Business Context and Reporting Period
Company: Tutor Perini Corp (Perini Corporation)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2007
Business Overview: Perini is a leading construction services company providing general contracting, construction management, and design-build services. Operations are conducted through three segments: Building (hospitality, gaming, healthcare, education), Civil (public works, infrastructure), and Management Services (U.S. military, government agencies, and surety services). The company operates primarily in the United States with significant international exposure in Iraq and Afghanistan.
Key Financial Metrics
| Metric (in thousands) | 2007 | 2006 |
|---|---|---|
| Total Revenues | $4,628,358 | $3,042,839 |
| Gross Profit | $248,894 | $169,395 |
| Income from Construction Operations | $140,981 | $70,879 |
| Net Income | $97,114 | $41,536 |
| Diluted Earnings Per Share | $3.54 | $1.54 |
| Operating Cash Flow | $281,530 | $116,906 |
| Working Capital | $293,521 | $193,952 |
| Long-Term Debt (less current) | $13,358 | $34,135 |
| Stockholders' Equity | $368,334 | $243,859 |
| Backlog (Year End) | $7,567,665 | $8,451,381 |
Liquidity: As of December 31, 2007, the company held $459.2 million in cash and cash equivalents. A revolving credit facility of up to $125 million was available, with $113.5 million unused.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 52.1% to a record $4.63 billion, driven primarily by a 68.9% surge in the Building segment ($4.25 billion) due to the conversion of backlog in the hospitality and gaming markets.
- Profitability: Net income more than doubled, rising 134% to $97.1 million. Income from construction operations increased 98.9% to $141.0 million.
- Segment Performance:
- Building: Income from operations increased 115% to $127.5 million.
- Civil: Reported a loss of $13.0 million (vs. $1.8 million profit in 2006), primarily due to a charge related to a U.S. Attorney investigation and downward profit adjustments on specific projects.
- Management Services: Revenues decreased 41.3% to $144.8 million due to the completion of a nuclear power plant contract and lower volume in Iraq; however, operating income increased 44% to $49.4 million due to favorable performance on remaining Iraq projects.
- Debt Reduction: Long-term debt decreased by $20.8 million following the full repayment of a $22.5 million term loan in February 2007.
Guidance, Outlook, Risks, and Unusual Items
Outlook and Backlog: The company ended 2007 with a backlog of $7.57 billion, a decrease of 10.5% from the prior year. Management estimates that approximately 37% ($2.8 billion) of the backlog will not be completed in 2008. The company expects non-U.S. projects to continue contributing to revenues and earnings.
Unusual Items and Contingencies:
- U.S. Attorney Investigation: The company recorded a charge in 2007 regarding an investigation into contracting with disadvantaged businesses in New York. While a charge was recorded, the matter remains unsettled, and further charges or credits are possible but not expected to be material.
- Legal Proceedings: Significant ongoing litigation includes the Tutor-Saliba-Perini Joint Venture vs. Los Angeles MTA matter (financial impact indeterminable) and claims against the Massachusetts Highway Department regarding the Central Artery/Tunnel project (approx. $104 million in remaining claims pending).
- Cosmopolitan Resort: A loan default notice was issued to the borrower of the Cosmopolitan Resort project in January 2008. The company has an interim commitment from the lender to continue payments, but the ultimate financial impact is not yet determinable.
Risks:
- International Operations: Approximately 35% of income in 2007 was derived from projects in Iraq and Afghanistan, exposing the company to political, security, and economic risks.
- Backlog Realization: Revenue projected in backlog may not be realized if projects are terminated, suspended, or reduced in scope.
- Liquidity of Investments: The company holds auction rate securities ($139.9 million face value as of Feb 2008) which may face liquidity constraints if auctions fail, though management does not expect this to materially affect overall liquidity.
Investor Verification Checklist
- Backlog Conversion: Verify the ability to convert the $7.57 billion backlog into revenue, specifically monitoring the hospitality and gaming segment which comprises 77% of building backlog.
- Legal Exposure: Monitor the resolution of the U.S. Attorney investigation and the Los Angeles MTA litigation for potential material charges.
- International Risk: Assess the stability of government funding and security conditions in Iraq and Afghanistan, which contributed significantly to 2007 income.
- Cosmopolitan Project: Track the resolution of the loan default at the Cosmopolitan Resort and Casino to ensure continued payment for the $1.4 billion of remaining work.
- Auction Rate Securities: Review the liquidity status of the company's auction rate securities portfolio in light of market conditions.