SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1997 Commission File Number 1-8719
THE TURNER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3209884
(State or other jurisdiction of (I.R.S. Employer Id. No.)
incorporation or organization)
375 Hudson Street New York, New York 10014
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code
(212) 229-6000
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of November 12, 1997:
5,323,825.
-2-
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Company or group of companies for which report is filed:
THE TURNER CORPORATION AND CONSOLIDATED SUBSIDIARIES
The consolidated balance sheet as of September 30, 1997,
the consolidated statements of operations and retained
earnings and the consolidated statements of cash flows for
the nine months ended September 30, 1997 and 1996 are
unaudited, but in the opinion of the company's management
reflect all adjustments, consisting only of normal
recurring adjustments, which are necessary to present
fairly the financial condition and results of operations at
those dates and for those periods. The results of
operations for the interim periods are not necessarily
indicative of results for a full year. It is suggested
that these financial statements be read in conjunction with
the audited financial statements and notes thereto included
in the company's latest annual report.
<TABLE>
-3-
THE TURNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<S> <C> <C>
(unaudited)
September 30 December 31,
1997 1996
Assets:
Cash and cash equivalents $165,970 $121,981
Construction receivables:
Due on contracts 335,143 306,109
Retainage 169,388 147,640
Unbilled construction costs and 182,888 142,654
related earnings
Real estate 44,822 69,760
Property and equipment, net 24,154 23,225
Prepaid pension cost 63,008 63,471
Other assets 15,487 19,756
Total assets $1,000,860 $894,596
Liabilities:
Construction accounts payable and accrued expenses:
Trade $459,147 $410,304
Retainage 183,587 165,049
Billings in excess of construction
costs and related earnings 105,258 84,367
Notes payable and convertible debenture 62,236 81,805
Deferred income taxes 10,951 11,526
Other liabilities 103,258 81,415
Total liabilities 924,437 834,466
Stockholders' Equity:
Series C, 8.5% cumulative convertible
preferred stock, $1 par value 9 9
Series D, 8.5% cumulative convertible
preferred stock, $1 par value 6 -
Series B, cumulative convertible
preferred stock, $1 par value 845 848
Common stock, $1 par value 5,376 5,291
Paid in capital 49,212 38,388
Retained earnings 26,224 22,580
81,672 67,116
Less: Loan to Employee Stock Ownership Plan (4,728) (6,595)
Treasury stock, at cost (521) (391)
Total stockholders' equity 76,423 60,130
Total liabilities and stockholders'
equity $1,000,860 $894,596
See Notes to Consolidated Financial Statements
-4-
THE TURNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(in thousands, except share amounts)
(unaudited) (unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
1997 1996 1997 1996
Value of construction completed
(Note 1 $2,669,156 $2,448,486 $987,532 $912,133
Revenue from construction
contracts $2,322,214 $2,058,370 $851,866 $756,678
Cost of construction contracts 2,263,641 2,006,158 830,511 735,477
Earnings from construction
contracts 58,573 52,212 21,355 21,201
Construction operating expenses 34,939 37,533 10,519 14,388
General & administrative expenses 11,849 9,805 6,451 4,560
Income from construction
operations 11,785 4,874 4,385 2,253
Losses from real estate operations
(Note 2) (546) (281) (226) (24)
Interest expense (5,087) (5,932) (1,518) (1,965)
Other income 3,118 1,217 1,435 412
Income (loss) before income taxes 9,270 (122) 4,076 676
Income tax provision (benefit) 4,172 (58) 1,834 301
Net income (loss) 5,098 (64) 2,242 375
Dividends on preferred stock (1,454) (1,371) (541) (457)
Net income (loss) available for
common shareholders 3,644 (1,435) 1,701 (82)
Retained earnings, beginning of
period 22,580 26,102 24,523 24,749
Retained earnings, end of period $26,224 $24,667 $26,224 $24,667
Net income (loss) per common share:
Primary $0.65 ($0.27) $0.30 ($0.02)
Fully diluted $0.53 (a) $0.24 (a)
Weighted average common and common
equivalent shares outstanding:
Primary 5,602,24 5,335,015 5,745,994 5,355,357
Fully diluted 7,354,00 6,204,719 8,372,762 6,208,678
(a) Antidilutive
See Notes to Consolidated Financial Statements
-5-
THE TURNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended
September 30,
1997 1996
Cash flows from operating activities:
Net income (loss) $5,098 ($64)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 8,084 9,375
Net periodic pension charge (credit) 463 (975)
Stock-based compensation charge 4,299 -
Changes in operating assets and liabilities:
Increase in construction receivables (91,016) (117,321)
Increase in construction accounts payable
and accrued expenses 88,272 106,388
Decrease in other assets 2,673 120
Increase (decrease) in other liabilities 21,776 (7,830)
Net cash provided by (used in)operating
activities 39,649 (10,307)
Cash flows from investing activities:
Purchases of marketable securities - (211)
Distributions from joint ventures 590 890
Proceeds from sale of real estate, net 22,872 54
Increase in real estate (431) (1,877)
Purchases of property & equipment (5,006) (4,804)
Proceeds from sale of property & equipment 105 207
Repayments on notes receivable 1,135 1,200
Net cash provided by (used in) investing
activities 19,265 (4,541)
Cash flows from financing activities:
Common stock issued 622 148
Cash dividends to preferred stockholders (2,029) (1,948)
Repayments from loan to ESOP 1,867 1,718
Principal payments under capital lease
obligations (1,653) (2,234)
Proceeds from issuance of treasury stock - 49
Purchase of treasury stock (188) -
Proceeds from borrowings - 5,507
Payments on borrowings (13,544) (7,731)
Net cash used in financing activities (14,925) (4,491)
Net increase (decrease) in cash and cash equivalents 43,989 (19,339)
Cash and cash equivalents at beginning of period 121,981 87,969
Cash and cash equivalents at end of period $165,970 $68,630
Noncash investing activities:
Change in unrealized loss on marketable
securities - ($82)
Noncash financing activities:
Conversion of debenture to Series D
convertible preferred stock $6,000 -
Capital lease obligations incurred by
the Company 1,628 -
See Notes to Consolidated Financial Statements
-6-
THE TURNER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
1. Value of construction completed represents construction costs incurred
and earnings during the period as follows:
Nine Months Ended
September 30,
1997 1996
Revenue from construction contracts $2,322,214 $2,058,370
Construction costs incurred by owners in
connection with work under construction
management and similar contracts 346,942 390,116
Value of construction completed $2,669,156 $2,448,486
Three Months Ended
September 30,
1997 1996
Revenue from construction contracts $851,866 $756,678
Construction costs incurred by owners in
connection with work under construction
management and similar contracts 135,666 155,455
Value of construction completed $987,532 $912,133
2. Losses from real estate operations consist of revenues and related
costs as follows:
Nine Months Ended
September 30,
1997 1996
Real estate sales $23,567 $54
Costs of sales (23,567) (54)
Rental & other income 3,664 6,257
Cost of operations (2,315) (3,588)
Depreciation and amortization expense (1,895) (2,950)
Losses from real estate operations $(546) $(281)
Three Months Ended
September 30,
1997 1996
Real estate sales $20,991 $-
Costs of sales (20,991) -
Rental & other income 972 2,202
Cost of operations (669) (1,227)
Depreciation and amortization expense (529) (999)
Losses from real estate operations $(226) $(24)
3.On March 3, 1997 the Financial Accounting Standards Board
(the "FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share", which
will eliminate the presentation of primary and fully
diluted earnings per share ("EPS") and will require
presentation of basic and diluted EPS. The principal
change is that common stock equivalents are not considered
in the computation of basic EPS. In addition, the FASB
issued SFAS No. 129, "Disclosure of Information About
Capital Structure" which will establish new standards for
disclosing information about an entity's capital structure.
These statements are effective for years ending after
December 15, 1997, early adoption of SFAS No. 128 is not
permitted. The Company will conform with the new standards
as of December 31, 1997, which will require the restatement
of prior years' EPS. Management believes that the impact
upon adoption will not be material to the financial
statements. The proforma basic EPS would have been $0.69
and $0.32 and diluted EPS would have been $0.55 and $0.24
for the nine months and three months ended September 30,
1997, respectively, had early adoption been permitted.
4.On November 12, 1997, the Corporation notified the holders
of its 11.74% Senior Notes that the Company will elect to
optionally prepay all of the Notes outstanding effective
December 22, 1997. The Notes were originally scheduled to
be repaid in equal annual installments through December 21,
2001. The prepayment of the Notes will result in a $39.5
million debt reduction for the Company and an extraordinary
charge, net of tax, of approximately $2.4 million, or a
$.45 per share extraordinary loss impact to basic EPS in
the fourth quarter of 1997. Such prepayment will be funded
by the Company's existing cash position.
-7-
Item 2. Management's Discussion & Analysis of Financial
Condition and Results of Operations
The company reported net income of $2.2 million or $0.30 per
common share for the third quarter of 1997, up $1.9 million
over the third quarter of 1996. For the first nine months,
net income of $5.1 million or $0.65 per common share was
$5.2 million higher than the same period in 1996.
Value of construction completed, which includes in addition
to revenue, construction costs incurred by owners on
construction management and similar projects, increased 8%
in the third quarter of 1997 to $988 million, up $75
million over the third quarter of 1996. For the first nine
months, value of construction completed of $2.7 billion was
$221 million, or 9% higher than the same period in 1996.
Revenue from construction contracts increased 13% in the
third quarter of 1997 to $852 million, up $95 million over
the same period in 1996. For the first nine months,
revenue from construction contracts of $2.3 billion was
$264 million, or 13% higher than the same period in 1996.
These results continue to reflect the growth of the
Company's non-residential construction market and the high
level of construction activity throughout the country.
Earnings from construction contracts improved in the third
quarter of 1997 to $21.4 million. For the first nine
months, earnings from construction contracts of $58.6
million were $6.4 million, or 12% higher than the same
period in 1996. Results for the first nine months of 1996
include the impact of a $5.0 million loss on a construction
project in Minneapolis. The Company's improved earnings
performance continues to reflect improved profitability of
work secured over the past year.
Operating and general and administrative expenses decreased
10% in the third quarter of 1997 to $17.0 million, down
$2.0 million from the third quarter of 1996. Included in
the third quarter results is a stock-based compensation
charge of $4.3 million under which compensation costs were
recognized for stock and stock option grants to Officers of
the Company and the Company's Board of Directors. Results
for the third quarter of 1996 include $1.5 million of
expenses relating to management changes. For the first
nine months, expenses of $46.8 million were slightly lower
than the same period in 1996. Due to increased revenue
from construction contracts, expenses as a percentage of
revenue have continued to decline from 2.30% to 2.01% for
the nine months ended September 30, 1997.
Losses from real estate operations were $226,000 and
$546,000 for the three and nine month periods ended
September 30, 1997, respectively. Rental and other income
and the cost of operations for the nine months ended
September 30, 1997, declined 41% and 35%, respectively, as
a result of real estate sales over the past twelve months.
In the third quarter of 1997, the Company sold the
following significant properties: an undeveloped land parcel
located in Indianapolis,Indiana for $2.3 million, two office
properties located in suburban Grand Rapids, Michigan for
$12.2 million and an apartment complex in Orlando, Florida
for $6.0 million. In the second quarter of 1997, the
Company sold its partnership interest in an office building
located in Bellevue, Washington for $2.4 million.
Interest expense decreased 23% in the third quarter of 1997
to $1.5 million, down $447,000 from the third quarter of
1996. For the first nine months, interest expense of $5.1
million was $845,000, or 14% lower than the same period in
1996. Decreased interest expense is due to lower debt
levels in 1997.
Other income increased 248% in the third quarter of 1997 to
$1.4 million, up $1.0 million over the third quarter of
1996. For the first nine months, other income of $3.1
million was $1.9 million, or 156% higher than the same
period in 1996. Increased other income is due to increased
interest income attributable to higher investment balances
maintained by the Company.
At September 30, 1997, the company's backlog of value of
construction to be completed was $4.05 billion and
anticipated earnings associated with backlog from
construction contracts was $103.6 million, compared to
$4.08 billion and $99.5 million, respectively, at December
31, 1996. Estimated earnings from construction contracts
cannot and should not be used as the basis of predictions
with respect to future net income.
Because of the varying proportion of construction,
construction management and construction consulting
contracts, the relationship of value of work completed and
earnings from construction contracts is not necessarily
meaningful in the short run.
-8-
Cash flows for the nine months ended September 30, 1997,
resulted in a net increase of funds of $44.0 million. Cash
flows provided by operating activities amounted to $39.6
million due primarily to an increase in construction
activity. Included in net operating cash flows is an
adjustment to net income for the aforementioned stock-based
compensation charge which effectively increased
stockholders' equity by $1.9 million. Cash flows provided
by investing activities amounted to $19.3 million which is
principally due to real estate sales during the period.
Cash flows used in financing activities amounted to $14.9
million due primarily to debt paydowns on real estate
properties sold during the period. On November 12, 1997,
the Corporation notified the holders of its 11.74% Senior
Notes that the Company will elect to optionally prepay all
of the Notes outstanding effective December 22, 1997 (Note
4). The prepayment of the Notes will result in a $39.5
million debt reduction for the Company and an extraordinary
charge, net of tax, of approximately $2.4 million. Such
prepayment will be funded by the Company's existing cash
position. The company's management believes that the
company's financial condition and available credit
facilities at September 30, 1997 are sufficient to support
the present and prospective levels of the company's
operations.
-9-
Part II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibit 11 - Computation of Earnings Per Share
for the nine months ended
September 30, 1997 and 1996.
(b)During the nine months ended September 30, 1997,
no Form 8-K was required to be filed reporting any
material or unusual charges or credits to income, or
any change in independent accountants.
SIGNATURES
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:
THE TURNER CORPORATION
(Registrant)
Date: November 14, 1997 /s/ H. J. Parmelee
(Signature)
H. J. Parmelee
President
Date: November 14, 1997 /s/ D. G. Sleeman
(Signature)
D. G. Sleeman
Senior Vice President,
Chief Financial Officer
and Chief Accounting Officer
</TABLE>
<TABLE>
Exhibit 11
THE TURNER CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
<S> <C> <C>
(unaudited)
Nine Months Ended
September 30,
1997 1996
PRIMARY
Weighted average common shares outstanding 5,277 5,237
Common stock equivalents (assuming the use of the
proceeds from their exercise or issuance to acquire
treasury stock using the average market price) granted
under stock-based compensation plans 325 98
Weighted average common and common equivalent shares
outstanding 5,602 5,335
Net income (loss) available to common stockholders -
primary $3,644 ($1,435)
Primary earnings (loss) per common share $0.65 ($0.27)
FULLY DILUTED
Weighted average common shares outstanding 5,277 5,237
Common stock equivalents (assuming the use of the
proceeds from their exercise or issuance to acquire
treasury stock using the closing market price)
granted under stock-based compensation plans 631 120
Conversion of Series D convertible preferred stock to
common stock 600 -
Conversion of Series B convertible preferred stock
to common stock 846 848
Weighted average common and common equivalent shares
outstanding 7,354 6,205
Net income (loss) available to common stockholders
less Series B preferred dividend differential, net
of tax $3,644 ($1,435)
Dividend on Series D convertible preferred stock 85 -
Interest expense on Series D convertible debenture,
net of tax 148 -
Net income (loss) available to common stockholders -
fully diluted $3,877 ($1,435)
Fully diluted earnings (loss) per common share $0.53 (0.23)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains certain summary financial information extracted from the
Company's financial statements and notes thereto and is qualified in its entirey
by reference to such financial statements. The Company files an unclassified
balance sheet, certain line items are not applicable. All values except share
amounts are in thousands.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 165,970
<SECURITIES> 0
<RECEIVABLES> 687,419
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 64,485
<DEPRECIATION> 40,331
<TOTAL-ASSETS> 1,000,860
<CURRENT-LIABILITIES> 0
<BONDS> 62,236
<COMMON> 5,376
0
860
<OTHER-SE> 70,187
<TOTAL-LIABILITY-AND-EQUITY> 1,000,860
<SALES> 0
<TOTAL-REVENUES> 2,349,445
<CGS> 0
<TOTAL-COSTS> 2,291,418
<OTHER-EXPENSES> 46,788
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,087
<INCOME-PRETAX> 9,270
<INCOME-TAX> 4,172
<INCOME-CONTINUING> 5,098
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,098
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.53
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains certain summary financial information extracted from the
Company's financial statements and notes thereto and is qualified in its
entirety by reference to such financial statements. The Company files an
unclassified balance sheet, certain line items are not applicable. All values
except share amounts are in thousands.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 68,630
<SECURITIES> 4,938
<RECEIVABLES> 646,637
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 61,868
<DEPRECIATION> 40,776
<TOTAL-ASSETS> 917,880
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 5,288
0
857
<OTHER-SE> 55,555
<TOTAL-LIABILITY-AND-EQUITY> 917,880
<SALES> 0
<TOTAL-REVENUES> 2,064,681
<CGS> 0
<TOTAL-COSTS> 2,012,750
<OTHER-EXPENSES> 47,338
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,932
<INCOME-PRETAX> (122)
<INCOME-TAX> (58)
<INCOME-CONTINUING> (64)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (64)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.23)
</TABLE>
