Tutor Perini Corporation — 2013 Form 10-K Summary
Business context and reporting period
Tutor Perini is a diversified construction contractor providing general contracting, construction management, design-build and self-performed services. Its four segments are Civil, Building, Specialty Contractors and Management Services. This annual report covers the fiscal year ended December 31, 2013; the filing also provides fourth-quarter data.
Financial performance and liquidity
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Revenue | $4.176 billion | $4.111 billion |
| Gross profit / margin | $466.9 million / 11.2% | $415.1 million / 10.1% |
| Income (loss) from construction operations | $203.8 million / 4.9% of revenue | $(221.8) million, including $376.6 million impairment |
| Net income (loss) | $87.3 million | $(265.4) million |
| Diluted EPS | $1.80 | $(5.59) |
| Cash from operating activities | $50.7 million | $(67.9) million |
| Debt at year-end | $733.9 million | $737.1 million |
| Working capital / current ratio | $787.4 million / 1.61x | $747.6 million / 1.61x |
Fourth-quarter 2013 revenue was $1.099 billion, construction operating income was $70.2 million, net income was $33.3 million, and diluted EPS was $0.68. Annual revenue was 1.6% higher year over year. Gross margin improved to 11.2% from 10.1%. Excluding the 2012 impairment, construction operating income increased from $154.8 million to $203.8 million, with the improvement led by Civil.
Civil revenue rose 7.8% to $1.346 billion, while Building was broadly flat at $1.470 billion, Specialty Contractors was broadly flat at $1.182 billion, and Management Services fell 16.4% to $177.4 million. Civil operating margin rose to 12.5% from 9.0%; Specialty Contractors margin declined to 4.1% from 6.7%.
Year-end cash and cash equivalents were $119.9 million, including $36.6 million available for general corporate purposes and $83.3 million held for joint-venture purposes; restricted cash was an additional $42.6 million. The company had $164.8 million available under its revolving credit agreement and reported compliance with debt covenants. Debt-to-equity was 0.59x, versus 0.64x a year earlier. Capital expenditures were $42.4 million.
Material changes and business outlook
- Backlog increased 24% to $6.954 billion from $5.604 billion. New awards were $5.526 billion, led by major Civil projects, including the San Francisco Central Subway, California High-Speed Rail, Hudson Yards platform and bridge work.
- Management estimated that approximately $3.4 billion, or 49.5%, of year-end backlog would be recognized as 2014 revenue. It cited up to $3.7 billion of potential future Hudson Yards phases and other pending awards, but the filing gives no formal earnings or revenue guidance.
- Management emphasized pursuit of higher-margin public works and increased self-performance. State and local governments generated 60% of 2013 revenue, up from 53% in 2012; private owners contributed 35% and federal agencies 5%.
- Revenue growth was supported by Hudson Yards and transportation activity; reduced Management Services revenue reflected lower activity on an Iraq housing project and surety work. The company recorded a $13.8 million favorable estimate revision on a Building project, increasing diluted EPS by $0.18.
Risks, contingencies and unusual items
- Construction results rely on percentage-of-completion estimates, including estimates of costs, contract recoveries and claims. Costs and estimated earnings in excess of billings totaled $573.2 million, including $146.8 million of unapproved change orders and $222.2 million of claims; approximately $58.8 million of those change orders and claims were subject to litigation or dispute resolution.
- Fixed-price contracts represented 63% of 2013 revenue and 76% of year-end backlog, exposing the company to cost overruns, schedule delays, labor and materials constraints, subcontractor performance and disputed change orders.
- Brightwater litigation remains a significant uncertainty. The joint venture paid a $155.8 million jury verdict plus $14.7 million in attorneys’ fees and costs in 2013 and appealed. Tutor Perini’s 20% joint-venture interest is noted; management recorded a $5.0 million liability and states the ultimate impact is not yet determinable.
- For CityCenter, the company reported $165.7 million of contract receivables and a $166.8 million mechanic’s lien at December 2013. A confidential settlement was reached in January 2014, primarily concerning non-Harmon issues; the trial date was vacated. The final financial effect remains subject to resolution and estimates.
- Other key exposures include government funding and project cancellations, concentrated activity in California and New York, international and government-contract risks, joint-venture obligations, bonding capacity, litigation, and pension funding. The defined-benefit plans were underfunded by $22.6 million; anticipated 2014 contributions were approximately $2.8 million.
- Approximately $46.3 million of auction-rate securities remained illiquid and classified as long-term investments. The company reported no impairment in 2013, but a prolonged lack of liquidity or further valuation decline could affect results or liquidity.
- The $376.6 million 2012 goodwill and intangible-asset impairment drove the reported 2012 loss; no impairment was recorded in 2013. The 2013 other expense included a $26.4 million fair-value increase in acquisition-related contingent consideration.
Most important facts for investors to verify
- Progress, margins and cost-to-complete estimates on major Civil and Hudson Yards projects, and conversion of the $6.954 billion backlog into funded revenue.
- Recoverability and timing of the $573.2 million costs and estimated earnings in excess of billings, particularly disputed claims and unapproved change orders.
- Developments in Brightwater and CityCenter litigation and settlements, including resulting cash receipts, liabilities and any changes to recorded estimates.
- Debt maturities, covenant headroom, revolver availability and cash genuinely available for corporate use, distinguishing it from joint-venture and restricted cash.
- Whether Civil’s margin gains persist and whether weaker Specialty Contractors and Management Services performance improves; also monitor fixed-price execution risks and pension funding needs.