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, 2008
Overview: Perini is a leading construction services company operating through three segments: Building, Civil, and Management Services. The company provides general contracting, construction management, and design-build services globally. As of March 31, 2008, the company reported a backlog of approximately $7.2 billion.
Key Financial Metrics
| Metric | Q1 2008 | Q1 2007 |
|---|---|---|
| Revenues | $1,256.3 million | $987.4 million |
| Gross Profit | $66.6 million | $57.9 million |
| Income from Construction Operations | $39.0 million | $32.7 million |
| Net Income | $25.2 million | $22.7 million |
| Diluted EPS | $0.91 | $0.84 |
| Cash and Cash Equivalents | $349.7 million | $242.3 million |
| Total Debt | $19.3 million | $20.7 million (implied) |
| Working Capital | $297.0 million | $293.5 million (Dec 31, 2007) |
Liquidity: The company maintains a $125 million revolving credit facility with $113.7 million available as of March 31, 2008. On May 7, 2008, the company secured an additional temporary credit facility of up to $117.3 million.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased by 27.2% ($268.9 million) year-over-year, driven primarily by a 31.1% increase in the Building segment ($276.1 million) due to high-volume projects in hospitality and gaming markets.
- Profitability: Net income rose 11.0% to $25.2 million. Income from construction operations increased 19.3% to $39.0 million.
- Segment Performance:
- Building: Income from operations increased 45.6% to $34.8 million.
- Civil: Income from operations increased 262.5% to $2.9 million, recovering from downward profit adjustments in the prior year.
- Management Services: Income from operations decreased 54.0% to $6.3 million, reflecting lower volumes in Iraq compared to the prior year.
- Investment Losses: Other income decreased due to a $2.7 million pretax impairment charge on auction rate securities (ARS), which was deemed other-than-temporary.
Outlook, Risks, and Unusual Items
Merger with Tutor-Saliba
On April 2, 2008, Perini entered into an agreement to merge with Tutor-Saliba Corporation. Upon completion (expected Q3 2008), Tutor-Saliba shareholders will receive approximately 45% of Perini's outstanding common stock. Ronald N. Tutor is expected to become CEO and Chairman. The transaction is subject to shareholder and regulatory approval.
Auction Rate Securities (ARS) Liquidity
The company holds $131.2 million in ARS. Due to market failures in ARS auctions, $21.2 million was reclassified to long-term assets. The company recorded a $2.7 million impairment charge. While the company believes it has sufficient liquidity to operate, it has secured a temporary credit facility to mitigate potential liquidity constraints if ARS cannot be liquidated.
Legal Contingencies
- LAMTA Matter: Ongoing litigation with the Los Angeles MTA regarding false claims and contract breaches. No provision for loss has been recorded as the outcome is undeterminable.
- Big Dig (Central Artery/Tunnel): The company is pursuing claims totaling approximately $104 million (exclusive of interest) against the Massachusetts Highway Department. Some awards have been confirmed by courts.
- NY Attorney General Investigation: An ongoing investigation into contracting practices in New York. A charge was recorded in 2007; management believes further charges will not be material.
- Cosmopolitan Resort: The project owner (Cosmo) received a loan default notice from Deutsche Bank in January 2008. Construction continues, and payments are current, but the ultimate financial impact is undeterminable.
Investor Verification Checklist
- Merger Approval: Verify the status of shareholder and regulatory approvals for the Tutor-Saliba merger and potential dilution impact.
- ARS Liquidity: Monitor the company's ability to liquidate the remaining $114.6 million of auction rate securities and the potential for further impairment charges.
- Legal Resolutions: Track the resolution of the LAMTA litigation and the Big Dig claims, as these represent significant contingent liabilities or assets.
- Project Execution: Assess the risk of delays or cost overruns on the Cosmopolitan Resort project given the owner's financing issues.
- Backlog Conversion: Evaluate the company's ability to convert its $7.2 billion backlog into revenue, particularly in the Building segment.