Business Context and Reporting Period
Company: Tutor Perini Corp (Perini Corporation)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2005
Business Overview: Perini is a leading construction services company offering general contracting, construction management, and design-build services. Operations are conducted through three segments: Building, Civil, and Management Services.
Key Financial Metrics
| Metric (in thousands) | Q1 2005 | Q1 2004 |
|---|---|---|
| Revenues | $371,553 | $480,304 |
| Gross Profit | $22,730 | $23,528 |
| Income from Construction Operations | $9,397 | $13,785 |
| Net Income | $5,550 | $11,221 |
| Net Income Available to Common Stockholders | $5,253 | $10,924 |
| Diluted EPS | $0.20 | $0.44 |
| Cash and Cash Equivalents (End of Period) | $86,476 | $48,732 |
| Long-term Debt | $18,457 | $8,608 |
| Working Capital | $167,815 | $178,029 |
Note: Working Capital calculated as Total Current Assets ($574,857) minus Total Current Liabilities ($407,042) for Q1 2005.
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 22.6% to $371.6 million. This was driven by a 50.5% drop in Management Services revenues (due to reduced work in Iraq) and a 17.3% drop in Building revenues (due to project completions in 2004). Civil revenues increased 84.4%, largely due to the acquisition of Cherry Hill Construction.
- Profitability: Net income fell 50% to $5.6 million. Income from construction operations decreased 31.9% to $9.4 million. Corporate G&A expenses increased by $1.0 million due to restricted stock compensation.
- Acquisition Impact: On January 21, 2005, Perini acquired Cherry Hill Construction, Inc. for approximately $22 million in cash. This added $128 million in backlog and contributed to the increase in Civil segment revenue and debt.
- Cash Flow: Net cash used by operating activities was $26.6 million, compared to $31.4 million in the prior year. Investing activities used $17.6 million, primarily for the Cherry Hill acquisition. Total cash balance decreased by $49.8 million during the quarter.
Guidance, Outlook, Risks, and Contingencies
Outlook and Management Commentary
Management notes that results for the three months ended March 31, 2005, may not be indicative of full-year results due to the timing of progress on a limited number of significant contracts. The company maintains a $50 million revolving credit facility with $47.2 million available as of March 31, 2005. Management does not plan to resume dividends on the $21.25 Preferred Stock in the foreseeable future to preserve working capital for project funding and growth.
Legal Proceedings and Contingencies
- Preferred Stock Settlement: A class action lawsuit regarding the $21.25 Preferred Stock was settled in November 2004. Perini agreed to purchase submitted shares for $19.00 cash plus one common share. Court approval is pending (hearing scheduled for August 8, 2005). Approximately $11.3 million in dividends are in arrears.
- WMATA Matter: A dispute with the Washington Metropolitan Area Transit Authority regarding terminated subway projects is pending a new trial decision. No provision for loss has been recorded.
- LAMTA Matter: A California Court of Appeal reversed a $63.0 million judgment against a joint venture involving Perini. The case was remanded for a new trial, and the California Supreme Court is reviewing the matter. No provision for loss has been recorded.
- San Francisco Airport Matter: A lawsuit involving allegations of overcharges and RICO violations regarding SFO expansion projects is ongoing. Perini sold its interest in the relevant joint venture in 1997, and the managing partner agreed to indemnify Perini.
- Central Artery/Tunnel Project: Perini is pursuing claims totaling over $100 million against the Massachusetts Highway Department. Mediation failed, and proceedings have resumed. Management has included estimated cost recoveries in revenue to date.
Investor Verification Checklist
- Backlog Quality: Verify the stability of the $1.75 billion backlog, specifically the $106.9 million related to Iraq work which faced partial stop-work orders.
- Legal Exposure: Monitor the status of the Central Artery/Tunnel claims and the San Francisco Airport litigation, as outcomes could materially impact future earnings.
- Preferred Stock Settlement: Confirm the final number of Depositary Shares submitted for the settlement to determine the final cash outflow and equity dilution.
- Cherry Hill Integration: Assess the financial performance of the newly acquired Cherry Hill Construction to ensure it meets the projected revenue and margin contributions.
- Liquidity Position: Review the $47.2 million availability under the credit facility against the company's working capital requirements for large-scale projects.