Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2008, for Perini Corporation (now Tutor Perini Corp). The Company is a leading construction services firm operating in Building, Civil, and Management Services segments. The reporting period is significantly impacted by the completion of the merger with Tutor-Saliba Corporation on September 8, 2008, which was accounted for using the purchase method. The combined entity now includes Tutor-Saliba's operations in California, Nevada, Guam, and the Philippines.
Key Financial Metrics
| Metric | Three Months Ended Sept 30, 2008 | Nine Months Ended Sept 30, 2008 | Dec 31, 2007 (Balance Sheet) |
|---|---|---|---|
| Revenues | $1,412.6 million | $4,057.4 million | - |
| Net Income | $34.1 million | $87.8 million | - |
| Diluted EPS | $1.01 | $2.96 | - |
| Cash and Cash Equivalents | - | - | $400.7 million |
| Total Debt | - | - | $70.4 million |
| Working Capital | - | - | $254.9 million |
| Backlog | - | - | $8.3 billion |
Profitability: Gross profit for the nine months ended September 30, 2008, was $223.1 million. Income from construction operations was $133.8 million. The effective tax rate for the nine-month period was 36.7%.
Liquidity: Cash and cash equivalents totaled $400.7 million at period end. The Company maintains a $155 million revolving credit facility with an additional $111.3 million supplementary facility available.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 13.7% ($169.9 million) in the third quarter and 20.0% ($675.8 million) for the nine months compared to the prior year periods. This growth was driven by the conversion of backlog in the Building segment and the inclusion of Tutor-Saliba's results.
- Profitability Improvement: Net income increased 42.1% in the third quarter and 18.2% for the nine months. The Civil segment turned a loss of $6.8 million in Q3 2007 into a profit of $10.0 million in Q3 2008, aided by the merger and improved operations.
- Balance Sheet Expansion: Total assets nearly doubled from $1.65 billion to $3.38 billion due to the acquisition. Goodwill increased from $26.3 million to $739.2 million, and Intangible Assets rose from $4.1 million to $254.5 million.
- Debt Increase: Total debt increased by $49.7 million to $70.4 million, primarily due to debt assumed in the Tutor-Saliba acquisition related to equipment financing.
Outlook, Risks, and Contingencies
Guidance and Outlook: Management does not provide specific numerical guidance but notes that results may vary based on project timing and profitability estimates. The Company expects to realize synergies from the merger, though integration challenges exist. Backlog stands at $8.3 billion, including $1.2 billion added from the Tutor-Saliba acquisition.
Market Risks:
- Auction Rate Securities (ARS): The Company holds $108.6 million in ARS. Due to market disruptions, $100.3 million is classified as long-term. A $2.7 million impairment charge was recorded in Q1 2008. Management believes the short-term lack of liquidity will not materially affect overall liquidity.
- Economic Conditions: Severe disruptions in credit markets and potential government budget shortfalls could lead to project deferrals or cancellations, particularly in the hospitality/gaming and civil infrastructure sectors.
Legal Contingencies:
- Los Angeles MTA Matter: Ongoing litigation regarding a joint venture project; ultimate financial impact is indeterminable.
- Central Artery/Tunnel Project: The Company is pursuing claims totaling over $100 million against the Massachusetts Highway Department. Several awards have been confirmed, with further hearings scheduled.
- Shareholder Litigation: Multiple lawsuits (Weitman, Isham, Rollman, Adams) challenge the merger terms, allege securities fraud regarding Las Vegas projects, or claim breach of fiduciary duty. The Company intends to defend vigorously.
- Project Disputes: Significant disputes exist regarding the Cosmopolitan Resort (Las Vegas), Queensridge Place (Las Vegas), and Gaylord Hotel (Maryland), involving unpaid balances and claims for damages.
Investor Verification Checklist
- Merger Integration: Verify the progress of integrating Tutor-Saliba's operations and the realization of anticipated synergies.
- Goodwill Impairment: Monitor the annual impairment testing of the $739.2 million in goodwill, particularly given the volatile economic environment.
- Auction Rate Securities Liquidity: Track the ability to liquidate the $108.6 million ARS portfolio and any further impairment charges.
- Legal Exposure: Assess the potential financial impact of the Central Artery/Tunnel claims and the various shareholder and project-related litigations.
- Backlog Conversion: Confirm the ability to convert the $8.3 billion backlog into revenue, considering potential project delays due to credit market conditions.