Business Context and Reporting Period
Company: Tutor Perini Corp (Perini Corporation)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2006
Business Overview: A leading construction services company offering general contracting, construction management, and design-build services. Operations are divided into three segments: Building, Civil, and Management Services.
Key Financial Metrics
| Metric (in thousands) | Six Months Ended June 30, 2006 | Six Months Ended June 30, 2005 |
|---|---|---|
| Revenues | $1,325,225 | $749,937 |
| Gross Profit | $69,338 | $47,168 |
| Income from Construction Operations | $22,924 | $20,896 |
| Net Income | $12,651 | $12,010 |
| Net Income Available for Common Stockholders | $12,232 | $11,416 |
| Diluted EPS | $0.46 | $0.44 |
| Cash and Cash Equivalents (Total) | $88,730 | $94,573 |
| Corporate Cash (Available for General Use) | $47,997 | $99,747 |
| Long-term Debt (Less Current Maturities) | $35,633 | $39,969 |
| Working Capital | $161,855 | $153,335 |
Note: Working Capital calculated as Total Current Assets ($830,344) minus Total Current Liabilities ($668,489).
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased by $575.3 million (76.7%) year-over-year. This was primarily driven by the acquisition of Rudolph & Sletten, Inc. (effective Oct 2005) and increased volume in the hospitality and gaming market within the Building segment.
- Segment Performance:
- Building: Revenues surged 126.6% to $1.07 billion; Operating income increased 119.3% to $23.9 million.
- Civil: Revenues increased 24.7% to $142.3 million; Operating income increased 40.9% to $6.2 million.
- Management Services: Revenues decreased 31.2% to $112.5 million due to reduced work in Afghanistan; Operating income fell 45.9% to $6.6 million.
- Expenses: Corporate General and Administrative expenses increased by $7.2 million (109.1%) due to a $5.5 million increase in stock-based compensation and a $1.5 million write-off of expenses related to a cancelled debt offering.
- Backlog: Uncompleted construction work reached a record $9.0 billion, a 14% increase from the previous record of $7.9 billion at year-end 2005.
Guidance, Outlook, Risks, and Unusual Items
- Unusual Items:
- Stock-Based Compensation: An $8.6 million pretax charge was recognized in Q2 2006 related to restricted stock units granted in April 2006. Approximately $31.3 million of unrecognized compensation cost remains to be recognized over 2.8 years.
- Debt Offering Write-off: $1.5 million of expenses were written off due to the decision not to proceed with a debt offering in May 2006.
- Preferred Stock Redemption: All remaining $21.25 Preferred Stock was redeemed on May 17, 2006, for approximately $8.8 million.
- Liquidity and Capital Resources:
- Operating cash flow was negative $30.9 million for the six-month period, largely due to the payment of a $40.4 million WMATA judgment recorded in Q4 2005.
- The company maintains a $50 million revolving credit facility with $42.5 million available and a $30 million term loan (outstanding balance $25.5 million).
- Current ratio improved slightly to 1.24x from 1.23x.
- Legal Contingencies:
- Redondo/Perini vs. Siemens: Phase I arbitration awarded the joint venture a net $15.7 million, though enforcement is stayed pending a motion to vacate. Phase II claims are pending.
- Central Artery/Tunnel Project: A Disputes Review Board has awarded $17.4 million for time delays and $39.8 million for impacts/efficiencies. Remaining claims valued at approximately $104 million are pending.
- US Attorney Investigation: The company is cooperating with an investigation regarding contracting with minority-owned businesses in NYC. Status was reevaluated in May 2006, and a new subpoena was issued in August 2006.
- Outlook: Management notes that results for the six months ended June 30, 2006, may not be indicative of full-year results due to the timing of project progress and profitability estimates. Future results will be materially impacted by the recognition of stock-based compensation costs.
Investor Verification Checklist
- Stock-Based Compensation Impact: Verify the timing and magnitude of the remaining $31.3 million in unrecognized compensation costs and their effect on future earnings.
- Legal Resolution: Monitor the status of the Siemens Transportation arbitration enforcement and the Central Artery/Tunnel Project claims, as these involve significant potential cash flows.
- Working Capital Trends: Review the sustainability of the negative operating cash flow ($30.9M used) and the reliance on the $42.5M credit facility availability.
- Segment Mix: Assess the long-term viability of the Management Services segment, which saw a 31% revenue decline due to reduced overseas work.
- Backlog Conversion: Evaluate the ability to convert the record $9.0 billion backlog into revenue without margin compression.