The following discusses our financial position as ofJune 30, 2022 and the results of our operations for the three and six months endedJune 30, 2022 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 10Q, the audited consolidated financial statements and accompanying notes to our Annual Report on Form 10K for the year endedDecember 31, 2021 , and the information contained under the heading "Risk Factors" in our Annual Report on Form 10K for the year endedDecember 31, 2021 and in Part II, Item 1A below.
Forward-Looking Statements
This Quarterly Report on Form 10Q, including the "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements regarding future events and our future results, which are intended to be covered by the safe harbor provision for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are statements that could be deemed forward-looking statements. Words such as "achieve," "anticipate," "assumes," "believes," "continue," "could," "estimate," "expects," "forecast," "hope," "intend," "may," "plan," "potential," "predict," "should," "will," "would," variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Although such statements are based on currently available financial and economic data, as well as management's estimates and expectations, forward-looking statements are inherently uncertain and involve risks and uncertainties that could cause our actual results to differ materially from what may be inferred from the forward-looking statements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors potentially contributing to such differences include, among others: •Revisions of estimates of contract risks, revenue or costs; economic factors such as inflation; the timing of new awards; or the pace of project execution, which has resulted and may continue to result in losses or lower than anticipated profit; •Unfavorable outcomes of existing or future litigation or dispute resolution proceedings against us or 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; •A significant slowdown or decline in economic conditions; •Increased competition and failure to secure new contracts; •Contract requirements to perform extra work beyond the initial project scope, which has and in the future could result in disputes or claims and adversely affect our working capital, profits and cash flows; •Risks and other uncertainties associated with assumptions and estimates used to prepare our financial statements; •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, as well as damage to our reputation; •Inability to attract and retain our key officers, and to adequately plan for their succession, and hire and retain personnel required to execute and perform on our contracts; •The COVID-19 pandemic, which has adversely impacted, and could continue to adversely impact, our business, financial condition and results of operations by, among other things, delaying the timing of project bids and/or awards and the timing of dispute resolutions and associated collections; •Risks related to our international operations, such as uncertainty ofU.S. Government funding, as well as economic, political, regulatory and other risks, including risks of loss due to acts of war, 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 and breaches in data security and/or privacy; •Client cancellations of, or reductions in scope under, contracts reported in our backlog; •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 and/or reputational harm; •The impact of inclement weather conditions on projects; •Decreases in the level of government spending for infrastructure and other public projects; •Risks related to government contracts and related procurement regulations; •Failure to meet our obligations under our debt agreements; •Securities litigation and/or shareholder activism; 33
——————————————————————————–
Table of Contents •Violations of theU.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws; •Adverse health events, such as an epidemic or another pandemic; •Physical and regulatory risks related to climate change; •Downgrades in our credit ratings; •Impairment of our goodwill or other indefinite-lived intangible assets; and •The exertion of influence over the Company by our chairman and chief executive officer due to his position and significant ownership interest.
Executive Overview
COVID-19 Update
Since its onset in early 2020, the COVID-19 pandemic has caused occasional temporary shortages in available manpower, reductions in field labor productivity, other inefficiencies, delays to project schedules and deferrals of project execution. As a result, we continue to incur incremental costs, much of which we are seeking to recover from our customers as allowed by contractual terms. The relief sought from customers, together with certain incremental project opportunities that resulted from the pandemic, has helped to mitigate the pandemic's negative impact on our financial results. In addition, we have experienced delays in certain legal proceedings, as various courts and arbitrators process a large backlog of cases that were impacted by the pandemic. The COVID-19 pandemic previously hindered the Company's ability to resolve unapproved work, which has resulted in the need for the Company to temporarily fund certain project costs that historically would have been promptly negotiated, billed to and collected from customers. These delays in resolving and recovering on such claims have adversely affected our liquidity and financial results since the onset of the pandemic. However, in the latter part of 2021 and the first half of 2022, we began to see the scheduling of settlement conferences and trial dates and made progress in resolving certain project disputes and unapproved change orders. We expect to make progress in the resolution of certain other disputes and unapproved change orders during the second half of 2022 and in 2023. Throughout 2020 and much of 2021, the pandemic also adversely affected the volume and timing of our new awards, which has negatively impacted our backlog and operating results. The resulting negative impact in the first half of 2022 is expected to continue due to previously limited bidding and proposal opportunities, as well as the relatively lower volume of new awards in 2020 and much of 2021. In addition, many of our state and local government customers' revenue sources have been negatively impacted by the pandemic due to a reduction of commuter and business travel, including curtailed ridership on mass-transit systems (buses, subways, trains, etc.), travel on commercial airlines and driving by the general public. These impacts have resulted in reduced fare and toll collections, lower fuel tax receipts and reduced airport and other facility usage fees. The significant revenue reductions experienced by some of our customers have adversely impacted their ability to pay the Company on a timely basis for amounts due, although these impacts have begun to moderate. The potential for continued or new pandemic-related delays in project bids and awards could result in lower-than-expected revenue and earnings until such time as more substantial funding from the recently enactedInfrastructure Investment and Jobs Act, also known as the Bipartisan Infrastructure Law, is distributed to our existing and potential customers. Due to the continued fluidity of the COVID-19 pandemic, uncertainties as to its scope and duration, and ongoing changes in the way that governments, businesses and individuals 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.
Operating Results
Consolidated revenue for the three and six months endedJune 30, 2022 was$0.9 billion and$1.8 billion , respectively, compared to$1.2 billion and$2.4 billion for the same periods in 2021. The decrease for both periods was primarily due to reduced project execution activities on various projects in all three segments in the Northeast,California andOklahoma , most of which are completed or nearing completion, partially offset by increased activities on certain newer Civil and Building segment projects inCalifornia and the Midwest. The revenue decline for both periods was also the result of the follow-on impact of the COVID-19 pandemic, which delayed bidding activities and awards of certain new projects during 2020 and much of 2021. In addition, the decrease in revenue for both periods of 2022 was due to the impact of an unfavorable adjustment related to the unforeseen cost of project close-out issues, remediation work, extended project supervision and associated labor inefficiencies on the electrical component of a transportation project in the Northeast in the Specialty Contractors segment, an unfavorable non-cash impact related to the settlement of a long-disputed, completed Civil segment project inMaryland , and the temporary unfavorable impact from the successful negotiation of significant lower margin (and lower risk) change orders on a Civil segment mass-transit project inCalifornia (with the majority of the impact affecting the first quarter of 2022). These approved change orders increased the project's overall estimated profit but reduced the project's percentage of completion and overall margin percentage. This temporary reduction to earnings is expected to reverse itself over the remaining life of the 34
——————————————————————————–
Table of Contents
project. For the six-month period in 2022, the decrease was also attributable to the impact of an adverse legal ruling on a dispute related to a completed Civil segment bridge project inNew York . Loss from construction operations for the three and six months endedJune 30, 2022 was$90.6 million and$100.5 million , respectively, compared to income from construction operations of$68.8 million and$118.5 million for the same periods in 2021. For the second quarter of 2022, the change was primarily due to lower profitability associated with the reduced revenue, as discussed above, including the$33.5 million impact from the unfavorable adjustment related to the unforeseen cost of project close-out issues, remediation work, extended project supervision and associated labor inefficiencies on the aforementioned transportation project in the Northeast in the Specialty Contractors segment, and a$16.2 million unfavorable non-cash impact related to the settlement of a long-disputed, completed Civil segment project inMaryland . The change for the second quarter of 2022 was, to a lesser extent, also due to the impact of the aforementioned successful negotiation of significant lower margin (and lower risk) change orders on a Civil segment mass-transit project inCalifornia , which resulted in a temporary unfavorable impact to earnings. These approved change orders increased the project's overall estimated profit but reduced the project's percentage of completion and overall margin percentage. This temporary reduction to earnings is expected to reverse itself over the remaining life of the project. In addition, the change for the second quarter of 2022 was due to a non-cash charge of$17.8 million that increased cost of operations associated with an unexpected partial reversal by an appellate court of previously awarded legal damages related to a completed electrical project inNew York in the Specialty Contractors segment, as well as the absence of a$20.1 million prior-year favorable adjustment related to this same completed electrical project inNew York that resulted from damages awarded by the trial court's ruling. For the first six months of 2022, the change was principally due to the aforementioned factors that drove the reduction in revenue and income from construction operations for the second quarter of 2022, including the temporary unfavorable impact of$29.1 million from the successful negotiation of significant lower margin (and lower risk) change orders on the Civil segment mass-transit project mentioned above, with$17.6 million impacting the first quarter of 2022. This temporary reduction to earnings is expected to reverse itself over the remaining life of the project. For the six-month period in 2022, the decrease was also attributable to a$25.5 million non-cash charge from the adverse legal ruling on a Civil segment bridge project inNew York , as well as a$14.6 million unfavorable adjustment split evenly between the Civil and Building segments due to changes in estimates on a transportation project in the Northeast. The effective tax rate was 41.3% and 37.1% for the three and six months endedJune 30, 2022 , respectively, compared to 20.4% and 20.9% for the comparable periods in 2021. See Corporate, Tax and Other Matters below for a discussion of the change in the effective tax rate. Loss per common share for the three and six months endedJune 30, 2022 was$1.23 and$1.65 , respectively, compared to diluted earnings per common share of$0.61 and$0.92 for the same periods in 2021. The decline for both periods was primarily due to the factors discussed above that caused the changes in income (loss) from construction operations. Consolidated new awards for the three and six months endedJune 30, 2022 totaled$1.1 billion and$2.1 billion , respectively, compared to$0.6 billion and$1.6 billion for the same periods in 2021. The Civil segment was the primary contributor to the new award activity in the second quarter of 2022. The most significant new awards and contract adjustments in the second quarter of 2022 included$293 million of additional funding for a mass-transit project inCalifornia ;$95 million for an educational facility project inCalifornia ; an$85 million military housing project inAlaska ; and several projects inGuam , including a$107 million military housing project, an$84 million wharf improvement project and two other military facilities projects valued at$73 million and$49 million , respectively. Consolidated backlog as ofJune 30, 2022 was$8.5 billion , up 4% compared to$8.2 billion as ofDecember 31, 2021 . As ofJune 30, 2022 , the mix of backlog by segment was approximately 58% for Civil, 26% for Building and 16% for Specialty Contractors.
The following table presents the Company’s backlog by business segment,
reflecting changes from
Backlog at New Revenue Backlog at
(in millions) December 31, 2021 Awards(a) Recognized June 30, 2022(b)
Civil $ 4,553.5 $ 1,167.5 $ (794.4) $ 4,926.6
Building 2,308.9 531.9 (597.6) 2,243.2
Specialty Contractors 1,373.2 414.3 (421.2) 1,366.3
Total $ 8,235.6 $ 2,113.7 $ (1,813.2) $ 8,536.1
____________________________________________________________________________________________________
(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.
35
——————————————————————————–
Table of Contents (b)Backlog may differ from the transaction prices allocated to the remaining performance obligations as disclosed in Note 2 of the Notes to Condensed Consolidated Financial Statements. Such differences relate to the timing of executing a formal contract or receiving a notice to proceed. More specifically, backlog sometimes may include awards for which a contract has not yet been executed or a notice to proceed has not been issued, but for which there are no remaining major uncertainties that the project will proceed (e.g., adequate funding is in place). The outlook for the Company's growth over the next several years remains favorable, but it could be negatively impacted by future project delays or the timing of project bids, awards, commencements, ramp-up activities and completions, as well as by any adverse follow-on consequences of the COVID-19 pandemic. 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 limited competition for some of the largest project opportunities. In elections over the past several years, voters in numerous states approved dozens of long-term transportation funding measures totaling approximately$200 billion in long-term funding. The largest of these was inLos 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. In addition,California's Senate Bill 1, which was signed into law in 2017, is providing an average of$5.4 billion annually through 2027 for various transportation, mass-transit and bridge projects. Despite recent increases, which have been anticipated, interest rates still remain relatively attractive, which may be conducive to continued spending on various types of infrastructure projects. However, if borrowing rates continue to increase significantly, they could reach levels that may begin to negatively impact infrastructure demand, although this is more likely to impact Building segment projects, as those projects tend to be more directly correlated to economic conditions. The Bipartisan Infrastructure Law was enacted into law onNovember 15, 2021 , and it provides for$1.2 trillion of federal infrastructure funding, including$550 billion in new spending for improvements to the country's surface-transportation network and enhancements to core infrastructure. The law marks the largest federal investment in public transit ever, the single largest dedicated bridge investment since the construction of the interstate highway system and the largest federal investment in passenger rail since the creation of Amtrak, all in addition to providing for regular annual spending for numerous infrastructure projects. This significant incremental funding is anticipated to be spent over the next 10 years, and much of it is allocated for investment in end markets that are directly aligned with the Company's market focus. Accordingly, the Company believes that this significant level of sustained, incremental funding will favorably impact the Company's current work and prospective opportunities over the next decade, as some initial funds have begun flowing to project owners, and substantially increased funding from the Bipartisan Infrastructure Law is expected to occur over the next several years. The Company had certain large Civil segment projects in the Northeast that were completed or were nearing completion in 2021. The Company is pursuing several large prospective projects in various locations, including the Northeast, theWest Coast andGuam , which are expected to be bid and/or awarded in 2022 and 2023. However, the timing and magnitude of revenue contributions from these prospective projects may not fully offset revenue reductions associated with the projects that have been completed or are nearing completion.
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.
Results of Segment Operations
The results of our Civil, Building and Specialty Contractors segments are
discussed below.
Civil Segment
Revenue and income (loss) from construction operations for the Civil segment are
summarized as follows:
Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2022 2021 2022 2021
Revenue $ 403.6 $ 555.4 $ 794.4 $ 1,030.9
Income (loss) from construction operations (9.8) 75.1 (10.7) 125.2
Revenue for the three and six months ended June 30, 2022 decreased 27% and 23%,
respectively, compared to the same periods in 2021. The decrease for both
periods was primarily due to reduced project execution activities on certain
mass-transit and transportation projects in California and the Northeast, most
of which are completed or nearing completion, partially offset by
36
——————————————————————————–
Table of Contents
increased activities on certain newer projects in the Midwest andCalifornia . The revenue decline for both periods was also the result of the follow-on impact of the COVID-19 pandemic, which delayed bidding activities and awards of certain new projects during 2020 and much of 2021. In addition, the decrease for both periods was due to the unfavorable non-cash impact related to the aforementioned settlement of a long-disputed, completed project inMaryland and the temporary unfavorable impact from the successful negotiation of significant lower margin (and lower risk) change orders on a mass-transit project inCalifornia (with the majority of the impact affecting the first quarter of 2022). These approved change orders increased the project's overall estimated profit but reduced the project's percentage of completion and overall margin percentage. This temporary reduction to earnings is expected to reverse itself over the remaining life of the project. For the six-month period, the decrease was also attributable to the impact of the adverse legal ruling on a dispute related to a bridge project inNew York , as discussed above in the section titled Executive Overview. Loss from construction operations for the three and six months endedJune 30, 2022 was$9.8 million and$10.7 million , respectively, compared to income from construction operations of$75.1 million and$125.2 million for the same periods in 2021. For the second quarter of 2022, the change was primarily due to lower profitability associated with the reduced revenue, as discussed above, including the$16.2 million unfavorable non-cash impact related to the settlement of a long-disputed, completed project inMaryland , and, to a lesser extent, the impact of the aforementioned successful negotiation of significant lower margin (and lower risk) change orders on a mass-transit project inCalifornia , which resulted in a temporary unfavorable impact to earnings. For the first six months of 2022, the change was principally due to the aforementioned factors that drove the reduction in revenue and income from construction operations for the second quarter of 2022, including the temporary unfavorable impact of$29.1 million from the successful negotiation of significant lower margin (and lower risk) change orders on a mass-transit project mentioned above, with$17.6 million impacting the first quarter of 2022. This temporary reduction to earnings is expected to reverse itself over the remaining life of the project. For the six-month period, the decrease was also due to a$25.5 million non-cash charge from the adverse legal ruling on a dispute related to a bridge project inNew York . Operating margin was (2.4)% and (1.4)% for the three and six months endedJune 30, 2022 , respectively, compared to 13.5% and 12.1% for the same periods in 2021. The operating margin decreases were due to the above-mentioned factors that drove the changes in revenue and income (loss) from construction operations. New awards in the Civil segment totaled$721 million and$1.2 billion for the three and six months endedJune 30, 2022 , respectively, compared to$119 million and$576 million for the same periods in 2021. The most significant new awards and contract adjustments in the second quarter of 2022 included$293 million of additional funding for a mass-transit project inCalifornia , as well as several projects inGuam , including a$107 million military housing project, an$84 million wharf improvement project and two other military facilities projects valued at$73 million and$49 million , respectively. The COVID-19 pandemic has resulted in significant revenue shortfalls for many state and local government agencies since 2020, and it could continue to cause deferrals or cancellations of certain new projects, depending on the allocation and prioritization of state and local funding, as well as the availability, timing and magnitude of funding from the federal government, including anticipated funding from the recently enacted Bipartisan Infrastructure Law. Backlog for the Civil segment was$4.9 billion as ofJune 30, 2022 compared to$4.3 billion as ofJune 30, 2021 , with the increase primarily due to the new awards and contract adjustments discussed above. The segment continues to experience strong demand reflected in a large, multi-year pipeline of prospective projects, supported by substantial anticipated funding from various voter-approved transportation measures and the Bipartisan Infrastructure Law, and by public agencies' long-term spending plans. The Civil segment is well-positioned to capture its share of these prospective projects, but the timing of new awards remains uncertain.
Building Segment
Revenue and income (loss) from construction operations for the Building segment
are summarized as follows:
Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2022 2021 2022 2021
Revenue $ 266.9 $ 382.7 $ 597.6 $ 789.9
Income (loss) from construction operations (0.1) (2.5) 9.4 8.7
Revenue for the three and six months ended June 30, 2022 decreased 30% and 24%,
respectively, compared to the same periods in 2021, primarily due to reduced
project execution activities on various projects in California , Oklahoma and the
Northeast that are substantially complete, partially offset by contributions
from certain newer projects in California . For the six-month period, the
decrease was partially offset by increased activity on a hospitality and gaming
project in Arkansas . Revenue for both periods was also reduced by the follow-on
impact of the COVID-19 pandemic, which delayed certain project bids and awards.
37
——————————————————————————–
Table of Contents
Loss from construction operations for the second quarter of 2022 was$0.1 million compared to$2.5 million for the second quarter of 2021, and income from construction operations for the six months endedJune 30, 2022 was$9.4 million compared to$8.7 million for the six months endedJune 30, 2021 . The improvement for both periods was primarily due to the absence of prior-year unfavorable adjustments on certain projects, which were immaterial individually and in the aggregate, partially offset by a current-year immaterial unfavorable adjustment on a transportation project in the Northeast, as discussed above in the section titled Executive Overview, and the reduced profit associated with the overall revenue reduction discussed above. Operating margin was (0.03)% and 1.6% for the three and six months endedJune 30, 2022 , respectively, compared to (0.7)% and 1.1% for the same periods in 2021. The changes in operating margin were principally due to the aforementioned factors that drove the changes in revenue and income (loss) from construction operations. New awards in the Building segment totaled$207 million and$532 million for the three and six months endedJune 30, 2022 , respectively, compared to$386 million and$730 million for the same periods in 2021. The most significant new awards in the second quarter of 2022 included$95 million for an educational facility project inCalifornia and an$85 million military housing project inAlaska . Backlog for the Building segment was$2.2 billion as ofJune 30, 2022 compared to$1.6 billion as ofJune 30, 2021 . The strong increase was partly due to the new awards discussed above, but even more attributable to certain other large new awards that were booked in the third quarter of 2021. The Building segment continues to have a large volume of prospective projects across various end markets and geographic locations. We expect continued strong demand as economic conditions remain conducive to customer spending on new building facilities and renovations to existing buildings, supported by a still relatively favorable interest rate environment. However, higher interest rates and the effects of higher inflation, as well as any adverse follow-on effects of the COVID-19 pandemic, could result in reduced demand for our building construction services.
Specialty Contractors Segment
Revenue and income (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) 2022 2021 2022 2021
Revenue $ 190.5 $ 281.2 $ 421.2 $ 606.0
Income (loss) from construction operations (66.7) 10.0 (70.6) 11.3
Revenue for the three and six months ended June 30, 2022 decreased 32% and 31%,
respectively, compared to the same periods in 2021. The decrease for both
periods was principally driven by reduced project execution activities on
various electrical and mechanical projects in the Northeast and California that
are completed or nearing completion, as well as the impact of an unfavorable
adjustment on the aforementioned transportation project in the Northeast, as
discussed above in the section titled Executive Overview. Revenue for both
periods was also reduced by the follow-on impact of the COVID-19 pandemic, which
delayed certain project bids and awards.
Loss from construction operations for the three and six months ended June 30,
2022 was $66.7 million and $70.6 million , respectively, compared to income from
construction operations of $10.0 million and $11.3 million for the same periods
in 2021. The decrease for both periods was largely due to the $33.5 million
impact of an unfavorable adjustment on the aforementioned transportation project
in the Northeast related to the unforeseen cost of project close-out issues,
remediation work, extended project supervision and associated labor
inefficiencies, as well as a non-cash charge of $17.8 million that increased
cost of operations associated with an unexpected partial reversal by an
appellate court of previously awarded legal damages related to a completed
electrical project in New York . The decrease for both periods was also due to
the absence of a $20.1 million prior-year favorable adjustment that resulted
from damages awarded by the trial court's ruling on the same completed
electrical project in New York , and, to a lesser extent, the decrease was also
due to reduced profitability for the segment related to the overall revenue
reduction.
Operating margin was (35.0)% and (16.8)% for the three and six months ended
June 30, 2022 , respectively, compared to 3.5% and 1.9% for the same periods in
2021. The changes in operating margin were principally due to the aforementioned
factors that drove the changes in revenue and income (loss) from construction
operations.
New awards in the Specialty Contractors segment totaled
compared to
COVID-19 pandemic has resulted in, and could continue to result in, reduced
demand from certain commercial and government customers that have been
experiencing funding constraints.
38
——————————————————————————–
Table of Contents
Backlog for the Specialty Contractors segment was$1.4 billion as ofJune 30, 2022 compared to$1.5 billion as ofJune 30, 2021 . The Specialty Contractors segment continues to be increasingly focused on servicing the Company's backlog of large Civil and Building segment projects, particularly in the Northeast andCalifornia . In addition, the segment remains well-positioned to capture its share of new projects for external customers, leveraging the size and scale of our business units that operate inNew York, Texas ,Florida andCalifornia 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
million
compared to
Other Income, Net, Interest Expense and Income Tax (Expense) Benefit
Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2022 2021 2022 2021
Other income, net $ 1.0 $ 1.4 $ 4.7 $ 1.6
Interest expense (16.2) (17.9) (32.7) (35.7)
Income tax (expense) benefit 43.7 (10.6) 47.6 (17.6)
Other income, net for the six months ended
million
federal income tax receivable balances.
Interest expense decreased$1.7 million and$3.0 million for the three and six months endedJune 30, 2022 , respectively, compared to the same periods in 2021. The decreases in the 2022 periods were substantially due to the absence of amortization of discount and debt issuance costs on convertible notes that were repaid in 2021. The effective income tax rate was 41.3% and 37.1% for the three and six months endedJune 30, 2022 , respectively, compared to 20.4% and 20.9% for the same periods in 2021. The effective income tax rates for the 2022 periods were higher than the same periods in 2021 primarily due to pre-tax losses incurred in both 2022 periods and projected for the year. In periods reporting pre-tax losses, a tax benefit increases the effective income tax rate because it increases the tax benefit generated from the pre-tax loss. The tax benefits in the 2022 periods that caused a higher tax rate were primarily the earnings attributable to noncontrolling interests (for which income taxes are not the responsibility of the Company) and state income tax benefits (net of federal tax benefits). The effective income tax rates for both 2022 periods reflect the impact of a relatively low projected pre-tax loss for the year, which magnifies the impact of tax benefits on the effective income tax rate. The 2021 periods reported pre-tax income and pre-tax income was projected for the 2021 year, thereby resulting in tax benefits reducing the effective income tax rate. For a further discussion of income taxes, refer to Note 6 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$175 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$175 million and available cash balances as ofJune 30, 2022 , will be sufficient to fund any working capital needs and debt maturities for the next 12 months and beyond, provided that we are not adversely impacted by unanticipated future events, including further impacts related to the COVID-19 pandemic as discussed above in Executive Overview - COVID-19 Update. Despite our record operating cash flow for the six months endedJune 30, 2022 (as discussed below inCash and Working Capital ), liquidity has been, and could continue to be, adversely impacted by our inability to collect cash due to the follow-on impacts of the COVID-19 pandemic, which have constrained certain customers' funding sources and delayed their ability to make payments on approved contract work. In addition, as discussed above in Executive Overview - COVID-19 Update, the COVID-19 pandemic delayed court and arbitration schedules and also hindered the Company's ability to resolve certain unapproved work. We believe that future funding from the Bipartisan Infrastructure Law and increasing revenue to government customers as travel and commuting levels rise, as discussed above, could offset or mitigate future negative impacts from the COVID-19 pandemic, though it remains difficult to predict any of these factors. Furthermore, the bottleneck of accumulated court and arbitration proceedings that grew during the early years of the pandemic is receding, with certain disputes having been resolved in the first six months of 2022 and other settlement conferences and trial dates now scheduled or being scheduled. In addition, certain disputes and related collection delays were resolved during the latter part of 2021 and the first half of 2022. We experienced substantially improved operating cash flows in the first half of 2022, and also anticipate improved 39
——————————————————————————–
Table of Contents
operating cash generation for the remainder of 2022 compared to 2021, based on
projected cash collections, both from project execution activities and the
resolution of additional outstanding claims and unapproved change orders.
Cash and cash equivalents were$309.3 million as ofJune 30, 2022 compared to$202.2 million as ofDecember 31, 2021 . Cash immediately available for general corporate purposes was$85.1 million and$60.2 million as ofJune 30, 2022 andDecember 31, 2021 , 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 totaled$89.0 million as ofJune 30, 2022 compared to$93.6 million as ofDecember 31, 2021 . Restricted cash and restricted investments atJune 30, 2022 were primarily held to secure insurance-related contingent obligations. During the six months endedJune 30, 2022 , net cash provided by operating activities was$178.7 million , which was the largest operating cash flow for the first six months of any year since the merger betweenTutor-Saliba Corporation andPerini Corporation in 2008. The operating cash flow for the first six months of 2022 is already larger than any full-year result since that same time. In addition, the operating cash flow of$58.0 million for the second quarter of 2022 was the third-largest operating cash result of any second quarter since the 2008 merger, and was an increase of$142.6 million compared to the operating cash usage of$84.6 million in the second quarter of 2021. The increase for the six months of 2022 was primarily due to a decrease in investments in project working capital partially offset by cash utilized by earnings sources. The decrease in investments in project working capital was primarily due to improved collection activity, as reflected by an increase in billings in excess of costs and estimated earnings ("BIE") and a decrease in accounts receivable. During the six months endedJune 30, 2021 , net cash used in operating activities was$131.3 million , due primarily to investments in project working capital, partially offset by cash generated from earnings sources. The increase in working capital for the first six months of 2021 primarily reflected an increase in costs and estimated earnings in excess of billings ("CIE"), a decrease in accounts payable due to timing of payments to suppliers and subcontractors and a decrease in BIE. The increase in CIE in the 2021 period was primarily due to the follow-on impacts of the COVID-19 pandemic, which caused delays in the negotiation and resolution of certain claims and unapproved change orders (due to the postponement or deferrals of certain legal and arbitration proceedings and settlement discussions), and constrained customers' revenue and funding sources, thereby limiting their budgetary discretion to pay the Company for changes approved in scope but for which pricing is pending. Cash flow from operating activities increased$310.0 million when comparing the first six months of 2022 with the same period in 2021. As discussed above, the significant increase was primarily driven by improved collection activity, including collections associated with the continued resolution of certain claims and unapproved change orders that previously required the use of cash. The increase in cash flow from operating activities was also due to an increase in accounts payable compared to a decrease in the prior year due to timing of payments to vendors and subcontractors. Despite the increase in accounts payable in the first six months of 2022, the balance as ofJune 30, 2022 was$137.5 million lower compared to the balance as ofJune 30, 2021 . Net cash used in investing activities during the first six months of 2022 was$27.9 million due to the acquisition of property and equipment for projects totaling$28.8 million , as well as net cash used in investment transactions of$5.5 million , partially offset by proceeds from the sale of property and equipment of$6.4 million . Net cash used in investing activities during the first six months of 2021 was$22.8 million primarily due to the acquisition of property and equipment for projects totaling$18.9 million , as well as net cash used in investment transactions of$7.6 million . Net cash used in financing activities was$48.4 million for the first six months of 2022, which was primarily driven by a$26.9 million net repayment of debt and$20.5 million of net distributions to noncontrolling interests. Net cash used in financing activities was$63.7 million for the first six months of 2021, which was primarily driven by a$58.8 million net repayment of borrowings, including the repayment of the remaining principal balance of the Convertible Notes (as defined in Note 8 of the Notes to Condensed Consolidated Financial Statements), and$3.2 million of net distributions to noncontrolling interests. AtJune 30, 2022 , we had working capital of$1.9 billion , a ratio of current assets to current liabilities of 1.97 and a ratio of debt to equity of 0.62, compared to working capital of$2.1 billion , a ratio of current assets to current liabilities of 2.17 and a ratio of debt to equity of 0.59 atDecember 31, 2021 . 40
——————————————————————————–
Table of Contents Debt 2020 Credit Agreement OnAugust 18, 2020 , the Company entered into a credit agreement (the "2020 Credit Agreement") withBMO Harris Bank N.A ., as Administrative Agent, SwingLine Lender and L/C Issuer and other lenders. The 2020 Credit Agreement provides for a$425.0 million term loan B facility (the "Term Loan B") and a$175.0 million revolving credit facility (the "2020 Revolver"), with sublimits for the issuance of letters of credit and swing line loans up to the aggregate amounts of$75.0 million and$10.0 million , respectively. The Term Loan B will mature onAugust 18, 2027 and the 2020 Revolver will mature onAugust 18, 2025 , in each case, unless any of the 2017 Senior Notes are outstanding onJanuary 30, 2025 (which is 91 days prior to the maturity of the 2017 Senior Notes), in which case, both the Term Loan B and the 2020 Revolver will mature onJanuary 30, 2025 (subject to certain further exceptions). For more information regarding the terms of our 2020 Credit Agreement, refer to Note 8 of the Notes to Condensed Consolidated Financial Statements.
The table below presents our actual and required consolidated first lien net
leverage ratio under the 2020 Credit Agreement for the period, which is
calculated on a rolling four-quarter basis:
Trailing Four Fiscal Quarters Ended
June 30, 2022
Actual Required
First lien net leverage ratio 1.78 to 1.00 ? 2.25 : 1.00
As of
compliance with the covenants under the 2020 Credit Agreement.
Contractual Obligations
There have been no material changes in our contractual obligations from those described in our Annual Report on Form 10K for the year endedDecember 31, 2021 .
Critical Accounting Policies and Estimates
Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10K for the year endedDecember 31, 2021 . Our critical accounting estimates are also identified and discussed in Part II, Item 7 of our Annual Report on Form 10K for the year endedDecember 31, 2021 .
Recently Issued Accounting Pronouncements
There were no new accounting pronouncements issued by theFinancial Accounting Standards Board during the three and six months endedJune 30, 2022 and through the date of filing of this report that had or are expected to have a material impact on the Company's financial position, results of operations or cash flows.
© Edgar Online, source