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, 2006
Perini Corporation is a leading construction services company operating through three primary segments: Building, Civil, and Management Services. The period reflects the full-year impact of the October 2005 acquisition of Rudolph and Sletten, Inc., and significant new contract awards in the hospitality and gaming markets.
Key Financial Metrics
| Metric (in thousands) | 9 Months Ended Sept 30, 2006 | 9 Months Ended Sept 30, 2005 | 3 Months Ended Sept 30, 2006 | 3 Months Ended Sept 30, 2005 |
|---|---|---|---|---|
| Revenues | $2,098,507 | $1,130,251 | $773,282 | $380,314 |
| Gross Profit | $112,469 | $71,955 | $43,131 | $24,787 |
| Income from Construction Ops | $39,874 | $30,973 | $16,950 | $10,077 |
| Net Income | $22,234 | $17,962 | $9,583 | $5,952 |
| Diluted EPS | $0.82 | $0.66 | $0.36 | $0.22 |
| Cash from Operating Activities | $12,256 | $(10,017) | N/A | N/A |
| Total Debt (Current + Long-term) | $52,769 | $56,250 | N/A | N/A |
| Working Capital | $171,563 | $153,335 | N/A | N/A |
Liquidity: Cash and cash equivalents totaled $123.8 million at September 30, 2006. The company maintains a $50 million revolving credit facility with $38.4 million available and a $30 million term loan with $24.0 million outstanding.
Material Changes vs. Prior Period
- Revenue Growth: Nine-month revenues increased 85.7% to $2.1 billion, driven primarily by the inclusion of Rudolph & Sletten and increased volume in the Building segment (up 138.3%).
- Profitability: Net income rose 23.3% to $22.2 million for the nine months. However, operating results were negatively impacted by a $10.3 million increase in stock-based compensation expense due to new restricted stock unit grants.
- Segment Performance:
- Building: Income from operations increased 124.4% to $39.5 million.
- Civil: Income from operations decreased 106.4% to a loss of $0.5 million due to downward profit adjustments on Mid-Atlantic projects.
- Management Services: Income from operations increased 30.4% to $20.6 million, aided by favorable profit adjustments on Iraq projects.
- Backlog: Total backlog increased 13% to a record $9.0 billion, up from $7.9 billion at year-end 2005.
Guidance, Outlook, and Risks
Management Commentary: Management attributes growth to the Rudolph & Sletten acquisition and strong performance in hospitality/gaming markets. The company redeemed all remaining $21.25 Preferred Stock in May 2006 for approximately $8.8 million.
Stock-Based Compensation: A significant non-cash charge of $12.6 million was recognized in the first nine months of 2006 related to restricted stock units. Approximately $28.1 million of unrecognized compensation cost remains to be recognized over the next 2.6 years.
Legal and Contingencies:
- Redondo/Perini vs. Siemens: A judgment of approximately $16.0 million was entered in favor of the joint venture in September 2006; the counterparty has appealed. Phase II arbitration is ongoing.
- Central Artery/Tunnel Project: The company is pursuing claims totaling approximately $104 million (exclusive of interest) against the Massachusetts Highway Department. A Disputes Review Board has previously awarded $17.4 million for time delays and $39.8 million for other impacts.
- Los Angeles MTA Matter: A long-standing dispute regarding tunnel and station projects is proceeding to a new trial; financial impact is indeterminable.
- US Attorney Investigation: The company is cooperating with an investigation regarding contracting with disadvantaged businesses in New York City. No target status has been assigned, and the company is open to a civil settlement.
Forward-Looking Risks: Risks include the ability to convert backlog to revenue, project delays, litigation outcomes, and changes in federal/state appropriations for infrastructure.
Investor Verification Checklist
- Stock-Based Compensation Impact: Verify the sustainability of earnings given the $28.1 million in future unrecognized compensation costs from recent grants.
- Civil Segment Turnaround: Monitor the Civil segment's ability to reverse losses caused by profit adjustments on Mid-Atlantic projects.
- Legal Resolution: Track the status of the Siemens Transportation appeal and the Central Artery/Tunnel Project claims, which represent significant potential cash inflows or outflows.
- Debt Covenants: Confirm continued compliance with the Credit Agreement's financial covenants, specifically the minimum working capital ratio (1.20:1) and fixed charge coverage ratio (1.50:1).
- Backlog Conversion: Assess the timeline for converting the record $9.0 billion backlog into recognized revenue.