Business Context and Reporting Period
Company: Perini Corporation (Tutor Perini Corp)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 2001
Business Overview: Perini provides general contracting, construction management, and design-build services through two primary segments: Building (private and public facilities, including hospitality and healthcare) and Civil (infrastructure, highways, tunnels, and transit). The company operates primarily in the United States with select overseas projects.
Key Financial Metrics
| Metric (in thousands) | 2001 | 2000 |
|---|---|---|
| Total Revenues | $1,553,396 | $1,105,660 |
| Gross Profit | $57,562 | $52,332 |
| Income from Operations | $29,501 | $27,355 |
| Net Income (Continuing Ops) | $26,418 | $24,381 |
| Basic EPS (Continuing Ops) | $1.07 | $1.13 |
| Working Capital | $93,369 | $80,477 |
| Long-Term Debt | $7,540 | $17,218 |
| Stockholders' Equity | $79,408 | $60,622 |
| Backlog (Year End) | $1,213,535 | $1,788,731 |
Cash Flow: Net cash provided by operating activities was $2.1 million in 2001, a significant decrease from $42.6 million in 2000. This decline was driven by the need to fund working capital requirements on contracts with unresolved change orders and claims, offsetting cash distributions from joint ventures.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 40.5% to a record $1.55 billion, driven by a 45.2% increase in Building segment revenues ($1.20 billion) and a 26.7% increase in Civil segment revenues ($354 million). The Building increase was largely due to the Mohegan Sun Phase II project and new hotel/casino projects in the Southwest.
- Profitability: Income from continuing operations rose 8% to $26.4 million. However, earnings per share decreased due to a significant increase in the number of common shares outstanding following the 2000 recapitalization.
- Segment Performance: Building operating income increased 16.6% to $31.6 million, though gross margins declined from 4.8% to 4.0%. Civil operating income decreased 30.4% to $3.9 million due to downward profit revisions on the Central Artery/Tunnel ("Big Dig") project in Boston.
- Backlog: Year-end backlog decreased 32% to $1.21 billion from a record $1.79 billion in 2000. The decline is primarily attributed to the substantial completion of the Mohegan Sun Project.
- Debt Reduction: Long-term debt was reduced by approximately $9.7 million to $7.5 million, aided by lower interest rates and debt paydowns.
Outlook, Risks, and Contingencies
Outlook: Management anticipates a resumption of new work awards in the second half of 2002. Several hospitality projects totaling over $600 million were delayed due to the September 11, 2001 events and economic conditions. The company secured a new $45 million revolving credit facility in January 2002 to support working capital needs.
Dividends: No cash dividends were paid on Common Stock. Dividends on $21.25 Preferred Stock remain in arrears (approx. $13.3 million) as the Board does not believe it is prudent to resume payments given capital needs for backlog funding and expansion.
Legal Proceedings and Contingencies:
- San Francisco State University: SFSU seeks over $85 million in damages for alleged structural deficiencies and water leakage in a dormitory. Trial is scheduled for April 2002; management believes insurance covers construction defects but not design errors.
- Los Angeles MTA (Tutor-Saliba-Perini JV): A jury awarded the MTA approximately $29.6 million in damages against the joint venture. The company has appealed the ruling and discovery sanctions.
- Central Artery/Tunnel Project: The company is pursuing claims exceeding $93 million against the Massachusetts Highway Department. A Disputes Review Board has already awarded $17.4 million for time delays.
- Preferred Stock Lawsuit: A class action lawsuit regarding the exchange of Series B Preferred Stock was dismissed by the U.S. District Court in March 2002.
Risk Factors: The company faces risks related to fixed-price contracts, potential cost overruns, delays in resolving contract claims, and dependence on a limited number of large projects and customers.
Investor Verification Checklist
- Claim Resolution: Verify the status and potential recovery amounts of the Central Artery/Tunnel claims ($93M+) and the Saginaw Chippewa Indian Tribe award ($10.1M), as these significantly impact future cash flows.
- Backlog Quality: Assess the composition of the $1.21 billion backlog, noting the reduction in high-margin Mohegan Sun work and the delay of $600 million in hospitality projects.
- Working Capital: Monitor the $2.1 million operating cash flow and the company's ability to fund working capital needs without further dilution or increased debt, given the $45M credit facility limit.
- Legal Exposure: Track the outcome of the San Francisco State University trial (April 2002) and the appeal of the Los Angeles MTA verdict, which could result in material liabilities.
- Preferred Stock: Confirm the continued suspension of preferred dividends and the associated $13.3 million liability in arrears.