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TUTOR PERINI CORP - Quarter Report: 2020 June (Form 10-Q)

tpc-20200630x10q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number: 1-6314

Tutor Perini Corporation

(Exact Name of Registrant as Specified in its Charter)

MASSACHUSETTS

04-1717070

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer Identification No.)

15901 OLDEN STREET, SYLMAR, CALIFORNIA

91342-1093

(Address of Principal Executive Offices)

(Zip Code)

(818) 362-8391

(Registrant’s Telephone Number, Including Area Code)

None

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $1.00 par value

TPC

The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

The number of shares of common stock, $1.00 par value per share, of the registrant outstanding at July 22, 2020 was 50,771,288.


TUTOR PERINI CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

Page Numbers

Part I.

Financial Information:

Item 1.

Financial Statements:

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)

3

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)

4

Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 (Unaudited)

5

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (Unaudited)

6

Notes to Condensed Consolidated Financial Statements (Unaudited)

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

31

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

40

Item 4.

Controls and Procedures

40

Part II.

Other Information:

Item 1.

Legal Proceedings

40

Item 1A.

Risk Factors

41

Item 4.

Mine Safety Disclosures

42

Item 5.

Other Information

42

Item 6.

Exhibits

42

Signature

43

 

2


PART I. – FINANCIAL INFORMATION

Item 1. Financial Statements

TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

Three Months Ended

Six Months Ended

June 30,

June 30,

(in thousands, except per common share amounts)

2020

2019

2020

2019

REVENUE

$

1,276,427

$

1,125,275

$

2,527,156

$

2,083,762

COST OF OPERATIONS

(1,158,673)

(1,024,332)

(2,298,322)

(1,894,349)

GROSS PROFIT

117,754

100,943

228,834

189,413

General and administrative expenses

(60,058)

(62,797)

(123,911)

(128,354)

Goodwill impairment

(379,863)

(379,863)

INCOME (LOSS) FROM CONSTRUCTION OPERATIONS

57,696

(341,717)

104,923

(318,804)

Other income (expense)

(797)

900

(316)

1,322

Interest expense

(16,464)

(17,522)

(32,900)

(33,947)

INCOME (LOSS) BEFORE INCOME TAXES

40,435

(358,339)

71,707

(351,429)

Income tax (expense) benefit

(9,576)

42,900

(14,710)

40,712

NET INCOME (LOSS)

30,859

(315,439)

56,997

(310,717)

LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

12,150

5,091

20,917

10,169

NET INCOME (LOSS) ATTRIBUTABLE TO TUTOR PERINI CORPORATION

$

18,709

$

(320,530)

$

36,080

$

(320,886)

BASIC EARNINGS (LOSS) PER COMMON SHARE

$

0.37

$

(6.38)

$

0.71

$

(6.40)

DILUTED EARNINGS (LOSS) PER COMMON SHARE

$

0.37

$

(6.38)

$

0.71

$

(6.40)

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING:

BASIC

50,667

50,224

50,502

50,161

DILUTED

50,935

50,224

50,885

50,161

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

3


TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

UNAUDITED

Three Months Ended

Six Months Ended

June 30,

June 30,

(in thousands)

2020

2019

2020

2019

NET INCOME (LOSS)

$

30,859

$

(315,439)

$

56,997

$

(310,717)

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

Defined benefit pension plan adjustments

424

331

847

661

Foreign currency translation adjustments

1,655

810

(2,358)

1,158

Unrealized gain in fair value of investments

1,306

686

1,848

1,359

TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

3,385

1,827

337

3,178

COMPREHENSIVE INCOME (LOSS)

34,244

(313,612)

57,334

(307,539)

LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

13,004

5,248

19,751

10,428

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO TUTOR PERINI CORPORATION

$

21,240

$

(318,860)

$

37,583

$

(317,967)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

 

4


TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

UNAUDITED

As of June 30,

As of December 31,

(in thousands, except share and per share amounts)

2020

2019

ASSETS

CURRENT ASSETS:

Cash and cash equivalents ($92,056 and $103,850 related to variable interest entities ("VIEs"))

$

182,599

$

193,685

Restricted cash

8,892

8,416

Restricted investments

75,382

70,974

Accounts receivable ($129,081 and $91,090 related to VIEs)

1,586,560

1,354,519

Retainage receivable ($98,304 and $89,132 related to VIEs)

581,495

562,375

Costs and estimated earnings in excess of billings ($26,392 and $22,764 related to VIEs)

1,149,103

1,123,544

Other current assets ($55,286 and $58,128 related to VIEs)

222,392

197,473

Total current assets

3,806,423

3,510,986

PROPERTY AND EQUIPMENT ("P&E"), net of accumulated depreciation of $417,575 and $388,147 (net P&E of $34,669 and $49,919 related to VIEs)

504,722

509,685

GOODWILL

205,143

205,143

INTANGIBLE ASSETS, NET

140,674

155,270

OTHER ASSETS

106,641

104,693

TOTAL ASSETS

$

4,763,603

$

4,485,777

LIABILITIES AND EQUITY

CURRENT LIABILITIES:

Current maturities of long-term debt, net of unamortized discount and debt issuance costs totaling $11,911 and $0

$

320,790

$

124,054

Accounts payable ($110,676 and $93,848 related to VIEs)

770,515

682,699

Retainage payable ($19,589 and $13,967 related to VIEs)

278,045

252,181

Billings in excess of costs and estimated earnings ($434,608 and $422,847 related to VIEs)

962,446

844,389

Accrued expenses and other current liabilities ($16,212 and $25,402 related to VIEs)

209,576

206,533

Total current liabilities

2,541,372

2,109,856

LONG-TERM DEBT, less current maturities, net of unamortized discount and debt issuance costs totaling $5,190 and $23,343

515,629

710,422

DEFERRED INCOME TAXES

41,329

35,686

OTHER LONG-TERM LIABILITIES

201,132

199,288

TOTAL LIABILITIES

3,299,462

3,055,252

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 50,771,288 and 50,278,816 shares

50,771

50,279

Additional paid-in capital

1,124,672

1,117,972

Retained earnings

350,071

313,991

Accumulated other comprehensive loss

(40,597)

(42,100)

Total stockholders' equity

1,484,917

1,440,142

Noncontrolling interests

(20,776)

(9,617)

TOTAL EQUITY

1,464,141

1,430,525

TOTAL LIABILITIES AND EQUITY

$

4,763,603

$

4,485,777

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

5


TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

Six Months Ended June 30,

(in thousands)

2020

2019

Cash Flows from Operating Activities:

Net income (loss)

$

56,997

$

(310,717)

Adjustments to reconcile net income (loss) to net cash provided by (used) in operating activities:

Goodwill impairment

379,863

Depreciation

34,180

26,543

Amortization of intangible assets

14,596

1,771

Share-based compensation expense

8,264

10,078

Change in debt discount and deferred debt issuance costs

7,046

6,442

Deferred income taxes

5,423

(50,321)

Loss (gain) on sale of property and equipment

31

(1,479)

Changes in other components of working capital

(68,471)

(177,471)

Other long-term liabilities

1,295

3,209

Other, net

(1,131)

596

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

58,230

(111,486)

Cash Flows from Investing Activities:

Acquisition of property and equipment

(31,386)

(39,346)

Proceeds from sale of property and equipment

1,082

3,629

Investment in securities

(13,319)

(13,660)

Proceeds from maturities and sales of investments in securities

10,985

8,131

NET CASH USED IN INVESTING ACTIVITIES

(32,638)

(41,246)

Cash Flows from Financing Activities:

Proceeds from debt

752,843

716,139

Repayment of debt

(757,141)

(527,159)

Cash payments related to share-based compensation

(994)

(2,363)

Distributions paid to noncontrolling interests

(30,910)

(4,000)

Contributions from noncontrolling interests

5,379

Debt modification costs

(504)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

(36,202)

187,492

Net increase (decrease) in cash, cash equivalents and restricted cash

(10,610)

34,760

Cash, cash equivalents and restricted cash at beginning of period

202,101

119,863

Cash, cash equivalents and restricted cash at end of period

$

191,491

$

154,623

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

6


Table of Contents

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

(1)     Basis of Presentation

The Condensed Consolidated Financial Statements do not include footnotes and certain financial information normally presented annually under generally accepted accounting principles in the United States (“GAAP”). Therefore, they should be read in conjunction with the audited consolidated financial statements and the related notes included in Tutor Perini Corporation’s (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2019. The results of operations for the three and six months ended June 30, 2020 may not be indicative of the results that will be achieved for the full year ending December 31, 2020.

In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, including those of a normal recurring nature, necessary to present fairly the Company’s consolidated financial position as of June 30, 2020 and its consolidated statements of operations and cash flows for the interim periods presented. Intercompany balances and transactions have been eliminated.

  

(2)     Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments, and issued subsequent amendments to the initial guidance within ASU 2019-04 and ASU 2019-05 (collectively, “ASU 2016-13”). The amendments in ASU 2016-13 replace the incurred loss impairment methodology with the current expected credit loss model, which requires consideration of a broader range of reasonable and supportable information to estimate credit losses. The Company adopted this ASU effective January 1, 2020. The adoption of ASU 2016-13 did not have a material impact on the Company’s financial position, results of operations or cash flows.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The amendments in ASU 2020-04 provide temporary optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships and other transactions to ease the potential accounting and financial reporting burden associated with transitioning away from reference rates that are expected to be discontinued, including the London Interbank Offered Rate (“LIBOR”). ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022. The adoption of the new standard has not had and is not expected to have a material impact on the Company’s financial position, results of operations or cash flows. 

The following new accounting pronouncement requires implementation in future periods.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”), modifying Accounting Standards Codification (“ASC”) 740, Income Taxes (“ASC 740”). The amendments in ASU 2019-12, among other things, remove certain exceptions to the general principles in ASC 740 and seek more consistent application by clarifying and amending the existing guidance. ASU 2019-12 is effective for interim and annual reporting periods beginning after December 15, 2020. The Company is currently evaluating the new standard, which is not expected to have a material impact on the Company’s financial position, results of operations or cash flows. 

  

7


Table of Contents

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

UNAUDITED

(3)     Revenue

Disaggregation of Revenue

The following tables disaggregate revenue by end market, customer type and contract type, which the Company believes best depict how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors for the three and six months ended June 30, 2020 and 2019.

Three Months Ended

Six Months Ended

June 30,

June 30,

(in thousands)

2020

2019

2020

2019

Civil segment revenue by end market:

Mass transit (includes transportation and tunneling projects)

$

354,809

$

243,620

$

651,952

$

389,870

Bridges

89,100

86,467

141,284

155,774

Highways

35,591

60,244

68,173

101,287

Military defense facilities

35,042

13,140

58,652

23,421

Water

29,548

4,658

53,292

14,326

Other

24,886

65,529

82,252

122,474

Total Civil segment revenue

$

568,976

$

473,658

$

1,055,605

$

807,152

Three Months Ended

Six Months Ended

June 30,

June 30,

(in thousands)

2020

2019

2020

2019

Building segment revenue by end market:

Commercial and industrial facilities

$

106,899

$

115,193

$

239,948

$

224,546

Hospitality and gaming

107,942

53,576

226,929

122,885

Municipal and government

79,223

68,580

148,725

130,542

Mass transit (includes transportation projects)

66,552

41,211

124,399

70,388

Education facilities

47,038

47,062

78,660

89,590

Health care facilities

32,418

60,796

68,307

141,023

Mixed use

13,101

9,316

23,073

24,591

Other

19,848

32,584

44,744

58,219

Total Building segment revenue

$

473,021

$

428,318

$

954,785

$

861,784

Three Months Ended

Six Months Ended

June 30,

June 30,

(in thousands)

2020

2019

2020

2019

Specialty Contractors segment revenue by end market:

Mass transit (includes transportation and tunneling projects)

$

118,634

$

100,016

$

267,305

$

181,411

Commercial and industrial facilities

20,499

43,618

74,004

87,641

Multi-unit residential

37,611

19,225

64,104

30,614

Education facilities

10,338

14,036

26,895

25,616

Mixed use

10,536

18,036

24,338

28,705

Health care facilities

4,283

9,248

6,805

20,899

Other

32,529

19,120

53,315

39,940

Total Specialty Contractors segment revenue

$

234,430

$

223,299

$

516,766

$

414,826

Three Months Ended June 30, 2020

Three Months Ended June 30, 2019

Specialty

Specialty

(in thousands)

Civil

Building

Contractors

Total

Civil

Building

Contractors

Total

Revenue by customer type:

State and local agencies

$

503,828

$

157,748

$

113,623

$

775,199

$

381,438

$

133,798

$

114,255

$

629,491

Federal agencies

42,590

34,648

11,292

88,530

26,979

44,396

2,761

74,136

Private owners

22,558

280,625

109,515

412,698

65,241

250,124

106,283

421,648

Total revenue

$

568,976

$

473,021

$

234,430

$

1,276,427

$

473,658

$

428,318

$

223,299

$

1,125,275

8


Table of Contents

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

UNAUDITED

Six Months Ended June 30, 2020

Six Months Ended June 30, 2019

Specialty

Specialty

(in thousands)

Civil

Building

Contractors

Total

Civil

Building

Contractors

Total

Revenue by customer type:

State and local agencies

$

899,873

$

303,764

$

246,496

$

1,450,133

$

638,545

$

278,484

$

211,326

$

1,128,355

Federal agencies

79,251

66,621

21,048

166,920

50,137

84,547

10,530

145,214

Private owners

76,481

584,400

249,222

910,103

118,470

498,753

192,970

810,193

Total revenue

$

1,055,605

$

954,785

$

516,766

$

2,527,156

$

807,152

$

861,784

$

414,826

$

2,083,762

Three Months Ended June 30, 2020

Three Months Ended June 30, 2019

Specialty

Specialty

(in thousands)

Civil

Building

Contractors

Total

Civil

Building

Contractors

Total

Revenue by contract type:

Fixed price

$

455,928

$

114,229

$

205,531

$

775,688

$

349,945

$

136,250

$

187,826

$

674,021

Guaranteed maximum price

281

248,738

4,038

253,057

1,644

185,050

7,315

194,009

Unit price

111,790

629

18,442

130,861

116,285

2,800

20,183

139,268

Cost plus fee and other

977

109,425

6,419

116,821

5,784

104,218

7,975

117,977

Total revenue

$

568,976

$

473,021

$

234,430

$

1,276,427

$

473,658

$

428,318

$

223,299

$

1,125,275

Six Months Ended June 30, 2020

Six Months Ended June 30, 2019

Specialty

Specialty

(in thousands)

Civil

Building

Contractors

Total

Civil

Building

Contractors

Total

Revenue by contract type:

Fixed price

$

864,899

$

219,827

$

454,047

$

1,538,773

$

592,811

$

250,609

$

343,090

$

1,186,510

Guaranteed maximum price

589

486,511

6,587

493,687

3,878

392,182

10,921

406,981

Unit price

183,148

1,163

39,593

223,904

201,163

8,028

39,186

248,377

Cost plus fee and other

6,969

247,284

16,539

270,792

9,300

210,965

21,629

241,894

Total revenue

$

1,055,605

$

954,785

$

516,766

$

2,527,156

$

807,152

$

861,784

$

414,826

$

2,083,762

Changes in Contract Estimates that Impact Revenue

Changes to the total estimated contract revenue or cost for a given project, either due to unexpected events or revisions to management’s initial estimates, are recognized in the period in which they are determined. Revenue was negatively impacted during the three- and six-month periods ended June 30, 2020 related to performance obligations satisfied (or partially satisfied) in prior periods by $19.8 million and $35.6 million, respectively. Likewise, revenue was negatively impacted during the three- and six-month periods ended June 30, 2019 related to performance obligations satisfied (or partially satisfied) in prior periods by $14.6 million and $27.7 million, respectively.

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 June 30, 2020, the aggregate amounts of the transaction prices allocated to the remaining performance obligations of the Company’s construction contracts were $5.1 billion, $1.7 billion and $2.2 billion for the Civil, Building and Specialty Contractors segments, respectively. As of June 30, 2019, the aggregate amounts of the transaction prices allocated to the remaining performance obligations of the Company’s construction contracts were $5.5 billion, $1.7 billion and $2.2 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.

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TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

UNAUDITED

Contract assets include amounts due under retainage provisions, costs and estimated earnings in excess of billings and capitalized contract costs. The amounts as included on the Condensed Consolidated Balance Sheets consisted of the following:

As of June 30,

As of December 31,

(in thousands)

2020

2019

Retainage receivable

$

581,495

$

562,375

Costs and estimated earnings in excess of billings:

Claims

729,170

705,993

Unapproved change orders

348,043

362,264

Other unbilled costs and profits

71,890

55,287

Total costs and estimated earnings in excess of billings

1,149,103

1,123,544

Capitalized contract costs

88,185

80,294

Total contract assets

$

1,818,783

$

1,766,213

Retainage receivable represents amounts invoiced to customers where payments have been partially withheld pending the completion of certain milestones, satisfaction of other contractual conditions or the completion of the project. Retainage agreements vary from project to project, and balances could be outstanding for several months or years depending on a number of circumstances such as contract-specific terms, project performance and other variables that may arise as the Company makes progress toward completion.

Costs and estimated earnings in excess of billings represent the excess of contract costs and profits (or contract revenue) over the amount of contract billings to date and are classified as a current asset. Costs and estimated earnings in excess of billings result when either: (1) the appropriate contract revenue amount has been recognized over time in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”), but a portion of the revenue recorded cannot be billed currently due to the billing terms defined in the contract, or (2) costs are incurred related to certain claims and unapproved change orders. Claims occur when there is a dispute regarding both a change in the scope of work and the price associated with that change. Unapproved change orders occur when a change in the scope of work results in additional work being performed before the parties have agreed on the corresponding change in the contract price. The Company routinely estimates recovery related to claims and unapproved change orders as a form of variable consideration at the most likely amount it expects to receive and to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Claims and unapproved change orders are billable upon the agreement and resolution between the contractual parties and after the execution of contractual amendments. Increases in claims and unapproved change orders typically result from costs being incurred against existing or new positions; decreases normally result from resolutions and subsequent billings. As discussed in Note 11, the resolution of these claims and unapproved change orders may require litigation or other forms of dispute resolution proceedings. Other unbilled costs and profits are billable in accordance with the billing terms of each of the existing contractual arrangements and, as such, the timing of contract billing cycles can cause fluctuations in the balance of unbilled costs and profits. Ultimate resolution of other unbilled costs and profits typically involves incremental progress toward contractual requirements or milestones.

Capitalized contract costs primarily represent costs to fulfill a contract that (1) directly relate to an existing or anticipated contract, (2) generate or enhance resources that will be used in satisfying performance obligations in the future and (3) are expected to be recovered through the contract, and are included in other current assets. Capitalized contract costs are generally expensed to the associated contract over the period of anticipated use on the project. During the three and six months ended June 30, 2020, $12.5 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 six months ended June 30, 2019, $8.6 million and $14.3 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 June 30,

As of December 31,

(in thousands)

2020

2019

Retainage payable

$

278,045

$

252,181

Billings in excess of costs and estimated earnings

962,446

844,389

Total contract liabilities

$

1,240,491

$

1,096,570

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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.

Billings in excess of costs and estimated earnings represent the excess of contract billings to date over the amount of contract costs and profits (or contract revenue) recognized to date. The balance may fluctuate depending on the timing of contract billings and the recognition of contract revenue. Revenue recognized during the three and six months ended June 30, 2020 and included in the opening billings in excess of costs and estimated earnings balances for each period totaled $470.8 million and $565.9 million, respectively. Revenue recognized during the three and six months ended June 30, 2019 and included in the opening billings in excess of costs and estimated earnings balances for each period totaled $289.4 million and $391.9 million, respectively.

  

(5)     Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the amounts shown in the Condensed Consolidated Statements of Cash Flows:

As of June 30,

As of December 31,

(in thousands)

2020

2019

Cash and cash equivalents available for general corporate purposes

$

57,651

$

43,760

Joint venture cash and cash equivalents

124,948

149,925

Cash and cash equivalents

182,599

193,685

Restricted cash

8,892

8,416

Total cash, cash equivalents and restricted cash

$

191,491

$

202,101

Cash equivalents include short-term, highly liquid investments with maturities of three months or less when acquired. Cash and cash equivalents consist of amounts available for the Company’s general purposes, the Company’s proportionate share of cash held by the Company’s unconsolidated joint ventures and 100% of amounts held by the Company’s consolidated joint ventures. In both cases, cash held by joint ventures is available only for joint venture-related uses, including future distributions to joint venture partners.

Amounts included in restricted cash are primarily held as collateral to secure insurance-related contingent obligations, such as insurance claim deductibles, in lieu of letters of credit.

  

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(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. In accordance with ASC 260, Earnings Per Share, 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. See Note 9 for further discussion of the Convertible Notes. The Company calculates the effect of the potentially dilutive restricted stock units and stock options using the treasury stock method.

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands, except per common share data)

2020

2019

2020

2019

Net income (loss) attributable to Tutor Perini Corporation

$

18,709

$

(320,530)

$

36,080

$

(320,886)

Weighted-average common shares outstanding, basic

50,667

50,224

50,502

50,161

Effect of dilutive restricted stock units and stock options

268

383

Weighted-average common shares outstanding, diluted

50,935

50,224

50,885

50,161

Net income (loss) attributable to Tutor Perini Corporation per common share:

Basic

$

0.37

$

(6.38)

$

0.71

$

(6.40)

Diluted

$

0.37

$

(6.38)

$

0.71

$

(6.40)

Anti-dilutive securities not included above

2,209

4,191

2,209

4,354

For the three and six months ended June 30, 2019, all outstanding restricted stock units and stock options were excluded from the calculation of weighted-average diluted shares outstanding due to the net loss for the period.

  

(7)     Income Taxes

The Company’s effective income tax rate was 23.7% and 20.5% for the three and six months ended June 30, 2020, respectively. The effective income tax rate for the six months ended June 30, 2020 primarily reflects the favorable impact of the 2019 net operating loss (“NOL”), which is allowed to be carried back up to five years as a result of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), enacted on March 27, 2020. Under the CARES Act, the Company’s NOL generated in 2019 may be carried back to tax years when the federal statutory tax rate was 35% rather than the current rate of 21%, consequently generating a larger tax benefit from the NOL due to the enactment of the CARES Act. The favorable impact resulting from the enactment of the CARES Act was partially offset by the unfavorable impact of the vesting of restricted stock units for which a large portion of the share-based compensation expense recognized in prior periods will not be deductible for income tax purposes. For the three and six months ended June 30, 2020, the effective income tax rates differed from the federal statutory rate also as a result of state income taxes, with the increases partially offset by earnings attributable to noncontrolling interests for which income taxes are not the responsibility of the Company.

For the three and six months ended June 30, 2019, the Company recognized income tax benefits of $42.9 million and $40.7 million, with effective income tax rates of 12.0% and 11.6%, respectively. The Company’s provisions for income taxes and effective tax rates for the three and six months ended June 30, 2019 were significantly impacted by the goodwill impairment charge of $379.9 million. Of the total goodwill impairment charge, approximately $209.5 million pertained to goodwill that was not tax deductible and yielded permanent differences between book income and taxable income. The Company recognized a tax benefit totaling $50.4 million as a result of the impairment charge. The adjusted effective income tax rates, which exclude the tax benefit resulting from the goodwill impairment charge, were 34.7% and 34.0% for the three and six months ended June 30, 2019, respectively, and primarily reflected 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. For the three and six months ended June 30, 2019, the adjusted effective income tax rates were higher

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than the federal statutory rate also as a result of state income taxes, with the increases partially offset by earnings attributable to noncontrolling interests for which income taxes are not the responsibility of the Company.

  

(8)      Goodwill and Intangible Assets

Goodwill

The following table presents the changes in the carrying amount of goodwill since its inception through June 30, 2020:

Specialty

(in thousands)

Civil

Building

Contractors

Total

Gross goodwill

$

492,074

$

424,724

$

156,193

$

1,072,991

Accumulated impairment

(286,931)

(424,724)

(156,193)

(867,848)

Balance as of December 31, 2019

205,143

205,143

Current year activity

Balance as of June 30, 2020

$

205,143

$

$

$

205,143

The Company tests the goodwill allocated to its reporting units for impairment annually on October 1, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company performed its annual impairment test in the fourth quarter of 2019 using a weighted-average of an income and a market approach. These approaches utilize various valuation assumptions, and small changes to the assumptions could have a significant impact on the concluded fair value. Based on this assessment, the Company concluded goodwill was not impaired since the estimated fair value of the Civil reporting unit exceeded its carrying value. In addition, the Company determined that no triggering events occurred and no circumstances changed since the date of our annual impairment test that would more likely than not reduce the fair value of the Civil reporting unit below its carrying amount.

During the first half of 2020, the novel coronavirus (“COVID-19”) pandemic, as well as the actions taken to contain and mitigate its public health effects, caused disruptions in domestic and global economies and financial markets. The vast majority of the Company’s projects, especially in its Civil reporting unit, have been designated as essential business, which allows the Company to continue its work on those projects. As such, the Civil reporting unit’s operations were not materially impacted during the three and six months ended June 30, 2020. However, due to the fluidity of the pandemic, uncertainties as to its scope and duration, and ongoing changes in the way that governments, businesses and individuals react and respond to the COVID-19 pandemic, the Company is unable at this time to accurately predict the pandemic’s future impact on the Company’s business, financial condition or performance. Among other things, governments could prohibit the continuation of certain projects that to date have been designated as “essential” or could impose health, safety and other operational requirements on such projects that could result in delays to or suspensions of such projects. In addition, employees and contractors working on such projects could be unable or unwilling to continue working on them, perhaps for extended periods. The COVID-19 pandemic also could negatively affect the ability of counterparties or joint venture partners to make required payments on a timely basis or at all.

The Company will continue to monitor events and circumstances for changes that indicate the Civil reporting unit goodwill would need to be reevaluated for impairment during future interim periods prior to the annual impairment test. These future events and circumstances include, but are not limited to, changes in the overall financial performance of the Civil reporting unit, impacts to our business as a result of the COVID-19 pandemic, as well as other quantitative and qualitative factors which could indicate potential triggering events for possible impairment.

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Intangible Assets

Intangible assets consist of the following:

As of June 30, 2020

Weighted

Accumulated

Average

Accumulated

Impairment

Carrying

Amortization

(in thousands)

Cost

Amortization

Charge

Value

Period

Trade names (non-amortizable)

$

117,600

$

$

(67,190)

$

50,410

Indefinite

Trade names (amortizable)

74,350

(22,511)

(23,232)

28,607

20 years

Contractor license

6,000

(6,000)

N/A

Customer relationships

39,800

(21,575)

(16,645)

1,580

12 years

Construction contract backlog

149,290

(89,213)

60,077

3 years

Total

$

387,040

$

(133,299)

$

(113,067)

$

140,674

As of December 31, 2019

Weighted

Accumulated

Average

Accumulated

Impairment

Carrying

Amortization

(in thousands)

Cost

Amortization

Charge

Value

Period

Trade names (non-amortizable)

$

117,600

$

$

(67,190)

$

50,410

Indefinite

Trade names (amortizable)

74,350

(21,267)

(23,232)

29,851

20 years

Contractor license

6,000

(6,000)

N/A

Customer relationships

39,800

(21,048)

(16,645)

2,107

12 years

Construction contract backlog

149,290

(76,388)

72,902

3 years

Total

$

387,040

$

(118,703)

$

(113,067)

$

155,270

Amortization expense for the three and six months ended June 30, 2020 was $8.8 million and $14.6 million, respectively. Amortization expense for the three and six months ended June 30, 2019 was $0.9 million and $1.8 million, respectively. As of June 30, 2020, amortization expense is estimated to be $19.5 million for the remainder of 2020, $26.4 million in 2021, $22.0 million in 2022 and $2.5 million per year for the years 2023 through 2025.

The Company performed an annual impairment assessment of its non-amortizable trade names in the fourth quarter of 2019 using a qualitative approach to determine whether conditions existed to indicate that it was more likely than not that the fair value of non-amortizable trade names is less than their carrying values. Based on this assessment, the Company concluded that it was more likely than not that the fair value of the non-amortizable trade names was greater than their carrying values, and therefore a quantitative analysis was not required. In addition, no triggering events occurred and no circumstances changed since the date of our annual impairment test that would indicate impairment of the Company’s non-amortizable trade names.

  

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(9)     Financial Commitments

Long-Term Debt

Long-term debt as reported on the Condensed Consolidated Balance Sheets consisted of the following:

As of June 30,

As of December 31,

(in thousands)

2020

2019

2017 Senior Notes

$

494,810

$

494,365

2017 Credit Facility

100,000

114,000

Convertible Notes

188,089

182,292

Equipment financing and mortgages

44,917

39,159

Other indebtedness

8,603

4,660

Total debt

836,419

834,476

Less: Current maturities

320,790

124,054

Long-term debt, net

$

515,629

$

710,422

The following table reconciles the outstanding debt balance to the reported debt balances as of June 30, 2020 and December 31, 2019:

As of June 30, 2020

As of December 31, 2019

(in thousands)

Outstanding Debt

Unamortized Discount and Issuance Costs

Debt,

as reported

Outstanding Debt

Unamortized Discount and Issuance Costs

Debt,

as reported

2017 Senior Notes

$

500,000

$

(5,190)

$

494,810

$

500,000

$

(5,635)

$

494,365

Convertible Notes

200,000

(11,911)

188,089

200,000

(17,708)

182,292

The unamortized issuance costs related to the 2017 Credit Facility were $2.9 million and $3.7 million as of June 30, 2020 and December 31, 2019, respectively, and are included in other assets in the Condensed Consolidated Balance Sheets.

2017 Senior Notes

On April 20, 2017, the Company issued $500 million in aggregate principal amount of 6.875% Senior Notes due 2025 (the “2017 Senior Notes”) in a private placement 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 could have redeemed the 2017 Senior Notes at a redemption price equal to 100% of their principal amount plus a “make-whole” premium described in the indenture. In addition, prior to May 1, 2020, the Company also could have redeemed up to 40% of the original aggregate principal amount of the notes at a redemption price of 106.875% of their principal amount with the proceeds received by the Company from any offering of the Company’s equity. Since 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, now known as Truist Bank, as Administrative Agent, Swing Line Lender and L/C Issuer and a syndicate of other lenders. The 2017 Credit Facility provides for a $350 million revolving credit facility (the “2017 Revolver”) and a sublimit for the issuance of letters of credit and swingline loans up to the aggregate amount of $150 million and $10 million, respectively, both maturing on April 20, 2022 unless any of the Convertible Notes, as defined below, are outstanding on December 17, 2020, in which case all such borrowings will mature on

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December 17, 2020 (the “spring-forward provision”), provided however (i) if the Convertible Notes are refinanced in full with the proceeds of permitted refinancing indebtedness in accordance with the terms of the 2017 Credit Facility, the maturity date for the 2017 Credit Facility will remain April 20, 2022 and (ii) if the Company issues “New Convertible Notes” (as defined in the 2017 Credit Facility) and retires the Convertible Notes in full, the maturity date for the 2017 Credit Facility will be the earlier of (x) April 20, 2022 or (y) 90 days prior to the maturity date for such New Convertible Notes. The 2017 Credit Facility also permits additional borrowings in an aggregate amount of $150 million, which can be in the form of increased capacity on the 2017 Revolver or the establishment of one or more term loans.

Borrowings under the 2017 Revolver bear interest, at the Company’s option, at a rate equal to (a) 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 2% per annum. The weighted-average annual interest rate on borrowings under the 2017 Revolver was approximately 3.66% during the six months ended June 30, 2020.

The 2017 Credit Facility contains customary covenants for credit facilities of this type, including maximum consolidated leverage ratios ranging from 4.00:1.00 to 3.25:1.00 over the life of the facility and a minimum consolidated fixed charge coverage ratio of 1.25:1.00. On May 7, 2019, certain provisions of the 2017 Credit Facility were amended, including setting the maximum leverage ratio at 3.50:1.00 for the remainder of its term, thus eliminating the step down from 3.50:1:00 to 3.25:1.00. Substantially all of the Company’s subsidiaries unconditionally guarantee the obligations of the Company under the 2017 Credit Facility; additionally, the obligations are secured by a lien on all personal property of the Company and its subsidiaries guaranteeing these obligations.

As of June 30, 2020, there was $250 million available under the 2017 Revolver, and the Company had not utilized the 2017 Credit Facility for letters of credit. The Company was in compliance with the financial covenants under the 2017 Credit Facility as of June 30, 2020.

As a result of the spring-forward provision mentioned above, the facility will mature on December 17, 2020 if the Convertible Notes remain outstanding at that time. The Company does not have call rights that allow it to unilaterally redeem the Convertible Notes. Due to the spring-forward provision in the 2017 Credit Facility, all borrowings under the facility are included in “Current maturities of long-term debt” on the Condensed Consolidated Balance Sheet as of June 30, 2020. The Company continues to evaluate options to address the spring-forward provision and refinancing or retirement of the outstanding Convertible Notes.

Convertible Notes

On June 15, 2016, the Company issued $200 million of 2.875% Convertible Senior Notes due June 15, 2021 (the “Convertible Notes”) in a private placement offering. The Convertible Notes are unsecured obligations of the Company and do not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by the Company. The Convertible Notes bear interest at a rate of 2.875% per year, payable in cash semi-annually in June and December, and are included in “Current maturities of long-term debt” on the Condensed Consolidated Balance Sheet as of June 30, 2020.

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

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UNAUDITED

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 June 30, 2020, the conversion provisions of the Convertible Notes have not been triggered.

Interest Expense

Interest expense as reported in the Condensed Consolidated Statements of Operations consisted of the following:

Three Months Ended

Six Months Ended

June 30,

June 30,

(in thousands)

2020

2019

2020

2019

Cash interest expense:

Interest on 2017 Senior Notes

$

8,593

$

8,594

$

17,187

$

17,187

Interest on 2017 Credit Facility

2,338

3,682

4,753

6,327

Interest on Convertible Notes

1,438

1,438

2,875

2,875

Other interest

535

541

1,039

1,116

Total cash interest expense

12,904

14,255

25,854

27,505

Non-cash interest expense:(a)

Amortization of discount and debt issuance costs on Convertible Notes

2,933

2,671

5,797

5,279

Amortization of debt issuance costs on 2017 Credit Facility

402

387

804

749

Amortization of debt issuance costs on 2017 Senior Notes

225

209

445

414

Total non-cash interest expense

3,560

3,267

7,046

6,442

Total interest expense

$

16,464

$

17,522

$

32,900

$

33,947

____________________________________________________________________________________________________

(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 six months ended June 30, 2020.

  

(10)     Leases

The Company leases certain office space, construction and office equipment, vehicles and temporary housing generally under non-cancelable operating leases. Leases with an initial term of one year or less are not recorded on the balance sheet, and the Company generally recognizes lease expense for these leases on a straight-line basis over the lease term. As of June 30, 2020, the Company’s operating leases have remaining lease terms ranging from less than one year to 10 years, some of which include options to renew the leases. The exercise of lease renewal options is generally at the Company’s sole discretion. The Company’s leases do not contain any material residual value guarantees or material restrictive covenants.

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The following table presents components of lease expense for the three and six months ended June 30, 2020 and 2019:

Three Months Ended

Six Months Ended

June 30,

June 30,

(in thousands)

2020

2019

2020

2019

Operating lease expense

$

3,661

$

3,921

$

7,428

$

7,702

Short-term lease expense(a)

23,056

16,486

40,321

33,057

26,717

20,407

47,749

40,759

Less: Sublease income

329

262

658

521

Total lease expense

$

26,388

$

20,145

$

47,091

$

40,238

____________________________________________________________________________________________________

(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 June 30,

As of December 31,

(dollars in thousands)

Balance Sheet Line Item

2020

2019

Assets

ROU assets

Other assets

$

38,909

$

40,156

Total lease assets

$

38,909

$

40,156

Liabilities

Current lease liabilities

Accrued expenses and other current liabilities

$

10,255

$

11,392

Long-term lease liabilities

Other long-term liabilities

31,869

31,900

Total lease liabilities

$

42,124

$

43,292

Weighted-average remaining lease term (in years)

5.0

5.0

Weighted-average discount rate

6.77%

5.96%

The following table presents supplemental cash flow information and non-cash activity related to operating leases:

Six Months Ended

June 30,

(in thousands)

2020

2019

Operating cash flow information:

Cash paid for amounts included in the measurement of lease liabilities

$

(7,386)

$

(7,622)

Non-cash activity:

ROU assets obtained in exchange for lease liabilities

$

4,923

$

6,040

The following table presents maturities of operating lease liabilities on an undiscounted basis as of June 30, 2020:

Year (in thousands)

Operating Leases

2020 (excluding the six months ended June 30, 2020)

$

7,039

2021

10,588

2022

9,294

2023

7,582

2024

5,701

Thereafter

10,053

Total lease payments

50,257

Less: Imputed interest

8,133

Total

$

42,124

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UNAUDITED

  

(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. 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 as warranted by subsequent information and developments. These assessments require judgments concerning matters that are inherently uncertain, such as litigation developments and outcomes, the anticipated outcome of negotiations and the estimated cost of resolving disputes. Consequently, these assessments are estimates, and actual amounts may vary from such estimates. In addition, because such matters are typically resolved over long periods of time, the Company’s assets and liabilities may change over time should the circumstances dictate. The description of the legal proceedings listed below include management’s assessment of those proceedings. Management believes that, based on current information and discussions with the Company’s legal counsel, the ultimate resolution of other matters is not expected to have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

A description of the material pending legal proceedings, other than ordinary routine litigation incidental to the business is as follows:

Five Star Electric Matter

In the third quarter of 2015, Five Star Electric Corp. (“Five Star”), a wholly owned subsidiary of the Company that was acquired in 2011, entered into a tolling agreement (which has since expired) related to an ongoing investigation being conducted by the United States Attorney’s Office for the Eastern District of New York (“USAO EDNY”). Five Star has been cooperating with the USAO EDNY since late June 2014, when it was first made aware of the investigation, and has provided information requested by the government related to its use of certain minority-owned, women-owned, small and disadvantaged business enterprises and certain of Five Star’s employee compensation, benefit and tax practices.

As of June 30, 2020, the Company cannot predict the ultimate outcome of the investigation and cannot reasonably estimate the potential loss or range of loss that Five Star or the Company may incur or the impact of the results of the investigation on Five Star or the Company.

Alaskan Way Viaduct Matter

In January 2011, Seattle Tunnel Partners (“STP”), a joint venture between Dragados USA, Inc. and the Company, entered into a design-build contract with the Washington State Department of Transportation (“WSDOT”) for the construction of a large-diameter bored tunnel in downtown Seattle, King County, Washington to replace the Alaskan Way Viaduct, also known as State Route 99. The Company has a 45% interest in STP.

The construction of the large-diameter bored tunnel required the use of a tunnel boring machine (“TBM”). In December 2013, the TBM struck a steel pipe, installed by WSDOT as a well casing for an exploratory well. The TBM was significantly damaged and was required to be repaired. STP has asserted that the steel pipe casing was a differing site condition that WSDOT failed to properly disclose. The Disputes Review Board mandated by the contract to hear disputes issued a decision finding the steel casing was a Type I (material) differing site condition. WSDOT did not accept 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, joined the case as a plaintiff for costs incurred to repair the damages to the TBM.

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UNAUDITED

In September 2018, rulings received on pre-trial motions effectively limited potential recovery under the Policy for STP, WSDOT and Hitachi. However, on December 19, 2018, the Court of Appeal granted the Company’s request for a discretionary appeal of those rulings. The appeal is expected to be heard in late 2020. STP submitted damages to the Insurers in the King County lawsuit in the amount of $532 million. STP also sought these damages from WSDOT related to the pipe-strike by the TBM in a related lawsuit in Thurston County (see following paragraph).

In March 2016, WSDOT filed a complaint against STP in Thurston County Superior Court alleging breach of contract, seeking $57.2 million in delay-related damages and seeking declaratory relief concerning contract interpretation. STP filed its answer to WSDOT’s complaint and filed a counterclaim against WSDOT and Hitachi, as the TBM designer, seeking damages of $667 million. On October 3, 2019, STP and Hitachi entered into a settlement agreement which released and dismissed the claims that STP and Hitachi had against each other. The jury trial between STP and WSDOT commenced on October 7, 2019 and concluded on December 13, 2019, with a jury verdict in favor of WSDOT awarding them $57.2 million in damages. Judgment was entered on January 10, 2020, and a notice of appeal was filed by STP on January 17, 2020. The appeal is expected to be heard in 2021.

The Company recorded the impact of the jury verdict during the fourth quarter of 2019, resulting in a pre-tax charge of $166.8 million. The charge includes a pre-tax accrual of $25.7 million (which is the Company’s 45% proportionate share of the $57.2 million in damages awarded by the jury to WSDOT). Payment of damages will only be made if the adverse verdict is upheld on appeal, as the payment is secured by a bond for the course of the appeal. Other than the possible future payment in cash of $25.7 million in damages, the charge is for non-cash write-downs primarily related to the costs and estimated earnings in excess of billings and receivables that the Company previously recorded to reflect its expected recovery in this case.

With respect to STP’s direct and indirect claims against the Insurers, management has included in receivables an estimate of the total anticipated recovery concluded to be probable.

George Washington Bridge Bus Station Matter

In August 2013, Tutor Perini Building Corporation (“TPBC”) entered into a contract with the George Washington Bridge Bus Station Development Venture, LLC (the “Developer”) to renovate the George Washington Bridge Bus Station, a mixed-use facility owned by the Port Authority of New York and New Jersey (the “Port Authority”) that serves as a transit facility and retail space. The $100 million project experienced significant design errors and associated delays, resulting in damages to TPBC and its subcontractors, including WDF and Five Star, wholly owned subsidiaries of the Company. The project reached substantial completion on May 16, 2017.

On February 26, 2015, the Developer filed a demand for arbitration, subsequently amended, seeking $30 million in alleged damages and declaratory relief that TPBC’s requests for additional compensation are invalid due to lack of notice. TPBC denied the Developer’s claims and filed a counterclaim in March 2018. TPBC seeks in excess of $113 million in the arbitration, which includes unpaid contract balance claims, the return of $29 million retained by the Developer in alleged damages, as well as extra work claims, pass-through claims and delay claims.

Hearings on the merits commenced on September 24, 2018 before the arbitration panel. On June 4, 2019, the arbitration panel, as confirmed by the U.S. District Court in the Southern District of New York, issued a writ of attachment for $23 million of the $29 million discussed above. On October 7, 2019, the Developer filed for bankruptcy protection in the Southern District of New York under Chapter 11 of the Bankruptcy Code. The filing for bankruptcy stayed the pending arbitration proceedings. TPBC appeared in the bankruptcy proceedings on October 8, 2019 and filed a Proof of Claim in the amount of $113 million on December 13, 2019.

On June 5, 2020, the Developer, secured lenders and the Port Authority announced that they had reached a settlement of their disputes. As part of the settlement, the Port Authority waived the enforcement of its right to seek a “cure” pursuant to its lease agreement with the Developer which requires construction costs be paid prior to any sale of the leasehold, the sole asset in the Developer’s bankruptcy estate to be distributed in this bankruptcy. On July 14, 2020, the bankruptcy court conducted a hearing to determine (1) whether to approve the settlement agreement between the Developer, secured lenders and the Port Authority; and (2) whether TPBC can assert third-party beneficiary rights to the lease agreement and require that prior to the sale of the leasehold, any outstanding costs owed to contractors for the cost of building the project must be paid pursuant to the lease agreement’s “cure” provisions. At this hearing, the bankruptcy court indicated that it will issue a formal order approving the settlement and denying TPBC’s third-party beneficiary rights under the lease agreement. TPBC plans to appeal the decision, once it is formally issued, to challenge the denial of its third-party beneficiary rights under the lease agreement’s “cure” provisions and to avoid being subordinate to the claims of the secured lenders in the bankruptcy proceedings.

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UNAUDITED

Separately, on July 2, 2018, TPBC filed a lawsuit against the Port Authority, as owner of the project, and STV Incorporated, as designer, seeking the same $113 million in damages pursuant to the lease agreement between the Port Authority and the Developer. On August 20, 2018, the Port Authority filed a motion to dismiss, which was denied by the court on July 1, 2019. The Port Authority appealed this decision on July 15, 2019, and the appeal is expected to be decided in 2021. On December 2, 2019, the Court of Appeal denied the Port Authority’s request to stay the trial court action pending the appeal. As a result, the lawsuit is proceeding against the Port Authority before the trial court. On January 13, 2020, the court dismissed STV Incorporated from the case.

On January 27, 2020, TPBC filed separate litigation in the U.S. District Court for the Southern District of New York in which TPBC asserted related claims against individual owners of the Developer for their wrongful conversion of project funds and against certain lenders that received interest payments from project funds and other amounts earmarked to pay the contractors. On June 1, 2020, the defendants filed motions to dismiss, and a decision remains pending from the court.

As of June 30, 2020, the Company has concluded that the potential for a material adverse financial impact due to the Developer’s claims is remote. With respect to TPBC’s claims against the Developer, its owners and the Port Authority, management has made an estimate of the total anticipated recovery on this project, and such estimate is included in revenue recorded to date.

  

(12)     Share-Based Compensation

As of June 30, 2020, there were 1,185,089 shares of common stock available for grant under the Tutor Perini Corporation Omnibus Incentive Plan. During the first six months of 2020 and 2019, the Company granted the following share-based instruments: (1) restricted stock units totaling 75,000 and 175,000 with weighted-average fair values per share of $13.93 and $20.41, respectively; (2) stock options totaling 75,000 and 85,000 with weighted-average fair values per share of $3.94 and $7.57, respectively, and weighted-average per share exercise prices of $25.70 and $25.62, respectively; and (3) unrestricted stock units totaling 194,177 and 98,591 with weighted-average fair values per share of $8.60 and $15.72, respectively. During the six months ended June 30, 2019, 750,000 stock options with a weighted-average per share exercise price of $20.33 expired.

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 six months of 2020 was determined using the Black-Scholes model based on the following weighted-average assumptions: (i) expected life of 6.0 years, (ii) expected volatility of 44.91%, (iii) risk-free rate of 1.56%, and (iv) no quarterly dividends. Certain performance-based awards contain market condition components and are valued on the date of grant using a Monte Carlo simulation model.

For the three and six months ended June 30, 2020, the Company recognized, as part of general and administrative expenses, costs for share-based payment arrangements totaling $3.8 million and $8.3 million, respectively, and $4.6 million and $10.1 million for the three and six months ended June 30, 2019, respectively. As of June 30, 2020, the balance of unamortized share-based compensation expense was $14.8 million, which is expected to be recognized over a weighted-average period of 1.7 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.

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UNAUDITED

The following table sets forth a summary of the net periodic benefit cost for the three and six months ended June 30, 2020 and 2019:

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

2020

2019

2020

2019

Interest cost

$

758

$

948

$

1,516

$

1,896

Expected return on plan assets

(1,006)

(1,043)

(2,012)

(2,086)

Amortization of net loss

592

463

1,184

926

Other

231

225

462

450

Net periodic benefit cost

$

575

$

593

$

1,150

$

1,186

The Company contributed $2.2 million and $2.0 million to its defined benefit pension plan during each of the six-month periods ended June 30, 2020 and 2019, respectively, and expects to contribute an additional $1.9 million by the end of 2020.

  

(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 June 30, 2020 and December 31, 2019:

As of June 30, 2020

As of December 31, 2019

Fair Value Hierarchy

Fair Value Hierarchy

(in thousands)

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Cash and cash equivalents(a)

$

182,599

$

$

$

182,599

$

193,685

$

$

$

193,685

Restricted cash(a)

8,892

8,892

8,416

8,416

Restricted investments(b)

75,382

75,382

70,974

70,974

Investments in lieu of retainage(c)

98,837

1,208

100,045

89,572

1,219

90,791

Total

$

290,328

$

76,590

$

$

366,918

$

291,673

$

72,193

$

$

363,866

____________________________________________________________________________________________________

(a)Includes money market funds and short-term investments with maturity dates of three months or less when acquired.

(b)Restricted investments, as of June 30, 2020, consist of investments in U.S. government agency securities of $37.5 million, corporate debt securities of $36.8 million and corporate certificates of deposits of $1.1 million with maturities of up to five years, and are valued based on pricing models, which are determined from a compilation of primarily observable market information, broker quotes in non-active markets or similar assets and are therefore classified as Level 2 assets. As of December 31, 2019, restricted investments consisted of investments in corporate debt securities of $35.8 million, U.S. government agency securities of $33.8 million and corporate certificates of deposits of $1.4 million with maturities of up to five years. The amortized cost of these available-for-sale securities at June 30, 2020 and December 31, 2019 was not materially different from the fair value.

(c)Investments in lieu of retainage are included in retainage receivable and as of June 30, 2020 are comprised of money market funds of $98.8 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, 2019, investments in lieu of retainage consisted of money market funds of $89.6 million and municipal bonds of $1.2 million. The amortized cost of these available-for-sale securities at June 30, 2020 and December 31, 2019 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 $484.4 million and $485.0 million as of June 30, 2020 and December 31, 2019, respectively. The fair value of the

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UNAUDITED

Convertible Notes was $190.7 million and $193.4 million as of June 30, 2020 and December 31, 2019, respectively. The fair values of the 2017 Senior Notes and Convertible Notes were determined using Level 1 inputs, specifically current observable market prices. The reported value of the Company’s remaining borrowings approximates fair value as of June 30, 2020 and December 31, 2019.

  

(15)     Variable Interest Entities (VIEs)

The Company may form joint ventures or partnerships with third parties for the execution of projects. In accordance with ASC 810, Consolidation (“ASC 810”), the Company assesses its partnerships and joint ventures at inception to determine if any meet the qualifications of a VIE. The Company considers a joint venture a VIE if either (a) the total equity investment is not sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) characteristics of a controlling financial interest are missing (either the ability to make decisions through voting or other rights, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity), or (c) the voting rights of the equity holders are not proportional to their obligations to absorb the expected losses of the entity and/or their rights to receive the expected residual returns of the entity, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. Upon the occurrence of certain events outlined in ASC 810, the Company reassesses its initial determination of whether a joint venture is a VIE.

ASC 810 also requires the Company to determine whether it is the primary beneficiary of the VIE. The Company concludes that it is the primary beneficiary and consolidates the VIE if the Company has both (a) the power to direct the economically significant activities of the VIE and (b) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. The Company considers the contractual agreements that define the ownership structure, distribution of profits and losses, risks, responsibilities, indebtedness, voting rights and board representation of the respective parties in determining if the Company is the primary beneficiary. The Company also considers all parties that have direct or implicit variable interests when determining whether it is the primary beneficiary. In accordance with ASC 810, management’s assessment of whether the Company is the primary beneficiary of a VIE is performed continuously.

As of June 30, 2020, the Company had unconsolidated VIE-related current assets and liabilities of $3.4 million and $3.3 million, respectively, included in the Company’s Condensed Consolidated Balance Sheet. As of December 31, 2019, the Company had unconsolidated VIE-related current assets and liabilities of $1.5 million and $1.4 million, respectively, included in the Company’s Condensed Consolidated Balance Sheet. The Company’s maximum exposure to loss as a result of its investments in unconsolidated VIEs is typically limited to the aggregate of the carrying value of the investment and future funding commitments. There were no future funding requirements for the unconsolidated VIEs as of June 30, 2020.

As of June 30, 2020, the Company’s Condensed Consolidated Balance Sheet included current and noncurrent assets of $401.1 million and $36.4 million, respectively, as well as current liabilities of $581.1 million related to the operations of its consolidated VIEs. As of December 31, 2019, the Company’s Condensed Consolidated Balance Sheet included current and noncurrent assets of $365.0 million and $52.0 million, respectively, as well as current liabilities of $556.1 million related to the operations of its consolidated VIEs.

Below is a discussion of some of the Company’s more significant or unique VIEs.

The Company established a joint venture 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.

  

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UNAUDITED

(16)     Changes in Equity

A reconciliation of the changes in equity for the three and six months ended June 30, 2020 and 2019 is provided below:

Three Months Ended June 30, 2020

Accumulated

Additional

Other

Common

Paid-in

Retained

Comprehensive

Noncontrolling

Total

(in thousands)

Stock

Capital

Earnings

Loss

Interests

Equity

Balance - March 31, 2020

$

50,577

$

1,120,487

$

331,362

$

(43,128)

$

(16,370)

$

1,442,928

Net income

18,709

12,150

30,859

Other comprehensive income

2,531

854

3,385

Share-based compensation

4,185

4,185

Issuance of common stock, net

194

194

Distributions to noncontrolling interests

(17,410)

(17,410)

Balance - June 30, 2020

$

50,771

$

1,124,672

$

350,071

$

(40,597)

$

(20,776)

$

1,464,141

Six Months Ended June 30, 2020

Accumulated

Additional

Other

Common

Paid-in

Retained

Comprehensive

Noncontrolling

Total

(in thousands)

Stock

Capital

Earnings

Loss

Interests

Equity

Balance - December 31, 2019

$

50,279

$

1,117,972

$

313,991

$

(42,100)

$

(9,617)

$

1,430,525

Net income

36,080

20,917

56,997

Other comprehensive income (loss)

1,503

(1,166)

337

Share-based compensation

7,692

7,692

Issuance of common stock, net

492

(992)

(500)

Distributions to noncontrolling interests

(30,910)

(30,910)

Balance - June 30, 2020

$

50,771

$

1,124,672

$

350,071

$

(40,597)

$

(20,776)

$

1,464,141

Three Months Ended June 30, 2019

Accumulated

Additional

Other

Common

Paid-in

Retained

Comprehensive

Noncontrolling

Total

(in thousands)

Stock

Capital

Earnings

Loss

Interests

Equity

Balance - March 31, 2019

$

50,180

$

1,105,184

$

701,325

$

(44,200)

$

(17,310)

$

1,795,179

Net income (loss)

(320,530)

5,091

(315,439)

Other comprehensive income

1,670

157

1,827

Share-based compensation

5,312

5,312

Issuance of common stock, net

99

99

Contributions from noncontrolling interests

2,581

2,581

Balance - June 30, 2019

$

50,279

$

1,110,496

$

380,795

$

(42,530)

$

(9,481)

$

1,489,559

  

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UNAUDITED

Six Months Ended June 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)

(320,886)

10,169

(310,717)

Other comprehensive income

2,919

259

3,178

Share-based compensation

10,095

10,095

Issuance of common stock, net

253

(2,518)

(2,265)

Contributions from noncontrolling interests

5,379

5,379

Distributions to noncontrolling interests

(4,000)

(4,000)

Balance - June 30, 2019

$

50,279

$

1,110,496

$

380,795

$

(42,530)

$

(9,481)

$

1,489,559

(17)     Other Comprehensive Income (Loss)

ASC 220, Comprehensive Income, establishes standards for reporting 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 components of other comprehensive income (loss) and the related tax effects for the three and six months ended June 30, 2020 and 2019 were as follows:

Three Months Ended

Three Months Ended

June 30, 2020

June 30, 2019

(in thousands)

Before-Tax Amount

Tax (Expense) Benefit

Net-of-Tax Amount

Before-Tax Amount

Tax (Expense) Benefit

Net-of-Tax Amount

Other comprehensive income:

Defined benefit pension plan adjustments

$

592

$

(168)

$

424

$

464

$

(133)

$

331

Foreign currency translation adjustments

1,973

(318)

1,655

1,072

(262)

810

Unrealized gain in fair value of investments

1,602

(296)

1,306

867

(181)

686

Total other comprehensive income

4,167

(782)

3,385

2,403

(576)

1,827

Less: Other comprehensive income attributable to noncontrolling interests(a)

854

854

157

157

Total other comprehensive income attributable to Tutor Perini Corporation

$

3,313

$

(782)

$

2,531

$

2,246

$

(576)

$

1,670

(a)The only component of other comprehensive income (loss) attributable to noncontrolling interests is foreign currency translation.

Six Months Ended

Six Months Ended

June 30, 2020

June 30, 2019

(in thousands)

Before-Tax Amount

Tax (Expense) Benefit

Net-of-Tax Amount

Before-Tax Amount

Tax (Expense) Benefit

Net-of-Tax Amount

Other comprehensive income:

Defined benefit pension plan adjustments

$

1,183

$

(336)

$

847

$

926

$

(265)

$

661

Foreign currency translation adjustment

(2,954)

596

(2,358)

1,551

(393)

1,158

Unrealized gain in fair value of investments

2,359

(511)

1,848

1,725

(366)

1,359

Total other comprehensive income

588

(251)

337

4,202

(1,024)

3,178

Less: Other comprehensive income (loss) attributable to noncontrolling interests(a)

(1,166)

(1,166)

259

259

Total other comprehensive income attributable to Tutor Perini Corporation

$

1,754

$

(251)

$

1,503

$

3,943

$

(1,024)

$

2,919

(a)The only component of other comprehensive income (loss) attributable to noncontrolling interests is foreign currency translation.

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UNAUDITED

The changes in AOCI balances by component (after tax) attributable to Tutor Perini Corporation during the three and six months ended June 30, 2020 were as follows:

Three Months Ended June 30, 2020

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 March 31, 2020

$

(37,403)

$

(7,364)

$

1,639

$

(43,128)

Other comprehensive income before reclassifications

801

1,335

2,136

Amounts reclassified from AOCI

424

(29)

395

Total other comprehensive income

424

801

1,306

2,531

Balance as of June 30, 2020

$

(36,979)

$

(6,563)

$

2,945

$

(40,597)

Six Months Ended June 30, 2020

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, 2019

$

(37,826)

$

(5,371)

$

1,097

$

(42,100)

Other comprehensive income (loss) before reclassifications

(1,192)

1,881

689

Amounts reclassified from AOCI

847

(33)

814

Total other comprehensive income (loss)

847

(1,192)

1,848

1,503

Balance as of June 30, 2020

$

(36,979)

$

(6,563)

$

2,945

$

(40,597)

The changes in AOCI balances by component (after tax) attributable to Tutor Perini Corporation during the three and six months ended June 30, 2019 were as follows:

Three Months Ended June 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 March 31, 2019

$

(38,340)

$

(6,069)

$

209

$

(44,200)

Other comprehensive income before reclassifications

653

714

1,367

Amounts reclassified from AOCI

331

(28)

303

Total other comprehensive income

331

653

686

1,670

Balance as of June 30, 2019

$

(38,009)

$

(5,416)

$

895

$

(42,530)

Six Months Ended June 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

899

1,379

2,278

Amounts reclassified from AOCI

661

(20)

641

Total other comprehensive income

661

899

1,359

2,919

Balance as of June 30, 2019

$

(38,009)

$

(5,416)

$

895

$

(42,530)

  

26


Table of Contents

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

UNAUDITED

(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.

27


Table of Contents

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

UNAUDITED

The following tables set forth certain reportable segment information relating to the Company’s operations for the three and six months ended June 30, 2020 and 2019:

Reportable Segments

Specialty

Consolidated

(in thousands)

Civil

Building

Contractors

Total

Corporate

Total

Three Months Ended June 30, 2020

Total revenue

$

644,685

$

490,317

$

234,497

$

1,369,499

$

$

1,369,499

Elimination of intersegment revenue

(75,709)

(17,296)

(67)

(93,072)

(93,072)

Revenue from external customers

$

568,976

$

473,021

$

234,430

$

1,276,427

$

$

1,276,427

Income (loss) from construction operations

$

65,398

$

17,789

$

(11,388)

$

71,799

(a)

$

(14,103)

(b)

$

57,696

Capital expenditures

$

18,951

$

186

$

255

$

19,392

$

301

$

19,693

Depreciation and amortization(c)

$

21,775

$

428

$

995

$

23,198

$

2,767

$

25,965

Three Months Ended June 30, 2019

Total revenue

$

541,117

$

433,559

$

223,299

$

1,197,975

$

$

1,197,975

Elimination of intersegment revenue

(67,459)

(5,241)

(72,700)

(72,700)

Revenue from external customers

$

473,658

$

428,318

$

223,299

$

1,125,275

$

$

1,125,275

Income (loss) from construction operations

$

(164,472)

$

(3,810)

$

(159,795)

$

(328,077)

(d)

$

(13,640)

(b)

$

(341,717)

Capital expenditures

$

24,439

$

150

$

110

$

24,699

$

235

$

24,934

Depreciation and amortization(c)

$

10,285

$

497

$

1,061

$

11,843

$

2,754

$

14,597

____________________________________________________________________________________________________

(a)During the three months ended June 30, 2020, income (loss) from construction operations was impacted by $13.2 million (an unfavorable after-tax impact of $9.5 million, or $0.19 per diluted share) due to an adverse arbitration ruling pertaining to an electrical project in New York in the Specialty Contractors segment.

(b)Consists primarily of corporate general and administrative expenses.

(c)Depreciation and amortization is included in income (loss) from construction operations.

(d)During the three months ended June 30, 2019, the Company recorded a non-cash goodwill impairment charge of $379.9 million in income (loss) from construction 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.

28


Table of Contents

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

UNAUDITED

Reportable Segments

Specialty

Consolidated

(in thousands)

Civil

Building

Contractors

Total

Corporate

Total

Six Months Ended June 30, 2020

Total revenue

$

1,224,771

$

995,400

$

516,949

$

2,737,120

$

$

2,737,120

Elimination of intersegment revenue

(169,166)

(40,615)

(183)

(209,964)

(209,964)

Revenue from external customers

$

1,055,605

$

954,785

$

516,766

$

2,527,156

$

$

2,527,156

Income (loss) from construction operations

$

111,519

$

21,305

$

(3,109)

$

129,715

(a)

$

(24,792)

(b)

$

104,923

Capital expenditures

$

30,143

$

198

$

728

$

31,069

$

317

$

31,386

Depreciation and amortization(c)

$

40,391

$

855

$

1,988

$

43,234

$

5,542

$

48,776

Six Months Ended June 30, 2019

Total revenue

$

924,739

$

869,802

$

414,826

$

2,209,367

$

$

2,209,367

Elimination of intersegment revenue

(117,587)

(8,018)

(125,605)

(125,605)

Revenue from external customers

$

807,152

$

861,784

$

414,826

$

2,083,762

$

$

2,083,762

Income (loss) from construction operations

$

(122,727)

$

(677)

$

(167,283)

$

(290,687)

(d)

$

(28,117)

(b)

$

(318,804)

Capital expenditures

$

38,451

$

205

$

233

$

38,889

$

457

$

39,346

Depreciation and amortization(c)

$

19,655

$

1,000

$

2,125

$

22,780

$

5,534

$

28,314

____________________________________________________________________________________________________

(a)During the six months ended June 30, 2020, income (loss) from construction operations was impacted by $13.2 million (an unfavorable after-tax impact of $9.5 million, or $0.19 per diluted share) due to an adverse arbitration ruling pertaining to an electrical project in New York in the Specialty Contractors segment.

(b)Consists primarily of corporate general and administrative expenses.

(c)Depreciation and amortization is included in income (loss) from construction operations.

(d)During the six months ended June 30, 2019, the Company recorded a non-cash goodwill impairment charge of $379.9 million in income (loss) from construction operations (an unfavorable after-tax impact of $329.5 million, or $6.57 per diluted share) resulting from an interim impairment test the Company performed as of June 1, 2019.

A reconciliation of segment results to the consolidated income (loss) before income taxes is as follows:

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

2020

2019

2020

2019

Income (loss) from construction operations

$

57,696

$

(341,717)

$

104,923

$

(318,804)

Other income (expense)

(797)

900

(316)

1,322

Interest expense

(16,464)

(17,522)

(32,900)

(33,947)

Income (loss) before income taxes

$

40,435

$

(358,339)

$

71,707

$

(351,429)

29


Table of Contents

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

UNAUDITED

Total assets by segment were as follows:

As of

As of

(in thousands)

June 30, 2020

December 31, 2019

Civil

$

3,084,528

$

2,791,402

Building

1,083,421

995,298

Specialty Contractors

664,161

635,180

Corporate and other(a)

(68,507)

63,897

Total assets

$

4,763,603

$

4,485,777

____________________________________________________________________________________________________

(a)Consists principally of cash, equipment, tax-related assets and insurance-related assets, offset by the elimination of assets related to intersegment revenue.

  

30


TUTOR PERINI CORPORATION AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discusses our financial position as of June 30, 2020 and the results of our operations for the three and six months ended June 30, 2020 and should be read in conjunction with other information, including the unaudited Condensed Consolidated Financial Statements and notes included in Part I, Item 1, Financial Information, of this Quarterly Report on Form 10-Q, the audited consolidated financial statements and accompanying notes to our Annual Report on Form 10-K for the year ended December 31, 2019, and the information contained under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 and in Part II, Item 1A below.

Forward-Looking Statements

This Quarterly Report on Form 10-Q, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results, which are intended to be covered by the safe harbor provision for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are statements that could be deemed forward-looking statements. Words such as “achieve,” “anticipate,” “assumes,” “believes,” “continue,” “could,” “estimate,” “expects,” “forecast,” “hope,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “would,” variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Although such statements are based on currently available financial and economic data as well as management’s estimates and expectations, forward-looking statements are inherently uncertain and involve risks and uncertainties that could cause our actual results to differ materially from what may be inferred from the forward-looking statements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors potentially contributing to such differences include, among others:

The impact of the COVID-19 pandemic and related events that are beyond our control, including possible effects on our business and operations, customers and suppliers, and employees, contractors and subcontractors, which could affect adversely our projects and the geographic regions in which we conduct business;

A significant slowdown or decline in economic conditions;

Revisions of estimates of contract risks, revenue or costs; the timing of new awards; or the pace of project execution may result in losses or lower than anticipated profit;

Unfavorable outcomes of existing or future litigation or dispute resolution proceedings against customers (project owners, developers, general contractors, etc.), subcontractors or suppliers, as well as failure to promptly recover significant working capital invested in projects subject to such matters;

The requirement to perform extra, or change order, work resulting in disputes or claims or adversely affecting our working capital, profits and cash flows;

Risks and other uncertainties associated with assumptions and estimates used to prepare financial statements;

Inability to retain key members of our management, to hire and retain personnel required to complete projects or implement succession plans for key officers;

Client cancellations of, or reductions in scope under, contracts reported in our backlog;

Failure to meet contractual schedule requirements, which could result in higher costs and reduced profits or, in some cases, exposure to financial liability for liquidated damages and/or damages to customers;

Failure to meet our obligations under our debt agreements;

Decreases in the level of government spending for infrastructure and other public projects;

Downgrades in our credit ratings;

Failure of our joint venture partners to perform their venture obligations, which could impose additional financial and performance obligations on us, resulting in reduced profits or losses;

Increased competition and failure to secure new contracts;

Impairment of our goodwill or other indefinite-lived intangible assets;

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;

Possible systems and information technology interruptions, including due to cyberattack, systems failures or other similar events;

The impact of inclement weather conditions on projects;

Failure to comply with laws and regulations related to government contracts;

31


Potential dilutive impact of our Convertible Notes in our diluted earnings per share calculation;

Uncertainty from the expected discontinuance of the London Interbank Offered Rate and transition to any other interest rate benchmark; and

Conversion of our outstanding Convertible Notes that could dilute ownership interests of existing stockholders and could adversely affect the market price of our common stock.

Executive Overview

COVID-19 Update

In the first quarter of 2020, the outbreak of a novel strain of coronavirus, COVID-19, was declared a pandemic. Efforts in the United States to prevent the spread of COVID-19 and mitigate its impacts intensified in March 2020. All 50 states in the United States declared states of emergency, and various countries around the world, including the United States, took steps to restrict travel. Many states and cities within the United States also enacted temporary closures of businesses, issued stay-at-home orders and implemented other restrictive measures in response to the pandemic. The COVID-19 pandemic did not have an impact on our business until mid-March 2020. The pandemic continued to impact certain projects through the middle to latter part of the second quarter, when certain states and cities began easing some restrictions to allow for the gradual re-opening and expansion of business activities and most of our affected projects of significance resumed more normalized operations. The pace of easing and the continued level of restrictions have varied across regions based on the rates of new COVID-19 cases and hospitalizations, and this variability is expected to continue until rates decrease to levels that are more acceptable to public health officials.

For the three and six months ended June 30, 2020, the Company estimates that the COVID-19 pandemic reduced revenue by $130 million and $190 million, respectively, income from construction operations by $9 million and $12 million, respectively, and diluted earnings per common share by $0.13 and $0.17, respectively. These estimated impacts primarily affected the results of the lower-margin Building and Specialty Contractors segments, as certain projects in the Specialty Contractors segment in New York and certain projects in the Building segment in California and Arkansas experienced reduced project execution activities and productivity primarily due to temporary project suspensions and restarts. The higher-margin Civil segment was not significantly impacted by the COVID-19 pandemic during the first half of 2020. The vast majority of our projects have been considered essential business activities, which has allowed projects to continue while implementing new health and safety requirements.

Due to the fluidity of the COVID-19 pandemic, uncertainties as to its scope and duration, and ongoing changes in the way that governments, businesses and individuals react and respond to the pandemic, the Company is unable at this time to accurately predict the pandemic’s future impact on the Company’s business, results of operations, financial condition or liquidity. Among other things, governments could prohibit the continuation of certain projects that to date have been designated as “essential” or could impose health, safety and other operational requirements on such projects that could result in delays to or suspensions of such projects. In addition, employees and contractors working on such projects could be unable or unwilling to continue working on them, perhaps for extended periods. The COVID-19 pandemic also could negatively affect the ability of counterparties or joint venture partners to make required payments on a timely basis or at all.

Operating Results

Despite the impacts from the COVID-19 pandemic described above, consolidated revenue for the three and six months ended June 30, 2020 was $1.3 billion and $2.5 billion, an increase of 13% and 21%, respectively, compared to $1.1 billion and $2.1 billion for the same periods in 2019. The growth was primarily attributable to increased activities on several infrastructure projects in California, Minnesota, and the Northeast, and certain building projects in California and Oklahoma. The increases were partially offset by the COVID-19 impacts mentioned above.

Income from construction operations for the three and six months ended June 30, 2020 was $57.7 million and $104.9 million, respectively, compared to a loss from construction operations of $341.7 million and $318.8 million for the same periods in 2019. Adjusted income from construction operations for the three and six months ended June 30, 2019, which is a non-GAAP financial measure and excludes the $379.9 million non-cash goodwill impairment charge, was $38.2 million and $61.1 million, respectively. (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 the section below titled Non-GAAP Financial Measures.) The increase for both periods was primarily driven by contributions from the above-mentioned infrastructure projects. For the six-month period of 2020, the increase was also partially driven by the absence of prior year unfavorable adjustments that totaled $20.0 million on certain electrical and mechanical projects in New York, none of which were individually material. The increases for both the second quarter and year-to-date 2020 periods were partially offset by the $13.2 million impact of an unfavorable arbitration ruling related to an electrical project in New York, incremental non-cash amortization expense of $7.9 million and $12.8 million for the three and six months ended June 30, 2020, respectively, related to the increased equity interest in a joint venture that the Company acquired in the fourth quarter of 2019, and the COVID-19 impacts mentioned above.

32


The provision for income taxes was $9.6 million and $14.7 million for the three and six months ended June 30, 2020, respectively, compared to an income tax benefit of $42.9 million and $40.7 million for the same periods in 2019. The effective tax rate was 23.7% and 20.5% for the three and six months ended June 30, 2020, respectively, compared to 12.0% and 11.6% for the comparable periods in 2019. The income tax benefits in the 2019 periods include the $50.4 million tax benefit recognized as a result of the goodwill impairment charge. See Corporate, Tax and Other Matters below for a discussion of the changes in the effective tax rate.

Diluted earnings per common share for the three and six months ended June 30, 2020 was $0.37 and $0.71, respectively, compared to a loss per share of $6.38 and $6.40 for the same periods in 2019. The COVID-19 pandemic had an estimated negative impact on diluted earnings per common share of $0.13 and $0.17 for the three and six months ended June 30, 2020. 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 three and six months ended June 30, 2019, was $0.18 and $0.17, respectively. The increase in adjusted diluted earnings per common share for both periods was principally due to the factors discussed above that drove the increase in income from construction operations.

Consolidated new awards for the three and six months ended June 30, 2020 totaled $0.7 billion and $1.3 billion, respectively, compared to $0.9 billion and $4.2 billion for the same periods in 2019. The lower volume of new awards in both current year periods was due to the timing of bidding for and awards of prospective project opportunities, which the Company expects will occur later in 2020 or in 2021. The Civil and Building segments were the primary contributors to the new award activity in the second quarter of 2020. The most significant new awards included more than $300 million of additional funding for various mass-transit projects, over $235 million for various building projects in California, the largest of which was a $69 million education building, and $67 million for various civil infrastructure projects in the Midwest. The COVID-19 pandemic has resulted in and could potentially continue to result in delays in the bidding and awarding of certain projects the Company is pursuing due to customer funding constraints and administrative challenges.

Consolidated backlog as of June 30, 2020 was $10.0 billion compared to $11.2 billion at December 31, 2019. Backlog declined as a result of the higher current year revenue generated from near-record backlog at the end of 2019 outpacing current year new awards. As of June 30, 2020, the mix of backlog by segment was approximately 55% for Civil, 23% for Building and 22% for Specialty Contractors.

The following table presents the Company’s backlog by business segment, reflecting changes from December 31, 2019 to June 30, 2020:

Backlog at

New

Revenue

Backlog at

(in millions)

December 31, 2019

Awards(a)

Recognized

June 30, 2020(b)

Civil

$

6,037.2

$

555.3

$

(1,055.6)

$

5,536.9

Building

2,790.3

443.0

(954.8)

2,278.5

Specialty Contractors

2,393.6

306.4

(516.8)

2,183.2

Total

$

11,221.1

$

1,304.7

$

(2,527.2)

$

9,998.6

(a)New awards consist of the original contract price of projects added to backlog plus or minus subsequent changes to the estimated total contract price of existing contracts.

(b)Backlog may differ from the transaction prices allocated to the remaining performance obligations as disclosed in Note 3 of the Notes to Condensed Consolidated Financial Statements. Such differences relate to the timing of executing a formal contract or receiving a notice to proceed. More specifically, backlog sometimes may include awards for which a contract has not yet been executed or a notice to proceed has not been issued, but for which there are no remaining major uncertainties that the project will proceed (e.g., adequate funding is in place).

Because the COVID-19 pandemic remains fluid and uncertain, the Company cannot assess the degree to which it might experience future adverse impacts. The general outlook for the Company’s growth over the next several years remains favorable, particularly in the Civil and Specialty Contractors segments, but the impact of the COVID-19 pandemic could adversely affect future performance and operations. In addition, the Company’s growth could 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 elections, voters in numerous states approved dozens of long-term transportation funding measures totaling approximately $200 billion in long-term funding. The largest of these were in Los Angeles County, where Measure M, a half-cent sales tax increase, was approved and is expected to generate $120 billion of funding over 40 years, and in Seattle, Washington, where Sound Transit 3 was passed and is expected to generate $54 billion of funding over 25 years. As state and local governments respond to the economic burdens of the COVID-19 pandemic, they may delay or cancel planned infrastructure investments due to reduced revenues from income and sales taxes, fuel taxes and tolls. The extent of such effects, their duration, and how state and local governments will respond remains uncertain, just as the scope and duration of the COVID-19 pandemic remains uncertain. The possibility of additional federal financial assistance or stimulus programs directed

33


toward assisting state and local governments or specifically targeting significant investments in infrastructure have been discussed as possible additional pieces of the federal government’s ongoing response to the COVID-19 pandemic. Such additional federal financial assistance or stimulus programs could favorably impact the Company’s current work and prospective opportunities, though the timing and magnitude of such additional federal government actions, if any, remain uncertain. Meanwhile, several large, long-duration civil infrastructure programs with which we are already involved continue to progress. Finally, the COVID-19 pandemic’s dramatic impact on the U.S. economy has led to interest rates that remain at record low levels and may be conducive to continued, and potentially increased, spending on infrastructure projects.

For a more detailed discussion of operating performance of each business segment, corporate general and administrative expenses 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 (as well as 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 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. There were no adjustments for the three and six months ended June 30, 2020; therefore, the non-GAAP financial measures do not differ from GAAP results in those periods.

Reconciliation of Non-GAAP Financial Measures

Specialty

Consolidated

(in millions)

Civil

Building

Contractors

Corporate

Total

Three Months Ended June 30, 2019

Income (loss) from construction operations, as reported

$

(164.5)

$

(3.8)

$

(159.8)

$

(13.6)

$

(341.7)

Plus: Goodwill impairment charge

210.2

13.5

156.2

379.9

Adjusted income (loss) from construction operations

$

45.7

$

9.7

$

(3.6)

$

(13.6)

$

38.2

Six Months Ended June 30, 2019

Income (loss) from construction operations, as reported

$

(122.7)

$

(0.7)

$

(167.3)

$

(28.1)

$

(318.8)

Plus: Goodwill impairment charge

210.2

13.5

156.2

379.9

Adjusted income (loss) from construction operations

$

87.5

$

12.8

$

(11.1)

$

(28.1)

$

61.1

34


Three Months Ended

Six Months Ended

June 30,

June 30,

(in millions, except per common share amounts and percentages)

2020

2019

2020

2019

Net income (loss) attributable to Tutor Perini Corporation, as reported

$

18.7

$

(320.5)

$

36.1

$

(320.9)

Plus: Goodwill impairment charge

379.9

379.9

Less: Tax benefit provided on goodwill impairment charge

(50.4)

(50.4)

Adjusted net income attributable to Tutor Perini Corporation

$

18.7

$

9.0

$

36.1

$

8.6

Diluted earnings (loss) per common share, as reported

$

0.37

$

(6.38)

$

0.71

$

(6.40)

Plus: Goodwill impairment charge

7.56

7.57

Less: Tax benefit provided on goodwill impairment charge

(1.00)

(1.00)

Adjusted diluted earnings per common share

$

0.37

$

0.18

$

0.71

$

0.17

Effective income tax rate, as reported

23.7

%

(12.0)

%

20.5

%

(11.6)

%

Tax effect of goodwill impairment charge

%

46.7

%

%

45.6

%

Adjusted effective income tax rate

23.7

%

34.7

%

20.5

%

34.0

%

 

Results of Segment Operations

The results of our Civil, Building and Specialty Contractors segments are discussed below.

Civil Segment

Revenue, income (loss) from construction operations and adjusted income from construction operations for the Civil segment are summarized as follows:

Three Months Ended June 30,

Six Months Ended June 30,

(in millions)

2020

2019

2020

2019

Revenue

$

569.0

$

473.7

$

1,055.6

$

807.2

Income (loss) from construction operations, as reported

65.4

(164.5)

111.5

(122.7)

Plus: Goodwill impairment charge

210.2

210.2

Adjusted income from construction operations

$

65.4

$

45.7

$

111.5

$

87.5

Revenue for the three and six months ended June 30, 2020 increased 20% and 31%, respectively, compared to the same periods in 2019. The revenue growth for both periods was primarily due to overall increased project execution activities on various mass-transit projects in California and Minnesota. The COVID-19 pandemic had an insignificant impact on revenue in both periods (an estimated $15 million and $25 million, respectively).

Excluding the goodwill impairment charge in the second quarter of 2019, adjusted income from construction operations for the three and six months ended June 30, 2020 increased 43% and 27%, respectively, compared to the same periods in 2019. The increase was primarily driven by the volume growth mentioned above and improved performance on certain projects, partially offset by the impact of incremental non-cash amortization expense of $7.9 million and $12.8 million for the three and six months ended June 30, 2020, respectively, related to the increased equity interest in a joint venture that the Company acquired in the fourth quarter of 2019. The COVID-19 pandemic resulted in insignificant impacts on income from construction operations in both current year periods (an estimated $2 million in each period).

Operating margin was 11.5% and 10.6% for the three and six months ended June 30, 2020, respectively, compared to operating margin of (34.7)% and (15.2)% and adjusted operating margin of 9.6% and 10.8% for the same periods in 2019, which excludes the impact of the goodwill impairment charge. The difference in adjusted operating margin for the second quarter of 2020 was primarily driven by improved performance on several ongoing projects, partially offset by the aforementioned incremental amortization expense. For the first half of 2020, the difference in adjusted operating margin was principally driven by the same incremental amortization expense.

New awards in the Civil segment totaled $377 million and $555 million for the three and six months ended June 30, 2020, respectively, compared to $149 million and $1.8 billion for the same periods in 2019. The increased level of new awards in the second quarter of 2020 was primarily driven by more than $300 million of additional funding for various mass-transit projects, as well as

35


$67 million for various projects in the Midwest. The substantially lower volume of new awards in the first half of 2020 compared to the same period in 2019 was due to the timing of bidding for and awards of prospective project opportunities, which the Company expects will occur later in 2020 or 2021, whereas the prior year first-half period included the $1.4 billion Purple Line Section 3 Stations project in California. Several large Civil segment opportunities are expected to bid and potentially be awarded to the Company later this year and in 2021. However, the COVID-19 pandemic is resulting in revenue shortfalls for many state and local government agencies that could result in the deferral or cancellation of certain new projects, depending on the allocation and prioritization of state and local funding, as well as the availability, timing and magnitude of anticipated supplemental funding from the federal government.

Backlog for the Civil segment was $5.5 billion as of June 30, 2020 compared to $6.2 billion as of June 30, 2019. The higher backlog in the prior year period was primarily driven by the Purple Line Section 3 Stations project awarded in the first quarter of 2019. The segment continues to experience strong demand reflected in a large, multi-year pipeline of prospective projects, substantial anticipated funding from various voter-approved transportation measures and public agencies’ long-term spending plans. The Civil segment is well-positioned to continue capturing its share of these prospective projects.

Building Segment

Revenue, income (loss) from construction operations and adjusted income from construction operations for the Building segment are summarized as follows:

Three Months Ended June 30,

Six Months Ended June 30,

(in millions)

2020

2019

2020

2019

Revenue

$

473.0

$

428.3

$

954.8

$

861.8

Income (loss) from construction operations, as reported

17.8

(3.8)

21.3

(0.7)

Plus: Goodwill impairment charge

13.5

13.5

Adjusted income from construction operations

$

17.8

$

9.7

$

21.3

$

12.8

Revenue for the three and six months ended June 30, 2020 increased 10% and 11%, respectively, compared to the same periods in 2019 primarily due to increased project execution activities on various projects in California, Oklahoma and the Northeast. The increases were partially offset by reduced activity on certain projects in California that are completed or nearing completion. Revenue grew in both periods of 2020 despite the negative impact of the COVID-19 pandemic, which resulted in delays on certain projects that impacted revenue by approximately $80 million and $115 million for the three and six months ended June 30, 2020, respectively.

Excluding the goodwill impairment charge in the second quarter of 2019, adjusted income from construction operations for the three and six months ended June 30, 2020 increased 84% and 66%, respectively, compared to the same periods in 2019. The increase for both periods was principally driven by the factors mentioned above that drove the increases in revenue. The COVID-19 pandemic resulted in insignificant impacts on income from construction operations in both current year periods (an estimated $2 million and $3 million, respectively).

Operating margin was 3.8% and 2.2% for the three and six months ended June 30, 2020, respectively, compared to operating margin of (0.9)% and (0.1)% and adjusted operating margin of 2.3% and 1.5% for the same periods in 2019, which excludes the impact of the goodwill impairment charge. The increase in adjusted operating margin for both periods was driven by the factors mentioned above that drove the increases in revenue and income from construction operations.

New awards in the Building segment totaled $260 million and $443 million for the three and six months ended June 30, 2020, respectively, compared to $328 million and $1.4 billion for the same periods in 2019. The lower volume of new awards in both periods of 2020 was due to the timing of prospective project opportunities, which are expected to be awarded later this year or in 2021, whereas the first half of 2019 included several sizeable new awards, such as the Choctaw Casino and Resort project in Oklahoma, a large hospitality and gaming project in California and the Southland Gaming Casino and Hotel project in Arkansas. Significant new awards in the second quarter of 2020 included over $235 million for various building projects in California, the largest of which was a $69 million education building. The COVID-19 pandemic is impacting demand in certain end markets, such as hospitality and gaming, which has resulted in and could continue to result in reduced project opportunities in those markets.

Backlog for the Building segment was $2.3 billion as of June 30, 2020 compared to $2.9 billion as of June 30, 2019. The decrease was driven by revenue growth for the segment that exceeded new awards, which were impacted by the timing of bidding and award activities, including in some instances delays as a result of the COVID-19 pandemic. The Building segment continues to have a large volume of prospective projects across various end markets and geographic locations. Barring any further adverse impacts from the

36


COVID-19 pandemic, demand for our building construction services is expected to continue due to ongoing customer spending supported by a favorable interest rate environment.

Specialty Contractors Segment

Revenue, loss from construction operations and adjusted loss from construction operations for the Specialty Contractors segment are summarized as follows:

Three Months Ended June 30,

Six Months Ended June 30,

(in millions)

2020

2019

2020

2019

Revenue

$

234.4

$

223.3

$

516.8

$

414.8

Loss from construction operations, as reported

(11.4)

(159.8)

(3.1)

(167.3)

Plus: Goodwill impairment charge

156.2

156.2

Adjusted loss from construction operations

$

(11.4)

$

(3.6)

$

(3.1)

$

(11.1)

Revenue for the three and six months ended June 30, 2020 increased 5% and 25%, respectively, compared to the same periods in 2019. The increase for the year-to-date period was principally driven by an overall increase in project execution activities on various electrical and mechanical projects in the Northeast. Revenue grew in both periods of 2020 despite the impact of the COVID-19 pandemic, which resulted in delays on certain projects that negatively impacted revenue by approximately $35 million and $50 million for the three and six months ended June 30, 2020, respectively.

Loss from construction operations for the three and six months ended June 30, 2020 was $11.4 million and $3.1 million, respectively, compared to a loss from construction operations of $159.8 million and $167.3 million for same periods in 2019. Excluding the impact of the goodwill impairment charge in the second quarter of 2019, adjusted loss from construction operations was $3.6 million and $11.1 million for the three and six months ended June 30, 2019, respectively. The increase in adjusted loss from construction operations for the second quarter of 2020 was primarily due to the $13.2 million unfavorable arbitration ruling pertaining to an electrical project in New York and the negative impact of the COVID-19 pandemic (an estimated $5 million), partially offset by increased activity on various projects in the Northeast. For the first half of 2020, the decreased loss from construction operations was primarily due to the absence of the prior year unfavorable adjustments described in the Executive Overview and net increased activity on various projects in the Northeast, partially offset by the $13.2 million unfavorable arbitration ruling and the negative impact of the COVID-19 pandemic (an estimated $7 million).

Operating margin was (4.9)% and (0.6)% for the three and six months ended June 30, 2020, respectively, compared to operating margin of (71.6)% and (40.3)% and adjusted operating margin of (1.6)% and (2.7)% for the same periods in 2019, which excludes the impact of the goodwill impairment charge. The changes in adjusted operating margins for both periods were mainly attributable to the aforementioned factors that drove the changes in revenue and adjusted income (loss) from construction operations.

New awards in the Specialty Contractors segment totaled $81 million and $306 million for the three and six months ended June 30, 2020, respectively, compared to $439 million and $918 million for the same periods in 2019. The COVID-19 pandemic has resulted in and could continue to result in reduced demand from certain commercial and government customers that are experiencing funding constraints.

Backlog for the Specialty Contractors segment was $2.2 billion as of June 30, 2020 compared to $2.3 billion as of June 30, 2019. The Specialty Contractors segment continues to be increasingly focused on servicing the Company’s growing backlog of large Civil and Building segment projects, but it also remains well-positioned to capture its share of new projects for external customers, leveraging the size and scale of our business units that operate in New York, Texas, Florida and California and the strong reputation held by these business units for high-quality work on large, complex projects.

Corporate, Tax and Other Matters

Corporate General and Administrative Expenses

Corporate general and administrative expenses were $14.1 million and $24.8 million during the three and six months ended June 30, 2020, respectively, compared to $13.6 million and $28.4 million during the three and six months ended June 30, 2019, respectively. The decrease in the six months ended June 30, 2020 compared to the same period in 2019 was primarily due to lower compensation-related expenses.

 

37


Other Income (Expense), Interest Expense and Income Tax (Expense) Benefit

Three Months Ended June 30,

Six Months Ended June 30,

(in millions)

2020

2019

2020

2019

Other income (expense)

$

(0.8)

$

0.9

$

(0.3)

$

1.3

Interest expense

(16.5)

(17.5)

(32.9)

(33.9)

Income tax (expense) benefit

(9.6)

42.9

(14.7)

40.7

Interest expense decreased $1.0 million for both the three and six months ended June 30, 2020 compared to the same periods in 2019. The decreases in the 2020 periods were primarily due to lower average interest rates on our line of credit.

The effective income tax rate for the three and six months ended June 30, 2020 was 23.7% and 20.5%, respectively, compared to 12.0% and 11.6%, respectively, for the same periods in 2019. The effective income tax rate for the six months ended June 30, 2020 primarily reflects the favorable impact of the 2019 net operating loss (“NOL”), which is allowed to be carried back up to five years as a result of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), enacted on March 27, 2020. Under the CARES Act, the Company’s NOL generated in 2019 may be carried back to tax years when the federal statutory tax rate was 35% rather than the current rate of 21%, consequently generating a larger tax benefit from the NOL due to the enactment of the CARES Act. The favorable impact resulting from the enactment of the CARES Act was partially offset by the unfavorable impact of the vesting of restricted stock units for which a large portion of the share-based compensation expense recognized in prior periods will not be deductible for income tax purposes. The Company’s provisions for income taxes and effective tax rates for the 2019 periods were significantly impacted by the goodwill impairment charge. For the three months ended June 30, 2019, the Company recognized a tax benefit of $42.9 million on a loss before income taxes of $358.3 million. The lower effective tax rates in the 2019 periods primarily resulted from the $379.9 million goodwill impairment charge discussed above of which approximately $209.5 million was 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 rates, which exclude the tax benefit resulting from the goodwill impairment charge, were 34.7% and 34.0%, respectively, for the three and six months ended June 30, 2019 and primarily reflected 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. 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 $250 million and available cash balances as of June 30, 2020, will be sufficient to fund any working capital needs and debt maturities for the next 12 months, provided that we are not adversely impacted by unanticipated future events, including material increases in the negative impact of the COVID-19 pandemic as discussed in COVID-19 Update above. In addition, we expect that liquidity will continue to be positively impacted in 2020 by improved cash flow generation from project execution activities, settlements of disputed matters and certain provisions of the CARES Act, which enable the Company to accelerate the collection of tax refunds associated with the 2019 NOL carryback and allow the deferral of certain 2020 Social Security payroll tax liabilities until the end of 2021 and 2022. For a discussion of our 2017 Credit Facility and our Convertible Notes, see the section entitled Debt below.

Cash and Working Capital

Cash and cash equivalents were $182.6 million as of June 30, 2020 compared to $193.7 million as of December 31, 2019. Cash immediately available for general corporate purposes was $57.7 million and $43.8 million as of June 30, 2020 and December 31, 2019, respectively, with the remainder being amounts held by our consolidated joint ventures and also our proportionate share of cash held by our unconsolidated joint ventures. 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 $84.3 million as of June 30, 2020 compared to $79.4 million as of December 31, 2019.

During the six months ended June 30, 2020, net cash provided by operating activities was $58.2 million (with $92.2 million provided in the second quarter) due primarily to cash generated from earnings sources, partially offset by investment in working capital. In the second quarter of 2020, strong cash contributions associated with increased project execution activities on certain, higher-margin projects with favorable billing terms, driven by the Company’s near-record backlog at the end of 2019, were enhanced by the resolution and collection of approximately $40 million of disputed balances and a modest decrease in working capital. For the first half of 2020, the $58.2 million cash provided by operating activities resulted from the strong cash contributions associated with the increased project execution activities mentioned above and the resolution and collection of approximately $40 million of disputed balances noted above, which more than offset an increase of $68.5 million in investment in working capital. The increase in working

38


capital for the first six months of 2020 primarily reflects an increase in accounts receivable due to timing of collections, partially offset by increases in billings in excess of costs and estimated earnings (“BIE”) and accounts payable due to timing of payments to suppliers and subcontractors. During the six months ended June 30, 2019, net cash used in operating activities was $111.5 million due primarily to investments in project working capital that exceeded cash generated from earnings sources. The change in working capital primarily resulted from an increase in accounts receivable due to timing of collections. 

Cash flow from operating activities increased $169.7 million when comparing the first six months of 2020 with the same period of 2019. The substantial increase in cash from operating activities in the first half of 2020 compared to 2019 reflects the significant increase in cash from earnings sources as well as a considerable reduction in investment in working capital as a result of improved collections associated with substantial growth in project billings and, to a lesser degree, increases in accounts payable and accrual balances due to the increased project activity.

Cash used for investing activities during the first six months of 2020 and 2019 was $32.6 million and $41.2 million, respectively, primarily due to the acquisition of property and equipment for projects.

For the first six months of 2020, net cash used in financing activities was $36.2 million, which was primarily driven by $30.9 million of cash distributions to noncontrolling interests and a $4.3 million net repayment of borrowings. Net cash provided by financing activities for the comparable period in 2019 was $187.5 million, which was primarily driven by increased net borrowings of $189.0 million.

At June 30, 2020, we had working capital of $1.3 billion, a ratio of current assets to current liabilities of 1.50 and a ratio of debt to equity of 0.57, compared to working capital of $1.4 billion, a ratio of current assets to current liabilities of 1.66 and a ratio of debt to equity of 0.58 at December 31, 2019.

Debt

Summarized below are the key terms of the 2017 Credit Facility as of June 30, 2020. For additional information regarding our outstanding debt, refer to Note 9 of the Notes to Condensed Consolidated Financial Statements, as applicable.

2017 Credit Facility

On April 20, 2017, we entered into a credit agreement (the “2017 Credit Facility”) with SunTrust Bank, now known as Truist Bank, as Administrative Agent, Swing Line Lender and L/C Issuer and a syndicate of other lenders. The 2017 Credit Facility provides for a $350 million revolving credit facility (the “2017 Revolver”) and a sublimit for the issuance of letters of credit and swingline loans up to the aggregate amount of $150 million and $10 million, respectively, both maturing on April 20, 2022 unless any of the Convertible Notes are outstanding on December 17, 2020, in which case all such borrowings will mature on December 17, 2020 (the “spring-forward provision”), provided however (i) if the Convertible Notes are refinanced in full with the proceeds of permitted refinancing indebtedness in accordance with the terms of the 2017 Credit Facility, the maturity date for the 2017 Credit Facility will remain April 20, 2022 and (ii) if the Company issues “New Convertible Notes” (as defined in the 2017 Credit Facility) and retires the Convertible Notes in full, the maturity date for the 2017 Credit Facility will be the earlier of (x) April 20, 2022 or (y) 90 days prior to the maturity date for such New Convertible Notes. The 2017 Credit Facility also permits additional borrowings in an aggregate amount of $150 million, which can be in the form of increased capacity on the 2017 Revolver or the establishment of one or more term loans. On May 7, 2019, certain provisions of the 2017 Credit Facility were amended, including setting the maximum leverage ratio at 3.50:1.00. For additional information regarding the terms of our 2017 Credit Facility, refer to Note 9 of the Notes to Condensed Consolidated Financial Statements.

As a result of the spring-forward provision mentioned above, the facility will mature on December 17, 2020 if the Convertible Notes remain outstanding at that time. The Company does not have call rights that allow it to unilaterally redeem the Convertible Notes. Due to the spring-forward provision in the 2017 Credit Facility, all borrowings under the facility, as well as the outstanding balance for the Convertible Notes due June 15, 2021, are included in “Current maturities of long-term debt” on the Condensed Consolidated Balance Sheet as of June 30, 2020. The Company continues to evaluate options to address the spring-forward provision and refinancing or retirement of the outstanding Convertible Notes. New credit arrangements are expected to be finalized in the third quarter of 2020.

The table below presents our actual and required consolidated fixed charge coverage ratio and consolidated leverage ratio under the 2017 Credit Facility for the period, which are calculated on a rolling four-quarter basis:

Twelve Months Ended June 30, 2020

Actual

Required

Fixed charge coverage ratio

4.90 to 1.00

> or = 1.25 : 1.00

Leverage ratio

2.33 to 1.00

< or = 3.50 : 1.00

39


As of June 30, 2020, we were in compliance and expect to continue to be in compliance with the covenants under the 2017 Credit Facility.

Contractual Obligations

There have been no material changes in our contractual obligations from those described in our Annual Report on Form 10-K for the year ended December 31, 2019.

Off-Balance Sheet Arrangements

None.

 

Critical Accounting Policies

Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2019. Our critical accounting policies are also identified and discussed in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019. See Note 8 of the Notes to Condensed Consolidated Financial Statements for a detailed discussion of our accounting policies related to goodwill.

Recently Issued Accounting Pronouncements

See Note 2 of the Notes to Condensed Consolidated Financial Statements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There has been no material change in our exposure to market risk from that described in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2019.

 

Item 4. Controls and Procedures

Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined by Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q was made under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (a) were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. – OTHER INFORMATION

Item 1. Legal Proceedings

In the ordinary course of our business, we are involved in various legal proceedings. We disclose information about certain pending legal proceedings pursuant to SEC rules and as we otherwise determine to be appropriate. For information on such pending matters, see Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2019, updated by Note 11 of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

40


Item 1A. Risk Factors

The risk factor discussed below is intended to supplement the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019. It updates and replaces the risk factor previously disclosed in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

The COVID-19 pandemic has adversely impacted, and could continue to adversely impact, our business, financial condition and results of operations.

The World Health Organization declared the COVID-19 outbreak a pandemic and the U.S. Government declared a national emergency in March 2020. The COVID-19 pandemic has created volatility, uncertainty and economic disruption for the Company, our customers, subcontractors and suppliers, and the markets in which we do business. The scope and impact of the COVID-19 pandemic continues to evolve. Extraordinary and wide-ranging actions have been taken by international, federal, state and local public health and governmental authorities to contain and combat the spread of COVID-19, including stay-at-home or shelter-in-place orders, social distancing measures and travel restrictions for individuals and orders for many businesses to cease or curtail normal operations unless their work is deemed essential or critical.

While we have not experienced project cancellations as a result of the COVID-19 pandemic, we have experienced disruptions to our business operations as the pandemic has spread through the geographies where we do business. For example, beginning in mid-March of 2020, work on some non-essential construction projects was suspended or curtailed by certain customers, primarily in our Building and Specialty Contractors segments, though the vast majority of our projects in the Civil segment have been designated as essential business, allowing us to continue our work on those projects. In addition, we have modified certain business and workforce practices and implemented new protocols to promote social distancing and enhance health and safety measures on our projects and in our offices to conform to regulatory requirements and best practices encouraged by governmental and regulatory authorities, all of which has negatively affected our operations and resulted in increases in operating expenses. We have also experienced absenteeism due to illness, quarantine or fear by our employees or those of our subcontractors on certain projects, which has resulted in some disruption of our work. The COVID-19 impacts to date have been primarily productivity inefficiencies due to project suspensions or absenteeism on certain projects, as well as additional costs associated with the new health and safety measures implemented in response to the pandemic. Any ongoing project suspensions, personnel absenteeism, or reduced work schedules or shifts required to comply with quarantines or other social distancing measures could continue to adversely affect our operations. In addition, as a result of COVID-19 containment efforts, we have experienced delays in certain bidding activities and also in legal proceedings and settlement discussions where we have claims against project owners for additional costs exceeding the contract price or for amounts not included in the original contract price. Consequently, our ability to resolve and recover on these types of claims may be delayed, which may adversely affect our liquidity and financial results.

It remains too early to assess the full impact that the COVID-19 pandemic, and the actions taken in response to it, will have on our employees, our operating segments and practices, our customers, subcontractors and suppliers, and the regions that we serve, or on our financial condition and results of operations as a whole. The full impact depends on many factors that remain uncertain and subject to ongoing volatility, or that are not yet identifiable, and in many cases are out of our control. These factors could include, among other things: (1) the duration of the COVID-19 pandemic and the types and magnitude of adverse impacts on the U.S. and global economies; (2) the health and welfare of our employees, and those of our customers, subcontractors and suppliers; (3) evolving business and government actions in response to the pandemic, including stay-at-home measures, changes to what are considered “essential” businesses, social distancing measures, travel bans and additional health and safety requirements that we may be required to observe in order to continue working on our projects; (4) the varying impact that the pandemic may have on industries we serve and on government spending for infrastructure projects, including reduced government spending on infrastructure as a result of lower revenues from taxes, tolls and fares; (5) the response of our customers or prospective customers to the pandemic, including further delays, stoppages or terminations of existing projects or potential new awards; (6) increases in our receivables if our customers fail to pay, delay making payments, request financial concessions or if we experience delays in resolving claims and disputes (e.g., further delays in court proceedings or settlement discussions); (7) limitations and higher costs associated with obtaining financing; (8) potential challenges with suppliers that could limit the availability or cost of materials; (9) potential interruptions to our information systems and technology or breaches in our data security due to increasing use of remote communications and access; and (10) the timing of finding effective treatments, a vaccine or a cure for COVID-19. Such events may result in fewer or delayed project bidding opportunities or additional or further delays on existing projects.

Any of these events or impacts we have experienced or identified could cause or contribute to the risks and uncertainties facing the Company and our customers and could materially and adversely affect our business or portions thereof, and our financial condition and results of operations. The COVID-19 pandemic, and the volatile economic conditions stemming from the pandemic, as well as reactions to future pandemics or resurgences of COVID-19, could also aggravate or heighten the risks posed by other risk factors that we identify in our Annual Report on Form 10-K for the year ended December 31, 2019, which in turn could materially and adversely affect our business, financial condition and results of operations. There may be other adverse consequences to our business, financial condition and results of operations from the spread of COVID-19 that are not presently known or that have not yet become apparent.

41


As a result, we cannot assure you that if COVID-19 continues to spread, it would not have a further adverse impact on our business, financial condition and results of operations.

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 of Regulation S-K is included in Exhibit 95.

Item 5. Other Information

None.

 

Item 6. Exhibits

Exhibits

Description

3.1

Amended and Restated Articles of Organization of Tutor Perini Corporation, as filed with the Secretary of the Commonwealth of Massachusetts on July 8, 2020.

31.1  

Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2  

Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1  

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2  

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

95  

Mine Safety Disclosure.

101.INS

XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

XBRL Taxonomy Extension Schema Document.

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB

XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.

104

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in Inline XBRL (included as Exhibit 101).

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Tutor Perini Corporation

Dated: July 29, 2020

By:

/s/ Gary G. Smalley

Gary G. Smalley

Executive Vice President and Chief Financial Officer

 

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