Tutor Perini Corporation: Q2 2009 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2009, for Tutor Perini Corporation (formerly Perini Corporation). The Company is a leading construction services provider operating through three segments: Building, Civil, and Management Services. During the period, the Company completed its merger with Tutor-Saliba Corporation and acquired Keating Building Corporation. Shareholders approved a name change to "Tutor Perini Corporation" in May 2009.
Key Financial Metrics
| Metric (in thousands) | Q2 2009 | Q2 2008 | 6 Months 2009 | 6 Months 2008 |
|---|---|---|---|---|
| Revenues | $1,382,748 | $1,388,387 | $2,901,030 | $2,644,723 |
| Gross Profit | $108,213 | $70,998 | $215,123 | $137,560 |
| Income from Construction Ops | $63,760 | $42,600 | $126,394 | $81,563 |
| Net Income | $38,897 | $28,557 | $77,878 | $53,710 |
| Diluted EPS | $0.79 | $1.03 | $1.59 | $1.94 |
| Cash & Equivalents | $450,921 | $416,654 | $450,921 | $416,654 |
| Total Debt | $208,651 | $80,254 | $208,651 | $80,254 |
Note: Debt figures include current maturities ($22,215) and long-term debt ($186,436) as of June 30, 2009.
Material Changes vs. Prior Period
- Profitability Surge: Net income increased 36.0% in Q2 and 45.1% for the six-month period compared to 2008. This was driven by improved margins in the Civil and Management Services segments, largely due to the Tutor-Saliba merger.
- Revenue Mix: While total Q2 revenue was flat, the Civil segment revenue grew 66.2% and Management Services grew 130.1% year-over-year. Building segment revenue declined 6.4% due to reduced activity in the hospitality and gaming markets.
- Earnings Per Share: Diluted EPS decreased year-over-year ($0.79 vs $1.03 in Q2) due to a significant increase in the weighted average number of shares outstanding following the merger.
- Debt Levels: Total debt increased by approximately $128 million to $208.7 million, primarily due to a $125 million draw on the revolving credit facility to fund operations and acquisitions. This debt was repaid in July 2009.
- Cash Flow: Operating cash flow was negative ($40.6 million used) for the six months ended June 30, 2009, compared to positive $72.9 million in 2008, attributed to timing differences in receivable collections on large projects.
Outlook, Risks, and Contingencies
- Backlog: Total backlog decreased to $5.1 billion from $6.7 billion at year-end 2008. The decline reflects project completions and a reduction in new awards due to the challenging economic environment and credit market disruptions.
- Liquidity: The Company holds $101.2 million in auction rate securities (ARS) classified as long-term investments due to market illiquidity. Management does not expect this to materially affect liquidity given available credit facilities and cash reserves.
- Legal Proceedings: Significant contingencies include:
- UCLA Westwood: A lawsuit involving claims of $36 million (Company) and $171 million (subcontractors) against the University of California, with a cross-complaint by the Owner seeking $62.2 million.
- Central Artery/Tunnel: Disputes with the Massachusetts Highway Department regarding delay claims, with binding arbitration awards totaling $44.4 million issued to the joint venture.
- Shareholder Litigation: An investigation is underway regarding alleged fiduciary breaches related to Las Vegas projects.
- Economic Risks: Management highlights risks related to the global financial crisis, potential delays in government infrastructure funding, and the ability to convert backlog into revenue.
Investor Verification Checklist
- Debt Repayment: Verify the status of the $125 million revolving credit facility draw, which was reported as repaid in July 2009 (post-period).
- ARS Liquidity: Monitor the status of the $101.2 million investment in auction rate securities and any potential impairment charges if market conditions do not improve.
- Legal Resolutions: Track the outcomes of the UCLA Westwood and Central Artery/Tunnel litigation, as these involve significant potential recoveries or liabilities.
- Backlog Conversion: Assess the Company's ability to secure new work and convert the $5.1 billion backlog into revenue amidst ongoing economic uncertainty.
- Integration Costs: Review future quarters for the impact of integration expenses related to the Tutor-Saliba and Keating acquisitions on operating margins.