Tutor Perini Corporation — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; unaudited consolidated results. Comparisons are with Q1 2011 unless otherwise noted. The company provides general contracting, construction management and design-build services across Civil, Building, Specialty Contractors and Management Services. Recent acquisitions materially affect year-over-year comparability.
Financial performance
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Revenue | $912.5 million | $615.3 million |
| Gross profit / margin | $86.2 million / 9.4% | $62.5 million / 10.2% |
| Income from construction operations / margin | $17.0 million / 1.9% | $18.5 million / 3.0% |
| Net income (loss) | $(1.2) million | $6.9 million |
| Diluted earnings (loss) per share | $(0.03) | $0.14 |
| Cash used in operating activities | $25.0 million | $47.7 million |
Revenue rose 48.3%, primarily from acquisitions. Net results reflected a $3.6 million discrete tax charge, a $2.7 million loss on sale of auction-rate securities, higher interest expense and higher acquisition-related amortization. Interest expense was $11.1 million versus $7.2 million. The effective tax rate was 133.7%, versus 36.5%; management expected a 2012 tax rate of approximately 38%, excluding discrete items.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $190.4 million at March 31, 2012, down from $204.2 million at year-end. This included $102.3 million of joint-venture cash restricted to JV-related uses; corporate cash available for general purposes was $88.1 million. Restricted cash was $35.5 million.
- Working capital was $596.3 million; the current ratio was 1.47. Total debt was approximately $678.0 million, including $60.9 million of current maturities and $617.1 million of long-term debt. Long-term debt to equity was 0.44x.
- The $300 million revolving facility had $18.5 million borrowed, $0.2 million of letters of credit, and $281.3 million available. The company reported compliance with credit covenants.
- Operating cash outflow was attributed mainly to collection timing in Building and Specialty Contractors. Investing cash flow was positive $8.1 million, mainly reflecting $16.6 million of auction-rate-security sale proceeds, partly offset by equipment purchases. Cash declined $13.8 million overall.
- The company held $46.3 million of auction-rate securities classified as long-term investments; management noted limited market liquidity but did not expect this to materially affect liquidity or its business plan.
Changes, segments and backlog
Revenue growth was led by Civil (up 99.5%) and Specialty Contractors (up 191.6%), principally from acquisitions. Building revenue fell 5.5%, while its construction operations reported a loss of $8.9 million, compared with $11.3 million of income a year earlier. Management cited a less favorable work mix, acquisition-related overhead and East Coast mobilization costs. Civil income increased to $16.9 million, partly offset by lower margins on work involving unapproved change orders and the completion of prior successful projects. Specialty Contractors income rose to $19.7 million, largely from acquired businesses.
Backlog was $5.9 billion at quarter-end, down from $6.1 billion at December 31, 2011. New awards and changes added $721.0 million during the quarter, compared with $912.5 million of revenue recognized. Management cited awards including casino and civil infrastructure projects and said pending awards—including Hudson Yards—could enter backlog as phases are released. It expected opportunities for additional large Civil and Building awards during 2012; the filing provides no specific full-year revenue or earnings guidance.
Management commentary, risks and contingencies
- Management said results can vary with project progress and changes in estimated project profitability; Q1 results were not indicative of full-year results.
- Costs and estimated earnings in excess of billings totaled $377.6 million, including $102.0 million of unapproved change orders and $147.5 million of claims. Approximately $76.6 million of the change-order and claim amounts was subject to litigation or dispute proceedings. Recoveries depend on management estimates; reductions could affect future earnings.
- Significant disputes include the Central Artery/Tunnel project, where the company recorded anticipated claim recoveries and reported receipt of a $22 million interest-award payment in February 2012; CityCenter, with approximately $192 million of contract receivables recorded and a $313 million mechanic’s lien at quarter-end; and other claims involving Long Island Expressway, Queensridge, Gaylord, Fontainebleau and Brightwater. Outcomes and recoveries are uncertain.
- Key risks identified include winning work and converting backlog, completing projects on time and within estimates, acquisition integration and expected benefits, project delays or scope changes, litigation outcomes, financing and surety availability, labor issues and public infrastructure funding.
- The company reported no material change in risk factors or market-risk exposure from its 2011 Form 10-K, and no material change in internal control over financial reporting. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether margins recover, particularly in Building, and whether backlog converts into profitable revenue.
- Collections and working-capital trends, including the concentration of cash in joint ventures and the liquidity of auction-rate securities.
- Whether recorded claim and change-order recoveries are realized, and potential effects of significant litigation and disputes.
- Debt service, covenant headroom and availability of the revolving facility as project cash flows fluctuate.
- The basis for acquisition-related growth, integration costs, and the expected full-year tax rate excluding discrete items.