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Article by DailyStocks_admin    (03-04-08 02:13 AM)

The Daily Magic Formula Stock for 03/04/2008 is Perini Corp. According to the Magic Formula Investing Web Site, the ebit yield is 22% and the EBIT ROIC is >100 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only.

BUSINESS OVERVIEW

General



Perini Corporation and its subsidiaries (or “Perini,” “we,” “us,” and “our,” unless the context indicates otherwise) is a leading construction services company, based on revenues, as ranked by Engineering News-Record , or ENR, offering diversified general contracting, construction management and design-build services to private clients and public agencies throughout the world. We have provided construction services since 1894 and have established a strong reputation within our markets by executing large, complex projects on time and within budget while adhering to strict quality control measures. We offer general contracting, preconstruction planning and comprehensive project management services, including the planning and scheduling of the manpower, equipment, materials and subcontractors required for a project. We also offer self-performed construction services including site work, concrete forming and placement and steel erection. During 2007, we performed work on approximately 185 construction projects for over 100 federal, state and local government agencies or authorities and private customers. Our headquarters are in Framingham, Massachusetts, and we have twelve other principal offices throughout the United States. Our common stock is listed on the New York Stock Exchange under the symbol “PCR”.



Our business is conducted through three primary segments: building, civil, and management services. Our building segment, comprised of Perini Building Company, James A. Cummings, Inc., or Cummings, and Rudolph and Sletten, Inc., focuses on large, complex projects in the hospitality and gaming, sports and entertainment, educational, transportation, corrections, healthcare, biotech, pharmaceutical and high-tech markets. Our civil segment is comprised of Perini Civil Construction and Cherry Hill Construction, Inc., or Cherry Hill, and focuses on public works construction primarily in the northeastern and mid-Atlantic United States, including the repair, replacement and reconstruction of the public infrastructure such as highways, bridges, mass transit systems and wastewater treatment facilities. Our management services segment provides diversified construction, design-build and maintenance services to the U.S. military and government agencies as well as surety companies and multi-national corporations in the United States and overseas.

Business Segment Overview



Building Segment



Our building segment has significant experience providing services to a number of specialized building markets, including the hospitality and gaming, sports and entertainment, education, transportation, corrections, healthcare, biotech, pharmaceutical and high-tech markets. We believe our success within the building segment results from our proven ability to manage and perform large, complex projects with aggressive fast-track schedules, elaborate designs and advanced mechanical, electrical and life safety systems while providing accurate budgeting and strict quality control. Although price is a key competitive factor, we believe our strong reputation, long-standing customer relationships and significant level of repeat and referral business have enabled us to achieve our leading position.



We believe the hospitality and gaming market provides significant opportunities for growth. We are a recognized leader in this market, specializing in the construction of high-end destination resorts and casinos and Native American developments. We work with hotel operators, Native American tribal councils, developers and architectural firms to provide diversified construction services to meet the challenges of new construction and renovation of hotel and resort properties. We believe that our reputation for completing projects on time is a significant competitive advantage in this market, as any delay in project completion may result in significant loss of revenues for the customer. In its 2007 rankings based on revenue, ENR ranked us as the nation’s 7 th largest contractor in the overall general building market, the largest builder in the hotel, motel and convention center market, the 7 th largest builder in the healthcare market, and the17 th largest builder in the multi-unit residential market.



As a result of our reputation and track record, we have been awarded and are currently working on contracts for several marquee projects in the hospitality and gaming market, including Project CityCenter in Las Vegas for MGM MIRAGE, the Trump International Hotel and Tower in Las Vegas, The Cosmopolitan Resort and Casino in Las Vegas, the MGM Grand at Foxwoods resort expansion in Connecticut, the Phoenix Sheraton Hotel in Arizona and the Gaylord National Resort and Convention Center in the Washington, DC area. We also have completed work on several other marquee projects in the hospitality and gaming market, including Paris Las Vegas, Mohegan Sun in Connecticut, the Morongo Casino Resort and Spa and the Pechanga Resort and Casino, both in California, the Seminole Hard Rock Hotels and Casinos in Florida, and the Red Rock Casino Resort Spa and the Augustus Tower at Caesars Palace, both in Las Vegas. In other end markets, we have constructed large, complex projects such as the Airport Parking Garage and Rental Car Facility in Ft. Lauderdale, FL; the Palm Beach International Airport Parking Garage in West Palm Beach, FL; the Florida International University Health and Life Sciences Building in Miami, FL; the Glendale Arena in Glendale, AZ; the Stanford University Cancer Center in Stanford, CA; the Johnson & Johnson Pharmaceutical R&D Expansion in La Jolla, CA; and the Kaiser Hospital and Medical Office Building in Santa Clara, CA.



In January 2003, the acquisition of Cummings expanded our presence in the southeastern region of the United States. Cummings specializes in the construction of schools, municipal buildings and commercial developments. In October 2005, we acquired Rudolph and Sletten, an established building contractor and construction management company based in Redwood City, California, to expand our presence on the west coast of the United States. Rudolph and Sletten specializes in the construction of corporate campuses and healthcare, gaming, biotech, pharmaceutical and high-tech projects.



Civil Segment



Our civil segment specializes in public works construction and the repair, replacement and reconstruction of infrastructure, primarily in the northeastern and mid-Atlantic United States. Our civil contracting services include construction and rehabilitation of highways, bridges, mass transit systems and wastewater treatment facilities. Our customers primarily award contracts through one of two methods: the traditional public "competitive bid" method, in which price is the major determining factor, or through a request for proposals where contracts are awarded based on a combination of technical capability and price. Traditionally, our customers require each contractor to pre-qualify for construction business by meeting criteria that include technical capabilities and financial strength. We believe that our financial strength and outstanding record of performance on challenging civil works projects enables us to pre-qualify for projects in situations where smaller, less diversified contractors are unable to meet the qualification requirements. We believe this is a competitive advantage that makes us an attractive partner on the largest infrastructure projects and prestigious DBOM (design-build-operate-mai ntain) contracts, which combine the nation's top contractors with While the "Selected Consolidated Financial Information" presents certain business segment information for purposes of consistency of presentation for the five years ended December 31, 2007, additional business segment information required by Statement of Financial Accounting Standards No. 131, “Disclosures About Segments of an Enterprise and Related Information”, for the three years ended December 31, 2007 is included in Note 11 of Notes to Consolidated Financial Statements.

Private Owners . We derived approximately 86% of our revenues from private customers during 2007. Our private customers include major hospitality and gaming resort owners, Native American sovereign nations, public corporations, private developers, healthcare companies and private universities. We provide services to our private customers primarily through negotiated contract arrangements, as opposed to competitive bids.



State and Local Governments . We derived approximately 11% of our revenues from state and local government customers during 2007. Our state and local government customers include state transportation departments, metropolitan authorities, cities, municipal agencies, school districts and public universities. We provide services to our state and local customers primarily pursuant to contracts awarded through competitive bidding processes. Our civil contracting services are concentrated in the northeastern and mid-Atlantic United States. Our building construction services for state and local government customers, which have included schools and dormitories, healthcare facilities, parking structures and municipal buildings, are in locations throughout the country.



Federal Governmental Agencies . We derived approximately 3% of our revenues from federal governmental agencies during 2007. These agencies have included the U.S. State Department, the U.S. Navy, the U.S. Army Corps of Engineers and the U.S. Air Force. We provide services to federal agencies primarily pursuant to contracts for specific or multi-year assignments that involve new construction or infrastructure improvements. A substantial portion of our revenues from federal agencies is derived from projects in overseas locations. We expect this to continue for the foreseeable future as a result of our expanding base of experience and relationships with federal agencies, together with an anticipated favorable expenditure trend for defense, security and reconstruction work.



Backlog



We include a construction project in our backlog at such time as a contract is awarded or a letter of commitment is obtained and adequate construction funding is in place. As a result, we believe the backlog figures are firm, subject only to the cancellation provisions contained in the various contracts. Historically, these provisions have not had a material adverse effect on us.

Competition



The construction industry is highly competitive and the markets in which we compete include numerous competitors, some of which have greater financial and other resources than we do. In certain end markets of the building segment, such as hospitality and gaming, we are one of the largest providers of construction services in the United States, but within other end markets of the building segment, and within the civil and management services segments, there are competitors with significantly greater capabilities and resources. In our building segment, we compete with a variety of national and regional contractors. In the west, our primary competitors are Marnell-Carrao, Turner, Taylor International Corp., Huntcor and McCarthy. In the northeast, our primary competitors are Suffolk, Gilbane and Turner and in the southeast our primary competitors include Balfour Beatty Construction, James B. Pirtle and Skanska. In our management services segment, we compete principally with national engineering and construction firms such as Fluor, Washington Division of URS, Kellogg Brown & Root, and CH2M Hill. In our civil segment, we compete principally with large civil construction firms that operate in the northeast and mid-Atlantic regions, including Slattery/Skanska, Granite Construction/Halmar, Tully, Schiavone and American Infrastructure. We believe price, experience, reputation, responsiveness, customer relationships, project completion track record and quality of work are key factors in customers awarding contracts across our end markets.



Types of Contracts and The Contract Process



Type of Contracts



The general contracting and management services we provide consist of planning and scheduling the manpower, equipment, materials and subcontractors required for the timely completion of a project in accordance with the terms, plans and specifications contained in a construction contract. We provide these services by entering into traditional general contracting arrangements, such as fixed price, guaranteed maximum price and cost plus award fee contracts and, to a lesser extent, construction management or design-build contracting arrangements. These contract types and the risks generally inherent therein are discussed below:






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Guaranteed maximum price (GMP) contracts provide for a cost plus fee arrangement up to a maximum agreed upon price. These contracts place risks on the contractor for amounts in excess of the GMP, but may permit an opportunity for greater profits than under Cost Plus contracts through sharing agreements with the owner on any cost savings that may be realized. Services provided by our building segment to various private customers often are performed under GMP contracts.






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Cost plus fee (Cost Plus) contracts provide for reimbursement of the costs required to complete a project plus a stipulated fee arrangement. Cost Plus contracts include cost plus fixed fee (CPFF) contracts and cost plus award fee (CPAF) contracts. CPFF contracts provide for reimbursement of the costs required to complete a project plus a fixed fee. CPAF contracts provide for reimbursement of the costs required to complete a project plus a base fee as well as an incentive fee based on cost and/or schedule performance. Cost Plus contracts serve to minimize the contractor’s financial risk, but may also limit profits. Services provided by our management services segment to various U.S. government agencies often are performed under Cost Plus contracts.






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Fixed price (FP) contracts, which include fixed unit price contracts, are generally used in competitively bid public civil construction projects and, to a lesser degree, building construction projects and generally commit the contractor to provide all of the resources required to complete a project for a fixed sum or at fixed unit prices. Usually FP contracts transfer more risk to the contractor but offer the opportunity, under favorable circumstances, for greater profits. FP contracts represent a significant portion of our publicly bid civil construction projects.






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Construction management (CM) contracts are those under which a contractor agrees to manage a project for the owner for an agreed-upon fee, which may be fixed or may vary based upon negotiated factors. CM contracts serve to minimize the contractor’s financial risk, but may also limit profit relative to the overall scope of a project.






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Design-build (DB) contracts are those under which a contractor provides both design and construction services for a customer. These contracts may be either fixed price contracts or cost plus fee contracts.

The Contract Process



We identify potential projects from a variety of sources, including advertisements by federal, state and local governmental agencies, through the efforts of our business development personnel and through meetings with other participants in the construction industry such as architects and engineers. After determining which projects are available, we make a decision on which projects to pursue based on such factors as project size, duration, availability of personnel, current backlog, competitive advantages and disadvantages, prior experience, contracting agency or owner, source of project funding, geographic location and type of contract.



After deciding which contracts to pursue, we generally have to complete a prequalification process with the applicable agency or customer. The prequalification process generally limits bidders to those companies with the operational experience and financial capability to effectively complete the particular project(s) in accordance with the plans, specifications and construction schedule.



Our estimating process typically involves three phases. Initially, we perform a detailed review of the plans and specifications, summarize the various types of work involved and related estimated quantities, determine the project duration or schedule and highlight the unique and riskier aspects of the project. After the initial review, we decide whether or not to continue to pursue the project. If the answer is positive, we perform the second phase of the estimating process which consists of estimating the cost and availability of labor, material, equipment, subcontractors and the project team required to complete the project on time and in accordance with the plans and specifications. The final phase consists of a detailed review of the estimate by management including, among other things, assumptions regarding cost, approach, means and methods, productivity and risk. After the final review of the cost estimate, management adds an amount for profit to arrive at the total bid amount.

Public bids to various governmental agencies are generally awarded to the lowest bidder. Requests for proposals or negotiated contracts with public or private customers are generally awarded based on a combination of technical capability and price, taking into consideration factors such as project schedule and prior experience.



During the construction phase of a project, we monitor our progress by comparing actual costs incurred and quantities completed to date with budgeted amounts and the project schedule and periodically, at a minimum on a quarterly basis, prepare an updated estimate of total forecasted revenue, cost and profit for the project.



During the ordinary course of most projects, the customer, and sometimes the contractor, initiate modifications or changes to the original contract to reflect, among other things, changes in specifications or design, construction method or manner of performance, facilities, equipment, materials, site conditions and period for completion of the work. Generally the scope and price of these modifications are documented in a "change order" to the original contract and reviewed, approved and paid in accordance with the normal change order provisions of the contract.



Often a contract requires us to perform extra or change order work as directed by the customer even if the customer has not agreed in advance on the scope or price of the work to be performed. This process may result in disputes over whether the work performed is beyond the scope of the work included in the original project plans and specifications or, if the customer agrees that the work performed qualifies as extra work, the price the customer is willing to pay for the extra work. Even when the customer agrees to pay for the extra work, we may be required to fund the cost of such work for a lengthy period of time until the change order is approved and funded by the customer. Also, unapproved change orders, contract disputes or claims result in costs being incurred by us that cannot be billed currently and, therefore, are reflected as "Costs and estimated earnings in excess of billings" in our balance sheet. See Note 1(d) of Notes to Consolidated Financial Statements. In addition, any delay caused by the extra work may adversely impact the timely scheduling of other project work and our ability to meet specified contract milestone dates.



The process for resolving claims varies from one contract to another but, in general, we attempt to resolve claims at the project supervisory level through the normal change order process or with higher levels of management within our organization and the customer’s organization. Depending upon the terms of the contract, claim resolution may involve a variety of other resolution methods, including mediation, binding or non-binding arbitration or litigation. Regardless of the process, when a potential claim arises on a project, we typically have the contractual obligation to perform the work and incur the related costs. We do not recoup the costs until the claim is resolved. It is not uncommon for the claim resolution process to last months or years, especially if it involves litigation.



Our contracts generally involve work durations in excess of one year. Revenue from our contracts in process is generally recorded under the percentage of completion contract accounting method. For a more detailed discussion of our policy in these areas, see Note 1(d) of Notes to Consolidated Financial Statements, entitled “Method of Accounting for Contracts”.



Construction Costs



While our business may experience some adverse consequences if shortages develop or if prices for materials, labor or equipment increase excessively, provisions in certain types of contracts often shift all or a major portion of any adverse impact to the customer. On our fixed price contracts, we attempt to insulate ourselves from the unfavorable effects of inflation by incorporating escalating wage and price assumptions, where appropriate, into our construction cost estimates and by obtaining firm fixed price quotes from major subcontractors and material suppliers at the time of the bid period. Construction and other materials used in our construction activities are generally available locally from multiple sources and have been in adequate supply during recent years. Construction work in selected overseas areas primarily employs expatriate and local labor which can usually be obtained as required.



Environmental Matters



Our properties and operations are subject to federal, state and municipal laws and regulations relating to the protection of the environment, including requirements for water discharges, air emissions, the use, management and disposal of solid or hazardous materials or wastes and the cleanup of contamination. For example, we must apply water or chemicals to reduce dust on road construction projects and to contain contaminants in storm run-off water at construction sites. In certain circumstances, we may also be required to hire subcontractors to dispose of hazardous materials encountered on a project in accordance with a plan approved in advance by the owner. We believe that we are in substantial compliance with all applicable laws and regulations; however, future requirements or amendments to current laws or regulations imposing more stringent requirements could require us to incur additional costs to maintain or achieve compliance.



In addition, some environmental laws, such as the U.S. federal "Superfund" law and similar state statutes, can impose liability for the entire cost of cleanup of contaminated sites upon any of the current or former owners or operators or upon parties who sent wastes to these sites, regardless of who owned the site at the time of the release or the lawfulness of the original disposal activity. Contaminants have been detected at some of the sites that we own, or where we worked as a contractor in the past, and we have incurred costs for investigation or remediation of hazardous substances. We believe that our liability for these sites will not be material, either individually or in the aggregate, and have pollution legal liability insurance available for such matters. We believe that we have minimal exposure to environmental liability as a result of the activities of Perini Environmental Services, Inc., or Perini Environmental, a wholly owned subsidiary of Perini that was phased out during 1997. Perini Environmental provided hazardous waste engineering and construction services to both private clients and public agencies nationwide. Perini Environmental was responsible for compliance with applicable laws in connection with its activities; however, Perini and Perini Environmental generally carried insurance or received indemnification from customers to cover the risks associated with the remediation business.



We own real estate in eight states and, as an owner, are subject to laws governing environmental responsibility and liability based on ownership. We are not aware of any significant environmental liability associated with our ownership of real estate.



Insurance and Bonding



All of our properties and equipment, both directly owned or owned through joint ventures with others, are covered by insurance and we believe that such insurance is adequate. In addition, we maintain general liability, excess liability and workers’ compensation insurance in amounts that we believe are consistent with our risk of loss and industry practice. Due to tight conditions in the insurance market, since the beginning of 2002 we have been purchasing workers’ compensation and general liability policies at substantially higher premiums with various self-insured deductible limits and with appropriate aggregate caps on losses retained.



As a normal part of the construction business, we are often required to provide various types of surety bonds as an additional level of security of our performance. We have surety arrangements with several sureties, one of which we have dealt with for over 80 years. We also require many of our higher risk subcontractors to provide surety bonds as security for their performance. Since 2005, we also have purchased, from one of our larger sureties, a bonding insurance product on certain jobs to insure against the risk of subcontractor default as opposed to having subcontractors provide traditional payment and performance bonds.



Employees



The total number of personnel employed by us is subject to seasonal fluctuations, the volume of construction in progress and the relative amount of work performed by subcontractors. During 2007, our average number of employees was approximately 4,150 with a maximum of approximately 4,450 and a minimum of approximately 3,820.



We operate primarily as a union contractor. As such, we are signatory to numerous local and regional collective bargaining agreements, both directly and through trade associations, throughout the country. These agreements cover all necessary union crafts and are subject to various renewal dates. Estimated amounts for wage escalation related to the expiration of union contracts are included in our bids on various projects and, as a result, the expiration of any union contract in the next fiscal year is not expected to have any material impact on us. As of December 31, 2007, approximately 2,250 of our total of 4,100 employees were union employees. During the past several years, we have not experienced any work stoppages caused by our union employees.

CEO BACKGROUND

Willard W. Brittain, Jr. became a director in November, 2004. He has served as Chairman and Chief Executive Officer of Professional Resources on Demand, a private senior executive staffing company since 2002. He previously served as Chief Operating Officer of PwC Consulting since 2000, and Chief Operating Officer of PricewaterhouseCoopers, LLP and Price Waterhouse since 1995. Mr. Brittain also serves on the board of Analysts International, a publicly held company, where he is a member of the audit and compensation committees, and is also on the boards of the National Urban League and LED, both non-profit organizations.



Robert A. Kennedy has served as a director since March 2000. He has been an independent financial consultant since 2003. From 1993 to 2003, Mr. Kennedy served in various capacities, including as Vice President of Special Projects from 2001 to 2003, for The Union Labor Life Insurance Company, a provider of insurance and financial services to its union members and related trust funds.



Ronald N. Tutor has served as our Chief Executive Officer since March 2000, as Chairman since 1999 and as a director since 1997. Mr. Tutor also serves as Chairman, President and Chief Executive Officer of Tutor-Saliba Corporation, a California corporation engaged in the construction industry.

Peter Arkley has served as a director since May 2000. He has served as the President/CEO of AON Construction Services Group, an insurance and bonding brokerage firm, since 2006 and prior to that was Managing Principal of Aon Risk Services, Inc. from 1994 to 2006. He is also a director of Valley Crest Companies, a privately-held company and of GLAZA, a non-profit corporation.



James A. Cummings has served as a director since March 2003. Since 1981, he has served as Chairman and Chief Executive Officer of James A. Cummings, Inc., a Florida-based construction company that was acquired by the Company in 2003.



Raymond R. Oneglia has served as a director since March 2000. He has also served as Vice Chairman of the Board of Directors of O&G Industries, Inc., a Connecticut corporation engaged in the construction industry, since 1997 and has served in various operating and administrative capacities since 1970.



Robert Band has served as a director since 1999. He has also served as Chief Operating Officer since 2000 and as President since 1999. He has served as President of Perini Management Services, Inc. since 1996.



Michael R. Klein has served as a director since January 1997 and as Vice Chairman of our Board since September 2000. Mr. Klein was a partner of the law firm Wilmer Cutler Pickering from 1974 until 2004, and when Wilmer Cutler Pickering merged with the law firm Hale and Dorr LLP in 2004 became a partner of Wilmer Cutler Pickering Hale and Dorr LLP until his retirement in 2005. Mr. Klein was senior counsel to Wilmer Hale during 2006, for which he received no compensation. Mr. Klein also serves as Chairman of the Board of Directors of CoStar Group, Inc., a provider of commercial real estate information, as Chairman of the Sunlight Foundation, a non-profit organization and as Chairman of the Board of Le Paradou, LLC, a privately held company. He is also a director and member of the Governance Committee of SRA International, Inc., a publicly-traded provider of technology and strategic consulting services and solutions, and of AStar Air Cargo, Inc., and OZ Fitness, Inc., which are privately held.



Robert L. Miller has served as a director since October, 2004. Since 2000, he has been the principal of Robert L. Miller & Assoc., Inc., a real estate development firm.

(1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock and options or warrants that are currently exercisable or exercisable within 60 days of March 28, 2007 are deemed to be outstanding and to be beneficially owned by the person holding such options for the purpose of computing the percentage ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

(2) Based on 26,672,746 shares of common stock outstanding as of March 28, 2007.

(3) Represents 2,335,229 shares of common stock over which Mr. Tutor holds sole voting and investment power. The address for Tutor-Saliba Corporation, or Tutor-Saliba, is 15901 Olden Street, Sylmar, California 91342.

(4) Includes 87,500 shares for which Mr. Band holds options, which are currently exercisable.

(5) Represents 67,123 shares of common stock directly owned by Mr. Klein and 4,150 shares (as to which he disclaims beneficial interest) owned by a trust for his son.

(6) Includes 30,000 shares for which Mr. Shaw holds options, which are currently exercisable.

(7) Based on information contained in a Schedule 13G/A filed on February 13, 2007 by Tontine Capital Partners, L.P., Tontine Capital Management, L.L.C., Tontine Partners, L.P., Tontine Management, L.L.C., Tontine Overseas Associates, L.L.C., and Jeffrey L. Gendell, the address of each of which is 55 Railroad Avenue, Greenwich, Connecticut 06830.

(8) Based on information contained in a Schedule 13G filed on February 13, 2007 by AXA Financial, Inc., AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, AXA Courtage Assurances Mutuelle and AXA, the address for all of which is 1290 Avenue of the Americas, New York, NY 10104.

(9) The total share amount and percentage eliminates the multiple counting of (a) 2,335,229 shares of our common stock beneficially owned by Mr. Tutor, which are also included in Tutor-Saliba’s total (see Note 3 above), (b) 1,569,800 shares of our common stock with respect to which Tontine Capital Partners, L.P. and Tontine Capital Management, L.L.C. share beneficial ownership, and which are included in Mr. Gendell’s total (see Note 7 above), and (c) 1,332,705 shares of our common stock with respect to which AXA, AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, AXA Courtage Assurances Mutuelle share beneficial ownership (Note 8 above).
COMPENSATION

MANAGEMENT DISCUSSION FROM LATEST 10K

Results of Operations 2007 Compared to 2006

Revenues increased by $1,585.6 million to a record $4,628.4 million, gross profit increased by $79.5 million, income from construction operations increased by $70.1 million, and net income increased by $55.6 million (or 134.0%) to a record $97.1 million in 2007. Our strong performance in 2007 was led by our building and management services segments. The increase in revenues and profit primarily reflects the conversion of our substantial building segment backlog into revenues and profit as expected. In addition, our management services segment also made a significant contribution to our 2007 operating results. Basic earnings per common share were $3.62 for the year ended December 31, 2007, compared to $1.56 for the year ended December 31, 2006. Diluted earnings per common share were $3.54 for the year ended December 31, 2007, compared to $1.54 for the year ended December 31, 2006.


Overall revenues increased by $1,585.6 million (or 52.1%), from $3,042.8 million in 2006 to $4,628.4 million in 2007. This increase was due primarily to an increase in building construction revenues of $1,733.7 million (or 68.9%), from $2,515.1 million in 2006 to $4,248.8 million in 2007, primarily as a result of the conversion of our substantial building segment backlog into revenues as expected, led by an increased volume of work in the hospitality and gaming market as a result of the significant new contract awards we received in the latter half of 2005 and in 2006, which are now well into the construction phase. Civil construction revenues decreased by $46.3 million (or 16.5%), from $281.1 million in 2006 to $234.8 million in 2007, due primarily to the timing of the start-up of new work. Management services revenues decreased by $101.8 million (or 41.3%), from $246.6 million in 2006 to $144.8 million in 2007, due primarily to the completion of our nuclear power plant maintenance and modification contract with Exelon as of December 31, 2006 and to a lower volume of work in Iraq.

Building construction income from operations increased by $68.2 million (or 115.0%), from $59.3 million in 2006 to $127.5 million in 2007, due primarily to the significant increase in revenues discussed above. Partly offsetting the increase in gross profit resulting from the increase in revenues was an $8.3 million increase in building construction-related general and administrative expenses related to the significant increase in the volume of work put in place, as well as to a $1.7 million increased provision for incentive compensation due to the significantly improved building construction operating results, and a $1.5 million increased charge related to stock-based compensation expense resulting from certain restricted stock units granted in the second quarter of 2006.



Civil construction income from operations decreased by $14.8 million, from a profit of $1.8 million in 2006 to a loss of $13.0 million in 2007. Civil construction income from operations in 2006 reflected downward profit adjustments recorded on several projects in the mid-Atlantic and southeast regions, including a roadway project in Maryland, while the loss in 2007 was due primarily to recording a charge with respect to the matter discussed in Note 2(c) of Notes to Consolidated Financial Statements. Had that charge in 2007 not been recorded, the civil construction segment would still have experienced a loss from operations of approximately $3.0 million due primarily to (i) downward profit adjustments recorded on a bridge rehabilitation project and on two mass transit projects in metropolitan New York, and (ii) an increase in civil construction-related general and administrative expenses, due primarily to a decrease in the number of active projects, as well as an increase in legal fees relating to open legal matters.



Despite the decrease in revenues discussed above, management services income from operations increased by $15.1 million (or 44.0%), from $34.3 million in 2006 to $49.4 million in 2007, due primarily to favorable performance on work in Iraq which more than offset the decreased profit contribution resulting from the completion of our contract with Exelon as of December 31, 2006.



Overall income from construction operations was favorably impacted by a $1.6 million decrease in corporate general and administrative expenses, from $24.5 million in 2006 to $22.9 million in 2007, due primarily to a $3.5 million decrease in corporate stock-based compensation expense resulting from certain restricted stock units granted in 2007, 2006 and 2004. Partly offsetting this decrease were increases in certain outside consulting fees and a $1.2 million increase in the provision for corporate incentive compensation due to the significantly improved operating results.



Other income increased by $12.8 million, from $2.6 million in 2006 to $15.4 million in 2007, due primarily to a $9.5 million increase in interest income as a result of the positive cash flow we generated from operating activities in the latter half of 2006 and throughout 2007. Also, we realized a gain of $1.6 million in 2007 resulting from the sale of a parcel of land used in operations. In addition, the net gain on sales of parcels of developed land held for sale increased by $1.0 million in 2007 due to higher sales activity. Based on our limited remaining inventory of developed land held for sale and the anticipated selling prices for those parcels, we believe that the net gain recorded in 2007 is not indicative of future results.



Interest expense decreased by $1.9 million, from $3.8 million in 2006 to $1.9 million in 2007, due primarily to the February 22, 2007 repayment of our term loan in full in conjunction with the closing of our new credit agreement.



The provision for income taxes increased by $29.1 million, from $28.2 million in 2006 to $57.3 million in 2007, due primarily to the increase in pretax income in 2007. The effective tax rate for the year ended December 31, 2007 was 37.1%, as compared to 40.4% for the year ended December 31, 2006. The reduction in the effective tax rate is due primarily to a decrease in disallowed tax deductions.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Comparison of the Third Quarter of 2007 with the Third Quarter of 2006



Revenues increased by $469.4 million, gross profit increased by $20.8 million, income from construction operations increased by $16.5 million, and net income increased by $14.4 million (or 150%) in 2007. Our strong performance in the third quarter of 2007 was led by our building and management services segments. The increase in revenues and profit primarily reflects the conversion of our substantial building segment backlog into revenues and profit as expected. In addition, our management services segment also made a significant contribution to both our third quarter 2007 and 2006 operating results. Basic earnings per common share were $0.89 for the third quarter of 2007, compared to $0.36 for the third quarter of 2006. Diluted earnings per common share were $0.87 for the third quarter of 2007, compared to $0.36 for the third quarter of 2006.

Overall revenues increased by $469.4 million (or 60.7%), from $773.3 million in 2006 to $1,242.7 million in 2007. This increase was due primarily to an increase in building construction revenues of $501.4 million (or 77.9%), from $643.7 million in 2006 to $1,145.1 million in 2007, primarily as a result of the conversion of our substantial building segment backlog into revenues as expected, led by an increased volume of work in the hospitality and gaming market as a result of the significant new contract awards we received in the latter half of 2005 and in 2006, which are now well into the construction phase. Civil construction revenues totaled $63.0 million in 2007, a $1.0 million decrease from revenues of $64.0 million in 2006. Management services revenues decreased by $31.0 million (or 47.3%), from $65.6 million in 2006 to $34.6 million in 2007, due primarily to a decreased volume of work in Iraq and to the completion of our nuclear power plant maintenance and modification contract with Exelon as of December 31, 2006.

Income from construction operations (excluding corporate) increased by $16.5 million (or 72.4%), from $22.8 million in 2006 to $39.3 million in 2007. Building construction income from operations increased by $17.8 million (or 114.8%), from $15.5 million in 2006 to $33.3 million in 2007, due primarily to the significant increase in revenues discussed above. Building construction income from operations was reduced by a $3.5 million increase in building construction-related general and administrative expenses, due primarily to a $2.2 million increased provision for incentive compensation as a result of the significantly improved building construction operating results. Civil construction income from operations decreased by $0.1 million, from a loss of $6.7 million in 2006 to a loss of $6.8 million in 2007. The loss in 2006 was due primarily to downward profit adjustments recorded on several projects in the Mid-Atlantic region, including a roadway project in Maryland. The loss in 2007 was due primarily to recording a charge with respect to the matter discussed in Note 5(c) of Notes to Consolidated Condensed Financial Statements. Despite the 47.3% decrease in revenues discussed above, management services income from operations decreased by only $1.2 million (or 8.6%), from $14.0 million in 2006 to $12.8 million in 2007, due primarily to favorable performance on work in Iraq. Corporate general and administrative expenses were $5.8 million in both 2007 and 2006. A $0.9 million decrease in corporate stock-based compensation expense resulting from certain restricted stock units granted in 2006 was offset by an increase in certain outside consulting fees.



Other income increased by $3.8 million, from $0.6 million in 2006 to $4.4 million in 2007, due primarily to a $2.6 million increase in interest income as a result of the positive cash flow we generated from operating activities in the latter half of 2006 and the first nine months of 2007. In addition, we recognized a $1.1 million net gain in the third quarter of 2007 from the sale of a parcel of developed land held for sale. Based on our limited remaining inventory of developed land held for sale and the anticipated potential selling prices for those parcels, we believe that the net gain recorded in 2007 is of a non-recurring nature and is not indicative of future results.



Interest expense decreased by $0.6 million, from $1.0 million in 2006 to $0.4 million in 2007, due primarily to the February 22, 2007 repayment of our term loan in full in conjunction with the closing of our new credit agreement.



The provision for income taxes increased by $6.5 million, from $7.0 million in 2006 to $13.5 million in 2007, due primarily to the increase in pretax income in 2007. The effective tax rate for third quarter of 2007 was 36.0%, as compared to 42.3% for the third quarter of 2006. The decrease in the effective tax rate is due to a reduction in permanently disallowed as well as an increase in permanently allowed tax deductions in 2007.

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