Business Context and Reporting Period
Company: Perini Corporation (Tutor Perini Corp)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Three months ended March 31, 2007
Perini Corporation is a leading construction services company offering general contracting, construction management, and design/build services. Operations are conducted through three primary segments: Building, Civil, and Management Services. The company reported a significant increase in revenue and profitability compared to the prior year, driven largely by the Building segment.
Key Financial Metrics
| Metric (in thousands) | Q1 2007 | Q1 2006 |
|---|---|---|
| Revenues | $987,356 | $612,763 |
| Gross Profit | $57,897 | $32,322 |
| Income from Construction Operations | $32,740 | $14,451 |
| Net Income | $22,653 | $8,090 |
| Diluted EPS | $0.84 | $0.30 |
| Cash and Cash Equivalents | $242,257 | $107,677 |
| Net Cash Provided by Operating Activities | $48,946 | $(26,397) |
| Total Debt (Current + Long-term) | $23,055 | $48,742 |
| Working Capital | $203,443 | $193,952 |
Note: Working capital calculated as Total Current Assets ($1,147,032) minus Total Current Liabilities ($943,589).
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased by $374.6 million (61.1%) year-over-year. The Building segment drove this growth with an 83.4% increase ($403.2 million), attributed to the conversion of substantial backlog into revenue, particularly in the hospitality and gaming markets.
- Profitability: Net income surged 180% to $22.7 million. Income from construction operations rose 127.1% to $32.7 million.
- Segment Performance:
- Building: Income from operations increased 157.0% to $23.9 million.
- Civil: Revenues decreased 19.4% and income dropped 81.8% due to project timing and downward profit adjustments on roadway projects.
- Management Services: Despite a 25.6% revenue decline, income from operations increased 302.9% to $13.7 million due to favorable performance on work in Iraq.
- Debt Reduction: Total debt decreased significantly as the company paid off a $22.5 million term loan in full on February 22, 2007, coinciding with the closing of a new credit agreement.
- Cash Flow: Operating cash flow turned positive, generating $48.9 million compared to a $26.4 million outflow in the prior year.
Guidance, Outlook, and Risks
Backlog: Total backlog at March 31, 2007, was approximately $8.6 billion, up from $8.5 billion at year-end 2006. This includes $1.1 billion in new awards during the quarter.
Capital Resources: On February 22, 2007, the company entered into an Amended and Restated Credit Agreement providing a secured revolving credit facility of up to $125 million (expandable to $175 million), replacing a previous facility with a term loan. The new facility matures in February 2012.
Stock-Based Compensation: Results were negatively impacted by a $3.7 million pretax charge related to restricted stock units granted in the second quarter of 2006.
Legal and Contingencies:
- LAMTA Matter: A joint venture is involved in ongoing litigation with the Los Angeles MTA regarding false claims and contract breaches. A jury awarded LAMTA $111,651 in damages on one issue, subject to trebling and penalties. The ultimate financial impact is undeterminable, and no provision has been recorded.
- Siemens Transportation: A joint venture obtained a net arbitration award of approximately $15.7 million against Siemens, confirmed by a court judgment of $16.0 million. Siemens has appealed.
- Central Artery/Tunnel Project: The company is pursuing claims totaling approximately $104 million (exclusive of interest) against the Massachusetts Highway Department. A Disputes Review Board has issued binding awards totaling $57.2 million to date.
- US Attorney Investigation: The company is a "subject" in an investigation regarding contracting with disadvantaged businesses in New York. The US Attorney's Office is considering a civil settlement.
Investor Verification Checklist
- Verify the sustainability of the 83.4% revenue growth in the Building segment and the specific pipeline of hospitality/gaming projects.
- Monitor the status of the $104 million claim against the Massachusetts Highway Department and the likelihood of collection.
- Assess the potential financial exposure from the LAMTA litigation and the US Attorney's Office investigation, noting that no reserves have been recorded.
- Review the impact of the $3.7 million stock-based compensation charge on future earnings as vesting schedules progress.
- Confirm the utilization of the new $125 million revolving credit facility and adherence to financial covenants (leverage ratio, fixed charge coverage).