Business Context and Reporting Period
Company: Perini Corporation (Tutor Perini Corp)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three months ended March 31, 2009
Overview: Perini is a leading construction services company operating through Building, Civil, and Management Services segments. The quarter included the full impact of the September 2008 merger with Tutor-Saliba Corporation and the January 2009 acquisition of Keating Building Corporation. The company operates in a challenging economic environment characterized by credit market disruptions and potential project delays.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Revenues | $1,518.3 million | $1,256.3 million |
| Gross Profit | $106.9 million | $66.6 million |
| Income from Construction Operations | $62.6 million | $39.0 million |
| Net Income | $39.0 million | $25.2 million |
| Diluted EPS | $0.80 | $0.91 |
| Cash and Cash Equivalents | $458.6 million | $349.7 million |
| Total Debt (Current + Long-term) | $209.5 million | $80.3 million |
| Working Capital | $355.2 million | $225.0 million |
Liquidity: The company holds $437.7 million in corporate cash available for general purposes. It has $121.3 million available to borrow under its Credit Agreement (Revolving and Supplementary Facilities).
Investments: The company holds $103.4 million in auction rate securities (ARS), classified as long-term investments due to market illiquidity.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 20.9% year-over-year, driven by the Tutor-Saliba merger and the Keating acquisition. The Building segment grew 15.5%, Civil 48.8%, and Management Services 159.0%.
- Profitability: Net income rose 54.8% to $39.0 million. Income from construction operations increased 60.5% to $62.6 million, reflecting improved margins in all segments, particularly in Civil and Management Services.
- Earnings Per Share: Despite higher net income, diluted EPS decreased from $0.91 to $0.80 due to a significant increase in the weighted average shares outstanding (from 27.7 million to 49.0 million) following the Tutor-Saliba merger.
- Cash Flow: Operating cash flow turned negative at $(43.5) million compared to $25.0 million in Q1 2008, primarily due to timing in receivable collections on large projects. This was offset by $128.0 million in financing cash flows from borrowing $125 million under the revolving credit facility.
- Debt Levels: Total debt increased by $129.2 million to $209.5 million, primarily due to the draw on the revolving credit facility to fund operations and acquisitions.
Guidance, Outlook, and Risks
Backlog: Total backlog decreased to $5.8 billion at March 31, 2009, from $6.7 billion at year-end 2008. The decline reflects project completions and a reduction in new work awards due to the economic downturn and credit market instability.
Management Commentary: Management attributes strong Q1 performance to improved profit contributions across all segments and the integration of acquired entities. However, they note that the current economic climate has caused customers to delay or reduce project scopes.
Risks and Contingencies:
- Economic Conditions: Severe disruptions in credit markets and government budget shortfalls pose risks of project deferrals, cancellations, or delays.
- Liquidity of Investments: $103.4 million in auction rate securities remains illiquid. While management does not expect this to materially affect overall liquidity, it limits access to these funds.
- Legal Proceedings: Significant ongoing litigation includes disputes with the Los Angeles MTA (DBE claims), the Central Artery/Tunnel Project (Massachusetts Highway Department), and the UCLA Westwood Replacement Hospital. No provision for loss has been recorded as outcomes are indeterminable.
- Shareholder Litigation: Several shareholder lawsuits regarding the Tutor-Saliba merger and Las Vegas project disclosures are pending or have been dismissed without prejudice.
Investor Verification Checklist
- Backlog Conversion: Verify the ability to convert the $5.8 billion backlog into revenue given current economic headwinds and credit market constraints.
- Operating Cash Flow: Monitor the reversal of negative operating cash flow, which was driven by receivable timing in Q1.
- Auction Rate Securities: Assess the potential impact of the $103.4 million illiquid ARS portfolio on future liquidity if market conditions do not improve.
- Legal Exposure: Track the resolution of major disputes (LA MTA, Big Dig, UCLA) which could result in significant unrecorded liabilities.
- Debt Covenants: Confirm continued compliance with financial covenants under the amended Credit Agreement, particularly regarding leverage ratios.