Business Context and Reporting Period
Company: Tutor Perini Corporation (formerly Perini Corporation)
Reporting Period: Fiscal year ended December 31, 2009
Overview: Tutor Perini is a leading construction services company operating through three segments: Civil (public works infrastructure), Building (hospitality, healthcare, commercial), and Management Services (U.S. military and government). The company completed a merger with Tutor-Saliba in September 2008 and acquired Keating Building Company in January 2009. In 2009, the company changed its name and NYSE ticker symbol to TPC and relocated its headquarters to Sylmar, California.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Total Revenues | $5,152.0 million | $5,660.3 million |
| Gross Profit | $388.0 million | $333.2 million |
| Income from Construction Operations | $211.5 million | ($25.2 million) |
| Net Income | $137.1 million | ($75.1 million) |
| Diluted EPS | $2.79 | ($2.19) |
| Backlog (Year End) | $4.31 billion | $6.68 billion |
| Working Capital | $303.1 million | $225.0 million |
| Long-Term Debt | $84.8 million | $61.6 million |
| Stockholders' Equity | $1,288.4 million | $1,138.2 million |
Cash Flow: Operating activities used $26.1 million in cash in 2009, compared to providing $126.1 million in 2008. This shift was primarily due to the timing of receivables on large projects and uncollected amounts from the Fontainebleau project.
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 9.0% to $5.15 billion. The Building segment saw a 12.8% decline ($661.7 million) due to the completion of major Las Vegas projects (e.g., CityCenter). This was partially offset by growth in the Civil segment (+16.4%) and Management Services segment (+50.4%).
- Profitability Improvement: Net income swung from a $75.1 million loss in 2008 to a $137.1 million profit in 2009. The 2008 loss was significantly impacted by a $224.5 million non-cash impairment charge related to goodwill and intangible assets from the Tutor-Saliba merger. Excluding this charge, operating income increased modestly year-over-year.
- Backlog Reduction: Backlog decreased by $2.37 billion (35.5%) to $4.31 billion. This reduction reflects the substantial completion of large hospitality projects and a slowdown in new non-residential building awards due to economic conditions, partially offset by new civil project acquisitions.
- Segment Shift: The company is transitioning from a heavy reliance on the Building segment (specifically hospitality/gaming) toward a higher mix of Civil and Management Services projects, which management expects to yield higher profit margins.
Guidance, Outlook, Risks, and Unusual Items
Outlook and Commentary: Management expects to replace high-volume building projects with a growing share of civil projects. The company anticipates continued challenges in the credit markets affecting customer financing and potential delays in government-funded infrastructure projects. However, the federal economic stimulus package is viewed as a positive factor for the civil segment.
Unusual Items:
- 2008 Impairment: The 2008 results included a $224.5 million pretax impairment charge ($166.9 million goodwill, $57.6 million intangibles) driven by the global financial crisis and project delays.
- Fontainebleau Matter: A significant uncollected receivable from the Fontainebleau Las Vegas project (owner filed for Chapter 11 bankruptcy) contributed to negative operating cash flow. The project was acquired by a third party in early 2010.
- Auction Rate Securities (ARS): The company holds $101.2 million in ARS classified as long-term investments due to liquidity constraints in the market. No impairment was recorded in 2009, but liquidity remains a risk.
Risks:
- Economic Conditions: Deterioration in credit markets and government budget shortfalls could lead to project cancellations or delays.
- Customer Concentration: In 2009, 38% of total revenues came from projects for MGM MIRAGE in Las Vegas.
- Legal Proceedings: Significant pending litigation includes disputes with the Los Angeles MTA, the Massachusetts Highway Department (Central Artery/Tunnel), and the UCLA Westwood Replacement Hospital project.
- International Operations: Risks associated with projects in Iraq, Afghanistan, and Guam, including security threats and changes in government funding.
Key Facts for Investor Verification
- Customer Concentration: Verify the stability of the MGM MIRAGE relationship, which accounted for 38% of 2009 revenues.
- Backlog Quality: Assess the convertibility of the $4.3 billion backlog into revenue, noting the shift from private hospitality projects to public civil works which may have different funding risks.
- Liquidity of Investments: Monitor the status of the $101.2 million in illiquid Auction Rate Securities and potential future impairment charges.
- Legal Exposure: Review the status of major litigation (LAMTA, Central Artery/Tunnel, UCLA) and the potential impact on working capital and earnings.
- Cash Flow Trends: Investigate the resolution of the Fontainebleau receivable and its impact on future operating cash flows.