UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019March 31, 2020
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 1-6314
Tutor Perini Corporation
(Exact Name of Registrant as Specified in its Charter)
MASSACHUSETTS | 04-1717070 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
15901 OLDEN STREET, SYLMAR, CALIFORNIA | 91342-1093 | |
(Address of Principal Executive Offices) | (Zip Code) |
(818) 362-8391
(Registrant’s Telephone Number, Including Area Code)
None
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $1.00 par value | TPC | The New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ | Accelerated filer ☐ |
Non-accelerated filer ☐ | Smaller reporting company ☐ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of common stock, $1.00 par value per share, of the registrant outstanding at October 31, 2019April 30, 2020 was 50,278,816.50,577,111.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
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Notes to Condensed Consolidated Financial Statements (Unaudited) | 7 - | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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PART I. – FINANCIAL INFORMATION
Item 1. – Financial Statements
TUTOR PERINI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
Three Months Ended | Nine Months Ended | Three Months Ended | ||||||||||||||
September 30, | September 30, | March 31, | ||||||||||||||
(in thousands, except per common share amounts) | 2019 | 2018 | 2019 | 2018 | 2020 | 2019 | ||||||||||
REVENUE | $ | 1,189,345 | $ | 1,123,137 | $ | 3,273,107 | $ | 3,271,378 | $ | 1,250,729 | $ | 958,487 | ||||
COST OF OPERATIONS | (1,074,282) | (1,012,013) | (2,968,631) | (2,974,546) | (1,139,649) | (870,017) | ||||||||||
GROSS PROFIT | 115,063 | 111,124 | 304,476 | 296,832 | 111,080 | 88,470 | ||||||||||
General and administrative expenses | (67,120) | (63,818) | (195,474) | (195,636) | (63,853) | (65,557) | ||||||||||
Goodwill impairment | — | — | (379,863) | — | ||||||||||||
INCOME (LOSS) FROM CONSTRUCTION OPERATIONS | 47,943 | 47,306 | (270,861) | 101,196 | ||||||||||||
INCOME FROM CONSTRUCTION OPERATIONS | 47,227 | 22,913 | ||||||||||||||
Other income, net | 1,674 | 1,909 | 2,996 | 3,739 | 481 | 422 | ||||||||||
Interest expense | (17,305) | (16,411) | (51,252) | (47,474) | (16,436) | (16,425) | ||||||||||
INCOME (LOSS) BEFORE INCOME TAXES | 32,312 | 32,804 | (319,117) | 57,461 | ||||||||||||
Income tax (expense) benefit | (5,591) | (7,368) | 35,121 | (15,071) | ||||||||||||
NET INCOME (LOSS) | 26,721 | 25,436 | (283,996) | 42,390 | ||||||||||||
INCOME BEFORE INCOME TAXES | 31,272 | 6,910 | ||||||||||||||
Income tax expense | (5,134) | (2,188) | ||||||||||||||
NET INCOME | 26,138 | 4,722 | ||||||||||||||
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | 7,408 | 4,164 | 17,577 | 8,359 | 8,767 | 5,078 | ||||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO TUTOR PERINI CORPORATION | $ | 19,313 | $ | 21,272 | $ | (301,573) | $ | 34,031 | $ | 17,371 | $ | (356) | ||||
BASIC EARNINGS (LOSS) PER COMMON SHARE | $ | 0.38 | $ | 0.43 | $ | (6.01) | $ | 0.68 | $ | 0.35 | $ | (0.01) | ||||
DILUTED EARNINGS (LOSS) PER COMMON SHARE | $ | 0.38 | $ | 0.42 | $ | (6.01) | $ | 0.68 | $ | 0.34 | $ | (0.01) | ||||
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||
BASIC | 50,279 | 50,018 | 50,201 | 49,927 | 50,338 | 50,098 | ||||||||||
DILUTED | 50,582 | 50,375 | 50,201 | 50,210 | 50,836 | 50,098 | ||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
UNAUDITED
Three Months Ended | Nine Months Ended | Three Months Ended | ||||||||||||||
September 30, | September 30, | March 31, | ||||||||||||||
(in thousands) | 2019 | 2018 | 2019 | 2018 | 2020 | 2019 | ||||||||||
NET INCOME (LOSS) | $ | 26,721 | $ | 25,436 | $ | (283,996) | $ | 42,390 | ||||||||
NET INCOME | $ | 26,138 | $ | 4,722 | ||||||||||||
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: | ||||||||||||||||
Defined benefit pension plan adjustments | 331 | 365 | 992 | 1,100 | 423 | 330 | ||||||||||
Foreign currency translation adjustments | (450) | 376 | 708 | (1,432) | (4,013) | 348 | ||||||||||
Unrealized gain (loss) in fair value of investments | 256 | (129) | 1,615 | (1,143) | ||||||||||||
Unrealized gain in fair value of investments | 542 | 673 | ||||||||||||||
TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | 137 | 612 | 3,315 | (1,475) | (3,048) | 1,351 | ||||||||||
COMPREHENSIVE INCOME (LOSS) | 26,858 | 26,048 | (280,681) | 40,915 | ||||||||||||
COMPREHENSIVE INCOME | 23,090 | 6,073 | ||||||||||||||
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | 7,309 | 4,164 | 17,737 | 8,359 | 6,747 | 5,180 | ||||||||||
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO TUTOR PERINI CORPORATION | $ | 19,549 | $ | 21,884 | $ | (298,418) | $ | 32,556 | ||||||||
COMPREHENSIVE INCOME ATTRIBUTABLE TO TUTOR PERINI CORPORATION | $ | 16,343 | $ | 893 | ||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
As of September 30, | As of December 31, | As of March 31, | As of December 31, | |||||||
(in thousands, except share and per share amounts) | 2019 | 2018 | 2020 | 2019 | ||||||
ASSETS | ASSETS | ASSETS | ||||||||
CURRENT ASSETS: | ||||||||||
Cash and cash equivalents ($110,447 and $43,131 related to variable interest entities ("VIEs")) | $ | 207,130 | $ | 116,075 | ||||||
Cash and cash equivalents ($86,126 and $103,850 related to variable interest entities ("VIEs")) | $ | 198,122 | $ | 193,685 | ||||||
Restricted cash | 6,261 | 3,788 | 5,956 | 8,416 | ||||||
Restricted investments | 67,728 | 58,142 | 75,409 | 70,974 | ||||||
Accounts receivable ($142,749 and $62,482 related to VIEs) | 1,460,450 | 1,261,072 | ||||||||
Retainage receivable ($73,424 and $36,724 related to VIEs) | 542,274 | 478,744 | ||||||||
Costs and estimated earnings in excess of billings | 1,159,333 | 1,142,295 | ||||||||
Other current assets ($36,859 and $30,185 related to VIEs) | 162,406 | 115,527 | ||||||||
Accounts receivable ($80,794 and $91,090 related to VIEs) | 1,501,557 | 1,354,519 | ||||||||
Retainage receivable ($86,033 and $89,132 related to VIEs) | 573,151 | 562,375 | ||||||||
Costs and estimated earnings in excess of billings ($30,739 and $22,764 related to VIEs) | 1,155,202 | 1,123,544 | ||||||||
Other current assets ($55,458 and $58,128 related to VIEs) | 211,501 | 197,473 | ||||||||
Total current assets | 3,605,582 | 3,175,643 | 3,720,898 | 3,510,986 | ||||||
PROPERTY AND EQUIPMENT ("P&E"), net of accumulated depreciation of $375,717 and $343,735 (net P&E of $54,729 and $51,508 related to VIEs) | 509,986 | 490,669 | ||||||||
PROPERTY AND EQUIPMENT ("P&E"), net of accumulated depreciation of $401,805 and $388,147 (net P&E of $41,474 and $49,919 related to VIEs) | 502,611 | 509,685 | ||||||||
GOODWILL | 205,143 | 585,006 | 205,143 | 205,143 | ||||||
INTANGIBLE ASSETS, NET | 83,254 | 85,911 | 149,458 | 155,270 | ||||||
OTHER ASSETS | 90,943 | 50,523 | 108,296 | 104,693 | ||||||
TOTAL ASSETS | $ | 4,494,908 | $ | 4,387,752 | $ | 4,686,406 | $ | 4,485,777 | ||
LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||||
Current maturities of long-term debt | $ | 10,862 | $ | 16,767 | $ | 184,954 | $ | 124,054 | ||
Accounts payable ($74,183 and $18,070 related to VIEs) | 670,458 | 621,728 | ||||||||
Retainage payable ($10,294 and $0 related to VIEs) | 232,209 | 211,956 | ||||||||
Billings in excess of costs and estimated earnings ($404,357 and $263,764 related to VIEs) | 818,806 | 573,190 | ||||||||
Accrued expenses and other current liabilities ($37,935 and $34,828 related to VIEs) | 188,373 | 174,325 | ||||||||
Accounts payable ($78,304 and $93,848 related to VIEs) | 744,222 | 682,699 | ||||||||
Retainage payable ($16,333 and $13,967 related to VIEs) | 272,533 | 252,181 | ||||||||
Billings in excess of costs and estimated earnings ($421,236 and $422,847 related to VIEs) | 891,164 | 844,389 | ||||||||
Accrued expenses and other current liabilities ($16,008 and $25,402 related to VIEs) | 197,582 | 206,533 | ||||||||
Total current liabilities | 1,920,708 | 1,597,966 | 2,290,455 | 2,109,856 | ||||||
LONG-TERM DEBT, less current maturities, net of unamortized discounts and debt issuance costs totaling $26,358 and $34,998 | 825,382 | 744,737 | ||||||||
LONG-TERM DEBT, less current maturities, net of unamortized discount and debt issuance costs totaling $20,259 and $23,343 | 717,379 | 710,422 | ||||||||
DEFERRED INCOME TAXES | 58,305 | 105,521 | 37,580 | 35,686 | ||||||
OTHER LONG-TERM LIABILITIES | 186,965 | 151,639 | 198,064 | 199,288 | ||||||
TOTAL LIABILITIES | 2,991,360 | 2,599,863 | 3,243,478 | 3,055,252 | ||||||
COMMITMENTS AND CONTINGENCIES (NOTE 11) |
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EQUITY | ||||||||||
Stockholders' equity: | ||||||||||
Preferred stock - authorized 1,000,000 shares ($1 par value), NaN issued | — | — | — | — | ||||||
Common stock - authorized 75,000,000 shares ($1 par value), issued and outstanding 50,278,816 and 50,025,996 shares | 50,279 | 50,026 | ||||||||
Common stock - authorized 75,000,000 shares ($1 par value), issued and outstanding 50,541,480 and 50,278,816 shares | 50,577 | 50,279 | ||||||||
Additional paid-in capital | 1,113,987 | 1,102,919 | 1,120,487 | 1,117,972 | ||||||
Retained earnings | 400,108 | 701,681 | 331,362 | 313,991 | ||||||
Accumulated other comprehensive loss | (42,294) | (45,449) | (43,128) | (42,100) | ||||||
Total stockholders' equity | 1,522,080 | 1,809,177 | 1,459,298 | 1,440,142 | ||||||
Noncontrolling interests | (18,532) | (21,288) | (16,370) | (9,617) | ||||||
TOTAL EQUITY | 1,503,548 | 1,787,889 | 1,442,928 | 1,430,525 | ||||||
TOTAL LIABILITIES AND EQUITY | $ | 4,494,908 | $ | 4,387,752 | $ | 4,686,406 | $ | 4,485,777 | ||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||
(in thousands) | 2019 | 2018 | 2020 | 2019 | ||||||
Cash Flows from Operating Activities: | ||||||||||
Net income (loss) | $ | (283,996) | $ | 42,390 | ||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||
Goodwill impairment | 379,863 | — | ||||||||
Net income | $ | 26,138 | $ | 4,722 | ||||||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||||
Depreciation | 41,884 | 30,924 | 16,999 | 12,831 | ||||||
Amortization of intangible assets | 2,657 | 2,657 | 5,812 | 886 | ||||||
Share-based compensation expense | 14,331 | 17,779 | 4,244 | 5,506 | ||||||
Change in debt discounts and deferred debt issuance costs | 9,790 | 8,962 | ||||||||
Change in debt discount and deferred debt issuance costs | 3,486 | 3,174 | ||||||||
Deferred income taxes | (48,318) | 233 | 2,474 | 142 | ||||||
(Gain) loss on sale of property and equipment | (1,799) | 823 | ||||||||
Gain on sale of property and equipment | (461) | (107) | ||||||||
Changes in other components of working capital | (7,148) | (136,113) | (90,884) | (154,192) | ||||||
Other long-term liabilities | 3,979 | (2,606) | 1,061 | 2,177 | ||||||
Other, net | 122 | 190 | (2,876) | 76 | ||||||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | 111,365 | (34,761) | ||||||||
NET CASH USED IN OPERATING ACTIVITIES | (34,007) | (124,785) | ||||||||
Cash Flows from Investing Activities: | ||||||||||
Acquisition of property and equipment | (62,677) | (64,411) | (11,693) | (14,412) | ||||||
Proceeds from sale of property and equipment | 4,300 | 5,462 | 583 | 201 | ||||||
Investment in securities | (18,790) | (13,841) | (9,696) | (8,357) | ||||||
Proceeds from maturities and sales of investments in securities | 11,078 | 14,302 | 6,211 | 3,324 | ||||||
NET CASH USED IN INVESTING ACTIVITIES | (66,089) | (58,488) | (14,595) | (19,244) | ||||||
Cash Flows from Financing Activities: | ||||||||||
Proceeds from debt | 649,139 | 1,502,177 | 348,688 | 394,000 | ||||||
Repayment of debt | (583,039) | (1,444,760) | (283,915) | (259,691) | ||||||
Business acquisition related payment | — | (15,951) | ||||||||
Cash payments related to share-based compensation | (2,363) | (2,671) | (694) | (2,364) | ||||||
Distributions paid to noncontrolling interests | (21,500) | (22,500) | (13,500) | (4,000) | ||||||
Contributions from noncontrolling interests | 6,519 | 1,000 | — | 2,798 | ||||||
Debt modification costs | (504) | — | ||||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 48,252 | 17,295 | 50,579 | 130,743 | ||||||
Net increase (decrease) in cash, cash equivalents and restricted cash | 93,528 | (75,954) | 1,977 | (13,286) | ||||||
Cash, cash equivalents and restricted cash at beginning of period | 119,863 | 197,648 | 202,101 | 119,863 | ||||||
Cash, cash equivalents and restricted cash at end of period | $ | 213,391 | $ | 121,694 | $ | 204,078 | $ | 106,577 | ||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(1) Basis of Presentation
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, 2018.2019. The results of operations for the three and nine months ended September 30, 2019March 31, 2020 may not be indicative of the results that will be achieved for the full year ending December 31, 20192020.
In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, including those of a normal recurring nature, necessary to present fairly the Company’s consolidated financial position as of September 30, 2019March 31, 2020 and its consolidated statements of operations and cash flows for the interim periods presented. Intercompany balances and transactions have been eliminated.
(2) Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments, and issued subsequent amendments to the initial guidance within ASU 2019-04 and ASU 2019-05 (collectively, “ASU 2016-13”). The amendments in ASU 2016-13 replace the incurred loss impairment methodology with the current expected credit loss model, which requires consideration of a broader range of reasonable and supportable information to estimate credit losses. The Company adopted this ASU effective January 1, 2020. The adoption of ASU 2016-13 did not have a material impact on the Company’s financial position, results of operations or cash flows.
New accounting pronouncements adopted by the Company during the nine months ended September 30, 2019requiring implementation in future periods are discussed below.
In August 2018,December 2019, the Securities and Exchange Commission (“SEC”) adopted the final rule under SEC Release No. 33-10532, “Disclosure Update and 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 information environment. This release was subsequently codified in July 2019 as part of Accounting Standards Update (“ASU”) 2019-07, Codification Updates to SEC Sections - Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, “Disclosure Update and Simplification,” and Nos. 33-10231 and 33-10442, “Investment Company Reporting Modernization,” and Miscellaneous Updates. The amendments expanded the disclosure requirements relating to the analysis of equity for interim financial statements. Under the amendments, an analysis of the changes in each caption of stockholders’ equity and noncontrolling 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 which a statement of earnings is required to be filed. The final rule was effective on November 5, 2018. The Company adopted the final rule effective for the first quarter of 2019. The adoption of the final rule did not have an impact on the Company’s consolidated financial position or results of operations. See Note 16, Changes in Equity, for the new required disclosures.
In February 2016, the Financial Accounting Standards BoardFASB issued ASU 2016-02,2019-12, Leases (Topic 842),Simplifying the Accounting for Income Taxes as amended and supplemented by subsequent ASUs (collectively, “ASC 842”(“ASU 2019-12”). ASC 842 amends the existing guidance in, modifying Accounting Standards Codification (“ASC”) 840,740, LeasesIncome Taxes (“ASC 740”). ThisThe amendments in ASU requires,2019-12, among other things, remove certain exceptions to the recognition of lease right-of-use (“ROU”) assetsgeneral principles in ASC 740 and lease liabilitiesseek more consistent application by lesseesclarifying and amending the existing guidance. ASU 2019-12 is effective for those leasesinterim and annual reporting periods beginning after December 15, 2020. The Company is currently classified as operating leases. ASC 842 allowed companies to adoptevaluating the new standard, by applying eitherwhich is not expected to have 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 adopted 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. Basedmaterial impact 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 itsfinancial position, results of operations or cash flows.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The amendments in ASU 2020-04 provide temporary optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships and other transactions to ease the potential accounting and financial reporting burden associated with transitioning away from reference rates that are expected to be discontinued, including the London Interbank Offered Rate (“LIBOR”). ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the new standard, which is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
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:
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 | |||||
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(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.
The following table presents the impacts of adoption of the new leases standard on the Condensed Consolidated Balance Sheet:
As of September 30, 2019 | |||||||||
Balance Without | |||||||||
BALANCE SHEET | Adoption of | Effect of | |||||||
(in thousands) | As Reported | ASC 842 | Change | ||||||
ASSETS | |||||||||
Other assets(a) | $ | 90,943 | $ | 49,823 | $ | 41,120 | |||
LIABILITIES | |||||||||
Accrued expenses and other current liabilities(a) | $ | 188,373 | $ | 177,298 | $ | 11,075 | |||
Other long-term liabilities(a) | 186,965 | 156,920 | 30,045 | ||||||
____________________________________________________________________________________________________
(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 and nine months ended September 30, 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 and nine months ended September 30, 2019March 31, 2020 and 2018.2019.
Three Months Ended | Nine Months Ended | Three Months Ended | ||||||||||||||||
September 30, | September 30, | March 31, | ||||||||||||||||
(in thousands) | 2019 | 2018 | 2019 | 2018 | 2020 | 2019 | ||||||||||||
Civil segment revenue by end market: | ||||||||||||||||||
Mass transit | $ | 265,671 | $ | 177,619 | $ | 655,541 | $ | 485,841 | $ | 297,143 | $ | 146,250 | ||||||
Bridges | 113,743 | 128,240 | 269,517 | 311,979 | 52,184 | 69,307 | ||||||||||||
Highways | 44,630 | 46,553 | 145,917 | 129,619 | 32,582 | 41,043 | ||||||||||||
Tunneling | 32,076 | 33,377 | 96,602 | 66,009 | 25,955 | 34,940 | ||||||||||||
Water | 23,744 | 9,668 | ||||||||||||||||
Military defense facilities | 23,610 | 10,281 | ||||||||||||||||
Other | 68,426 | 45,699 | 164,121 | 103,627 | 31,411 | 22,005 | ||||||||||||
Total Civil segment revenue | $ | 524,546 | $ | 431,488 | $ | 1,331,698 | $ | 1,097,075 | $ | 486,629 | $ | 333,494 | ||||||
Three Months Ended | ||||||
March 31, | ||||||
(in thousands) | 2020 | 2019 | ||||
Building segment revenue by end market: | ||||||
Commercial and industrial facilities | $ | 133,049 | $ | 109,353 | ||
Hospitality and gaming | 118,987 | 69,310 | ||||
Municipal and government | 69,502 | 61,962 | ||||
Mass transit | 57,847 | 29,177 | ||||
Health care facilities | 35,889 | 80,227 | ||||
Education facilities | 31,622 | 42,528 | ||||
Mixed use | 9,972 | 15,274 | ||||
Other | 24,896 | 25,635 | ||||
Total Building segment revenue | $ | 481,764 | $ | 433,466 | ||
Three Months Ended | ||||||
March 31, | ||||||
(in thousands) | 2020 | 2019 | ||||
Specialty Contractors segment revenue by end market: | ||||||
Mass transit | $ | 148,671 | $ | 81,394 | ||
Commercial and industrial facilities | 53,505 | 44,023 | ||||
Multi-unit residential | 26,493 | 11,389 | ||||
Education facilities | 16,557 | 11,580 | ||||
Mixed use | 13,802 | 10,669 | ||||
Health care facilities | 2,522 | 11,652 | ||||
Other | 20,786 | 20,820 | ||||
Total Specialty Contractors segment revenue | $ | 282,336 | $ | 191,527 | ||
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
(in thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||
Building segment revenue by end market: | ||||||||||||
Commercial and industrial facilities | $ | 121,206 | $ | 57,505 | $ | 345,752 | $ | 290,571 | ||||
Health care facilities | 58,323 | 127,219 | 199,347 | 320,416 | ||||||||
Municipal and government | 62,444 | 67,003 | 192,986 | 187,984 | ||||||||
Hospitality and gaming | 57,672 | 65,744 | 180,556 | 226,999 | ||||||||
Mass transit | 53,384 | — | 123,772 | — | ||||||||
Education facilities | 33,469 | 43,405 | 123,059 | 108,763 | ||||||||
Mixed use | 2,183 | 40,758 | 26,774 | 121,348 | ||||||||
Other | 26,665 | 53,858 | 84,884 | 136,631 | ||||||||
Total Building segment revenue | $ | 415,346 | $ | 455,492 | $ | 1,277,130 | $ | 1,392,712 | ||||
Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | ||||||||||||||||||||||
Specialty | Specialty | ||||||||||||||||||||||
(in thousands) | Civil | Building | Contractors | Total | Civil | Building | Contractors | Total | |||||||||||||||
Revenue by customer type: | |||||||||||||||||||||||
State and local agencies | $ | 396,045 | $ | 146,016 | $ | 132,873 | $ | 674,934 | $ | 257,107 | $ | 144,686 | $ | 97,071 | $ | 498,864 | |||||||
Federal agencies | 36,661 | 31,973 | 9,756 | 78,390 | 23,158 | 40,151 | 7,769 | 71,078 | |||||||||||||||
Private owners | 53,923 | 303,775 | 139,707 | 497,405 | 53,229 | 248,629 | 86,687 | 388,545 | |||||||||||||||
Total revenue | $ | 486,629 | $ | 481,764 | $ | 282,336 | $ | 1,250,729 | $ | 333,494 | $ | 433,466 | $ | 191,527 | $ | 958,487 | |||||||
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
(in thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||
Specialty Contractors segment revenue by end market: | ||||||||||||
Mass transit | $ | 103,710 | $ | 63,457 | $ | 285,121 | $ | 216,808 | ||||
Commercial and industrial facilities | 51,471 | 48,601 | 139,112 | 136,892 | ||||||||
Multi-unit residential | 25,860 | 18,254 | 56,474 | 64,104 | ||||||||
Education facilities | 21,610 | 26,024 | 47,226 | 77,626 | ||||||||
Mixed use | 18,465 | 37,587 | 47,170 | 137,420 | ||||||||
Health care facilities | 5,217 | 12,873 | 26,116 | 43,861 | ||||||||
Transportation | 5,931 | 17,150 | 16,092 | 73,154 | ||||||||
Other | 17,189 | 12,211 | 46,968 | 31,726 | ||||||||
Total Specialty Contractors segment revenue | $ | 249,453 | $ | 236,157 | $ | 664,279 | $ | 781,591 | ||||
Three Months Ended September 30, 2019 | Three Months Ended September 30, 2018 | ||||||||||||||||||||||
Specialty | Specialty | ||||||||||||||||||||||
(in thousands) | Civil | Building | Contractors | Total | Civil | Building | Contractors | Total | |||||||||||||||
Revenue by customer type: | |||||||||||||||||||||||
State and local agencies | $ | 420,839 | $ | 144,106 | $ | 136,191 | $ | 701,136 | $ | 341,067 | $ | 177,377 | $ | 99,913 | $ | 618,357 | |||||||
Private owners | 70,855 | 234,350 | 108,476 | 413,681 | 63,477 | 225,225 | 124,186 | 412,888 | |||||||||||||||
Federal agencies | 32,852 | 36,890 | 4,786 | 74,528 | 26,944 | 52,890 | 12,058 | 91,892 | |||||||||||||||
Total revenue | $ | 524,546 | $ | 415,346 | $ | 249,453 | $ | 1,189,345 | $ | 431,488 | $ | 455,492 | $ | 236,157 | $ | 1,123,137 | |||||||
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
Nine Months Ended September 30, 2019 | Nine Months Ended September 30, 2018 | ||||||||||||||||||||||
Specialty | Specialty | ||||||||||||||||||||||
(in thousands) | Civil | Building | Contractors | Total | Civil | Building | Contractors | Total | |||||||||||||||
Revenue by customer type: | |||||||||||||||||||||||
State and local agencies | $ | 1,059,384 | $ | 422,590 | $ | 347,517 | $ | 1,829,491 | $ | 894,613 | $ | 452,918 | $ | 312,541 | $ | 1,660,072 | |||||||
Private owners | 189,325 | 733,103 | 301,446 | 1,223,874 | 134,891 | 790,330 | 423,280 | 1,348,501 | |||||||||||||||
Federal agencies | 82,989 | 121,437 | 15,316 | 219,742 | 67,571 | 149,464 | 45,770 | 262,805 | |||||||||||||||
Total revenue | $ | 1,331,698 | $ | 1,277,130 | $ | 664,279 | $ | 3,273,107 | $ | 1,097,075 | $ | 1,392,712 | $ | 781,591 | $ | 3,271,378 | |||||||
Three Months Ended September 30, 2019 | Three Months Ended September 30, 2018 | ||||||||||||||||||||||
Specialty | Specialty | ||||||||||||||||||||||
(in thousands) | Civil | Building | Contractors | Total | Civil | Building | Contractors | Total | |||||||||||||||
Revenue by contract type: | |||||||||||||||||||||||
Fixed price | $ | 376,230 | $ | 144,514 | $ | 208,689 | $ | 729,433 | $ | 272,996 | $ | 91,972 | $ | 193,607 | $ | 558,575 | |||||||
Guaranteed maximum price | 639 | 159,217 | 4,405 | 164,261 | 3,025 | 269,069 | 18,720 | 290,814 | |||||||||||||||
Unit price | 142,253 | 2,922 | 25,193 | 170,368 | 141,917 | 9,938 | 7,939 | 159,794 | |||||||||||||||
Cost plus fee and other | 5,424 | 108,693 | 11,166 | 125,283 | 13,550 | 84,513 | 15,891 | 113,954 | |||||||||||||||
Total revenue | $ | 524,546 | $ | 415,346 | $ | 249,453 | $ | 1,189,345 | $ | 431,488 | $ | 455,492 | $ | 236,157 | $ | 1,123,137 | |||||||
Nine Months Ended September 30, 2019 | Nine Months Ended September 30, 2018 | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||
Specialty | Specialty | Specialty | Specialty | |||||||||||||||||||||||||||||||||||||||||||
(in thousands) | Civil | Building | Contractors | Total | Civil | Building | Contractors | Total | Civil | Building | Contractors | Total | Civil | Building | Contractors | Total | ||||||||||||||||||||||||||||||
Revenue by contract type: | ||||||||||||||||||||||||||||||||||||||||||||||
Fixed price | $ | 969,041 | $ | 395,123 | $ | 551,779 | $ | 1,915,943 | $ | 716,826 | $ | 267,630 | $ | 675,526 | $ | 1,659,982 | $ | 408,971 | $ | 105,598 | $ | 248,516 | $ | 763,085 | $ | 242,867 | $ | 114,359 | $ | 155,264 | $ | 512,490 | ||||||||||||||
Guaranteed maximum price | 4,517 | 551,399 | 15,326 | 571,242 | 11,200 | 801,537 | 51,762 | 864,499 | 308 | 237,773 | 2,549 | 240,630 | 2,233 | 207,131 | 3,606 | 212,970 | ||||||||||||||||||||||||||||||
Unit price | 343,416 | 10,950 | 64,379 | 418,745 | 332,118 | 29,526 | 21,829 | 383,473 | 71,358 | 534 | 21,151 | 93,043 | 84,878 | 5,228 | 19,003 | 109,109 | ||||||||||||||||||||||||||||||
Cost plus fee and other | 14,724 | 319,658 | 32,795 | 367,177 | 36,931 | 294,019 | 32,474 | 363,424 | 5,992 | 137,859 | 10,120 | 153,971 | 3,516 | 106,748 | 13,654 | 123,918 | ||||||||||||||||||||||||||||||
Total revenue | $ | 1,331,698 | $ | 1,277,130 | $ | 664,279 | $ | 3,273,107 | $ | 1,097,075 | $ | 1,392,712 | $ | 781,591 | $ | 3,271,378 | $ | 486,629 | $ | 481,764 | $ | 282,336 | $ | 1,250,729 | $ | 333,494 | $ | 433,466 | $ | 191,527 | $ | 958,487 | ||||||||||||||
Changes in Contract Estimates that Impact Revenue
Changes to the total estimated contract revenue or cost for a given project, either due to unexpected events or revisions to management’s initial estimates, are recognized in the period in which they are determined. Net revenue was negatively impacted during the three- and nine-month periods ended September 30, 2019 related to performance obligations satisfied (or partially satisfied) in prior periods by $13.8 million and $46.3 million, respectively. Net revenueRevenue recognized during the three month periods ended March 31, 2020 and nine months ended September 30, 20182019 related to performance obligations satisfied (or partially satisfied) in prior periods was immaterial.
Remaining Performance Obligations
Remaining performance obligations represent the transaction price of firm orders for which work has not been performed and exclude unexercised contract options. As of September 30,March 31, 2020, the aggregate amounts of the transaction prices allocated to the remaining performance obligations of the Company’s construction contracts were $5.2 billion, $1.9 billion and $2.2 billion for the Civil, Building and Specialty Contractors segments, respectively. As of March 31, 2019, the aggregate amounts of the transaction prices allocated to the remaining performance obligations of the Company’s construction contracts were $5.3$4.5 billion, $1.6$2.0 billion and $2.2 billion for the Civil, Building and Specialty Contractors segments, respectively. As of September 30, 2018, the aggregate amounts of the transaction prices allocated to the remaining performance obligations of the Company’s construction contracts were $4.2 billion, $2.1 billion and $1.7$1.8 billion for the Civil, Building and Specialty Contractors segments, respectively. The Company typically recognizes revenue on Civil segment projects over a period of three to five years, whereas for projects in the Building and Specialty Contractors segments, the Company typically recognizes revenue over a period of one to three years.
(4) Contract Assets and Liabilities
The Company classifies contract assets and liabilities that may be settled beyond one year from the balance sheet date as current, consistent with the length of time of the Company’s project operating cycle.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
Contract assets include amounts due under retainage provisions, costs and estimated earnings in excess of billings and capitalized contract costs. The amounts as included on the Condensed Consolidated Balance Sheets consisted of the following:
As of September 30, | As of December 31, | As of March 31, | As of December 31, | |||||||||
(in thousands) | 2019 | 2018 | 2020 | 2019 | ||||||||
Retainage receivable | $ | 542,274 | $ | 478,744 | $ | 573,151 | $ | 562,375 | ||||
Costs and estimated earnings in excess of billings: | ||||||||||||
Claims | 756,760 | 698,274 | 717,409 | 705,993 | ||||||||
Unapproved change orders | 334,125 | 354,000 | 356,854 | 362,264 | ||||||||
Other unbilled costs and profits | 68,448 | 90,021 | 80,939 | 55,287 | ||||||||
Total costs and estimated earnings in excess of billings | 1,159,333 | 1,142,295 | 1,155,202 | 1,123,544 | ||||||||
Capitalized contract costs | 60,290 | 37,404 | 83,509 | 80,294 | ||||||||
Total contract assets | $ | 1,761,897 | $ | 1,658,443 | $ | 1,811,862 | $ | 1,766,213 | ||||
Retainage receivable represents amounts invoiced to customers where payments have been partially withheld pending the completion of certain milestones, satisfaction of other contractual conditions or the completion of the project. Retainage agreements vary from project to project, and balances could be outstanding for several months or years depending on a number of circumstances such as contract-specific terms, project performance and other variables that may arise as the Company makes progress towardstoward completion.As of September 30, 2019, the amount of retainage receivables estimated by management to be collected beyond one year is approximately 39% of the balance.
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)(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)(2) costs are incurred related to certain claims and unapproved change orders. Claims occur when there is a dispute regarding both a change in the scope of work and the price associated with that change. Unapproved change orders occur when a change in the scope of work results in additional work being performed before the parties have agreed on the corresponding change in the contract price. The Company routinely estimates recovery related to claims and unapproved change orders as a form of variable consideration at the most likely amount it expects to receive and to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Claims and unapproved change orders are billable upon the agreement and resolution between the contractual parties and after the execution of contractual amendments. Increases in claims and unapproved change orders typically result from costs being incurred against existing or new positions; decreases normally result from resolutions and subsequent billings. As discussed in Note 11, 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 associated contract over the period of anticipated use on the project. During the three and nine months ended September 30,March 31, 2020 and 2019, $8.5$10.3 million and $22.8 million, respectively, of previously capitalized contract costs were amortized and recognized as expense on the related contracts. During the three and nine months ended September 30, 2018, $4.0 million and $12.2$5.7 million, respectively, of previously capitalized contract costs were amortized and recognized as expense on the related contracts.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
Contract liabilities include amounts owed under retainage provisions and billings in excess of costs and estimated earnings. The amount as reported on the Condensed Consolidated Balance Sheets consisted of the following:
As of September 30, | As of December 31, | As of March 31, | As of December 31, | |||||||||
(in thousands) | 2019 | 2018 | 2020 | 2019 | ||||||||
Retainage payable | $ | 232,209 | $ | 211,956 | $ | 272,533 | $ | 252,181 | ||||
Billings in excess of costs and estimated earnings | 818,806 | 573,190 | 891,164 | 844,389 | ||||||||
Total contract liabilities | $ | 1,051,015 | $ | 785,146 | $ | 1,163,697 | $ | 1,096,570 | ||||
Retainage payable represents amounts invoiced to the Company by subcontractors where payments have been partially withheld pending the completion of certain milestones, other contractual conditions or upon the completion of the project. Generally, retainage payable is not remitted to subcontractors until the associated retainage receivable from customers is collected.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
Billings in excess of costs and estimated earnings represent the excess of contract billings to date over the amount of contract costs and profits (or contract revenue) recognized to date. The balance may fluctuate depending on the timing of contract billings and the recognition of contract revenue. Revenue recognized during the three and nine months ended September 30,March 31, 2020 and 2019 and included in the opening billings in excess of costs and estimated earnings balances for each period totaled $322.8$429.5 million and $437.1 million, respectively. Revenue recognized during the three and nine months ended September 30, 2018 and included in the opening billings in excess of costs and estimated earnings balances for each period totaled $251.4 million and $341.2$301.0 million, respectively.
(5) Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the amounts shown in the Condensed Consolidated Statements of Cash Flows:
As of September 30, | As of December 31, | As of March 31, | As of December 31, | |||||||||
(in thousands) | 2019 | 2018 | 2020 | 2019 | ||||||||
Cash and cash equivalents available for general corporate purposes | $ | 49,166 | $ | 51,749 | $ | 80,904 | $ | 43,760 | ||||
Joint venture cash and cash equivalents | 157,964 | 64,326 | 117,218 | 149,925 | ||||||||
Cash and cash equivalents | 207,130 | 116,075 | 198,122 | 193,685 | ||||||||
Restricted cash | 6,261 | 3,788 | 5,956 | 8,416 | ||||||||
Total cash, cash equivalents and restricted cash | $ | 213,391 | $ | 119,863 | $ | 204,078 | $ | 202,101 | ||||
Cash equivalents include short-term, highly liquid investments with maturities of three months or less when acquired. Cash and cash equivalents consist of amounts available for the Company’s general purposes, the Company’s proportionate share of cash held by the Company’s unconsolidated joint ventures and 100% of amounts held by the Company’s consolidated joint ventures. In both cases, cash held by joint ventures is available only for joint venture-related uses, including future distributions to joint venture partners.
Amounts included in restricted cash are primarily held as collateral to secure insurance-related contingent obligations, such as insurance claim deductibles, in lieu of letters of credit.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
(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 9, Financial Commitments.9. 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 (due to its available liquidity and anticipated collections) to settle the principal amount in cash.cash. See Note 9 for further discussion of the Convertible Notes. The Company calculates the effect of the potentially dilutive restricted stock units and stock options using the treasury stock method.
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||
(in thousands, except per common share data) | 2019 | 2018 | 2019 | 2018 | 2020 | 2019 | ||||||||||
Net income (loss) attributable to Tutor Perini Corporation | $ | 19,313 | $ | 21,272 | $ | (301,573) | $ | 34,031 | $ | 17,371 | $ | (356) | ||||
Weighted-average common shares outstanding, basic | 50,279 | 50,018 | 50,201 | 49,927 | 50,338 | 50,098 | ||||||||||
Effect of dilutive restricted stock units and stock options | 303 | 357 | — | 283 | 498 | — | ||||||||||
Weighted-average common shares outstanding, diluted | 50,582 | 50,375 | 50,201 | 50,210 | 50,836 | 50,098 | ||||||||||
Net income (loss) attributable to Tutor Perini Corporation per common share: | ||||||||||||||||
Basic | $ | 0.38 | $ | 0.43 | $ | (6.01) | $ | 0.68 | $ | 0.35 | $ | (0.01) | ||||
Diluted | $ | 0.38 | $ | 0.42 | $ | (6.01) | $ | 0.68 | $ | 0.34 | $ | (0.01) | ||||
Anti-dilutive securities not included above | 1,665 | 2,107 | 3,458 | 2,765 | 2,209 | 4,518 | ||||||||||
The net loss attributable to Tutor Perini Corporation per common share for the nine months ended September 30, 2019 in the table above reflects the impact of the $379.9 million goodwill impairment charge discussed in Note 8, Goodwill and Intangible Assets, withan after-tax impact of $329.5 million, or $6.56 per diluted share.
For the nine months ended September 30, 2019, all outstanding restricted stock units and stock options were excluded from the calculation of diluted shares outstanding due to the net loss for the period.
(7) Income Taxes
The Company’s effective income tax rate was 17.3% and 11.0% for the three and nine months ended September 30, 2019 and 22.5% and 26.2% for the three and nine months ended September 30, 2018, respectively. The Company’s provision for income taxes and effective tax rate for the nine months ended September 30, 2019 were significantly impacted by the goodwill impairment charge discussed in Note 8, Goodwill and Intangible Assets. Of the total goodwill impairment charge of $379.9 million, approximately $209.5 million pertained to goodwill that is not tax deductible and yielded permanent differences between book income and taxable income. For the nine months ended September 30, 2019, the Company recognized a tax benefit totaling $50.4 million as a result of the impairment charge. Additionally, approximately $50.3 million was recorded as a deferred tax asset or a reduction of a previously recorded deferred tax liability due to the impairment charge.
The effective tax rate for the three months ended September 30, 2019 of 17.3% and the adjusted effective income tax rate for the nine months ended September 30, 2019 of 25.1%, which excludes the goodwill impairment charge and associated tax benefit, were favorably impacted by earnings attributable to noncontrolling interests for which income taxes are not the responsibility of the Company and tax return-to-provision adjustments. The nine-month period ended September 30, 2019 also included the unfavorable impact of expired stock options for which the share-based compensation expense recognized in prior periods will not be deductible for income taxes. The effective tax rates for the 2018 periods were favorably impacted by the release of tax liabilities as a result of expirations of statutes of limitations and earnings attributable to noncontrolling interests for which income taxes are not the responsibility of the Company, partially offset by unfavorable rate impacts of share-based compensation-related changes. The effective tax rates for all periods also include provisions for state income taxes, net of the federal benefit.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
For the three months ended March 31, 2019, all outstanding restricted stock units and stock options were excluded from the calculation of weighted-average diluted shares outstanding due to the net loss for the period.
(7) Income Taxes
The Company’s effective income tax rate was 16.4% for the three months ended March 31, 2020 and 31.7% for the three months ended March 31, 2019. The decrease in the effective income tax rate for the three months ended March 31, 2020 primarily reflects the favorable impact of the 2019 net operating loss (“NOL”), which is allowed to be carried back up to five years as a result of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), enacted on March 27, 2020. Under the CARES Act, the Company’s NOL generated in 2019 may be carried back to tax years when the federal statutory tax rate was 35% rather than the current rate of 21%, consequently generating a larger tax benefit from the NOL than that recognized prior to the enactment of the CARES Act. The favorable impact resulting from the enactment of the CARES Act was partially offset by the unfavorable impact of the vesting of restricted stock units for which a large portion of the share-based compensation expense recognized in prior periods will not be deductible for income tax purposes. 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 both periods also reflect increases due to state income taxes and decreases due to impacts of earnings attributable to noncontrolling interests for which income taxes are not the responsibility of the Company.
(8) Goodwill and Intangible Assets
Goodwill
The following table presents the changes in the carrying amount of goodwill since its inception through September 30, 2019:March 31, 2020:
Specialty | Specialty | |||||||||||||||||||||
(in thousands) | Civil | Building | Contractors | Total | Civil | Building | Contractors | Total | ||||||||||||||
Gross goodwill | $ | 492,074 | $ | 424,724 | $ | 156,193 | $ | 1,072,991 | $ | 492,074 | $ | 424,724 | $ | 156,193 | $ | 1,072,991 | ||||||
Accumulated impairment | (76,716) | (411,269) | — | (487,985) | (286,931) | (424,724) | (156,193) | (867,848) | ||||||||||||||
Balance as of December 31, 2018 | 415,358 | 13,455 | 156,193 | 585,006 | ||||||||||||||||||
Second quarter 2019 impairment | (210,215) | (13,455) | (156,193) | (379,863) | ||||||||||||||||||
Balance as of September 30, 2019(a) | $ | 205,143 | $ | — | $ | — | $ | 205,143 | ||||||||||||||
Balance as of December 31, 2019 | 205,143 | — | — | 205,143 | ||||||||||||||||||
Current year activity | — | — | — | — | ||||||||||||||||||
Balance as of March 31, 2020 | $ | 205,143 | $ | — | $ | — | $ | 205,143 | ||||||||||||||
____________________________________________________________________________________________________
(a)As of September 30, 2019, accumulated impairment was $867.8 million.
The aggregate carrying amount of goodwill allocated to the Company’s 3 reporting units as of December 31, 2018 was $585.0 million. The Company tests the goodwill allocated to its reporting units for impairment annually on October 1, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company performed its 2018 annual impairment test asin the fourth quarter of October 1, 20182019 using a weighted averageweighted-average of (1) an income approach and (2) a market approachapproach. These approaches utilize various valuation assumptions, and small changes to determine the assumptions could have a significant impact on the concluded fair value of each reporting unit andvalue. Based on this assessment, the Company concluded that the goodwill was not0t impaired since the estimated fair value of eachthe Civil reporting unit exceeded its respective net bookcarrying value. In addition, the Company determined that no triggering events occurred and no circumstances changed since the implied control premium (the excessdate of our annual impairment test that would more likely than not reduce the fair value of the aggregated fair values ofCivil reporting unit below its reporting units over its market capitalization) was consistent with and within a reasonable range of actual premiums paid in industry-specific merger and acquisition (“M&A”) transactions over a sustained period of time.carrying amount.
During the interim periods sincefirst quarter of 2020, the datenovel coronavirus (“COVID-19”) pandemic, as well as the actions taken to contain and mitigate its public health effects, caused disruptions in domestic and global economies and financial markets. The vast majority of the last annual test, and prior to the second quarter of 2019, the Company concluded that no triggering events had occurred. In the second quarter of 2019,Company’s projects, especially in connection with the preparation of its quarterly financial statements, the Company assessed the changes in circumstances that occurred during the quarter to determine whether it was more likely than not that the fair values of any of itsCivil reporting units were below their carrying amounts. While there was no single determinative event or factor, potential triggering events identified in the accounting guidance (ASC 350, Intangibles – Goodwill and Other) developed during the second quarter of 2019,unit, have been designated as essential business, which ledallows the Company to conclude that, when consideringcontinue its work on those projects. As such, the eventsCompany’s and factors in totality, it was more likely thanits Civil reporting unit’s operations were not thatsignificantly impacted during the fair values of each of its reporting units were below their carrying amounts. The triggering factors included:
The Company faced a declining stock price and observed a sustained decrease subsequentthree months ended March 31, 2020. However, due to the filingfluidity of the Company’s first quarter Form 10-Q on May 8, 2019, in both absolute terms and relativepandemic, uncertainties as to its peers. Consistent withscope and duration, and ongoing changes in the average stock prices of companies in its peer group,way that governments, businesses and individuals react and respond to the COVID-19 pandemic, the Company is unable at this time to accurately predict the pandemic’s future impact on the Company’s stock price hadbusiness, financial condition or performance. Among other things, governments could prohibit the continuation of certain projects that to date have been trending lower over several prior periods; however, duringdesignated as “essential” or could impose health, safety and other operational requirements on such projects that could result in delays to or suspensions of such projects. In addition, employees and contractors working on such projects could be unable or unwilling to continue working on them, perhaps for extended periods. The COVID-19 pandemic also could negatively affect the second quarterability of 2019, the Company’s stock price droppedcounterparties or joint venture partners to make required payments on a 52-week low while the average stock price of companies in its peer group increased. The Company believes that delays experienced in resolving certain claims and unapproved change orders, which when combined with the increased working capital needs and significant negative operating cash flows in the first quarter of 2019, has contributed significantly to the sustained decrease in the Company’s stock price;
The Company experienced significant negative operating cash flows from each of its reporting units in the first quarter of 2019, and that trend continuedtimely basis or at the beginning of the second quarter; and
The Company’s debt rating was downgraded by a major credit rating agency on May 17, 2019.
As the Company determined that it was more likely than not that the fair values of its reporting units were below their carrying amounts, the Company performed an interim impairment test as of June 1, 2019 (the “Interim Test”) and, as described below, recognized a non-cash impairment loss totaling $379.9 million.all.
The decrease inCompany will continue to monitor events and circumstances for changes that indicate the Company’s stock price reduced its total market capitalization and increased the implied control premiumCivil reporting unit goodwill would need to a level beyond observable market-comparable data. As a result, when performing the Interim Test, the Company increased the discount rates and the projected investments in working capital comparedbe reevaluated for impairment during future interim periods prior to the assumptions used in the previous October 1 test, which extended the timing of certain expectedannual impairment test. These future cash flows in the calculation of fair value under the income-based approach. The Company believes these are changes reflective of market participant inputsevents and the recent decrease in the Company’s market valuation.
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circumstances include, but are not limited to, changes in the overall financial performance of the Civil reporting unit, impacts to our business as a result of the COVID-19 pandemic, as well as other quantitative and qualitative factors which could indicate potential triggering events for possible impairment.
Consistent with the previous October 1, 2018 test, the Company utilized a weighted average of (1) an income approach and (2) a market approach to determine the fair value of the Company and each of its reporting units for the Interim Test. The income approach is based on estimated present value of future cash flows for each reporting unit. The market approach is based on assumptions about how market data relates to each reporting unit. The weighting of these two approaches is based on their individual correlation to the economics of each reporting unit and is impacted by factors such as the availability of comparable market data for each reporting unit.Intangible Assets
Assessing impairment inherently involves management judgments as to the assumptions used to calculate fair valueIntangible assets consist of the reporting units and the impact of market conditions on those assumptions. The key inputs that the Company uses in its assumptions to estimate the fair value of its reporting units under the income-based approach are as follows:following:
Weighted average cost of capital (“WACC”), the risk-adjusted rate used to discount the projected cash flows;
As of March 31, 2020 | Weighted | |||||||||||||
Accumulated | Average | |||||||||||||
Accumulated | Impairment | Carrying | Amortization | |||||||||||
(in thousands) | Cost | Amortization | Charge | Value | Period | |||||||||
Trade names (non-amortizable) | $ | 117,600 | $ | — | $ | (67,190) | $ | 50,410 | Indefinite | |||||
Trade names (amortizable) | 74,350 | (21,889) | (23,232) | 29,229 | 20 years | |||||||||
Contractor license | 6,000 | — | (6,000) | — | N/A | |||||||||
Customer relationships | 39,800 | (21,311) | (16,645) | 1,844 | 12 years | |||||||||
Construction contract backlog | 149,290 | (81,315) | — | 67,975 | 3 years | |||||||||
Total | $ | 387,040 | $ | (124,515) | $ | (113,067) | $ | 149,458 | ||||||
Cash flows generated from existing work and new awards; and
Projected operating margins.
Expected future after-tax operating cash flows of each reporting unit are discounted to a present value using a risk-adjusted discount rate. Estimates of future cash flows require management to make significant assumptions concerning future operating performance including cash flows generated from existing work and new awards, projected operating margins, variations in the amount and timing of cash flows and the probability of achieving the estimated cash flows, as well as future economic conditions, which may differ from actual future cash flows. The discount rate, which is intended to reflect the risks inherent in future cash flow projections, used in estimating the present value of future cash flows, is based on estimates of the WACC of market participants relative to the reporting units. Financial and credit market volatility can directly impact certain inputs and assumptions used to develop the WACC.
As of December 31, 2019 | Weighted | |||||||||||||
Accumulated | Average | |||||||||||||
Accumulated | Impairment | Carrying | Amortization | |||||||||||
(in thousands) | Cost | Amortization | Charge | Value | Period | |||||||||
Trade names (non-amortizable) | $ | 117,600 | $ | — | $ | (67,190) | $ | 50,410 | Indefinite | |||||
Trade names (amortizable) | 74,350 | (21,267) | (23,232) | 29,851 | 20 years | |||||||||
Contractor license | 6,000 | — | (6,000) | — | N/A | |||||||||
Customer relationships | 39,800 | (21,048) | (16,645) | 2,107 | 12 years | |||||||||
Construction contract backlog | 149,290 | (76,388) | — | 72,902 | 3 years | |||||||||
Total | $ | 387,040 | $ | (118,703) | $ | (113,067) | $ | 155,270 | ||||||
To develop the cash flows generated from new awards and future operating margins, the Company tracks known prospects of significanceAmortization expense for each of its reporting unitsthe quarters ended March 31, 2020 and considers the2019 was $5.8 million and $0.9 million, respectively. As of March 31, 2020, amortization expense is estimated timing of when the work is expected to be bid, started$25.6 million for the remainder of 2020, $26.4 million in 2021, $24.6 million in 2022 and completed. The Company also gives consideration to its relationships with$2.5 million per year for the prospective owners; the pool of competitors that are capable of performing large, complex work; business strategy; and the Company’s history of success in winning new work in each reporting unit. With regard to operating margins, the Company gives consideration to its historical reporting unit operating margins in the end markets that the prospective work opportunities are most significant, expected margins from existing work, current market trends in recent new work procurement, and business strategy.years 2023 through 2025.
The Company also estimatedperformed an annual impairment assessment of its non-amortizable trade names in the fourth quarter of 2019 using a qualitative approach to determine whether conditions existed to indicate that it is more likely than not that the fair value of its reporting units under a market-based approach by applying industry-comparable multiples of revenues and operating earnings to its reporting units’ revenues and operating earnings. The conditions and prospects of companies intrade names is less than their carrying values. Based on this assessment, the engineering and construction industry depend on common factors such as overall demand for services.
The Company believesconcluded that the discount rates, timing of cash flows and other inputs and assumptions used in the Interim Test were consistent with thoseit was more likely than not that a market participant would use based on the events described above which occurred during the second quarter of 2019 and were reflective of the market assessment of the fair value of its reporting units at that time.the non-amortizable trade names was greater than their carrying values, and therefore a quantitative analysis was not required. In addition, the Company believes that its estimates and assumptions about future revenues and margin projections in the Interim Test were reasonable and consistent with the estimates and assumptions used in the annual goodwill impairment test as of October 1, 2018. As an additional step to corroborate the Interim Test results, the Company compared its implied control premium with those of recent comparable market transactions and concluded that the implied control premium was within the range of control premiums observed in prior industry-specific M&A transactions.
Similar to previous valuations, the Company noted that small changes to valuation assumptions could have a significant impact on the concluded value. The assumption changes described above were relatively larger in the Specialty Contractors reporting unit than in the Civil or Building reporting units, as Specialty Contractors had not met recent market expectations at the time of the Interim Test.
As of September 30, 2019, the Company determined that no triggering events occurred orand no circumstances changed since the date of our Interim Testannual impairment test that would more likely than not reduce the fair valueindicate any additional impairment of the Civil reporting unit below its carrying amount. However, since the Interim Test reduced the carrying value of the Civil reporting unit to approximate its fair value, there is a risk of additional goodwill impairment if future events related to the Civil reporting unit are less favorable than what the Company assumed or estimated in its Interim Test. The Company will continue to monitor events occurring or circumstances changing which may suggest that goodwill should be reevaluated during interim periods prior to the annual impairment test. These events and circumstances include, but are not limited to, a sustained decline in our stock price and market capitalization, as well as quantitative and qualitative factors specific to the Civil reporting unit which indicate potential triggering events that would more likely than not reduce the fair value of the Civil reporting unit below its carrying amount.Company’s non-amortizable trade names.
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Intangible Assets
Intangible assets consist of the following:
As of September 30, 2019 | Weighted | |||||||||||||
Accumulated | Average | |||||||||||||
Accumulated | Impairment | Carrying | Amortization | |||||||||||
(in thousands) | Cost | Amortization | Charge | Value | Period | |||||||||
Trade names (non-amortizable) | $ | 117,600 | $ | — | $ | (67,190) | $ | 50,410 | Indefinite | |||||
Trade names (amortizable) | 74,350 | (20,645) | (23,232) | 30,473 | 20 years | |||||||||
Contractor license | 6,000 | — | (6,000) | — | N/A | |||||||||
Customer relationships | 39,800 | (20,784) | (16,645) | 2,371 | 12 years | |||||||||
Construction contract backlog | 73,706 | (73,706) | — | — | N/A | |||||||||
Total | $ | 311,456 | $ | (115,135) | $ | (113,067) | $ | 83,254 | ||||||
As of December 31, 2018 | Weighted | |||||||||||||
Accumulated | Average | |||||||||||||
Accumulated | Impairment | Carrying | Amortization | |||||||||||
(in thousands) | Cost | Amortization | Charge | Value | Period | |||||||||
Trade names (non-amortizable) | $ | 117,600 | $ | — | $ | (67,190) | $ | 50,410 | Indefinite | |||||
Trade names (amortizable) | 74,350 | (18,780) | (23,232) | 32,338 | 20 years | |||||||||
Contractor license | 6,000 | — | (6,000) | — | N/A | |||||||||
Customer relationships | 39,800 | (19,992) | (16,645) | 3,163 | 12 years | |||||||||
Construction contract backlog | 73,706 | (73,706) | — | — | N/A | |||||||||
Total | $ | 311,456 | $ | (112,478) | $ | (113,067) | $ | 85,911 | ||||||
Amortization expense for the three and nine months ended September 30, 2019 was $0.9 million and $2.7 million, respectively. Amortization expense for the three and nine months ended September 30, 2018 was $0.9 million and $2.7 million, respectively. As of September 30, 2019, amortization expense is estimated to be $0.9 million for the remainder of 2019, $3.5 million in 2020, $3.4 million in 2021, $2.6 million in 2022 and $2.5 million in both 2023 and 2024.
Certain trade names have an estimated indefinite life and are not amortized to earnings, but instead are reviewed for impairment annually, or more often if events occur or circumstances change which suggest that the non-amortizable trade names should be reevaluated. The Company has also monitored events and circumstances as well as any entity-specific quantitative or qualitative factors, which occurred during interim periods since the annual test, that suggest intangible assets should be reevaluated for impairment. During the interim periods since the date of the last annual test, and prior to the second quarter of 2019, management concluded that there have been no triggering events that would more likely than not reduce the fair value of the Company’s intangible assets below their carrying amounts.
In conjunction with its interim goodwill test during the second quarter of 2019, the Company also evaluated its non-amortizable trade names for potential impairment due to the second quarter triggering factors related to goodwill mentioned above. The Company performed its interim impairment test by comparing the carrying value of its indefinite-lived intangible assets to their calculated fair value, which is determined by the income approach (relief from royalty method). This income-based valuation approach involves similar key assumptions to the goodwill impairment analysis discussed above. The interim impairment test performed in the second quarter of 2019 resulted in an estimated fair value for the non-amortizable trade names that substantially exceeded their respective net book values; therefore, no impairment charge was necessary for the second quarter. While the key assumptions used in the impairment test of the non-amortizable trade names are similar to those used in the evaluation of goodwill, historically, the headroom (the excess of calculated fair value over carrying value) has been relatively higher for non-amortizable trade names than for goodwill. Unlike goodwill, trade names possess inherent value based on market perception which is valued considering the cost savings available through ownership and the avoidance of paying royalties associated with revenue generation. The discounted value is not impacted by cash flow related assumptions such as working capital investment. Consequently, goodwill was impaired while the non-amortizable trade name intangible assets were not.
As of September 30, 2019, management concluded that no triggering events occurred or circumstances changed since the date of the interim impairment test that would more likely than not reduce the fair value of the Company’s intangible assets below their carrying amounts.
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The Company also performed a qualitative assessment to evaluate its long-lived tangible and intangible assets with finite lives due to the changes in circumstances since the Company’s 2018 annual impairment analysis. Based on this assessment in which there were no identified changes to market prices, the manner of use or the planned purchase or sale of assets/asset groups, the Company concluded that no triggering events occurred since the date of its last annual test that would more likely than not reduce the fair value of its long-lived tangible and intangible assets with finite lives below their carrying amounts.
(9) Financial Commitments
Long-Term Debt
Long-term debt as reported on the Condensed Consolidated Balance Sheets consisted of the following:
As of September 30, | As of December 31, | As of March 31, | As of December 31, | |||||||
(in thousands) | 2019 | 2018 | 2020 | 2019 | ||||||
2017 Senior Notes | $ | 494,148 | $ | 493,521 | $ | 494,585 | $ | 494,365 | ||
2017 Credit Facility | 117,000 | 41,000 | 175,000 | 114,000 | ||||||
Convertible Notes | 179,494 | 171,481 | 185,156 | 182,292 | ||||||
Equipment financing and mortgages | 40,475 | 50,904 | 44,861 | 39,159 | ||||||
Other indebtedness | 5,127 | 4,598 | 2,731 | 4,660 | ||||||
Total debt | 836,244 | 761,504 | 902,333 | 834,476 | ||||||
Less: Current maturities | 10,862 | 16,767 | 184,954 | 124,054 | ||||||
Long-term debt, net | $ | 825,382 | $ | 744,737 | $ | 717,379 | $ | 710,422 | ||
The following table reconciles the outstanding debt balance to the reported debt balances as of September 30, 2019March 31, 2020 and December 31, 2018:2019:
As of September 30, 2019 | As of December 31, 2018 | As of March 31, 2020 | As of December 31, 2019 | |||||||||||||||||||||||||||||||
(in thousands) | Outstanding Long-Term Debt | Unamortized Discount and Issuance Costs | Long-Term Debt, as reported | Outstanding Long-Term Debt | Unamortized Discount and Issuance Costs | Long-Term Debt, as reported | Outstanding Long-Term Debt | Unamortized Discount and Issuance Costs | Long-Term Debt, as reported | Outstanding Long-Term Debt | Unamortized Discount and Issuance Costs | Long-Term Debt, as reported | ||||||||||||||||||||||
2017 Senior Notes | $ | 500,000 | $ | (5,852) | $ | 494,148 | $ | 500,000 | $ | (6,479) | $ | 493,521 | $ | 500,000 | $ | (5,415) | $ | 494,585 | $ | 500,000 | $ | (5,635) | $ | 494,365 | ||||||||||
Convertible Notes | 200,000 | (20,506) | 179,494 | 200,000 | (28,519) | 171,481 | 200,000 | (14,844) | 185,156 | 200,000 | (17,708) | 182,292 | ||||||||||||||||||||||
The unamortized issuance costs related to the 2017 Credit Facility were $4.1$3.3 million and $4.8$3.7 million as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively, and are included in other assets in the Condensed Consolidated Balance Sheets.
2017 Senior Notes
On April 20, 2017, the Company issued $500 million in aggregate principal amount of 6.875% Senior Notes due 2025 (the “2017 Senior Notes”) in a private placement offering. Interest on the 2017 Senior Notes is payable in arrears semi-annually in May and November of each year, beginning in November 2017.
Prior to May 1, 2020, the Company may redeemcould have redeemed the 2017 Senior Notes at a redemption price equal to 100% of their principal amount plus a “make-whole” premium described in the indenture. In addition, prior to May 1, 2020, the Company may redeemalso could have redeemed up to 40% of the original aggregate principal amount of the notes at a redemption price of 106.875% of their principal amount with the proceeds received by the Company from any offering of the Company’s equity. AfterSince May 1, 2020, the Company may redeem the 2017 Senior Notes at specified redemption prices described in the indenture. Upon a change of control, holders of the 2017 Senior Notes may require the Company to repurchase all or part of the 2017 Senior Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the redemption date.
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.
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2017 Credit Facility
On April 20, 2017, the Company entered into a credit agreement (the “2017 Credit Facility”) with SunTrust Bank, now known as Truist Bank, as Administrative Agent, Swing Line Lender and L/C Issuer and a syndicate of other lenders. The 2017 Credit Facility provides for a $350 million revolving credit facility (the “2017 Revolver”) and a sublimit for the issuance of letters of credit and swingline loans up to the aggregate amount of $150 million and $10 million, respectively, both maturing on April 20, 2022 unless any
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of the Convertible Notes, as defined below, are outstanding on December 17, 2020, in which case all such borrowings will mature on December 17, 2020 (subject to certain further exceptions). In addition,(the “spring-forward provision”), provided however (i) if the Convertible Notes are refinanced in full with the proceeds of permitted refinancing indebtedness in accordance with the terms of the 2017 Credit Facility, the maturity date for the 2017 Credit Facility will remain April 20, 2022 and (ii) if the Company issues “New Convertible Notes” (as defined in the 2017 Credit Facility) and retires the Convertible Notes in full, the maturity date for the 2017 Credit Facility will be the earlier of (x) April 20, 2022 or (y) 90 days prior to the maturity date for such New Convertible Notes. The 2017 Credit Facility also permits additional borrowings in an aggregate amount of $150 million, which can be in the form of increased capacity on the 2017 Revolver or the establishment of one or more term loans.
Borrowings under the 2017 Revolver bear interest, at the Company’s option, at a rate equal to (a) the London Interbank Offered Rate (“LIBOR”)LIBOR plus a margin of between 1.50% and 3.00% or (b) a base rate (determined by reference to the highest of (i) the administrative agent’s prime lending rate, (ii) the federal funds effective rate plus 50 basis points, (iii) the LIBOR rate for a one-month interest period plus 100 basis points and (iv) 0%), plus a margin of between 0.50% and 2.00%, in each case based on the Consolidated Leverage Ratio (as defined in the 2017 Credit Facility). In addition to paying interest on outstanding principal under the 2017 Credit 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 5.03%4.20% during the ninethree months ended September 30, 2019.March 31, 2020.
The 2017 Credit Facility contains customary covenants for credit facilities of this type, including maximum consolidated leverage ratios ranging from 4.00:1.00 to 3.25:1.00 over the life of the facility and a minimum consolidated fixed charge coverage ratio of 1.25:1.00. On May 7, 2019, certain provisions of the 2017 Credit Facility were amended, including setting the maximum leverage ratio at 3.50:1.00 for the remainder of its term, thus eliminating the step down from 3.50:1:00 to 3.25:1.00. Substantially all of the Company’s subsidiaries unconditionally guarantee the obligations of the Company under the 2017 Credit Facility; additionally, the obligations are secured by a lien on all personal property of the Company and its subsidiaries guaranteeing these obligations.
As of September 30, 2019,March 31, 2020, there was $233$175 million available under the 2017 Revolver, and the Company had not utilized the 2017 Credit Facility for letters of credit. The Company was in compliance with the financial covenants under the 2017 Credit Facility as of September 30, 2019 (the goodwill impairment charge, as discussedMarch 31, 2020.
As a result of the spring-forward provision mentioned above, the facility will mature on December 17, 2020 if the Convertible Notes remain outstanding at that time. The Company does not have call rights that allow it to unilaterally redeem the Convertible Notes. However, the Company intends to seek to repurchase the Convertible Notes in Note 8, Goodwill and Intangible Assets, did not impact2020 using available liquidity. Subject to certain limitations, the Company is permitted to utilize available credit capacity from the 2017 Credit Facility to repurchase the Convertible Notes. Alternatively, the Company may pursue amendment of the 2017 Credit Facility and/or exchange the Convertible Notes. The Company continues to assess its various alternatives to determine the financial covenant calculations).strategy best suited to the Company’s needs and that will provide the most favorable terms, taking into account the Company’s liquidity requirements and anticipated cash flows. Due to the spring-forward provision in the 2017 Credit Facility, all borrowings under the facility are included in “Current maturities of long-term debt” on the Condensed Consolidated Balance Sheet as of March 31, 2020.
Convertible Notes
On June 15, 2016, the Company issued $200 million of 2.875% Convertible Senior Notes due June 15, 2021 (the “Convertible Notes”) in a private placement offering. The Convertible Notes are unsecured obligations of the Company and do not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by the Company. The Convertible Notes bear interest at a rate of 2.875% per year, payable in cash semi-annually in June and December. If the Convertible Notes remain outstanding at maturity, at the Company’s election, the Company may pay off the notes with cash, shares of its common stock or a combination thereof.
Prior to January 15, 2021, the Convertible Notes will be convertible only under the following circumstances: (1) during the five business day period after any 10 consecutive trading day period in which the trading price per $1,000 principal amount of Convertible Notes for such trading day was less than 98% of the product of the last reported sale price of 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
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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trading day immediately preceding the maturity date, holders may convert all or any portion of their notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.
The Convertible Notes will be convertible at an initial conversion rate of 33.0579 shares of the Company’s common stock per $1,000 principal amount of the Convertible Notes, which is equivalent to an initial conversion price of approximately $30.25. The conversion rate will be subject to adjustment for some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, the Company is required to increase, in certain circumstances, the conversion rate for a holder who elects to convert their Convertible Notes in connection with such a corporate event including customary conversion rate adjustments in connection with a “make-whole fundamental change” described in the indenture. Upon
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conversion, and at the Company’s election, the Company may satisfy its conversion obligation with cash, shares of its common stock or a combination thereof. As of September 30, 2019,March 31, 2020, the conversion provisions of the Convertible Notes have not been triggered.
Interest Expense
Interest expense as reported in the Condensed Consolidated Statements of Operations consisted of the following:
Three Months Ended | Nine Months Ended | Three Months Ended | ||||||||||||||
September 30, | September 30, | March 31, | ||||||||||||||
(in thousands) | 2019 | 2018 | 2019 | 2018 | 2020 | 2019 | ||||||||||
Cash interest expense: | ||||||||||||||||
Interest on 2017 Senior Notes | $ | 8,594 | $ | 8,594 | $ | 25,781 | $ | 25,781 | $ | 8,594 | $ | 8,594 | ||||
Interest on 2017 Credit Facility | 3,385 | 2,596 | 9,712 | 6,300 | 2,415 | 2,645 | ||||||||||
Interest on Convertible Notes | 1,438 | 1,437 | 4,313 | 4,312 | 1,437 | 1,438 | ||||||||||
Other interest | 540 | 736 | 1,656 | 2,119 | 504 | 574 | ||||||||||
Total cash interest expense | 13,957 | 13,363 | 41,462 | 38,512 | 12,950 | 13,251 | ||||||||||
Non-cash interest expense:(a) | ||||||||||||||||
Amortization of discount and debt issuance costs on Convertible Notes | 2,734 | 2,490 | 8,013 | 7,298 | 2,864 | 2,608 | ||||||||||
Amortization of debt issuance costs on 2017 Credit Facility | 401 | 360 | 1,150 | 1,080 | 402 | 361 | ||||||||||
Amortization of debt issuance costs on 2017 Senior Notes | 213 | 198 | 627 | 584 | 220 | 205 | ||||||||||
Total non-cash interest expense | 3,348 | 3,048 | 9,790 | 8,962 | 3,486 | 3,174 | ||||||||||
Total interest expense | $ | 17,305 | $ | 16,411 | $ | 51,252 | $ | 47,474 | $ | 16,436 | $ | 16,425 | ||||
____________________________________________________________________________________________________
(a)The combination of cash and non-cash interest expense produces effective interest rates that are higher than contractual rates. Accordingly, the effective interest rates for the 2017 Senior Notes and the Convertible Notes were 7.13% and 9.39%, respectively, for the ninethree months ended September 30, 2019.March 31, 2020.
(10) 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 September 30, 2019,March 31, 2020, the Company’s operating leases have remaining lease terms ranging from less than one year to 10 years, some of which include options to renew the leases. The exercise of lease renewal options is generally at the Company’s sole discretion. The Company’s leases do not contain any material residual value guarantees or material restrictive covenants.
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 September 30, 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.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
The following table presents components of lease expense for the three and nine months ended September 30,March 31, 2020 and 2019:
Three Months Ended | |||||||||||
Three Months Ended | Nine Months Ended | March 31, | |||||||||
(in thousands) | September 30, 2019 | September 30, 2019 | 2020 | 2019 | |||||||
Operating lease expense | $ | 4,047 | $ | 11,749 | $ | 3,767 | $ | 3,781 | |||
Short-term lease expense(a) | 17,786 | 50,843 | 17,265 | 16,571 | |||||||
21,833 | 62,592 | 21,032 | 20,352 | ||||||||
Less: Sublease income | 263 | 784 | 329 | 259 | |||||||
Total lease expense | $ | 21,570 | $ | 61,808 | $ | 20,703 | $ | 20,093 | |||
____________________________________________________________________________________________________
(a)Short-term lease expense includes all leases with lease terms ranging from less than one month to one year. Short-term leases include, among other things, construction equipment rented on an as-needed basis as well as temporary housing.
The following table presents supplemental balance sheet information related to operating leases as of September 30, 2019:leases:
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(dollars in thousands) | Balance Sheet Line Item | 2020 | 2019 | |||
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ROU assets | Other assets | $ | 37,262 | $ | 40,156 | |
Total lease assets | $ | 37,262 | $ | 40,156 | ||
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Current lease liabilities | Accrued expenses and other current liabilities | $ | 10,511 | $ | 11,392 | |
Long-term lease liabilities | Other long-term liabilities | 29,883 | 31,900 | |||
Total lease liabilities | $ | 40,394 | $ | 43,292 | ||
Weighted-average remaining lease term (in years) | 4.9 | 5.0 | ||||
Weighted-average discount rate | 5.99% | 5.96% | ||||
The following table presents supplemental cash flow information and non-cash activity related to operating leases for the nine months ended September 30, 2019:leases:
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(in thousands) | 2020 | 2019 | ||||
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Cash paid for amounts included in the measurement of lease liabilities | $ | (3,770) | $ | (3,765) | ||
Non-cash activity: | ||||||
ROU assets obtained in exchange for lease liabilities | $ | 132 | $ | 1,798 | ||
The following table presents maturities of operating lease liabilities on an undiscounted basis as of September 30, 2019:March 31, 2020:
Year (in thousands) | Operating Leases | Operating Leases | ||||||
2019 (excluding the nine months ended September 30, 2019) | $ | 3,781 | ||||||
2020 | 12,339 | |||||||
2020 (excluding the three months ended March 31, 2020) | $ | 9,948 | ||||||
2021 | 8,997 | 9,438 | ||||||
2022 | 7,695 | 8,034 | ||||||
2023 | 6,489 | 6,761 | ||||||
2024 | 5,093 | |||||||
Thereafter | 12,461 | 7,618 | ||||||
Total lease payments | 51,762 | 46,892 | ||||||
Less: Imputed interest | 7,468 | 6,498 | ||||||
Total | $ | 44,294 | $ | 40,394 | ||||
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:
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 | |||
(11) Commitments and Contingencies
The Company and certain of its subsidiaries are involved in litigation and other legal proceedings and forms of dispute resolution in the ordinary course of business, including but not limited to disputes over contract payment and/or performance-related issues (such as disagreements regarding delay or a change in the scope of work of a project and/or the price associated with that change) and other matters incidental to the Company’s business. In accordance with ASC 606, the Company makes assessments of these types of matters on a routine basis and, to the extent permitted by ASC 606, estimates and records recovery related to these matters as a form of variable consideration at the most likely amount the Company expects to receive, as discussed further in Note 4Contract 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 estimates. In addition, because such matters are typically resolved over long periods of time, the Company’s assets and liabilities may change over time should the circumstances dictate. The description of the legal proceedings listed below include management’s assessment of those proceedings. Management believes that, based on current information and discussions with the Company’s legal counsel, the ultimate resolution of theseother matters is not expected to have a material effect on the Company’s consolidated financial position.position, results of operations or cash flows.
Long Island Expressway/Cross Island Parkway Matter
The Company reconstructedA description of 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 andmaterial pending legal proceedings, 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 relatedthan ordinary routine litigation incidental 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 assertedis as a defense and offset to the Company’s claims and not as affirmative claims. In November 2014, the Appellate Division First Department affirmed the dismissal of NYSDOT’s affirmative counterclaims. In June 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 counterclaims of $151 million as a defense to the claims of the Company. In October 2018, NYSDOT filed a notice of appeal. A trial date for the underlying case will not be set until after the appeal is resolved.
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 September 30, 2019, the Company has concluded that the potential for a material adverse financial impact due to NYSDOT’s counterclaims is remote.follows:
Five Star Electric Matter
In the third quarter of 2015, Five Star Electric Corp. (“Five 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.
As of September 30, 2019,March 31, 2020, the Company cannot predict the ultimate outcome of the investigation and cannot reasonably estimate the potential loss or range of loss that Five Star or the Company may incur or the impact of the results of the investigation on Five Star or the Company.
Alaskan Way Viaduct Matter
In January 2011, Seattle Tunnel Partners (“STP”), a joint venture between Dragados USA, Inc. and the Company, entered into a design-build contract with the Washington State Department of Transportation (“WSDOT”) for the construction of a large diameter bored tunnel in downtown Seattle, King County, Washington to replace the Alaskan Way Viaduct, also known as State Route 99. The Company has a 45% interest in STP.
The construction of the large diameter bored tunnel required the use of a tunnel boring machine (“TBM”). In December 2013, the TBM struck a steel pipe, installed by WSDOT as a well casing for an exploratory well. The TBM was significantly damaged and was required to be repaired. STP has asserted that the steel pipe casing was a differing site condition that WSDOT failed to properly disclose. The Disputes Review Board mandated by the contract to hear disputes issued a decision finding the steel casing was a Type I (material) differing site condition. WSDOT hasdid not acceptedaccept that finding.
The TBM was insured under a Builder’s Risk Insurance Policy (the “Policy”) with Great Lakes Reinsurance (UK) PLC and a consortium of other insurers (the “Insurers”). STP submitted the claims to the Insurers and requested interim payments under the Policy. The Insurers refused to pay and denied coverage. In June 2015, STP filed a lawsuit in the King County Superior Court, State of Washington 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.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
In September 2018, rulings received on pre-trial motions effectively limited potential recovery under the Policy for STP, WSDOT and Hitachi. However, on December 19, 2018, the Court of Appeal granted the Company’s request for a discretionary appeal of those rulings. The appeal is expected to be heard in the first half ofmid to late 2020. STP submitted damages to the Insurers in the King County lawsuit in the amount of $532 million. STP is also seekingsought these damages from WSDOT related to the pipe-strike by the TBM in a related lawsuit in Thurston County (see following paragraph).
In March 2016, WSDOT filed a complaint against STP in Thurston County Superior Court foralleging breach of contract, alleging STP’s delays and failure to perform, seeking $57.2 million in delay-related damages and seeking declaratory relief concerning contract interpretation. STP filed its answer to WSDOT’s complaint and filed a counterclaim against WSDOT and Hitachi, as the TBM designer, seeking damages of $667 million. On October 3, 2019, STP and Hitachi entered into a settlement agreement which causedreleased and dismissed the release and dismissal of claims that STP and Hitachi had against each other. The jury trial between STP and WSDOT commenced on October 7, 2019.2019 and concluded on December 13, 2019, with a jury verdict in favor of WSDOT awarding them $57.2 million in damages. Judgment was entered on January 10, 2020, and a notice of appeal was filed by STP on January 17, 2020. The appeal is expected to be heard in 2021.
AsThe Company recorded the impact of September 30,the jury verdict during the fourth quarter of 2019, resulting in a pre-tax charge of $166.8 million. The charge includes a pre-tax accrual of $25.7 million (which is the Company’s 45% proportionate share of the $57.2 million in damages awarded by the jury to WSDOT). Payment of damages will only be made if the adverse verdict is upheld on appeal, as the payment is secured by a bond for the course of the appeal. Other than the possible future payment in cash of $25.7 million in damages, the charge is for non-cash write-downs primarily related to the costs and estimated earnings in excess of billings and receivables that the Company has concluded that the potential for a material adverse financial impact duepreviously recorded 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. reflect its expected recovery in this case.
With respect to STP’s direct and indirect claims against the Insurers, WSDOT and Hitachi, management has included in receivables 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.probable.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
George Washington Bridge Bus Station Matter
In August 2013, Tutor Perini Building Corporation (“TPBC”) entered into a contract with the George Washington Bridge Bus Station Development Venture, LLC (the “Developer”) to renovate the George Washington Bridge Bus Station, a mixed-use facility owned by the Port Authority of New York and New Jersey (the “Port Authority”) that serves as a transit facility and retail space. The $100 million project experienced significant design errors and associated delays, resulting in damages to TPBC and its subcontractors, including WDF and Five Star, wholly owned subsidiaries of the Company. The project reached substantial completion on May 16, 2017.
On February 26, 2015, the Developer filed a demand for arbitration, subsequently amended, seeking $30 million in alleged liquidated damages and declaratory relief that TPBC’s requests for additional compensation are invalid due to lack of notice. TPBC denied the Developer’s claims and filed a counterclaim in March 2018. TPBC seeks in excess of $113 million in the arbitration, which includes unpaid contract balance claims, the return of $29 million retained by the Developer in alleged liquidated damages, as well as extra work claims, pass-through claims and delay claims.
Hearings on the merits commenced on September 24, 2018 before the arbitration panel, and were expected to continue over various weeks through March 2020. On April 15, 2019, the counsel for the Developer withdrew from the case, which resulted in further delays to the proceedings.panel. On June 4, 2019, the arbitration panel, as confirmed by the U.S. District Court in the Southern District of New York, issued a writ of attachment for $23 million of the $29 million discussed above. On October 7, 2019, the Developer filed for bankruptcy protection in the Southern District of New York under Chapter 11 of the Bankruptcy Code. The filing for bankruptcy stayed the pending arbitration proceedings. TPBC appeared in the bankruptcy proceedings on October 8, 2019 and filed a Proof of Claim in the amount of $113 million on December 13, 2019. On May 13, 2020, the bankruptcy court will conduct a hearing to determine whether the lenders or the contractors are entitled to the proceeds of any sale of the leasehold, which is the only property in the Developer’s bankruptcy estate, according to the bankruptcy filings. However, as of May 1, 2020, the sale of the leasehold has been delayed due to the COVID-19 pandemic.
Separately, on July 2, 2018, TPBC filed a lawsuit against the Port Authority, of New York and New Jersey, as owner of the project, and STV Incorporated, as designer, seeking the same $113 million in damages. ThatOn August 20, 2018, the Port Authority filed a motion to dismiss, which was denied by the court on July 1, 2019. The Port Authority appealed this decision on July 15, 2019. On December 2, 2019, the Court of Appeal denied the Port Authority’s request to stay the trial court action pending the appeal. As a result, the lawsuit is proceeding against the Port Authority before the trial court. On January 13, 2020, the court dismissed STV Incorporated from the case.
On January 27, 2020, the Company filed separate litigation in the discovery phase,U.S. District Court for the Southern District of New York in which the Company asserted claims against individual owners of the Developer for their wrongful conversion of project funds and is not stayed byagainst certain lenders that received interest payments from project funds and other amounts earmarked to pay the Developer’s bankruptcy filing.contractors. On
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
April 20, 2020, motions to dismiss the case were filed on behalf of the defendants.
As of September 30, 2019,March 31, 2020, the Company has concluded that the potential for a material adverse financial impact due to the Developer’s claims is remote. With respect to TPBC’s claims against the Developer and the Port Authority, of New York and New Jersey, and STV Incorporated, 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.
(12) Share-Based Compensation
As of September 30, 2019,March 31, 2020, there were 1,368,2431,379,266 shares of common stock available for grant under the Tutor Perini Corporation Omnibus Incentive Plan. During the first ninethree months of 20192020 and 2018,2019, the Company issued the following share-based instruments: (1) restricted stock units totaling 400,00075,000 and 614,000175,000 with weighted-average fair values per share of $20.90$13.93 and $25.19,$20.41, respectively; and (2) stock options totaling 135,00075,000 and 579,00085,000 with weighted-average fair values per share of $6.84$3.94 and $11.45,$7.57, respectively, and weighted-average per share exercise prices of $20.94$25.70 and $23.99, respectively; and (3) unrestricted stock units totaling 98,591 and 115,420 with weighted-average fair values per share of $15.72 and $21.26,$25.62, respectively. During the nine months ended September 30, 2019, 839,711 stock options with a weighted-average per share exercise price of $20.78 expired or were forfeited.
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 stock options granted during the first ninethree months of 20192020 was determined using the Black-Scholes model based on the following weighted-average assumptions: (i) expected life of 5.86.0 years, (ii) expected volatility of 38.17%44.91%, (iii) risk-free rate of 2.31%1.56%, and (iv) 0 quarterly dividends. For certainCertain performance-based awards containingcontain market condition components the fair valueand are valued on the grant date is determinedof grant using a Monte Carlo simulation model.
For the three and nine months ended September 30,March 31, 2020 and 2019, the Company recognized, as part of general and administrative expenses, costs for share-based payment arrangements totaling $4.3$4.5 million and $14.3$5.5 million, respectively, and $5.7 million and $17.8 million for the three and nine months ended September 30, 2018, respectively. As of September 30, 2019,March 31, 2020, the balance of unamortized share-based compensation expense was $22.8$18.1 million, which is expected to be recognized over a weighted-average period of 2.11.8 years.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
(13) Employee Pension Plans
The Company has a defined benefit pension plan and an unfunded supplemental retirement plan. Effective June 1, 2004, all benefit accruals under these plans were frozen; however, the current vested benefit was preserved. The pension disclosure presented below includes aggregated amounts for both of the Company’s plans.
The following table sets forth a summary of the net periodic benefit cost for the three and nine months ended September 30, 2019March 31, 2020 and 2018:2019:
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||
(in thousands) | 2019 | 2018 | 2019 | 2018 | 2020 | 2019 | ||||||||||
Interest cost | $ | 948 | $ | 883 | $ | 2,844 | $ | 2,649 | $ | 758 | $ | 948 | ||||
Expected return on plan assets | (1,043) | (1,077) | (3,129) | (3,231) | (1,006) | (1,043) | ||||||||||
Amortization of net loss | 463 | 513 | 1,389 | 1,539 | 592 | 463 | ||||||||||
Other | 225 | 213 | 675 | 639 | 231 | 225 | ||||||||||
Net periodic benefit cost | $ | 593 | $ | 532 | $ | 1,779 | $ | 1,596 | $ | 575 | $ | 593 | ||||
The Company contributed $3.3$1.3 million and $2.1$0.7 million to its defined benefit pension plan during each of the nine-monththree-month periods ended September 30,March 31, 2020 and 2019, and 2018, respectively, and expects to contribute an additional $1.3$2.8 million by the end of 2019.2020.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
(14) Fair Value Measurements
The fair value hierarchy established by ASC 820, Fair Value Measurement, prioritizes the use of inputs used in valuation techniques into the following three levels:
Level 1 inputs are observable quoted prices in active markets for identical assets or liabilities
Level 2 inputs are observable, either directly or indirectly, but are not Level 1 inputs
Level 3 inputs are unobservable
The following fair value hierarchy table presents the Company’s assets that are measured at fair value on a recurring basis as of September 30, 2019March 31, 2020 and December 31, 2018:2019:
As of September 30, 2019 | As of December 31, 2018 | As of March 31, 2020 | As of December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||
Fair Value Hierarchy | Fair Value Hierarchy | Fair Value Hierarchy | Fair Value Hierarchy | |||||||||||||||||||||||||||||||||||||||||||||
(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) | $ | 207,130 | $ | — | $ | — | $ | 207,130 | $ | 116,075 | $ | — | $ | — | $ | 116,075 | $ | 198,122 | $ | — | $ | — | $ | 198,122 | $ | 193,685 | $ | — | $ | — | $ | 193,685 | ||||||||||||||||
Restricted cash(a) | 6,261 | — | — | 6,261 | 3,788 | — | — | 3,788 | 5,956 | — | — | 5,956 | 8,416 | — | — | 8,416 | ||||||||||||||||||||||||||||||||
Restricted investments(b) | — | 67,728 | — | 67,728 | — | 58,142 | — | 58,142 | — | 75,409 | — | 75,409 | — | 70,974 | — | 70,974 | ||||||||||||||||||||||||||||||||
Investments in lieu of retainage(c) | 78,492 | 1,229 | — | 79,721 | 62,858 | 1,190 | — | 64,048 | 94,519 | 1,103 | — | 95,622 | 89,572 | 1,219 | — | 90,791 | ||||||||||||||||||||||||||||||||
Total | $ | 291,883 | $ | 68,957 | $ | — | $ | 360,840 | $ | 182,721 | $ | 59,332 | $ | — | $ | 242,053 | $ | 298,597 | $ | 76,512 | $ | — | $ | 375,109 | $ | 291,673 | $ | 72,193 | $ | — | $ | 363,866 | ||||||||||||||||
____________________________________________________________________________________________________
(a)Includes money market funds and short-term investments with maturity dates of three months or less when acquired.
(b)Restricted investments, as of September 30, 2019,March 31, 2020, consist of investments in corporate debt securities of $37.0$35.6 million, and U.S. government agency securities of $30.7$38.3 million and corporate certificates of deposits of $1.5 million with maturities of up to five years, and are valued based on pricing models, which are determined from a compilation of primarily observable market information, broker quotes in non-active markets or similar assets and are therefore classified as Level 2 assets. As of December 31, 2018,2019, restricted investments consisted of investments in corporate debt securities of $30.4$35.8 million, and U.S. government agency securities of $27.7 million.$33.8 million and corporate certificates of deposits of $1.4 million with maturities of up to five years. The amortized cost of these available-for-sale securities at September 30, 2019March 31, 2020 and December 31, 20182019 was not materially different from the fair value.
(c)Investments in lieu of retainage are included in retainage receivable and as of September 30, 2019March 31, 2020 are comprised of money market funds of $78.5$94.5 million and municipal bonds of $1.2$1.1 million. The fair values of the money market funds are measured using quoted market prices; therefore, they are classified as Level 1 assets. The fair values of municipal bonds are measured using readily available pricing sources for comparable instruments; therefore, they are classified as Level 2 assets. As of December 31, 2018,2019, investments in lieu of retainage consisted of money market funds of $62.9$89.6 million and municipal bonds of $1.2 million. The amortized cost of these available-for-sale securities at September 30, 2019March 31, 2020 and December 31, 20182019 was not materially different from the fair value.
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 $486.0$416.3 million and $466.8$485.0 million as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. The fair value of the Convertible Notes was $190.3$184.5 million and $184.4$193.4 million as of September 30, 2019March 31, 2020 and December 31, 2018,2019, 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 September 30, 2019March 31, 2020 and December 31, 2018.2019.
(15) Variable Interest Entities (VIEs)
The Company may form joint ventures or partnerships with third parties for the execution of projects. In accordance with ASC 810, Consolidation (“ASC 810”), the Company assesses its partnerships and joint ventures at inception to determine if any meet the qualifications of a VIE. The Company considers a joint venture a VIE if either (a) the total equity investment is not sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) characteristics of a controlling financial interest are missing (either the ability to make decisions through voting or other rights, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity), or (c) the voting rights of the equity holders are not proportional to their obligations to absorb the expected losses of the entity and/or their rights to receive the expected residual returns of the entity, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. Upon the occurrence of certain events outlined in ASC 810, the Company reassesses its initial determination of whether the joint venture is a VIE.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
ASC 810 also requires the Company to determine whether it is the primary beneficiary of the VIE. The Company concludes that it is the primary beneficiary and consolidates the VIE if the Company has both (a) the power to direct the economically significant activities of the VIE and (b) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. The Company considers the contractual agreements that define the ownership structure, distribution of profits and losses, risks, responsibilities, indebtedness, voting rights and board representation of the respective parties in determining if the Company is the primary beneficiary. The Company also considers all parties that have direct or implicit variable interests when determining whether it is the primary beneficiary. In accordance with ASC 810, management’s assessment of whether the Company is the primary beneficiary of a VIE is performed continuously.
As of September 30, 2019,March 31, 2020, the Company had unconsolidated VIE-related current assets and liabilities of $0.5$0.7 million and $0.4$0.7 million, respectively, included in the Company’s Condensed Consolidated Balance Sheet. As of December 31, 2018,2019, the Company had unconsolidated VIE-related current assets and liabilities of $4.0$1.5 million and $3.8$1.4 million, respectively, included in the Company’s Condensed Consolidated Balance Sheet. The Company’s maximum exposure to loss as a result of its investments in unconsolidated VIEs is typically limited to the aggregate of the carrying value of the investment and future funding commitments. There were no future funding requirements for the unconsolidated VIEs as of September 30, 2019.March 31, 2020.
As of September 30,March 31, 2020, the Company’s Condensed Consolidated Balance Sheet included current and noncurrent assets of $339.1 million and $43.3 million, respectively, as well as current liabilities of $531.9 million related to the operations of its consolidated VIEs. As of December 31, 2019, the Company’s Condensed Consolidated Balance Sheet included current and noncurrent assets of $372.6$365.0 million and $56.8$52.0 million, respectively, as well as current liabilities of $526.8 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 $173.9 million and $51.5 million, respectively, as well as current liabilities of $319.9$556.1 million related to the operations of its consolidated VIEs.
Below is a discussion of some of the Company’s more significant or unique VIEs.
The Company established a joint venture to construct the Purple Line Extension Section 2 (Tunnels and Stations) and Section 3 (Stations) mass-transit projects in Los Angeles, California with a combined value of approximately $2.8 billion. The Company has a 75% interest in the joint venture with the remaining 25% held by O&G Industries, Inc. The joint venture was initially financed with contributions from the partners and, per the terms of the joint venture agreement, the partners may be required to provide additional capital contributions in the future. The Company has determined that this joint venture is a VIE for which the Company is the primary beneficiary.
The Company also established a joint venture with Parsons Corporation (“Parsons”) to construct the Newark Liberty International Airport Terminal One project, a $1.4 billion transportation infrastructure project in Newark, New Jersey. The Company has an 80% interest in the joint venture with the remaining 20% held by Parsons. The joint venture was initially financed with contributions from the partners and, per the terms of the joint venture agreement, the partners may be required to provide additional capital contributions in the future. The Company has determined that this joint venture is a VIE for which the Company is the primary beneficiary.
(16) Changes in Equity
A reconciliation of the changes in equity for the three months ended March 31, 2020 and 2019 is provided below:
Three Months Ended March 31, 2020 | |||||||||||||||||
Accumulated | |||||||||||||||||
Additional | Other | ||||||||||||||||
Common | Paid-in | Retained | Comprehensive | Noncontrolling | Total | ||||||||||||
(in thousands) | Stock | Capital | Earnings | Loss | Interests | Equity | |||||||||||
Balance - December 31, 2019 | $ | 50,279 | $ | 1,117,972 | $ | 313,991 | $ | (42,100) | $ | (9,617) | $ | 1,430,525 | |||||
Net income | — | — | 17,371 | — | 8,767 | 26,138 | |||||||||||
Other comprehensive loss | — | — | — | (1,028) | (2,020) | (3,048) | |||||||||||
Share-based compensation | — | 3,507 | — | — | — | 3,507 | |||||||||||
Issuance of common stock, net | 298 | (992) | — | — | — | (694) | |||||||||||
Distributions to noncontrolling interests | — | — | — | — | (13,500) | (13,500) | |||||||||||
Balance - March 31, 2020 | $ | 50,577 | $ | 1,120,487 | $ | 331,362 | $ | (43,128) | $ | (16,370) | $ | 1,442,928 | |||||
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
(16) Changes in Equity
A reconciliation of the changes in equity for the three and nine months ended September 30, 2019 and 2018 is provided below:
Three Months Ended September 30, 2019 | |||||||||||||||||
Accumulated | |||||||||||||||||
Additional | Other | ||||||||||||||||
Common | Paid-in | Retained | Comprehensive | Noncontrolling | Total | ||||||||||||
(in thousands) | Stock | Capital | Earnings | Loss | Interests | Equity | |||||||||||
Balance - June 30, 2019 | $ | 50,279 | $ | 1,110,496 | $ | 380,795 | $ | (42,530) | $ | (9,481) | $ | 1,489,559 | |||||
Net income | — | — | 19,313 | — | 7,408 | 26,721 | |||||||||||
Other comprehensive income (loss) | — | — | — | 236 | (99) | 137 | |||||||||||
Share-based compensation | — | 3,491 | — | — | — | 3,491 | |||||||||||
Contributions from noncontrolling interests | — | — | — | — | 1,140 | 1,140 | |||||||||||
Distributions to noncontrolling interests | — | — | — | — | (17,500) | (17,500) | |||||||||||
Balance - September 30, 2019 | $ | 50,279 | $ | 1,113,987 | $ | 400,108 | $ | (42,294) | $ | (18,532) | $ | 1,503,548 | |||||
Nine Months Ended September 30, 2019 | |||||||||||||||||
Accumulated | |||||||||||||||||
Additional | Other | ||||||||||||||||
Common | Paid-in | Retained | Comprehensive | Noncontrolling | Total | ||||||||||||
(in thousands) | Stock | Capital | Earnings | Loss | Interests | Equity | |||||||||||
Balance - December 31, 2018 | $ | 50,026 | $ | 1,102,919 | $ | 701,681 | $ | (45,449) | $ | (21,288) | $ | 1,787,889 | |||||
Net income (loss) | — | — | (301,573) | — | 17,577 | (283,996) | |||||||||||
Other comprehensive income | — | — | — | 3,155 | 160 | 3,315 | |||||||||||
Share-based compensation | — | 13,586 | — | — | — | 13,586 | |||||||||||
Issuance of common stock, net | 253 | (2,518) | — | — | — | (2,265) | |||||||||||
Contributions from noncontrolling interests | — | — | — | — | 6,519 | 6,519 | |||||||||||
Distributions to noncontrolling interests | — | — | — | — | (21,500) | (21,500) | |||||||||||
Balance - September 30, 2019 | $ | 50,279 | $ | 1,113,987 | $ | 400,108 | $ | (42,294) | $ | (18,532) | $ | 1,503,548 | |||||
Three Months Ended September 30, 2018 | |||||||||||||||||
Accumulated | |||||||||||||||||
Additional | Other | ||||||||||||||||
Common | Paid-in | Retained | Comprehensive | Noncontrolling | Total | ||||||||||||
(in thousands) | Stock | Capital | Earnings | Loss | Interests | Equity | |||||||||||
Balance - June 30, 2018 | $ | 50,011 | $ | 1,093,874 | $ | 631,004 | $ | (44,805) | $ | (17,540) | $ | 1,712,544 | |||||
Net income | — | — | 21,272 | — | 4,164 | 25,436 | |||||||||||
Other comprehensive income | — | — | — | 612 | — | 612 | |||||||||||
Share-based compensation | — | 4,993 | — | — | — | 4,993 | |||||||||||
Issuance of common stock, net | 15 | (228) | — | — | — | (213) | |||||||||||
Distributions to noncontrolling interests | — | — | — | — | (10,000) | (10,000) | |||||||||||
Balance - September 30, 2018 | $ | 50,026 | $ | 1,098,639 | $ | 652,276 | $ | (44,193) | $ | (23,376) | $ | 1,733,372 | |||||
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
Nine Months Ended September 30, 2018 | Three Months Ended March 31, 2019 | |||||||||||||||||||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||||||||||||||||||
Additional | Other | Additional | Other | |||||||||||||||||||||||||||||||
Common | Paid-in | Retained | Comprehensive | Noncontrolling | Total | Common | Paid-in | Retained | Comprehensive | Noncontrolling | Total | |||||||||||||||||||||||
(in thousands) | Stock | Capital | Earnings | Loss | Interests | Equity | 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 | — | — | (3,762) | — | (1,740) | (5,502) | ||||||||||||||||||||||||||||
Net income | — | — | 34,031 | — | 8,359 | 42,390 | ||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | (1,475) | — | (1,475) | ||||||||||||||||||||||||||||
Balance - December 31, 2018 | $ | 50,026 | $ | 1,102,919 | $ | 701,681 | $ | (45,449) | $ | (21,288) | $ | 1,787,889 | ||||||||||||||||||||||
Net income (loss) | — | — | (356) | — | 5,078 | 4,722 | ||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | 1,249 | 102 | 1,351 | ||||||||||||||||||||||||||||
Share-based compensation | — | 17,264 | — | — | — | 17,264 | — | 4,783 | — | — | — | 4,783 | ||||||||||||||||||||||
Issuance of common stock, net | 245 | (2,830) | — | — | — | (2,585) | 154 | (2,518) | — | — | — | (2,364) | ||||||||||||||||||||||
Contributions from noncontrolling interests | — | — | — | — | 1,000 | 1,000 | — | — | — | — | 2,798 | 2,798 | ||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | (22,500) | (22,500) | — | — | — | — | (4,000) | (4,000) | ||||||||||||||||||||||
Balance - September 30, 2018 | $ | 50,026 | $ | 1,098,639 | $ | 652,276 | $ | (44,193) | $ | (23,376) | $ | 1,733,372 | ||||||||||||||||||||||
Balance - March 31, 2019 | $ | 50,180 | $ | 1,105,184 | $ | 701,325 | $ | (44,200) | $ | (17,310) | $ | 1,795,179 | ||||||||||||||||||||||
(17) Other Comprehensive Income (Loss)
ASC 220, Comprehensive Income, establishes standards for reporting and displaying comprehensive income and its components in the consolidated financial statements. The Company reports the change in pension benefit plan assets/liabilities, cumulative foreign currency translation and change in fair value of investments as components of accumulated other comprehensive income (loss) (“AOCI”).
The tax effects of the components of other comprehensive income (loss) and the related tax effects for the three and nine months ended September 30,March 31, 2020 and 2019 and 2018 were as follows:
Three Months Ended | Three Months Ended | Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||
September 30, 2019 | September 30, 2018 | March 31, 2020 | March 31, 2019 | |||||||||||||||||||||||||||||||
(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 | $ | 464 | $ | (133) | $ | 331 | $ | 513 | $ | (148) | $ | 365 | $ | 591 | $ | (168) | $ | 423 | $ | 463 | $ | (133) | $ | 330 | ||||||||||
Foreign currency translation adjustments | (590) | 140 | (450) | 519 | (143) | 376 | (4,927) | 914 | (4,013) | 479 | (131) | 348 | ||||||||||||||||||||||
Unrealized gain (loss) in fair value of investments | 328 | (72) | 256 | (173) | 44 | (129) | ||||||||||||||||||||||||||||
Unrealized gain in fair value of investments | 757 | (215) | 542 | 858 | (185) | 673 | ||||||||||||||||||||||||||||
Total other comprehensive income (loss) | 202 | (65) | 137 | 859 | (247) | 612 | (3,579) | 531 | (3,048) | 1,800 | (449) | 1,351 | ||||||||||||||||||||||
Less: Other comprehensive income attributable to noncontrolling interests(a) | (99) | — | (99) | — | — | — | ||||||||||||||||||||||||||||
Less: Other comprehensive income (loss) attributable to noncontrolling interests(a) | (2,020) | — | (2,020) | 102 | — | 102 | ||||||||||||||||||||||||||||
Total other comprehensive income (loss) attributable to Tutor Perini Corporation | $ | 301 | $ | (65) | $ | 236 | $ | 859 | $ | (247) | $ | 612 | $ | (1,559) | $ | 531 | $ | (1,028) | $ | 1,698 | $ | (449) | $ | 1,249 | ||||||||||
____________________________________________________________________________________________________
(a)The only component of other comprehensive income (loss) attributable to noncontrolling interests is foreign currency translation.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
Nine Months Ended | Nine Months Ended | ||||||||||||||||
September 30, 2019 | September 30, 2018 | ||||||||||||||||
(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 (loss): | |||||||||||||||||
Defined benefit pension plan adjustments | $ | 1,390 | $ | (398) | $ | 992 | $ | 1,539 | $ | (439) | $ | 1,100 | |||||
Foreign currency translation adjustment | 961 | (253) | 708 | (2,034) | 602 | (1,432) | |||||||||||
Unrealized gain (loss) in fair value of investments | 2,053 | (438) | 1,615 | (1,468) | 325 | (1,143) | |||||||||||
Total other comprehensive income (loss) | 4,404 | (1,089) | 3,315 | (1,963) | 488 | (1,475) | |||||||||||
Less: Other comprehensive income (loss) attributable to noncontrolling interests(a) | 160 | — | 160 | — | — | — | |||||||||||
Total other comprehensive income (loss) attributable to Tutor Perini Corporation | $ | 4,244 | $ | (1,089) | $ | 3,155 | $ | (1,963) | $ | 488 | $ | (1,475) | |||||
____________________________________________________________________________________________________
(a)The only component of other comprehensive income attributable to noncontrolling interests is foreign currency translation.
The changes in AOCI balances by component (after tax) attributable to Tutor Perini Corporation during the three and nine months ended September 30, 2019 were as follows:
Three Months Ended September 30, 2019 | |||||||||||
Defined | Unrealized | Accumulated | |||||||||
Benefit | Foreign | Gain in | Other | ||||||||
Pension | Currency | Fair Value of | Comprehensive | ||||||||
(in thousands) | Plan | Translation | Investments, Net | Income (Loss) | |||||||
Attributable to Tutor Perini Corporation: | |||||||||||
Balance as of June 30, 2019 | $ | (38,009) | $ | (5,416) | $ | 895 | $ | (42,530) | |||
Other comprehensive income (loss) before reclassifications | — | (351) | 254 | (97) | |||||||
Amounts reclassified from AOCI | 331 | — | 2 | 333 | |||||||
Total other comprehensive income | 331 | (351) | 256 | 236 | |||||||
Balance as of September 30, 2019 | $ | (37,678) | $ | (5,767) | $ | 1,151 | $ | (42,294) | |||
Nine Months Ended September 30, 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 | — | 548 | 1,633 | 2,181 | |||||||
Amounts reclassified from AOCI | 992 | — | (18) | 974 | |||||||
Total other comprehensive income | 992 | 548 | 1,615 | 3,155 | |||||||
Balance as of September 30, 2019 | $ | (37,678) | $ | (5,767) | $ | 1,151 | $ | (42,294) | |||
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 nine months ended September 30, 2018March 31, 2020 and 2019 were as follows:
Three Months Ended September 30, 2018 | |||||||||||
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 June 30, 2018 | $ | (38,706) | $ | (5,399) | $ | (700) | $ | (44,805) | |||
Other comprehensive income (loss) before reclassifications | — | 376 | (145) | 231 | |||||||
Amounts reclassified from AOCI | 365 | — | 16 | 381 | |||||||
Total other comprehensive income (loss) | 365 | 376 | (129) | 612 | |||||||
Balance as of September 30, 2018 | $ | (38,341) | $ | (5,023) | $ | (829) | $ | (44,193) | |||
Nine Months Ended September 30, 2018 | Three Months Ended March 31, 2020 | |||||||||||||||||||||
Defined | Unrealized | Accumulated | Defined | Unrealized | Accumulated | |||||||||||||||||
Benefit | Foreign | Gain (Loss) in | Other | Benefit | Foreign | Gain (Loss) in | Other | |||||||||||||||
Pension | Currency | Value of | Comprehensive | Pension | Currency | Fair Value of | Comprehensive | |||||||||||||||
(in thousands) | Plan | Translation | Investments, Net | Income (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) | ||||||||||||||
Other comprehensive loss before reclassifications | — | (1,432) | (1,159) | (2,591) | ||||||||||||||||||
Balance as of December 31, 2019 | $ | (37,826) | $ | (5,371) | $ | 1,097 | $ | (42,100) | ||||||||||||||
Other comprehensive income (loss) before reclassifications | — | (1,993) | 546 | (1,447) | ||||||||||||||||||
Amounts reclassified from AOCI | 1,100 | — | 16 | 1,116 | 423 | — | (4) | 419 | ||||||||||||||
Total other comprehensive income (loss) | 1,100 | (1,432) | (1,143) | (1,475) | 423 | (1,993) | 542 | (1,028) | ||||||||||||||
Balance as of September 30, 2018 | $ | (38,341) | $ | (5,023) | $ | (829) | $ | (44,193) | ||||||||||||||
Balance as of March 31, 2020 | $ | (37,403) | $ | (7,364) | $ | 1,639 | $ | (43,128) | ||||||||||||||
Attributable to Tutor Perini Corporation: | ||||||||||||||||||||||
Balance as of December 31, 2018 | $ | (38,670) | $ | (6,315) | $ | (464) | $ | (45,449) | ||||||||||||||
Other comprehensive income before reclassifications | — | 246 | 665 | 911 | ||||||||||||||||||
Amounts reclassified from AOCI | 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) | ||||||||||||||
(18) Business Segments
The Company offers general contracting, pre-construction planning and comprehensive project management services, including planning and scheduling of manpower, equipment, materials and subcontractors required for the timely completion of a project in accordance with the terms and specifications contained in a construction contract. The Company also offers self-performed construction services: site work, concrete forming and placement, steel erection, electrical, mechanical, plumbing, and HVAC (heating, ventilation and air conditioning). As described below, the Company’s business is conducted through 3 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 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 technology.
The Specialty Contractors segment specializes in electrical, mechanical, plumbing, HVAC, fire protection systems and pneumatically placed concrete for a full range of civil and building construction projects in the industrial, commercial, hospitality and gaming, and mass-transit end markets. This segment provides the Company with unique strengths and capabilities that allow the Company to position itself as a full-service contractor with greater control over scheduled work, project delivery, and cost and risk management.
To the extent that a contract is co-managed and co-executed among segments, the Company allocates the share of revenues and costs of the contract to each segment to reflect the shared responsibilities in the management and execution of the project.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
The following tables set forth certain reportable segment information relating to the Company’s operations for the three and nine months ended September 30, 2019March 31, 2020 and 2018:2019:
Reportable Segments | Reportable Segments | |||||||||||||||||||||||||||||||||
Specialty | Consolidated | Specialty | Consolidated | |||||||||||||||||||||||||||||||
(in thousands) | Civil | Building | Contractors | Total | Corporate | Total | Civil | Building | Contractors | Total | Corporate | Total | ||||||||||||||||||||||
Three Months Ended September 30, 2019 | ||||||||||||||||||||||||||||||||||
Three Months Ended March 31, 2020 | ||||||||||||||||||||||||||||||||||
Total revenue | $ | 591,884 | $ | 421,241 | $ | 249,453 | $ | 1,262,578 | $ | — | $ | 1,262,578 | $ | 580,087 | $ | 505,082 | $ | 282,452 | $ | 1,367,621 | $ | — | $ | 1,367,621 | ||||||||||
Elimination of intersegment revenue | (67,338) | (5,895) | — | (73,233) | — | (73,233) | (93,458) | (23,318) | (116) | (116,892) | — | (116,892) | ||||||||||||||||||||||
Revenue from external customers | $ | 524,546 | $ | 415,346 | $ | 249,453 | $ | 1,189,345 | $ | — | $ | 1,189,345 | $ | 486,629 | $ | 481,764 | $ | 282,336 | $ | 1,250,729 | $ | — | $ | 1,250,729 | ||||||||||
Income (loss) from construction operations | $ | 50,695 | $ | 7,580 | $ | 7,247 | $ | 65,522 | $ | (17,579) | (a) | $ | 47,943 | $ | 46,121 | $ | 3,516 | $ | 8,279 | $ | 57,916 | $ | (10,689) | (a) | $ | 47,227 | ||||||||
Capital expenditures | $ | 22,497 | $ | 144 | $ | 325 | $ | 22,966 | $ | 365 | $ | 23,331 | $ | 11,192 | $ | 12 | $ | 473 | $ | 11,677 | $ | 16 | $ | 11,693 | ||||||||||
Depreciation and amortization(b) | $ | 11,953 | $ | 495 | $ | 1,018 | $ | 13,466 | $ | 2,761 | $ | 16,227 | $ | 18,616 | $ | 427 | $ | 993 | $ | 20,036 | $ | 2,775 | $ | 22,811 | ||||||||||
Three Months Ended September 30, 2018 | ||||||||||||||||||||||||||||||||||
Three Months Ended March 31, 2019 | ||||||||||||||||||||||||||||||||||
Total revenue | $ | 479,581 | $ | 457,304 | $ | 236,157 | $ | 1,173,042 | $ | — | $ | 1,173,042 | $ | 383,622 | $ | 436,243 | $ | 191,527 | $ | 1,011,392 | $ | — | $ | 1,011,392 | ||||||||||
Elimination of intersegment revenue | (48,093) | (1,812) | — | (49,905) | — | (49,905) | (50,128) | (2,777) | — | (52,905) | — | (52,905) | ||||||||||||||||||||||
Revenue from external customers | $ | 431,488 | $ | 455,492 | $ | 236,157 | $ | 1,123,137 | $ | — | $ | 1,123,137 | $ | 333,494 | $ | 433,466 | $ | 191,527 | $ | 958,487 | $ | — | $ | 958,487 | ||||||||||
Income (loss) from construction operations | $ | 41,282 | $ | 8,853 | $ | 11,561 | $ | 61,696 | $ | (14,390) | (a) | $ | 47,306 | $ | 41,745 | $ | 3,133 | $ | (7,488) | $ | 37,390 | $ | (14,477) | (a) | $ | 22,913 | ||||||||
Capital expenditures | $ | 15,364 | $ | 277 | $ | 70 | $ | 15,711 | $ | 397 | $ | 16,108 | $ | 14,012 | $ | 55 | $ | 123 | $ | 14,190 | $ | 222 | $ | 14,412 | ||||||||||
Depreciation and amortization(b) | $ | 8,031 | $ | 488 | $ | 1,081 | $ | 9,600 | $ | 2,817 | $ | 12,417 | $ | 9,370 | $ | 503 | $ | 1,064 | $ | 10,937 | $ | 2,780 | $ | 13,717 | ||||||||||
____________________________________________________________________________________________________
(a)Consists primarily of corporate general and administrative expenses.
(b)Depreciation and amortization is included in income (loss) from construction operations.
Reportable Segments | |||||||||||||||||
Specialty | Consolidated | ||||||||||||||||
(in thousands) | Civil | Building | Contractors | Total | Corporate | Total | |||||||||||
Nine Months Ended September 30, 2019 | |||||||||||||||||
Total revenue | $ | 1,516,623 | $ | 1,291,043 | $ | 664,279 | $ | 3,471,945 | $ | — | $ | 3,471,945 | |||||
Elimination of intersegment revenue | (184,925) | (13,913) | — | (198,838) | — | (198,838) | |||||||||||
Revenue from external customers | $ | 1,331,698 | $ | 1,277,130 | $ | 664,279 | $ | 3,273,107 | $ | — | $ | 3,273,107 | |||||
Income (loss) from construction operations | $ | (72,032) | $ | 6,903 | $ | (160,036) | $ | (225,165) | (a) | $ | (45,696) | (b) | $ | (270,861) | |||
Capital expenditures | $ | 60,948 | $ | 349 | $ | 558 | $ | 61,855 | $ | 822 | $ | 62,677 | |||||
Depreciation and amortization(c) | $ | 31,608 | $ | 1,495 | $ | 3,143 | $ | 36,246 | $ | 8,295 | $ | 44,541 | |||||
Nine Months Ended September 30, 2018 | |||||||||||||||||
Total revenue | $ | 1,266,595 | $ | 1,395,896 | $ | 781,591 | $ | 3,444,082 | $ | — | $ | 3,444,082 | |||||
Elimination of intersegment revenue | (169,520) | (3,184) | — | (172,704) | — | (172,704) | |||||||||||
Revenue from external customers | $ | 1,097,075 | $ | 1,392,712 | $ | 781,591 | $ | 3,271,378 | $ | — | $ | 3,271,378 | |||||
Income (loss) from construction operations(d) | $ | 93,560 | $ | 27,814 | $ | 26,250 | $ | 147,624 | $ | (46,428) | (b) | $ | 101,196 | ||||
Capital expenditures | $ | 61,912 | $ | 1,147 | $ | 704 | $ | 63,763 | $ | 648 | $ | 64,411 | |||||
Depreciation and amortization(c) | $ | 20,356 | $ | 1,458 | $ | 3,299 | $ | 25,113 | $ | 8,468 | $ | 33,581 | |||||
____________________________________________________________________________________________________
(a)During the nine months ended September 30, 2019, the Company recorded a non-cash goodwill impairment charge of $379.9 million in income (loss) from continuing operations (an unfavorable after-tax impact of $329.5 million, or $6.56 per diluted share) resulting from an interim impairment test the Company performed as of June 1, 2019. (For further information and breakdown of the goodwill impairment charge by segment, see Note 8, Goodwill and Intangible Assets).
(b)Consists primarily of corporate general and administrative expenses.
(c)Depreciation and amortization is included in income (loss) from construction operations.
(d)During the nine months ended September 30, 2018, the Company recorded a charge of $17.8 million in income (loss) 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.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
A reconciliation of segment results to the consolidated income (loss) before income taxes is as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||
(in thousands) | 2019 | 2018 | 2019 | 2018 | 2020 | 2019 | ||||||||||
Income (loss) from construction operations | $ | 47,943 | $ | 47,306 | $ | (270,861) | $ | 101,196 | ||||||||
Income from construction operations | $ | 47,227 | $ | 22,913 | ||||||||||||
Other income, net | 1,674 | 1,909 | 2,996 | 3,739 | 481 | 422 | ||||||||||
Interest expense | (17,305) | (16,411) | (51,252) | (47,474) | (16,436) | (16,425) | ||||||||||
Income (loss) before income taxes | $ | 32,312 | $ | 32,804 | $ | (319,117) | $ | 57,461 | ||||||||
Income before income taxes | $ | 31,272 | $ | 6,910 | ||||||||||||
Total assets by segment were as follows:
As of | As of | As of | As of | |||||||
(in thousands) | September 30, 2019 | December 31, 2018 | March 31, 2020 | December 31, 2019 | ||||||
Civil | $ | 2,791,537 | $ | 2,574,326 | $ | 2,877,417 | $ | 2,791,402 | ||
Building | 965,917 | 913,746 | 1,094,207 | 995,298 | ||||||
Specialty Contractors | 644,016 | 745,313 | 659,629 | 635,180 | ||||||
Corporate and other(a) | 93,438 | 154,367 | 55,153 | 63,897 | ||||||
Total assets | $ | 4,494,908 | $ | 4,387,752 | $ | 4,686,406 | $ | 4,485,777 | ||
____________________________________________________________________________________________________
(a)Consists principally of cash, equipment, tax-related assets and insurance-related assets, offset by the elimination of assets related to intersegment revenue.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discusses our financial position as of September 30, 2019March 31, 2020 and the results of our operations for the three and nine months ended September 30, 2019March 31, 2020 and should be read in conjunction with other information, including the unaudited Condensed Consolidated Financial Statements and notes included in Part 1,I, Item 1, Financial Information, of this Quarterly Report on Form 10-Q, the audited consolidated financial statements and accompanying notes to our Annual Report on Form 10-K for the year ended December 31, 2018,2019, and the information contained under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20182019 and in our Quarterly Reports.Part II, Item 1A below.
Forward-Looking Statements
This Quarterly Report on Form 10-Q, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results, which are intended to be covered by the safe harbor provision for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are statements that could be deemed forward-looking statements. Words such as “achieve,” “anticipate,” “assumes,” “believes,” “continue,” “could,” “estimate,” “expects,” “forecast,” “hope,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “would,” variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Although such statements are based on currently available financial and economic data as well as management’s estimates and expectations, forward-looking statements are inherently uncertain and involve risks and uncertainties that could cause our actual results to differ materially from what may be inferred from the forward-looking statements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors potentially contributing to such differences include, among others:
The impact of the COVID-19 pandemic and related events that are beyond our control, including possible effects on our business and operations, customers and suppliers, and employees, contractors and subcontractors, which could affect adversely our projects and the geographic regions in which we conduct business;
A significant slowdown or decline in economic conditions;
Revisions of estimates of contract risks, revenue or costs; the timing of new awards; or the pace of project execution may result in losses or lower than anticipated profit;
Unfavorable outcomes of existing or future litigation or dispute resolution proceedings against clientscustomers (project owners, developers, general contractors, etc.), subcontractors or suppliers, as well as failure to promptly recover significant working capital invested in projects subject to such matters;
The requirement to perform extra, or change order, work resulting in disputes or claims or adversely affecting our working capital, profits and cash flows;
Risks and other uncertainties associated with assumptions and estimates used to prepare financial statements;
Inability to retain key members of our management, to hire and retain personnel required to complete projects or implement succession plans for key officers;
Failure to meet contractual schedule requirements, which could result in higher costs and reduced profits or, in some cases, exposure to financial liability for liquidated damages and/or damages to customers;
A significant slowdown or decline in economic conditions;
Failure to meet our obligations under our debt agreements;
The impactDecreases in the level of inclement weather conditions ongovernment spending for infrastructure and other public projects;
Downgrades in our credit ratings;
Failure of our joint venture partners to perform their venture obligations, which could impose additional financial and performance obligations on us, resulting in reduced profits or losses;
Increased competition and failure to secure new contracts;
Client cancellations of, or reductions in scope under, contracts reported in our backlog;
Decreases in the level of government spending for infrastructureIncreased competition and other public projects;failure to secure new contracts;
Impairment of our goodwill or other indefinite-lived intangible assets;
The impact of inclement weather conditions on projects;
Possible systems and information technology interruptions, including due to cyberattack, systems failures or other similar events;
Failure to comply with laws and regulations related to government contracts;
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;
Uncertainty from the expected discontinuance of London Interbank Offered Rate and transition to any other interest rate benchmark; 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 losses.losses;
Uncertainty from the expected discontinuance of the London Interbank Offered Rate and transition to any other interest rate benchmark; and
Conversion of our outstanding Convertible Notes that could dilute ownership interests of existing stockholders and could adversely affect the market price of our common stock.
Executive Overview
COVID-19 Update
In the first quarter of 2020, a novel strain of coronavirus, COVID-19, was declared a pandemic. Efforts in the United States to prevent the spread of COVID-19 and mitigate its impacts intensified during March 2020. All 50 states in the United States have declared states of emergency, and various countries around the world, including the United States, have taken steps to restrict travel. Many states and cities within the United States have also enacted temporary closures of businesses, issued stay-at-home orders and taken other restrictive measures in response to the pandemic. These actions and measures have been changing frequently, and often on a daily basis.
For the three months ended March 31, 2020, the COVID-19 pandemic did not have a significant impact on our business. The vast majority of our projects have been considered essential business activities, which has allowed our projects to continue while implementing new health and safety requirements. However, some of our projects, primarily for private (commercial) customers in our Building and Specialty Contractors segments, have experienced or continue to experience temporary suspensions or reduced project activities as a result of the COVID-19 pandemic. The greatest financial impact to the Company thus far has been in New York and California, primarily due to temporary suspensions, the impact of new social distancing and other health and safety requirements, and in some cases employee and subcontractor absences.
Due to the fluidity of the COVID-19 pandemic, uncertainties as to its scope and duration, and ongoing changes in the way that governments, businesses and individuals react and respond to the pandemic, the Company is unable at this time to accurately predict the pandemic’s future impact on the Company’s business, results of operations, financial condition or liquidity. Among other things, governments could prohibit the continuation of certain projects that to date have been designated as “essential” or could impose health, safety and other operational requirements on such projects that could result in delays to or suspensions of such projects. In addition, employees and contractors working on such projects could be unable or unwilling to continue working on them, perhaps for extended periods. The COVID-19 pandemic also could negatively affect the ability of counterparties or joint venture partners to make required payments on a timely basis or at all.
Operating Results
Consolidated revenue for the three and nine months ended September 30, 2019March 31, 2020 was $1.2$1.3 billion, and $3.3 billion, respectively,up 30% compared to $1.1 billion and $3.3$1.0 billion for the same periodsperiod in 2018. 2019. The revenuestrong growth for the third quarter of 2019 was primarily driven bymostly attributable to increased project execution activities on certain mass-transitvarious infrastructure projects in Californiathe Civil and Minnesota.Specialty Contractors segments.
Income from construction operations for the thirdfirst quarter of 20192020 was $47.9$47.2 million, and loss from construction operationsmore than double when compared to $22.9 million for the nine months ended September 30, 2019 was $270.9 million. Income from construction operations was $47.3 million and $101.2 million, respectively, for the three and nine months ended September 30, 2018. The loss for the nine-monthsame period in 2019 was driven by the $379.9 million pre-tax non-cash goodwill impairment charge recorded in the second quarter of 2019 (see Note 8 of the Notes to Condensed Consolidated Financial Statements). This non-cash charge does not impact the Company’s overall business operations, including the pursuit of new work. Adjusted income from construction operations for the nine months ended September 30, 2019, which is a non-GAAP financial measure and excludes the non-cash goodwill impairment charge (and the associated tax benefit), was $109.0 million. For a discussion of non-GAAP financial measures, including a reconciliation of non-GAAP financial measures to the most nearly comparable GAAP financial measures, see2019. Non-GAAP Financial Measures below. The increase for the nine-month period was primarily due to current-year contributions from the Newark Airport Terminal One project and the absence of a prior-year pre-tax charge totaling $17.8 million, which was attributable to the unexpected outcome of an arbitration decision on a completed Civil segment project in New York. The increase was partially offsetprimarily driven by net unfavorable adjustmentsimproved performance on certain electrical and mechanicalvarious projects in New York totaling $26.7 million, none of which were individually material. In addition, during both current-year periods, the Company’s results were impacted by lower than anticipated contributions from certain projects that have experienced temporary progress delays, but which are expected to advance more meaningfully in the fourth quarter of 2019 and in 2020.Specialty Contractors segment, as well as contributions associated with volume growth across all segments.
IncomeThe effective tax expenserate was 16.4% $5.6 million for the three months ended September 30, 2019 and the Company recognized an income tax benefit of $35.1 million for the nine months then ended. The effective tax rates were 17.3% and 11.0% for the three and nine months ended September 30, 2019,March 31, 2020, compared to effective tax rates of 22.5% and 26.2%, respectively,31.7% for the comparable periodsperiod in 2018. A tax benefit totaling $50.4 million was recognized during the nine months ended September 30, 2019 related to the goodwill impairment charge. The adjusted effective income tax rate for the nine months ended September 30, 2019, which excludes the tax benefit from the goodwill impairment charge and which is a non-GAAP financial measure, was 25.1%.2019. See Corporate, Tax and Other Matters below for a discussion of the changes in the effective tax rates.rate.
Diluted earnings per share for the three months ended September 30, 2019March 31, 2020 was $0.38 and$0.34 compared to a loss per share for the nine months ended September 30, 2019 was $6.01, compared to diluted earnings per share of $0.42 and $0.68, respectively,$0.01 for the same periods in 2018. Adjusted diluted earnings per common share, which is a non-GAAP financial measure and excludes the goodwill impairment charge (and the associated tax benefit) for the nine months ended September 30, 2019 was $0.55. quarter of 2019. The reduction in adjusted earnings per share for both periods in 2019increase was primarily due to higherthe factors discussed above that drove the increases in revenue and income attributable to noncontrolling interests compared to the same periods in 2018.from construction operations.
Consolidated new awards for the three and nine months ended September 30, 2019March 31, 2020 totaled $0.7$0.6 billion and $4.9 billion, respectively, compared to $0.9 billion and $4.5$3.2 billion for the same periodsperiod in 2018.2019. The Civil segmentlower volume of new awards in the current year period was due to the largest contributortiming of bidding for and awards of prospective project opportunities, which the Company expects will occur later in 2020, whereas the prior year period included a record volume of new awards. The Specialty Contractors and Building segments were the primary contributors to the new award activity in the thirdfirst quarter of 2019, whereas the2020. The most significant new awards were three military projects in the CivilNorth Carolina and Building segments were most prominent during the nine months ended September 30, 2019.Florida collectively totaling $133 million and a $64 million mining project in Alabama.
Consolidated backlog as of September 30, 2019March 31, 2020 was $10.9$10.6 billion an increase of 17% compared to $9.3$11.2 billion at December 31, 2018 and up 28% compared to $8.5 billion at September 30, 2018. The backlog growth was attributable to2019. Backlog declined in the first quarter of 2020 as a largeresult of revenue not being fully offset by the volume of new awards across all segments, including the $1.4 billion Purple Line Section 3 Stations project in California (which includes $216 million of electrical and mechanical work to be performed by the Specialty Contractors segment), the Choctaw Casino and Resort project in Oklahoma, the Table Mountain Hotel and Casino project in California, valued at approximately $350 million, the $253 million Culver Line Communications-Based Train Control project in New York, a technology campus tenant improvement project worth over $200 million in California and the $200 million Southland Gaming Casino and Hotel project in Arkansas.. As of September 30, 2019,March 31, 2020, the mix of backlog by segment was approximately 55%54% for Civil, 24% for Building and 21%22% for Specialty Contractors.
The following table presents the Company’s backlog by business segment, reflecting changes from December 31, 20182019 to September 30, 2019:March 31, 2020:
Backlog at | New | Revenue | Backlog at | Backlog at | New | Revenue | Backlog at | |||||||||||||||
(in millions) | December 31, 2018 | Awards(a) | Recognized | September 30, 2019(b) | December 31, 2019 | Awards(a) | Recognized | March 31, 2020(b) | ||||||||||||||
Civil | $ | 5,141.9 | $ | 2,139.4 | $ | (1,331.7) | $ | 5,949.6 | $ | 6,037.2 | $ | 178.5 | $ | (486.6) | $ | 5,729.1 | ||||||
Building | 2,333.1 | 1,596.4 | (1,277.1) | 2,652.4 | 2,790.3 | 183.0 | (481.8) | 2,491.5 | ||||||||||||||
Specialty Contractors | 1,821.7 | 1,116.5 | (664.3) | 2,273.9 | 2,393.6 | 225.7 | (282.3) | 2,337.0 | ||||||||||||||
Total | $ | 9,296.7 | $ | 4,852.3 | $ | (3,273.1) | $ | 10,875.9 | $ | 11,221.1 | $ | 587.2 | $ | (1,250.7) | $ | 10,557.6 | ||||||
____________________________________________________________________________________________________
(a)New awards consist of the original contract price of projects added to backlog plus or minus subsequent changes to the estimated total contract price of existing contracts.
(b)Backlog may differ from the transaction prices allocated to the remaining performance obligations as disclosed in Note 3 of the Notes to Condensed Consolidated Financial Statements. Such differences relate to the timing of executing a formal contract or receiving a notice to proceed. More specifically, backlog sometimes may include awards for which a contract has not yet been executed or a notice to proceed has not been issued, but for which there are no remaining major uncertainties that the project will proceed (e.g., adequate funding is in place).
While we did not experience significant adverse impacts to our business related to the COVID-19 pandemic in the first quarter of 2020, the situation remains fluid and uncertain, and therefore, the Company cannot assess the degree to which it might experience future adverse impacts. The general outlook for the Company’s growth in 2020 and over the next several years remains favorable, particularly in the Civil and Specialty Contractors segments, althoughbut the impact of the COVID-19 pandemic could adversely impact future performance and operations. In addition, the Company’s pace of growth could continue to be impacted by project delays or the timing of project commencements, ramp-up activities and completions.completions, as the Company has experienced in recent years. We anticipate that we will continue to win our share of significant new awards resulting from long-term capital spending plans by state, local and federal customers, as well as bipartisan support for infrastructure investments and limited competition for some of the largest project opportunities. In recent years,elections, voters in numerous states approved dozens of long-term transportation funding measures 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. As state and local governments respond to the economic burdens of the COVID-19 pandemic, they may delay or cancel planned infrastructure investments. They also may face reduced revenues from income and sales taxes, fuel taxes and tolls. The extent of such effects, their duration, and how state and local governments will respond remains uncertain, just as the scope and duration of the COVID-19 pandemic remains uncertain. The possibility of additional federal financial assistance or stimulus programs directed toward assisting state and local governments or specifically targeting significant investments in infrastructure have been discussed as possible additional pieces of the federal government’s ongoing response to the COVID-19 pandemic. Such additional federal financial assistance or stimulus programs could favorably impact the Company’s current work and prospective opportunities. However, the timing and significance of such additional federal government actions, if any, remain uncertain.In addition, the Trump Administration and various congressional leaders continue to propose a significant federal infrastructure investment program, which most recently has been estimated at approximately $2 trillion. Furthermore, several large, long-duration civil infrastructure programs with which we are already involved are progressing, such ascontinue to progress. Finally, the Purple Line Extension projects in Los Angeles. Finally, whileCOVID-19 pandemic’s dramatic impact on the U.S. economy has led to interest rates that once again are up modestly from their historicallyat record low levels they remainand may be conducive to continued, customer spending.and potentially increased, spending on infrastructure projects.
For a more detailed discussion of operating performance of each business segment, corporate general and administrative expenseexpenses and other items, see Results of Segment Operations, Corporate, Tax and Other Matters and Liquidity and Capital Resources below.
Non-GAAP Financial Measures
To supplement our unaudited condensed consolidated financial statements presented under generally accepted accounting principles in the United States (“GAAP”), we are presenting certain non-GAAP financial measures. We are providing these non-GAAP financial measures to disclose additional information to facilitate the comparison of past and present operations, and they are among the indicators management uses as a basis for evaluating the Company’s financial performance as well as for forecasting future periods. We believe that these non-GAAP financial measures, when considered together with our GAAP financial results, provide management and investors with an additional understanding of our business operating results, including underlying trends.
These non-GAAP financial measures, which exclude the non-cash goodwill impairment charge incurred in the second quarter of 2019 (and the tax benefit associated with that charge), include adjusted income (loss) from construction operations, adjusted net income attributable to Tutor Perini Corporation, adjusted diluted earnings per common share and adjusted effective income tax rate. We also reference adjusted operating margin for each segment, which is a non-GAAP financial measure that we define as adjusted income (loss) from construction operations as a percentage of consolidated revenue. These non-GAAP financial measures are not intended to replace the presentation of our financial results in accordance with GAAP, and they may not be comparable to other similarly titled non-GAAP financial measures presented by other companies. Reconciliations of these non-GAAP financial measures to the most nearly comparable GAAP financial measures are presented below. For the three months ended September 30, 2019 and the three and nine months ended September 30, 2018, there are no non-GAAP financial measures presented or included in the reconciliation tables below because the non-GAAP financial measures, as defined by the Company, do not differ from GAAP results in those periods, as the only adjustment item occurred in the second quarter of 2019.
Reconciliation of Non-GAAP Financial Measures | ||||||||||||||
Specialty | Consolidated | |||||||||||||
(in millions) | Civil | Building | Contractors | Corporate | Total | |||||||||
Nine Months Ended September 30, 2019 | ||||||||||||||
Income (loss) from construction operations, as reported | $ | (72.0) | $ | 6.9 | $ | (160.0) | $ | (45.8) | $ | (270.9) | ||||
Plus: Goodwill impairment charge | 210.2 | 13.5 | 156.2 | — | 379.9 | |||||||||
Adjusted income (loss) from construction operations | $ | 138.2 | $ | 20.4 | $ | (3.8) | $ | (45.8) | $ | 109.0 | ||||
Nine Months Ended | ||||||
September 30, | ||||||
(in millions, except per common share amounts and percentages) | 2019 | 2018 | ||||
Net income (loss) attributable to Tutor Perini Corporation, as reported | $ | (301.6) | $ | 34.0 | ||
Plus: Goodwill impairment charge | 379.9 | — | ||||
Less: Tax benefit provided on goodwill impairment charge | (50.4) | — | ||||
Adjusted net income attributable to Tutor Perini Corporation | $ | 27.9 | $ | 34.0 | ||
Diluted earnings (loss) per common share, as reported | $ | (6.01) | $ | 0.68 | ||
Plus: Goodwill impairment charge | 7.56 | — | ||||
Less: Tax benefit provided on goodwill impairment charge | (1.00) | — | ||||
Adjusted diluted earnings per common share | $ | 0.55 | $ | 0.68 | ||
Effective income tax rate, as reported | (11.0) | % | 26.2 | % | ||
Tax effect of goodwill impairment charge | 36.1 | % | — | % | ||
Adjusted effective income tax rate | 25.1 | % | 26.2 | % | ||
Results of Segment Operations
The results of our Civil, Building and Specialty Contractors segments are discussed below.
Civil Segment
Revenue income (loss) from construction operations and adjusted income from construction operations for the Civil segment are summarized as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||
Revenue | $ | 524.5 | $ | 431.5 | $ | 1,331.7 | $ | 1,097.1 | |||
Income (loss) from construction operations, as reported | 50.7 | 41.3 | (72.0) | 93.6 | |||||||
Plus: Goodwill impairment charge | — | — | 210.2 | — | |||||||
Adjusted income from construction operations | $ | 50.7 | $ | 41.3 | $ | 138.2 | $ | 93.6 | |||
Three Months Ended March 31, | |||||
(in millions) | 2020 | 2019 | |||
Revenue | $ | 486.6 | $ | 333.5 | |
Income from construction operations | 46.1 | 41.8 | |||
Revenue for the three and nine months ended September 30, 2019March 31, 2020 increased 22% and 21%, respectively,46% compared to the same periodsperiod in 2018. 2019. The revenue growth for both periods was principally driven byprimarily due to increased project execution activities on certainseveral mass-transit projects in California, Minnesota and Minnesota that are early in their project life cycles. For the nine-month period, the increase was also due to increased activity on the Newark Airport Terminal One project, a highway project in Maryland and a tunnel project in British Columbia.New York.
Income from construction operations for the three and nine months ended September 30, 2019March 31, 2020 increased 23% and decreased 177%, respectively,10% compared to the same periodsperiod in 2018. The decrease for the nine-month period was attributable to the goodwill impairment charge recorded in the second quarter2019, primarily because of 2019. Adjusted income from construction operations for the three and nine months ended September 30, 2019 increased 23% and 48%, respectively, compared to the same periods in 2018. For the three-month period, the increase was primarily due to increased volume. The increase for the nine-month period of 2019 was due to higher volume and the absence of the $17.8 million charge in thea prior year mentioned above in the Executive Overview and an immaterial favorable adjustment on a highway project in New York,California, but also due to the impact of incremental non-cash amortization expense related to the increased equity interest in a joint venture that the Company acquired in the prior year.fourth quarter of 2019.
Operating margin was 9.7% and (5.4)% and adjusted operating margin was 9.7% and 10.4%9.5% for the three and nine months ended September 30, 2019, respectively,March 31, 2020 compared to 9.6% and 8.5%12.5% for the same periodsperiod in 2018. 2019. The reduction in operating margin for the nine-month perioddecrease was driven by the goodwill impairment charge recorded in the second quarter of 2019. The changesprimarily attributable to adjusted
operating margin for both periods were primarily driven by the factors mentioned above that drove the changes in revenue and adjusted income from construction operations.
New awards in the Civil segment totaled $293$179 million and $2.1for the three months ended March 31, 2020 compared to $1.7 billion for the three and nine months ended September 30, 2019 compared to $346 million and $1.6 billion, respectively, for the same periodsperiod in 2018.2019. The Civil segment’slower volume of new awards in the third quartercurrent year period was due to the timing of 2019bidding for and awards of prospective project opportunities, which the Company expects will occur later in 2020, whereas the prior year period included a $178 million military facilities project in Guam and various other smaller projects.
Backlog for the Civil segment was $5.9 billion as of September 30, 2019, up 28% compared to $4.7 billion as of September 30, 2018. The increase was driven primarily by the award in the first quarter of 2019 ofseveral new awards, most notably the $1.4 billion Purple Line Section 3 Stations project in California. The Civil segment’s most significant new award in the first quarter of 2020 was a $64 million mining project in Alabama. Several large Civil segment opportunities are expected to bid and potentially be awarded to the Company later this year.
Backlog for the Civil segment was $5.7 billion as of March 31, 2020 compared to $6.5 billion as of March 31, 2019. The higher backlog in the prior year period was primarily driven by the Purple Line Section 3 Stations project mentioned above. The decrease in backlog when compared to the prior year period was the result of strong revenue growth for the segment that was not fully offset by new awards. The segment continues to experience strong demand reflected in a large, multi-year pipeline of prospective projects, that are supported by substantial anticipated funding from various voter-approved transportation measures and public agencies’ long-term spending plans. The Civil segment is well-positioned to continue capturing its share of these prospective projects.
Building Segment
Revenue income from construction operations and adjusted income from construction operations for the Building segment are summarized as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||
Revenue | $ | 415.3 | $ | 455.5 | $ | 1,277.1 | $ | 1,392.7 | |||
Income from construction operations, as reported | 7.6 | 8.9 | 6.9 | 27.8 | |||||||
Plus: Goodwill impairment charge | — | — | 13.5 | — | |||||||
Adjusted income from construction operations | $ | 7.6 | $ | 8.9 | $ | 20.4 | $ | 27.8 | |||
Three Months Ended March 31, | |||||
(in millions) | 2020 | 2019 | |||
Revenue | $ | 481.8 | $ | 433.5 | |
Income from construction operations | 3.5 | 3.1 | |||
Revenue for the three and nine months ended September 30, 2019 decreased 9% and 8%, respectively,March 31, 2020 increased 11% compared to the same periodsperiod in 2018. 2019. The decrease for both periodsrevenue growth was primarily due to a reduction inincreased project execution activities on health care projects in California anda hospitality and gaming projectsproject in various states. For the third quarter of 2019, the decrease was partially offset by increased activity on technology projects in California.Oklahoma.
Income from construction operations for the three and nine months ended September 30, 2019 decreased 15% and 75%, respectively,March 31, 2020 increased 12% compared to the same periodsperiod in 2018. The decrease for2019, consistent with the nine-month period was primarily due torevenue growth and, in particular, the goodwill impairment charge recorded inincreased activities on the second quarter of 2019. Adjusted income from construction operations for the threehospitality and nine months ended September 30, 2019 decreased 15% and 27%, respectively, compared to the same periods in 2018. For both periods, the decrease was due to the absence of prior-year immaterial favorablegaming project closeout adjustments, offset by increased project contributions from other projects, including Newark Airport Terminal One, in the current year.mentioned above.
Operating margin was 1.8% and 0.5% and adjusted operating margin was 1.8% and 1.6%0.7% for the three and nine months ended September 30, 2019, respectively,March 31, 2020 compared to 1.9% and 2.0%0.7% for the same periods in 2018. The reduction in operating margin for the nine-month period in 2019 was driven by the goodwill impairment charge recorded in the second quarter. The changes to adjusted operating margin for both2019. Both periods were primarily drivennegatively impacted by the factors mentioned above that drove the changes in revenue and adjusted income from construction operations.immaterial project adjustments on certain projects as they progressed towards completion.
New awards in the Building segment totaled $199$183 million and $1.6 billion for the three and nine months ended September 30, 2019, respectively,March 31, 2020 compared to $493 million and $1.8$1.1 billion for the same periodsperiod in 2018. New2019. The lower volume of new awards in the thirdfirst quarter of 2020 was due to the timing of prospective project
opportunities, which are expected to be awarded later in the year, whereas the first quarter of 2019 included $59 million of incremental funding for an education buildingseveral sizeable new awards, such as the Choctaw Casino and Resort project in Oklahoma, a large hospitality and gaming project in California and a cultural arts facility, alsothe Southland Gaming Casino and Hotel project in California, valued at $51Arkansas. Significant new awards and contract adjustments in the first quarter of 2020 included three military projects in North Carolina and Florida collectively totaling $133 million.
Backlog for the Building segment was $2.7$2.5 billion as of September 30, 2019, up 25%March 31, 2020 compared to $2.1$3.0 billion as of September 30, 2018. March 31, 2019. The increasedecrease was driven by revenue growth for the awards of the Choctaw Casino and Resort project in Oklahoma, the Table Mountain Hotel and Casino project in California, valued at approximately $350 million, the $200 million Southland Gaming Casino and Hotel project in Arkansas and a technology campus tenant improvement project in California valued at more than $200 million.segment that was not fully offset by new awards. The Building segment continues to have a large volume of prospective projects some of which have already been bidacross various end markets and are expected to be selected and awarded by customers in 2019. Stronggeographic locations. Barring any adverse impacts from the COVID-19 pandemic, demand for our building construction services is expected to continue due to ongoing customer spending supported by a favorable economic environment and low interest rates.rate environment.
Specialty Contractors Segment
Revenue income (loss) from construction operations and adjusted income (loss) from construction operations for the Specialty Contractors segment are summarized as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||
Revenue | $ | 249.5 | $ | 236.2 | $ | 664.3 | $ | 781.6 | |||
Income (loss) from construction operations, as reported | 7.2 | 11.6 | (160.0) | 26.3 | |||||||
Plus: Goodwill impairment charge | — | — | 156.2 | — | |||||||
Adjusted income (loss) from construction operations | $ | 7.2 | $ | 11.6 | $ | (3.8) | $ | 26.3 | |||
Three Months Ended March 31, | |||||
(in millions) | 2020 | 2019 | |||
Revenue | $ | 282.3 | $ | 191.5 | |
Income (loss) from construction operations | 8.3 | (7.5) | |||
Revenue for the thirdfirst quarter of 20192020 increased 6%47% compared to the thirdfirst quarter of 2018. Revenue for the nine months ended September 30, 2019 decreased 15% compared to the same period in 2018 primarily due to reduced2019. The revenue growth was principally driven by increased project execution activities on the Newark Airport Terminal One project in New Jersey and certain electrical and mechanical projects in California, New York and Washington that are complete or nearing completion. The decrease was partially offset by increased activity on a large mechanical project in New York.
Income from construction operations for the thirdfirst quarter of 20192020 was $7.2$8.3 million andcompared to a loss from construction operations of $7.5 million for the ninethree months ended September 30, 2019 was $160.0 million compared toMarch 31, 2019. The increase in income from construction operations of $11.6 million and $26.3 millionwas primarily driven by the volume changes mentioned above in the explanation for the three and nine months ended September 30, 2018, respectively. Forrevenue growth, as well as the nine-month period, the decrease was primarily due to the goodwill impairment charge recorded in the second quarterabsence of 2019. Excluding the impact of the goodwill impairment charge, adjusted loss from construction operations was $3.8 million for the nine months ended September 30, 2019. The decrease for the third quarter was principally due to the net impact of various immaterialprior year unfavorable closeout adjustments on certain electrical projects in New York. The decrease for the nine-month period was due to net unfavorable adjustments totaling $26.7 million on certain electrical and mechanical projects in New York totaling $13.6 million, none of which were individually material.
Operating margin was 2.9% and (24.1)% and adjusted operating margin was 2.9% and (0.6)for the three months ended March 31, 2020 compared to (3.9)% for the three and nine months ended September 30, 2019, respectively, comparedsame period in 2019. The margin change was mainly attributable to 4.9% and 3.4% for the same periods in 2018. Foraforementioned drivers of the nine-month period, the reduction in operating margin was driven by the goodwill impairment charge recorded in the second quarter of 2019. The changes to adjusted operating margin for both periods were primarily driven by the factors mentioned above that drove the changesincreases in revenue and adjusted income (loss) from construction operations.operations.
New awards in the Specialty Contractors segment totaled $199$226 million and $1.1 billion for the three and nine months ended September 30, 2019March 31, 2020 compared to $110$479 million and $1.1 billion, respectively, for the same periodsperiod in 2018. New awards in the third quarter of 2019 included three electrical projects in Texas collectively valued at $99 million, as well as $32 million of incremental funding for another electrical project, also in Texas.2019.
Backlog for the Specialty Contractors segment was $2.3 billion as of September 30, 2019,March 31, 2020, up 31%11% compared to $1.7$2.1 billion as of September 30, 2018,March 31, 2019. The growth was driven by significant new awards received earlier in 2019. Many of the segment’s new awards over the last year have notably higher margins than in the past due, in some cases, to limited competition. The segment continues to have a substantial volume of prospective projects withstrong demand increasing because of strongfrom public and private sector spendingcustomers for our electrical and mechanical services on numerous civil and building projects. The Specialty Contractors segment iscontinues to be increasingly focused on servicing the Company’s growing backlog of large Civil and Building segment projects, but it also remains well-positioned to capture its share of new projects for external customers, 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 $17.6 million and $46.0$10.7 million during the three and nine months ended September 30, 2019, respectively,March 31, 2020 compared to $15.0 million and $46.9$14.8 million during the three and nine months ended September 30, 2018, respectively.March 31, 2019. The increase in the three months ended September 30, 2019decrease was primarily due to higher professional fees.lower compensation-related expenses.
Other Income, Net, Interest Expense and Income Tax (Expense) BenefitExpense
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | 2020 | 2019 | ||||||||||||
Other income, net | $ | 1.7 | $ | 1.9 | $ | 3.0 | $ | 3.7 | $ | 0.5 | $ | 0.4 | ||||||
Interest expense | (17.3) | (16.4) | (51.3) | (47.5) | (16.4) | (16.4) | ||||||||||||
Income tax (expense) benefit | (5.6) | (7.4) | 35.1 | (15.1) | ||||||||||||||
Income tax expense | (5.1) | (2.2) | ||||||||||||||||
Interest expense increased $0.9 million and $3.8 million for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018. The increases in the 2019 periods were primarily due to higher average balances on our line of credit, while higher interest rates also impacted the nine month period.
Income tax expense was $5.6 million for the three months ended September 30, 2019 and the Company recognized an income tax benefit of $35.1 million for the first nine months of 2019. The effective income tax rate for the three and nine months ended September 30, 2019March 31, 2020 was 17.3% and 11.0%, respectively,16.4% compared to 22.5% and 26.2%31.7% for the same periodsperiod in 2018.2019. The lower rate fordecrease in the nine months ended September 30, 2019 primarily resulted from the $379.9 million goodwill impairment charge discussed above of which approximately $209.5 million is not deductible for income tax purposes. The Company recognized a tax benefit totaling $50.4 million as a result of the impairment charge. The adjusted effective income tax rate for the nine months ended September 30, 2019, which excludes the goodwill impairment charge and associated tax benefit, and which is a non-GAAP financial measure, was 25.1%. The lower effective rate in the third quarter of 2019 compared to the prior year is2020 period primarily due toreflects the favorable impact of the 2019 net operating loss (“NOL”), which is allowed to be carried back up to five years as a result of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), enacted on March 27, 2020. Under the CARES Act, the Company’s NOL generated in 2019 may be carried back to tax return-to-provision adjustments,years when the federal statutory tax rate was 35% rather than the current rate of 21%, consequently generating a smallerlarger tax benefit from the NOL than that recognized prior to the enactment of the CARES Act. The favorable impact resulting from the enactment of the CARES Act was partially offset by the unfavorable impact of the vesting of restricted stock units for which a large portion of the share-based compensation related changes and higher earnings attributable to noncontrolling interestsexpense recognized in prior periods will not be deductible for which income taxes are not the responsibility of the Company. The lower adjusted effective rate in the nine month period of 2019 compared to the prior year is primarily due to the favorable impact of higher earnings attributable to noncontrolling interests for which income taxes are not the responsibility of the Company and tax return-to-provision adjustments, partially offset by a higher unfavorable impact of share-based compensation related changes.purposes. For a further discussion of income taxes, refer to Note 7 of the Notes to 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 $233$175 million and available cash balances as of March 31, 2020, will be sufficient to fund any working capital needs for the next 12 months.months, provided that we are not adversely impacted by unanticipated future events, including the COVID-19 pandemic as discussed in COVID-19 Update above. In addition, liquidity will be positively impacted in 2020 by certain provisions of the CARES Act, which will enable the Company to accelerate the collection of tax refunds associated with the 2019 NOL carryback and allow the deferral of certain 2020 Social Security payroll tax liabilities until the end of 2021 and 2022. As discussed in the section entitled Debt below, we intend to seek to repurchase the Convertible Notes in 2020 using available liquidity. Subject to certain limitations, we are permitted to utilize available credit capacity from our 2017 Credit Facility to repurchase the Convertible Notes. Alternatively, we may pursue amendment of the 2017 Credit Facility and/or exchange the Convertible Notes.
Cash and Working Capital
Cash and cash equivalents were $207.1$198.1 million as of September 30, 2019March 31, 2020 compared to $116.1$193.7 million as of December 31, 2018.2019. Cash immediately available for general corporate purposes was $49.2$80.9 million and $51.7$43.8 million as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively, with the remainder being amounts held by our consolidated joint ventures and also our proportionate share of cash held by our unconsolidated joint ventures and also amounts held by our consolidated joint ventures. Cash held by our joint ventures was available only for joint venture-related uses, including distributions to joint venture partners. In addition, our restricted cash and restricted investments, held primarily to secure insurance-related contingent obligations, totaled $74.0$81.4 million as of September 30, 2019March 31, 2020 compared to $61.9$79.4 million as of December 31, 2018.2019.
During the ninethree months ended September 30, 2019, net cash provided by operating activities was $111.4 million (with $222.9 million provided in the third quarter) due primarily to cash generated from earnings sources while investment in working capital was relatively flat during the period. The $222.9 million of cash provided by operating activities in the third quarter of 2019 was primarily driven by an increase in billings in excess of costs and estimated earnings (“BIE”), along with modest declines in accounts receivable and costs and estimated earnings in excess of billings (“CIE”) corresponding to settlement and collection activities.During the nine months ended September 30, 2018,March 31, 2020, net cash used in operating activities was $34.8$34.0 million due primarily to investments in project working capital partially offset by cash generated from earnings sources. The change in working capital primarily reflects an increase in accounts receivable due to timing of collections, partially offset by an increase in accounts payable due to timing of payments to suppliers and subcontractors. During the three months ended March 31, 2019, net cash used in operating activities was $124.8 million due primarily to investments in project working capital that exceeded cash generated from earnings sources. The change in working capital primarily reflected increases in CIE and accounts receivable, as well as decreases in accounts payable due to the timing of payments to vendors and subcontractors, partially offset by an increase in BIE.accounts receivable due to timing of collections.
The change resultingCash flow from the comparison of cash provided by operating activities forincreased $90.8 million when comparing the ninefirst three months ended September 30, 2019of 2020 with the cash flow for the comparablesame period in 2018 is an increase in cash provided of $146.1 million in the 2019 period.2019. The improvement in the 20192020 period primarily reflects a current year increase in accounts payable compared to a decrease in the prior year due to favorable timing of payments to vendorssuppliers and subcontractors, along with a smallerlarger increase in CIEbillings in excess of costs and estimated earnings, partially offset by a larger increase in BIE. Theseaccounts receivable in the current year improvements wereperiod.
Cash used for investing activities during the first three months of 2020 and 2019 was $14.6 million and $19.2 million, respectively, primarily due to the acquisition of property and equipment for projects and investment in securities.
For the first three months of 2020, net cash provided by financing activities was $50.6 million, which was primarily driven by increased net borrowings of $64.8 million partially offset by larger increases for accounts receivable and retainage receivable in 2019.
$13.5 million of cash distributions to noncontrolling interests. Net cash
The cash used for investing activities during the first nine months of 2019 and 2018 was $66.1 million and $58.5 million, respectively, due primarily to the acquisition of property and equipment for projects.
For the first nine months of 2019, net cash provided by financing activities was $48.3 million, which was primarily due to increased net borrowings of $66.1 million, partially offset by $21.5 million of cash distributions to noncontrolling interests. Net cash provided by financing activities for the comparable period in 2018 2019 was $17.3$130.7 million, which was primarily due todriven by increased net borrowings of $57.4 million, partially offset by $22.5 million of cash distributions to noncontrolling interests and a $16.0 million earn-out payment related to an acquisition in a prior year.$134.3 million.
At September 30, 2019,March 31, 2020, we had working capital of $1.7$1.4 billion, a ratio of current assets to current liabilities of 1.881.62 and a ratio of debt to equity of 0.56,0.63, compared to working capital of $1.6$1.4 billion, a ratio of current assets to current liabilities of 1.991.66 and a ratio of debt to equity of 0.430.58 at December 31, 2018.2019.
Debt
Summarized below are the key terms of the 2017 Credit Facility as of September 30, 2019.March 31, 2020. For additional information regarding our outstanding debt, refer to Note 9 of the Notes to Condensed Consolidated Financial Statements.Statements, as applicable.
2017 Credit Facility
On April 20, 2017, we entered into a credit agreement (the “2017 Credit Facility”) with SunTrust Bank, now known as Truist Bank, as Administrative Agent, Swing Line Lender and L/C Issuer and a syndicate of other lenders. The 2017 Credit Facility provides for a $350 million revolving credit facility (the “2017 Revolver”) and a sublimit for the issuance of letters of credit and swingline loans up to the aggregate amount of $150 million and $10 million, respectively, both maturing on April 20, 2022 unless any of the Convertible Notes are outstanding on December 17, 2020, in which case all such borrowings will mature on December 17, 2020 (subject to certain further exceptions). In addition,(the “spring-forward provision”), provided however (i) if the Convertible Notes are refinanced in full with the proceeds of permitted refinancing indebtedness in accordance with the terms of the 2017 Credit Facility, the maturity date for the 2017 Credit Facility will remain April 20, 2022 and (ii) if the Company issues “New Convertible Notes” (as defined in the 2017 Credit Facility) and retires the Convertible Notes in full, the maturity date for the 2017 Credit Facility will be the earlier of (x) April 20, 2022 or (y) 90 days prior to the maturity date for such New Convertible Notes. The 2017 Credit Facility also permits additional borrowings in an aggregate amount of $150 million, which can be in the form of increased capacity on the 2017 Revolver or the establishment of one or more term loans. On May 7, 2019, certain provisions of the 2017 Credit Facility were amended, including 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 9 of the Notes to Condensed Consolidated Financial Statements.
As a result of the spring-forward provision mentioned above, the facility will mature on December 17, 2020 if the Convertible Notes remain outstanding at that time. The Company does not have call rights that allow it to unilaterally redeem the Convertible Notes. However, the Company intends to seek to repurchase the Convertible Notes in 2020 using available liquidity. Subject to certain limitations, the Company is permitted to utilize available credit capacity from the 2017 Credit Facility to repurchase the Convertible Notes. Alternatively, the Company may pursue amendment of the 2017 Credit Facility and/or exchange the Convertible Notes. The Company continues to assess its various alternatives to determine the financial strategy best suited to the Company’s needs and that will provide the most favorable terms, taking into account the Company’s liquidity requirements and anticipated cash flows. Due to the spring-forward provision in the 2017 Credit Facility, all borrowings under the facility are included in “Current maturities of long-term debt” on the Condensed Consolidated Balance Sheet as of March 31, 2020.
The table below presents our actual and required consolidated fixed charge coverage ratio and consolidated leverage ratio under the 2017 Credit Facility for the period, which are calculated on a rolling four-quarter basis:
Twelve Months Ended | ||||
Actual | Required | |||
Fixed charge coverage ratio |
| > or = 1.25 : 1.00 | ||
Leverage ratio |
| < or = 3.50 : 1.00 | ||
As of September 30, 2019,March 31, 2020, 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, 2018.2019.
Off-Balance Sheet Arrangements
None.
Critical Accounting Policies
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, 2018.2019. Our critical accounting policies are also identified and discussed in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2018.2019. See Note 8 of the Notes to Condensed Consolidated Financial Statements for a detailed discussion of our accounting policies related to goodwill.
Recently Issued Accounting Pronouncements
See Note 2 of the Notes to Condensed Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in our exposure to market risk from that described in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined by Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q was made under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (a) were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. – OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of our business, we are involved in various legal proceedings. We disclose information about certain pending legal proceedings pursuant 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, 2018,2019, updated by Note 11 of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
There have been no material changesThe risk factor discussed below is intended to oursupplement the risk factors aspreviously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
The COVID-19 pandemic could adversely impact our business, financial condition or results of operations.
The COVID-19 pandemic has created volatility, uncertainty and economic disruption for the Company, our customers, subcontractors and suppliers, and the markets in which we do business. The scope and impact of the COVID-19 pandemic changed quickly during the first few months of 2020, and shelter-in-place rules and other limitations on conducting business generally did not come into effect in geographies where we do business until March 2020. Even where such rules and limitations have been implemented, only certain projects, primarily for private (commercial) customers in our Building and Specialty Contractors segments, have experienced temporary delays. The vast majority of the Company’s projects, especially in the Civil segment, have been designated as essential business, which allows the Company to continue work on those projects. Consequently, the Company’s operations were not significantly impacted during the three months ended March 31, 2020. However, health and economic conditions in the United States have continued to change, and in many instances have worsened, and changing conditions as well as the reactions of government and
customers to such changes could adversely affect our business, possibly for a sustained period. It is too early to assess the full impact that the COVID-19 pandemic, and the actions taken in response to it, will have on our employees, our operating segments and practices, our customers, subcontractors and suppliers, and the regions that we serve, or on our financial condition and results of operations as a whole.
The full impact depends on many factors that are uncertain or not yet identifiable, and in many cases are out of our control. These factors could include, among other things: (1) the duration of the COVID-19 pandemic and the types and magnitude of adverse impacts on the U.S. and global economies; (2) the health and welfare of our employees, and those of our customers, subcontractors and suppliers; (3) evolving business and government actions in response to the pandemic, including stay-at-home measures, changes to what are considered “essential” businesses, social distancing measures, travel bans and additional health and safety requirements that we may be required to observe in order to continue working on our projects; (4) the varying impact that the pandemic may have on industries we serve and on government spending for infrastructure projects, including reduced government spending on infrastructure as a result of lower revenues from taxes and tolls; (5) the response of our customers or prospective customers to the pandemic, including delays, stoppages or terminations of existing projects or potential new awards; (6) increases in our receivables if our customers fail to pay, delay making payments, request financial concessions or if we experience delays in resolving claims and disputes (e.g., delays in court proceedings or settlement discussions); (7) limitations and higher costs associated with obtaining financing; (8) potential challenges with suppliers that could limit the availability or cost of materials; (9) potential interruptions to our information systems and technology or breaches in our data security due to increasing use of remote communications and access; and (10) the timing of finding effective treatments, a vaccine or a cure for COVID-19. Such events may result in fewer projects or delays in projects or bidding opportunities. Any of these events and others we have not yet identified could cause or contribute to the risks and uncertainties facing the Company and our customers and could materially adversely affect our business or portions thereof, and our financial condition, results of operations and/or stock price.
Item 4. Mine Safety Disclosures
Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires domestic mine operators to disclose violations and orders issued under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”) by the federal Mine Safety and Health Administration. We do not act as the owner of any mines but we may act as a mining operator as defined under the Mine Act where we may be an independent contractor performing services or construction of such mine.
Information concerningFor the quarter ended March 31, 2020, we do not have any mine safety violations or other regulatory matters required byto disclose pursuant to Section 1503(a) of the Dodd-Frank Act andor Item 104 of Regulation S-K is included in Exhibit 95.S-K.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibits | Description |
10.1 | |
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31.1 | |
31.2 | |
32.1 | |
32.2 | |
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101.INS | XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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. |
104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Tutor Perini Corporation | ||
Dated: | By: | /s/ Gary G. Smalley |
Gary G. Smalley | ||
Executive Vice President and Chief Financial Officer | ||