Business Context and Reporting Period
Company: Perini Corporation (Tutor Perini Corp)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended September 30, 2007
Perini Corporation is a leading construction services company operating through three primary segments: Building, Civil, and Management Services. The company provides general contracting, construction management, and design/build services to private clients and public agencies globally.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sept 30, 2007 | Nine Months Ended Sept 30, 2007 |
|---|---|---|
| Revenues | $1,242,666 | $3,381,642 |
| Gross Profit | $63,895 | $186,694 |
| Income from Construction Operations | $33,499 | $106,960 |
| Net Income | $24,011 | $74,242 |
| Diluted EPS | $0.87 | $2.71 |
| Cash and Cash Equivalents | $361,840 | $361,840 (Balance Sheet) |
| Operating Cash Flow (9 months) | N/A | $182,065 |
| Total Debt (Current + Long-term) | $22,520 | $22,520 (Balance Sheet) |
| Working Capital | $262,420 | $262,420 (Calculated) |
Note: Gross margin for the nine months ended Sept 30, 2007, was approximately 5.5%.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 60.7% ($469.4 million) in Q3 2007 and 61.1% ($1,283.1 million) for the nine months compared to 2006. This was driven primarily by the Building segment, which saw an 80.0% revenue increase due to the conversion of backlog into revenue.
- Profitability: Net income surged 150% in Q3 and 234% for the nine months ended Sept 30, 2007, compared to the prior year periods. Income from construction operations increased 97.1% in Q3 and 168.2% for the nine months.
- Segment Performance:
- Building: Strong performance with income from operations increasing 114.8% in Q3 and 134.9% for the nine months.
- Civil: Reported losses in both periods. The nine-month loss widened to $8.0 million (from $0.5 million in 2006) primarily due to a charge related to a federal investigation (see Risks).
- Management Services: Revenues declined 47.3% in Q3 and 36.2% for the nine months due to reduced work in Iraq and the completion of a nuclear power plant contract. However, operating income remained resilient, increasing 86.9% for the nine months due to favorable performance on remaining projects.
- Liquidity: Cash and cash equivalents increased from $225.5 million at year-end 2006 to $361.8 million at Sept 30, 2007. Operating cash flow for the nine months improved significantly to $182.1 million from $12.3 million in the prior year.
- Debt Reduction: Total debt decreased significantly following the full repayment of a $22.5 million term loan in February 2007. Long-term debt to equity ratio dropped from 0.14x to 0.04x.
Guidance, Outlook, and Risks
- Backlog: Total backlog of uncompleted work was approximately $7.8 billion at Sept 30, 2007, down from $8.5 billion at Dec 31, 2006. New awards in Q3 totaled approximately $385 million.
- Legal Contingencies:
- U.S. Attorney Investigation: The company is a "subject" in an investigation regarding contracting with disadvantaged businesses in the NYC area. A charge was recorded in the Civil segment as of Sept 30, 2007, materially affecting results. The company is in active discussions regarding a civil settlement.
- LAMTA Matter: Ongoing litigation with the Los Angeles County Metropolitan Transportation Authority. A jury previously awarded damages and penalties, but the case was remanded for a new trial. The ultimate financial impact is not determinable.
- Central Artery/Tunnel Project: The company is pursuing claims totaling approximately $104 million (exclusive of interest) against the Massachusetts Highway Department. Five binding awards totaling $57.2 million have been issued, with some confirmed by courts.
- Management Changes: Kenneth R. Burk was appointed Senior Vice President and Chief Financial Officer in September 2007.
- Forward-Looking Risks: Risks include the ability to convert backlog to revenue, project delays, litigation outcomes, and changes in government appropriations for infrastructure.
Investor Verification Checklist
- Civil Segment Charge: Verify the specific amount and nature of the charge recorded in the Civil segment related to the U.S. Attorney investigation and its impact on future profitability.
- Backlog Conversion: Monitor the rate at which the $7.8 billion backlog is converted to revenue, particularly in the Building segment which drove recent growth.
- Legal Settlements: Track the status of the U.S. Attorney investigation settlement and the LAMTA litigation to assess potential future liabilities.
- Management Services Volatility: Review the sustainability of Management Services income given the significant revenue decline due to the completion of specific contracts (Exelon, Iraq).
- Debt Covenants: Confirm continued compliance with the new credit agreement covenants (leverage ratio, fixed charge coverage) following the debt restructuring.