TUTOR PERINI CORP (TPC) FY 2021 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included in Item 15. Exhibits and Financial Statement Schedules in this Annual Report. This discussion contains forward-looking statements, which involve risks and uncertainties. For cautions about relying on such forward-looking statements, please refer to the section entitled Forward-Looking Statements at the beginning of this Annual Report immediately prior to Item 1. Our actual results

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could differ materially from those anticipated in the forward-looking statements as a result of certain factors, including, but not limited to, those discussed in Item 1A. Risk Factors and elsewhere in this Annual Report.

Comparison of 2020 to 2019 Results

For a discussion comparing our 2020 results to our 2019 results, refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission on February 24, 2021.

Our 2019 results of operations were negatively impacted by a $379.9 million pre-tax, non-cash goodwill impairment charge and a $166.8 million pre-tax charge related to the adverse SR 99 jury verdict. The goodwill impairment charge reduced income from construction operations for the Civil, Building and Specialty Contractors segments by $210.2 million, $13.5 million and $156.2 million, respectively, for the year ended December 31, 2019. The SR 99-related charge principally reduced revenue and income from construction operations in the Civil segment. For additional information on the goodwill impairment charge, refer to the Second Quarter of 2019 Goodwill Impairment discussion in Note 6 of the Notes to Consolidated Financial Statements. For additional information on the SR 99-related charge, refer to the Alaskan Way Viaduct Matter discussion in Note 8 of the Notes to Consolidated Financial Statements.

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 has also hindered the Company’s ability to resolve unapproved work, resulting in the need for the Company to temporarily fund certain project costs that would normally be more promptly negotiated, billed to and collected from customers, which has largely contributed to an increase in costs and estimated earnings in excess of billings (“CIE”). These delays in resolving and recovering on such claims adversely affected our liquidity and financial results in 2021. However, we anticipate a significant improvement in the pace and magnitude of dispute resolutions and corresponding cash recoveries in 2022, assuming there is no worsening of the pandemic.

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, and the negative impact on operating results in 2022 is expected to continue due to previously limited bidding and proposal opportunities. In addition, many of our state and local government customers’ revenue sources have been negatively impacted by the pandemic due to curtailed ridership on mass-transit systems (buses, subways, trains, etc.), travel on commercial airlines, and driving by the general public, which 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 timely for amounts due. The revenue reductions have also led to, and could continue to result in, customers delaying bid solicitations and contract awards for some of their planned infrastructure projects. 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 the substantial funding relating to the recently enacted federal infrastructure legislation is distributed to our 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 2021 was $4.6 billion compared to $5.3 billion for 2020. The decrease was primarily due to reduced project execution activities in the Building segment, as various projects have completed or are nearing completion, while newer projects that have been recently awarded are yet to contribute meaningfully to revenue. Revenue for both 2020 and 2021 was negatively impacted by the COVID-19 pandemic, which resulted in delays in new awards. The pandemic also caused delays in the execution of certain projects, which negatively impacted revenue for both years.

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Income from construction operations for 2021 was $226.8 million compared to $262.3 million for 2020. The decrease was primarily due to the revenue decline discussed above, as well as various unfavorable impacts due to changes in estimates totaling $63.1 million on a transportation project in the Northeast that affected all three segments and a separate $16.2 million impact due to a change in estimate on a Specialty Contractors segment mass-transit project. These changes in estimates reflected the temporary negative impact to earnings from growth in unapproved change orders, which resulted in a reduction in the projects’ percentage of completion (and, correspondingly, a reduction in the percentage of estimated profit recognized for the year ended December 31, 2021 for these projects), and, to a lesser degree, project charges. The temporary reduction to earnings is expected to reverse itself as the projects progress toward completion and the negotiation and settlement of the unapproved change orders could result in additional profit for the incremental work. The decrease was partially offset by favorable impacts due to changes in estimates totaling $45.3 million on certain Civil segment mass-transit projects and a $20.1 million favorable adjustment related to a legal judgment on a completed project in the Specialty Contractors segment. Further details are provided below in the Results of Segment Operations section.

The effective income tax rate for 2021 was 16.0% compared to 12.6% for 2020. The lower effective tax rate in 2020 primarily reflects one-time tax benefits related to provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). See Corporate, Tax and Other Matters below for a discussion of the changes in the effective tax rate.

Diluted earnings per share for 2021 was $1.79 compared to diluted earnings per share of $2.12 for 2020. The decrease in 2021 was principally due to the factors discussed above that drove the decrease in income from construction operations, as well as the higher effective tax rate in 2021 compared to 2020.

Consolidated new awards in 2021 were $4.5 billion compared to $2.4 billion in 2020. The increase in new awards in 2021 was primarily due to the impacts of the COVID-19 pandemic in 2020, which delayed certain customers from moving forward with planned project bid solicitations and contract awards until 2021 and beyond, due to budgetary impacts, funding uncertainties and customer staffing challenges. The Building and Civil segments were the primary contributors to the new award activity in 2021. Significant new awards included the Cedars-Sinai Marina del Rey Hospital in California (contract value was not publicly announced); the $471 million LAX Airport Metro Connector project; $434 million for various Civil segment projects in the Midwest; more than $385 million of additional funding for certain mass-transit projects in California; the $269 million Yountville Veterans Home in California; the $220 million I-70 Missouri River Bridge project; the $162 million Tinian International Airport aircraft parking apron and taxiway project in the Northern Mariana Islands; the $152 million Santa Rosa Courthouse project in California; and a $122 million military range project and a $98 million military housing project, both in Guam.

Consolidated backlog as of December 31, 2021 was $8.2 billion, essentially level compared to $8.3 billion as of December 31, 2020. Backlog for both 2020 and 2021 was negatively impacted by the COVID-19 pandemic due to reduced bidding and proposal activity. In addition, the Company’s lack of success in its pursuit of certain large prospective Civil segment projects in the second half of 2021 also negatively impacted backlog. As of December 31, 2021, the mix of backlog by segment was 55% for Civil, 28% for Building and 17% for Specialty Contractors, compared to 57% for Civil, 20% for Building and 23% for Specialty Contractors at the end of 2020. Importantly, Building segment backlog, which carries a substantially lower margin, increased $607 million year-over-year, whereas backlog for the higher-margin Civil and Specialty Contractors segments declined $230 million and $487 million, respectively, year-over-year.

Most projects in the Civil segment’s backlog typically convert to revenue over a period of three to five years and in the Building and Specialty Contractors segments over a period of one to three years. We estimate that approximately $4 billion, or 46%, of our backlog as of December 31, 2021 will be recognized as revenue in 2022. As a result of the changes in the backlog mix and the rate of conversion from backlog to revenue discussed above, we anticipate that in 2022 the Building segment will contribute proportionately higher revenue at a lower operating margin relative to contributions from the Civil and Specialty Contractors segments.

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The following table presents the changes in backlog in 2021:

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(a)New awards consist of the original contract price of projects added to our 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 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 we will proceed with our work on the project (e.g., adequate funding is in place).

The outlook for the Company’s growth over the next several years remains favorable, but the impact of the COVID-19 pandemic could continue to adversely affect performance and operations, and the amount and timing of new work awarded. In addition, the Company’s growth could continue to be impacted by future 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 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 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. 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. Interest rates have remained near historically low levels, which may be conducive to continued, and potentially increased, spending on infrastructure projects if borrowing rates remain at relatively low levels following anticipated interest rate increases by the Federal Reserve in 2022.

As discussed above, the IIJA was enacted into law on November 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 IIJA 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 will be invested 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.

The Company has certain large Civil segment projects in the Northeast that completed or were nearing completion in 2021. The Company is pursuing several large prospective projects on the West Coast, in the Northeast and in Guam that 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 completed or are progressing toward completion in 2021. In addition, as discussed above, the COVID-19 pandemic has resulted in, and could again result in, delays in the bidding and awarding of certain projects the Company is pursuing, which may further delay large, new revenue streams.

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.

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Results of Segment Operations

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

Civil Segment

Revenue and income from construction operations for the Civil segment are summarized as follows:

Revenue for 2021 decreased 5% compared to 2020. The decrease was primarily due to reduced project execution activities on various completed or nearly completed projects in the Northeast, partially offset by increased activities on various projects in California and Guam. Revenue for both 2020 and 2021 was reduced by the aforementioned COVID-19 impacts.

Income from construction operations for 2021 increased 8% compared to 2020. Despite the modest revenue decline, income from construction operations increased primarily due to $29.0 million of favorable adjustments on a mass‐transit project and $16.3 million of favorable adjustments on another mass-transit project, both reflecting improved profitability as a result of the negotiation and settlement of certain change orders in 2021. The increase was partially offset by a $13.3 million negative impact due to changes in estimates on a transportation project in the Northeast that included a charge and the temporary negative impact to earnings from growth in unapproved change orders.

Operating margin was 12.7% for 2021 compared to 11.2% in 2020. The increase in operating margin for 2021 was primarily due to the factors discussed above that drove the increase in income from construction operations.

New awards in the Civil segment totaled $1.9 billion in 2021 compared to $946 million in 2020. As discussed earlier, the larger volume of new awards in 2021 was primarily due to the impacts of the COVID-19 pandemic, which delayed the bidding and awards for various projects until 2021 and beyond. In spite of the improvement in new award activity in 2021, the level of new awards was negatively impacted by the Company’s lack of success in its pursuit of certain large Civil segment projects in the second half of 2021. New awards in 2021 included $434 million for various Civil segment projects in the Midwest; more than $385 million of additional funding for certain mass-transit projects in California; the $220 million I-70 Missouri River Bridge project; the $162 million Tinian International Airport aircraft parking apron and taxiway project in the Northern Mariana Islands; and a $122 million military range project and a $98 million military housing project, both in Guam. The COVID-19 pandemic has resulted in significant revenue shortfalls for many state and local government agencies since 2020, and 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 anticipated funding from the federal government, including funding from the recently enacted IIJA.

New awards in 2020 included more than $732 million of additional funding for various mass-transit projects, the Company’s $121 million share of a joint-venture mass-transit project in Massachusetts, and a $64 million mining project in Alabama.

Backlog for the Civil segment was $4.6 billion as of December 31, 2021, a modest decrease of 5% compared to $4.8 billion as of December 31, 2020. 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 IIJA, and by public agencies’ long-term spending plans. The Civil segment is well-positioned to capture its share of these prospective projects.

Building Segment

Revenue and income from construction operations for the Building segment are summarized as follows:

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Revenue for 2021 decreased 28% compared to 2020, primarily due to reduced project execution activities on certain projects in California and Oklahoma that are completed or nearing completion. Revenue for both 2020 and 2021 was reduced by the aforementioned COVID-19 impacts.

Income from construction operations for 2021 decreased 46% compared to 2020, primarily due to volume reductions mentioned above, as well as a $13.3 million negative impact due to changes in estimates on a transportation project in the Northeast that included a charge and the temporary negative impact to earnings from growth in unapproved change orders.

Operating margin was 2.0% in 2021 compared to 2.7% in 2020. The decrease in operating margin was driven by the factors mentioned above that drove the lower revenue and income from construction operations.

New awards in the Building segment totaled $2.0 billion in 2021 compared to $897 million in 2020. The substantially increased level of new awards in 2021 was due to delays of certain new awards in 2020 that resulted from impacts of the COVID-19 pandemic. New awards in 2021 included the Cedars-Sinai Marina del Rey Hospital in California (contract value was not publicly announced); the $471 million LAX Airport Metro Connector project; the $269 million Yountville Veterans Home in California; and the $152 million Santa Rosa Courthouse project in California. The COVID-19 pandemic could continue to result in certain delayed project opportunities.

New awards in 2020 included approximately $615 million for various building projects in California and $271 million for several government facilities projects nationwide.

Backlog for the Building segment was $2.3 billion as of December 31, 2021, an increase of 36% compared to $1.7 billion as of December 31, 2020. The increase was driven by the heightened new award activity mentioned above. The Building segment continues to have a large volume of prospective projects across various end markets and geographic locations. We expect demand to grow as economic conditions remain conducive to increased customer spending on new building facilities and renovations to existing buildings, supported by what has been and is expected to remain a favorable, relatively low interest rate environment despite the prospect of higher interest rates in 2022. However, the COVID-19 pandemic has resulted in, and could continue to 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:

Revenue for 2021 declined slightly compared to 2020. Revenue for 2020 and 2021 was reduced by the aforementioned COVID-19 impacts.

Loss from construction operations for 2021 was $10.0 million compared to income from construction operations of $17.2 million for 2020. The change was due to negative impacts of $19.0 million and $17.6 million on the mechanical and electrical components, respectively, of a transportation project in the Northeast and $16.2 million on an electrical mass-transit project also in the Northeast, all of which were due to changes in estimates that included charges and/or the temporary negative impact to earnings from growth in unapproved change orders. The decrease was partially offset by a $20.1 million favorable adjustment related to a legal judgment on a completed electrical project in New York, as well as the absence of the following largely offsetting items that had a net negative impact on the Company’s results in 2020: a $25.7 million prior-year gain as a result of a favorable arbitration decision and subsequent settlement of the related employment dispute, a $15.2 million prior-year unfavorable legal ruling pertaining to a mechanical project in California and a $13.2 million prior-year impact from an adverse arbitration ruling related to another electrical project in New York.

Operating margin was (0.9)% in 2021 compared to 1.5% in 2020. The decrease in operating margin was mainly attributable to the aforementioned factors that drove the lower income from construction operations.

New awards in the Specialty Contractors segment totaled $631 million in 2021 compared to $600 million in 2020. New awards in 2021 were mostly comprised of $370 million for various electrical and mechanical projects in the Northeast, and $260 million for various electrical and mechanical projects in Florida, Texas and California. The 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.

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New awards in 2020 included $286 million for various electrical projects in Texas, California and Florida, and $158 million for various electrical projects in New York.

Backlog for the Specialty Contractors segment was $1.4 billion as of December 31, 2021, a decrease of 26% compared to $1.9 billion as of December 31, 2020. The decrease corresponds with the reduction in Civil segment backlog, as certain large Civil segment projects that were not awarded to the Company would have included substantial amounts of subcontract work for the Specialty Contractors segment. The decrease is also due to lower demand from certain customers, particularly in New York, that have experienced adverse budgetary impacts as a result of the COVID-19 pandemic and that have consequently delayed and/or reduced certain spending. The Specialty Contractors segment continues to be increasingly focused on servicing the Company’s backlog of large Civil and Building segment projects, but 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 $58.0 million in 2021 compared to $53.9 million in 2020. The increase in corporate general and administrative expenses in 2021 was predominantly due to higher travel-related expenses compared to 2020, when the COVID-19 pandemic caused significant travel reductions.

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

Net other income for 2021 was $2.0 million compared to net other expense of $11.9 million for 2020. The improvement in 2021 was primarily due to the absence of charges incurred in 2020 related to the unfavorable resolutions of certain disputes pertaining to past business acquisitions, which were not material.

Interest expense decreased $7.2 million in 2021 compared to 2020. The decrease in 2021 was primarily due to the absence of extinguishment costs recognized in 2020 related to debt refinancing.

The effective income tax rate was 16.0% for 2021 compared to 12.6% for 2020. The 2021 effective income tax rate reflects an $8.2 million benefit related to a federal claim of right tax credit, which resulted in a tax rate adjustment associated with an adverse 2019 jury verdict that rendered certain income recognized in 2016 to be uncollectible.

The effective income tax rate for 2020 primarily reflected the favorable tax rate differential realized on the 2019 net operating loss (“NOL”) carryback. Under the CARES Act, enacted on March 27, 2020, the NOL generated in 2019 may be carried back up to five years, whereas under previous rules NOLs were only allowed to be carried forward. This allowed the Company to realize the benefit of the tax rate differential by carrying back the NOL to tax years when the federal statutory tax rate was 35% rather than the current rate of 21%. For a further discussion of income taxes, refer to Note 5 of the Notes to Consolidated Financial Statements.

The effective income tax rates for 2021 and 2020 were unfavorably impacted by state income taxes and favorably impacted by earnings attributable to noncontrolling interests, for which income taxes are not the responsibility of the Company.

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, 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, 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 $148 million and available cash balances as of December 31, 2021, 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 COVID-19 Update. Liquidity has been, and could continue to be, adversely impacted by our inability to collect cash due to the follow-on impacts of

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COVID-19, which have constrained certain customers’ funding sources and delayed their ability to make payments on approved contract work. As discussed above in COVID-19 Update, the COVID-19 pandemic has delayed court and arbitration schedules and also hindered the Company’s ability to resolve unapproved work, which has largely contributed to an increase in CIE. We believe that the follow-on impacts of COVID-19 could be alleviated with the anticipated funding from the IIJA, as discussed above, and the relief of customers’ revenue and funding constraints as travel and commuting continue to resume, providing higher fare, toll and fuel tax revenue. Furthermore, the bottleneck of accumulated court and arbitration proceedings that grew during 2020 and 2021 due to the pandemic has recently begun to alleviate, although the timing of resolution and collection of amounts due to the Company related to such matters remains uncertain. We anticipate substantially improved operating cash generation in 2022 compared to 2021, as a result of projected cash collections, both from project execution activities and the resolution of various outstanding claims and change orders.

Cash and Working Capital

Cash and cash equivalents were $202.2 million as of December 31, 2021 compared to $374.3 million as of December 31, 2020. Cash immediately available for general corporate purposes was $60.2 million and $210.8 million as of December 31, 2021 and 2020, 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 $93.6 million as of December 31, 2021 compared to $156.5 million as of December 31, 2020. Restricted cash and restricted investments are primarily held to secure insurance-related contingent obligations. Restricted cash as of December 31, 2020 also included $69.9 million of cash held to repay the outstanding principal balance of the Convertible Notes, which were repaid at maturity on June 15, 2021 (see Note 7 of the Notes to Consolidated Financial Statements).

During the year ended December 31, 2021, net cash used in operating activities was $148.5 million due primarily to investments in project working capital, partially offset by cash generated from earnings sources. The increase in working capital in 2021 primarily reflects a decrease in accounts payable due to timing of payments to suppliers and subcontractors and an increase in CIE. The increase in CIE was primarily due to the follow-on impacts of the COVID-19 pandemic, which has 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, which have recently begun to resume), 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. As discussed above, we expect the follow-on impacts of COVID-19 to ease as a result of anticipated funding from the IIJA and improved customer revenue and funding sources. During the year ended December 31, 2020, net cash provided by operating activities was $172.8 million due primarily to cash generated from earnings sources, partially offset by investment in working capital.

The $321.3 million decrease in cash provided by operating activities when comparing 2021 with 2020 substantially reflects an increased investment in working capital principally as a result of a current-year decrease in accounts payable compared to an increase in the prior year due to timing of payments to vendors and subcontractors, partially offset by a current-year decrease in retainage receivable compared to an increase in the prior year.

During 2021 and 2020, we used $37.3 million and $46.4 million of cash from investing activities, respectively. The net cash used in investing activities for 2021 and 2020 was primarily due to the acquisition of property and equipment for projects, which totaled $38.6 million and $54.8 million, respectively. The decrease in capital expenditures in 2021 was primarily due to higher capital expenditures in 2020 related to project-specific equipment funded directly by our customers.

During 2021, net cash used in financing activities was $54.7 million, which was primarily driven by net repayment of borrowings of $37.0 million and $22.7 million of cash distributions to noncontrolling interests, partially offset by $7.0 million of cash contributions from noncontrolling interests. During 2020, net cash provided by financing activities was $123.3 million, which was primarily driven by increased net borrowings of $181.4 million, partially offset by $48.5 million of cash distributions to noncontrolling interests and debt issuance costs of $11.2 million.

As of December 31, 2021, we had 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 compared to working capital of $1.8 billion, a ratio of current assets to current liabilities of 1.80 and a ratio of debt to equity of 0.66 at December 31, 2020.

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Debt

Summarized below are the key terms of our debt as of December 31, 2021. For additional information, refer to Note 7 of the Notes to Consolidated Financial Statements, as applicable.

2020 Credit Agreement

On August 18, 2020, the Company entered into a credit agreement (the “2020 Credit Agreement”) with BMO Harris Bank N.A., as Administrative Agent, Swing Line 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 on August 18, 2027 and the 2020 Revolver will mature on August 18, 2025, in each case, unless any of the 2017 Senior Notes are outstanding on January 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 on January 30, 2025 (subject to certain further exceptions). For more information regarding the terms of our 2020 Credit Agreement, refer to Note 7 of the Notes to Consolidated Financial Statements.

The table below presents our actual and required first lien net leverage ratio under the 2020 Credit Agreement for the period, which is calculated on a rolling four-quarter basis:

As of December 31, 2021, we were in compliance and expect to continue to be in compliance with the covenants under the 2020 Credit Agreement.

Repurchase and Repayment of 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. On August 19, 2020, the Company used proceeds from the Term Loan B to repurchase $130.1 million aggregate principal amount of the Convertible Notes for an aggregate purchase price of $132.4 million (including accrued and unpaid interest to the repurchase date). The Company repaid the remaining principal balance of the Convertible Notes at maturity on June 15, 2021 using proceeds from the Term Loan B, which were held in a restricted cash account for this purpose. None of the Convertible Notes remained outstanding as of December 31, 2021.

2017 Senior Notes

On April 20, 2017, the Company issued $500 million in aggregate principal amount of 6.875% Senior Notes due May 1, 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.

Equipment Financing and Mortgages

The Company has certain loans entered into for the purchase of specific property, plant and equipment and secured by the assets purchased. The aggregate balance of equipment financing loans was approximately $41.7 million and $36.9 million at December 31, 2021 and 2020, respectively, with interest rates ranging from 2.54% to 3.89% with equal monthly installment payments over periods up to five years. The aggregate balance of mortgage loans was approximately $14.6 million and $10.7 million at December 31, 2021 and 2020, respectively, with interest rates ranging from a fixed 2.25% to LIBOR plus 3% and equal monthly installment payments over periods up to 10 years, as well as one loan with a balloon payment of $6.8 million due in 2023.

Contractual Obligations

Our contractual obligations and commitments as of December 31, 2021 include:

•Debt obligations of $1.0 billion (of which $24.4 million are due in 2022) and interest payments of $259.5 million (of which $62.1 million are due in 2022) based on rates in effect as of December 31, 2021. See Note 7 of the Notes to Consolidated Financial Statements for further detail of our debt and the timing of expected future principal and interest payments.

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•Operating lease obligations of $102.9 million (of which $12.4 million are due in 2022). See Note 9 of the Notes to Consolidated Financial Statements for further detail of our lease obligations and the timing of expected future payments.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with GAAP. Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements. The preparation of the Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Estimates are based on information available through the date of the issuance of the financial statements; accordingly, actual results in future periods could differ from these estimates. Significant judgments and estimates used in the preparation of the Consolidated Financial Statements apply to the following critical accounting policies:

Method of Accounting for Contracts — Contract revenue is recognized over time using the cost-to-cost method which measures progress towards completion based on the ratio of contract costs incurred to date compared to total estimated costs for each performance obligation. The estimates used in accounting for contracts with customers require judgment and assumptions regarding both future events and the evaluation of contingencies such as the impact of change orders, liability claims, other contract disputes, the achievement of contractual performance standards and potential variances in project schedule and costs. Changes to the total estimated contract cost, either due to unexpected events or revisions to management’s initial estimates, for a given project are recognized in the period in which they are determined.

In certain instances, we provide guaranteed completion dates and/or achievement of other performance criteria. Failure to meet schedule or performance guarantees could result in unrealized incentive fees and/or liquidated damages. In addition, depending on the type of contract, unexpected increases in contract cost may be unrecoverable, resulting in total cost exceeding revenue realized from the projects. The Company generally provides limited warranties for work performed, with warranty periods typically extending for a limited duration following substantial completion of the Company’s work on a project. Historically, warranty claims have not resulted in material costs incurred.

Claims arising from construction contracts have been made against the Company by customers, and the Company has made claims against customers for costs incurred in excess of current contract provisions. The Company recognizes revenue for claims as variable consideration in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). Assumptions as to the occurrence of future events and the likelihood and amount of variable consideration are made during the contract performance period. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of anticipated performance and all information (historical, current and forecasted) that is reasonably available to management. Estimated amounts are only included in the transaction price 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. Back charges to suppliers or subcontractors are recognized as a reduction of cost when it is determined that recovery of such cost is probable and the amounts can be reliably estimated. Disputed back charges are recognized when the same requirements described above for variable consideration have been satisfied.

Construction Joint Ventures — Certain contracts are executed through joint ventures. The arrangements are often formed for the execution of single contracts or projects and allow the Company to share risks and secure specialty skills required for project execution.

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

The Company also evaluates whether it is the primary beneficiary of each VIE and consolidates the VIE if the Company has both (a) the power to direct the economically significant activities of the entity and (b) the obligation to absorb losses of, or the right to receive benefits from, the entity 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

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rights and board representation of the respective parties in determining whether it qualifies as the primary beneficiary. The Company also considers all parties that have direct or implicit variable interests when determining whether it is the primary beneficiary. When the Company is determined to be the primary beneficiary, the VIE is consolidated. In accordance with ASC 810, management’s assessment of whether the Company is the primary beneficiary of a VIE is performed continuously.

For construction joint ventures that do not need to be fully consolidated, the Company accounts for its interest in the joint ventures using the proportionate consolidation method, whereby the Company’s proportionate share of the joint ventures’ assets, liabilities, revenue and cost of operations are included in the appropriate classifications in the Company’s consolidated financial statements. Intercompany balances and transactions are eliminated. See Note 1(b) and Note 13 of the Notes to Consolidated Financial Statements for additional discussion regarding VIEs.

Recoverability of Goodwill — Goodwill represents the excess of amounts paid over the fair value of net assets acquired from an acquisition. In order to determine the amount of goodwill resulting from an acquisition, we perform an assessment to determine the value of the acquired company's tangible and identifiable intangible assets and liabilities. In our assessment, we determine whether identifiable intangible assets exist, which typically include backlog, customer relationships and trade names.

We test goodwill for impairment annually as of October 1 of each year. This test requires us to estimate the fair value of each reporting unit carrying goodwill using income and market approaches, and to compare the calculated fair value of each reporting unit to its carrying value, which is equal to the reporting unit’s net assets. If the calculated fair value of a reporting unit is less than its carrying value, we recognize an impairment charge equal to the difference.

The impairment evaluation process requires assumptions that are subject to a high degree of judgment such as revenue growth rates, profitability levels, discount rates, industry market multiples and weighted-average cost of capital. Changes in these assumptions would impact the results of our impairment tests.

During interim periods, including those subsequent to the Company’s October 1 annual test date, we evaluate events and circumstances, including, but not limited to, an examination of macroeconomic conditions, cost factors, overall financial performance by each reporting unit, other relevant entity-specific events, and trends in the stock prices of our Company and peers to determine if such factors indicate that it is likely that the goodwill for one or more of our reporting units is impaired, thus warranting the performance of a quantitative impairment test sooner than the fourth quarter of the year. The Company performed an interim impairment test as of June 1, 2019 and recognized a non-cash impairment loss totaling $379.9 million, which eliminated the carrying value of goodwill for the Building and Specialty Contractors reporting units. See Note 1(g) and Note 6 of the Notes to Consolidated Financial Statements.

During the fourth quarter of 2021, we conducted our annual goodwill impairment test and determined that goodwill was not impaired since the estimated fair value of the Civil reporting unit exceeded its net book value by a significant amount. As such, there is a risk of goodwill impairment if future events are less favorable than what we assumed or estimated in our impairment analysis.

The Company has considered relevant events and circumstances since the annual goodwill impairment test, including, but not limited to, an examination of macroeconomic conditions, industry and market conditions, impacts from the COVID-19 pandemic, cost factors, overall financial performance by each reporting unit, other relevant entity-specific events, and trends in the stock prices of the Company and its peers. In considering the totality of qualitative factors known as of the reporting date, we determined that no triggering events occurred or circumstances changed since our October 1, 2021 annual test that would more likely than not reduce the fair value of the Civil reporting unit below its carrying amount. We will continue to monitor events occurring or circumstances changing which may suggest that goodwill should be reevaluated. These 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 specific to the Civil reporting unit which indicate potential triggering events that would more likely than not reduce the fair value of the Civil reporting unit below its carrying amount.

New Accounting Pronouncements — For a discussion of recently adopted accounting standards and updates, see Note 1(p) of the Notes to Consolidated Financial Statements.