Tutor Perini Corporation — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing also provides unaudited fourth-quarter results. Amounts are in U.S. dollars unless noted.
Business context
Tutor Perini provides general contracting, construction management, design-build, and self-performed construction services through Building, Civil, Specialty Contractors, and Management Services segments. In 2011 it completed a major acquisition program to expand geographically and increase specialty contracting and self-performed work. The Specialty Contractors segment was established during the year.
Financial performance and liquidity
- Revenue: $3.716 billion, up 16.2% from $3.199 billion in 2010. Growth was substantially acquisition-driven. Building revenue fell 17.9% to $1.825 billion; Civil rose 32.7% to $885.2 million; Specialty Contractors increased to $802.5 million from $112.9 million; Management Services rose 3.8% to $203.1 million.
- Profit: Gross profit was $395.3 million versus $337.8 million; gross margin was approximately 10.6% versus 10.6%. Income from construction operations was $168.4 million versus $172.3 million, a margin of approximately 4.5% versus 5.4%. Net income was $86.1 million, down from $103.5 million; diluted EPS was $1.80 versus $2.13.
- Fourth quarter: Revenue was $1.115 billion, gross profit $125.3 million, net income $24.0 million, and diluted EPS $0.50. In Q4 2010, revenue was $688.0 million, net income $18.9 million, and diluted EPS $0.40.
- Cash flow: Operating activities used $30.5 million, compared with $26.3 million generated in 2010. Investing activities used $378.2 million, including $341.9 million for acquisitions and $66.7 million for property and equipment. Financing activities provided $141.6 million. Cash and cash equivalents ended at $204.2 million.
- Debt and liquidity: Total debt was $672.5 million, including $60.0 million current maturities; long-term debt-to-equity was 0.44x, up from 0.29x. Working capital was $556.8 million and the current ratio 1.40x, versus $592.9 million and 1.61x. The company reported $297.0 million available under its revolving facility and was in compliance with its covenants.
- Cash availability: Of reported cash, $109.2 million was corporate cash available for general purposes, while $95.1 million was the company’s share of joint-venture cash available only for joint-venture purposes. Restricted cash was $35.4 million.
Material changes versus 2010
- Backlog increased 42.6% to $6.108 billion from $4.284 billion. Acquisitions contributed approximately $2.6 billion of backlog; new business awarded totaled $5.540 billion, also including acquired backlog.
- Building income from construction operations declined to $46.3 million from $89.2 million, primarily as major projects neared completion. Civil income declined to $78.5 million from $88.1 million. Specialty Contractors contributed $65.6 million, largely from acquisitions.
- Interest expense rose to $35.8 million from $10.6 million, reflecting the senior notes, term loan, and other borrowings. This helped reduce net income despite higher revenue and gross profit.
- Acquisitions added substantial scale but also increased goodwill, intangible assets, debt, and integration demands. Goodwill was $892.6 million and net intangible assets were $198.0 million at year-end.
Outlook, risks, contingencies, and unusual items
- The filing gives no specific numerical earnings or revenue guidance. Management expects to pursue higher-margin public works, increase vertical integration, and realize benefits from acquisitions; it states that expected acquisition benefits should outweigh added interest costs.
- Management reported being retained for the Hudson Yards development and a nearby residential tower in New York. Work was scheduled to begin in mid-2012, and project phases would be added to backlog as released; this was not yet fully reflected in reported backlog.
- Key risks include project delays, cancellations or scope reductions; cost-estimate errors and fixed-price overruns; disputes and delayed recovery of change orders and claims; public funding constraints; intense bidding competition; labor and subcontractor availability; bonding capacity; and acquisition integration.
- Costs and estimated earnings in excess of billings totaled $358.4 million, including $136.7 million of unapproved change orders and $114.0 million of claims. Approximately $85.2 million of the latter two categories was subject to litigation or dispute resolution. Collection timing and ultimate recoveries remain uncertain.
- Notable disputes include the Central Artery/Tunnel project claims, CityCenter, Fontainebleau, Queensridge, and Brightwater. The company included estimated recoveries in reported revenue; actual outcomes could differ. For CityCenter, approximately $192 million of contract receivables remained recorded and the mechanic’s lien had been reduced to $313 million.
- Auction-rate securities of $62.3 million remained classified as long-term investments because of limited liquidity; the company recorded a $4.8 million other-than-temporary impairment in 2011. Goodwill testing found no impairment, but Building and Civil reporting-unit fair values exceeded carrying values by only 3.0% and 3.8%, respectively.
- The defined-benefit plans were underfunded by $38.6 million. Management anticipated approximately $3.9 million in 2012 contributions and higher pension expense, estimated at $4.9 million for 2012.
- Management and the auditor concluded internal control over financial reporting was effective. However, the auditor’s assessment excluded acquired entities representing 30% of year-end assets and 38% of 2011 revenue because they had not yet been fully integrated into the control framework. The financial-statement audit opinion was unqualified.
Most important facts for investors to verify
- Whether acquisition-related growth translates into organic growth, stronger margins, and cash generation as integration proceeds.
- Conversion and timing of the $6.1 billion backlog, particularly the portion not expected to be completed in 2012, and the release of Hudson Yards phases.
- Operating cash flow and working-capital trends, including collection of receivables, retainage, unapproved change orders, and disputed claims.
- Debt service, covenant headroom, and the impact of higher interest costs on earnings and liquidity.
- Outcomes and recorded estimates for significant claims and litigation, plus liquidity and valuation assumptions for auction-rate securities.
- Integration of acquired companies into internal controls and the financial-reporting framework.