Tutor Perini Corporation — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing was signed February 26, 2015. Tutor Perini is a diversified construction contractor operating through Civil, Building, and Specialty Contractors segments. Comparatives reflect the 2014 reorganization that moved Management Services operations into Civil and Building.
Financial performance
| Metric | 2014 | 2013 | Change |
|---|---|---|---|
| Revenue | $4.492 billion | $4.176 billion | +7.6% |
| Gross profit / margin | $505.4 million / 11.3% | $466.9 million / 11.2% | Margin +0.1 percentage point |
| Income from construction operations / margin | $241.7 million / 5.4% | $203.8 million / 4.9% | +18.6% |
| Net income | $107.9 million | $87.3 million | +23.6% |
| Diluted EPS | $2.20 | $1.80 | +22.2% |
| Interest expense | $44.7 million | $45.6 million | Down $0.9 million |
| Operating cash flow | $(56.7) million | $50.7 million | Declined $107.4 million |
Net margin was approximately 2.4%, versus 2.1% in 2013. The 2014 effective tax rate was 42.4%, compared with 37.5%, mainly reflecting revenue mix in higher-tax jurisdictions and tax effects on deferred balances.
Segments and material year-over-year changes
- Civil: Revenue increased 17.0% to $1.687 billion; construction operating income rose 24.1% to $220.6 million. Operating margin improved to 13.1% from 12.3%, driven by project volume and favorable recovery estimates. Civil generated most segment operating income.
- Building: Revenue declined 3.1% to $1.504 billion. Operating income was nearly unchanged at $24.7 million and margin remained 1.6%. Lower hospitality, gaming, and California healthcare activity was partly offset by mixed-use work.
- Specialty Contractors: Revenue increased 10.1% to $1.301 billion and operating income rose 4.1% to $51.0 million. Margin decreased to 3.9% from 4.1%, partly due to weaker-than-expected New York mechanical results.
- Revenue growth was driven by Civil projects and East Coast specialty work, including Hudson Yards and mass transit activity. Consolidated results also benefited from higher estimated recoveries on project disputes and settlements.
Liquidity, debt, and backlog
- At year-end, working capital was $1.114 billion, current ratio 1.82, and stockholders’ equity $1.366 billion. Debt totaled $865.4 million, up from $733.9 million; debt-to-equity was 0.63 versus 0.59.
- Cash and equivalents were $135.6 million, but only $40.8 million was corporate cash available for general purposes; $94.7 million was the Company’s share of joint-venture cash available only for joint-venture purposes. Restricted cash was $44.4 million.
- The $300 million revolving facility had $130 million drawn and $169 million available, net of letters of credit. The $250 million term loan had $242.5 million outstanding. The $300 million 7.625% senior notes mature in November 2018; the credit facility matures in June 2019. The Company reported compliance with credit covenants.
- Backlog rose 12.6% to $7.832 billion from $6.954 billion. Civil backlog was $3.563 billion, Building $2.188 billion, and Specialty Contractors $2.081 billion. Management estimated about $3.7 billion, or 47.8% of year-end backlog, would be recognized as 2015 revenue.
- New business awarded was $5.370 billion. The filing cites up to $2.3 billion of potential future Hudson Yards construction value, but those phases were pending awards, not committed backlog.
Outlook, risks, and unusual items
- Management emphasized continued pursuit of higher-margin public works and specialty projects, alongside selective private building work. It expected to benefit from recent multi-year awards and anticipated further awards, including later Hudson Yards phases. No formal earnings or revenue guidance was provided.
- Operating cash flow turned negative despite higher earnings, primarily reflecting collection timing in Building and Specialty, increased receivables and costs/estimated earnings in excess of billings, as well as interest and tax payments. Capital expenditures were $75.0 million.
- 2014 income from construction operations included a net $27.9 million favorable impact from revised recovery estimates: rulings affecting two Civil projects and a fourth-quarter Building project settlement. Management estimated these items added $16.0 million to net income and $0.33 to diluted EPS.
- Costs and estimated earnings in excess of billings were $726.4 million, including $161.4 million of unapproved change orders and $311.9 million of claims. Approximately $38.4 million of those unapproved-change-order and claim balances related to pending litigation or dispute proceedings; about $251.3 million of the total was expected to be collected beyond one year. Recoverability and timing remain uncertain.
- Significant legal developments included an $88.7 million payment to the PKC joint venture resolving the Central Artery/Tunnel matter, CityCenter settlements with payment received in February 2015, and a January 2015 $3.8 million LAMTA payment. Brightwater remained under appeal; the Company had recorded a $5 million contingent liability and disclosed uncertainty over the ultimate outcome. The 100th Street Bus Depot insurance decision resulted in a second-quarter 2014 charge.
- Other key risks include fixed-price project overruns, estimate changes under percentage-of-completion accounting, disputes and delayed customer payments, project schedule/liquidated-damages exposure, public funding delays, labor and subcontractor availability, joint-venture obligations, and substantial indebtedness. The pension plans were underfunded by approximately $35.0 million; 2014 goodwill and intangible assets totaled about $685.3 million, with no impairment recorded.
Important facts for investors to verify
- Whether the large claims and unapproved change-order balances convert to cash, and the timing and outcome of the remaining material disputes, particularly Brightwater.
- Whether negative operating cash flow and rising receivables and unbilled contract assets improve as projects progress and collections are made.
- Whether backlog converts to revenue and profit as forecast, including confirmation that pending Hudson Yards phases are formally awarded and funded.
- How the Company manages debt maturities, borrowing availability, covenant headroom, and the 2018 senior-note maturity.
- Whether Civil margins and favorable project recoveries are sustainable, and whether Building and Specialty Contractors margins improve.
Deloitte issued an unqualified opinion on the financial statements and internal controls; management reported effective disclosure controls and internal control over financial reporting.