Business Context and Reporting Period
Company: Tutor Perini Corp (Perini Corporation)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2006
Business Overview: A leading construction services company offering general contracting, construction management, and design-build services. Operations are divided into three segments: Building, Civil, and Management Services. The company completed the acquisition of Rudolph and Sletten, Inc. in October 2005, which is fully consolidated in the current period.
Key Financial Metrics
| Metric (in thousands) | Q1 2006 | Q1 2005 |
|---|---|---|
| Revenues | $612,763 | $371,553 |
| Gross Profit | $32,322 | $22,672 |
| Gross Margin | 5.3% | 6.1% |
| Income from Construction Operations | $14,451 | $9,339 |
| Net Income | $8,090 | $5,550 |
| Diluted EPS | $0.30 | $0.20 |
| Cash and Cash Equivalents | $107,677 | $86,476 |
| Working Capital | $155,662 | $153,335 |
| Long-term Debt | $37,032 | $39,969 |
Note: Cash and Cash Equivalents includes $41.6 million held by joint ventures restricted for joint venture purposes. Corporate cash available for general purposes was $66.1 million.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 64.9% to $612.8 million, driven primarily by the Building segment (+100.7%) due to the Rudolph & Sletten acquisition and increased hospitality/gaming work. The Civil segment grew 39.6% due to improved performance at the Cherry Hill subsidiary. Management Services declined 27.0% due to reduced work volume in Afghanistan.
- Profitability: Net income increased 45.6% to $8.1 million. Income from construction operations rose 53.2% to $14.5 million. The Building segment's operating income nearly doubled (+97.9%), while Management Services operating income fell 48.5%.
- Cash Flow: Net cash used by operating activities was $26.4 million, primarily to pay a $40.4 million judgment recorded in the prior year (WMATA). Net cash used by investing activities was $1.6 million, and financing activities used $4.2 million (debt reduction and stock repurchases).
- Debt Reduction: Long-term debt decreased by $3.0 million to $37.0 million, lowering the debt-to-equity ratio from 0.22x to 0.19x.
Guidance, Outlook, Risks, and Unusual Items
- Preferred Stock Redemption: On April 13, 2006, the company announced the redemption of all outstanding $21.25 Preferred Stock Depositary Shares on May 17, 2006. The redemption price is $25.00 per share plus accrued dividends. Approximately $8.8 million has been set aside for this payment. Accrued dividends in arrears totaled $4.1 million as of March 31, 2006.
- Stock-Based Compensation: The company adopted SFAS No. 123R effective January 1, 2006. On April 5, 2006, the Board granted 1.265 million restricted stock units (RSUs) to executives. The financial impact of these grants is expected to be material to 2006 results.
- Legal Contingencies:
- Siemens Transportation: A Phase I arbitration award granted the Redondo/Perini Joint Venture a net $15.7 million. Siemens has filed a motion to stay enforcement. Phase II arbitration is pending.
- Central Artery/Tunnel (Big Dig): 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 (confirmed by court) and $39.8 million (pending court confirmation).
- Los Angeles MTA: A case involving False Claims Act allegations was remanded for a new trial after an appellate court reversed a prior judgment against the joint venture. No provision for loss has been recorded.
- Backlog: Total backlog increased slightly to $7.91 billion from $7.90 billion at year-end 2005, with new business awards of $625.8 million in Q1 2006.
Investor Verification Checklist
- Preferred Stock Redemption: Verify the cash outflow impact of the $8.8 million preferred stock redemption scheduled for May 2006.
- Legal Resolution: Monitor the status of the Siemens Transportation arbitration enforcement and the Central Artery/Tunnel claim confirmations, as these represent significant potential cash inflows or liabilities.
- Stock Compensation Impact: Assess the impact of the new 1.265 million RSU grant on 2006 and future earnings, as management noted the cost will be material.
- Joint Venture Cash: Distinguish between corporate cash ($66.1 million) and restricted joint venture cash ($41.6 million) when evaluating immediate liquidity.
- Segment Mix: Confirm the sustainability of the Building segment's growth post-acquisition and the recovery of the Management Services segment following the reduction in Afghanistan work.