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Perini Corporation and its subsidiaries (or â€śPerini,â€ť â€śwe,â€ť â€śus,â€ť and â€śour,â€ť 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 â€śPCRâ€ť.
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
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 nationâ€™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.
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 engineering firms, equipment manufacturers and project development consultants in a competitive bid selection process to execute highly sophisticated public works projects.
We have been active in civil construction since 1894 and believe we have developed a particular expertise in large, complex civil construction projects. ENR's 2007 rankings based on revenue place us as the 16 th largest builder in the United States in the bridge construction market. We have completed or are currently working on some of the most significant civil construction projects in the northeastern United States. We have completed work on multiple portions of the Boston Central Artery/Tunnel project; New Jersey Light Rail Transit; rehabilitations of the Triborough, Williamsburg and Whitestone bridges in New York City; Jamaica Station transportation center in New York; and sections of both the Brooklyn-Queens Expressway and the Long Island Expressway. We are currently working on rehabilitations of the Tappan Zee Bridge in Westchester County, New York and the Passaic River Bridge in New Jersey. We are starting work on the Harold Structures mass transit project in Queens, New York and the construction of express toll lanes along I-95 in Maryland.
In January 2005, we acquired Cherry Hill to expand our presence in the mid-Atlantic and southeastern regions of the United States. Cherry Hill specializes in excavation, foundations, paving and construction of civil infrastructure.
Management Services Segment
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. We believe customers choose our services based on our ability to plan and execute rapid response assignments and multi-year contracts through our diversified construction and design-build abilities. In addition, we believe we have demonstrated consistently superior performance on competitively bid or negotiated multi-year, multi-trade, task order and ID/IQ (Indefinite Delivery/Indefinite Quantity) construction programs. We have been chosen by the federal government for significant projects related to defense and reconstruction projects in Iraq and Afghanistan. For example, we are currently working on several overhead coverage protection projects throughout Iraq. In addition, we completed work on the design and construction of four military bases in Afghanistan for the Afghan National Army.
We believe we are well positioned to capture additional management services projects that involve long-term contracts and provide a recurring source of revenues as the level of government expenditures for defense and homeland security has increased in response to the global threat of terrorism. For example, we have completed all work on a multi-year contract with the U.S. Department of State, Office of Overseas Buildings Operations, to perform design-build security upgrades at 27 U.S. embassies and consulates throughout the world. In addition, our proven abilities with federal government projects have enabled us to win contracts from private defense contractors who are executing projects for the federal government. For example, we have completed design and construction contracts with Raytheon Integrated Defense Systems for upgrades to radar facilities at Beale Air Force Base in California, the Cobra Dane Facility on Shemya Island, Alaska, and at a Royal Air Force facility in Fylingdales, England to meet the requirements of a new early warning radar system.
We also provide diversified management services to surety companies and multi-national corporations. We are under agreement with a major North American surety company to provide rapid response, contract completion services. Upon notification from the surety of a contractor bond default, we provide management or general contracting services to fulfill the contractual and financial obligations of the surety.
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, â€śDisclosures About Segments of an Enterprise and Related Informationâ€ť, 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.
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.
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:
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.
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 contractorâ€™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.
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.
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 contractorâ€™s financial risk, but may also limit profit relative to the overall scope of a project.
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.
MANAGEMENT DISCUSSION FROM LATEST 10K
We were incorporated in 1918 as a successor to businesses that had been engaged in providing construction services since 1894. We provide diversified general contracting, construction management and design-build services to private clients and public agencies throughout the world. Our construction business is conducted through three basic segments or operations: building, civil and management services. 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. Our civil segment specializes in public works construction and the repair, replacement and reconstruction of infrastructure, including highways, bridges, mass transit systems and water and wastewater treatment facilities, primarily in the northeastern and mid-Atlantic United States. Our management services segment provides diversified construction and design-build services to the U. S. military and federal government agencies, as well as surety companies and multi-national corporations in the United States and overseas. We have been chosen by the federal government for significant projects related to defense and reconstruction in Iraq and Afghanistan.
The contracting and management services that we provide consist of general contracting, pre-construction planning and comprehensive management services, including planning and scheduling the manpower, equipment, materials and subcontractors required for the timely completion of a project in accordance with the terms and specifications contained in a construction contract. We also offer self-performed construction services including site work, concrete forming and placement and steel erection. We provide these services by using traditional general contracting arrangements, such as fixed price, guaranteed maximum price and cost plus fee contracts and, to a lesser extent, construction management or design-build contracting arrangements. In the ordinary course of our business, we enter into arrangements with other contractors, referred to as â€śjoint ventures,â€ť for certain construction projects. Each of the joint venture participants is usually committed to supply a predetermined percentage of capital, as required, and to share in a predetermined percentage of the income or loss of the project. Generally, each joint venture participant is fully liable for the obligations of the joint venture.
For the year ended December 31, 2007, we achieved for the second consecutive year record revenues of $4.628 billion and record income from construction operations of $141.0 million. We also achieved a record net income of $97.1 million, led by our building and management services segments. We received significant new contract awards, as well as additions to contracts in place, during 2007 and ended the year with a contract backlog of $7.6 billion. Our financial condition continued to strengthen during 2007. At December 31, 2007, we had working capital of $293.5 million, a ratio of current assets to current liabilities of 1.24 to 1.00, and a ratio of long-term debt to equity of 0.04 to 1.00. Our solid base of stockholdersâ€™ equity increased to $368.3 million as of December 31, 2007, reflecting the outstanding operating results achieved in 2007. In addition, we have $113.5 million available to borrow under our credit facility at December 31, 2007.
In September 2007, we announced the appointment of Kenneth R. Burk as Senior Vice President and Chief Financial Officer. Mr. Burk joins Perini with 24 years experience in the engineering and construction industry. Michael E. Ciskey, Vice President and Chief Financial Officer since November 2003, became Senior Vice President, Civil where he will assist in the growth of our civil construction segment.
In May 2007, we announced the following management promotions and changes within Perini Building Company, our wholly owned subsidiary: Craig W. Shaw, from President to Chairman and Chief Executive Officer; Richard J. Rizzo, from Chairman to Vice Chairman; Mark A. Caspers, from Senior Vice President of Field Operations to President and Chief Operating Officer; and W. Patrick Hubbs, from Vice President of Field Operations to Executive Vice President of Field Operations.
In March 2007, we announced the appointment of John A. Loftus to the position of President of Perini Civil Division. Mr. Loftus also continues to serve the Company as President and Chief Executive Officer of Cherry Hill Construction.
Critical Accounting Policies
Our accounting and financial reporting policies are in conformity with accounting principles generally accepted in the United States of America (â€śGAAPâ€ť). The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date, and the reported amounts of revenues and expenses during the reporting period. Although our significant accounting policies are described in Note 1, â€śSummary of Significant Accounting Policies,â€ť of the Notes to Consolidated Financial Statements in Item 15 of this Form 10-K, the following discussion is intended to describe those accounting policies most critical to the preparation of our consolidated financial statements.
Use of Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our construction business involves making significant estimates and assumptions in the normal course of business relating to our contracts and our joint venture contracts due to, among other things, the one-of-a-kind nature of most of our projects, the long-term duration of our contract cycle and the type of contract utilized. Therefore, management believes that â€śMethod of Accounting for Contractsâ€ť is the most important and critical accounting policy. The most significant estimates with regard to these financial statements relate to the estimating of total forecasted construction contract revenues, costs and profits in accordance with accounting for long-term contracts (see Note 1(d) of Notes to Consolidated Financial Statements) and estimating potential liabilities in conjunction with certain contingencies, including the outcome of pending or future litigation, arbitration or other dispute resolution proceedings relating to contract claims (see Note 2 of Notes to Consolidated Financial Statements). Actual results could differ from these estimates and such differences could be material.
Our estimates of contract revenue and cost are highly detailed. We believe, based on our experience, that our current systems of management and accounting controls allow us to produce materially reliable estimates of total contract revenue and cost during any accounting period. However, many factors can and do change during a contract performance period which can result in a change to contract profitability from one financial reporting period to another. Some of the factors that can change the estimate of total contract revenue and cost include differing site conditions (to the extent that contract remedies are unavailable), the availability of skilled contract labor, the performance of major material suppliers to deliver on time, the performance of major subcontractors, unusual weather conditions and the accuracy of the original bid estimate. Because we have many contracts in process at any given time, these changes in estimates can offset each other without impacting overall profitability. However, large changes in cost estimates on larger, more complex construction projects can have a material impact on our financial statements and are reflected in our results of operations when they become known.
When recording revenue on contracts relating to unapproved change orders and claims, we include in revenue an amount equal to the amount of costs incurred by us to date for contract price adjustments that we seek to collect from customers for delays, errors in specifications or designs, change orders in dispute or unapproved as to scope or price, or other unanticipated additional costs, in each case when recovery of the costs is considered probable. When determining the likelihood of eventual recovery, we consider such factors as evaluation of entitlement, settlements reached to date and our experience with the customer. The settlement of these issues may take years depending upon whether the item can be resolved directly with the customer or involves litigation or arbitration. When new facts become known, an adjustment to the estimated recovery is made and reflected in the current period results.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
Part I. -
Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets â€“
September 30, 2008 and December 31, 2007
3 Consolidated Condensed Statements of Income â€“
Three Months and Nine Months ended September 30, 2008 and 2007
4 Consolidated Condensed Statement of Stockholdersâ€™ Equity â€“
Nine Months ended September 30, 2008
5 Consolidated Condensed Statements of Cash Flows â€“
Nine Months ended September 30, 2008 and 2007
6 Notes to Consolidated Condensed Financial Statements
7 â€“ 27
Management's Discussion and Analysis of Financial Condition and Results of Operations
28 â€“ 38
Quantitative and Qualitative Disclosures About Market Risk
Controls and Procedures
38 â€“ 39
Part II. -
40 â€“ 41
41 â€“ 45
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Submission of Matters to a Vote of Security Holders
47 â€“ 48
Good afternoon, everyone. Thanks for joining us on Perini's Third Quarter 2008 Conference Call. With us today are Ronald Tutor, Chairman and Chief Executive Officer and our President and Chief Operating Officer, Robert Band.
For our agenda today, Ron Tutor will discuss the highlights of the third quarter and Bob Band will share details about new contract wins, prospects and other successes. After that I will review the Company's third quarter financial results in detail and provide guidance for fiscal year 2008 and 2009. Then Ron is going to come back and make some closing remarks and at that point we will open up the call for questions.
Before we start, I would like to remind our listeners that our comments today will contain forward-looking statements including statements about future guidance. Management may also make additional forward-looking statements in response to your questions. These types of written and oral disclosures are made pursuant to the Safe Harbor provision contained in the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from anticipated results.
The Company cautions that any such forward-looking statements are based upon assumptions that the Company believes are reasonable but that are subject to a wide range of risk and actual results may differ materially. These risks and uncertainties are discussed in detail in our filings with the SEC including Perini's annual report on Form 10-K for the fiscal year ended 2007, our quarterly report on Form 10-Q for the quarter-ended June 30, 2008 and our definitive proxy statement filed on August 6, 2008 as well as in today's news release.
Our statements on this call are made as of today, November 6, 2008, and the Company undertakes no obligation to update any of these forward-looking statements contained in the call whether as a result of new information, future events, changes in expectations or otherwise.
And with those formalities out of the way, it's my pleasure to turn the call over to Ron Tutor.
Thanks, Ken. Good afternoon everyone and thank you for joining us today. This was another exceptional quarter with record revenues of $1.41 billion, up 14% from a year ago and record net income of $34.1 million, up 42% from a year ago. Diluted earnings per share were $1.01 for the third quarter of 2008.
On September 8, we finally closed the transaction to merge with Tutor-Saliba Corporation. As discussed last quarter, we believe that the combination of Perini and Tutor-Saliba will create for our shareholders a stronger and more diversified construction company in each of our core markets and operating segments.
With the added resources, relationships and market position of Tutor-Saliba as one of the stronger public works contractors in the United States, we believe there will be many opportunities to lessen the impact of reduced spending in the private nonresidential markets by rapidly redeploying our resources to where the prospects to win new projects in the public sector continue to increase.
We estimate that we will be within the range of our guidance for 2008 for both revenues and earnings per share. For 2009, we have lowered our guidance in response to current economic conditions that we anticipate will likely impact our owners and prospects for new business that we would have ultimately started next year.
We are seeing a slowdown in construction starts as some of our customers are directly impacted by the challenges in the credit markets. As a result, some of the pending awards and prospects we were tracking will take longer to enter our backlog than we originally anticipated. Fortunately, we have a significant backlog of business that will carry us through 2009 into some time in the first quarter of 2010 as we evaluate new opportunities and capture the work that is available in our markets.
It should also be noted that we have not experienced a situation where we have had a major project under contract included in our backlog get canceled. Backlog of uncompleted construction work at September 30, 2008 was $8.3 billion. In addition, we have approximately $5.8 billion pending awards for which we have received either letters of intent or notices from customers informing us we are their preferred contractor. Approximately $5 billion of those pending awards are now expected to enter our backlog over the next 12 months to 24 months representing a shift of over a year longer than we estimated last quarter.
Last quarter indicated there could be positive news announced in the third quarter coming from our strategy to enter the Middle East building market in Dubai. While we have progressed our relationships in that country with joint venture partners and signed a preconstruction services agreement with a major Dubai developer for a potential $8 billion building project, it now appears as though its start could be put back a year or longer before that contract will be signed and the work started. Our share of this joint venture project is 25%.
MGM Atlantic City has also announced that their program is on hold and our customer for a high-end luxury condo project in Los Angeles is working through financing plans that have again then delayed. Therefore, we are basically in a situation where we must focus our energy on new business opportunities such as both public work buildings and civil projects in our marketplace.
I am very optimistic that our government contracting will seize the opportunity to provide a much needed boost to the economy by releasing funds for public works projects on an accelerated basis through 2009. We are currently seeing those in a number of very major projects in our heavy construction group on the East Coast and we will continue to work closely with our private clients as they sort out their priorities and await the thawing of the credit markets.
Now I would like Bob Band to share more details of the third quarter results and prospects.
Thanks, Ron. Our success in the quarter was a result of an outstanding performance by our building and management services segments. We have also made progress in improving the profitability of our civil operations. We have a platform to deliver respectable financial results even in the face of the current economic conditions.
The September 30, 2008 backlog includes new contract awards and adjustments to contracts and process added during the third quarter totaling approximately $2.9 billion which includes a $1.2 billion contract to build the new Terminal 3 at McCarran International Airport in Las Vegas. $1.2 billion of backlog was added due to the acquisition of Tutor-Saliba and approximately $193 million of additional work in the hospitality and gaming market in Las Vegas. Civil operations added $73 million contract for a new roadway project in Virginia.
Management Services added $360 million of new awards primarily for work in Iraq including continued overhead cover force protection projects and in Guam, we have secured our first major project for a runway at Andersen Air Force Base valued at $50 million. This project represents an important step for our Company as we build on our position as an Air Force SATOC contract using the valued resources of Black Construction, our newly acquired business on the island from Tutor-Saliba.
In addition to the pending awards of $5.8 billion that Ron mentioned earlier, we have targeted prospects totaling approximately $3.1 billion in the gaming and hospitality market that could be awarded in the next 12 months to 24 months. This does represent a shift of approximately $6 billion at the 2010 or later from 2009 prospects identified in the second quarter.
The spending on education, healthcare and civil transportation projects should remain fairly strong. For example, we have identified approximately $5.2 billion in targeted projects in the education, healthcare and office and industrial building markets in California and Florida.
The market for public building and civil infrastructure projects should continue to open up over the course of 2009. Several funding initiatives that should give way to good bidding opportunities in our markets are on the docket. The size of this market is well over $30 billion. There are several promising opportunities in Guam and other locations under our SATOC contract.
On Guam, the estimates range from $10 billion to $15 billion in construction spending over the next several years for the relocation of US Marines from Okinawa, Japan to the island. The process is proceeding under the agreement between the two countries and includes work available in both Guam and Okinawa.
The construction market in Dubai and Abu Dhabi is extraordinary â€“ with well-publicized spending estimates in excess of $300 billion. However, as previously noted, that region is wrestling with the challenges that the credit markets currently present. In the meantime, we intend to develop long-term opportunities and relationships for Perini in this market and throughout the Middle East.
Our building segment continued work on ongoing complex large scale projects. We are making good progress on each of the main structures at the 76-acre site of MGM Mirage City Center in Las Vegas with a current contract value of $6 billion. The guaranteed maximum prices have been determined.
Our work at the Cosmopolitan Resort and Casino in Las Vegas continues. All current amounts continue to be paid monthly under our agreement with Deutsche Bank who has now completed the foreclosure process and has established a development entity. We are confident that the project will be completed in accordance with the schedule in 2010.
Our work on the 31-story Sheraton Phoenix downtown hotel was completed three months early and the grand opening was held on October 9.
In the West, mobilization has begun on the $1.2 billion McCarran Airport Terminal 3 project in Las Vegas. This project is scheduled to be complete in 2011.
Rudolph and Sletten and James A. Cummings continue to deliver solid performance in their respective markets in California and Florida. Regarding our civil segment, we have seen improvement in the performance and profitability of our businesses in New York and Washington, DC and believe we are well-positioned to benefit from public infrastructure work in the near future.
Integration with Tutor-Saliba is well underway with specific emphasis placed on centralizing our estimating functions for public works and leveraging our overall equipment fleet. Our management services segment delivered another quarter of excellent performance due to our work with the U.S. Army Corps of Engineers and the U.S. Department of State on overhead coverage systems in the Green Zone and elsewhere in Iraq as well as upgrading fuel and water storage infrastructure at military bases.
Our new awards are proceeding through the design and engineering process as we speak. We are currently proposing on CENTCOM 3 another multi-year task order contract covering the Central Command's area of operation.
And with that, I will turn the call over to Ken, who will give you the financial details for the quarter.
Thank you, Bob. I will now review the third quarter results in some detail. The results include Tutor-Saliba beginning in September and reported in each of our reporting segments building, civil and management services. Black Construction in Guam is reported in our management services segment. The breakdown by segment of our backlog of $8.3 billion at September 30, 2008 is as follows
Building $7.2 billion; civil, $620 million; management services, $500 million.
In the third quarter of '08, revenues were $1.41 billion, an increase of 14% from the $1.24 billion reported in the third quarter of '07. Most of the revenue increases are due to the addition of Tutor-Saliba.
On a reportable segment basis, revenues from our building segment were $1.29 billion, an increase of 13% from $1.15 billion in the third quarter of '07. Revenues from our civil segment were $74 million, up 18% from $63 million reported in the third quarter of '07. And management services revenues were $44 million, up 28% from $35 million a year a go.
Our total gross profit increased 34% to $85.5 million from $63.9 million in the third quarter of '07. This increase is primarily due to improved operating performance contributed by the civil segment including the avoidance of charges that we recorded last year in the third quarter.
General and administrative expenses were $33.2 million, up 9% from $30.4 million in the third quarter of '07. This was primarily due to the addition of Tutor-Saliba during the third quarter.
Total general and administrative expenses were 2.4% of revenues compared to 2.5% in the third quarter of '07 reflecting good scalability with a 14% increase in revenues for the same period.
Income from construction operations was $52.3 million in the third quarter of '08, an increase of 56% from $33.5 million in the third quarter of '07. Breaking down income from construction operations by segment, the building segment income from construction operations for the quarter was $35.2 million, an increase of 6% from $33.3 million in the third quarter of '07. This increase is primarily due to the higher revenues that we discussed earlier.
Civil segment income from construction operations was $10 million in the third quarter of '08 compared to a loss from construction operations of $6.8 million in the third quarter of '07. The addition of Tutor-Saliba made a positive impact along with improved operating performance for both our New York and Cherry Hill operations.
Management Services income from construction operations was $12.1 million in the third quarter of '08 compared to $12.8 million in the third quarter of '07. Management Services operating margin was 27% for the quarter versus 37%, a year ago. This decrease in margin reflects extraordinary operating results we recorded last year due to favorable performance in the â€“ on projects in Iraq.
Other income was $2.6 million in the third quarter of '08 compared to $4.4 million in the third quarter of '07 due primarily to a $1.3 million gain on sale of parcels of developed land that we held for sale in '07. This expense increased to (inaudible) in the third quarter of '08 from $400,000 in the third quarter of '07 due primarily to debt assumed in connection with the acquisition of Tutor-Saliba.
The provision for income taxes was $19.8 million compared to $13.5 million in the third quarter of '07 and net income was $34.1 million in the third quarter of '08 compared to $24 million in the same quarter a year ago. Diluted earnings per share were $1.01 in the third quarter of '08 compared to $0.87 for the same period in '07.
Now looking at our balance sheet at September 30, 2008, our working capital stood at $254.9 million, down from $293.5 million at December 31, 2007. This represents a current ratio of 1.15 to 1. As mentioned last quarter, the decrease in working capital reflects the classification of $100.3 million of our investment and auction rate securities as long-term at September 30, 2008.
The Company used operating cash of $41.7 million during the third quarter primarily due to the startup of new projects such as McCarran Airport and other civil work and reduction in project advances previously received from a customer in our gaming and hospitality business, all of which we estimate to be short-term timing issues.
As of September 30, 2008, we had $400.7 million in cash and equivalents compared to $459 million at December 31, 2007. The decrease in our cash balance at September 30 is primarily a result of investments we made earlier in the year in auction rate securities that were not converted to cash prior to September 30, 2008; $52.1 million for net cash purchases of property and equipment, and $29.5 million of repayments of debt.
Increases in cash since the beginning of the year include $31.2 million of cash flow from operations and $92.5 million in cash recorded from the acquisition of Tutor-Saliba.
At September 30, 2008, long-term debt stood at $49 million excluding the current portion and we had $137 million available under our revolving credit facility plus an additional $111.3 million available under a temporary standby line of credit for incremental liquidity support should we need it while we await opportunities to liquidate investments in auction rate securities.
The temporary standby line of credit will reduce dollar for dollar as we liquidate our positions in auction rate securities. In September, we (inaudible) revolving credit facility from $125 million to $155 million and retained an option subject to certain conditions to increase the revolver by another $45 million.
Stockholders equity increased $978 million to $1.35 billion from $368.3 million at December 31, 2007, primarily due to the equity issued in connection with the acquisition of Tutor-Saliba.
We believe that our current financial position and credit arrangements provide us with the adequate resources to meet our liquidity and working capital requirements and implement our business plans including planned acquisitions in the future.
The Company is refining our guidance for 2008 revenues to be in the range of $5.6 billion to $5.8 billion from our previous range for revenues in the range of $5.5 billion to $5.9 billion and estimated diluted EPS to be in the range of $3.55 to $3.65 per share from our previous range of $3.50 to $3.75 per share.
For fiscal 2009, the Company is lowering our guidance for revenues and diluted EPS to a range of $6 billion to $6.5 billion and $2.80 to $3.00 respectively. This guidance is reflective of current economic conditions including the challenges in the credit markets and the associated impacts on funding for new construction starts in the latter half of 2008 and 2009.
The Company is currently in the process of its annual impairment testing to assess the potential amount of impairment if any of the goodwill and indefinite live tangible assets initially recorded in connection with the September acquisition of Tutor-Saliba. The 2008 earnings estimates mentioned earlier do not reflect the impact of any impairment charge should it be determined that one is required.
With that update, I'd like to turn the call back over to Ron for closing comments.
Thanks, Ken. The third quarter marked the 12th consecutive quarter of record revenues for Perini and a new record for net income. In spite of the current challenges and speculations in the markets, we are very well positioned geographically and by our expertise and abilities as a true builder of large complex building and civil projects for the public and private sectors. Remember, our strong backlog carries us through 2009 into the first quarter of 2010.
We believe public works and federal government spending will be strong during 2009 and 2010 and we believe that added stimulus will occur in that sector because of the current issues in the United States. As the credit crunch subsides, our pending work will convert to backlog as money once again gets released for many of our very creditworthy customers.
Finally, our strong financial condition is a major plus in this economy. Our acquisition pipeline is full and we expect to both entertain and close transactions in 2009.
That concludes our prepared remarks. Bob Band, Ken Burk and I will now take your questions.