Tutor Perini Management Discusses Q4 2012 Results - Earnings Call Transcript

Feb.21.13 | About: Tutor Perini (TPC)

Tutor Perini (NYSE:TPC)

Q4 2012 Earnings Call

February 21, 2013 5:00 pm ET


Jorge Casado - Director of Investor Relations

Ronald N. Tutor - Chairman and Chief Executive Officer

Robert Band - President, Executive Director and Chief Executive Officer of Tutor Perini's Management Services Group

Michael J. Kershaw - Chief Financial Officer and Executive Vice President


John B. Rogers - D.A. Davidson & Co., Research Division

Steven Fisher - UBS Investment Bank, Research Division

Richard S. Paget - Imperial Capital, LLC, Research Division


Good day, ladies and gentlemen, and welcome to the Tutor Perini Corporation Fourth Quarter 2012 Earnings Conference Call. My name is Jeff, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. [Operator Instructions] I would now like to turn the conference over to your host for today, Mr. Jorge Casado, Director of Investor Relations. And you have the floor, sir.

Jorge Casado

Thank you. Good afternoon, everyone, thank you for joining us today. With us from management are Ronald Tutor, Chairman and CEO; Robert Band, President; and Mike Kershaw, Executive Vice President and CFO.

Before we discuss our results for the fourth quarter and calendar year 2012, I would like to remind everyone that the company will be making statements about its future results and expectations which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Such statements are based on current expectations and the current economic environment and are inherently subject to economic, competitive and other uncertainties and contingencies beyond the control of management. You should be cautioned that these statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements.

Important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements are specified in our earnings release, which was issued earlier today, and in our Form 10-K and other SEC filings.

During this call, we may discuss certain non-GAAP financial measures, and reconciliations of these amounts with the comparable GAAP measures are reflected in our earnings release, which is posted in the Investor Relations section of our website at www.tutorperini.com.

With that, I'd like to turn the call over to our Chairman and CEO, Ron Tutor.

Ronald N. Tutor

Good afternoon, and thank you for joining us.

Today, I will try to provide an overview of the company's recent developments and performance in our Civil, Building and Specialty Contractor markets, and the opportunities that we'll derive from those developments. Then I will turn the call over to Bob Band who will discuss our Management Services operation, which is predominantly overseas, as well as the Pacific. Then Mike Kershaw, our CFO, will discuss the details of our financial results for the quarter and the year.

In 2012, we experienced a very disappointing year for our Building business, probably our worst Building performance in the last 20 years. However, our Civil, Specialty and Management Services groups performed well, and we have moved beyond what we experienced as a significant trough in both our revenue and our profitability that we experienced in 2012, and are in the process and experiencing a significant rebuild of our backlog with recent new projects across virtually all our Building groups.

Our fourth quarter and full year revenues were in line with expectations, and we delivered an 11% year-over-year top line growth in spite of the diminishing profitability.

Overall, we finished the year with a strong quarter, although our year-end earnings came in below expectations. We remain very optimistic about our prospects in several other recent pending proposals for Civil work, each valued at well over $1 billion.

These include the recent proposals submitted for the first segment of the California High-Speed Rail project, which state authorities expect to announce an award by April and actually sign a contract by June, with a construction start this summer. An upcoming $1 billion proposal for 4 metro MTA stations in downtown San Francisco, another design build proposal for a $2 billion plus Dulles Metrorail Phase 2, as well as several major bridge and highway jobs, particularly focused in the New York and Pennsylvania areas.

As expected, we received 3 awards that we mentioned as pending during our last earnings call. Our Civil group received a $235 million Verrazano-Narrows Bridge Upper Deck Replacement. And our Specialty Contractors group, namely Five Star Electric, received 2 signal modernization projects from New York Transit Authority valued at $225 million, of which $167 million came in the fourth quarter and $58.5 million early in the first quarter of this year.

The Civil group was also awarded in late December a $116 million joint venture bridge project in Minnesota, and earlier this month, was identified as the low bidder on 2 projects in New York: the $103 million City Island suspension bridge replacement and the $61 million runway rehab at Stewart International Airport.

In addition, the Building group received several fourth quarter awards or notice of low bids, including a $123 million private campus housing project in Philadelphia, a $94 million academic building at University of California at San Francisco, and 2 hospitality and gaming projects with a value of $39 million.

The building markets seem to be continuing in a significant recovery. And we just signed recently the contract for the $780 million Tower C office building at Hudson Yards, which although we physically started the work in December, we can now place into our backlog.

Our Building, Civil and Specialty Contractors groups were particularly busy in the fourth quarter, working on approximately $60 million of emergency repair services in response to Hurricane Sandy, virtually all of which were performed after Thanksgiving prior to the end of the year. This included substantial work on New York City's Rapid Repairs program, a disaster recovery program largely funded by FEMA.

We performed one of the largest shares of that rapid repair work amongst the general contractors hired by the city to restore heat, power and hot water to thousands of residential properties damaged by the hurricane, as well as performing repairs to protect residents from further damage and allow them to remain in and return to their home. Work on this program, in its initial phase, is expected to conclude this week.

In addition, our Five Star Electric and WDF Mechanical subsidiaries restored power, plumbing and heating to the Rockaway Water Control Plant which was submerged after the storm, reenergized 35 Department of Environmental Protection pump stations, and provided emergency repair services to the New York Housing Authority at various Housing Authority managed properties, by restoring electricity and/or heat to over 100 buildings.

We anticipate performing more than 100 -- excuse me, more than $75 million of ongoing Sandy related work in the first quarter of 2013, most of which is on the Rapid Repairs program.

As you are aware, President Obama recently signed into law a $50.5 billion Sandy aid relief package. The Congressional Budget Office estimates that more than 30% of these funds will be spent by October of 2014. Already, we have seen about $7 billion begin to flow. The largest portion of the funds, about $16 billion, will be spent through the Department of Housing and Urban Development's Community Development Block Grants, with $4 billion of those dollars specifically intended for Sandy-related projects. More than $11 billion will be spent through FEMA for issues like restoring power and meeting other disaster-related needs. And another $10 billion devoted to repairing mass transit systems in New York and New Jersey, and in improving transit infrastructure to better withstand future storms.

As you might imagine, based on the types of Sandy-related projects that have kept us busy over the past few months, as well as our long history of providing services to transit agencies throughout the United States, Tutor Perini is extremely well-positioned to tackle many of these projects as they are funded through this aid package. We are tracking a number of these significant opportunities directly tied to this funding, and looking forward to continuing to play a leading role in restoring and improving our nation's infrastructure.

Our total backlog at the end of the fourth quarter, not including the current Tower C award, was $5.6 billion. Compared to the third quarter of 2012, our Civil, Specialty Contractors and Management Services backlog grew 6%, 7%, and 22%, respectively, as a result of a solid volume of new orders.

Backlog in the Building segment declined 10% sequentially, although I might add, if we included the Tower C award last year, it would have been flat. We expect our Building segment backlog to grow once again as the current pending Hudson Yards contracts are both leased, funded and finalized.

The backlog mix this quarter was 35% Building, 32% Civil, 27% Specialty and 6% Management Services. For those of you that recall the mid-2006 to 2008 years, when Building literarily was 85% to 90% of all backlog, you can see the transition that Tutor Perini has undergone.

Currently, we have approximately $4.4 billion in the pending awards, including $3.2 billion in mixed use, over $450 million in education, $300 million in hospitality and gaming, and over $100 million in bridges. These awards are expected to enter our backlog over the next 2 quarters.

Our Civil segment continues to deliver strong results. In fact, over the past 4 years, as the merger took over and strengthened our Civil business, despite relatively weak spending by state and local government agencies, our Civil segment has more than tripled its backlog, revenue and income from operations. The Civil segment also continues to have the largest volume of significant infrastructure project opportunities, and typically and consistently generates the highest margins across all our businesses.

Large civil project opportunities tend to have a limited number of bidders, as we've discussed previously, and high prequalification requirements that present key opportunities for which we are uniquely competitive.

Backlog for the Civil segment at the end of the fourth quarter was $1.8 billion. And we estimate the size of prospective opportunities in our Civil market to be approximately $19 billion for the projects we will bid over the next 12 months across the United States.

In our Building segment, the most significant near-term growth opportunity continues to be the Hudson Yards development project for Related Companies and Oxford Properties Group in Midtown Manhattan, where in December, we broke down on Tower C and expect to ramp up our work significantly in 2013.

There is an additional $2 billion plus in work at Hudson Yards that is very simply awaiting tenant closures and conclusion of design before that could proceed to contract, in addition.

Our Building business is recovering from the 2012 issues, and we are finally now seeing the return of backlog and remain confident that our 2013 Building segment will return to a reasonable level of profitability.

Backlog for the Building segment at the end of the fourth quarter was $2 billion. We are again tracking and pursuing another $10 billion of targeted projects in our Building segment during the year 2013.

Our Civil and Building segments are continuing to leverage our Specialty Contractors through our integrated approach to bidding and executing large-scale projects, with the vertical integration of the prime contract and our owned electrical and mechanical subsidiaries.

In the fourth quarter, the Specialty Contractors segment was awarded more than $300 million in new subcontractors work for more than 2 dozen projects, including the $167 million of signal modernization for New York City Transit. The majority of these new awards were from external customers. Backlog for the Specialty Contractors segment at the end of the fourth quarter was $1.5 billion.

The Specialty Contractors segment has an active pipeline of opportunities exceeding $3 billion that we will bid in over the next 12 months.

Overall, our project execution remains strong. Our sizable backlog and a continued significant volume of large Civil and Building project opportunities we expect to bid provides us with confidence and optimism for improved performance in 2013 and beyond.

We believe we are among the limited number of major U.S. contractors uniquely qualified to bid and execute mega-scale both Civil and Building projects.

In addition to that Civil project size we talk about constantly, we are certainly one of the country's largest general building contractors with a national scale and breadth of capabilities, and a history of building probably some of this country's largest and most complex mega building projects.

Last but not least, our electrical and mechanical contracting capacities collectively ranked within the 5 largest Specialty Contractors in the United States.

Given all those facts and figures, I'll now turn it over to Bob Band to share the details of our overseas Management Services segment.

Robert Band

Thanks, Ron. In the fourth quarter, we were very pleased to be awarded a $130 million task order by USAID for the irrigation and watershed management program in Afghanistan, an important new program that builds on our experience in providing infrastructure rehabilitation and development in the countries that have been impacted by conflict or natural disasters.

The task order was the first major award received under our existing $750 million USAID energy and water IDIQ contract. It is a 5-year program to provide capacity building services to the government of Afghanistan and involves providing technical and administrative expertise to the Afghan Ministry of Agriculture, Irrigation and Livestock. The goal of the program is to expand and strengthen the Afghan government's and community-level capacity to better manage their water resources, to improve agricultural production and productivity.

In the Management Services segment, we are continuing to participate in 9 multi-year indefinite delivery, indefinite quantity contracts for several U.S. government agencies. The aggregate program value for these IDIQ contracts at the top level, program level is in excess of $15 billion for all participants. These programs include the U.S. Navy design-build MACC program for the relocation of U.S. Marines from Okinawa to Guam; the U.S. State Department's worldwide construction contract for containerized housing and offices; 2 USAID contracts including the energy and water contract mentioned earlier; and another contract for vertical structures, both in Afghanistan; the Central Command multiple award task order contract program for the U.S. Army Corps of Engineers Middle East District and the U.S. Coast Guard's Department of Homeland Security MACC for their agencies, including FEMA and ICE; and also, the Fish and Wildlife Service MATOC for the Department of the Interior, servicing National Park Service and other agencies.

Certainly, the SATOC and HERC contracts of the Air Force are still in effect and have produced significant revenue for the company. We are performing work under 8 of these IDIQ contracts currently, and actively pursuing new projects under all of these programs, which provide us with a greater visibility into our new work pipeline in 2013 and beyond. We estimate the size of the prospective opportunities in our Management Services' group target market to be between $2 billion and $3 billion for projects that will be bid and proposed on over the next 12 months.

We continue to seek additional multiple-award contracts from U.S. government agencies, both overseas and domestically, as well as pursue major full and open competitions in Iraq, Afghanistan, Haiti, Guam and other Pacific regions, and other locations from various U.S. agencies.

Fourth quarter backlog for the Management Services segment grew a strong 22% sequentially and 35% year-over-year to $357 million, the highest level since 2008, largely due to the $130 million USAID irrigation and watershed management task order award.

Work currently in backlog continues to produce solid on-target results. The $122 million task order under contract with the State Department's containerized housing and office facility program in Southern Iraq is achieving good progress. The $75 million task order under the Navy MACC for an aircraft parking apron in Andersen Air Force Base in Guam is continuing to go well. In Haiti, we are making good progress on a $15 million USAID electrification project. In Afghanistan, we are also progressing well with our work on $108 million contract to upgrade the Southern Electric Power System, consisting of upgrades to an existing electrical overhead transmission system and the construction of electrical substations.

In the U.S., we've been awarded over $30 million of contract completion work by surety clients, and we have begun to work on the recent award of the $9.6 million contract from the National Park Service for repairs of earthquake damages to the Washington Monument. We anticipate increased activity in Haiti, Afghanistan and Guam, as well as increased assignments from our U.S. surety clients and multinational corporate clients.

Now, Mike will give you the financial details for the quarter.

Michael J. Kershaw

Thanks, Bob.

As Ron mentioned in the beginning, we finished 2012 with a strong fourth quarter. And while our revenue was consistent at $1.1 billion between this quarter, this year and last year, I think it hides an underlying significant trend. Last year, we finished off the substantial completion of a public works building project and 2 hospitality and gaming projects. This year, we are in the throes of executing work on the West Coast for healthcare projects and tunnel projects, and on the East Coast for highway projects. These projects are in midstream as opposed to closing out. And as Ron mentioned, we have the Hurricane Sandy-related revenue that flowed through.

Our gross profit between the 2 periods was about $126 million this year versus $125 million last year, a small increase of 1%. And as a result, our gross profit margin grew from 11.2% to 11.3% this year. Both of these are the strongest that we've had in the last couple of years.

Our SG&A continues to go down, generally driven by lower labor. And it cost us $66 million this year versus $75 million last year. So all in all, our income from construction operations was $61 million this year, up 20% from the $51 million that we had last year.

Our operating margin was strong at 5.5% on a GAAP basis, up 90 basis points from 4.6% last year, and this is the highest quarterly operating margin that we've seen since the third quarter of 2010.

On a non-GAAP basis, that improves a little bit better to 5.9%. While our net income was up to $42 million this year versus 7 -- $24 million last year, a 73% increase, a large part of that was the result of $13 million worth of tax benefit that was related to the impairment charge that we took earlier in the year, that continues to flow through this year. But obviously, we also saw the benefit of the lower G&A expenses in the fourth quarter of this year.

So on a GAAP basis, our diluted EPS earnings were $0.86 a quarter compared with $0.50 last year. And on a non-GAAP basis, our net income was $32 million, and our diluted EPS was $0.66, the strongest EPS number that we've seen since the third quarter of 2011.

All in all, what it shows is that the second half of the year results showed the directional trend that we anticipated at the beginning of the year.

Now moving on to looking at this on a segment by segment basis.

In the Building segment, our revenues were down to $406 million from $446 million a year ago, but that's a little bit up from where we were in Q3. The decrease from last year that's driven by the reduced volume comes from the projects that I mentioned earlier and their substantial completion, but they were offset by increased activity on healthcare projects on the West Coast and the ramp-up of several new hospitality and gaming projects that Ron mentioned, which also contributed to the sequential growth between Q3 and Q4.

Our loss from construction operations this year for the quarter was a small loss of $2 million compared with an income of $3 million. And the decline was due to the higher margin contribution that came from the large projects that were completed in 2011, the unfavorable change in new work mix margin as we move from public work to private work, and to a lesser extent, the remnants of G&A that we carried in Building as we start up the new projects.

Our operating margin this year was a loss of 0.4% versus 0.6% profit last year, still a small loss, but significantly better than we'd been achieving earlier in the year.

Moving on to our Civil segment.

Revenues between the 2 years in each quarter was virtually the same, it's down a little bit at $329 million versus $337 million this time last year, but it's a very small variance given the fact that, that revenue is driven predominantly by costs incurred. It really only needs a little bit to make those kinds of changes.

The completion this last year, of the large transportation project on the East Coast was virtually offset by the West Coast tunnel project that I mentioned and highway projects in the East.

Our income from construction operations, however, was significantly improved from this time last year. We're up at $44 million this year versus $27 million last year, which is a 63% increase. That increase was due to favorable weather conditions that we experienced in the Midwest, some equipment cost savings that were realized in one of our subsidiaries, and the increased contributions and activities on the tunnel projects on the West Coast.

Our operating margin in Q4 was 13.3% compared with 8% in the fourth quarter of 2011. This also reflected a good sequential trend from last quarter and is actually the best quarter that we've achieved in the last couple of years.

In our Specialty Contractors segment, revenues were up to $324 million, a 13% increase from $288 million last year, and also a slightly better number than last quarter. In New York, the Sandy-related projects offset the work that was performed last year on a gaming project, and our general higher activity levels that we have on some lower margin smaller subcontracts in the South.

Our income from construction operations in Q4 was $25 million. That is down from $30 million last year, and it was driven by the fact that we had these favorable closeouts on a number of East Coast specialty projects in 2011. That led to our margin this quarter of being 7.8%, which is more in line with our general margin expectation for this segment, versus the 10.3% last year, which we mentioned a year ago, was a level at which we didn't expect to maintain going forward.

Our Management Services segment. The revenue this quarter was $55 million, up 24% from last year's $44 million, and was generally driven by the increases in activity that Bob mentioned on our electrical project in Afghanistan and an Air Force project in Guam.

Our income from construction operations was down to $6 million from $8 million, mainly due to the fact that last year, we closed out some U.S. military facility projects in 2011, and that distorted our margin as well. This year it's 10.4% versus 17.6% last year.

To talk a few minutes about our other expenses.

Our depreciation and amortization expense in the fourth quarter of 2012 was $15 million this year versus $18 million last year. Our interest expense was slightly up, at $11 million this year versus $10 million last year. Our income tax expense, however, was significantly down, at $6 million versus $15 million for last year, but that's heavily influenced by the impairment related tax benefits that we took, because they flow through this year. If you back those out, our underlying rate is more in the 40% to 41% range, which is where we've been historically, based on performing work today in higher state tax jurisdictions.

From a balance sheet perspective, our working capital at the end of the year was $748 million versus $557 million last year. Included in that number is $168 million in cash and cash equivalents compared with $204 million last year. That means our current ratio increased to 1.61 at the end of this year compared with 1.40 last year. We had $40 million worth of use -- of cash from operating activities in the fourth quarter of 2012 versus a generation of $93 million of cash in the fourth quarter of last year. As a result, our total debt at the end of this year was $737 million versus $673 million at the end of last year. Our total debt-to-equity ratio at the year end was 0.64 versus 0.48 of the last year, and that really reflects the increase in the ratio caused by our goodwill impairment, the impact on shareholders equity.

With that, I'll turn the call back over to Ron for closing comments.

Ronald N. Tutor

Thank you, Mike.

Being proud of the work we accomplished in helping the recovery from the devastating effects of Hurricane Sandy, significant work remains to be accomplished over the next few years, as the government funds and local government move forward to try to accomplish the safety barriers and rebuilding that ensures that sort of devastation can never occur again.

We continue to be pleased with our recent awards across all our segments. Our Civil infrastructure markets, as I seem to say on every call, remain very strong nationwide, and we expect that trend to continue virtually indefinitely.

Our Building markets are beginning to recover, which is evidenced by our build up in backlog, and we actually find many of our owners who have committed work to us finally funding and moving forward, both in the Florida sector and on the East Coast.

Our Specialty Contractors group just continues to make very positive contributions to the company, especially focused in the New York City and State area, which continues to be one of our strongest markets, literally across all our basic disciplines.

In 2013, I'd say it's appropriate to take the position that we have concluded managing our G&A and the integration of systems necessary to bring all the recent acquisitions consistent with the parent company.

We are in the process of concluding a major software transition, with the replacement in systems continuation amongst all our subsidiaries with these new programs.

This concludes our remarks, and I will now ask the operator to open the call for questions.

Question-and-Answer Session


[Operator Instructions] Our first question comes from the line of John Rogers with D.A. Davidson.

John B. Rogers - D.A. Davidson & Co., Research Division

A couple of things. I mean, you have decided not to provide guidance this year?

Ronald N. Tutor

Too many -- I'm going to give guidance, but I've told our people, it will be 2 to 3 weeks. There's too many pending awards that I've got to get my arms around before I find myself in the position I was placed last year. My Building group that gave guidance and missed it by so far, when every other arena of the company met or exceeded expectations, our Building group literally brought the year down to where we end it. So let's just say that I'm personally going into much more detail in the guidance I'm getting from each division, and I would expect to conclude that within the next 2 to 3 weeks, at which time I'll provide guidance.

John B. Rogers - D.A. Davidson & Co., Research Division

Okay. And then Ron, there were a couple of big projects in the fourth quarter, that Tappan Zee Bridge, the Ohio River bridges where you were -- you came in not as the low bid. And I was just wondering if you could comment on the pricing in the market, has it changed? Or your thoughts here?

Ronald N. Tutor

Well, we were second bidder on Tappan Zee and we were beaten, $800 million, and we were second under Kiewit by $100 million. So I don't know what to say. Obviously, 2 of the 3 of us believed it was worth $4 billion, and one of us believed it was worth $3 billion. So it's pretty hard to comment other than the disappointment and moving on immediately. Ohio River was a design, build and finance, and very candidly, we were soundly beaten and it's given us second thoughts, and it was a lot of effort put into a project where, candidly, we were beaten such that maybe that type of job in that location is not something we should pursue.

John B. Rogers - D.A. Davidson & Co., Research Division

Okay. And then one other thing, if I could. The $4.4 billion in pending awards, you mentioned that you expect to bring most of that in over the next 2 quarters. And I can't remember the exact numbers, but I think a couple of quarters ago, the pending number was like $5 billion, and so I'm just -- want to make sure I understand how this works. And is it the -- you're more comfortable these projects are coming in sooner?

Michael J. Kershaw

I think there's a combination in there. We had in pending awards before, a couple of projects that got canceled, and they're coming out again to bid which...

Ronald N. Tutor

Yes, we were low bidder. Let me give you a -- for example, Mike's right, we were low bidder on a $960 million low bid on a New York Transit set of tunnels. We were $150 million low, and much to our shock probably and everybody else's, the Transit Authority canceled the award and broke it up into 4 or 5 smaller projects. We were low on a $240 million sequentially excavated station in San Francisco. They threw that bid and then pulled it all into 1 major project rather than bid it alone. So pending awards were literally over $1 billion. Almost $1.5 billion of it was low bids that they didn't award, and then are in the process of rebidding them. So -- and of course, pending awards are -- include Hudson Yards and those projects. So we call a pending award anything where we've been given the project but it isn't funded nor a contract has been signed and we typically don't sign until the money is in the bank to put it bluntly. It might be easier if we were more definitive because those round numbers don't help me at all and I can't imagine they help any of you. And I think we're much better served if we give you specifics of what's contained. When we talk billions as if it's a rounding area, I'd suggest that our accounting department talk about 6 or 8 or 10 specific projects in contracts with the status, so there's something meaningful other than just the same old bunch of pending award.

Michael J. Kershaw

Yes. We can do that. We can do that.

Ronald N. Tutor

It doesn't do me any good, any more than it does you.

Michael J. Kershaw

I think the other problem with that, as you say, Hudson Yards, that's a big chunk of that.

Ronald N. Tutor

Absolutely. It's the way we present it is not -- is meaningless to them and to me.

John B. Rogers - D.A. Davidson & Co., Research Division

Okay. I was just trying to understand. And on the Hudson Yards, are you the general contractor -- or the subs? Who is paying the subs on that, in that $780 million?

Ronald N. Tutor

We are the general contractor. We're in a debate right now with Related as to whether they contract with the subs, and then our fee is based on total cost, it's all cost-plus. Versus the other way is a CM at-risk, where we go direct to the contractors but then we guarantee them a price. So we just signed the contract, literally, yesterday and that's one of the options that's got to be concluded and it probably will in the next couple of weeks.


Our next question comes from the line of Steven Fisher with UBS.

Steven Fisher - UBS Investment Bank, Research Division

Just picking up that last line of discussion. Is that the reason why the booking got delayed from last quarter on Hudson Yards? I thought we were talking last quarter that you couldn't actually start the work until you had a signed contract.

Ronald N. Tutor

Well, what happened was we awarded the foundation work to a local contractor. It was a $40 million award. They wanted to get started. It was the end of -- it was right after Thanksgiving, 1st of December. And they took the contract direct and it had not -- our contract had not been signed yet. So we went ahead and we finalized the contract, frankly, the first part of February, and it got signed, I think, yesterday. So we did go ahead in that case on a limited basis with absolute trust in Related and started the work, and we've now subsequently got an executed contract and are beginning to let other contracts as part of that $780 million job.

Michael J. Kershaw

And that particular one, we weren't at risk.

Ronald N. Tutor

No, we really weren't at risk because they awarded the subcontract direct.

Steven Fisher - UBS Investment Bank, Research Division

Okay, that's fine. You mentioned that the Building segment, Ron, could return to a reasonable level of profitability. And I know you said you're going to give some guidance in a few weeks. But I'm just wondering if you could kind of give us some idea of what reasonable level means? Is that in terms of a margin, like a 2% to 3% historical margin on that business?

Ronald N. Tutor

I don't think that business will return to a 2% to 3% margin for us this year. The projects like the Terminal 3 at McCarran Airport. Those big hard money bid projects, where frankly we've always been very successful, have been replaced by the much lower fees in negotiated work and CM at-risk work. So for us, I really believe that the maximum we can earn pretax is 2% in our Building business. Not very desirable, not very interesting, but that's right now where the Building business is. If we -- if revenue begins to ramp up, more opportunities, banks begin to lend once again, then we could probably return to the days when we were making regularly a 3-plus percent pretax, but not in this market for 2013.

Steven Fisher - UBS Investment Bank, Research Division

And based on what you have in backlog and what you expect to have by the end of the first quarter, I mean, it seems reasonable that you should be growing your Building segment revenues kind of somewhere in the double-digit range, I would assume. Is that reasonable?

Ronald N. Tutor

When you say double digit, what does that mean?

Steven Fisher - UBS Investment Bank, Research Division

North of 10% or better year-over-year.

Ronald N. Tutor

It's a -- revenue?

Steven Fisher - UBS Investment Bank, Research Division


Ronald N. Tutor

Oh, yes, yes, without a question. Our revenues in 2012 were ramping up dramatically. The James A. Cummings company, who literally did $30 million of revenue because they had no backlog, have put $300 million into contract in 2012. Their revenue will go up 8-, tenfold. Keating has placed $200 million into backlog, where they literally did very little revenue in 2012. And of course, Perini Building company, from de minimus revenue, has got Hudson Yards, the casino in Northern California, as well as the Marriott timeshare in Las Vegas. So all of our building groups have ramped up dramatically. And what that does is it takes them from the debacle of 2012, where they couldn't even cover their G&A, certain of the subsidiaries, because of a lack of revenue, they now go from that to having more than enough revenue not only to cover their G&A, but to return to a measure of profitability. It still is not satisfactory, but until margins go back up in that building industry, we continue to be hamstrung with those issues.

Steven Fisher - UBS Investment Bank, Research Division

Okay. And just lastly, the Rapid Repair, you said that all that went into the Specialty segments?

Ronald N. Tutor

No. No, no. We did the majority of it in Tutor Perini. The Specialty segments did some of the work for us as a subcontractor and some of the work direct for New York Housing Authority and other unassociated public agencies. But the prime contractor for probably 75% of all the repair was Tutor Perini.

Steven Fisher - UBS Investment Bank, Research Division

Right. But which segment of your reporting did it go through?

Ronald N. Tutor

We distributed that. We really pulled in resources from all over the country. Probably 50% of that went into Tutor Perini Building company. We allocated to Keating a small percentage. We allocate -- we pulled supervision from all our divisions and allocated. But the biggest single shot of it went into Tutor Perini Building company.


[Operator Instructions] Up next, we have Richard Paget with Imperial Capital.

Richard S. Paget - Imperial Capital, LLC, Research Division

So, I guess, I should ask a Hudson Yards question as well. Ron, you mentioned there is another -- kind of a $2 billion is the next potential phases. I wonder if you could give a little bit more detail on that? I think you had mentioned there's another tower that's looking for an anchor tenant. I think some of the press around here was saying that some of those talks are getting closer. What's the value of that? And then what would be the balance of that $2 billion?

Ronald N. Tutor

Sure. Let me give you the shell of Tower A without any of the interior finishes, about $1.4 billion. And as you know, in New York, it's the talk of the city. They're very close. I'm not at liberty or allowed, but you probably already know who those tenants are they're talking to. Once Tower A is concluded, and there's even some talk about proceeding without the conclusion of Tower A's leases and funding, it kicks the platform under which it's built. That platform, depending on the final scope, will range between $600 million and $700 million. So that's your $2 billion, and that doesn't include the interior finishes for whatever tenants come in. There is probably another $500 million to $600 million of tenant completion. In addition, it's our sense that if Tower A is leased and moved forward with the platform, there is residential components and retail components that could contribute another $700 million to $800 million. So really, I think, triggered by leasing Tower A, we could be looking at between $2 billion and $3 billion of more work, kicking off between midyear 2013 and midyear 2014.

Richard S. Paget - Imperial Capital, LLC, Research Division

Okay. So just to be clear, we could see that second or third quarter potentially?

Ronald N. Tutor

I don't think second. I really think the earliest you'd see anything other than the Tower C, which is ongoing, would be probably the third or fourth quarter.

Richard S. Paget - Imperial Capital, LLC, Research Division

Okay. And then, I guess, as part of this is a question for Bob and part of it is for Civil, but with sequestration potentially looming in the next week or so, what are you guys hearing from your government clients and what are kind of your plans or what do you think could happen if it does in fact go into effect?

Robert Band

This is Bob. If you look at the DOD federal contract awards for the last 15 days, you'll see that they're still making awards for logistics services, fuel, transport, some continuing weapons system purchases and ammunition. But they're not really making many awards for construction contracts. So in effect, we see this every time there's a congressional debt ceiling debate or anytime there's one of these cliffs. It's business as usual for us. I mean, once that log jam breaks and we know that it will be resolved, all of a sudden the contracts that have been held will come flooding out. That's the way it works. We don't see any diminished need for these projects. So if I see the diminished need, I'd report that. But at this point in time, it's more of a timing issue.

Richard S. Paget - Imperial Capital, LLC, Research Division

And then on the Civil side?

Ronald N. Tutor

Well, we haven't seen any of those impacts because, unlike the Department of Defense which is a direct beneficiary of federal government funding, so much of what we do in infrastructure is not only a combination of federal funds and state funds and local funds, much of it flows from the gas tax programs, which are directly stated must be given to the states for bridges, transportation, highways and et cetera. So we really haven't seen nor, for the lack of a better term, been threatened with any reduction in significant Civil projects. In fact, I read last week in Engineering News-Record, that most of the transportation segments were up and funding, as a matter of course.

Richard S. Paget - Imperial Capital, LLC, Research Division

Okay. And then finally, Ron, I think it was reported that you've sold some of your interest in your entertainment investments. If so, is that safe for us to conclude that you likely won't be selling any more shares?

Ronald N. Tutor

That's good. I sold my interest in Miramax for half cash, the balance is due over the next, probably, year. Basically, as I said earlier, that was the most significant piece. It was sold to overseas investments. I'm, for all intents and purposes, 100% out of the business. I have some further assets in film libraries that I'm in the process of liquidating, but I have nothing to do with it. And if there was a sale, it'd be a small one for whatever reasons, but I don't see anything.


Ladies and gentlemen, that concludes the time we have for questions. I'd now like to turn the presentation over to Mr. Ron Tutor for closing remarks.

Ronald N. Tutor

Well, once again, with our quarterly call, thank you, everyone. There were some interesting questions and we'll continue to try to be responsive by virtue, if nothing else, giving you more definitive answers and breakdowns, so that all of us can better understand what we're presenting. Thank you.


Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.

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