Tutor Perini Corporation — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; unaudited. Tutor Perini provides general contracting, construction management, design-build and self-performed construction services through Building, Civil, Specialty Contractors and Management Services segments.
Financial performance and liquidity
- Revenue: $992.9 million, up 8.8% from $912.5 million in Q1 2012.
- Profit and margins: Gross profit was $100.4 million (10.1% margin), versus $86.2 million (9.4%). Income from construction operations rose to $36.1 million (3.6% margin) from $17.0 million (1.9%). Net income was $14.8 million, or $0.31 per diluted share, compared with a $1.2 million loss, or $0.03 loss per share. The company says Q1 2012 net income excluding discrete tax items and an investment-sale loss was $4.1 million, or $0.08 per diluted share (non-GAAP).
- Cash flow: Operating activities used $84.5 million, compared with $25.0 million used in Q1 2012, primarily due to the timing of collections in Building and Specialty Contractors. Investing activities used $18.5 million, including $12.2 million for equipment and a $6.5 million increase in restricted cash. Financing activities provided $67.2 million. Cash and cash equivalents ended at $132.3 million, down $35.7 million from year-end.
- Liquidity: Working capital was $827.9 million; the current ratio was 1.67. Of cash and cash equivalents, $35.1 million was available for general corporate purposes and $97.2 million represented the company’s share of joint-venture cash restricted to joint-venture-related uses. Restricted cash was an additional $45.2 million.
- Debt: Total debt was $804.4 million, up from $737.1 million at December 31, 2012; debt-to-equity was 0.69 versus 0.64. Revolver borrowings were $204.0 million, with $95.8 million available. The term loan balance was $143.8 million; senior unsecured notes had a carrying value of $298.3 million. The company reported compliance with its amended credit covenants at quarter-end.
- Backlog: $5.53 billion at March 31, down from $5.60 billion at year-end. Q1 awards and contract additions were $915.6 million, below revenue recognized of $992.9 million.
Material changes versus Q1 2012
- Building revenue increased 21.4% and segment income improved from an $8.9 million loss to $4.2 million of income, reflecting new hospitality and gaming work, Hurricane Sandy-related projects and lower overhead.
- Civil revenue declined 6.7%, but segment income rose 27.8% to $21.6 million, supported by Washington tunnel activity and higher-margin pipeline work; unfavorable cost estimate adjustments on certain mining projects partly offset improvement.
- Specialty Contractors revenue rose 12.9%, while segment income declined 2.0% to $19.3 million and margin fell to 6.4%, reflecting reduced higher-margin electrical work and favorable close-out adjustments in the prior year.
- Management Services revenue fell 18.6%, primarily due to lower Iraq containerized-housing and surety-project activity; segment income increased to $2.8 million.
- Lower general and administrative expense and the absence of the prior-year $2.7 million auction-rate-security sale loss also contributed to improved reported earnings.
Outlook, risks and unusual items
- Management emphasized pursuit of large, complex public-works projects and expected to leverage self-performance and schedule-control capabilities. It cited $5.5 billion of backlog and pending awards including California High-Speed Rail ($985 million) and the SFMTA Central Subway ($840 million); these were pending, not included as awarded backlog. No specific full-year revenue or earnings guidance is provided.
- Management cautioned that quarterly results are not necessarily indicative of full-year results, given project timing and changes in estimated project profitability. Contract accounting relies on estimates; management reported no significant Q1 changes in estimated contract costs that affected gross profit.
- Brightwater litigation: The company holds a 20% interest in the VPFK joint venture. A jury awarded King County $155.8 million and VPFK $26.3 million in December 2012; in late April 2013, the court ordered VPFK’s sureties to pay $14.7 million in King County fees and costs. VPFK expected to pay the verdict and fees in Q2 2013 and would appeal if no settlement was reached. Tutor Perini had recorded a $5.0 million contingent liability, the low end of management’s range, and stated the ultimate impact was not yet determinable. A materially less favorable outcome could significantly affect results.
- Claims and collection risk: Costs and estimated earnings in excess of billings totaled $479.4 million, including $133.5 million of unapproved change orders and $175.8 million of claims. Approximately $62.5 million of the combined unapproved-change-order and claims balances was subject to litigation or dispute resolution; reduced recovery estimates could be charged against future earnings.
- The company reported approximately $192 million of recorded CityCenter contract receivables and a $191.3 million mechanic’s lien. MGM had asserted offsets and claims, while the company said it did not expect the matter to materially affect its consolidated financial statements.
- The $46.3 million auction-rate-securities investment was classified as long-term because of limited market liquidity; management did not expect this to materially affect overall liquidity. The company also identified contract execution, project estimates, litigation outcomes, funding availability, surety capacity and public infrastructure appropriations as risks.
Important facts for investors to verify
- Track the Brightwater settlement, payment, appeal and any change to the recorded $5.0 million liability.
- Assess collectability and timing of the $479.4 million costs-and-earnings asset, especially the disputed claims and unapproved change orders.
- Monitor operating cash flow and receivable collections, distinguishing corporate cash from joint-venture and restricted cash.
- Check conversion of pending awards into executed contracts and backlog, and whether backlog replenishes revenue recognized.
- Review debt levels, covenant compliance and remaining revolver availability as borrowing needs evolve.