Tutor Perini Corporation — FY 2019 Form 10-K
Business context and reporting period. Tutor Perini is a construction and construction-management contractor operating through Civil, Building and Specialty Contractors segments. This annual filing covers the year ended December 31, 2019; the company reported work on approximately 1,300 projects. Its business is project-based, and results depend on estimates of costs, claims, change orders and project timing.
Financial performance and position
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $4.451 billion | $4.455 billion |
| Gross profit / margin | $241.8 million / 5.4% | $454.5 million / 10.2% |
| Income (loss) from construction operations | $(365.0) million | $191.9 million |
| Net income (loss) attributable to Tutor Perini | $(387.7) million | $83.4 million |
| Diluted earnings (loss) per share | $(7.72) | $1.66 |
| Operating cash flow | $136.5 million | $21.4 million |
| Year-end backlog | $11.22 billion | $9.30 billion |
| Total debt | $834.5 million | $761.5 million |
| Working capital / current ratio | $1.40 billion / 1.66 | $1.58 billion / 1.99 |
Cash and cash equivalents were $193.7 million, but only $43.8 million was immediately available for general corporate purposes; most of the remainder was held for joint-venture uses. Restricted cash and investments totaled $79.4 million. The $350 million revolving credit facility had $236 million of unused capacity. The company reported compliance with its credit-facility covenants at year-end: leverage ratio 2.60 against a 3.50 maximum, and fixed-charge coverage 3.57 against a 1.25 minimum.
Management reported non-GAAP adjusted income from construction operations of $14.9 million, excluding the $379.9 million goodwill impairment; adjusted net loss attributable to Tutor Perini was $57.2 million, or $1.14 per diluted share. These measures still include the SR 99 charge. The adjusted figures are management measures, not GAAP results.
Material changes versus the prior year
- Revenue was essentially flat, but gross profit fell by $212.7 million and the company moved from profit to a substantial net loss.
- A non-cash goodwill impairment of $379.9 million followed a June 2019 interim impairment test. It eliminated goodwill in the Building and Specialty Contractors reporting units; $205.1 million remained in Civil. The company cited weaker market valuation, first-quarter negative operating cash flows and a credit-rating downgrade among the impairment indicators.
- The adverse SR 99 jury verdict resulted in a $166.8 million pre-tax charge, including a $25.7 million accrual for Tutor Perini’s 45% share of the $57.2 million award. The company appealed; payment of damages was secured by a bond pending appeal. The charge also included non-cash write-downs of expected recoveries and receivables.
- Operating cash flow improved by $115.1 million, principally reflecting working-capital movements, including increased billings in excess of costs and increased accounts payable. Backlog grew 21%, with new awards of $6.38 billion, slightly below 2018’s $6.47 billion.
- By segment, Civil revenue rose 12%, Building revenue fell 6%, and Specialty Contractors revenue fell 8%. Specialty Contractors reported a $16.4 million adjusted operating loss, including $41.5 million of net unfavorable project adjustments and $11.0 million of the SR 99 charge.
Outlook, risks and unusual items
Management described the multi-year outlook as favorable, particularly for Civil and Specialty Contractors, citing infrastructure funding measures, public agencies’ long-term spending plans, and sizable project opportunities. It estimated that approximately $5 billion, or 44%, of year-end backlog would be recognized as revenue in 2020. This is not formal earnings guidance; management cautioned that project delays, start-up and ramp-up timing, and project completions may affect growth.
A significant financing issue is the 2017 Credit Facility’s spring-forward provision: if the 2.875% Convertible Notes remain outstanding on December 17, 2020, the facility may mature then rather than April 2022. The company said it intended to repurchase or exchange the notes and/or amend or replace the facility, and was discussing options with lenders. Failure to address the provision could make facility borrowings immediately due. Year-end total debt was $834.5 million, including $124.1 million classified as current; the company stated it believed available liquidity and operating cash generation would cover working-capital needs for the next 12 months.
Key risks include uncertain recovery of claims and unapproved change orders, cost overruns on fixed-price and guaranteed-maximum-price contracts, litigation and joint-venture exposure, project delays and liquidated damages, labor and subcontractor availability, dependence on government funding, and concentration in New York and California. Contract assets included $706.0 million of claims and $362.3 million of unapproved change orders; management estimated $572.1 million of costs and estimated earnings in excess of billings would be collected beyond one year. These balances depend on estimates and may take time to resolve.
The filing also disclosed an ongoing federal investigation involving Five Star Electric; the company could not predict the outcome or reasonably estimate potential loss. The George Washington Bridge Bus Station project’s developer filed for bankruptcy; Tutor Perini asserted a $113 million claim and stated that the potential material adverse impact from the developer’s claims was remote. Management cautioned that litigation outcomes and recoveries remain uncertain. The company reported effective disclosure controls and internal control over financial reporting, with unqualified audit opinions.
Most important facts for investors to verify
- Progress and outcome of the SR 99 appeal, related insurance litigation, and the recoverability of amounts recorded as receivables.
- Refinancing, exchange or other resolution of the Convertible Notes and the credit facility’s December 2020 spring-forward maturity risk.
- Collection timing and ultimate value of contract claims, unapproved change orders, retainage and other contract assets.
- Project-level execution, margins and cash conversion, especially in Specialty Contractors and on large fixed-price projects.
- Whether the Civil reporting unit’s remaining goodwill remains supportable, given its limited valuation cushion, and whether backlog converts to profitable work as projected.