Business Context and Reporting Period
Company: Tutor Perini Corp (Perini Corporation)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2000
Business Overview: The Company operates in two primary segments: Building Construction and Civil Construction. During the period, the Company completed a significant recapitalization on March 29, 2000, involving the sale of common stock and the exchange of Series B Preferred Stock, which restored positive stockholders' equity. The Company is also in the process of winding down its real estate development subsidiary, Perini Land and Development Company (PL&D), which is reported as a discontinued operation.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 2000 |
Nine Months Ended Sep 30, 2000 |
Nine Months Ended Sep 30, 1999 |
|---|---|---|---|
| Construction Revenues | $309,991 | $759,841 | $776,233 |
| Gross Profit | $12,489 | $37,141 | $38,504 |
| Income from Continuing Operations | $5,938 | $17,020 | $11,727 |
| Net Income (Loss) | $5,938 | $17,020 | $(88,278) |
| Diluted EPS (Continuing Ops) | $0.24 | $0.83 | $1.26 |
| Cash and Equivalents | $38,615 | (Balance Sheet Item) | |
| Total Current Assets | $304,884 | (Balance Sheet Item) | |
| Total Current Liabilities | $226,556 | (Balance Sheet Item) | |
| Long-Term Debt | $19,772 | (Balance Sheet Item) | |
| Stockholders' Equity | $53,799 | (Balance Sheet Item) |
Cash Flow (Nine Months Ended Sep 30, 2000):
- Net Cash Provided by Operating Activities: $7,672
- Net Cash Used by Investing Activities: $(22,939)
- Net Cash Used by Financing Activities: $(4,311)
- Net Decrease in Cash: $(19,578)
Material Changes vs. Prior Period
- Revenue: For the nine months ended September 30, 2000, revenues decreased 2.1% to $759.8 million compared to $776.2 million in 2000. This was driven by a 7.1% decline in Civil Construction revenues due to the completion of large joint venture projects, partially offset by stable Building Construction revenues.
- Profitability: Income from Continuing Operations increased 45% to $17.0 million for the nine-month period, compared to $11.7 million in the prior year. This improvement was driven by higher gross margins in Building Construction (5.5% vs 4.3%), reduced corporate general and administrative expenses, and significantly lower interest expense following the recapitalization.
- Discontinued Operations: The prior year (1999) included a massive $100.0 million non-cash loss from discontinued operations related to the wind-down of the real estate development business. No such loss was recorded in the current period, resulting in a dramatic swing from a net loss of $88.3 million in 1999 to a net income of $17.0 million in 2000.
- Balance Sheet: Stockholders' equity turned from a deficit of $(36.6) million at year-end 1999 to a positive $53.8 million at September 30, 2000, primarily due to the recapitalization transaction. Long-term debt decreased by $21.3 million to $19.8 million.
Guidance, Outlook, and Risks
- Backlog: Construction backlog reached a record $1.91 billion as of September 30, 2000, a 15% increase from the prior year-end. Approximately 68% is Building Construction (lower risk/margin) and 32% is Civil Construction (higher risk/margin).
- Liquidity: Management believes cash from operations and existing credit lines (a $35 million term loan and $21 million revolving facility) are adequate for the next 12 months. Working capital increased to $78.3 million.
- EPS Dilution: The recapitalization increased the share count from ~5.7 million to ~22.6 million. While this diluted EPS for the nine-month period, management notes that future EPS will be further diluted by the full quarter impact of these shares, partially offset by the elimination of preferred stock dividends and lower interest costs.
- Risks: Key risks include the validity of project cost/profit estimates, outcomes of pending litigation, changes in government appropriations for infrastructure, and the timing of sales for remaining real estate assets in the discontinued operations segment.
- Dividends: The Company has suspended cash dividends on its $21.25 Preferred Stock since 1995. Approximately $10.6 million in dividends are in arrears.
Investor Verification Checklist
- Recapitalization Impact: Verify the long-term sustainability of the improved equity position and the specific terms of the new credit agreement entered into on March 29, 2000.
- Discontinued Operations: Monitor the realization of the remaining estimated loss on the disposal of the real estate development segment and the timing of property sales.
- Project Margins: Review the specific drivers of the improved gross margin in Building Construction (favorable close-outs) to determine if this is a recurring trend or a one-time event.
- Civil Construction Performance: Investigate the causes of the decline in Civil Construction operating income, specifically losses on the NYC tunnel project and Puerto Rico mass transportation project.
- Preferred Stock Arrears: Assess the financial covenants required to resume dividend payments on the $21.25 Preferred Stock and the potential impact of the $10.6 million arrearage on future cash flows.