Business Context and Reporting Period
Company: Tutor Perini Corp (Perini Corporation)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 2002
Business Overview: The Company provides general contracting, construction management, and design-build services through two primary segments: Building and Civil. Operations are decentralized profit centers serving private clients and public agencies in the U.S. and select overseas locations. In January 2003, the Company acquired James A. Cummings, Inc., a South Florida building contractor, for $20 million.
Key Financial Metrics
| Metric (in thousands) | 2002 | 2001 | 2000 |
|---|---|---|---|
| Total Revenues | $1,085,041 | $1,553,396 | $1,105,660 |
| Gross Profit | $58,650 | $57,562 | $52,332 |
| Income From Operations | $25,880 | $29,501 | $27,355 |
| Net Income | $23,074 | $26,418 | $24,381 |
| Diluted EPS | $0.91 | $1.04 | $0.39 |
| Working Capital | $115,908 | $93,369 | $80,477 |
| Current Ratio | 1.44:1 | 1.24:1 | 1.20:1 |
| Long-term Debt (less current) | $12,123 | $7,540 | $17,218 |
| Stockholders' Equity | $86,649 | $79,408 | $60,622 |
| Year-End Backlog | $990,175 | $1,213,535 | $1,788,731 |
Cash Flow: Net cash used by operating activities was $3.6 million in 2002, compared to $24.2 million used in 2001. This usage was primarily due to funding working capital requirements on joint venture contracts with unapproved change orders.
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 30.2% to $1.085 billion. The Building segment saw a 35.6% drop ($426.9 million) due to the completion of the Mohegan Sun Phase II project and two large hotel/casino projects in early 2002. The Civil segment declined 11.7% ($41.5 million) due to reduced backlog.
- Profitability: Net income decreased 13% to $23.1 million. Despite lower revenues, the Building segment's gross margin improved from 4.0% in 2001 to 5.9% in 2002 due to favorable close-outs. The Civil segment's operating income increased by $2.5 million due to profit revisions on a New York City infrastructure project.
- Backlog Reduction: Year-end backlog fell to $990 million from $1.214 billion in 2001, attributed to the completion of major projects and a slowdown in public/private works awards following the September 2001 terrorist attacks.
- Accounting Change: The Company changed its method of accounting for construction joint ventures from the equity method to proportionate consolidation in the Balance Sheet (retroactively applied), though this had no impact on Net Income or EPS.
Guidance, Outlook, Risks, and Contingencies
Outlook and Management Commentary
Management expects an improving new work award period as economic conditions stabilize. The strategy focuses on pursuing higher margin projects in niche markets (hospitality, healthcare, civil infrastructure) and expanding via acquisition. The Company increased its revolving credit facility from $45 million to $50 million in February 2003 to support working capital needs.
Risks and Contingencies
- Legal Proceedings:
- Los Angeles MTA: A jury awarded the MTA $63 million against a joint venture (Tutor-Saliba-Perini) in which Perini holds a 40% interest. The case is on appeal; no provision for loss has been recorded.
- Central Artery/Tunnel ("Big Dig"): Perini is pursuing claims totaling over $100 million against the Massachusetts Highway Department. A Disputes Review Board has awarded $17.4 million for time delays (upheld by court) and $17.1 million for inefficiencies. Negotiations are ongoing.
- San Francisco Airport: The City of San Francisco filed a False Claims Act lawsuit alleging overcharges and fraud. Perini sold its interest in the relevant joint venture in 1997, and the managing partner has agreed to indemnify Perini.
- Preferred Stock Dividends: Dividends on $21.25 Convertible Exchangeable Preferred Stock have been suspended since 1995. Approximately $15.4 million in dividends are in arrears. Holders have elected two directors due to the suspension.
- Pension Liability: The Company recognized an additional minimum pension liability of $13.7 million in 2002, reducing stockholders' equity. Pension expense is expected to increase in 2003 due to lower discount rates and asset losses.
- Market Risks: Exposure to interest rate fluctuations on variable-rate debt and the availability of surety bonds, which are critical for bidding on large projects.
Investor Verification Checklist
- Backlog Quality: Verify the composition of the $990 million backlog, specifically the percentage of fixed-price contracts versus cost-plus, and the geographic concentration in the Northeast.
- Legal Exposure: Monitor the status of the Los Angeles MTA appeal and the Central Artery/Tunnel negotiations, as adverse outcomes could materially impact earnings.
- Working Capital: Assess the sustainability of cash flow given the $3.6 million operating cash outflow and the reliance on resolving unapproved change orders to fund operations.
- Preferred Stock: Review the terms of the $21.25 Preferred Stock and the likelihood of dividend resumption, noting the $15.4 million arrears and the directors elected by preferred holders.
- Acquisition Integration: Evaluate the financial impact and integration progress of the January 2003 acquisition of James A. Cummings, Inc.