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PART I. – FINANCIAL INFORMATION
Item 1. – Financial Statements
TUTOR PERINI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
|
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|
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|
|
|
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|
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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(in thousands, except per common share amounts)
|
2019
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2018
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|
2019
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2018
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|
REVENUE
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$
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1,189,345
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$
|
1,123,137
|
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$
|
3,273,107
|
|
$
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3,271,378
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|
COST OF OPERATIONS
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(1,074,282)
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(1,012,013)
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|
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(2,968,631)
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|
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(2,974,546)
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GROSS PROFIT
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115,063
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111,124
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304,476
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296,832
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General and administrative expenses
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(67,120)
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(63,818)
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(195,474)
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(195,636)
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Goodwill impairment
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|
—
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|
|
—
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(379,863)
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|
|
—
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INCOME (LOSS) FROM CONSTRUCTION OPERATIONS
|
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47,943
|
|
|
47,306
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(270,861)
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|
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101,196
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Other income, net
|
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1,674
|
|
|
1,909
|
|
|
2,996
|
|
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3,739
|
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Interest expense
|
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(17,305)
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|
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(16,411)
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(51,252)
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|
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(47,474)
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INCOME (LOSS) BEFORE INCOME TAXES
|
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32,312
|
|
|
32,804
|
|
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(319,117)
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|
|
57,461
|
|
Income tax (expense) benefit
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(5,591)
|
|
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(7,368)
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35,121
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(15,071)
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NET INCOME (LOSS)
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|
26,721
|
|
|
25,436
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(283,996)
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42,390
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LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
|
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7,408
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|
|
4,164
|
|
|
17,577
|
|
|
8,359
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO TUTOR PERINI CORPORATION
|
$
|
19,313
|
|
$
|
21,272
|
|
$
|
(301,573)
|
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$
|
34,031
|
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BASIC EARNINGS (LOSS) PER COMMON SHARE
|
$
|
0.38
|
|
$
|
0.43
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$
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(6.01)
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$
|
0.68
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DILUTED EARNINGS (LOSS) PER COMMON SHARE
|
$
|
0.38
|
|
$
|
0.42
|
|
$
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(6.01)
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|
$
|
0.68
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WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING:
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BASIC
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50,279
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|
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50,018
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|
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50,201
|
|
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49,927
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DILUTED
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50,582
|
|
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50,375
|
|
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50,201
|
|
|
50,210
|
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
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|
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Three Months Ended
|
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Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
(in thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
NET INCOME (LOSS)
|
$
|
26,721
|
|
$
|
25,436
|
|
$
|
(283,996)
|
|
$
|
42,390
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|
|
|
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OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
|
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|
|
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|
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|
|
|
|
|
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Defined benefit pension plan adjustments
|
|
331
|
|
|
365
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|
|
992
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|
|
1,100
|
|
Foreign currency translation adjustments
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|
(450)
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|
|
376
|
|
|
708
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|
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(1,432)
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Unrealized gain (loss) in fair value of investments
|
|
256
|
|
|
(129)
|
|
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1,615
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|
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(1,143)
|
|
TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
|
|
137
|
|
|
612
|
|
|
3,315
|
|
|
(1,475)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS)
|
|
26,858
|
|
|
26,048
|
|
|
(280,681)
|
|
|
40,915
|
|
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
|
|
7,309
|
|
|
4,164
|
|
|
17,737
|
|
|
8,359
|
|
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO TUTOR PERINI CORPORATION
|
$
|
19,549
|
|
$
|
21,884
|
|
$
|
(298,418)
|
|
$
|
32,556
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
TUTOR PERINI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
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|
|
As of September 30,
|
|
As of December 31,
|
|
(in thousands, except share and per share amounts)
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
ASSETS
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
Cash and cash equivalents ($110,447 and $43,131 related to variable interest entities ("VIEs"))
|
$
|
207,130
|
|
$
|
116,075
|
|
Restricted cash
|
|
6,261
|
|
|
3,788
|
|
Restricted investments
|
|
67,728
|
|
|
58,142
|
|
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
|
|
Total current assets
|
|
3,605,582
|
|
|
3,175,643
|
|
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
|
|
GOODWILL
|
|
205,143
|
|
|
585,006
|
|
INTANGIBLE ASSETS, NET
|
|
83,254
|
|
|
85,911
|
|
OTHER ASSETS
|
|
90,943
|
|
|
50,523
|
|
TOTAL ASSETS
|
$
|
4,494,908
|
|
$
|
4,387,752
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
Current maturities of long-term debt
|
$
|
10,862
|
|
$
|
16,767
|
|
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
|
|
Total current liabilities
|
|
1,920,708
|
|
|
1,597,966
|
|
LONG-TERM DEBT, less current maturities, net of unamortized discounts and debt issuance costs totaling $26,358 and $34,998
|
|
825,382
|
|
|
744,737
|
|
DEFERRED INCOME TAXES
|
|
58,305
|
|
|
105,521
|
|
OTHER LONG-TERM LIABILITIES
|
|
186,965
|
|
|
151,639
|
|
TOTAL LIABILITIES
|
|
2,991,360
|
|
|
2,599,863
|
|
COMMITMENTS AND CONTINGENCIES (NOTE 11)
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
Preferred stock - authorized 1,000,000 shares ($1 par value), none issued
|
|
—
|
|
|
—
|
|
Common stock - authorized 75,000,000 shares ($1 par value), issued and outstanding 50,278,816 and 50,025,996 shares
|
|
50,279
|
|
|
50,026
|
|
Additional paid-in capital
|
|
1,113,987
|
|
|
1,102,919
|
|
Retained earnings
|
|
400,108
|
|
|
701,681
|
|
Accumulated other comprehensive loss
|
|
(42,294)
|
|
|
(45,449)
|
|
Total stockholders' equity
|
|
1,522,080
|
|
|
1,809,177
|
|
Noncontrolling interests
|
|
(18,532)
|
|
|
(21,288)
|
|
TOTAL EQUITY
|
|
1,503,548
|
|
|
1,787,889
|
|
TOTAL LIABILITIES AND EQUITY
|
$
|
4,494,908
|
|
$
|
4,387,752
|
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,
|
|
(in thousands)
|
2019
|
|
2018
|
|
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
|
|
|
—
|
|
Depreciation
|
|
41,884
|
|
|
30,924
|
|
Amortization of intangible assets
|
|
2,657
|
|
|
2,657
|
|
Share-based compensation expense
|
|
14,331
|
|
|
17,779
|
|
Change in debt discounts and deferred debt issuance costs
|
|
9,790
|
|
|
8,962
|
|
Deferred income taxes
|
|
(48,318)
|
|
|
233
|
|
(Gain) loss on sale of property and equipment
|
|
(1,799)
|
|
|
823
|
|
Changes in other components of working capital
|
|
(7,148)
|
|
|
(136,113)
|
|
Other long-term liabilities
|
|
3,979
|
|
|
(2,606)
|
|
Other, net
|
|
122
|
|
|
190
|
|
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
111,365
|
|
|
(34,761)
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
Acquisition of property and equipment
|
|
(62,677)
|
|
|
(64,411)
|
|
Proceeds from sale of property and equipment
|
|
4,300
|
|
|
5,462
|
|
Investment in securities
|
|
(18,790)
|
|
|
(13,841)
|
|
Proceeds from maturities and sales of investments in securities
|
|
11,078
|
|
|
14,302
|
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
(66,089)
|
|
|
(58,488)
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
Proceeds from debt
|
|
649,139
|
|
|
1,502,177
|
|
Repayment of debt
|
|
(583,039)
|
|
|
(1,444,760)
|
|
Business acquisition related payment
|
|
—
|
|
|
(15,951)
|
|
Cash payments related to share-based compensation
|
|
(2,363)
|
|
|
(2,671)
|
|
Distributions paid to noncontrolling interests
|
|
(21,500)
|
|
|
(22,500)
|
|
Contributions from noncontrolling interests
|
|
6,519
|
|
|
1,000
|
|
Debt modification costs
|
|
(504)
|
|
|
—
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
48,252
|
|
|
17,295
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
|
93,528
|
|
|
(75,954)
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
|
119,863
|
|
|
197,648
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
213,391
|
|
$
|
121,694
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
(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. The results of operations for the three and nine months ended September 30, 2019 may not be indicative of the results that will be achieved for the full year ending December 31, 2019.
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, 2019 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
New accounting pronouncements adopted by the Company during the nine months ended September 30, 2019 are discussed below.
In August 2018, 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 Board issued ASU 2016-02, Leases (Topic 842), as amended and supplemented by subsequent ASUs (collectively, “ASC 842”). ASC 842 amends the existing guidance in Accounting Standards Codification (“ASC”) 840, Leases. This ASU requires, among other things, the recognition of lease right-of-use (“ROU”) assets and lease liabilities by lessees for those leases currently classified as operating leases. ASC 842 allowed companies to adopt the new standard by applying either 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. Based on the Company’s evaluation of ASC 842, the adoption on January 1, 2019 resulted in an increase of $43.3 million to its assets and liabilities on the Condensed Consolidated Balance Sheets with no impact to its results of operations or cash flows.
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
|
____________________________________________________________________________________________________
(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, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
(in thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Civil segment revenue by end market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mass transit
|
|
$
|
265,671
|
|
$
|
177,619
|
|
$
|
655,541
|
|
$
|
485,841
|
|
Bridges
|
|
|
113,743
|
|
|
128,240
|
|
|
269,517
|
|
|
311,979
|
|
Highways
|
|
|
44,630
|
|
|
46,553
|
|
|
145,917
|
|
|
129,619
|
|
Tunneling
|
|
|
32,076
|
|
|
33,377
|
|
|
96,602
|
|
|
66,009
|
|
Other
|
|
|
68,426
|
|
|
45,699
|
|
|
164,121
|
|
|
103,627
|
|
Total Civil segment revenue
|
|
$
|
524,546
|
|
$
|
431,488
|
|
$
|
1,331,698
|
|
$
|
1,097,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
Specialty
|
|
|
|
|
|
|
|
|
|
|
Specialty
|
|
|
|
|
(in thousands)
|
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
|
|
Guaranteed maximum price
|
|
4,517
|
|
|
551,399
|
|
|
15,326
|
|
|
571,242
|
|
|
11,200
|
|
|
801,537
|
|
|
51,762
|
|
|
864,499
|
|
Unit price
|
|
343,416
|
|
|
10,950
|
|
|
64,379
|
|
|
418,745
|
|
|
332,118
|
|
|
29,526
|
|
|
21,829
|
|
|
383,473
|
|
Cost plus fee and other
|
|
14,724
|
|
|
319,658
|
|
|
32,795
|
|
|
367,177
|
|
|
36,931
|
|
|
294,019
|
|
|
32,474
|
|
|
363,424
|
|
Total revenue
|
$
|
1,331,698
|
|
$
|
1,277,130
|
|
$
|
664,279
|
|
$
|
3,273,107
|
|
$
|
1,097,075
|
|
$
|
1,392,712
|
|
$
|
781,591
|
|
$
|
3,271,378
|
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 revenue recognized during the three and nine months ended September 30, 2018 related to performance obligations satisfied (or partially satisfied) in prior periods was immaterial.
Remaining Performance Obligations
Remaining performance obligations represent the transaction price of firm orders for which work has not been performed and exclude unexercised contract options. As of September 30, 2019, the aggregate amounts of the transaction prices allocated to the remaining performance obligations of the Company’s construction contracts were $5.3 billion, $1.6 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 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.
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,
|
|
(in thousands)
|
|
2019
|
|
2018
|
|
Retainage receivable
|
|
$
|
542,274
|
|
$
|
478,744
|
|
Costs and estimated earnings in excess of billings:
|
|
|
|
|
|
|
|
Claims
|
|
|
756,760
|
|
|
698,274
|
|
Unapproved change orders
|
|
|
334,125
|
|
|
354,000
|
|
Other unbilled costs and profits
|
|
|
68,448
|
|
|
90,021
|
|
Total costs and estimated earnings in excess of billings
|
|
|
1,159,333
|
|
|
1,142,295
|
|
Capitalized contract costs
|
|
|
60,290
|
|
|
37,404
|
|
Total contract assets
|
|
$
|
1,761,897
|
|
$
|
1,658,443
|
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 towards 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) the appropriate contract revenue amount has been recognized over time in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”), but a portion of the revenue recorded cannot be billed currently due to the billing terms defined in the contract, or 2) costs are incurred related to certain claims and unapproved change orders. Claims occur when there is a dispute regarding both a change in the scope of work and the price associated with that change. Unapproved change orders occur when a change in the scope of work results in additional work being performed before the parties have agreed on the corresponding change in the contract price. The Company routinely estimates recovery related to claims and unapproved change orders as a form of variable consideration at the most likely amount it expects to receive and to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Claims and unapproved change orders are billable upon the agreement and resolution between the contractual parties and after the execution of contractual amendments. Increases in claims and unapproved change orders typically result from costs being incurred against existing or new positions; decreases normally result from resolutions and subsequent billings. As discussed in Note 11, 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, 2019, $8.5 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 million, respectively, of previously capitalized contract costs were amortized and recognized as expense on the related contracts.
Contract liabilities include amounts owed under retainage provisions and billings in excess of costs and estimated earnings. The amount as reported on the Condensed Consolidated Balance Sheets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
As of December 31,
|
|
(in thousands)
|
|
2019
|
|
2018
|
|
Retainage payable
|
|
$
|
232,209
|
|
$
|
211,956
|
|
Billings in excess of costs and estimated earnings
|
|
|
818,806
|
|
|
573,190
|
|
Total contract liabilities
|
|
$
|
1,051,015
|
|
$
|
785,146
|
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. As of September 30, 2019, the amount of retainage payable estimated by management to be remitted beyond one year is approximately 30% of the balance.
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, 2019 and included in the opening billings in excess of costs and estimated earnings balances for each period totaled $322.8 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 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,
|
|
(in thousands)
|
|
2019
|
|
2018
|
|
Cash and cash equivalents available for general corporate purposes
|
|
$
|
49,166
|
|
$
|
51,749
|
|
Joint venture cash and cash equivalents
|
|
|
157,964
|
|
|
64,326
|
|
Cash and cash equivalents
|
|
|
207,130
|
|
|
116,075
|
|
Restricted cash
|
|
|
6,261
|
|
|
3,788
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
213,391
|
|
$
|
119,863
|
Cash equivalents include short-term, highly liquid investments with maturities of three months or less when acquired. Cash and cash equivalents consist of amounts available for the Company’s general purposes, the Company’s proportionate share of cash held by the Company’s unconsolidated joint ventures and 100% of amounts held by the Company’s consolidated joint ventures. In both cases, cash held by joint ventures is available only for joint venture-related uses, including future distributions to joint venture partners.
Amounts included in restricted cash are primarily held as collateral to secure insurance-related contingent obligations, such as insurance claim deductibles, in lieu of letters of credit.
(6) Earnings Per Common Share (EPS)
Basic EPS and diluted EPS are calculated by dividing net income attributable to Tutor Perini Corporation by the following: for basic EPS, the weighted-average number of common shares outstanding during the period; and for diluted EPS, the sum of the weighted-average number of both outstanding common shares and potentially dilutive securities, which for the Company can include restricted stock units, unexercised stock options and the Convertible Notes, as defined in Note 9, Financial Commitments. In accordance with ASC 260, Earnings Per Share (“ASC 260”), the settlement of the principal amount of the Convertible Notes has no impact on diluted EPS because the Company has the intent and ability to settle the principal amount in cash. The Company calculates the effect of the potentially dilutive restricted stock units and stock options using the treasury stock method.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
(in thousands, except per common share data)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Net income (loss) attributable to Tutor Perini Corporation
|
$
|
19,313
|
|
$
|
21,272
|
|
$
|
(301,573)
|
|
$
|
34,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, basic
|
|
50,279
|
|
|
50,018
|
|
|
50,201
|
|
|
49,927
|
|
Effect of dilutive restricted stock units and stock options
|
|
303
|
|
|
357
|
|
|
—
|
|
|
283
|
|
Weighted-average common shares outstanding, diluted
|
|
50,582
|
|
|
50,375
|
|
|
50,201
|
|
|
50,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Tutor Perini Corporation per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.38
|
|
$
|
0.43
|
|
$
|
(6.01)
|
|
$
|
0.68
|
|
Diluted
|
$
|
0.38
|
|
$
|
0.42
|
|
$
|
(6.01)
|
|
$
|
0.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive securities not included above
|
|
1,665
|
|
|
2,107
|
|
|
3,458
|
|
|
2,765
|
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, with an 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.
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty
|
|
|
|
|
(in thousands)
|
Civil
|
|
|
Building
|
|
Contractors
|
|
Total
|
|
Gross goodwill
|
$
|
492,074
|
|
$
|
424,724
|
|
$
|
156,193
|
|
$
|
1,072,991
|
|
Accumulated impairment
|
|
(76,716)
|
|
|
(411,269)
|
|
|
—
|
|
|
(487,985)
|
|
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
|
____________________________________________________________________________________________________
(a)As of September 30, 2019, accumulated impairment was $867.8 million.
The aggregate carrying amount of goodwill allocated to the Company’s three 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 as of October 1, 2018 using a weighted average of (1) an income approach and (2) a market approach to determine the fair value of each reporting unit and concluded that the goodwill was not impaired since the estimated fair value of each reporting unit exceeded its respective net book value. In addition, the Company determined the implied control premium (the excess of the aggregated fair values of 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.
During the interim periods since the date 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, 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 its 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, which led the Company to conclude that, when considering the events and factors in totality, it was more likely than not that 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 subsequent to the filing of the Company’s first quarter Form 10-Q on May 8, 2019, in both absolute terms and relative to its peers. Consistent with the average stock prices of companies in its peer group, the Company’s stock price had been trending lower over several prior periods; however, during the second quarter of 2019, the Company’s stock price dropped to 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 continued 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.
The decrease in the Company’s stock price reduced its total market capitalization and increased the implied control premium 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 compared to the assumptions used in the previous October 1 test, which extended the timing of certain expected future cash flows in the calculation of fair value under the income-based approach. The Company believes these are changes reflective of market participant inputs and the recent decrease in the Company’s market valuation.
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.
Assessing impairment inherently involves management judgments as to the assumptions used to calculate fair value 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:
Weighted average cost of capital (“WACC”), the risk-adjusted rate used to discount the projected cash flows;
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.
To develop the cash flows generated from new awards and future operating margins, the Company tracks known prospects of significance for each of its reporting units and considers the estimated timing of when the work is expected to be bid, started and completed. The Company also gives consideration to its relationships with 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.
The Company also estimated 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 in the engineering and construction industry depend on common factors such as overall demand for services.
The Company believes that the discount rates, timing of cash flows and other inputs and assumptions used in the Interim Test were consistent with those 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. 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 or circumstances changed since the date of our Interim Test that would more likely than not reduce the fair value 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.
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.
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,
|
|
(in thousands)
|
2019
|
|
2018
|
|
2017 Senior Notes
|
$
|
494,148
|
|
$
|
493,521
|
|
2017 Credit Facility
|
|
117,000
|
|
|
41,000
|
|
Convertible Notes
|
|
179,494
|
|
|
171,481
|
|
Equipment financing and mortgages
|
|
40,475
|
|
|
50,904
|
|
Other indebtedness
|
|
5,127
|
|
|
4,598
|
|
Total debt
|
|
836,244
|
|
|
761,504
|
|
Less: Current maturities
|
|
10,862
|
|
|
16,767
|
|
Long-term debt, net
|
$
|
825,382
|
|
$
|
744,737
|
The following table reconciles the outstanding debt balance to the reported debt balances as of September 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2019
|
|
As of December 31, 2018
|
|
(in thousands)
|
Outstanding Long-Term Debt
|
|
Unamortized Discount and Issuance Costs
|
|
Long-Term
Debt,
as reported
|
|
Outstanding Long-Term Debt
|
|
Unamortized Discount and Issuance Costs
|
|
Long-Term
Debt,
as reported
|
|
2017 Senior Notes
|
$
|
500,000
|
|
$
|
(5,852)
|
|
$
|
494,148
|
|
$
|
500,000
|
|
$
|
(6,479)
|
|
$
|
493,521
|
|
Convertible Notes
|
|
200,000
|
|
|
(20,506)
|
|
|
179,494
|
|
|
200,000
|
|
|
(28,519)
|
|
|
171,481
|
The unamortized issuance costs related to the 2017 Credit Facility were $4.1 million and $4.8 million as of September 30, 2019 and December 31, 2018, respectively, and are included in other assets in the Condensed Consolidated Balance Sheets.
2017 Senior Notes
On April 20, 2017, the Company issued $500 million in aggregate principal amount of 6.875% Senior Notes due 2025 (the “2017 Senior Notes”) in a private placement offering. Interest on the 2017 Senior Notes is payable in arrears semi-annually in May and November of each year, beginning in November 2017.
Prior to May 1, 2020, the Company may redeem the 2017 Senior Notes at a redemption price equal to 100% of their principal amount plus a “make-whole” premium described in the indenture. In addition, prior to May 1, 2020, the Company may redeem up to 40% of the original aggregate principal amount of the notes at a redemption price of 106.875% of their principal amount with the proceeds received by the Company from any offering of the Company’s equity. After May 1, 2020, the Company may redeem the 2017 Senior Notes at specified redemption prices described in the indenture. Upon a change of control, holders of the 2017 Senior Notes may require the Company to repurchase all or part of the 2017 Senior Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the redemption date.
The 2017 Senior Notes are senior unsecured obligations of the Company and are guaranteed by substantially all of the Company’s existing and future subsidiaries that also guarantee obligations under the Company’s 2017 Credit Facility, as defined below. In addition, the indenture for the 2017 Senior Notes provides for customary covenants, including events of default and restrictions on the payment of dividends and share repurchases.
2017 Credit Facility
On April 20, 2017, the Company entered into a credit agreement (the “2017 Credit Facility”) with SunTrust Bank as Administrative Agent, Swing Line Lender and L/C Issuer and a syndicate of other lenders. The 2017 Credit Facility provides for a $350 million revolving credit facility (the “2017 Revolver”) and a sublimit for the issuance of letters of credit and swingline loans up to the aggregate amount of $150 million and $10 million, respectively, both maturing on April 20, 2022, unless any of the Convertible Notes, as defined below, are outstanding on December 17, 2020, in which case all such borrowings will mature on December 17, 2020 (subject to certain further exceptions). In addition, the 2017 Credit Facility permits additional borrowings in an aggregate amount of $150 million, which can be in the form of increased capacity on the 2017 Revolver or the establishment of one or more term loans.
Borrowings under the 2017 Revolver bear interest, at the Company’s option, at a rate equal to (a) the London Interbank Offered Rate (“LIBOR”) plus a margin of between 1.50% and 3.00% or (b) a base rate (determined by reference to the highest of (i) the administrative agent’s prime lending rate, (ii) the federal funds effective rate plus 50 basis points, (iii) the LIBOR rate for a one-month interest period plus 100 basis points and (iv) 0%), plus a margin of between 0.50% and 2.00%, in each case based on the Consolidated Leverage Ratio (as defined in the 2017 Credit Facility). In addition to paying interest on outstanding principal under the 2017 Credit Facility, the Company will pay a commitment fee to the lenders under the 2017 Revolver in respect of the unutilized commitments thereunder. The Company will pay customary letter of credit fees. If an event of default occurs and is continuing, the otherwise applicable margin and letter of credit fees will be increased by 2% per annum. The weighted-average annual interest rate on borrowings under the 2017 Revolver was approximately 5.03% during the nine months ended September 30, 2019.
The 2017 Credit Facility contains customary covenants for credit facilities of this type, including maximum consolidated leverage ratios ranging from 4.00:1.00 to 3.25:1.00 over the life of the facility and a minimum consolidated fixed charge coverage ratio of 1.25:1.00. On May 7, 2019, certain provisions of the 2017 Credit Facility were amended, including setting the maximum leverage ratio at 3.50:1.00 for the remainder of its term, thus eliminating the step down from 3.50:1:00 to 3.25:1.00. Substantially all of the Company’s subsidiaries unconditionally guarantee the obligations of the Company under the 2017 Credit Facility; additionally, the obligations are secured by a lien on all personal property of the Company and its subsidiaries guaranteeing these obligations.
As of September 30, 2019, there was $233 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 discussed in Note 8, Goodwill and Intangible Assets, did not impact the financial covenant calculations).
Convertible Notes
On June 15, 2016, the Company issued $200 million of 2.875% Convertible Senior Notes due June 15, 2021 (the “Convertible Notes”) in a private placement offering. The Convertible Notes are unsecured obligations and do not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by the Company. The Convertible Notes bear interest at a rate of 2.875% per year, payable in cash semi-annually in June and December.
Prior to January 15, 2021, the Convertible Notes will be convertible only under the following circumstances: (1) during the five business day period after any ten consecutive trading day period in which the trading price per $1,000 principal amount of Convertible Notes for such trading day was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; (2) if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion rate of 33.0579 (or $39.32) on each applicable trading day; or (3) upon the occurrence of specified corporate events. On or after January 15, 2021 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.
The Convertible Notes will be convertible at an initial conversion rate of 33.0579 shares of the Company’s common stock per $1,000 principal amount of the Convertible Notes, which is equivalent to an initial conversion price of approximately $30.25. The conversion rate will be subject to adjustment for some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, the Company is required to increase, in certain circumstances, the conversion rate for a holder who elects to convert their Convertible Notes in connection with such a corporate event including customary conversion rate adjustments in connection with a “make-whole fundamental change” described in the indenture. Upon
conversion, and at the Company’s election, the Company may satisfy its conversion obligation with cash, shares of its common stock or a combination thereof. As of September 30, 2019, 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
|
|
|
September 30,
|
|
September 30,
|
|
(in thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Cash interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on 2017 Senior Notes
|
$
|
8,594
|
|
$
|
8,594
|
|
$
|
25,781
|
|
$
|
25,781
|
|
Interest on 2017 Credit Facility
|
|
3,385
|
|
|
2,596
|
|
|
9,712
|
|
|
6,300
|
|
Interest on Convertible Notes
|
|
1,438
|
|
|
1,437
|
|
|
4,313
|
|
|
4,312
|
|
Other interest
|
|
540
|
|
|
736
|
|
|
1,656
|
|
|
2,119
|
|
Total cash interest expense
|
|
13,957
|
|
|
13,363
|
|
|
41,462
|
|
|
38,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash interest expense:(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of discount and debt issuance costs on Convertible Notes
|
|
2,734
|
|
|
2,490
|
|
|
8,013
|
|
|
7,298
|
|
Amortization of debt issuance costs on 2017 Credit Facility
|
|
401
|
|
|
360
|
|
|
1,150
|
|
|
1,080
|
|
Amortization of debt issuance costs on 2017 Senior Notes
|
|
213
|
|
|
198
|
|
|
627
|
|
|
584
|
|
Total non-cash interest expense
|
|
3,348
|
|
|
3,048
|
|
|
9,790
|
|
|
8,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
$
|
17,305
|
|
$
|
16,411
|
|
$
|
51,252
|
|
$
|
47,474
|
____________________________________________________________________________________________________
(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 nine months ended September 30, 2019.
(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, 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.
The following table presents components of lease expense for the three and nine months ended September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
(in thousands)
|
September 30, 2019
|
|
September 30, 2019
|
|
Operating lease expense
|
$
|
4,047
|
|
$
|
11,749
|
|
Short-term lease expense(a)
|
|
17,786
|
|
|
50,843
|
|
|
|
21,833
|
|
|
62,592
|
|
Less: Sublease income
|
|
263
|
|
|
784
|
|
Total lease expense
|
$
|
21,570
|
|
$
|
61,808
|
____________________________________________________________________________________________________
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
(dollars in thousands)
|
Balance Sheet Line Item
|
2019
|
|
Assets
|
|
|
|
|
ROU assets
|
Other assets
|
$
|
41,186
|
|
Total lease assets
|
|
$
|
41,186
|
|
Liabilities
|
|
|
|
|
Current lease liabilities
|
Accrued expenses and other current liabilities
|
$
|
11,267
|
|
Long-term lease liabilities
|
Other long-term liabilities
|
|
33,027
|
|
Total lease liabilities
|
|
$
|
44,294
|
|
Weighted-average remaining lease term (in years)
|
|
|
5.1
|
|
Weighted-average discount rate
|
|
|
5.88%
|
The following table presents supplemental cash flow information and non-cash activity related to operating leases for the nine months ended September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
(in thousands)
|
|
|
|
September 30, 2019
|
|
Operating cash flow information:
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
$
|
(11,586)
|
|
Non-cash activity:
|
|
|
|
|
|
|
ROU assets obtained in exchange for lease liabilities
|
|
|
|
$
|
7,621
|
The following table presents maturities of operating lease liabilities on an undiscounted basis as of September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year (in thousands)
|
|
|
|
Operating Leases
|
|
2019 (excluding the nine months ended September 30, 2019)
|
|
|
|
$
|
3,781
|
|
2020
|
|
|
|
|
12,339
|
|
2021
|
|
|
|
|
8,997
|
|
2022
|
|
|
|
|
7,695
|
|
2023
|
|
|
|
|
6,489
|
|
Thereafter
|
|
|
|
|
12,461
|
|
Total lease payments
|
|
|
|
|
51,762
|
|
Less: Imputed interest
|
|
|
|
|
7,468
|
|
Total
|
|
|
|
$
|
44,294
|
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 4, Contract Assets and Liabilities. In addition, the Company is contingently liable for litigation, performance guarantees and other commitments arising in the ordinary course of business, which are accounted for in accordance with ASC 450, Contingencies. Management reviews these matters regularly and updates or revises its estimates from time to time as warranted by subsequent information and developments. These assessments require judgments concerning matters that are inherently uncertain, such as litigation developments and outcomes, the anticipated outcome of negotiations and the estimated cost of resolving disputes. Consequently, these assessments are estimates, and actual amounts may vary from such 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. Management believes that, based on current information and discussions with the Company’s legal counsel, the ultimate resolution of these matters is not expected to have a material effect on the Company’s consolidated financial position.
Long Island Expressway/Cross Island Parkway Matter
The Company reconstructed the Long Island Expressway/Cross Island Parkway Interchange (“LIE Project”) for the New York State Department of Transportation (“NYSDOT”). The $130 million project was substantially completed in January 2004 and was accepted by NYSDOT as complete in February 2006. The Company incurred significant added costs in completing its work and suffered extended schedule costs due to numerous design errors, undisclosed utility conflicts, lack of coordination with local agencies and other interferences for which the Company believes NYSDOT is responsible.
In March 2011, the Company opened a case with the New York State Court of Claims against NYSDOT related to the LIE Project. In May 2011, NYSDOT filed a motion to dismiss the Company’s claim on the grounds that the Company had not provided required documentation for project closeout and filing of a claim. In September 2011, the Company reached agreement on final payment with the Comptroller’s Office on behalf of NYSDOT, which resulted in an amount of $0.5 million payable to the Company and formally closed out the project allowing the Company to re-file its claim. In March 2012, the Company filed its formal Verified Claim seeking $50.7 million in damages. In May 2012, NYSDOT served its answer and asserted counterclaims in the amount of $151 million alleging fraud in the inducement and punitive damages related to alleged violations of the disadvantaged business enterprise (“DBE”) requirements for the project. The Court subsequently ruled that NYSDOT’s counterclaims may only be asserted as a defense and offset to the Company’s claims and not as affirmative claims. In November 2014, the Appellate Division First Department affirmed the dismissal of NYSDOT’s affirmative counterclaims. 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.
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.
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, 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 has not accepted that finding.
The TBM was insured under a Builder’s Risk Insurance Policy (the “Policy”) with Great Lakes Reinsurance (UK) PLC and a consortium of other insurers (the “Insurers”). STP submitted the claims to the Insurers and requested interim payments under the Policy. The Insurers refused to pay and denied coverage. In June 2015, STP filed a lawsuit in the King County Superior Court, State of Washington 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. 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 of 2020. STP submitted damages to the Insurers in the King County lawsuit in the amount of $532 million. STP is also seeking 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 for breach of contract alleging STP’s delays and failure to perform, seeking $57.2 million in damages and seeking declaratory relief concerning contract interpretation. STP filed its answer to WSDOT’s complaint and filed a counterclaim against WSDOT and Hitachi, as the TBM designer, seeking damages of $667 million. On October 3, 2019, STP and Hitachi entered into a settlement agreement which caused the release and dismissal of claims that STP and Hitachi had against each other. The trial between STP and WSDOT commenced on October 7, 2019.
As of September 30, 2019, the Company has concluded that the potential for a material adverse financial impact due to the Insurers’ denial of coverage and WSDOT’s legal actions is neither probable nor remote, and the potential loss or range of loss is not reasonably estimable. With respect to STP’s direct and indirect claims against the Insurers, WSDOT and Hitachi, management has included an estimate of the total anticipated recovery, concluded to be both probable and reliably estimable, in receivables or costs and estimated earnings in excess of billings recorded to date. To the extent new facts become known or the final recoveries vary from the estimate, the impact of the change will be reflected in the financial statements at that time.
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 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. 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.
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. That lawsuit is proceeding in the discovery phase, and is not stayed by the Developer’s bankruptcy filing.
As of September 30, 2019, 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, 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, there were 1,368,243 shares of common stock available for grant under the Tutor Perini Corporation Omnibus Incentive Plan. During the first nine months of 2019 and 2018, the Company issued the following share-based instruments: (1) restricted stock units totaling 400,000 and 614,000 with weighted-average fair values per share of $20.90 and $25.19, respectively; (2) stock options totaling 135,000 and 579,000 with weighted-average fair values per share of $6.84 and $11.45, respectively, and weighted-average per share exercise prices of $20.94 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, 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 nine months of 2019 was determined using the Black-Scholes model based on the following weighted-average assumptions: (i) expected life of 5.8 years, (ii) expected volatility of 38.17%, (iii) risk-free rate of 2.31%, and (iv) no quarterly dividends. For certain performance-based awards containing market condition components, the fair value on the grant date is determined using a Monte Carlo simulation model.
For the three and nine months ended September 30, 2019, the Company recognized, as part of general and administrative expenses, costs for share-based payment arrangements totaling $4.3 million and $14.3 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, the balance of unamortized share-based compensation expense was $22.8 million, which is expected to be recognized over a weighted-average period of 2.1 years.
(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, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
(in thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Interest cost
|
$
|
948
|
|
$
|
883
|
|
$
|
2,844
|
|
$
|
2,649
|
|
Expected return on plan assets
|
|
(1,043)
|
|
|
(1,077)
|
|
|
(3,129)
|
|
|
(3,231)
|
|
Amortization of net loss
|
|
463
|
|
|
513
|
|
|
1,389
|
|
|
1,539
|
|
Other
|
|
225
|
|
|
213
|
|
|
675
|
|
|
639
|
|
Net periodic benefit cost
|
$
|
593
|
|
$
|
532
|
|
$
|
1,779
|
|
$
|
1,596
|
The Company contributed $3.3 million and $2.1 million to its defined benefit pension plan during each of the nine-month periods ended September 30, 2019 and 2018, respectively, and expects to contribute an additional $1.3 million by the end of 2019.
(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, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2019
|
|
As of December 31, 2018
|
|
|
|
Fair Value Hierarchy
|
|
|
|
|
Fair Value Hierarchy
|
|
|
|
|
(in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Cash and cash equivalents(a)
|
|
$
|
207,130
|
|
$
|
—
|
|
$
|
—
|
|
$
|
207,130
|
|
$
|
116,075
|
|
$
|
—
|
|
$
|
—
|
|
$
|
116,075
|
|
Restricted cash(a)
|
|
|
6,261
|
|
|
—
|
|
|
—
|
|
|
6,261
|
|
|
3,788
|
|
|
—
|
|
|
—
|
|
|
3,788
|
|
Restricted investments(b)
|
|
|
—
|
|
|
67,728
|
|
|
—
|
|
|
67,728
|
|
|
—
|
|
|
58,142
|
|
|
—
|
|
|
58,142
|
|
Investments in lieu of retainage(c)
|
|
|
78,492
|
|
|
1,229
|
|
|
—
|
|
|
79,721
|
|
|
62,858
|
|
|
1,190
|
|
|
—
|
|
|
64,048
|
|
Total
|
|
$
|
291,883
|
|
$
|
68,957
|
|
$
|
—
|
|
$
|
360,840
|
|
$
|
182,721
|
|
$
|
59,332
|
|
$
|
—
|
|
$
|
242,053
|
____________________________________________________________________________________________________
(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, consist of investments in corporate debt securities of $37.0 million and U.S. government agency securities of $30.7 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, restricted investments consisted of investments in corporate debt securities of $30.4 million and U.S. government agency securities of $27.7 million. The amortized cost of these available-for-sale securities at September 30, 2019 and December 31, 2018 was not materially different from the fair value.
(c)Investments in lieu of retainage are included in retainage receivable and as of September 30, 2019 are comprised of money market funds of $78.5 million and municipal bonds of $1.2 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, investments in lieu of retainage consisted of money market funds of $62.9 million and municipal bonds of $1.2 million. The amortized cost of these available-for-sale securities at September 30, 2019 and December 31, 2018 was not materially different from the fair value.
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 million and $466.8 million as of September 30, 2019 and December 31, 2018, respectively. The fair value of the Convertible Notes was $190.3 million and $184.4 million as of September 30, 2019 and December 31, 2018, respectively. The fair values of the 2017 Senior Notes and Convertible Notes were determined using Level 1 inputs, specifically current observable market prices. The reported value of the Company’s remaining borrowings approximates fair value as of September 30, 2019 and December 31, 2018.
(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.
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, the Company had unconsolidated VIE-related current assets and liabilities of $0.5 million and $0.4 million, respectively, included in the Company’s Condensed Consolidated Balance Sheet. As of December 31, 2018, the Company had unconsolidated VIE-related current assets and liabilities of $4.0 million and $3.8 million, respectively, included in the Company’s Condensed Consolidated Balance Sheet. The Company’s maximum exposure to loss as a result of its investments in unconsolidated VIEs is typically limited to the aggregate of the carrying value of the investment and future funding commitments. There were no future funding requirements for the unconsolidated VIEs as of September 30, 2019.
As of September 30, 2019, the Company’s Condensed Consolidated Balance Sheet included current and noncurrent assets of $372.6 million and $56.8 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 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 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Common
|
|
Paid-in
|
|
Retained
|
|
Comprehensive
|
|
Noncontrolling
|
|
Total
|
|
(in thousands)
|
Stock
|
|
Capital
|
|
Earnings
|
|
Loss
|
|
Interests
|
|
Equity
|
|
Balance - December 31, 2017
|
$
|
49,781
|
|
$
|
1,084,205
|
|
$
|
622,007
|
|
$
|
(42,718)
|
|
$
|
(8,495)
|
|
$
|
1,704,780
|
|
Cumulative effect of accounting change
|
|
—
|
|
|
—
|
|
|
(3,762)
|
|
|
—
|
|
|
(1,740)
|
|
|
(5,502)
|
|
Net income
|
|
—
|
|
|
—
|
|
|
34,031
|
|
|
—
|
|
|
8,359
|
|
|
42,390
|
|
Other comprehensive loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,475)
|
|
|
—
|
|
|
(1,475)
|
|
Share-based compensation
|
|
—
|
|
|
17,264
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17,264
|
|
Issuance of common stock, net
|
|
245
|
|
|
(2,830)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,585)
|
|
Contributions from noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,000
|
|
|
1,000
|
|
Distributions to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22,500)
|
|
|
(22,500)
|
|
Balance - September 30, 2018
|
$
|
50,026
|
|
$
|
1,098,639
|
|
$
|
652,276
|
|
$
|
(44,193)
|
|
$
|
(23,376)
|
|
$
|
1,733,372
|
(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) for the three and nine months ended September 30, 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Three 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
|
$
|
464
|
|
$
|
(133)
|
|
$
|
331
|
|
$
|
513
|
|
$
|
(148)
|
|
$
|
365
|
|
Foreign currency translation adjustments
|
|
(590)
|
|
|
140
|
|
|
(450)
|
|
|
519
|
|
|
(143)
|
|
|
376
|
|
Unrealized gain (loss) in fair value of investments
|
|
328
|
|
|
(72)
|
|
|
256
|
|
|
(173)
|
|
|
44
|
|
|
(129)
|
|
Total other comprehensive income (loss)
|
|
202
|
|
|
(65)
|
|
|
137
|
|
|
859
|
|
|
(247)
|
|
|
612
|
|
Less: Other comprehensive income attributable to noncontrolling interests(a)
|
|
(99)
|
|
|
—
|
|
|
(99)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total other comprehensive income (loss) attributable to Tutor Perini Corporation
|
$
|
301
|
|
$
|
(65)
|
|
$
|
236
|
|
$
|
859
|
|
$
|
(247)
|
|
$
|
612
|
____________________________________________________________________________________________________
(a)The only component of other comprehensive income attributable to noncontrolling interests is foreign currency translation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
The changes in AOCI balances by component (after tax) attributable to Tutor Perini Corporation during the three and nine months ended September 30, 2018 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
|
|
|
Defined
|
|
|
|
Unrealized
|
|
Accumulated
|
|
|
Benefit
|
|
Foreign
|
|
Gain (Loss) in
|
|
Other
|
|
|
Pension
|
|
Currency
|
|
Value of
|
|
Comprehensive
|
|
(in thousands)
|
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)
|
|
Amounts reclassified from AOCI
|
|
1,100
|
|
|
—
|
|
|
16
|
|
|
1,116
|
|
Total other comprehensive income (loss)
|
|
1,100
|
|
|
(1,432)
|
|
|
(1,143)
|
|
|
(1,475)
|
|
Balance as of September 30, 2018
|
$
|
(38,341)
|
|
$
|
(5,023)
|
|
$
|
(829)
|
|
$
|
(44,193)
|
(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 three segments: Civil, Building and Specialty Contractors. These segments are determined based on how the Company’s Chairman and Chief Executive Officer (chief operating decision maker) aggregates business units when evaluating performance and allocating resources.
The Civil segment specializes in public works construction and the replacement and reconstruction of infrastructure. The 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.
The following tables set forth certain reportable segment information relating to the Company’s operations for the three and nine months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty
|
|
|
|
|
|
|
|
Consolidated
|
|
(in thousands)
|
Civil
|
|
|
Building
|
|
Contractors
|
|
Total
|
|
Corporate
|
|
Total
|
|
Three Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
591,884
|
|
$
|
421,241
|
|
$
|
249,453
|
|
$
|
1,262,578
|
|
$
|
—
|
|
$
|
1,262,578
|
|
Elimination of intersegment revenue
|
|
(67,338)
|
|
|
(5,895)
|
|
|
—
|
|
|
(73,233)
|
|
|
—
|
|
|
(73,233)
|
|
Revenue from external customers
|
$
|
524,546
|
|
$
|
415,346
|
|
$
|
249,453
|
|
$
|
1,189,345
|
|
$
|
—
|
|
$
|
1,189,345
|
|
Income (loss) from construction operations
|
$
|
50,695
|
|
$
|
7,580
|
|
$
|
7,247
|
|
$
|
65,522
|
|
$
|
(17,579)
|
(a)
|
$
|
47,943
|
|
Capital expenditures
|
$
|
22,497
|
|
$
|
144
|
|
$
|
325
|
|
$
|
22,966
|
|
$
|
365
|
|
$
|
23,331
|
|
Depreciation and amortization(b)
|
$
|
11,953
|
|
$
|
495
|
|
$
|
1,018
|
|
$
|
13,466
|
|
$
|
2,761
|
|
$
|
16,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
479,581
|
|
$
|
457,304
|
|
$
|
236,157
|
|
$
|
1,173,042
|
|
$
|
—
|
|
$
|
1,173,042
|
|
Elimination of intersegment revenue
|
|
(48,093)
|
|
|
(1,812)
|
|
|
—
|
|
|
(49,905)
|
|
|
—
|
|
|
(49,905)
|
|
Revenue from external customers
|
$
|
431,488
|
|
$
|
455,492
|
|
$
|
236,157
|
|
$
|
1,123,137
|
|
$
|
—
|
|
$
|
1,123,137
|
|
Income (loss) from construction operations
|
$
|
41,282
|
|
$
|
8,853
|
|
$
|
11,561
|
|
$
|
61,696
|
|
$
|
(14,390)
|
(a)
|
$
|
47,306
|
|
Capital expenditures
|
$
|
15,364
|
|
$
|
277
|
|
$
|
70
|
|
$
|
15,711
|
|
$
|
397
|
|
$
|
16,108
|
|
Depreciation and amortization(b)
|
$
|
8,031
|
|
$
|
488
|
|
$
|
1,081
|
|
$
|
9,600
|
|
$
|
2,817
|
|
$
|
12,417
|
____________________________________________________________________________________________________
(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.
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,
|
|
(in thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Income (loss) from construction operations
|
$
|
47,943
|
|
$
|
47,306
|
|
$
|
(270,861)
|
|
$
|
101,196
|
|
Other income, net
|
|
1,674
|
|
|
1,909
|
|
|
2,996
|
|
|
3,739
|
|
Interest expense
|
|
(17,305)
|
|
|
(16,411)
|
|
|
(51,252)
|
|
|
(47,474)
|
|
Income (loss) before income taxes
|
$
|
32,312
|
|
$
|
32,804
|
|
$
|
(319,117)
|
|
$
|
57,461
|
Total assets by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
|
(in thousands)
|
September 30, 2019
|
|
December 31, 2018
|
|
Civil
|
$
|
2,791,537
|
|
$
|
2,574,326
|
|
Building
|
|
965,917
|
|
|
913,746
|
|
Specialty Contractors
|
|
644,016
|
|
|
745,313
|
|
Corporate and other(a)
|
|
93,438
|
|
|
154,367
|
|
Total assets
|
$
|
4,494,908
|
|
$
|
4,387,752
|
____________________________________________________________________________________________________
(a)Consists principally of cash, equipment, tax-related assets and insurance-related assets, offset by the elimination of assets related to intersegment revenue.
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, 2019 and the results of our operations for the three and nine months ended September 30, 2019 and should be read in conjunction with other information, including the unaudited Condensed Consolidated Financial Statements and notes included in Part 1, Item 1, Financial Information, of this Quarterly Report on Form 10-Q, the audited consolidated financial statements and accompanying notes to our Annual Report on Form 10-K for the year ended December 31, 2018, and the information contained under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 and in our Quarterly Reports.
Forward-Looking Statements
This Quarterly Report on Form 10-Q, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results, which are intended to be covered by the safe harbor provision for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are statements that could be deemed forward-looking statements. Words such as “achieve,” “anticipate,” “assumes,” “believes,” “continue,” “could,” “estimate,” “expects,” “forecast,” “hope,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “would,” variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Although such statements are based on currently available financial and economic data as well as management’s estimates and expectations, forward-looking statements are inherently uncertain and involve risks and uncertainties that could cause our actual results to differ materially from what may be inferred from the forward-looking statements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors potentially contributing to such differences include, among others:
Revisions of estimates of contract risks, revenue or costs; the timing of new awards; or the pace of project execution may result in losses or lower than anticipated profit;
Unfavorable outcomes of existing or future litigation or dispute resolution proceedings against clients (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 impact of inclement weather conditions on projects;
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 infrastructure and other public projects;
Impairment of our goodwill or other indefinite-lived intangible assets;
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.
Executive Overview
Consolidated revenue for the three and nine months ended September 30, 2019 was $1.2 billion and $3.3 billion, respectively, compared to $1.1 billion and $3.3 billion for the same periods in 2018. The revenue growth for the third quarter of 2019 was primarily driven by increased project execution activities on certain mass-transit projects in California and Minnesota.
Income from construction operations for the third quarter of 2019 was $47.9 million and loss from construction operations 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-month 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, see 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 offset by net unfavorable adjustments on certain electrical and mechanical 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.
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 nine months then ended. The effective tax rates were 17.3% and 11.0% for the three and nine months ended September 30, 2019, compared to effective tax rates of 22.5% and 26.2%, respectively, for the comparable periods 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%. See Corporate, Tax and Other Matters below for a discussion of the changes in the effective tax rates.
Diluted earnings per share for the three months ended September 30, 2019 was $0.38 and 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, 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. The reduction in adjusted earnings per share for both periods in 2019 was primarily due to higher income attributable to noncontrolling interests compared to the same periods in 2018.
Consolidated new awards for the three and nine months ended September 30, 2019 totaled $0.7 billion and $4.9 billion, respectively, compared to $0.9 billion and $4.5 billion for the same periods in 2018. The Civil segment was the largest contributor to the new award activity in the third quarter of 2019, whereas the new awards in the Civil and Building segments were most prominent during the nine months ended September 30, 2019.
Consolidated backlog as of September 30, 2019 was $10.9 billion, an increase of 17% compared to $9.3 billion at December 31, 2018 and up 28% compared to $8.5 billion at September 30, 2018. The backlog growth was attributable to a large 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, the mix of backlog by segment was approximately 55% for Civil, 24% for Building and 21% for Specialty Contractors.
The following table presents the Company’s backlog by business segment, reflecting changes from December 31, 2018 to September 30, 2019:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog at
|
|
New
|
|
Revenue
|
|
Backlog at
|
|
(in millions)
|
December 31, 2018
|
|
Awards(a)
|
|
Recognized
|
|
September 30, 2019(b)
|
|
Civil
|
$
|
5,141.9
|
|
$
|
2,139.4
|
|
$
|
(1,331.7)
|
|
$
|
5,949.6
|
|
Building
|
|
2,333.1
|
|
|
1,596.4
|
|
|
(1,277.1)
|
|
|
2,652.4
|
|
Specialty Contractors
|
|
1,821.7
|
|
|
1,116.5
|
|
|
(664.3)
|
|
|
2,273.9
|
|
Total
|
$
|
9,296.7
|
|
$
|
4,852.3
|
|
$
|
(3,273.1)
|
|
$
|
10,875.9
|
____________________________________________________________________________________________________
(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).
The outlook for the Company’s growth over the next several years remains favorable, particularly in the Civil and Specialty Contractors segments, although the pace of growth could continue to be impacted by project delays or the timing of project commencements, ramp-up activities and completions. 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, 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. 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 as the Purple Line Extension projects in Los Angeles. Finally, while interest rates are up modestly from their historically low levels, they remain conducive to continued customer spending.
For a more detailed discussion of operating performance of each business segment, corporate general and administrative expense and other items, see Results of Segment Operations, Corporate, Tax and Other Matters and Liquidity and Capital Resources below.
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.
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|
|
|
|
|
|
|
|
|
|
Reconciliation of Non-GAAP Financial Measures
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|
|
|
|
|
|
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:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
Revenue for the three and nine months ended September 30, 2019 increased 22% and 21%, respectively, compared to the same periods in 2018. The growth for both periods was principally driven by increased project execution activities on certain mass-transit projects in California 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.
Income from construction operations for the three and nine months ended September 30, 2019 increased 23% and decreased 177%, respectively, compared to the same periods in 2018. The decrease for the nine-month period was attributable to the goodwill impairment charge recorded in the second quarter 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 the prior year mentioned above in the Executive Overview and an immaterial favorable adjustment on a highway project in New York, also in the prior year.
Operating margin was 9.7% and (5.4)% and adjusted operating margin was 9.7% and 10.4% for the three and nine months ended September 30, 2019, respectively, compared to 9.6% and 8.5% for the same periods in 2018. The reduction in operating margin for the nine-month period 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 changes in revenue and adjusted income from construction operations.
New awards in the Civil segment totaled $293 million and $2.1 billion for the three and nine months ended September 30, 2019 compared to $346 million and $1.6 billion, respectively, for the same periods in 2018. The Civil segment’s new awards in the third quarter of 2019 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 of the $1.4 billion Purple Line Section 3 Stations project in California. The segment continues to experience strong demand reflected in a large, pipeline of prospective projects that are supported by substantial 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:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
Revenue for the three and nine months ended September 30, 2019 decreased 9% and 8%, respectively, compared to the same periods in 2018. The decrease for both periods was primarily due to a reduction in project execution activities on health care projects in California and hospitality and gaming projects in various states. For the third quarter of 2019, the decrease was partially offset by increased activity on technology projects in California.
Income from construction operations for the three and nine months ended September 30, 2019 decreased 15% and 75%, respectively, compared to the same periods in 2018. The decrease for the nine-month period was primarily due to the goodwill impairment charge recorded in the second quarter of 2019. Adjusted income from construction operations for the three 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 favorable project closeout adjustments, offset by increased project contributions from other projects, including Newark Airport Terminal One, in the current year.
Operating margin was 1.8% and 0.5% and adjusted operating margin was 1.8% and 1.6% for the three and nine months ended September 30, 2019, respectively, compared to 1.9% and 2.0% 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 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 Building segment totaled $199 million and $1.6 billion for the three and nine months ended September 30, 2019, respectively, compared to $493 million and $1.8 billion for the same periods in 2018. New awards in the third quarter of 2019 included $59 million of incremental funding for an education building in California and a cultural arts facility, also in California, valued at $51 million.
Backlog for the Building segment was $2.7 billion as of September 30, 2019, up 25% compared to $2.1 billion as of September 30, 2018. The increase was driven by 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. The Building segment continues to have a large volume of prospective projects, some of which have already been bid and are expected to be selected and awarded by customers in 2019. Strong demand is expected to continue due to ongoing customer spending supported by a favorable economic environment and low interest rates.
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
|
Revenue for the third quarter of 2019 increased 6% compared to the third quarter of 2018. Revenue for the nine months ended September 30, 2019 decreased 15% compared to the same period in 2018 primarily due to reduced project execution activities on 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 third quarter of 2019 was $7.2 million and loss from construction operations for the nine months ended September 30, 2019 was $160.0 million compared to income from construction operations of $11.6 million and $26.3 million for the three and nine months ended September 30, 2018, respectively. For the nine-month period, the decrease was primarily due to the goodwill impairment charge recorded in the second quarter 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 immaterial 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, 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 and nine months ended September 30, 2019, respectively, compared to 4.9% and 3.4% for the same periods in 2018. For 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 changes in revenue and adjusted income (loss) from construction operations.
New awards in the Specialty Contractors segment totaled $199 million and $1.1 billion for the three and nine months ended September 30, 2019 compared to $110 million and $1.1 billion, respectively, for the same periods 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.
Backlog for the Specialty Contractors segment was $2.3 billion as of September 30, 2019, up 31% compared to $1.7 billion as of September 30, 2018, 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 with demand increasing because of strong public and private sector spending on civil and building projects. The Specialty Contractors segment is increasingly focused on servicing the Company’s growing backlog of large Civil and Building segment projects, but remains well-positioned to capture its share of new projects for external 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 million during the three and nine months ended September 30, 2019, respectively, compared to $15.0 million and $46.9 million during the three and nine months ended September 30, 2018, respectively. The increase in the three months ended September 30, 2019 was primarily due to higher professional fees.
Other Income, Net, Interest Expense and Income Tax (Expense) Benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
(in millions)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Other income, net
|
|
$
|
1.7
|
|
$
|
1.9
|
|
$
|
3.0
|
|
$
|
3.7
|
|
Interest expense
|
|
|
(17.3)
|
|
|
(16.4)
|
|
|
(51.3)
|
|
|
(47.5)
|
|
Income tax (expense) benefit
|
|
|
(5.6)
|
|
|
(7.4)
|
|
|
35.1
|
|
|
(15.1)
|
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, 2019 was 17.3% and 11.0%, respectively, compared to 22.5% and 26.2% for the same periods in 2018. The lower rate for 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 is primarily due to the favorable impact of tax return-to-provision adjustments, a smaller unfavorable impact of share-based compensation related changes and higher earnings attributable to noncontrolling interests 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. 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 million and available cash balances, will be sufficient to fund any working capital needs for the next 12 months.
Cash and Working Capital
Cash and cash equivalents were $207.1 million as of September 30, 2019 compared to $116.1 million as of December 31, 2018. Cash immediately available for general corporate purposes was $49.2 million and $51.7 million as of September 30, 2019 and December 31, 2018, respectively, with the remainder being our proportionate share of cash held by our unconsolidated joint ventures and also amounts held by our consolidated joint ventures. 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 million as of September 30, 2019 compared to $61.9 million as of December 31, 2018.
During the nine 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, net cash used in operating activities was $34.8 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.
The change resulting from the comparison of cash provided by operating activities for the nine months ended September 30, 2019 with the cash flow for the comparable period in 2018 is an increase in cash provided of $146.1 million in the 2019 period. The improvement in the 2019 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 vendors and subcontractors, along with a smaller increase in CIE and a larger increase in BIE. These current year improvements were partially offset by larger increases for accounts receivable and retainage receivable in 2019.
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 was $17.3 million, which was primarily due to 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.
At September 30, 2019, we had working capital of $1.7 billion, a ratio of current assets to current liabilities of 1.88 and a ratio of debt to equity of 0.56, compared to working capital of $1.6 billion, a ratio of current assets to current liabilities of 1.99 and a ratio of debt to equity of 0.43 at December 31, 2018.
Debt
Summarized below are the key terms of the 2017 Credit Facility as of September 30, 2019. For additional information regarding our outstanding debt, refer to Note 9 of the Notes to Condensed Consolidated Financial Statements.
2017 Credit Facility
On April 20, 2017, we entered into a credit agreement (the “2017 Credit Facility”) with SunTrust Bank as Administrative Agent, Swing Line Lender and L/C Issuer and a syndicate of other lenders. The 2017 Credit Facility provides for a $350 million revolving credit facility (the “2017 Revolver”) and a sublimit for the issuance of letters of credit and swingline loans up to the aggregate amount of $150 million and $10 million, respectively, both maturing on April 20, 2022 unless any of the Convertible Notes are outstanding on December 17, 2020, in which case all such borrowings will mature on December 17, 2020 (subject to certain further exceptions). In addition, the 2017 Credit Facility permits additional borrowings in an aggregate amount of $150 million, which can be in the form of increased capacity on the 2017 Revolver or the establishment of one or more term loans. On May 7, 2019, certain provisions of the 2017 Credit Facility were amended, including, among other things, setting the maximum leverage ratio at 3.50:1.00 for the remainder of its term, thus eliminating the step down from 3.50:1.00 to 3.25:1.00. For additional information regarding the terms of our 2017 Credit Facility, refer to Note 9 of the Notes to Condensed Consolidated Financial Statements.
The table below presents our actual and required consolidated fixed charge coverage ratio and consolidated leverage ratio under the 2017 Credit Facility for the period, which are calculated on a rolling four-quarter basis:
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Twelve Months Ended September 30, 2019
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Actual
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Required
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Fixed charge coverage ratio
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3.45 to 1.00
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> or = 1.25 : 1.00
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Leverage ratio
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2.64 to 1.00
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< or = 3.50 : 1.00
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As of September 30, 2019, we were in compliance and expect to continue to be in compliance with the covenants under the 2017 Credit Facility.
Contractual Obligations
There have been no material changes in our contractual obligations from those described in our Annual Report on Form 10-K for the year ended December 31, 2018.
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. 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. 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.
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, 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 changes to our risk factors as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.
Item 4. Mine Safety Disclosures
Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires domestic mine operators to disclose violations and orders issued under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”) by the federal Mine Safety and Health Administration. We do not act as the owner of any mines but we may act as a mining operator as defined under the Mine Act where we may be an independent contractor performing services or construction of such mine.
Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Act and Item 104 Regulation S-K is included in Exhibit 95.
Item 5. Other Information
None.
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.
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Tutor Perini Corporation
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Dated: November 6, 2019
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By:
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/s/ Gary G. Smalley
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Gary G. Smalley
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Executive Vice President and Chief Financial Officer
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