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 June 30, 1998 Commission File No. 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 Identification No.)
incorporation or organization)
375 Hudson Street, New York, New York 10014
_____________________________________________________________________________
(Address of principal executive offices) (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 (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 [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 5, 1998: 5,358,976 (shares outstanding giving effect
to the 50 percent stock dividend declared on July 24, 1998 for shareholders of
record as of August 3, 1998 are 8,038,464).
-2-
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER
THE SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information contained herein, this Form 10-Q contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 which involve certain risks and uncertainties.
The company's actual results or outcomes may differ materially from those
anticipated. Important factors that the company believes might cause such
differences are discussed in the cautionary statements accompanying the forward-
looking statements on this Form 10-Q. In assessing forward-looking statements
contained herein, readers are urged to carefully read those statements. When
used on this Form 10-Q, the words "estimate," "anticipate," "expect," "believe,"
and similar expressions are intended to identify forward-looking statements.
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 June 30, 1998, the consolidated statements
of operations for the six months and three months ended June 30, 1998 and 1997,
the consolidated statement of changes in stockholders' equity for the six months
ended June 30, 1998 and the consolidated statements of cash flows for the six
months ended June 30, 1998 and 1997 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 any six month and three month period 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.
-3-
The Turner Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
(unaudited)
June 30, December 31,
1998 1997
______________________________________________________________________________
<S> <C> <C>
Assets:
Cash and cash equivalents $ 207,573 $153,241
Marketable securities 28,385 18,902
Construction receivables:
Due on contracts 314,143 334,802
Retainage 188,396 180,329
Unbilled construction costs and related
earnings 174,158 139,969
Real estate 43,612 44,378
Property and equipment, net 23,101 23,241
Prepaid pension cost 62,154 62,854
Other assets 15,555 14,971
__________ ________
Total assets $1,057,077 $972,687
__________ ________
Liabilities:
Construction accounts payable and
accrued expenses:
Trade $ 506,800 $469,734
Retainage 208,060 189,480
Billings in excess of construction
costs and related earnings 121,061 105,021
Notes payable 22,002 21,719
Deferred income taxes 14,633 14,615
Other liabilities 102,777 95,982
__________ ________
Total liabilities 975,333 896,551
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 6
Series B cumulative convertible preferred
stock, $1 par value 839 845
Common stock, $1 par value 8,337 5,441
Paid in capital 46,812 50,250
Accumulated other comprehensive income 17 -
Retained earnings 32,958 26,436
__________ ________
88,978 82,987
Less: Loan to Employee Stock Ownership Plan (3,587) (4,349)
Treasury stock, at cost (3,647) (2,502)
__________ ________
Total stockholders' equity 81,744 76,136
__________ ________
Total liabilities and stockholders' equity $1,057,077 $972,687
__________ ________
</TABLE>
See Notes to Consolidated Financial Statements.
-4-
The Turner Corporation and Subsidiaries
Consolidated Statements of Operations
(in thousands, except share amounts)
<TABLE>
<CAPTION>
(unaudited) (unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
1998 1997 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Value of construction completed
(see below) $1,940,054 $1,681,624 $1,033,616 $889,286
__________ __________ __________ ________
Revenue from construction
contracts $1,737,854 $1,470,348 $ 923,419 $770,276
Cost of construction contracts 1,694,031 1,433,130 901,172 751,273
__________ __________ __________ ________
Earnings from construction
contracts 43,823 37,218 22,247 19,003
Construction operating expenses 27,765 24,420 14,094 12,406
General & administrative expenses 5,213 5,398 2,630 2,637
__________ __________ __________ ________
Income from construction
operations 10,845 7,400 5,523 3,960
Losses from real estate
operations (see below) (305) (320) (126) (141)
Interest expense (458) (3,569) (240) (1,822)
Other income 3,894 1,683 2,320 940
__________ __________ __________ _______
Income before income taxes 13,976 5,194 7,477 2,937
Income tax provision 6,289 2,338 3,364 1,322
__________ __________ _________ _______
Net income $ 7,687 $ 2,856 $ 4,113 $ 1,615
Earnings per common share:
Basic $ 0.81 $ 0.25 $ 0.44 $ 0.15
Diluted $ 0.58 $ 0.20 $ 0.31 $ 0.12
Weighted average common
shares outstanding 8,042,785 7,900,087 8,090,513 7,911,580
Weighted average common
and common equivalent shares
outstanding 12,345,591 10,324,140 12,392,495 10,362,437
Value of construction completed
consists of the following:
Revenue from construction
contracts $1,737,854 $1,470,348 $ 923,419 $ 770,276
Construction costs incurred by
owners in connection with work
under construction management
and similar contracts 202,200 211,276 110,197 119,010
__________ __________ __________ __________
Value of construction completed $1,940,054 $1,681,624 $1,033,616 $ 889,286
Real estate operations consist
of the following:
Real estate sales $ - $ 2,576 $ - $ 2,416
Costs of sales - (2,576) - (2,416)
Rental & other income 952 2,692 494 1,343
Cost of operations (503) (1,646) (243) (806)
Depreciation and amortization
expense (754) (1,366) (377) (678)
_________ __________ ________ __________
Losses from real estate
operations $ (305) $ (320) $ (126) $ (141)
</TABLE>
See Notes to Consolidated Financial Statements
-5-
The Turner Corporation and Subsidiaries
Consolidated Statement of Changes in Stockholders' Equity
For the six months ended June 30, 1998
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Comprehensive
Total Income
_____________________________________________________________________________
<S> <C> <C>
Retained earnings
Balance at January 1 $ 26,436
Net income 7,687 $7,687
Cash dividends on Series C preferred stock (383)
Cash dividends on Series D preferred stock (255)
Cash dividends on Series B preferred stock (909)
Tax benefits on Series B preferred stock
dividends 382
_________
Balance at June 30 32,958
Accumulated other comprehensive income,
net of tax
Balance at January 1 -
Net unrealized gains on marketable
securities 17
Other comprehensive income 17
_________ _______
Comprehensive income $7,704
_______
Balance at June 30 17
_________
Convertible preferred stock, Series C
Balance at January 1 and June 30 9
_________
Convertible preferred stock, Series D
Balance at January 1 and June 30 6
_________
Convertible preferred stock, Series B
Balance at January 1 845
Preferred stock retired (6)
_________
Balance at June 30 839
_________
Common stock
Balance at January 1 5,441
Three-for-two stock split 2,720
Common stock issued 176
_________
Balance at June 30 8,337
_________
Paid in capital
Balance at January 1 50,250
Three-for-two stock split (2,720)
Excess of proceeds over par value of common
stock issued 1,409
Tax benefits from stock options exercised 58
Retirement of Series B preferred stock (158)
Exercise of stock awards (2,027)
_________
Balance at June 30 46,812
---------
Loan to Employee Stock Ownership Plan (ESOP)
Balance at January 1 (4,349)
Repayment from loan to ESOP 762
_________
Balance at June 30 (3,587)
_________
Treasury stock
Balance at January 1 (2,502)
Purchase of treasury stock (2,014)
Treasury stock issued 869
_________
Balance at June 30 (3,647)
_________
Total stockholders' equity $ 81,744
_________
</TABLE>
See Notes to Consolidated Financial Statements.
-6-
The Turner Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
(unaudited)
Six Months Ended
June 30,
1998 1997
_____________________________________________________________________________
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,687 $ 2,856
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,635 5,388
Net periodic pension charge 700 700
Changes in operating assets and liabilities:
Increase in construction receivables (21,597) (47,205)
Increase in construction accounts payable
and accrued expenses 71,686 22,886
Decrease (increase) in other assets (2,772) 3,640
Increase in other liabilities 7,356 8,287
________ ________
Net cash provided by (used in) operating activities 67,695 (3,448)
________ ________
Cash flows from investing activities:
Purchases of marketable securities (24,391) -
Proceeds from sale of marketable securities 14,944 -
Distributions from joint ventures 18 -
Proceeds from sale of real estate, net - 2,514
Increase in real estate - (266)
Purchases of property & equipment (2,204) (3,888)
Proceeds from sale of property & equipment 27 125
Repayments on notes receivable 458 891
________ ________
Net cash used in investing activities (11,148) (624)
________ ________
Cash flows from financing activities:
Common stock issued 1,585 352
Cash dividends to preferred stockholders (1,547) (1,296)
Repayments from loan to ESOP 762 711
Principal payments under capital lease obligations (1,001) (1,122)
Purchases of treasury stock (2,014) (188)
Payments on borrowings - (175)
________ ________
Net cash used in financing activities (2,215) (1,718)
Net increase (decrease) in cash and cash
equivalents 54,332 (5,790)
Cash and cash equivalents at beginning of period 153,241 121,981
________ ________
Cash and cash equivalents at end of period $207,573 $116,191
______________________________________________________________________________
Noncash investing activities:
Note receivable from sale of net assets of
construction affiliate $ 1,200 $ -
Change in unrealized gain on marketable securities 17 -
Noncash financing activities:
Treasury stock issued under stock-based
compensation plans 869 -
Capital lease obligations incurred by the company 1,284 989
Conversion of debenture to Series D convertible
preferred stock - 6,000
</TABLE>
See Notes to Consolidated Financial Statements.
-7-
The Turner Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share amounts)
<TABLE>
<CAPTION>
1. Earnings Per Share
The following table reconciles the components of basic and diluted earnings
per share:
Six Months Ended
June 30,
1998 1997
<S> <C> <C>
____________________________________________________________________________
Numerator:
Net income $7,687 $2,856
Preferred stock dividends, net of tax benefits (1,165) (913)
_________ _________
Basic earnings per common share - income
available for common shareholders 6,522 1,943
__________ __________
Effect of dilutive securities (a):
Series C preferred stock dividends 383 -
Series D preferred stock dividends 255 -
Series B preferred stock dividends,
net of tax benefits 527 530
Series B preferred stock dividend
differential (527) (530)
Interest expense on Series D convertible
debenture, net of tax - 148
__________ __________
638 148
Diluted earnings per common share - income
available for common shareholders $7,160 $2,091
__________ __________
Denominator:
Basic earnings per common share - weighted
average common shares outstanding 8,042,785 7,900,087
__________ __________
Effect of dilutive securities (a):
Stock-based compensation plans 638,538 254,323
Convertible preferred stock, Series C 1,500,000 -
Convertible preferred stock, Series D 900,000 900,000
Convertible preferred stock, Series B 1,264,268 1,269,730
__________ __________
4,302,806 2,424,053
Diluted earnings per common share - weighted
average common and common equivalent
shares outstanding 12,345,591 10,324,140
Basic earnings per common share $0.81 $0.25
Diluted earnings per common share $0.58 $0.20
(a)The common stock equivalent shares for the six months ended June 30, 1997
did not include the Series C convertible preferred shares in the
calculation of diluted earnings per common share because the effect would
be antidilutive.
</TABLE>
2. Stock Split
On July 24, 1998, the Board of Directors authorized a three-for-two stock
split, effected in the form of a 50 percent stock dividend to be paid on August
14, 1998 to shareholders of record on August 3, 1998. An amount equal to the
par value of the common shares to be issued was transferred from paid in capital
to common stock. This transfer has been reflected in the Consolidated Statement
of Changes in Common Stockholders' Equity at June 30, 1998. In addition, all
references to number of shares and to per share information in the consolidated
financial statements have been adjusted to reflect the stock split on a
retroactive basis.
-8-
3. Accounting Pronouncements
In February 1998, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This statement
revises employers' disclosures about pension and other postretirement benefit
plans. The Statement does not change the measurement or recognition of those
plans. The Statement standardizes the disclosure requirements for pensions and
other postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair value of plan assets
that will facilitate financial analysis, and eliminates certain disclosures.
The disclosure requirements for this statement are effective for fiscal years
beginning after December 15, 1997. The Company will conform with the new
standard as of December 31, 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement requires that the Company
report financial and descriptive information about its reportable operating
segments in financial statements issued to shareholders for interim and annual
periods. The Statement also establishes standards for related disclosures about
products and services, geographic areas and major customers. Under this
Statement, operating segments are components of an enterprise about which
separate financial information is available that is regularly evaluated by the
enterprise's chief operational decision-maker in deciding how to allocate
resources and in assessing performance. This statement is effective for fiscal
years beginning after December 15, 1997. The Company will conform with the new
standard as of December 31, 1998.
In July 1996, the Emerging Issues Task Force reached a consensus, on Issue
96-14, "Accounting for the Costs Associated with Modifying Computer Software for
the Year 2000," which requires that costs associated with modifying computer
software for the year 2000 be expensed as incurred. Management has evaluated
the impact of Year 2000 issues on the Company's business and operations. The
Company believes, based upon its internal reviews and other factors, that future
external and internal costs to be incurred relating to the modification of
internal-use software for the year 2000 will not have a material adverse
effect on the Company's results of operations or financial position.
-9-
Item 2 Management's Discussion & Analysis of Financial Condition and Results
of Operations
The company reported net income of $4.1 million or $0.44 basic and $0.31
diluted earnings per share for the second quarter of 1998. This compares to
$1.6 million or $0.15 basic and $0.12 diluted earnings per share for the
second quarter of 1997. For the first six months, net income was $7.7 million
or $0.81 basic and $0.58 diluted earnings per share compared to $2.9 million
or $0.25 basic and $0.20 diluted earnings per share a year earlier.
Value of construction completed, which includes in addition to revenue,
construction costs incurred by owners on construction management and similar
projects, increased 16% in the second quarter of 1998 to $1.0 billion, up
$144 million over the second quarter of 1997. For the first six months, value
of construction completed of $1.9 billion was $258 million, or 15% higher
compared to the same period in 1997. Revenue from construction contracts
increased 20% in the second quarter of 1998 to $923 million, up $153 million
over the second quarter of 1997. For the first six months, revenue from
construction contracts of $1.7 billion was $268 million, or 18% higher compared
to the same period in 1997. This growth reflects the continuation of a strong
market across the country in non-residential construction.
Earnings from construction contracts for the second quarter of 1998 increased
17% to $22.2 million from $19.0 million a year earlier. For the first six
months, earnings from construction contracts increased 18% to $43.8 million
compared to the same period in 1997. These results reflect not only the growth
in construction revenue but also an improvement in margins for new contracts
secured over the past several years.
Construction operating expenses, which are costs incurred by the company's
construction operating units and subsidiaries that are not directly attributable
and charged to construction contracts, for the second quarter of 1998 increased
14% to $14.1 million from $12.4 million a year earlier. For the first six
months, expenses of $27.8 million were also 14% higher compared to the same
period in 1997. This increase was primarily attributable to an increase in
incentive compensation expense as a result of improved profitability levels of
the company and higher levels of construction activity.
General and administrative expenses, representing corporate overhead expenses,
were $2.6 million for the second quarter of 1998, unchanged from a year ago.
For the first six months, expenses declined 3% to $5.2 million compared to the
same period in 1997.
Losses from real estate operations were $126,000 and $305,000 for the three and
six months ended June 30, 1998, respectively. Rental and other income and the
cost of operations for the first six months of 1998, declined 65% and 69%,
respectively, as a result of real estate sales over the past twelve months.
Interest expense decreased 87% in the second quarter of 1998 to $240,000, down
$1.6 million from the second quarter of 1997. This decrease was due primarily
to lower debt levels in 1998. In December 1997, the Company repaid its
$39.5 million 11.74% Senior Notes.
Other income increased 147% in the second quarter of 1998 to $2.3 million, up
$1.4 million over the second quarter of 1997. For the first six months, other
income of $3.9 million was 131% or $2.2 million higher compared to the same
period in 1997. This increase is due to increased interest income attributable
to higher investment balances maintained by the Company.
At June 30, 1998, the company's backlog of value of construction to be
completed was $4.60 billion and anticipated earnings associated with backlog
from construction contracts was $114.1 million, compared to $4.01 billion and
$104.7 million, respectively, at December 31, 1997. This increase was
attributable to new contracts with a construction value of $1.5 billion being
secured in the second quarter of 1998, a 107% increase over the $703 million of
new contracts secured in the second quarter of 1997. Estimated earnings from
construction contracts cannot and should not be used as the basis of predictions
with respect to future net income.
-10-
Item 2 Management's Discussion & Analysis of Financial Condition and Results
of Operations (continued)
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 are not necessarily meaningful in the
short run.
Cash flows for the six months ended June 30, 1998, resulted in a net increase
of funds of $54.3 million. Cash flows provided by operating activities amounted
to $67.7 million due primarily to an increase in construction activity and the
timing of associated receipts and disbursements. Cash flows used in
investing activities amounted to $11.1 million which is principally due to
the purchases and sales of marketable securities. Cash flows used in
financing activities amounted to $2.2 million due primarily to the purchases
of treasury stock. In November 1997, the Company announced the adoption of
a stock repurchase program under which up to 5 percent of the Company's
common stock may be repurchased. Repurchases may be made from time to time
in the open market or in negotiated transactions as market and economic
conditions warrant and may be discontinued at any time. The company will
fund repurchases through internally generated funds. The company's
management believes that the company's financial condition and available
credit facilities at June 30, 1998 are sufficient to support the present and
prospective levels of the company's operations.
-11-
Part II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibit 11 - Incorporated herein by reference to Note 1 to the Company's
Consolidated Financial Statements.
(b) During the six months ended June 30, 1998 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: August 10 , 1998 /s/ H. J. Parmelee
_______________________
(Signature)
H. J. Parmelee
President
Date: August 10, 1998 /s/ D. G. Sleeman
______________________
(Signature)
D. G. Sleeman
Senior Vice President,
Chief Financial Officer
Chief Accounting Officer
<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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 207,573
<SECURITIES> 28,385
<RECEIVABLES> 676,697
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 66,225
<DEPRECIATION> 43,124
<TOTAL-ASSETS> 1,057,077
<CURRENT-LIABILITIES> 0
<BONDS> 22,002
0
854
<COMMON> 8,337
<OTHER-SE> 72,553
<TOTAL-LIABILITY-AND-EQUITY> 1,057,077
<SALES> 0
<TOTAL-REVENUES> 1,738,806
<CGS> 0
<TOTAL-COSTS> 1,695,288
<OTHER-EXPENSES> 32,978
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 458
<INCOME-PRETAX> 13,976
<INCOME-TAX> 6,289
<INCOME-CONTINUING> 7,687
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,687
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.58
</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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 116,191
<SECURITIES> 0
<RECEIVABLES> 643,608
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 63,477
<DEPRECIATION> 39,212
<TOTAL-ASSETS> 927,854
<CURRENT-LIABILITIES> 0
<BONDS> 75,497
0
860
<COMMON> 5,345
<OTHER-SE> 62,792
<TOTAL-LIABILITY-AND-EQUITY> 927,854
<SALES> 0
<TOTAL-REVENUES> 1,475,616
<CGS> 0
<TOTAL-COSTS> 1,438,718
<OTHER-EXPENSES> 29,818
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,569
<INCOME-PRETAX> 5,194
<INCOME-TAX> 2,338
<INCOME-CONTINUING> 2,856
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,856
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.20
</TABLE>
