Business Context and Reporting Period
Company: Tutor Perini Corp (Perini Corporation)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2003
Business Overview: Perini is a construction company operating in Building and Civil segments. The reporting period includes the full-year impact of the January 2003 acquisition of James A. Cummings, Inc., a South Florida-based construction firm.
Key Financial Metrics
| Metric (in thousands) | Q3 2003 | Q3 2002 | 9 Months 2003 | 9 Months 2002 |
|---|---|---|---|---|
| Revenues | $295,855 | $232,805 | $873,451 | $822,482 |
| Gross Profit | $15,788 | $12,376 | $43,861 | $37,738 |
| Income from Construction Ops | $6,751 | $4,189 | $16,152 | $15,606 |
| Net Income | $6,396 | $3,644 | $21,433 | $13,549 |
| Net Income Available to Common | $6,684 | $3,112 | $27,331 | $11,955 |
| Diluted EPS | $0.28 | $0.14 | $1.17 | $0.52 |
| Cash & Equivalents (Total) | $45,376 | $34,168 | $45,376 | $34,168 |
| Long-term Debt | $25,566 | $12,123 | $25,566 | $12,123 |
| Working Capital | $122,110 | $115,908 | $122,110 | $115,908 |
Note: Cash equivalents include $28.4 million held in joint ventures restricted for project use. Corporate cash available for general purposes was $17.0 million.
Material Changes vs. Prior Period
- Revenue Growth: Nine-month revenues increased 6.2% to $873.5 million. This was driven by a 26.1% increase in Building segment revenues (due to the Cummings acquisition and new work), partially offset by a 43.1% decline in Civil segment revenues due to a slower pace of new contract awards.
- Profitability: Net income for the nine months rose 58.2% to $21.4 million. A significant portion of this increase ($7.0 million) was due to a federal tax benefit recognized from net operating loss carryforwards.
- Preferred Stock Tender: In June 2003, the company completed a tender offer purchasing 44.1% of its outstanding $21.25 Preferred Stock for $11.3 million. This resulted in a $7.3 million reversal of previously accrued dividends, boosting Net Income Available to Common Stockholders by approximately $0.31 per share for the nine-month period.
- Debt Levels: Long-term debt increased by $13.5 million to $25.6 million, primarily to fund the preferred stock tender offer.
Guidance, Outlook, and Risks
Outlook and Management Commentary
- Backlog: Construction backlog stood at $1.332 billion as of September 30, 2003, up from $990 million at year-end 2002. Management expects the Cummings acquisition to continue contributing positively through 2004.
- Liquidity: The company amended its credit facility in February 2003 to increase capacity to $50 million and extend the term to June 2005. On November 5, 2003, a temporary increase to $70 million was secured to support a major contract procurement.
- Dividends: No cash dividends were paid on common stock. Dividends on $21.25 Preferred Stock remain suspended (in arrears approx. $9.5 million) to preserve working capital for project funding and expansion.
Risks and Contingencies
- Legal Proceedings: Significant pending litigation includes:
- Central Artery/Tunnel ("Big Dig"): PKC Joint Venture (56% Perini interest) has received $17.4 million in binding awards for time delays, with $122 million in additional claims pending resolution or mediation.
- San Francisco Airport: A lawsuit alleges overcharges and bidding violations; plaintiffs seek $30 million plus treble damages. Perini sold its interest in the joint venture in 1997 and is seeking indemnification.
- Polo Towers (Las Vegas): Allegations of legionella contamination in a water system; Owner's Association claims over $8.0 million in damages. Insurance carrier is defending.
- Preferred Stock Class Action: Shareholders allege breach of fiduciary duty regarding the preferred stock tender offer, seeking damages of at least $15.9 million trebled.
- Market Risk: Results are dependent on a limited number of significant contracts; timing of progress and profitability estimates can cause variance.
Investor Verification Checklist
- Tax Benefit Sustainability: Verify the $7.0 million federal tax benefit recognized in Q1 2003 and its impact on future effective tax rates.
- Civil Segment Recovery: Assess the pipeline for new civil construction contracts to reverse the 43% revenue decline in this segment.
- Legal Exposure: Monitor the resolution of the "Big Dig" claims and the San Francisco Airport litigation, as outcomes could materially impact financials.
- Preferred Stock Arrears: Confirm the status of the $9.5 million in accrued preferred dividends and the company's strategy for eventual payment or further buybacks.
- Joint Venture Cash: Distinguish between corporate cash ($17.0M) and restricted joint venture cash ($28.4M) when evaluating immediate liquidity.