Tutor Perini Corporation — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing also reports fourth-quarter results. Tutor Perini provides general contracting, construction management, design-build and specialty construction services through Building, Civil, Specialty Contractors and Management Services segments.
Financial performance
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $4.111 billion | $3.716 billion |
| Gross profit / margin | $415.1 million / 10.1% | $395.3 million / 10.6% |
| Construction operations income (loss), GAAP | $(221.8) million | $168.4 million |
| Net income (loss) | $(265.4) million | $86.1 million |
| Diluted EPS | $(5.59) | $1.80 |
| Operating cash flow | $(67.9) million | $(31.6) million |
The 2012 GAAP loss included a $376.6 million goodwill and intangible-asset impairment charge and a $5.0 million Brightwater litigation provision. Excluding the discrete items identified by management, 2012 net income was $70.3 million and diluted EPS was $1.46; these are non-GAAP measures, not substitutes for reported results.
Fourth quarter: Revenue was $1.114 billion, gross profit $126.4 million, income from construction operations $60.7 million, net income $41.6 million and diluted EPS $0.86. In fourth-quarter 2011, the corresponding figures were $1.115 billion, $125.3 million, $50.8 million, $24.0 million and $0.50.
Cash, liquidity and debt: At year-end, cash and cash equivalents were $168.1 million, including $70.8 million available for general corporate purposes and $97.3 million held by joint ventures for joint-venture uses; restricted cash was $38.7 million. Working capital was $747.6 million, the current ratio was 1.61 and debt-to-equity was 0.64. Total debt was $737.1 million, up from $672.5 million; $120.0 million was drawn on the revolving facility, with $179.8 million available to borrow. The company reported compliance with its amended credit covenants.
Gross margin fell from 10.6% to 10.1%. Before impairment charges, construction operations income was $154.8 million (3.8% of revenue), versus $168.4 million (4.5%) in 2011. Segment margins before impairment were Building (0.3%), Civil 9.0%, Specialty Contractors 6.7% and Management Services 5.8%.
Material changes versus prior year
- Revenue increased 10.6%, primarily from the full-year contribution of 2011 acquisitions. Building revenue declined 19.6%, while Civil rose 41.0% and Specialty Contractors rose 47.4%.
- Backlog declined to $5.604 billion from $6.108 billion. Building and Civil backlog fell; Specialty Contractors and Management Services backlog increased. The company estimated 42.1% of year-end backlog would not be completed in 2013.
- Operating cash outflow increased to $67.9 million, attributed principally to collection timing in Building and cash interest and tax payments. Cash declined by $36.2 million during the year.
- Stockholders’ equity decreased to $1.144 billion from $1.400 billion, principally reflecting the impairment charge. Interest expense increased to $44.2 million from $35.8 million.
Outlook, commentary and risks
No numerical revenue or earnings guidance is provided. Management emphasized pursuing large, complex public works and increasing self-performed work, while noting slower-than-expected project releases, delays and margin pressure. It cited significant awards and pending opportunities, including Hudson Yards phases that enter backlog as contracts are executed and work is released.
- Project execution and estimates: Fixed-price contracts represented 61% of 2012 revenue and 72% of year-end backlog. Cost overruns, delays, labor or subcontractor constraints, and changes in project estimates can reduce profits; percentage-of-completion accounting can produce material adjustments.
- Claims and working capital: Costs and estimated earnings in excess of billings totaled $465.0 million, including $141.6 million of unapproved change orders and $166.3 million of claims. About $62.0 million of those change orders and claims were subject to litigation or dispute proceedings. Management estimated $181.3 million of the total would be collected beyond one year.
- Brightwater: A jury awarded King County $155.8 million and the project joint venture $26.3 million in December 2012. Tutor Perini recorded a $5.0 million provision, at the low end of management’s estimated range; the ultimate impact remained uncertain and an appeal was possible.
- Other material disputes: The LIE/Cross Island Parkway claim was $53.8 million, with a $151 million NYSDOT counterclaim. CityCenter included approximately $192 million of recorded contract receivables and a $191.3 million mechanic’s lien; recovery estimates remain subject to resolution. The company also described significant Central Artery/Tunnel claims and other pending litigation.
- Impairment sensitivity: The fourth-quarter impairment review found no further charge, but Management Services fair value exceeded carrying value by only 4.5%; the remaining $44.2 million of that segment’s goodwill could be exposed if projected performance falls short.
- Other exposures: Auction-rate securities of $46.3 million were illiquid; pension plans were underfunded by $39.2 million. Risks also include government funding and contract termination, customer financing, bonding capacity, international operations, joint ventures and self-insured claims.
Important facts for investors to verify
- Progress on collecting the $465.0 million contract asset, especially disputed claims, unapproved change orders and amounts expected beyond one year.
- Developments and potential exposure in Brightwater, Central Artery/Tunnel, LIE/Cross Island Parkway and CityCenter matters.
- Whether backlog converts to funded work and revenue, particularly pending awards and Hudson Yards phases, and whether backlog margins improve.
- Operating cash flow, collections, revolver usage, debt reduction and continued compliance with tightening credit covenants.
- Actual segment profitability and any further impairment, particularly for Management Services.
The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting as of December 31, 2012.