TPC

Tutor Perini Corporation (TPC) - 2010 10-K Summary

Business Context and Reporting Period

This summary covers the Annual Report on Form 10-K for Tutor Perini Corporation for the fiscal year ended December 31, 2010. Tutor Perini is a leading diversified construction company operating through three segments: Civil (public works infrastructure), Building (hospitality, healthcare, commercial), and Management Services (U.S. military and government). The company operates primarily in the United States with significant international exposure in Iraq, Afghanistan, and Guam.

Key Financial Metrics

Note: 2010 results include the acquisition of Superior Gunite (Nov 2010). 2009 results include the acquisition of Keating Building Company (Jan 2009).

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 37.9% to $3.2 billion. This was primarily driven by a 48.1% drop in the Building Segment ($2.33B vs $4.48B), largely due to the substantial completion of the CityCenter project in Las Vegas in late 2009, which contributed ~$2.0 billion in 2009 revenues.
• Civil Segment Growth: The Civil Segment saw an 84.6% revenue increase to $667.7 million, driven by new projects in the New York metropolitan area and California.
• Profitability: Income from construction operations decreased 18.5% to $172.3 million. However, the Building segment improved its operating margin due to a higher mix of public works projects and increased self-performed work.
• Debt Structure: Total debt increased significantly to $395.7 million following the October 2010 issuance of $300 million in 7.625% senior unsecured notes due in 2018. Proceeds were used for acquisitions and general corporate purposes.
• Dividends: The company declared and paid a special cash dividend of $1.00 per share in November 2010, the first cash dividend since 1990.

Outlook, Risks, and Contingencies

• Acquisitions: The company acquired Superior Gunite (Nov 2010) and Fisk Electric (Jan 2011) to expand self-perform capabilities and electrical construction expertise.
• Backlog Composition: Approximately 51% of the $4.3 billion backlog is not expected to be completed in 2011. The Civil segment backlog grew to $1.36 billion (32% of total), while Building backlog decreased to $2.66 billion (62% of total).
• Key Risks:
  • Economic Conditions: Continued instability in credit markets and state/local government budget shortfalls may lead to project deferrals or cancellations.
  • International Operations: Risks associated with projects in Iraq, Afghanistan, and Guam, including security threats and changes in government funding.
  • Liquidity of Investments: The company holds $88.1 million in auction rate securities (ARS) which are currently illiquid. A $5.7 million impairment charge was recognized in 2010.
  • Legal Proceedings: Significant ongoing disputes include the MGM CityCenter matter (receivables of ~$249 million recorded), the Fontainebleau bankruptcy matter, and various change order claims.
• Management Commentary: Management expects to replace high-volume building projects with a growing share of higher-margin civil projects. They anticipate continued growth in the Management Services segment due to U.S. military expansion in Guam.

Investor Verification Checklist

• CityCenter Receivables: Verify the status of the $249 million in contract receivables related to the MGM CityCenter project and the potential impact of ongoing litigation/settlements on profitability.
• Auction Rate Securities: Assess the liquidity risk and potential for further impairment charges on the $88.1 million ARS portfolio.
• Debt Covenants: Review compliance with financial covenants in the new $300 million senior notes and the amended credit facility, specifically regarding leverage and fixed charge coverage ratios.
• Backlog Realization: Monitor the conversion of the $4.3 billion backlog into revenue, noting the shift toward civil infrastructure which may have different margin profiles than the building segment.
• Government Funding: Track federal and state infrastructure funding levels, as 44% of 2010 revenues were derived from state and local governments.