
|
| 86,687 |
|
| 388,545 |
Total revenue |
| $ | 333,494 |
| $ | 433,466 |
| $ | 191,527 |
| $ | 958,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended March 31, 2018 | ||||||||||
|
|
|
|
|
|
|
| Specialty |
|
|
| |
(in thousands) |
| Civil |
| Building |
| Contractors |
| Total | ||||
Revenue by customer type: |
|
|
|
|
|
|
|
|
|
|
|
|
State and local agencies |
| $ | 226,351 |
| $ | 115,986 |
| $ | 106,320 |
| $ | 448,657 |
Federal agencies |
|
| 9,855 |
|
| 44,311 |
|
| 18,723 |
|
| 72,889 |
Private owners |
|
| 26,908 |
|
| 329,944 |
|
| 149,758 |
|
| 506,610 |
Total revenue |
| $ | 263,114 |
| $ | 490,241 |
| $ | 274,801 |
| $ | 1,028,156 |
9
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements but expects the adoption to result in a material increase to its assets and liabilities. The Company does not expect this ASU to have a material impact on its consolidated statements of income or cash flows.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). This ASU simplifies the calculation of goodwill impairment by eliminating Step 2 of the impairment test prescribed by ASC 350, Intangibles—Goodwill and Other. Step 2 requires companies to calculate the implied fair value of their goodwill by estimating the fair value of their assets, other than goodwill, and liabilities, including unrecognized assets and liabilities, following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. The calculated net fair value of the assets would then be compared to the fair value of the reporting unit to determine the implied fair value of goodwill, and to the extent that the carrying value of goodwill was less than the implied fair value, a loss would be recognized. Under ASU 2017-04, however, goodwill is impaired when the calculated fair value of a reporting unit is less than its carrying value, and the impairment charge will equal that difference (i.e., impairment will be calculated at the reporting unit level and there will be no need to estimate the fair value of individual assets and liabilities). This guidance will be effective for any goodwill impairment tests performed in fiscal years beginning after December 15, 2019; however, early adoption is permitted for tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from the Accumulated Other Comprehensive Income. This ASU gives entities the option to reclassify to retained earnings tax effects related to items in accumulated other comprehensive income that the FASB refers to as having been stranded in accumulated other comprehensive income as a result of the Tax Act. Entities can apply the provisions of this ASU either in the period of adoption or retrospectively. The guidance is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect that the adoption of this ASU will have on its consolidated financial statements.
(3) Revenue
Revenue Recognition
The Company derives revenue from long-term construction contracts with public and private customers primarily in the United States and its territories and in certain other international locations. The Company’s construction contracts are generally each accounted for as a single unit of account (i.e., as a single performance obligation).
Throughout the execution of construction contracts, the Company and its affiliated entities recognize revenue with the continuous transfer of control to the customer. The customer typically controls the asset under construction by either contractual termination clauses or by the Company’s rights to payment for work already performed on the asset under construction that does not have an alternative use for the Company.
Because control transfers over time, revenue is recognized to the extent of progress towards completion of the performance obligations. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services provided. The Company generally uses the cost-to-cost method for its contracts, which measures progress towards completion for each performance obligation based on the ratio of costs incurred to date to the total estimated costs at completion for the respective performance obligation. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Revenue, including estimated fees or profits, is recorded proportionately as costs are incurred. Cost of operations includes labor, materials, subcontractor costs, and other direct and indirect costs, including depreciation and amortization.
Due to the nature of the work required to be performed on many of the Company’s performance obligations, estimating total revenue and cost at completion is complex, subject to many variables and requires significant judgment. The estimates used during the contract performance period require judgment and making assumptions as to the occurrence of future events and the likelihood of variable consideration, including the impact of change orders, claims, contract disputes and the achievement of contractual performance criteria, and award or other incentive fees. The Company estimates variable consideration at the most likely amount it expects to receive. The Company includes estimated amounts in the transaction price 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. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an
10
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
assessment of anticipated performance and all information (historical, current and forecasted) that is reasonably available to management.
Disaggregation of Revenue
The following tables disaggregate revenue by end market, customer type and contract type, which the Company believes best depicts how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months |
| Six Months | ||
|
| Ended June 30, |
| Ended June 30, | ||
(in thousands) |
| 2018 |
| 2018 | ||
Civil segment revenue by end market: |
|
|
|
|
|
|
Mass transit |
| $ | 158,096 |
| $ | 308,222 |
Bridges |
|
| 120,929 |
|
| 183,739 |
Highways |
|
| 65,809 |
|
| 83,066 |
Tunneling |
|
| 23,931 |
|
| 32,632 |
Other |
|
| 33,708 |
|
| 57,928 |
Total Civil segment revenue |
| $ | 402,473 |
| $ | 665,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended March 31, 2019 | ||||||||||
|
|
|
|
|
|
|
| Specialty |
|
|
| |
(in thousands) |
| Civil |
| Building |
| Contractors |
| Total | ||||
Revenue by contract type: |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed price |
| $ | 242,867 |
| $ | 114,359 |
| $ | 155,264 |
| $ | 512,490 |
Guaranteed maximum price |
|
| 2,233 |
|
| 207,131 |
|
| 3,606 |
|
| 212,970 |
Unit price |
|
| 84,878 |
|
| 5,228 |
|
| 19,003 |
|
| 109,109 |
Cost plus fee and other |
|
| 3,516 |
|
| 106,748 |
|
| 13,654 |
|
| 123,918 |
Total revenue |
| $ | 333,494 |
| $ | 433,466 |
| $ | 191,527 |
| $ | 958,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months |
| Six Months | ||
|
| Ended June 30, |
| Ended June 30, | ||
(in thousands) |
| 2018 |
| 2018 | ||
Building segment revenue by end market: |
|
|
|
|
|
|
Health care facilities |
| $ | 118,116 |
| $ | 193,197 |
Office |
|
| 39,237 |
|
| 186,559 |
Hospitality and gaming |
|
| 79,490 |
|
| 161,255 |
Municipal and government |
|
| 70,528 |
|
| 120,981 |
Mixed use |
|
| 38,814 |
|
| 80,590 |
Education facilities |
|
| 32,876 |
|
| 65,358 |
Industrial and commercial |
|
| 20,081 |
|
| 46,507 |
Other |
|
| 47,837 |
|
| 82,773 |
Total Building segment revenue |
| $ | 446,979 |
| $ | 937,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended March 31, 2018 | ||||||||||
|
|
|
|
|
|
|
| Specialty |
|
|
| |
(in thousands) |
| Civil |
| Building |
| Contractors |
| Total | ||||
Revenue by contract type: |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed price |
| $ | 183,904 |
| $ | 79,001 |
| $ | 247,424 |
| $ | 510,329 |
Guaranteed maximum price |
|
| 5,072 |
|
| 262,028 |
|
| 15,579 |
|
| 282,679 |
Unit price |
|
| 68,754 |
|
| 8,816 |
|
| 6,658 |
|
| 84,228 |
Cost plus fee and other |
|
| 5,384 |
|
| 140,396 |
|
| 5,140 |
|
| 150,920 |
Total revenue |
| $ | 263,114 |
| $ | 490,241 |
| $ | 274,801 |
| $ | 1,028,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months |
| Six Months | ||
|
| Ended June 30, |
| Ended June 30, | ||
(in thousands) |
| 2018 |
| 2018 | ||
Specialty Contractors segment revenue by end market: |
|
|
|
|
|
|
Mass transit |
| $ | 78,169 |
| $ | 153,351 |
Mixed use |
|
| 51,976 |
|
| 99,833 |
Industrial and commercial |
|
| 36,540 |
|
| 75,878 |
Transportation |
|
| 22,019 |
|
| 56,004 |
Education facilities |
|
| 26,298 |
|
| 51,602 |
Condominiums |
|
| 22,761 |
|
| 45,850 |
Health care facilities |
|
| 14,623 |
|
| 30,988 |
Other |
|
| 18,247 |
|
| 31,928 |
Total Specialty Contractors segment revenue |
| $ | 270,633 |
| $ | 545,434 |
11
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, 2018 | ||||||||||
|
|
|
|
|
|
|
| Specialty |
|
|
| |
(in thousands) |
| Civil |
| Building |
| Contractors |
| Total | ||||
Revenue by customer type: |
|
|
|
|
|
|
|
|
|
|
|
|
State and local agencies |
| $ | 327,195 |
| $ | 159,556 |
| $ | 106,308 |
| $ | 593,059 |
Federal agencies |
|
| 30,772 |
|
| 52,263 |
|
| 14,988 |
|
| 98,023 |
Private owners |
|
| 44,506 |
|
| 235,160 |
|
| 149,337 |
|
| 429,003 |
Total revenue |
| $ | 402,473 |
| $ | 446,979 |
| $ | 270,633 |
| $ | 1,120,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended June 30, 2018 | ||||||||||
|
|
|
|
|
|
|
| Specialty |
|
|
| |
(in thousands) |
| Civil |
| Building |
| Contractors |
| Total | ||||
Revenue by customer type: |
|
|
|
|
|
|
|
|
|
|
|
|
State and local agencies |
| $ | 553,546 |
| $ | 275,541 |
| $ | 212,628 |
| $ | 1,041,715 |
Federal agencies |
|
| 40,627 |
|
| 96,574 |
|
| 33,712 |
|
| 170,913 |
Private owners |
|
| 71,414 |
|
| 565,105 |
|
| 299,094 |
|
| 935,613 |
Total revenue |
| $ | 665,587 |
| $ | 937,220 |
| $ | 545,434 |
| $ | 2,148,241 |
State and local agencies. The Company’s state and local government customers include state transportation departments, metropolitan authorities, cities, municipal agencies, school districts and public universities. Services provided to state and local customers are primarily pursuant to contracts awarded through competitive bidding processes. Construction services for state and local government customers have included mass-transit systems, bridges, highways, judicial and correctional facilities, schools and dormitories, health care facilities, convention centers, parking structures and other municipal buildings. The vast majority of the Company’s civil contracting and building construction services are provided in locations throughout the United States and its territories.
Federal agencies. The Company’s federal government customers include the U.S. State Department, the U.S. Navy, the U.S. Army Corps of Engineers, the U.S. Air Force and the National Park Service. Services provided to federal agencies are typically pursuant to competitively bid contracts for specific or multi-year assignments that involve new construction or infrastructure repairs or improvements. A portion of revenue from federal agencies is derived from projects in overseas locations.
Private owners. The Company’s private customers include real estate developers, health care companies, technology companies, hospitality and gaming resort owners, Native American sovereign nations, public corporations and private universities. Services are provided to private customers through negotiated contract arrangements, as well as through competitive bids.
Most federal, state and local government contracts contain provisions that permit the termination of contracts, in whole or in part, for the convenience of the government, among other reasons.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, 2018 | ||||||||||
|
|
|
|
|
|
|
| Specialty |
|
|
| |
(in thousands) |
| Civil |
| Building |
| Contractors |
| Total | ||||
Revenue by contract type: |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed price |
| $ | 259,927 |
| $ | 96,657 |
| $ | 234,495 |
| $ | 591,079 |
Guaranteed maximum price |
|
| 3,103 |
|
| 270,440 |
|
| 17,462 |
|
| 291,005 |
Unit price |
|
| 121,447 |
|
| 10,771 |
|
| 7,233 |
|
| 139,451 |
Cost plus fee and other |
|
| 17,996 |
|
| 69,111 |
|
| 11,443 |
|
| 98,550 |
Total revenue |
| $ | 402,473 |
| $ | 446,979 |
| $ | 270,633 |
| $ | 1,120,085 |
12
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended June 30, 2018 | ||||||||||
|
|
|
|
|
|
|
| Specialty |
|
|
| |
(in thousands) |
| Civil |
| Building |
| Contractors |
| Total | ||||
Revenue by contract type: |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed price |
| $ | 443,830 |
| $ | 175,658 |
| $ | 481,919 |
| $ | 1,101,407 |
Guaranteed maximum price |
|
| 8,175 |
|
| 532,468 |
|
| 33,042 |
|
| 573,685 |
Unit price |
|
| 190,201 |
|
| 19,588 |
|
| 13,890 |
|
| 223,679 |
Cost plus fee and other |
|
| 23,381 |
|
| 209,506 |
|
| 16,583 |
|
| 249,470 |
Total revenue |
| $ | 665,587 |
| $ | 937,220 |
| $ | 545,434 |
| $ | 2,148,241 |
Fixed price. Fixed price or lump sum contracts are most commonly used for projects in the Civil and Specialty Contractors segments and generally commit the Company to provide all of the resources required to complete a project for a fixed sum. Usually, fixed price contracts transfer more risk to the Company, but offer the opportunity for greater profits. Billings on fixed price contracts are typically based on estimated progress against predetermined contractual milestones.
Guaranteed maximum price (“GMP”). GMP contracts provide for a cost plus fee arrangement up to a maximum agreed upon price. These contracts place risks on the Company for amounts in excess of the GMP, but may permit an opportunity for greater profits than under cost plus fee contracts through sharing agreements with the owner on any cost savings that may be realized. Services provided by our Building segment to various private customers are often performed under GMP contracts. Billings on GMP contracts typically occur on a monthly basis and are based on actual costs incurred plus a negotiated margin.
Unit price. Unit price contracts are most prevalent for projects in the Civil and Specialty Contractors segments and generally commit the Company to provide an estimated or undetermined number of units or components that comprise a project at a fixed price per unit. This approach shifts the risk of estimating the quantity of units required to the project owner, but the risk of increased cost per unit is borne by the Company, unless otherwise allowed for in the contract. Billings on unit price contracts typically occur on a monthly basis and are based on actual quantity of work performed or completed during the billing period.
Cost plus fee. Cost plus fee contracts are used for many projects in the Building and Specialty Contractors segments. Cost plus fee contracts include cost plus fixed fee contracts and cost plus award fee contracts. Cost plus fixed fee contracts provide for reimbursement of approved project costs plus a fixed fee. Cost plus award fee contracts provide for reimbursement of the project costs plus a base fee, as well as an incentive fee based on cost and/or schedule performance. Cost plus fee contracts serve to minimize the Company’s financial risk, but may also limit profits. Billings on cost plus fee contracts typically occur on a monthly basis based on actual costs incurred plus a negotiated margin.
Changes in Contract Estimates that Impact Revenue
Changes to the total estimated contract revenue or cost, either due to unexpected events or revisions to management’s initial estimates, for a given project are recognized in the period in which they are determined. Net revenue recognized during the three and six monthsmonth periods ended June 30,March 31, 2019 and 2018 related to performance obligations satisfied (or partially satisfied) in prior periods was immaterial.
Remaining Performance Obligations
Remaining performance obligations represent the transaction price of firm orders for which work has not been performed and excludesexclude unexercised contract options. As of June 30,March 31, 2019, the aggregate amounts of the transaction prices allocated to the remaining performance obligations of the Company’s construction contracts were $4.5 billion, $2.0 billion and $1.8 billion for the Civil, Building and Specialty Contractors segments, respectively. As of March 31, 2018, the aggregate amounts of the transaction prices allocated to the remaining performance obligations of the Company’s construction contracts are $4.3were $4.5 billion, $2.0$2.2 billion and $1.6$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.
1310
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
(4) Contract Assets and Liabilities
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 consistconsisted of the following:
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
| ||||
|
| As of June 30, |
| As of January 1, |
| As of March 31, |
| As of December 31, | ||||
(in thousands) |
| 2018 |
| 2018 |
| 2019 |
| 2018 | ||||
Retainage receivable |
| $ | 490,751 |
| $ | 535,939 |
| $ | 490,132 |
| $ | 478,744 |
Costs and estimated earnings in excess of billings: |
|
|
|
|
|
|
|
| ||||
Claims |
| 646,262 |
| 549,849 |
| 740,844 |
| 698,274 | ||||
Unapproved change orders |
| 334,777 |
| 296,591 |
| 362,273 |
| 354,000 | ||||
Other unbilled costs and profits |
| 63,194 |
| 86,318 |
| 65,558 |
| 90,021 | ||||
Total costs and estimated earnings in excess of billings |
| 1,044,233 |
| 932,758 |
| 1,168,675 |
| 1,142,295 | ||||
Capitalized contract costs |
| 41,434 |
| 32,773 |
| 41,973 |
| 37,404 | ||||
Total contract assets |
| $ | 1,576,418 |
| $ | 1,501,470 |
| $ | 1,700,780 |
| $ | 1,658,443 |
Retainage receivables representreceivable represents amounts invoiced to customers where payments have been partially withheld pending the completion of certain milestones, satisfaction of other contractual conditions or upon the completion of the project. Retainage agreements vary from project to project and balances could be outstanding for several months or years depending on a number of circumstances such as contract-specific terms, project performance and other variables that may arise as the Company makes progress towards completion.
Costs and estimated earnings in excess of billings represent the excess of contract costs and profits (or contract revenue) over the amount of contract billings to date and are classified as a current asset. Costs and estimated earnings in excess of billings result when either: 1) the appropriate contract revenue amount has been recognized over time in accordance with ASC 606,Revenue from Contracts with Customers (“ASC 606”), but a portion of the revenue recorded cannot be billed currently due to the billing terms defined in the contract, or 2) costs are incurred related to certain claims and unapproved change orders. Claims occur when there is a dispute regarding both a change in the scope of work and the price associated with that change. Unapproved change orders occur when a change in the scope of work results in additional work being performed before the parties have agreed on the corresponding change in the contract price. The Company routinely estimates recovery related to claims and unapproved change orders as a form of variable consideration at the most likely amount it expects to receive and to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Claims and unapproved change orders are billable upon the agreement and resolution between the contractual parties and after the execution of contractual amendments. Increases in claims and unapproved change orders typically result from costs being incurred against existing or new positions; decreases normally result from resolutions and subsequent billings. As discussed in Note 9,10, Commitments and Contingencies, the resolution of these claims and unapproved change orders may require litigation or other forms of dispute resolution proceedings. Other unbilled costs and profits are billable in accordance with the billing terms of each of the existing contractual arrangements and, as such, the timing of contract billing cycles can cause fluctuations in the balance of unbilled costs and profits. Ultimate resolution of other unbilled costs and profits typically involves incremental progress toward contractual requirements or milestones.
Capitalized contract costs primarily represent costs to fulfill a contract that (1) directly relate to an existing or anticipated contract, (2) generate or enhance resources that will be used in satisfying performance obligations in the future and (3) are expected to be recovered through the contract, and are included in other current assets. Capitalized contract costs are generally expensed to the associatedcontract over the period of anticipated use on the project.During the three and six months ended June 30,March 31, 2019 and 2018, $5.7 million and $4.1 million, and $8.2 millionrespectively, of previously capitalized contract costs were amortized and recognized as expense on the related contracts, respectively.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 consistconsisted of the following:
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
| ||||
|
| As of June 30, |
| As of January 1, |
| As of March 31, |
| As of December 31, | ||||
(in thousands) |
| 2018 |
| 2018 |
| 2019 |
| 2018 | ||||
Retainage payable |
| $ | 236,545 |
| $ | 261,820 |
| $ | 221,028 |
| $ | 211,956 |
Billings in excess of costs and estimated earnings |
| 574,392 |
| 496,654 |
| 579,000 |
| 573,190 | ||||
Total contract liabilities |
| $ | 810,937 |
| $ | 758,474 |
| $ | 800,028 |
| $ | 785,146 |
1411
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
Retainage payables representpayable 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 payables arepayable is not remitted to subcontractors until the associated retainage receivablesreceivable from customers areis collected.
Billings in excess of costs and estimated earnings represent the excess of contract billings to date over the amount of contract costs and profits (or contract revenue) recognized to date. The balance may fluctuate depending on the timing of contract billings and the recognition of contract revenue. Revenue recognized during the three and six months ended June 30,March 31, 2019 and 2018 and included in the opening billings in excess of costs and estimated earnings balances for each period totaled $262.3$301.0 million and $303.4$222.9 million, respectively.
(5) Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the amounts shown in the Condensed Consolidated Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
| As of June 30, |
| As of December 31, |
| As of March 31, |
| As of December 31, | ||||
(in thousands) |
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||
Cash and cash equivalents available for general corporate purposes |
| $ | 51,379 |
| $ | 94,713 |
| $ | 37,268 |
| $ | 51,749 |
Joint venture cash and cash equivalents |
|
| 87,190 |
|
| 98,155 |
|
| 64,214 |
|
| 64,326 |
Cash and cash equivalents |
|
| 138,569 |
|
| 192,868 |
|
| 101,482 |
|
| 116,075 |
Restricted cash |
|
| 3,434 |
| 4,780 |
|
| 5,095 |
| 3,788 | ||
Total cash, cash equivalents and restricted cash |
| $ | 142,003 |
| $ | 197,648 |
| $ | 106,577 |
| $ | 119,863 |
Cash equivalents include short-term, highly liquid investments with maturities of three months or less when acquired. Cash and cash equivalents consist of amounts available for the Company’s general purposes, the Company’s proportionate share of cash held by the Company’s unconsolidated joint ventures and 100% of amounts held by the Company’s consolidated joint ventures. In both cases, cash held by joint ventures is available only for joint venture-related uses, including future distributions to joint venture partners.
Amounts included in restricted cash are primarily held as collateral to secure insurance-related contingent obligations, such as insurance claim deductibles, in lieu of letters of credit.
(6) Earnings Per Common Share (EPS)
Basic EPS and diluted EPS are calculated by dividing net income attributable to Tutor Perini Corporation by the following: for basic EPS, the weighted-average number of common shares outstanding during the period; and for diluted EPS, the sum of the weighted-average number of both outstanding common shares and potentially dilutive securities, which for the Company can include restricted stock units, unexercised stock options and the Convertible Notes, as defined in Note 8, Financial Commitments. In accordance with ASC 260, Earnings Per Share (“ASC 260”), the settlement of the principal amount of the Convertible Notes has no impact on diluted EPS because the Company has the intent and ability to settle the principal amount in cash.The Company calculates the effect of thesethe potentially dilutive securities using the treasury stock method for restricted stock units and stock options.options using the treasury stock method.
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Three Months Ended June 30, |
| Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||
(in thousands, except per common share data) | 2018 |
| 2017 |
| 2018 |
| 2017 | 2019 |
| 2018 | ||||||
Net income attributable to Tutor Perini Corporation | $ | 24,883 |
| $ | 30,096 |
| $ | 12,759 |
| $ | 43,860 | |||||
Net loss attributable to Tutor Perini Corporation | $ | (356) |
| $ | (12,124) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Weighted-average common shares outstanding, basic |
| 49,946 |
| 49,735 |
| 49,880 |
| 49,510 |
| 50,098 |
| 49,814 | ||||
Effect of dilutive restricted stock units and stock options |
| 494 |
| 1,020 |
|
| 247 |
| 1,343 |
| — |
| — | |||
Weighted-average common shares outstanding, diluted |
| 50,440 |
| 50,755 |
|
| 50,127 |
| 50,853 |
| 50,098 |
| 49,814 | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Net income attributable to Tutor Perini Corporation per common share: |
|
|
|
|
|
|
|
| ||||||||
Net loss attributable to Tutor Perini Corporation per common share: |
|
|
|
| ||||||||||||
Basic | $ | 0.50 |
| $ | 0.61 |
| $ | 0.26 |
| $ | 0.89 | $ | (0.01) |
| $ | (0.24) |
Diluted | $ | 0.49 |
| $ | 0.59 |
| $ | 0.25 |
| $ | 0.86 | $ | (0.01) |
| $ | (0.24) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Anti-dilutive securities not included above |
| 1,682 |
| 353 |
|
| 3,095 |
| 672 |
| 4,518 |
| 4,507 |
1512
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
With regard toAll restricted stock units and stock options that were outstanding during the three months ended March 31, 2019 and 2018 were excluded from weighted-average diluted EPS andshares outstanding for the impact ofperiods, as the Convertible Notesshares would have an anti-dilutive effect on the diluted EPS calculation, becausenet losses. Since the Company has the intent and ability to settle the principal amount of the Convertible Notes in cash, per ASC 260, Earnings Per Share,the settlement of the principal amount has no impact onwas excluded from the calculation of diluted EPS.
(7) Income Taxes
The Company’s effective income tax rate was 31.7% for the three and six months ended June 30, 2018 was 30.0%March 31, 2019 and 31.2%, respectively, compared to 37.9% and 37.6%28.1% for the three and six months ended June 30, 2017, respectively.March 31, 2018. The effective tax rate for the 2019 period was impacted by immaterial unfavorable nonrecurring items recognized during the period. In addition, the effective tax rates for the 2018both periods primarily reflect the reduction in the federal statutoryincreases due to state income tax rate from 35%taxes and decreases due to 21% effective January 1, 2018 as a resultimpacts of the Tax Act and were favorably impacted by earnings attributable to noncontrolling interests for which income taxes are not the responsibility of the Company, partially offset by non-deductible expenses and a change in the New York State tax law related to the treatment of foreign income under the Tax Act. The effective tax rates for the three and six months ended June 30, 2017 were favorably impacted by earnings attributable to noncontrolling interests, while the effective rate for the six-month period was also favorably impacted by reductions in estimated non-deductible expenses and tax benefits associated with share-based compensation. For the three and six months ended June 30, 2018 and 2017, the effective tax rates were higher than the federal statutory rates primarily due to state income taxes.Company.
(8) Financial Commitments
Long-Term Debt
Long-term debt consisted of the following as of the dates ofreported on the Condensed Consolidated Balance Sheets presented:consisted of the following:
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| As of June 30, |
| As of December 31, | As of March 31, |
| As of December 31, | ||||
(in thousands) | 2018 |
| 2017 | 2019 |
| 2018 | ||||
2017 Senior Notes | $ | 493,121 |
| $ | 492,734 | $ | 493,726 |
| $ | 493,521 |
2017 Credit Facility |
| 181,500 |
|
| 41,000 | |||||
Convertible Notes |
| 166,442 |
|
| 161,635 |
| 174,089 |
|
| 171,481 |
2017 Credit Facility |
| 92,000 |
|
| — | |||||
Equipment financing and mortgages |
| 64,434 |
|
| 76,820 |
| 46,454 |
|
| 50,904 |
Other indebtedness |
| 6,617 |
|
| 5,087 |
| 2,857 |
|
| 4,598 |
Total debt |
| 822,614 |
|
| 736,276 |
| 898,626 |
|
| 761,504 |
Less: Current maturities |
| 28,105 |
|
| 30,748 |
| 11,921 |
|
| 16,767 |
Long-term debt, net | $ | 794,509 |
| $ | 705,528 | $ | 886,705 |
| $ | 744,737 |
The following table reconciles the outstanding debt balance to the reported debt balances as of June 30, 2018March 31, 2019 and December 31, 2017:2018:
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| As of June 30, 2018 |
| As of December 31, 2017 | As of March 31, 2019 |
| As of December 31, 2018 | ||||||||||||||||||||||||||||
(in thousands) | Outstanding Long-Term Debt |
| Unamortized Discount and Issuance Costs |
| Long-Term |
| Outstanding Long-Term Debt |
| Unamortized Discount and Issuance Costs |
| Long-Term | 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 |
| $ | (6,879) |
| $ | 493,121 |
| $ | 500,000 |
| $ | (7,266) |
| $ | 492,734 | $ | 500,000 |
| $ | (6,274) |
| $ | 493,726 |
| $ | 500,000 |
| $ | (6,479) |
| $ | 493,521 |
Convertible Notes |
| 200,000 |
| (33,558) |
| 166,442 |
| 200,000 |
| (38,365) |
| 161,635 |
| 200,000 |
| (25,911) |
| 174,089 |
| 200,000 |
| (28,519) |
| 171,481 |
The unamortized issuance costs related to the 2017 Credit Facility were $5.5$4.4 million and $6.2$4.8 million as of June 30, 2018March 31, 2019 and December 31, 2017,2018, respectively, and are included in other assets in the Condensed Consolidated Balance Sheets.
2017 Senior Notes
On April 20, 2017, the Company issued $500 million in aggregate principal amount of 6.875% Senior Notes due 2025 (the “2017 Senior Notes”) in a private placement.placement offering. Interest on the 2017 Senior Notes is payable in arrears semi-annually in May and November of each year, beginning in November 2017.
Prior to May 1, 2020, the Company may redeem the 2017 Senior Notes at a redemption price equal to 100% of their principal amount plus a “make-whole” premium described in the indenture. In addition, prior to May 1, 2020, the Company may redeem up to 40% of the original aggregate principal amount of the notes at a redemption price of 106.875% of their principal amount with the proceeds
16
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
received by the Company from any offering of the Company’s equity. After May 1, 2020, the Company may redeem the 2017 Senior Notes at specified redemption prices described in the indenture. Upon a change of control, holders of the 2017 Senior Notes may
13
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
require the Company to repurchase all or part of the 2017 Senior Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the redemption date.
The 2017 Senior Notes are senior unsecured obligations of the Company and are guaranteed by substantially all of the Company’s existing and future subsidiaries that also guarantee obligations under the Company’s 2017 Credit Facility, as defined below. In addition, the indenture for the 2017 Senior Notes provides for customary covenants, including events of default and restrictions on the payment of dividends and share repurchases.
2017 Credit Facility
On April 20, 2017, the Company entered into a credit agreement (the “2017 Credit Facility”) with SunTrust Bank as Administrative Agent, Swing Line Lender and L/C Issuer and a syndicate of other lenders. The 2017 Credit Facility provides for a $350 million revolving credit facility (the “2017 Revolver”) and a sublimit for the issuance of letters of credit and swingline loans up to the aggregate amount of $150 million and $10 million, respectively, both maturing on April 20, 2022, unless any of the Convertible Notes, as defined below, are outstanding on December 17, 2020, in which case all such borrowings will mature on December 17, 2020 (subject to certain further exceptions). In addition, the 2017 Credit Facility permits additional borrowings in an aggregate amount of $150 million, which can be in the form of increased capacity on the 2017 Revolver or the establishment of one or more term loans.
Borrowings under the 2017 Revolver bear interest, at the Company’s option, at a rate equal to a margin over (a) the London Interbank Offered Rate (“LIBOR”) plus a margin of between 1.50% and 3.00% or (b) a base rate (determined by reference to the highest of (i) the administrative agent’s prime lending rate, (ii) the federal funds effective rate plus 50 basis points, (iii) the LIBOR rate for a one-month interest period plus 100 basis points and (iv) 0%), plus a margin of between 0.50% and 2.00%, in each case based on the Consolidated Leverage Ratio (as defined in the 2017 Credit Facility). In addition to paying interest on outstanding principal under the 2017 Credit Facility, the Company will pay a commitment fee to the lenders under the 2017 Revolver in respect of the unutilized commitments thereunder. The Company will pay customary letter of credit fees. If an event of default occurs and is continuing, the otherwise applicable margin and letter of credit fees will be increased by 2% per annum. The weighted-average annual interest rate on borrowings under the 2017 Revolver was approximately 4.55%5.28% during the sixthree months ended June 30, 2018.March 31, 2019.
The 2017 Credit Facility contains customary covenants for credit facilities of this type, including maximum consolidated leverage ratios ranging from 4.00:1.00 to 3.25:1.00 over the life of the facility and a minimum consolidated fixed charge coverage ratio of 1.25:1.00. On May 7, 2019, certain provisions of the 2017 Credit Facility were amended, including setting the maximum leverage ratio at 3.50:1.00 for the remainder of its term, thus eliminating the step down from 3.50:1:00 to 3.25:1.00. Substantially all of the Company’s subsidiaries unconditionally guarantee the obligations of the Company under the 2017 Credit Facility; additionally, the obligations are secured by a lien on all personal property of the Company and its subsidiaries guaranteeing these obligations.
As of June 30, 2018,March 31, 2019, there was $258$169 million available under the 2017 Revolver, and the Company had not utilized the 2017 Credit Facility for letters of credit. The Company was in compliance with the financial covenants under the 2017 Credit Facility as of June 30, 2018.
Repurchase and Redemption of 2010 Senior Notes and Termination of 2014 Credit Facility
On April 20, 2017, the Company used proceeds from the 2017 Senior Notes and 2017 Revolver to repurchase or redeem its 2010 Senior Notes ($300 million of 7.625% Senior Notes due November 1, 2018), to pay off its 2014 Credit Facility ($300 million revolving credit facility and a $250 million term loan, both maturing on May 1, 2018), and to pay accrued but unpaid interest and fees. In addition, the indenture governing the 2010 Senior Notes was satisfied and discharged, and the Company terminated the 2014 Credit Facility.March 31, 2019.
Convertible Notes
On June 15, 2016, the Company issued $200 million of 2.875% Convertible Senior Notes due June 15, 2021 (the “Convertible Notes”) in a private placement offering. The Convertible Notes are unsecured obligations and do not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by the Company. The Convertible Notes bear interest at a rate of 2.875% per year, payable in cash semi-annually in June and December.
Prior to January 15, 2021, the Convertible Notes will be convertible only under the following circumstances: (1) during the five business day period after any ten consecutive trading day period in which the trading price per $1,000 principal amount of Convertible
17
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
Notes for such trading day was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; (2) if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion rate of 33.0579 (or $39.32) on each applicable trading day; or (3) upon the occurrence of specified corporate events. On or after January 15, 2021 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.
14
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
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 June 30, 2018,March 31, 2019, the conversion provisions of the Convertible Notes have not been triggered.
Interest Expense
Interest expense as reported in the Condensed Consolidated Statements of IncomeOperations consists of the following:
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| Three Months Ended |
| Six Months Ended | Three Months Ended | ||||||||||||
| June 30, |
| June 30, | March 31, | ||||||||||||
(in thousands) | 2018 |
| 2017 |
| 2018 |
| 2017 | 2019 |
| 2018 | ||||||
Cash interest expense: |
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Interest on 2017 Senior Notes | $ | 8,594 |
| $ | 6,780 |
| $ | 17,187 |
| $ | 6,780 | $ | 8,594 |
| $ | 8,594 |
Interest on 2017 Credit Facility |
| 2,354 |
|
| 1,491 |
| 3,704 |
| 1,491 |
| 2,645 |
|
| 1,349 | ||
Interest on Convertible Notes |
| 1,437 |
|
| 1,437 |
| 2,875 |
| 2,875 |
| 1,438 |
|
| 1,438 | ||
Interest on 2010 Senior Notes |
| — |
|
| 1,207 |
| — |
| 6,926 | |||||||
Interest on 2014 Credit Facility |
| — |
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| 746 |
| — |
| 4,455 | |||||||
Other interest |
| 626 |
|
| 831 |
| 1,383 |
| 1,693 |
| 574 |
|
| 757 | ||
Cash portion of loss on extinguishment |
| — |
|
| 1,913 |
|
| — |
| 1,913 | ||||||
Total cash interest expense |
| 13,011 |
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| 14,405 |
|
| 25,149 |
| 26,133 |
| 13,251 |
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| 12,138 | |
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Non-cash interest expense:(a) |
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Amortization of discount and debt issuance costs on Convertible Notes |
| 2,432 |
|
| 2,214 |
| 4,808 |
| 4,378 |
| 2,608 |
|
| 2,376 | ||
Amortization of debt issuance costs on 2017 Credit Facility |
| 360 |
|
| 281 |
| 720 |
| 281 |
| 361 |
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| 360 | ||
Amortization of debt issuance costs on 2017 Senior Notes |
| 195 |
|
| 141 |
| 386 |
| 141 |
| 205 |
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| 191 | ||
Amortization of debt issuance costs on 2014 Credit Facility |
| — |
|
| 285 |
| — |
| 1,703 | |||||||
Amortization of discount and debt issuance costs on 2010 Senior Notes |
| — |
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| 54 |
| — |
| 308 | |||||||
Non-cash portion of loss on extinguishment |
| — |
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| 5,139 |
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| — |
| 5,139 | ||||||
Total non-cash interest expense |
| 2,987 |
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| 8,114 |
|
| 5,914 |
| 11,950 |
| 3,174 |
|
| 2,927 | |
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Total interest expense | $ | 15,998 |
| $ | 22,519 |
| $ | 31,063 |
| $ | 38,083 | $ | 16,425 |
| $ | 15,065 |
(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 |
(9) Leases
The Company leases certain office space, construction and office equipment, vehicles and temporary housing generally under non-cancelable operating leases. Leases with an initial term of one year or less are not recorded on the balance sheet, and the Company generally recognizes lease expense for these leases on a straight-line basis over the lease term. As of March 31, 2019, the Company’s operating leases have remaining lease terms ranging from less than one year to 10 years, some of which include options to renew the leases. The exercise of lease renewal options is generally at the Company’s sole discretion. The Company’s leases do not contain any material residual value guarantees or material restrictive covenants.
The Company determines if an arrangement is a lease at inception. Operating lease ROU assets are included in other assets, while current and long-term operating lease liabilities are included in accrued expenses and other current liabilities, and other long-term liabilities, respectively, on the Condensed Consolidated Balance Sheet as of March 31, 2019. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The present value of future lease payments are discounted using either the implicit rate in the lease, if known, or the Company’s incremental borrowing rate for the specific lease as of the lease commencement date. The ROU asset is also adjusted for any prepayments made or incentives received. The lease terms include options to extend or terminate the lease only to the extent it is reasonably certain any of those options will be exercised. Lease expense is recognized on a straight-line basis over the lease term. The Company accounts for lease components (e.g., fixed payments) separate from the non-lease components (e.g., common-area maintenance costs).The Company does not have any material financing leases.
1815
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, 2019:
Three Months Ended | ||
(in thousands) | March 31, 2019 | |
Operating lease expense | $ | 3,781 |
Short-term lease expense(a) | 16,571 | |
20,352 | ||
Less: Sublease income | 259 | |
Total lease expense | $ | 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, 2019:
As of March 31, | |||
(dollars in thousands) | Balance Sheet Line Item | 2019 | |
Assets | |||
ROU assets | Other assets | $ | 41,977 |
Total lease assets | $ | 41,977 | |
Liabilities | |||
Current lease liabilities | Accrued expenses and other current liabilities | $ | 11,598 |
Long-term lease liabilities | Other long-term liabilities | 33,341 | |
Total lease liabilities | $ | 44,939 | |
Weighted-average remaining lease term (in years) | 5.1 | ||
Weighted-average discount rate | 5.82% |
The following table presents supplemental cash flow information and non-cash activity related to operating leases for the three months ended March 31, 2019:
Three Months Ended | ||
(in thousands) | March 31, 2019 | |
Operating cash flow information: | ||
Cash paid for amounts included in the measurement of lease liabilities | $ | (3,765) |
Non-cash activity: | ||
ROU assets obtained in exchange for lease liabilities | $ | 1,798 |
The following table presents maturities of operating lease liabilities on an undiscounted basis as of March 31, 2019:
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Year (in thousands) | Operating Leases | |
2019 (excluding the three months ended March 31, 2019) | $ | 10,513 |
2020 |
| 10,871 |
2021 |
| 7,636 |
2022 |
| 6,567 |
2023 |
| 5,587 |
Thereafter |
| 11,662 |
Total lease payments |
| 52,836 |
Less: Imputed interest |
| 7,897 |
Total | $ | 44,939 |
(9)16
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
As of December 31, 2018, future minimum lease payments under long-term non-cancelable operating leases as classified under ASC 840 were as follows:
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Year (in thousands) | Operating Leases | |
2019 | $ | 14,039 |
2020 |
| 10,706 |
2021 |
| 7,464 |
2022 |
| 6,567 |
2023 |
| 5,587 |
Thereafter |
| 11,662 |
|
| 56,025 |
Less: Sublease rental agreements |
| 1,398 |
Total | $ | 54,627 |
(10) Commitments and Contingencies
The Company and certain of its subsidiaries are involved in litigation and variousother legal proceedings and forms of dispute resolution and are contingently liable for commitments and performance guarantees arising in the ordinary course of business. In addition, other activities inherentbusiness, including but not limited to the Company’s business may result in litigation disputes over contract payment and/or dispute resolution proceedings when there is a disagreementperformance-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.change) and other matters incidental to the Company’s business. In accordance with ASC 606, the Company makes assessments of these types of disputesmatters on a routine basis and, to the extent permitted by ASC 606, estimates and records recovery related to these disputesmatters as a form of variable consideration at the most likely amount itthe Company expects to receive, as discussed further in Note 3, Revenue, and Note 4, Contract Assets and Liabilities. In addition, the Company is contingently liable for litigation, performance guarantees and other commitments arising in the ordinary course of business, which are accounted for in accordance with ASC 450, Contingencies. Management reviews these matters regularly and updates or revises its estimates from time to time as warranted by subsequent information and developments. These assessments require judgments concerning matters that are inherently uncertain, such as litigation developments and outcomes, the anticipated outcome of negotiations and the estimated cost of resolving disputes. Consequently, these assessments are estimates, and actual amounts may vary from such disputes.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. Management believes that, based on current information and discussions with the Company’s legal counsel, the ultimate resolution of these matters is not expected to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.position.
Several matters are in the litigation and dispute resolution processes that include characteristics which management consider to be other than ordinary routine contract performance related issues. The following discussion provides a background and current status of such material matters.
Long Island Expressway/Cross Island Parkway Matter
The Company reconstructed the Long Island Expressway/Cross Island Parkway Interchange (“LIE Project”) for the New York State Department of Transportation (“NYSDOT”). The $130 million project was substantially completed in January 2004 and was accepted by NYSDOT as complete in February 2006. The Company incurred significant added costs in completing its work and suffered extended schedule costs due to numerous design errors, undisclosed utility conflicts, lack of coordination with local agencies and other interferences for which the Company believes NYSDOT is responsible.
In March 2011, the Company opened a case with the New York State Court of Claims against NYSDOT related to the LIE Project. In May 2011, NYSDOT filed a motion to dismiss the Company’s claim on the grounds that the Company had not provided required documentation for project closeout and filing of a claim. In September 2011, the Company reached agreement on final payment with the Comptroller’s Office on behalf of NYSDOT, which resulted in an amount of $0.5 million payable to the Company and formally closed out the project allowing the Company to re-file its claim. In March 2012, the Company filed its formal Verified Claim seeking $50.7 million in damages. In May 2012, NYSDOT served its answer and asserted counterclaims in the amount of $151 million alleging fraud in the inducement and punitive damages related to alleged violations of the disadvantaged business enterprise (“DBE”) requirements for the project. The Court subsequently ruled that NYSDOT’s counterclaims may only be asserted as a defense and offset to the Company’s claims and not as affirmative claims. In November 2014, the Appellate Division First Department affirmed the dismissal of NYSDOT’s affirmative counterclaims. OnIn June 11, 2018, following additional summary judgment motions, the Court granted the Company’s motion to dismiss NYSDOT’s affirmative defenses, which eliminated the use of NYSDOT’s counterclaimcounterclaims of $151 million as a defense to the claims of the Company. In October 2018, NYSDOT is likely tofiled a notice of appeal. A trial date for the appeal this dismissal; however, an appeal doeshas not stay the proceedings from continuing. Discovery was completed during 2017, and the Company is currently awaiting an assignment to a trial judge and the setting of a trial date.been set.
17
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
Management has made an estimate of the total anticipated recovery on this project, and such estimate is included in revenue recorded to date. To the extent new facts become known or the final recovery included in the claim settlement varies from the estimate, the impact of the change will be reflected in the consolidated financial statements at that time. As of March 31, 2019, the Company has also concluded that the potential for a material adverse financial impact due to NYSDOT’s counterclaims is remote.
Fontainebleau Matter
Desert Mechanical, Inc. (“DMI”) and Fisk Electric Company (“Fisk”), wholly owned subsidiaries of the Company, were subcontractors on the Fontainebleau Projectproject located in Las Vegas, (“Fontainebleau”),Nevada, a hotel/casino complex with approximately 3,800 rooms.rooms (the “Project”). In June 2009, Fontainebleauthe owners of the Project filed for bankruptcy protection, under Chapter 11 of the U.S. Bankruptcy Code, in the Southern District of Florida.
DMI and Fisk filedrecorded mechanic’s liens in Nevada foragainst the Project totaling approximately $44 million, representing unreimbursed costsfor unpaid labor, materials and equipment it furnished to date and lost profits, including anticipated profits.the Project. Other unaffiliated contractors, subcontractors haveand suppliers also filed liens.recorded mechanic’s liens against the Project, subjecting the property to approximately $550 million in total lien claims by the various lien claimants who furnished labor, materials and equipment to the Project (the “Statutory Lienholders”). In June 2009, DMI filed suit against Turnberry West Construction, Inc., the general contractor, in the 8thEighth 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.
19
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
In January 2010, the Bankruptcy Court approved the sale of the propertyProperty to Icahn Nevada Gaming Acquisition, LLC and this transaction closedfor approximately $150 million. Certain Project lenders (the “Lenders”) who had recorded deeds of trust as security interests in February 2010. As a result of a July 2010 ruling relating to certain priming liens, there was approximately $125 million set aside from thisthe property which far exceeded the 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 lenderproceeds, filed suit against the mechanic’s lien claimants,Statutory Lienholders, including DMI and Fisk, alleging that certain mechanic’s liens are invalid and that all mechanic’s liens arewere subordinate to the lender’s claimsLenders’ deeds of trust against the property. The Nevada Supreme Court ruled in October 2012 in an advisory opinion atthat under Nevada Law, the requestmechanic’s lien claims had priority over a portion of the Bankruptcy Court that lien priorities would be determined in favordeeds of the mechanic lien holders under Nevada law.trust, but not all of them.
In October 2013, a comprehensive settlement agreement was reached by and among the Statutory Lienholders and the other interested parties.Lenders to divide the Sale Proceeds such that the Statutory Lienholders would receive approximately $85 million of the sale proceeds (the “Net Statutory Lienholder Proceeds”) and the Lenders would receive the balance. The Bankruptcy Court appointed a mediator to facilitate a settlement between the execution of that settlement agreement,Statutory Lienholders as to how the Net Statutory Lienholder Proceeds would be distributed, but after engaging in numerous mediation sessions spanning several years, the parties were unable to settle. During the third quarter of 2017,reach a resolution. DMI filed a motion seeking permission from the Bankruptcy Court to file an action in Nevada to enforce its lien rights against the Company’s lien rights;Net Statutory Lienholder Proceeds, and the motion was granted bygranted. Pursuant to that order, litigation involving all Statutory Lienholders was commenced at the end of November 2017 (the “Nevada Action”).
On April 25, 2019, DMI and Fisk agreed to a settlement in the Nevada Action with another Statutory Lienholder, who has guaranteed payment on account of their claims. The settlement amount will be paid when the Bankruptcy Court.
Management has made an estimate ofCourt distributes the total anticipated recoveryNet Statutory Lienholder Proceeds to the Statutory Lienholders, which is expected to occur later in 2019. The settlement had no material impact 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.
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 of which the Company collected more than $16 million in 2017. In December 2017 and in January 2018, the Court issued several post-appeal orders confirming its previous rulings. Some of those matters are subject to a current further appeal. Once resolved, TSC will seek an order from the Court seeking a remaining $4 million in interest and fees associated with the matter.
The Company does not expect the ultimate resolution of this matter to have a 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.
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.
20
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
As of June 30, 2018,March 31, 2019, the Company cannot predict the ultimate outcome of the investigation and cannot reasonably estimate the potential loss or range of loss that Five Star or the Company may incur or the impact of the results of the investigation on Five Star or the Company.
Alaskan Way Viaduct Matter
In January 2011, Seattle Tunnel Partners (“STP”), a joint venture between Dragados USA, Inc. and the Company, entered into a design-build contract with the Washington State Department of Transportation (“WSDOT”) for the construction of a large diameter bored tunnel in downtown Seattle, King County, Washington to replace the Alaskan Way Viaduct, also known as State Route 99.
18
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
The construction of the large diameter bored tunnel required the use of a tunnel boring machine (“TBM”). In December 2013, the TBM struck a steel pipe, installed by WSDOT as a well casing for an exploratory well. The TBM was damaged and was required to be 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 differing site condition. WSDOT has not accepted that finding.
The TBM was insured under a Builder’s Risk Insurance Policy (the “Policy”) with Great Lakes Reinsurance (UK) PLC and a consortium of other insurers (the “Insurers”). STP submitted the claims to the Insurers and requested interim payments under the Policy. The Insurers refused to pay and denied coverage. In June 2015, STP filed a lawsuit in the King County Superior Court, State of Washington (“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. TrialIn 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. Discoveryexpected to be heard in the second half of 2019. STP submitted damages to the Insurers in the King County lawsuit in the amount of $532 million. STP is ongoing.also seeking these damages from WSDOT and Hitachi related to the pipe-strike by the TBM in a related lawsuit in Thurston County (see following paragraph).
In March 2016, WSDOT filed a complaint against STP in Thurston County Superior Court for breach of contract alleging STP’s delays and failure to perform, seeking $57.2 million in damages and seeking declaratory relief concerning contract interpretation. STP filed its answer to WSDOT’s complaint and filed a counterclaim against WSDOT and Hitachi.Hitachi seeking damages of $667 million. Trial is setscheduled for AprilOctober 2019.
As of June 30, 2018,March 31, 2019, the Company has concluded that the potential for a material adverse financial impact due to the Insurers’ denial of coverage and WSDOT’s legal actions is neither probable nor remote, and the potential loss or range of loss is not reasonably estimable. With respect to STP’s claims against the Insurers, WSDOT and Hitachi, management has included an estimate of the total anticipated recovery, concluded to be both probable and reliably estimable, in receivables or costs and estimated earnings in excess of billings recorded to date. To the extent new facts become known or the final recoveries vary from the estimate, the impact of the change will be reflected in the financial statements at that time.
(10)(11) Share-Based Compensation
During the second quarter of 2018, the Company adopted the Tutor Perini Corporation Omnibus Incentive Plan (the “Plan”), which effected the merger of the Company’s previous incentive compensation plans. Similar to its previous plans, the Plan provides for various types of share-based grants, including restricted and unrestricted stock units and stock options. As of June 30, 2018,March 31, 2019, there were 684,598901,834 shares of common stock available for grant under the Company’sTutor Perini Corporation Omnibus Incentive Plan. During the first sixthree months of 20182019 and 2017,2018, the Company issued the following share-based instruments: (1) restricted stock units of 614,000totaling 175,000 and 665,000514,000 with weighted-average fair values per share of $25.19$20.41 and $30.48,$26.49, respectively; (2) stock options of 579,000totaling 85,000 and 265,000479,000 with weighted-average fair values per share of $11.45$7.57 and $13.70,$11.82, respectively, and weighted-average per share exercise prices of $23.73$25.62 and $23.47,$24.53, respectively. In addition, during the six months ended June 30, 2018 and 2017, theThe Company issued 115,420 and 99,15510,000 unrestricted stock units with a weighted-average fair value per share of $21.26 and $26.26, respectively.$25.40 during the three months ended March 31, 2018; no unrestricted stock units were issued in the first quarter of 2019.
The fair value of restricted and unrestricted stock units is based on the closing price of the Company’s common stock on the New York Stock Exchange on the date of the grant and the fair value of stock options is based on the Black-Scholes model. The fair value of certain performance-based awards are estimated taking into account the features of such awards. The fair value of stock options granted during the first sixthree months of 20182019 was determined using the Black-Scholes model based on the following weighted-average assumptions: (i) expected life of 5.15.4 years, (ii) expected volatility of 42.31%36.63%, (iii) risk-free rate of 2.57%2.66%, and (iv) no quarterly dividends. For certain performance-based awards containing market condition components, the fair value on the grant date is determined using a Monte Carlo simulation model.
For the three and six months ended June 30,March 31, 2019 and 2018, the Company recognized, as part of general and administrative expenses, costs for share-based payment arrangements totaling $6.0$5.5 million and $12.1 million, respectively, and $6.1 million, and $10.4respectively. As of March 31, 2019, the balance of unamortized share-based compensation expense was $26.7 million, for thewhich is expected to be recognized over a weighted-average period of 2.0 years.
2119
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
three and six months ended June 30, 2017, respectively. As of June 30, 2018, the balance of unamortized share-based compensation expense was $36.4 million, which will be recognized over a weighted-average period of 2.2 years.
(11)(12) 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 six months ended June 30, 2018March 31, 2019 and 2017:2018:
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| Three Months Ended June 30, |
| Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||
(in thousands) | 2018 |
| 2017 |
| 2018 |
| 2017 | 2019 |
| 2018 | ||||||
Interest cost | $ | 883 |
| $ | 975 |
| $ | 1,766 |
| $ | 1,950 | $ | 948 |
| $ | 883 |
Expected return on plan assets |
| (1,077) |
| (1,088) |
| (2,154) |
| (2,176) |
| (1,043) |
| (1,077) | ||||
Amortization of net loss |
| 513 |
| 456 |
| 1,026 |
| 912 |
| 463 |
| 513 | ||||
Other |
| 213 |
| 213 |
|
| 426 |
| 426 |
| 225 |
| 213 | |||
Net periodic benefit cost | $ | 532 |
| $ | 556 |
| $ | 1,064 |
| $ | 1,112 | $ | 593 |
| $ | 532 |
The Company contributed $1.4$0.7 million and $0.8 million to its defined benefit pension plan during each of the six-monththree-month periods ended June 30,March 31, 2019 and 2018, and 2017,respectively, and expects to contribute an additional $1.3$3.9 million by the end of 2018.2019.
(12)(13) Fair Value Measurements
The fair value hierarchy established by ASC 820, Fair Value Measurement, prioritizes the use of inputs used in valuation techniques into the following three levels:
· | 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 June 30, 2018March 31, 2019 and December 31, 2017:2018:
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| As of June 30, 2018 |
| As of December 31, 2017 |
| As of March 31, 2019 |
| As of December 31, 2018 | ||||||||||||||||||||||||||||||||||||||||
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| Fair Value Hierarchy |
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| Fair Value Hierarchy |
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| Fair Value Hierarchy |
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| Fair Value Hierarchy |
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(in thousands) |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||||||||||
Cash and cash equivalents(a) |
| $ | 138,569 |
| $ | — |
| $ | — |
| $ | 138,569 |
| $ | 192,868 |
| $ | — |
| $ | — |
| $ | 192,868 |
| $ | 101,482 |
| $ | — |
| $ | — |
| $ | 101,482 |
| $ | 116,075 |
| $ | — |
| $ | — |
| $ | 116,075 |
Restricted cash(a) |
|
| 3,434 |
|
| — |
|
| — |
|
| 3,434 |
|
| 4,780 |
|
| — |
|
| — |
|
| 4,780 |
|
| 5,095 |
|
| — |
|
| — |
|
| 5,095 |
|
| 3,788 |
|
| — |
|
| — |
|
| 3,788 |
Restricted investments(b) |
|
| — |
|
| 52,900 |
|
| — |
|
| 52,900 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 63,937 |
|
| — |
|
| 63,937 |
|
| — |
|
| 58,142 |
|
| — |
|
| 58,142 |
Investments in lieu of retainage(c) |
|
| 63,441 |
|
| 2,094 |
|
| — |
|
| 65,535 |
|
| 69,891 |
|
| 2,405 |
|
| — |
|
| 72,296 |
|
| 66,933 |
|
| 1,254 |
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| — |
|
| 68,187 |
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| 62,858 |
|
| 1,190 |
|
| — |
|
| 64,048 |
Other investments(b) |
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| — |
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| 5,949 |
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| — |
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| 5,949 |
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| — |
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| — |
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| — |
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| — | ||||||||||||||||||||||||
Total |
| $ | 205,444 |
| $ | 60,943 |
| $ | — |
| $ | 266,387 |
| $ | 267,539 |
| $ | 2,405 |
| $ | — |
| $ | 269,944 |
| $ | 173,510 |
| $ | 65,191 |
| $ | — |
| $ | 238,701 |
| $ | 182,721 |
| $ | 59,332 |
| $ | — |
| $ | 242,053 |
(a) | Includes money market funds with original maturity dates of three months or less. |
(b) |
|
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
|
(c) | Investments in lieu of retainage are included in retainage receivable and as of |
The Company did not have material transfers between Levels 1 and 2 during the six months ended June 30, 2018 or 2017.
20
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
The carrying values of receivables, payables and other amounts arising out of normal contract activities, including retainage, which may be settled beyond one year, are estimated to approximate fair value. Of the Company’s long-term debt, the fair value of the 2017 Senior Notes was $500.7$501.5 million and $537.5$466.8 million as of June 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. The fair value of the Convertible Notes was $202.2$191.9 million and $222.2$184.4 million as of June 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. The fair values of the 2017 Senior Notes and Convertible Notes were determined using Level 1 inputs, specifically current observable market prices. The reported value of the Company’s remaining borrowings approximates fair value as of June 30, 2018March 31, 2019 and December 31, 2017 approximates fair value.2018.
(13)(14) Variable Interest Entities (VIE)(VIEs)
The 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 companyCompany reassesses its initial determination of whether the joint venture is a VIE.
ASC 810 also requires the Company to determine whether it is the primary beneficiary of the VIE. The Company concludes that it is the primary beneficiary and consolidates the VIE if the Company has both (a) the power to direct the economically significant activities of the VIE and (b) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. The Company considers the contractual agreements that define the ownership structure, distribution of profits and losses, risks, responsibilities, indebtedness, voting rights and board representation of the respective parties in determining if the Company is the primary beneficiary. The Company also considers all parties that have direct or implicit variable interests when determining whether it is the primary beneficiary. In accordance with ASC 810, management’s assessment of whether the Company is the primary beneficiary of a VIE is performed continuously.
As of June 30, 2018,March 31, 2019, the Company had unconsolidated VIE-related current assets and liabilities of $2.9$0.8 million and $2.8$0.5 million, respectively, included in the Company’s Condensed Consolidated Balance Sheet. As of December 31, 2017,2018, the Company had unconsolidated VIE-related current assets and liabilities of $0.8$4.0 million and $0.8$3.8 million, respectively, included in the Company’s Condensed Consolidated Balance Sheet. The Company’s maximum exposure to loss as a result of its investments in unconsolidated VIEs is typically limited to the aggregate of the carrying value of the investment and future funding commitments. There were no future funding requirements for the unconsolidated VIEs as of June 30, 2018.March 31, 2019.
As of June 30,March 31, 2019, the Company’s Condensed Consolidated Balance Sheet included current and noncurrent assets of $172.6 million and $53.6 million, respectively, as well as current liabilities of $314.3 million related to the operations of its consolidated VIEs. As of December 31, 2018, the Company’s Condensed Consolidated Balance Sheet included current and noncurrent assets of $170.5$173.9 million and $41.1$51.5 million, respectively, as well as current liabilities of $288.3 million, related to the operations of its consolidated VIEs. As of December 31, 2017, the Company’s Condensed Consolidated Balance Sheet included current and noncurrent assets of $95.5 million and $11.6 million, respectively, as well as current liabilities of $140.7$319.9 million related to the operations of its consolidated VIEs.
Below is a discussion of some of the Company’s more significant or unique VIEs.
One largeThe Company established a joint venture that the Company is consolidating was established to construct the Purple Line SegmentSection 2 Extension project, a $1.4 billion mass-transit project in Los Angeles, California. The Company has a 75% interest in the joint venture with the remaining
23
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
25% held by O&G Industries, Inc. The joint venture was initially financed with contributions from the partners and, per the terms of the joint venture agreement, the partners may be required to provide additional capital contributions in the future. The Company has determined that this joint venture is a VIE for which the Company is the primary beneficiary.
The Company also established a joint venture with Parsons Corporation (“Parsons”) to construct the Newark Liberty International Airport Terminal One Design-Build 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.
(14)21
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
(15) Changes in Equity
A reconciliation of the changes in equity for the three months ended March 31, 2019 and 2018 is provided below:
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| 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) |
| — |
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| — |
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| (356) |
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| — |
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| 5,078 |
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| 4,722 |
Other comprehensive income |
| — |
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| — |
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| — |
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| 1,249 |
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| 102 |
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| 1,351 |
Share-based compensation |
| — |
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| 4,783 |
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| — |
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| — |
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| — |
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| 4,783 |
Issuance of common stock, net |
| 154 |
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| (2,518) |
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| — |
|
| — |
|
| — |
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| (2,364) |
Contributions from noncontrolling interests |
| — |
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| — |
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| — |
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| — |
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| 2,798 |
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| 2,798 |
Distributions to noncontrolling interests |
| — |
|
| — |
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| — |
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| — |
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| (4,000) |
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| (4,000) |
Balance - March 31, 2019 | $ | 50,180 |
| $ | 1,105,184 |
| $ | 701,325 |
| $ | (44,200) |
| $ | (17,310) |
| $ | 1,795,179 |
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| Paid-in |
| Retained |
| Comprehensive |
| Noncontrolling |
| Total | ||||||
(in thousands) | Stock |
| Capital |
| Earnings |
| Loss |
| Interests |
| Equity | ||||||
Balance - December 31, 2017 | $ | 49,781 |
| $ | 1,084,205 |
| $ | 622,007 |
| $ | (42,718) |
| $ | (8,495) |
| $ | 1,704,780 |
Cumulative effect of accounting change |
| — |
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| — |
|
| (3,684) |
|
| — |
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| (1,763) |
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| (5,447) |
Net income (loss) |
| — |
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| — |
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| (12,124) |
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| — |
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| 1,182 |
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| (10,942) |
Other comprehensive loss |
| — |
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| — |
|
| — |
|
| (878) |
|
| — |
|
| (878) |
Share-based compensation |
| — |
|
| 5,399 |
|
| — |
|
| — |
|
| — |
|
| 5,399 |
Issuance of common stock, net |
| 132 |
|
| (2,440) |
|
| — |
|
| — |
|
| — |
|
| (2,308) |
Distributions to noncontrolling interests |
| — |
|
| — |
|
| — |
|
| — |
|
| (5,000) |
|
| (5,000) |
Balance - March 31, 2018 | $ | 49,913 |
| $ | 1,087,164 |
| $ | 606,199 |
| $ | (43,596) |
| $ | (14,076) |
| $ | 1,685,604 |
22
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
(16) Other Comprehensive Income (Loss)
ASC 220, Comprehensive Income, establishes standards for reporting and displaying comprehensive income and its components in the consolidated financial statements. The Company reports the change in pension benefit plan assets/liabilities, cumulative foreign currency translation and change in fair value of investments as components of accumulated other comprehensive income (loss) (“AOCI”).
The tax effects of the components of other comprehensive income (loss) for the three months ended June 30,March 31, 2019 and 2018 and 2017 arewere as follows:
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| ||||||||||
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| ||||||||||
| Three Months Ended |
| Three Months Ended | Three Months Ended |
| Three Months Ended | ||||||||||||||||||||||||||||
| June 30, 2018 |
| June 30, 2017 | March 31, 2019 |
| March 31, 2018 | ||||||||||||||||||||||||||||
(in thousands) | 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 |
| Before-Tax Amount |
| Tax (Expense) Benefit |
| Net-of-Tax Amount | ||||||||||||
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Defined benefit pension plan adjustments | $ | 494 |
| $ | (140) |
| $ | 354 |
| $ | 456 |
| $ | (187) |
| $ | 269 | $ | 463 |
| $ | (133) |
| $ | 330 |
| $ | 532 |
| $ | (151) |
| $ | 381 |
Foreign currency translation adjustments |
| (914) |
| 280 |
| (634) |
| 1,101 |
| (452) |
| 649 |
| 479 |
| (131) |
| 348 |
| (1,638) |
| 464 |
| (1,174) | ||||||||||
Unrealized gain (loss) in fair value of investments |
| (1,176) |
| 247 |
| (929) |
|
| (6) |
| 3 |
| (3) |
| 858 |
| (185) |
| 673 |
|
| (119) |
| 34 |
| (85) | ||||||||
Total other comprehensive income (loss) |
| (1,596) |
| 387 |
| (1,209) |
|
| 1,551 |
| (636) |
| 915 |
| 1,800 |
| (449) |
| 1,351 |
|
| (1,225) |
| 347 |
| (878) | ||||||||
Less: Other comprehensive income attributable to noncontrolling interests(a) |
| 102 |
| — |
| 102 |
|
| — |
| — |
| — | |||||||||||||||||||||
Total other comprehensive income (loss) attributable to Tutor Perini Corporation | $ | (1,596) |
| $ | 387 |
| $ | (1,209) |
| $ | 1,551 |
| $ | (636) |
| $ | 915 | $ | 1,698 |
| $ | (449) |
| $ | 1,249 |
| $ | (1,225) |
| $ | 347 |
| $ | (878) |
(a) | The only component of other comprehensive income attributable to noncontrolling interests is foreign currency translation. |
The tax effects of the components of other comprehensive income (loss) for the six months ended June 30, 2018 and 2017 are as follows:
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|
|
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|
|
|
|
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|
|
|
|
| Six Months Ended |
| Six Months Ended | ||||||||||||||
| June 30, 2018 |
| June 30, 2017 | ||||||||||||||
(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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plan adjustments | $ | 1,026 |
| $ | (291) |
| $ | 735 |
| $ | 912 |
| $ | (375) |
| $ | 537 |
Foreign currency translation adjustment |
| (2,553) |
|
| 745 |
|
| (1,808) |
|
| 1,009 |
|
| (414) |
|
| 595 |
Unrealized loss in fair value of investments |
| (1,295) |
|
| 281 |
|
| (1,014) |
|
| (42) |
|
| 18 |
|
| (24) |
Total other comprehensive income (loss) |
| (2,822) |
|
| 735 |
|
| (2,087) |
|
| 1,879 |
|
| (771) |
|
| 1,108 |
Total other comprehensive income (loss) attributable to Tutor Perini Corporation | $ | (2,822) |
| $ | 735 |
| $ | (2,087) |
| $ | 1,879 |
| $ | (771) |
| $ | 1,108 |
24
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
The changes in AOCI balances by component (after tax) attributable to Tutor Perini Corporation during the three and six months ended June 30,March 31, 2019 and 2018 arewere as follows:
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|
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|
|
|
|
|
|
| Three Months Ended June 30, 2018 | ||||||||||
| Defined |
|
|
| 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: |
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2018 | $ | (39,060) |
| $ | (4,765) |
| $ | 229 |
| $ | (43,596) |
Other comprehensive income (loss) before reclassifications |
| — |
|
| (634) |
|
| (929) |
|
| (1,563) |
Amounts reclassified from AOCI |
| 354 |
|
| — |
|
| — |
|
| 354 |
Total other comprehensive income (loss) |
| 354 |
|
| (634) |
|
| (929) |
|
| (1,209) |
Balance as of June 30, 2018 | $ | (38,706) |
| $ | (5,399) |
| $ | (700) |
| $ | (44,805) |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended March 31, 2019 | ||||||||||
| Defined |
|
|
| Unrealized |
| Accumulated | ||||
| Benefit |
| Foreign |
| Gain (Loss) in |
| Other | ||||
| Pension |
| Currency |
| Fair Value of |
| Comprehensive | ||||
(in thousands) | Plan |
| Translation |
| Investments, Net |
| Income (Loss) | ||||
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 |
| 330 |
|
| — |
|
| 8 |
|
| 338 |
Total other comprehensive income |
| 330 |
|
| 246 |
|
| 673 |
|
| 1,249 |
Balance as of March 31, 2019 | $ | (38,340) |
| $ | (6,069) |
| $ | 209 |
| $ | (44,200) |
|
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|
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| |||
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|
|
|
|
|
|
| |||
| Six Months Ended June 30, 2018 | Three Months Ended March 31, 2018 | ||||||||||||||||||||
| Defined |
|
|
| Unrealized |
| Accumulated | Defined |
|
|
| Unrealized |
| Accumulated | ||||||||
| Benefit |
| Foreign |
| Gain (Loss) 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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2017 | $ | (39,441) |
| $ | (3,591) |
| $ | 314 |
| $ | (42,718) | $ | (39,441) |
| $ | (3,591) |
| $ | 314 |
| $ | (42,718) |
Other comprehensive income (loss) before reclassifications |
| — |
| (1,808) |
| (1,014) |
| (2,822) | ||||||||||||||
Other comprehensive loss before reclassifications |
| — |
|
| (1,174) |
|
| (85) |
|
| (1,259) | |||||||||||
Amounts reclassified from AOCI |
| 735 |
| — |
| — |
| 735 |
| 381 |
|
| — |
|
| — |
|
| 381 | |||
Total other comprehensive income (loss) |
| 735 |
| (1,808) |
| (1,014) |
| (2,087) |
| 381 |
|
| (1,174) |
|
| (85) |
|
| (878) | |||
Balance as of June 30, 2018 | $ | (38,706) |
| $ | (5,399) |
| $ | (700) |
| $ | (44,805) | |||||||||||
Balance as of March 31, 2018 | $ | (39,060) |
| $ | (4,765) |
| $ | 229 |
| $ | (43,596) |
The changes in AOCI balance by component (after tax) for the three and six months ended June 30, 2017 are as follows:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, 2017 | ||||||||||
| Defined |
|
|
| 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: |
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2017 | $ | (40,597) |
| $ | (4,918) |
| $ | 295 |
| $ | (45,220) |
Other comprehensive income (loss) before reclassifications |
| — |
|
| 649 |
|
| (3) |
|
| 646 |
Amounts reclassified from AOCI |
| 269 |
|
| — |
|
| — |
|
| 269 |
Total other comprehensive income (loss) |
| 269 |
|
| 649 |
|
| (3) |
|
| 915 |
Balance as of June 30, 2017 | $ | (40,328) |
| $ | (4,269) |
| $ | 292 |
| $ | (44,305) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended June 30, 2017 | ||||||||||
| Defined |
|
|
| Unrealized |
| Accumulated | ||||
| Benefit |
| Foreign |
| Gain (Loss) in |
| Other | ||||
| Pension |
| Currency |
| Value of |
| Comprehensive | ||||
(in thousands) | Plan |
| Translation |
| Investments, Net |
| Loss | ||||
Attributable to Tutor Perini Corporation: |
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016 | $ | (40,865) |
| $ | (4,864) |
| $ | 316 |
| $ | (45,413) |
Other comprehensive income (loss) before reclassifications |
| — |
|
| 595 |
|
| (24) |
|
| 571 |
Amounts reclassified from AOCI |
| 537 |
|
| — |
|
| — |
|
| 537 |
Total other comprehensive income (loss) |
| 537 |
|
| 595 |
|
| (24) |
|
| 1,108 |
Balance as of June 30, 2017 | $ | (40,328) |
| $ | (4,269) |
| $ | 292 |
| $ | (44,305) |
2523
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
(15)(17) Business Segments
The Company offers general contracting, pre-construction planning and comprehensive project management services, including planning and scheduling of manpower, equipment, materials and subcontractors required for the timely completion of a project in accordance with the terms and specifications contained in a construction contract. The Company also offers self-performed construction services: site work;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, the Company’s business is conducted through three segments: Civil, Building and Specialty Contractors. These segments are determined based on how the Company’s Chairman and Chief Executive Officer (chief operating decision maker) aggregates business units when evaluating performance and allocating resources.
The Civil segment specializes in public works construction and the replacement and reconstruction of infrastructure. The 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.
The following tables set forth certain reportable segment information relating to the Company’s operations for the three and six months ended June 30, 2018March 31, 2019 and 2017:2018:
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|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
| Reportable Segments |
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
| Specialty |
|
|
|
|
|
|
| Consolidated | ||
(in thousands) | Civil |
|
| Building |
| Contractors |
| Total |
| Corporate |
| Total | |||||
Three Months Ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue | $ | 383,622 |
| $ | 436,243 |
| $ | 191,527 |
| $ | 1,011,392 |
| $ | — |
| $ | 1,011,392 |
Elimination of intersegment revenue |
| (50,128) |
|
| (2,777) |
|
| — |
|
| (52,905) |
|
| — |
|
| (52,905) |
Revenue from external customers | $ | 333,494 |
| $ | 433,466 |
| $ | 191,527 |
| $ | 958,487 |
| $ | — |
| $ | 958,487 |
Income (loss) from construction operations | $ | 41,745 |
| $ | 3,133 |
| $ | (7,488) |
| $ | 37,390 |
| $ | (14,477) | (a) | $ | 22,913 |
Capital expenditures | $ | 14,012 |
| $ | 55 |
| $ | 123 |
| $ | 14,190 |
| $ | 222 |
| $ | 14,412 |
Depreciation and amortization(b) | $ | 9,370 |
| $ | 503 |
| $ | 1,064 |
| $ | 10,937 |
| $ | 2,780 |
| $ | 13,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue | $ | 325,400 |
| $ | 490,617 |
| $ | 274,801 |
| $ | 1,090,818 |
| $ | — |
| $ | 1,090,818 |
Elimination of intersegment revenue |
| (62,286) |
|
| (376) |
|
| — |
|
| (62,662) |
|
| — |
|
| (62,662) |
Revenue from external customers | $ | 263,114 |
| $ | 490,241 |
| $ | 274,801 |
| $ | 1,028,156 |
| $ | — |
| $ | 1,028,156 |
Income (loss) from construction operations(c) | $ | 2,839 |
| $ | 6,425 |
| $ | 7,235 |
| $ | 16,499 |
| $ | (17,424) | (a) | $ | (925) |
Capital expenditures | $ | 19,196 |
| $ | 278 |
| $ | 419 |
| $ | 19,893 |
| $ | 77 |
| $ | 19,970 |
Depreciation and amortization(b) | $ | 5,756 |
| $ | 481 |
| $ | 1,112 |
| $ | 7,349 |
| $ | 2,838 |
| $ | 10,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Reportable Segments |
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
| Specialty |
|
|
|
|
|
|
| Consolidated | ||
(in thousands) | Civil |
|
| Building |
| Contractors |
| Total |
| Corporate |
| Total | |||||
Three Months Ended June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue | $ | 461,614 |
| $ | 447,975 |
| $ | 270,633 |
| $ | 1,180,222 |
| $ | — |
| $ | 1,180,222 |
Elimination of intersegment revenue |
| (59,141) |
|
| (996) |
|
| — |
|
| (60,137) |
|
| — |
|
| (60,137) |
Revenue from external customers | $ | 402,473 |
| $ | 446,979 |
| $ | 270,633 |
| $ | 1,120,085 |
| $ | — |
| $ | 1,120,085 |
Income from construction operations | $ | 49,439 |
| $ | 12,536 |
| $ | 7,454 |
| $ | 69,429 |
| $ | (14,614) | (a) | $ | 54,815 |
Capital expenditures | $ | 27,352 |
| $ | 592 |
| $ | 215 |
| $ | 28,159 |
| $ | 174 |
| $ | 28,333 |
Depreciation and amortization(b) | $ | 6,569 |
| $ | 489 |
| $ | 1,106 |
| $ | 8,164 |
| $ | 2,813 |
| $ | 10,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue | $ | 538,552 |
| $ | 508,769 |
| $ | 281,857 |
| $ | 1,329,178 |
| $ | — |
| $ | 1,329,178 |
Elimination of intersegment revenue |
| (65,970) |
|
| (15,934) |
|
| — |
|
| (81,904) |
|
| — |
|
| (81,904) |
Revenue from external customers | $ | 472,582 |
| $ | 492,835 |
| $ | 281,857 |
| $ | 1,247,274 |
| $ | — |
| $ | 1,247,274 |
Income (loss) from construction operations | $ | 58,144 |
| $ | 5,736 |
| $ | (14,007) |
| $ | 49,873 |
| $ | (15,828) | (a) | $ | 34,045 |
Capital expenditures | $ | 1,850 |
| $ | 104 |
| $ | 286 |
| $ | 2,240 |
| $ | 271 |
| $ | 2,511 |
Depreciation and amortization(b) | $ | 5,236 |
| $ | 513 |
| $ | 1,193 |
| $ | 6,942 |
| $ | 2,820 |
| $ | 9,762 |
(a) | Consists primarily of corporate general and administrative expenses. |
(b) | Depreciation and amortization is included in income (loss) from construction operations. |
(c) | During the three months ended March 31, 2018, the Company recorded a charge of $17.8 million in income from construction operations (an after-tax impact of $12.8 million, or $0.25 per diluted share), which was primarily non-cash, as a result of the unexpected outcome of an arbitration decision related to a subcontract back charge dispute on a Civil segment project in New York that was completed in 2013. |
2624
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
|
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|
|
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|
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|
|
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| Reportable Segments |
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| Specialty |
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| Consolidated | ||
(in thousands) | Civil |
|
| Building |
| Contractors |
| Total |
| Corporate |
| Total | |||||
Six Months Ended June 30, 2018 |
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Total revenue | $ | 787,014 |
| $ | 938,592 |
| $ | 545,434 |
| $ | 2,271,040 |
| $ | — |
| $ | 2,271,040 |
Elimination of intersegment revenue |
| (121,427) |
|
| (1,372) |
|
| — |
|
| (122,799) |
|
| — |
|
| (122,799) |
Revenue from external customers | $ | 665,587 |
| $ | 937,220 |
| $ | 545,434 |
| $ | 2,148,241 |
| $ | — |
| $ | 2,148,241 |
Income from construction operations | $ | 52,278 |
| $ | 18,961 |
| $ | 14,689 |
| $ | 85,928 |
| $ | (32,038) | (a) | $ | 53,890 |
Capital expenditures | $ | 46,548 |
| $ | 870 |
| $ | 634 |
| $ | 48,052 |
| $ | 251 |
| $ | 48,303 |
Depreciation and amortization(b) | $ | 12,325 |
| $ | 970 |
| $ | 2,218 |
| $ | 15,513 |
| $ | 5,651 |
| $ | 21,164 |
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Six Months Ended June 30, 2017 |
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Total revenue | $ | 905,363 |
| $ | 1,019,936 |
| $ | 597,553 |
| $ | 2,522,852 |
| $ | — |
| $ | 2,522,852 |
Elimination of intersegment revenue |
| (128,206) |
|
| (30,011) |
|
| — |
|
| (158,217) |
|
| — |
|
| (158,217) |
Revenue from external customers | $ | 777,157 |
| $ | 989,925 |
| $ | 597,553 |
| $ | 2,364,635 |
| $ | — |
| $ | 2,364,635 |
Income from construction operations | $ | 90,032 |
| $ | 10,977 |
| $ | 755 |
| $ | 101,764 |
| $ | (30,702) | (a) | $ | 71,062 |
Capital expenditures | $ | 7,417 |
| $ | 148 |
| $ | 293 |
| $ | 7,858 |
| $ | 325 |
| $ | 8,183 |
Depreciation and amortization(b) | $ | 21,554 |
| $ | 1,031 |
| $ | 2,385 |
| $ | 24,970 |
| $ | 5,788 |
| $ | 30,758 |
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|
|
During the six months ended June 30, 2018, the Company recorded a charge of $17.8 million in income from construction operations (an after-tax impact of $12.7 million, or $0.25 per diluted share), which was primarily non-cash, as a result of the unexpected outcome of an arbitration decision related to a subcontract back charge dispute on a Civil segment project in New York that was completed in 2013.
A reconciliation of segment results to the consolidated income (loss) before income taxes is as follows:
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| Three Months Ended June 30, |
| Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||
(in thousands) | 2018 |
| 2017 |
| 2018 |
| 2017 | 2019 |
| 2018 | ||||||
Income from construction operations | $ | 54,815 |
| $ | 34,045 |
| $ | 53,890 |
| $ | 71,062 | |||||
Income (loss) from construction operations | $ | 22,913 |
| $ | (925) | |||||||||||
Other income, net |
| 1,050 |
| 40,990 |
| 1,830 |
|
| 41,406 |
| 422 |
| 780 | |||
Interest expense |
| (15,998) |
| (22,519) |
|
| (31,063) |
|
| (38,083) |
| (16,425) |
| (15,065) | ||
Income before income taxes | $ | 39,867 |
| $ | 52,516 |
| $ | 24,657 |
| $ | 74,385 | |||||
Income (loss) before income taxes | $ | 6,910 |
| $ | (15,210) |
Total assets by segment arewere as follows:
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| As of |
| As of | As of |
| As of | ||||
(in thousands) | June 30, 2018 |
| December 31, 2017 | March 31, 2019 |
| December 31, 2018 | ||||
Civil | $ | 2,507,912 |
| $ | 2,452,108 | $ | 2,606,842 |
| $ | 2,574,326 |
Building |
| 913,031 |
| 909,207 |
| 936,099 |
| 913,746 | ||
Specialty Contractors |
| 751,174 |
| 767,807 |
| 744,509 |
| 745,313 | ||
Corporate and other(a) |
| 185,648 |
| 135,001 |
| 268,820 |
| 154,367 | ||
Total assets | $ | 4,357,765 |
| $ | 4,264,123 | $ | 4,556,270 |
| $ | 4,387,752 |
(a) | Consists principally of cash, equipment, tax-related assets and insurance-related assets, offset by the elimination of assets related to intersegment revenue. |
27
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
(16) 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 a 75% interest in a 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; there were no material payments made by the joint venture to O&G during the three and six months ended June 30, 2018 and 2017.
2825
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 June 30, 2018March 31, 2019 and the results of our operations for the three and six months ended June 30, 2018March 31, 2019 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 1, 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, 2017.2018, and the information contained under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 and in our Quarterly Reports.
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:
· | 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 |
· | Unfavorable outcomes of existing or future litigation or dispute resolution proceedings against project owners, 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; |
· | A significant slowdown or decline in economic conditions; |
· | Risks and other uncertainties associated with assumptions and estimates used to prepare financial statements; |
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· | Client cancellations of, or reductions in scope under, contracts reported in our backlog; |
· |
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· | 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; |
· | Impairment of our goodwill or other indefinite-lived intangible assets; |
· | Failure to meet our obligations under our debt agreements; |
· | 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; |
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· | Inability to retain key members of our management, to hire and retain personnel required to complete projects or implement succession plans for key officers; |
· | Decreases in the level of government spending for infrastructure and other public projects; |
· | Possible systems and information technology |
· | The impact of inclement weather conditions on projects; |
· | Failure to comply with laws and regulations related to government contracts; |
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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; |
· | Potential dilutive impact of our Convertible Notes in our diluted earnings per share calculation; and |
· | 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 |
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26
Executive Overview
Consolidated revenue for the three and six months ended June 30, 2018March 31, 2019 was $1.1 billion and $2.1 billion$958.5 million compared to $1.2$1.0 billion and $2.4 billion, respectively, for the same periodsperiod in 2017.2018. The decrease for both periods was principallyprimarily driven by reduced project execution activities on certain Building segment projects in California, including a large technology project that completed in 2018, and Florida that are completed and a net reduction in project execution activities on various Civil segment mass-transitcertain electrical projects in California, New York and California. Revenue for both 2018 periods wasWashington within the Specialty Contractors segment that are complete or nearing completion. Adverse weather that impacted certain projects primarily in California and the Midwest also lower duecontributed to the timing of project executionrevenue decrease. The decrease was partially offset by increased activities foron certain newer Civil segment projects and continuing delays on a large mass-transitBuilding segment technology project in California.California that are ramping up.
29
Income from construction operations for the three and six months ended June 30, 2018March 31, 2019 was $54.8$22.9 million and $53.9 million, respectively, compared to $34.0 million and $71.1a loss of $0.9 million for the same periodsperiod in 2017. For the three months ended June 30, 2018, the2018. The increase was primarily becauseprincipally due to the prior-year period included unfavorable adjustments in the Specialty Contractors segment, noneabsence of which were individually material. In comparing the six-month periods, the unfavorable adjustments in the prior year were approximately offset by reduced project contributions associated with the lower volume discussed above on certain Civil and Building segment projects. The six-month period of 2018 also included a prior-year pre-tax charge in the first quarter of 2018 totaling $17.8 million, which was attributable to the unexpected outcome of an arbitration decision on a completed Civil segment project in New York.
TheIncome tax expense was $2.2 million reflecting an effective tax rate of 31.7% for the three months ended March 31, 2019 compared to an income tax benefit of $4.3 million and an effective tax rate of 28.1% for the three and six months ended June 30, 2018 was 30.0% and 31.2% respectively, compared to 37.9% and 37.6% for the three and six months ended June 30, 2017.comparable period in 2018. See Corporate, Tax and Other Mattersbelow for a detailed discussion of the changes in the effective tax rate.
EarningsThe loss per diluted share (“diluted EPS”) for the three and six months ended June 30, 2018 were $0.49 and $0.25, respectively,March 31, 2019 was $0.01 compared to $0.59 and $0.86$0.24 for the three and six months ended June 30, 2017.March 31, 2018. The prior yearreduction in loss per share was favorably impacted by a gain associated with a $37.0 million cash settlement ($0.43 of diluted EPS) received during the second quarter for litigation relatedprimarily due to the Company’s purchase of auction-rate securities nearly a decade earlier. factors discussed above that resulted in increased income from construction operations.
Consolidated new awards for the three and six months ended June 30, 2018 were $1.3March 31, 2019 totaled $3.2 billion and $3.6 billion, respectively, compared to $1.6 billion and $3.7$2.2 billion for the same periodsperiod in 2017.2018. The Civil segment was the major contributor to the new award activity in the second quarter of 2018, and the Civil and Building segments were both majorthe primary contributors to the new award activity in the first halfquarter of 2018.2019.
Consolidated backlog as of June 30, 2018March 31, 2019 was $8.7$11.6 billion, an increase of 19%25%, compared to $7.3$9.3 billion at December 31, 2017.2018. The significant backlog growth experienced since the end of 2017 was attributable to a large volume of new BuildingCivil and CivilBuilding segment awards, including the $1.4 billion Newark Liberty International Airport Terminal OnePurple Line Section 3 Stations project in California, the Choctaw Casino and Resort project in Oklahoma, a large hospitality and gaming project in California, the $253 million Culver Line Communications-Based Train Control project in New Jersey,York and the $410$200 million Purple Line Extension Section 3 TunnelingSouthland Gaming Casino and Hotel project in California and a $215 million office building project, also in California.Arkansas. As of June 30, 2018,March 31, 2019, the mix of backlog by segment was approximately 55%56% for Civil, 24%26% for Building and 21%18% for Specialty Contractors.
The following table presents the Company’s backlog by business segment, reflecting changes from December 31, 20172018 to June 30, 2018:March 31, 2019:
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| Backlog at |
| New |
| Revenue |
| Backlog at | Backlog at |
| New |
| Revenue |
| Backlog at | ||||||||
(in millions) | December 31, 2017 |
| Awards(a) |
| Recognized |
| June 30, 2018(b) | December 31, 2018 |
| Awards(a) |
| Recognized |
| March 31, 2019(b) | ||||||||
Civil | $ | 4,118.2 |
| $ | 1,284.8 |
| $ | (665.6) |
| $ | 4,737.4 | $ | 5,141.9 |
| $ | 1,697.5 |
| $ | (333.5) |
| $ | 6,505.9 |
Building |
| 1,701.4 |
| 1,321.4 |
| (937.2) |
| 2,085.6 |
| 2,333.1 |
| 1,069.3 |
| (433.5) |
| 2,968.9 | ||||||
Specialty Contractors |
| 1,463.8 |
| 949.9 |
| (545.4) |
| 1,868.3 |
| 1,821.7 |
| 479.3 |
| (191.5) |
| 2,109.5 | ||||||
Total | $ | 7,283.4 |
| $ | 3,556.1 |
| $ | (2,148.2) |
| $ | 8,691.3 | $ | 9,296.7 |
| $ | 3,246.1 |
| $ | (958.5) |
| $ | 11,584.3 |
(a) | New awards consist of the original contract price of projects added to |
(b) | Backlog |
The outlook for theour Company’s growth over the next several years isremains favorable, particularly in the Civil and Specialty Contractors segments.segments, although the pace of growth could be moderated by project delays or the timing of project completions and project ramp-up activities. We anticipate that additionalwe will continue to win our share of significant new awards may benefit these segments based onresulting from long-term capital spending plans by state, local and federal customers, as well as bipartisan support for infrastructure investments. Votersinvestments and limited competition for some of the largest project opportunities. In recent years, voters in numerous states approved dozens of long-term transportation funding measures in recent elections totaling approximately $200 billion 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 40 years and in Seattle, Washington, where Sound Transit 3 was passed and is expected to generate $54 billion of funding over 25 years. In addition, the Trump Administration has proposedand various congressional leaders continue to propose a significant federal infrastructure investment program.program, which is now estimated to be $2 trillion. Furthermore, several large, long-duration civil infrastructure programs with which we are already involved are progressing, such as California’s High-Speed Rail systemthe Purple Line Extension projects in Los Angeles. Finally, while interest
27
rates have climbed modestly from their historical low levels, they remain relatively low and New York City’s East Side Access project. Planning and permitting activities continue on Amtrak’s Northeast Corridor Improvements, including the Gateway Program, which is expected to eventually bring new rail tunnels beneath the Hudson River to connect service between New Jersey and New York’s Penn Station. Finally,generally favorable interest rates and capital costs are anticipated to sustain strongcontinued demand and continued spending by public and private customers on infrastructure projects.customers.
For a more detailed discussion of operating performance of each business segment, corporate general and administrative expense and other items, see Results of Segment Operations, Corporate, Tax and Other Matters and Liquidity and Capital Resources below.
30
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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| Three Months Ended June 30, |
| Six Months Ended June 30, |
| Three Months Ended March 31, | ||||||||||||
(in millions) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||||
Revenue |
| $ | 402.5 |
| $ | 472.6 |
| $ | 665.6 |
| $ | 777.2 |
| $ | 333.5 |
| $ | 263.1 |
Income from construction operations |
| 49.4 |
| 58.1 |
| 52.3 |
|
| 90.0 |
| 41.8 |
| 2.8 |
Revenue for the three and six months ended June 30, 2018 decreased 15% and 14%, respectively,March 31, 2019 increased 27% compared to the same periodsperiod in 2017.2018. The decrease for both periods was primarily due to a net reduction in project execution activities on various mass-transit projects in New York and California and a tunnel project in Washington.
Income from construction operations for the three and six months ended June 30, 2018 decreased 15% and 42%, respectively, compared to the same periods in 2017. For the second quarter of 2018, the decreasegrowth was primarily due to the volume changes mentioned above. Forramp-up of project execution activities on several newer projects, partially offset by a net reduction of activities on certain mass-transit projects in New York.
Income from construction operations increased substantially for the six-monththree months ended March 31, 2019 compared to the same period of 2018, the decreasein 2018. The increase was principallyprimarily due to the absence of the above-mentioned prior-year pre-tax charge totaling $17.8 million, chargethe factors mentioned above that drove the revenue increase and improved contributions from a project in the first quarter of 2018 discussed above in the Executive Overview, as well as reduced project contributions primarily associated with the lower volume discussed above.California.
Operating margin was 12.3% and 7.9%, respectively,12.5% for the three and six months ended June 30, 2018March 31, 2019 compared to 12.3% and 11.6%1.1% for the same periodsperiod in 2017.2018. The margin decrease for the six-month periodincrease was primarily attributable to the factors mentioned above that drove the changeschange in revenue and income from construction operations.
New awards in the Civil segment totaled $664 million and $1.3$1.7 billion for the three and six months ended June 30, 2018March 31, 2019 compared to $847$620 million and $2.3 billion, respectively, for the same periodsperiod in 2017.2018. New awards in the secondfirst quarter of 20182019 included a $410 million mass-transitthe $1.4 billion Purple Line Section 3 Stations project in California and a $93the $253 million bridgeCulver Line Communications-Based Train Control project in New York.
Backlog for the Civil segment was $4.7$6.5 billion as of June 30, 2018,March 31, 2019, up $497 million, or 12%,45% compared to the backlog$4.5 billion as of June 30, 2017.March 31, 2018. The increase was driven primarily by the two new awards mentioned above, which highlight the strong market demand for investments in mass-transit infrastructure. The segment continues to experience strong demand reflected in a large, multi-year pipeline of prospective projects, and substantial anticipated funding from various voter-approved transportation measures; the Trump Administration’s considerable proposed infrastructure investment program;measures and public agencies’ long-term spending plans. The Civil segment is well-positioned to capturecontinue capturing its share of these prospective projects. The segment, however, continues to face considerable competition, including occasional aggressive bids from competitors.
Building Segment
Revenue and income from construction operations for the Building segment are summarized as follows:
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| Three Months Ended June 30, |
| Six Months Ended June 30, |
| Three Months Ended March 31, | ||||||||||||
(in millions) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||||
Revenue |
| $ | 447.0 |
| $ | 492.8 |
| $ | 937.2 |
| $ | 989.9 |
| $ | 433.5 |
| $ | 490.2 |
Income from construction operations |
| 12.5 |
| 5.7 |
| 19.0 |
| 11.0 |
| 3.1 |
| 6.4 |
Revenue for the three and six months ended June 30, 2018March 31, 2019 decreased 9% and 5%, respectively,12% compared to the same periodsperiod in 2017.2018. The decrease for both periods was predominantly attributableprimarily due to reduced project execution activities on certain completed projects in California, and Floridawith the biggest contributor being a large technology project that were recently completed,was finished in 2018. The decrease was partially offset by increased activitiesthe ramp-up and progress towards completion of another technology project in California, though the ramp-up and progress on certain health care, mixed-use and technology projectsthis project, as well as on another project also in California.California, was limited by adverse weather.
Income from construction operations for the three and six months ended June 30, 2018 increased 119% and 73%, respectively,March 31, 2019 decreased 52% compared to the same periodsperiod in 2017.2018. The increases were largelydecrease was primarily due to improved profitability on projectsthe factors mentioned above that drove the change in California and certain higher-margin projects in Texas and New Jersey, as well as contract close-out adjustments in the prior year related tovolume, along with positive contributions from a project in California.California that was nearing completion in 2018.
Operating margin was 0.7% for the three months ended March 31, 2019 compared to 1.3% for the same period in 2018. The increases were partially offset bymargin decrease was mostly attributable to the impact ofabove-mentioned factors that drove the volume reductions mentioned above.
change in income from construction operations.
3128
Operating margin was 2.8% and 2.0% for the three and six months ended June 30, 2018, respectively, compared to 1.2% and 1.1% for the same periods in 2017. The margin increases for both periods were mostly attributable to the above-mentioned factors that drove the changes in income from construction operations.
New awards in the Building segment totaled $296 million and $1.3$1.1 billion for the three and six months ended June 30, 2018, respectively, compared to $551 million and $817 million forMarch 31, 2019, up slightly from the same periodsperiod in 2017.2018. New awards in the secondfirst quarter of 20182019 included a $59 million military buildingthe Choctaw Casino and Resort project in South CarolinaOklahoma, a large hospitality and various other smaller awardsgaming project in California and contract adjustments.the $200 million Southland Gaming Casino and Hotel project in Arkansas.
Backlog for the Building segment was $2.1$3.0 billion as of June 30, 2018,March 31, 2019, up $277 million, or 15%,33% compared to $1.8$2.2 billion as of June 30, 2017.March 31, 2018. The increase was driven by the awards of above-mentioned projects, which reflect customer confidence in investments in new hospitality and gaming developments. The backlog growth was primarily due to the award of the Newark Airport Terminal One project in the first quarter of 2018. The Building segment continues to have a large volume of prospective projects, some of which have already been bid and are expected to be selected and awarded by customers in 2018. Elevated2019. Strong demand is expected to continue due to ongoing customer spending supported by a still favorable interest rate environment. The Building segment is well-positioned to capture its share of prospective projects based on its strong customer relationships and long-term reputation for excellence in delivering high-quality projects on time and within budget.
Specialty Contractors Segment
Revenue and income from construction operations for the Specialty Contractors segment are summarized as follows:
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| Three Months Ended June 30, |
| Six Months Ended June 30, |
| Three Months Ended March 31, | ||||||||||||
(in millions) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||||
Revenue |
| $ | 270.6 |
| $ | 281.9 |
| $ | 545.4 |
| $ | 597.6 |
| $ | 191.5 |
| $ | 274.8 |
Income (loss) from construction operations |
| 7.5 |
| (14.0) |
| 14.7 |
| 0.8 |
| (7.5) |
| 7.2 |
Revenue for the three and six months ended June 30, 2018March 31, 2019 decreased 4% and 9%, respectively,30% compared to the same periodsperiod in 2017.2018. The decrease for both periods was predominantlyprimarily due to reduced project execution activities on variouscertain electrical and mechanical projects in California, Washington and New York that are complete or nearing completion.
A loss from construction operations of $7.5 million was reported in the first quarter of 2019 compared to $7.2 million of income from construction operations in the same quarter of 2018. The decrease in income from construction operations was primarily driven by unfavorable closeout adjustments on certain electrical and mechanical projects in New York totaling $13.6 million, none of which were individually material. Lower contributions associated with the volume reduction mentioned above were mostly offset by favorable performance on other electrical and mechanical projects in New York.
Income from construction operations increased significantlyOperating margin was (3.9)% for the three and six months ended June 30, 2018March 31, 2019 compared to the same periods in 2017. The absence of prior-year unfavorable adjustments on various projects in New York, none of which were individually material, more than offset the reduced volume for both periods in 2018.
Operating margin was 2.8% and 2.7% for the three and six months ended June 30, 2018, respectively, compared to -5.0% and 0.1%2.6% for the same periodsperiod in 2017.2018. The margin increases for both periods were largelychange was mainly attributable to the aforementioned reasons that caused the changes in revenue and income (loss) from construction operations.
New awards in the Specialty Contractors segment totaled $374 million and $950$479 million for the three and six months ended June 30, 2018March 31, 2019 compared to $239$576 million and $535 million, respectively, for the three and six months ended June 30, 2017.March 31, 2018. New awards in the secondfirst quarter of 20182019 included a $172 millionthree mechanical projectprojects in New York collectively valued at $192 million and an electrical subcontract valued at $140 million for a $53 million tunnel systems installationmass-transit project, also in New York.
Backlog for the Specialty Contractors segment was $1.9$2.1 billion as of June 30, 2018,March 31, 2019, up $357 million, or 24%,20% compared to $1.5$1.8 billion as of June 30, 2017.March 31, 2018, driven by the new awards mentioned above. The Specialty Contractors segment continues to have a substantial volume of prospective projects with demand increasing because of strong public and private sector spending on civil and building projects. The Specialty Contractors segment is increasingly focused on servicing the Company’s growing backlog of large Civil and Building segment projects, but remains well-positioned to capture its share of new projects for external prospective projects based oncustomers, leveraging the size and scale of our business units that operate in New York, Texas, Florida and California and the strong reputation held by these business units for high-quality work on large, complex projects.
Corporate, Tax and Other Matters
Corporate General and Administrative Expenses
Corporate general and administrative expenses were $14.4 million and $31.8$14.8 million during the three and six months ended June 30, 2018March 31, 2019 compared to $15.8 million and $30.7$17.4 million during the three and six months ended June 30, 2017.March 31, 2018. The decrease was primarily due to lower compensation-related expenses.
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Other Income, Net, Interest Expense and Income Tax (Expense) Benefit (Provision)
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| Three Months Ended March 31, | ||||||||||||
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| 2017 |
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||||
Other income, net |
| $ | 1.1 |
| $ | 41.0 |
| $ | 1.8 |
| $ | 41.4 |
| $ | 0.4 |
| $ | 0.8 |
Interest expense |
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| (16.0) |
| (22.5) |
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| (19.9) |
| (7.7) |
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Income tax (expense) benefit |
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| (2.2) |
| 4.3 |
Other income, net decreased $39.9 million and $39.6Interest expense increased $1.3 million for the three and six months ended June 30, 2018, respectively,March 31, 2019 compared to the same periodsperiod in 2017.2018. The decreases were primarily becauseincrease in the prior-year periods included a $37.0 million gain associated with a cash settlement received during the second quarter of 2017 for litigation related to the Company’s purchase of auction-rate securities nearly a decade earlier.
Interest expense decreased $6.5 million and $7.0 million for the three and six months ended June 30, 2018, respectively, compared to the same periods in 2017. The decreases were2019 period was primarily due to extinguishment costs recorded in the second quartera higher average balance and interest rate on our line of 2017 related to our April 2017 debt restructuring transactions.credit.
The Company’s effective income tax rate for the three and six months ended June 30, 2018March 31, 2019 was 30.0% and 31.2%, respectively,31.7% compared to 37.9% and 37.6%28.1% for the three and six months ended June 30, 2017.same period in 2018. The effective tax rates for the 2018 periods were favorably impacted by the reduction in the federal statutory income tax rate from 35% to 21% effective January 1, 2018 as a result of the Tax Cut and Jobs Act of 2017 (the “Tax Act”). The effective tax rates for the three and six months ended June 30, 2018 also reflect an unfavorable change in the New York State tax law in the second quarter related to the treatment of foreign income under the Tax Act. This change had a greater impact on the effective taxhigher rate in the six-month2019 period in 2018 compared toprimarily resulted from the three-month period in 2018 because the six-month period included a pre-tax loss in the first quarter.recognition of immaterial unfavorable nonrecurring items. For a further discussion of the impact of the Tax Act,income taxes, refer to Note 7 of the Notes to the Condensed Consolidated Financial Statements.
Liquidity and Capital Resources
Liquidity is provided by available cash and cash equivalents, cash generated from operations, credit facilities and access to capital markets. We have a committed line of credit totaling $350 million, which may be used for revolving loans, letters of credit and/or general purposes. We believe that cash generated from operations, along with our unused credit capacity of $258$169 million and cash position, iswill be sufficient to fund any working capital needs for the significant number of project opportunities that we see over the next several years, especially in our Civil segment.12 months.
Cash and Working Capital
Cash and cash equivalents were $138.6$101.5 million as of June 30, 2018March 31, 2019 compared to $192.9$116.1 million as of December 31, 2017.2018. Cash immediately available for general corporate purposes was $51.4$37.3 million and $94.7$51.7 million as of June 30, 2018March 31, 2019 and December 31, 2017,2018, respectively, with the remainder being our proportionate share of cash held by our unconsolidated joint ventures and also amounts held by our consolidated joint ventures, which in both cases were 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 $56.3$69.0 million as of June 30, 2018March 31, 2019 compared to $57.8$61.9 million as of December 31, 2017.2018.
During the sixthree months ended June 30, 2018,March 31, 2019, net cash used in operating activities was $62.4$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 an increase in costs and estimated earningsaccounts receivable due to timing of collections. During the three months ended March 31, 2018, net cash used in excess of billings andoperating activities was $73.4 million due primarily to investments in project working capital. The change in project working capital primarily reflected a decrease in accounts payable due to the timing of payments to vendors and subcontractors partially offset byand an increase in billings in excess of cost and estimated earnings and a decrease in retainage receivable. For the six months ended June 30, 2017, net cash used in operating activities was $34.6 million due primarily to investments in project working capital and payments for incentive compensation that exceeded cash generated from earnings sources.
The $27.8 million increase in cash used in operating activities for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 primarily reflects unfavorable changes in costs and estimated earnings in excess of billings, accrued liabilities and retainage payable, as well as a decreasebillings.
The $51.4 million change resulting from the comparison of cash used in earnings sources (theoperating activities for the three months ended March 31, 2019 with the cash flow for the comparable period in 2017 included the gain from the $37.0 million cash settlement2018 primarily reflects unfavorable timing of the litigation discussed above), mostly offset by favorable changes incollections affecting accounts receivable, retainage receivable and billings in excess of costs and estimated earnings.receivable.
During the first sixthree months of 2018,2019, we used $44.8$19.2 million of cash for investing activities principally due primarily to the acquisition of property and equipment for projects and investments in securities, compared to the use of cash of $16.1$16.9 million for the same period in 2017,2018, primarily resulting from investments in securities and the acquisition of property and equipment for projects.
For the first halfthree months of 2018,2019, net cash provided by financing activities was $51.5$130.7 million, which was primarily due to increased net borrowings of $81.4 million, partially offset by a $16.0 million earn-out payment related to an acquisition in a prior year and $12.5
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million of cash distributions to noncontrolling interests.$134.3 million. Net cash provided by financing activities for the comparable period in 20172018 was $79.1$71.1 million, which was principallyprimarily due to increased net borrowings partially offset by debt issuance costs related to the debt restructuring transactions in April 2017, as well as tax payments associated with the net settlement of share-based compensation.$78.4 million.
At June 30, 2018,March 31, 2019, we had working capital of $1.5$1.7 billion, a ratio of current assets to current liabilities of 1.972.09 and a ratio of debt to equity of 0.48,0.50, compared to working capital of $1.5$1.6 billion, a ratio of current assets to current liabilities of 1.941.99 and a ratio of debt to equity of 0.43 at December 31, 2017.2018.
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Debt
Summarized below are the key terms of the 2017 Credit Facility as of June 30, 2018.March 31, 2019. For additional information regarding our outstanding debt, refer to Note 8 of the Notes to Condensed Consolidated Financial Statements.
2017 Credit Facility
On April 20, 2017, we entered into a credit agreement (the “2017 Credit Facility”) with SunTrust Bank as Administrative Agent, Swing Line Lender and L/C Issuer and a syndicate of other lenders. The 2017 Credit Facility provides for a $350 million revolving credit facility (the “2017 Revolver”) and a sublimit for the issuance of letters of credit and swingline loans up to the aggregate amount of $150 million and $10 million, respectively, both maturing on April 20, 2022 unless any of the Convertible Notes are outstanding on December 17, 2020, in which case all such borrowings will mature on December 17, 2020 (subject to certain further exceptions). In addition, the 2017 Credit Facility permits additional borrowings in an aggregate amount of $150 million, which can be in the form of increased capacity on the 2017 Revolver or the establishment of one or more term loans. On May 7, 2019, certain provisions of the 2017 Credit Facility were amended, including, among other things, 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. For additional information regarding the terms of our 2017 Credit Facility, refer to Note 8 of the Notes to Condensed Consolidated Financial Statements.
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:
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Fixed charge coverage ratio |
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| < or = 3.50 : 1.00 |
As of June 30, 2018,March 31, 2019, we were in compliance and expect to continue to be in compliance with the covenants under the 2017 Credit Facility.
Contractual Obligations
There have been no material changes in our contractual obligations from those described in our Annual Report on Form 10-K for the year ended December 31, 2017.2018.
Off-Balance Sheet Arrangements
NoneNone.
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, 2017.2018. 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, 2017. Effective January 1, 2018,2018.
The Company tests goodwill for impairment annually for each reporting unit as of October 1st, and between annual tests if events occur or circumstances change which suggest that goodwill should be reevaluated. We determined that no triggering events occurred or circumstances changed since the date of our last annual test that would more likely than not reduce the fair value of the Company’s reporting units below their carrying amounts. Accordingly, an interim impairment test since the date of our last annual impairment test was not required. However, we will continue to monitor circumstances such as a sustained decline in our stock price and market capitalization or other factors, as well as consider entity specific quantitative and qualitative factors to identify potential triggering events that would more likely than not reduce the fair value of the Company’s reporting units below their carrying amounts. For a further discussion of how the Company adopted Accounting Standards Codification 606, Revenue from Contracts with Customers. See Notes 3considers these and 4other factors in our annual goodwill impairment test, please see the discussion included in Item 7 of our Annual Report on Form 10-K for the Notes to Condensed Consolidated Financial Statements for more information.year ended December 31, 2018.
Recently Issued Accounting Pronouncements
See Note 2 of the Notes to Condensed Consolidated Financial Statements.
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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, 2017.2018.
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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, 2017. For an update to those disclosures, see2018, updated by Note 910 of the Notes to the Condensed Consolidated Financial Statements.Statements included in this Quarterly Report on Form 10-Q.
There have been no material changes to our risk factors as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017.2018.
Item 4. Mine Safety Disclosures
Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires domestic mine operators to disclose violations and orders issued under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”) by the federal Mine Safety and Health Administration. We do not act as the owner of any mines but we may act as a mining operator as defined under the Mine Act where we may be an independent contractor performing services or construction of such mine.
Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Act and Item 104 Regulation S-K is included in Exhibit 95.
None.On May 7, 2019 Tutor Perini Corporation amended its 2017 Credit Facility (“the Amendment”). The Amendment does not change the total revolving commitments or the maturity under the 2017 Credit Facility. The Amendment modified certain provisions of the 2017 Credit Facility, including, among other things, setting the maximum leverage ratio at 3.50:1.00 for the remainder of its term, effective March 31, 2019. Other usual and customary covenants for credit facilities of this type remained consistent with those of the 2017 Credit Facility (subject to certain definitional adjustments made in the Amendment).
The foregoing description of the Amendment does not constitute a complete summary and is qualified in its entirety by reference to the full text of the Amendment, a copy of which is filed herewith as Exhibit 10.1.
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Exhibits | Description |
10.1 | |
31.1 | |
31.2 | |
32.1 | |
32.2 | |
95 | |
101.INS | XBRL Instance Document. |
101.SCH | 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. |
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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.
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| Tutor Perini Corporation | |
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Dated: | By: | /s/ Gary G. Smalley |
| Gary G. Smalley | |
| Executive Vice President and Chief Financial Officer |
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