Business Context and Reporting Period
Company: Perini Corporation (Tutor Perini Corp)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three and six months ended June 30, 2008
Business Overview: A leading construction services company operating through three segments: Building, Civil, and Management Services. The company provides general contracting, construction management, and design-build services globally.
Key Financial Metrics
| Metric (in thousands) | Six Months Ended June 30, 2008 | Six Months Ended June 30, 2007 |
|---|---|---|
| Revenues | $2,644,723 | $2,138,976 |
| Gross Profit | $137,560 | $122,799 |
| Income from Construction Operations | $81,563 | $73,461 |
| Net Income | $53,710 | $50,231 |
| Diluted EPS | $1.94 | $1.84 |
| Cash and Cash Equivalents | $416,654 | $342,971 (End of Period 2007) |
| Total Debt (Current + Long-term) | $26,667 | $20,732 (Dec 31, 2007) |
| Working Capital | $244,537 | $293,521 (Dec 31, 2007) |
Backlog: Approximately $6.8 billion as of June 30, 2008 (excluding a $1.2 billion award received in July 2008).
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased by 23.6% ($505.7 million) for the six months ended June 30, 2008, driven primarily by a 27.0% increase in the Building segment ($523.1 million) due to the conversion of backlog in the hospitality and gaming markets.
- Profitability: Net income increased by 7.0% ($3.5 million). Income from construction operations rose 11.0% ($8.1 million).
- Segment Performance:
- Building: Income from operations increased 29.2% to $77.0 million.
- Civil: Turned a loss of $1.2 million in 2007 into a profit of $3.6 million in 2008.
- Management Services: Income from operations decreased 54.9% to $11.6 million, attributed to lower volume in Iraq and the absence of extraordinary results recorded in 2007.
- Investment Impairment: The company recorded a $2.7 million pretax impairment charge related to auction rate securities (ARS) in the first quarter of 2008, classified as other-than-temporary.
Outlook, Risks, and Contingencies
Merger with Tutor-Saliba
On April 2, 2008, Perini entered into an agreement to merge with Tutor-Saliba Corporation. The merger is expected to close in the third quarter of 2008, subject to shareholder approval. Tutor-Saliba shareholders will receive approximately 45% of the combined company's stock.
Liquidity and Auction Rate Securities
The company holds $110.1 million in auction rate securities (ARS). Due to market failures in ARS auctions, $101.7 million of these investments are classified as long-term assets. To mitigate liquidity risks, Perini secured a temporary supplementary credit facility of up to $117.3 million (reduced to $112.7 million available as of June 30, 2008) alongside its existing $125 million revolving credit facility.
Legal Proceedings and Contingencies
- Weitman v. Tutor, et al: A shareholder class-action lawsuit filed June 19, 2008, challenging the merger with Tutor-Saliba. The plaintiff seeks to enjoin the merger and alleges breach of fiduciary duties. An amended complaint was filed in July 2008.
- Los Angeles MTA Matter: Ongoing litigation regarding a joint venture project. A jury previously awarded damages to the MTA, but the case is subject to further proceedings and appeal. No provision for loss has been recorded.
- Cosmopolitan Resort and Casino: The project owner (Cosmo) defaulted on its loan, leading to foreclosure proceedings. The bank has committed to paying Perini for work performed, but the ultimate financial impact remains undeterminable.
- One Queensridge Place: Unpaid balances totaling approximately $24 million are subject to liens and arbitration proceedings.
Investor Verification Checklist
- Merger Approval: Verify the status of shareholder votes required to consummate the Tutor-Saliba merger and potential delays from the pending class-action lawsuit.
- ARS Liquidity: Monitor the ability to liquidate the $110.1 million portfolio of auction rate securities and the utilization of the supplementary credit facility.
- Backlog Conversion: Assess the realization of the $6.8 billion backlog, particularly in the Building segment, and the impact of the new $1.2 billion McCarran Airport project.
- Legal Exposure: Track developments in the Los Angeles MTA, Cosmopolitan Resort, and One Queensridge Place matters for potential future charges or credits.
- Segment Margins: Review the sustainability of the Building segment's margin expansion and the continued recovery of the Civil segment.