Tutor Perini Corporation — Q1 2014 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2014, compared with Q1 2013; balance-sheet comparisons are with December 31, 2013. Tutor Perini provides general contracting, construction management, and design-build services through Civil, Building, and Specialty Contractors. The company reorganized during the quarter, eliminating its Management Services reporting unit and segment; prior-period segment results were restated.
Financial results and liquidity
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Revenue | $955.2 million | $992.9 million; down 3.8% |
| Gross profit / margin | $105.3 million / 11.0% | $100.4 million / 10.1% |
| Income from construction operations / margin | $41.5 million / 4.3% | $36.1 million / 3.6% |
| Net income | $15.9 million | $14.8 million; up 7.7% |
| Diluted EPS | $0.33 | $0.31 |
| Operating cash flow | Use of $41.1 million | Use of $84.5 million |
| Cash and cash equivalents | $133.1 million | $119.9 million at year-end |
| Total debt | $820.8 million | $733.9 million at year-end |
| Working capital / current ratio | $873.5 million / 1.66 | $787.4 million / 1.61 at year-end |
Cash includes $107.5 million attributable to joint ventures and available only for JV-related uses; corporate cash available for general purposes was $25.5 million. Restricted cash was $43.3 million. The company had $85.8 million available under its revolving facility and reported compliance with its financial covenants. Debt-to-equity was 0.65, versus 0.59 at year-end. Operating cash use primarily reflected the timing of Civil-segment collections; financing activities provided $61.9 million, largely from net revolver borrowing.
Changes and operating trends
- Civil revenue rose 43.8% to $365.2 million and segment operating income increased to $44.4 million from $23.3 million; margin rose to 12.2% from 9.2%. Management cited project ramp-ups, higher-margin work, and favorable performance on a California tunnel project.
- Building revenue fell 31.8% to $297.9 million; operating income declined to $1.8 million from $5.3 million, with margin down to 0.6% from 1.2%. Lower hospitality, gaming, and healthcare activity and northeastern weather were cited.
- Specialty Contractors revenue decreased 3.2% to $292.1 million; operating income fell to $7.8 million from $19.3 million, and margin to 2.7% from 6.4%. Management cited weaker volume and unfavorable performance on certain New York mechanical projects.
- Backlog increased to $7.7 billion from $7.0 billion at year-end. New business awarded was $1.65 billion, including two MTA mass-transit awards valued collectively at $844 million.
Outlook, risks, and unusual items
- No specific earnings or revenue guidance was provided. Management said it expects to book many pending awards over the next several quarters and future Hudson Yards phases over several years. Pending awards include up to $2.3 billion in Hudson Yards phases and approximately $2.0 billion in other contracts; these are not yet backlog.
- Management said backlog growth and its focus on higher-margin public works support its strategy, but quarterly results are not necessarily indicative of full-year results because project timing and estimated profitability can change.
- Costs and estimated earnings in excess of billings totaled $698.4 million, including $163.9 million of unapproved change orders and $243.3 million of claims. Approximately $58.8 million of the combined change-order and claim balances was subject to litigation or dispute resolution. Recoveries are estimates; reductions could be charged to future earnings.
- Notable disputes include Central Artery/Tunnel project claims, MGM CityCenter receivables and remaining claims, and the Brightwater litigation. In Brightwater, the joint venture paid a jury verdict and related fees in 2013 and appealed; the ultimate financial impact remained uncertain. The filing states management had recorded a $5.0 million contingent liability, with amounts paid above that liability recorded in receivables.
- Debt increased primarily because revolver borrowings rose by $79.0 million. The company cited risks including project execution and cost estimates, collection and claim outcomes, winning and converting backlog, financing and surety availability, labor issues, and public infrastructure funding.
- The company held $46.3 million of auction-rate securities at quarter-end, classified as long-term due to limited liquidity. On May 1, 2014, it sold all of them for approximately $44.5 million.
- Other expense increased to $3.4 million, primarily due to higher business-acquisition-related liabilities. The effective tax rate was 41.6%, versus 38.1%; management cited an unfavorable discrete tax adjustment.
Investor facts to verify
- Whether the $7.7 billion backlog converts into revenue and cash on schedule, and whether pending awards are executed.
- Collection timing and recoverability of receivables, unbilled balances, change orders, and claims, including the approximately $58.8 million subject to disputes.
- Progress and margin trends in Building and Specialty Contractors, particularly the identified project-performance issues.
- Debt levels, revolver availability, covenant headroom, and the distinction between corporate cash and joint-venture or restricted cash.
- Final outcomes and potential financial exposure from major litigation, especially Brightwater, Central Artery/Tunnel, and CityCenter.
- Accounting and realized proceeds from the May 1 auction-rate securities sale.