Business Context and Reporting Period
Company: Tutor Perini Corp (Perini Corporation)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and six months ended June 30, 2002
Industry: Construction (Building and Civil)
Key Context: The Company operates in the building and civil construction sectors. Results are driven by a limited number of significant active contracts, leading to potential volatility based on project timing and profitability estimates. The Company recently refinanced its credit facility in January 2002.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2002 |
Six Months Ended June 30, 2002 |
Six Months Ended June 30, 2001 |
|---|---|---|---|
| Revenues | $268,307 | $589,677 | $773,400 |
| Gross Profit | $12,363 | $25,362 | $28,356 |
| Income from Operations | $5,484 | $11,417 | $15,958 |
| Net Income | $4,690 | $9,905 | $14,179 |
| Diluted EPS | $0.18 | $0.38 | $0.57 |
| Cash and Equivalents | $12,793 (as of June 30, 2002) | ||
| Working Capital | $110,770 (as of June 30, 2002) | ||
| Total Debt | $16,702 (Current: $1,392; Long-term: $15,310) |
Margins (Six Months 2002):
- Gross Margin: 4.3%
- Operating Margin: 1.9%
Material Changes vs. Prior Period
- Revenue Decline: Revenues for the six months ended June 30, 2002, decreased by $183.7 million (23.8%) compared to the same period in 2001. This was primarily driven by a $179.7 million (29.4%) drop in building construction revenues due to the completion of large hotel/casino projects and a lower backlog at year-end 2001.
- Operating Income: Income from operations decreased by $4.4 million (23.5%) to $11.4 million. Civil construction operating income fell due to a loss recognized on the Central Artery/Tunnel "Big Dig" joint venture, partially offset by profit revisions on other projects.
- Cash Flow: Net cash used by operating activities was $6.9 million for the six months ended June 30, 2002, compared to $10.4 million used in the prior year period. The decrease in cash usage was partly due to lower working capital changes.
- Debt Structure: The Company refinanced its credit facility in January 2002 to a new $45 million agreement. Consequently, debt previously classified as current was reclassified as long-term, improving the current ratio from 1.30 to 1.54.
Guidance, Outlook, Risks, and Contingencies
Outlook and Management Commentary
- Backlog: Construction backlog decreased to $1.02 billion at June 30, 2002, from $1.21 billion at December 31, 2001.
- Market Conditions: Hospitality and gaming projects in Las Vegas have been delayed due to the September 11, 2001 events and economic decline. However, new awards in Atlantic City and Florida are included in the current backlog.
- Strategy: Management anticipates an encouraging new work award period and is pursuing expansion through internal growth or acquisition, including a new satellite office in Orlando, Florida.
- Dividends: The Board does not plan to pay dividends on the $21.25 Preferred Stock for the foreseeable future to preserve working capital. Approximately $14.3 million in dividends are in arrears.
Material Risks and Contingencies
- Los Angeles MTA Litigation: A joint venture (Tutor-Saliba-Perini) was ordered to pay the MTA approximately $63.0 million (including fees) following a jury award and judicial sanction. The Company has appealed; the ultimate financial impact is undeterminable, and no provision has been recorded.
- Central Artery/Tunnel ("Big Dig") Claims: The Company is pursuing claims against the Massachusetts Highway Department. A Disputes Review Board (DRB) has awarded $17.4 million for time delays (upheld by Superior Court but appealed by MHD) and $17.1 million for inefficiencies. Additional pending claims have an anticipated value of $75.6 million.
- San Francisco State University Settlement: A lawsuit regarding a dormitory was settled. Perini is liable for $16.7 million in economic damages and repairs, but management expects substantial contribution from subcontractors and insurance carriers, deeming the net impact immaterial.
- Preferred Stock Lawsuit: A class action lawsuit regarding accrued dividends was dismissed in March 2002, but plaintiffs have appealed to the Second Circuit Court of Appeals.
Investor Verification Checklist
- Backlog Quality: Verify the status of delayed Las Vegas projects and the likelihood of new awards to offset the $190 million backlog decline.
- Legal Exposure: Monitor the appeal status of the $63 million Los Angeles MTA judgment and the resolution of the "Big Dig" claims, which could significantly impact future earnings.
- Liquidity Management: Assess the Company's ability to fund operations without paying the $14.3 million in accrued preferred dividends, given the reliance on working capital for large projects.
- Segment Performance: Review the specific margin trends in the Building segment, which saw improved margins despite revenue declines, versus the Civil segment's volatility due to joint venture losses.