Perini Corporation Q1 2009 Earnings Call Transcript

May. 7.09 | About: Perini Corp. (PCR)

Perini Corporation (PCR) Q1 2009 Earnings Call Transcript May 7, 2009 4:30 PM ET

Executives

Ken Burk – SVP and CFO

Ronald Tutor – Chairman and CEO

Robert Band – President and COO

Analysts

John Rogers – D.A. Davidson

Richard Paget – Morgan Joseph

Steven Fisher – UBS

Avi Fisher – BMO Capital Markets

Operator

Good day, ladies and gentlemen, and welcome to the first quarter 2009 Perini Corporation earnings conference call. My name is Ann and I will be your coordinator for today’s call. (Operator instructions) As a reminder, this conference is being recorded. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session following the presentation.

I would now like to turn the presentation over to Mr. Ken Burk, Executive Vice President and Chief Financial Officer. Please proceed sir.

Ken Burk

Good afternoon, everyone. Thank you for joining us on our Perini's first quarter 2009 conference call. With us today are Ronald Tutor, Chairman and CEO and our President, Robert Band.

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 December 31, 2008, our definitive proxy statement filed on April 17, 2009 as well as in today's news release.

Our statements on this call are made as of today, May 07, 2009, 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.

With those formalities out of the way, it is my pleasure to turn the call over to Ron Tutor.

Ronald Tutor

Thanks, Ken. Good afternoon and thank you for joining us on our first quarter earnings call today. This was another very good quarter with revenues of 1.5 billion, net income of 39 million, and diluted earnings per share of $0.80. Backlog of uncompleted construction work at March 31 was 5.8 billion. Currently, we have approximately 2.1 billion of pending awards for which we have received positive indication that we have been designed as their preferred contractor. Most of these pending awards should enter our backlog this year with the balance in the first half of 2010.

We continue to see very many private customers sitting on the sidelines until the credit markets improve. On the other hand, we are seeing many extremely attractive market opportunities in the public work sector for major civil projects on a national basis that we expect a bit throughout the balance of this year. As we have stated before, we feel very well positioned to win our share of this work. With the addition of our latest acquisition Keating Building Company in January, we have strengthened our building operations in the Eastern floor [ph] with the ability to perform both private and public building work in that area.

Keating contributed approximately 475 million of work to our backlog as of the March 31, 2009 date. We continue to make progress with our integration with Tutor-Saliba Keating in the balance of our company. Recently, we announced our executive team who is responsible for integrating and building a more scalable organization with the ability to support operations on a national level through shared services from one of our primary locations.

We expect this integration to significantly reduce our G&A run rate starting in the fourth quarter of this year. MGM recently announced that they have received support from their partner Dubai World and their bank group to finish the City Center project. We continue to work closely with them as we all focused our sites on completing the majority of this project by the end of the year. We continue our work as planned at the Cosmopolitan Hotel and Casino with no financing distractions, pending final owner direction, the project should be completed in mid-2010.

We are very pleased with the progress we are making in McCarran Airport Terminal 3, a $1.2 billion contract with the Clark County Airport district. This project is a reflection of our vertical integration strategy complete with work being performed by us and certain of our subcontractors. Our civil work continues to improve their performance and is preparing for the significant growth in the near future that we project. Finally, Management Services continues to deliver outstanding results for our company in Iraq and Guam. They too are prepared for the dramatic increase in opportunities that the Guam market promises to offer.

We continue to improve our operating margin as we leverage the resources across all of our operations and execute the strategy of a more vertically integrated company with mechanical and electrical capacity. In short, we believe our self performance (inaudible) will give our customers better service and confidence in our schedules, which in turn affords us the opportunity to win more business and equally important for higher margin than what we have traditionally been able to achieve.

Now I would like Bob Band to share more details of our prospects in Management Services group.

Robert Band

Thanks, Ron. Pending projects of 2.1 billion mentioned earlier by Ron include 800 million for hospitality and gaming, 400 million in education, 300 million in industrial buildings, 300 million in government buildings and about 300 million in healthcare projects. As was the case last quarter, private negotiated clients are largely dependent upon economic recovery and their ability to achieve acceptable financing terms and conditions.

However, domestic spending on education, healthcare, industrial, and governmental building projects is expected to increase in 2009. For entire building group, we have identified and are tracking approximately $6.5 billion in targeted projects that could be bid and proposed on in 2009. The market for public civil infrastructure project should continue to open up over the course of 2009. Several funding initiatives from the stimulus plan should give way to additional bidding opportunities in our target markets.

We estimate the size of our target market in civil infrastructure to be in excess of $14 billion in 2009 in the regions we are working in now. We expect contributions from civil work to increase significantly this year. Although a slower ramp up than we originally expected, the estimate still range from 10 billion to 15 billion in construction spending over the next several years for the relocation of the US Marines from Okinawa, Japan to Guam.

On last weeks industry forum held in Guam, the US Navy Spokesperson indicated that there will be a Guam multiple award contract worth up to 4 billion in total with perhaps awards up to three or five firms. The contract will be laid [ph] late 2009 and will cover a five year period of individual task orders ranging all the way up to $300 million each. The target date for the final environmental impact statement and recovery [ph] decision remains 2010 and the planning from major components of that program is well under way now.

The business outlook for projects in Iraq and especially Afghanistan continues to be attracting and the US has announced the surge of additional troops targeted for Afghanistan. Major projects in Iraq are progressing on schedule and include overhead cover, construction jobs, hard in housing for the state department and other facilities for the US Military. Our runway and taxiway projects in Guam under the US Air Force SATOC program are under construction and on schedule.

We currently have three proposals outstanding for multiple award task order contracts, which should be decided in the second half of 2009, one each for the U.S. Army Corps of Engineers, one for the U.S. Coast Guard Homeland Security and then one for the U.S. Navy.

Now, Ken Burk will give you the financial details for the quarter.

Ken Burk

Thank you, Bob. Our net income was 39 million for the first quarter of 2009 as compared to net income of 25 million for the first quarter of ’08. Diluted earnings per share were $0.80 for the quarter as compared to $0.91 for the first quarter of 2008. On a pro forma basis including Tutor-Saliba, net income and diluted earnings per share for the first quarter of 2008 were 38.5 million and $0.76 per share respectively.

We ended the first quarter with a backlog of 5.8 billion, the breakdown of business – by business group of our backlog at March 31, 2009 is as follows; building 5.1 billion, civil 452 million, Management Services 320 million. The high-level breakdown of our total building group backlog by major end market type is as follows; gaming and hospitality 2 billion, transportation facilities 1.1 billion, healthcare 928 million, education 222 million, municipal and government buildings 379 million, industrial 124 million, and finally other – our other category of other building projects 300 million.

In the first quarter of 2009, revenues were 1.5 billion, an increase of 21% from 1.3 billion reported in the first quarter of ’08. Most of the revenue increase in the quarter was due to the addition of Tutor-Saliba. On a reportable segment basis, revenues from our building group were 1.3 billion, an increase of 15% from 1.2 billion in the first quarter of last year. Revenues from our civil group were 89 million, up 48% from 60 million reported in the first quarter a year ago. Management Services revenues were 86 million for the quarter, up 159% from 33 million a year ago.

Our total gross profit increased 61% to 107 million from 67 million in the first quarter of ‘08. Our total gross profit margin increased 33% to 7% from 5.3% in the first quarter of ‘08. This increase is primarily due to the increase in revenues from the addition of Tutor-Saliba and strong operating performance by our Management Services and civil group operations.

General and administrative expenses were 44 million, up 60% from 28 million in the first quarter of 2008. This was primarily due to the addition and integration of Tutor-Saliba. Total general and administrative expenses were 3% of revenues for the first quarter of ’09 compared to 2% of revenue for the first quarter of ‘08. As Ron mentioned, we are well into our initiative to centralize our back office functions and expect to significantly reduce our G&A run rate starting in the fourth quarter of this year.

We had income from construction operations of 63 million in the first quarter of ’09 compared to income from construction operations of 39 million in the first quarter of ’08. Overall, our operating margins increased from 3% to 4% year-over-year. Breaking down income from construction operations by business group, building income for the quarter was 43 million, an increase of 24% from 35 million in the first quarter of ‘08. Civil group income from operations was 13 million in the first quarter of ’09, an increase of 348% from 3 million in the first quarter of ’08. The addition of Tutor-Saliba made a positive impact along with improved operating performance from our New York civil operation.

Management Services income from construction operations was 16 million in the first quarter, an increase of 148% from 6 million in the first quarter of ‘08. This reflects the significant increase in revenues noted before including the positive impact of the addition of Black Construction in Guam. Other income was 1.3 million in the first quarter of ‘09 compared to 1.5 million in the first quarter of ’08 due primarily to lower interest income. Interest expense increased to 1.2 million in the first quarter of ’09 from 355,000 in the first quarter of ’08 due primarily to higher average debt balance during the first quarter of ’09.

The provision for income taxes was 24 million compared to 15 million in the first quarter of ‘08. Net income was 39 million in the first quarter compared to 25 million in the same quarter a year ago as mentioned earlier. Diluted earnings per share was $0.80 in the quarter compared to $0.91 for the same quarter a year ago. On a pro forma basis, we mentioned it was $0.76 for the first quarter of ‘08. Looking at our balance sheet at March 31, 2009, our working capital was 355 million, up 225 million at December 31 ’08, represents a current ratio of 1.21 to 1.

As of March 31, 2009, we had 459 million in cash and equivalents compared to 386 million at December 31, 2008. We used 43.5 million of cash from operations in the first quarter of 2009. However, our cash balance increased due to – primarily to proceeds from borrowings under revolving credit facility during the period. At March 31, 2009, long term debt stood at 191 million excluding current portion. We had 121 million available under our credit facilities. Stockholders equity increased 41 million to 1.2 billion at March 31, 2009 primarily due to the net income recorded during the period.

We believe that our current financial position and credit arrangements provide us with the adequate resources to meet our working capital requirements for executing existing and new projects that we expect to add in the near future. For fiscal 2009, we are reaffirming our guidance for revenues and diluted earnings per share at a range of 5.5 billion to 6 billion and $2.60 to $2.80 respectively.

I will now turn the call back over to Ron for his closing comments.

Ronald Tutor

Thanks, Ken. In short, despite the ongoing challenges and speculation in our markets we remain confident in our competitive position geographically and by our expertise and proven ability to deliver large complex buildings in civil projects for the public and private sectors.

The stimulus package is starting to pick up steam with indication that many large civil projects throughout our market in California, Nevada and the East Coast are being put out to bid and expect to be awarded throughout the course of this year. I remain confident that we will begin to significantly add to our backlog in the second, third and fourth quarters of this year with particular emphasis on those civil markets.

That concludes our prepared remarks. Bob Band, Ken Burk and I will now take your questions.

Question-and-Answer Session

Operator

(Operator instructions) And the first question comes from the line of John Rogers with D.A. Davidson. Please proceed.

John Rogers – D.A. Davidson

Hi, good afternoon.

Ken Burk

Good afternoon, John.

John Rogers – D.A. Davidson

I think it was Bob, you went through the pending awards and could you repeat that I just couldn't get it down quick enough.

Robert Band

Yes, it’s quite too fast.

John Rogers – D.A. Davidson

Sorry.

Robert Band

Well, what we like to talk about is our pending awards, where we’ve been giving – given positive indication by the owners that we are selected and in line to receive a project. So we said pending awards of 2.1 billion, including 800 million relating to hospitality and gaming, 400 million in education, 300 million in industrial buildings, 300 million in government projects and 300 million in healthcare.

John Rogers – D.A. Davidson

Okay. And that I mean does not include any civil work at this point, I thought you had some work that you would been the low bidder on or there was an indication that it may be pending and waiting approval.

Ronald Tutor

No, we haven’t included, this is Ron Tutor, no, we haven’t included with civil work is unlike private work, you are not [ph] better and achieve awarded or it isn’t. So there are no – well, I shouldn't say that there is a pending low bid that we expect to be awarded of $22 million in New York.

John Rogers – D.A. Davidson

Okay. I saw that one and wait for the others. And I guess one of the housekeeping items, Ken, what is current debt now?

Ken Burk

The current maturities, do you mean?

John Rogers – D.A. Davidson

Right.

Ken Burk

You are saying about current maturities of debt?

John Rogers – D.A. Davidson

Yes.

Ken Burk

Yes, it’s 18.8 million, John.

John Rogers – D.A. Davidson

Okay. Just I could get net. And then I guess finally in terms of the bigger picture, the up tick in civil work that you are looking at coming into the – I guess beginning in the second quarter, are these projects across – is right across the country or there any – and are they all tied to stimulus money or is this project that were already in the works?

Ronald Tutor

I think, this is Ron Tutor. I think it’s a combination of both. I think there were projects that were ready and some were put out to bid because they got stimulus money. My take is some were put out to bid assuming that stimulus money and some were put out to bid because they were funded because we are finding a very significant level of large civil work bidding in both California, Nevada and all the way from Connecticut through New York, Pennsylvania, Washington DC, and into Florida of such a scale and number that it has that stimulus money to have put them out. I mean it’s virtually almost $1 billion (inaudible).

John Rogers – D.A. Davidson

Okay. And I assume these are projects that are at the size where you are going to get limited number of bidders on them.

Ronald Tutor

But when I speak to those, we – I really don't look at anything of the smaller size, what interest us typically are the 100 million enough and the real focus is the 250 to 500, 600 million and larger. And what they are doing, most of the work that we look at and talk about is that, when you talk about the 20s and 30s, the Harold Structures job with the 22 million addition to an existing unwritten $40 million contract.

Ken Burk

And I think John, just to add more clarity, I mean it’s really not so much about competitive looking for lower competitors as much as it is. We are able to command higher margins with the size of the projects that we go after and we are not in a commodity playing field, if you will, at the lower level.

John Rogers – D.A. Davidson

Okay. And finally, I think in the previous calls you talked about potential acquisitions out there and then you acquired Keating during the quarter, is there anything left out there or that still might be coming?

Robert Band

Yes, we are in the middle of discussions. Hopefully, we will conclude on or before the 21 of May to determine whether we are going to have another significant acquisition.

John Rogers – D.A. Davidson

Okay.

Robert Band

Hopefully, we will be able to report back on that prior to the end of May.

John Rogers – D.A. Davidson

Okay, great. Thank you very much.

Operator

And the next question comes from the line of Richard Paget with Morgan Joseph. Please proceed.

Richard Paget – Morgan Joseph

Good afternoon guys.

Ronald Tutor

Good afternoon, Richard.

Richard Paget – Morgan Joseph

Just following up on John’s last question with acquisitions, how have you seen seller’s expectations? I mean may be at one point when things have slowed down, may be there is a little bit more pressure to sell, but with the expectation that all this stimulus money is going to be out there, have they started to say we are worth more now than we might have been three months ago?

Robert Band

I haven’t seen any of that, particular acquisition we are talking about has been discussed and looked at over the last six to eight months. We have a basic formula that doesn’t really relate to the stimulus or those potentials and I haven’t had any feedback or many of the people we talk to view as they may be that because stimulus spending and severance spending is going up, they want more money. So far, our experience, I haven’t heard any of that thought.

Richard Paget – Morgan Joseph

Okay. And then in terms of that 2 billion existing in the gaming hospitality backlog, could you break it down what’s City Center and what’s Cosmopolitan?

Ken Burk

Yes, we have approximately 1.1 billion is City Center and about 800 million is Cosmopolitan.

Richard Paget – Morgan Joseph

Okay. And then getting back to the pending awards, is it safe to assume that some of the hospitality and gaming, I think that 800 million is going to be put on hold, I mean at least for over the next couple of quarters versus some of the institutional work which might get a little bit quicker.

Robert Band

Well, I think it’s fair to say that there are some financing contingencies that have to be met and that could take some time as we’ve indicated with the thawing of some of the markets. So there are some contingencies that relate to that. There still is a chance that they could be awarded in the near term, but we are working closely with our customers in that regard. The other projects are (inaudible) degrees of being able to be signed up and entered into our backlog that have fewer contingencies like the financing. So I think that’s how we would characterize it.

Richard Paget – Morgan Joseph

Okay. And then in the past, you’ve talked about 2010 potentially growing earnings at least 10% to 15%, given what you see now, is that still a decent way to look at 2010?

Robert Band

An interesting question. We are trying to get our arms around now of just what the impacts of these credit crunches will be and I really don’t think I can comment right now hopefully, by the next quarter, we will have a better handle on it. All of it will stem around our banks in this country and our financial institution is going to stabilize and begin to re-lend the kinds of projects that we build. If the answer to that is yes, we are confident in 2010 and that’s really what we got to look at before I can speak with any degree of certainty.

Richard Paget – Morgan Joseph

Okay. Thanks. I will get back in queue.

Operator

And the next question comes from the line of Steven Fisher with UBS. Please proceed.

Steven Fisher – UBS

Hi, good afternoon. On the Cosmopolitan, just wondering how much of that if everything goes on schedule, how much you might execute in 2010 of that remaining 800, will that be roughly 300 or so?

Ronald Tutor

I would say 200 or 300, Steven this is Ron Tutor, I am familiar with the project. Yes, I would say probably 25% or there about 30% of it.

Steven Fisher – UBS

Okay, that’s helpful. And then in terms of the margins on the building side of things there up a bit this quarter, wondering if you expect those expand over the next couple of quarters as McCarran project ramps up.

Robert Band

I think McCarran is a very large increase in our building margins as well as the influence of both PMSI and our overseas work. And frankly, Tutor-Saliba and our civil work where we’ve always had increased margins, I think its more of the influence of those specifically that any increase in margins on our existing building work, and we expect that mix to continue to add to our basic margins as we get more and more civil work and obviously for example the casino and hotel market take some time to come back.

Steven Fisher – UBS

Great. But within the actual building segment, that – as McCarran becomes a bigger piece of it.

Robert Band

You are right. As McCarran becomes a bigger piece of the backlog, it’s at a much higher margin which of course will then drive the overall building margins up.

Steven Fisher – UBS

And you think we could start to see that next quarter more meaningfully?

Robert Band

I think the second quarter will be a significant revenue increase at McCarran. McCarran is framing the steel for the building, the steel will complete erection probably in the third quarter and with it you will begin to see a dramatic increase in revenue and of course with an increase in revenue, margin goes with it.

Steven Fisher – UBS

Okay. And on the civil side, were there any special incentives of that you had in the quarter driving the margin there? I am just trying to get a sense of what the normalized range of margin might be for that segment?

Ken Burk

Giving specifics – because it’s not that simple. I think I have said in the past number of conference calls that our civil works averages at Tutor-Saliba are multiples of our building averages and we expect to continue to earn in the civil sector multiples of what we traditionally earn in the building business. Just by very nature of the difference between negotiated building work and hard money public works in the government sector.

Steven Fisher – UBS

Okay. Related to the healthcare and –

Ken Burk

Let me add one statement that I believe I did once before that’s a matter of our public record in the merger of Tutor-Saliba and Perini. Tutor-Saliba averaged over a period of 10 years in 4 million or excuse me 3.5 billion of civil works. Approximately 16% gross margin over that longer period and that volume of work. We would see no reason we can’t bring that level of margin into the merged business, where in fact Tutor-Saliba is running and odd people are running this civil work. So when you compare that mix with the kind of margins you are used to seeing in the building sector, you will understand what I mean by significant increases in margin.

Steven Fisher – UBS

And would that be on the same reported basis in terms of how SG&A is included?

Ken Burk

You mean from an operating income level you mean or?

Steven Fisher – UBS

Yes, exactly.

Ken Burk

Yes, I think it will follow the scale, Steve, with that performance. Of course we will see the revenue growth and that will bring with it a better spread of G&A across that revenue.

Steven Fisher – UBS

Okay. Just lastly, in terms of the healthcare and education projects that are pending awards, what’s the funding source there and is the funding already in place?

Robert Band

We don’t – we were not really able to get into that discussion, Steve. We – our clients really prefer us not to talk about it, but I will say that there are some financing contingencies that they need to work out, some of them are just pure economic driven and not necessarily tied to a credit specific credit need, so I mean I think its fair to say that we have some of that. Most of that work is in California with good clients, clients that we’ve had for many, many years, so we expect it to go.

Steven Fisher – UBS

Okay. I will follow-up. Thanks a lot.

Operator

(Operator instructions) And the next question comes from the line of Avi Fisher with BMO Capital Markets. Please proceed.

Avi Fisher – BMO Capital Markets

Hi, thanks for taking my questions. Just getting back to one of the questions earlier, when you say your pending awards that you said, that are limited inclusion of big several projects, to understand properly that most of those projects are kind of write and read [ph] projects, they certainly know until – if they are pending until the contracts are opened.

Ronald Tutor

I would say the majority are write and read, unfortunately or I don’t know unfortunately is the right term, some of them are designed build proposals where they literally sit on them for weeks in particularly in New York state is often times as months, while they debate the various proposals. So I would say 70% are write and read you know that day and the other 30% depending on where it is can take anywhere from a month to as many as four or five months before they make adjustments.

Avi Fisher – BMO Capital Markets

You absolutely anticipate my next question, which is because I was curious whether or not you were involved in any design builds?

Robert Band

We are. A lot of the big civil work I would say at least 30% to 40% of it goes design builds , so yes we are a large player in that.

Avi Fisher – BMO Capital Markets

Okay. And that’s what I was confused about. And then along with McCarran, you mentioned that 3Q is (inaudible) would be complete McCarran, is that when you anticipate full ramp or has that ramped full already?

Ronald Tutor

We would say that we will be ramping – we are ramping up dramatically in revenue right now as we speak and I think our monthly billings will increase even more significantly by September. When the steel is up, the metal deck is in, we concreted metal decks and we will begin to frame walls and exterior services. It opens up a 2 million – 200,000 square foot building to probably a 1000 to 1500 (inaudible).

Avi Fisher – BMO Capital Markets

Okay. And how long will that go for?

Robert Band

We think we are going to start – we think we will finish the job at somewhere in the area of September of 2011.

Avi Fisher – BMO Capital Markets

Okay.

Robert Band

Ahead of the original schedule by some three or four months.

Avi Fisher – BMO Capital Markets

Okay. And then I had kind of anticipated [ph] I have been anticipating sort of a transition with positive mix shift from the hospitality gaming or from the building segment to more of the public civil work and my question is, could you transfer some of the talent you have in the building side to the civil side or those feature exclusive businesses?

Robert Band

Absolutely, you hit right on it because many of the same engineers that adjudicate shop drawings request for information, many of the engineering staff are equally at depth with drawings on the civil side. It may have all of our civil managers and many of our major civil superintendents of all of our concrete structures that we’ve been so good at frankly in the building business, so same concrete walls and columns and bears [ph] are involved in the building of freeways and bridges. So we think a significant part of our, shall we say Casino building operation, which will be reduced significantly – we will be able to use in a significant increase in our civil groups. So I think we can use the majority of our people shall we say.

Avi Fisher – BMO Capital Markets

Has that been your experience at Tutor-Saliba where you’ve been able to transition them?

Robert Band

We do it all the time. If you are a very good concrete superintendent or very good iron worker [ph] superintendent, you don’t know much of the difference between a building and a freeway and a bridge, its many of the same direction. So long as the appropriate supervision above is well versed in that type of work, you (inaudible) headed up. So that’s been my experience at Tutor for a lot of years and we expect that to continue in the new company.

Avi Fisher – BMO Capital Markets

Gotcha. And just switching gears a little bit, in terms of Guam, what kind of margins do you target for Guam? Would that be along the lines of the building segment margin or the civil segment or?

Robert Band

Those low margins you are aware of in our building sectors are only appropriate in the US building market. Our Guam revenues or excuse me, our Guam margin are again a multiple of what we enjoy here in the US building market.

Avi Fisher – BMO Capital Markets

But I can’t imagine they will be similar to the overhead structure given the relative safety at Guam.

Robert Band

No, Guam – but you have to understand the differences. In Guam, our operation has always been so self-contained unlike any builder in the US. We have a very large facility and we literally do 100% of the work ourselves, not only the electrical and mechanical, we put the roof on, we put the dry wall up the installation, we put the plumping in toilets in. So when you are in Guam, there is no subcontract community, there is no unions to call for men; you have to have a totally self-contained workforce. And as a result, we are entitled of more margin and we’ve been there now 14 years and Black 15 [ph] years. That market demands a higher margin and we’ve always got it, I see no reason that to change.

Avi Fisher – BMO Capital Markets

Okay. In terms of your bookings and buildings, how much of that was scope addition and how much of that was new work?

Robert Band

I think most of it was new work; there wasn’t really much of –

Ronald Tutor

If anything, we have had some reduced scope at MGM, I really can’t – I really can’t of anything up or down of any –

Robert Band

I think there were pluses and minuses.

Avi Fisher – BMO Capital Markets

And that’s exactly what my next question was, were there any cancelled backlog in any of the segments?

Robert Band

No, not this quarter. Nothing that wasn’t from old quarters.

Avi Fisher – BMO Capital Markets

What about Keating, when you did the press release it said 860 million in backlog, now it has 475. What’s its burn off 400 or?

Ken Burk

Yes, I will be with that. We decided that there was some financing contingencies on some of their hospitality work and we decided not to include it in our normal reported backlog. So that really explains the difference.

Avi Fisher – BMO Capital Markets

So they kind of reported backlog a little more aggressively than you do.

Ken Burk

If you look at it, when we initially closed the deal and then when we got more into, we brought them in and obviously after we closed the deal, we decided it was more prudent to show the lower number and that’s what we did.

Avi Fisher – BMO Capital Markets

Was there any other areas on the P&L where you saw that?

Ken Burk

No.

Robert Band

It is a judgment call. On existing contracts, they are in discussions with financing, but nothing is concrete and we thought the right thing to do until we were more satisfied that would be finance to pull it out of the backlog.

Avi Fisher – BMO Capital Markets

Okay. I have tapped out my list of questions. Thank you very much for your time.

Robert Band

Okay.

Ronald Tutor

Ann, any more questions?

Robert Band

Hello?

Ronald Tutor

That’s for our operator to come back on. Anyone there?

Operator

Sorry, one moment. And Ann is here, I am sorry and our last question comes from – as a follow-up question from the line of John Rogers with D.A. Davidson. Please proceed.

John Rogers – D.A. Davidson

Hi, thanks.

Ronald Tutor

Yes, we are still here.

Robert Band

I thought we lost everybody.

John Rogers – D.A. Davidson

In terms of the consolidation and the cost savings associated with that, what are you targeting there?

Ken Burk

You mean in dollars?

John Rogers – D.A. Davidson

Yes. I mean your run rate for corporate looks like its about $9 million outside of the segment and I am just trying to get a sense of how much cost savings like consolidating the headquarters?

Ronald Tutor

I believe, this is Ron Tutor, our cost savings because as you realize as we reduce staff and issue severance and packages, I think Ken’s statement on fourth quarter, you will begin to see the significant aspect of this integration, there is no question in my mind you like to see 10 million a year in G&A savings.

John Rogers – D.A. Davidson

Okay.

Ken Burk

That’s across all segments.

Ronald Tutor

Yes, for the company in total.

John Rogers – D.A. Davidson

Okay. And the cost – I mean you mentioned severance in direct consolidation cost that you are experiencing now and it sounds like you will see those in the second and third quarter.

Ken Burk

We actually booked some in the first quarter.

John Rogers – D.A. Davidson

Okay.

Ken Burk

So but we got that in hand and that’s baked into our estimates.

John Rogers – D.A. Davidson

Okay. And just I mean scale of that?

Ken Burk

Scale of one-time cost?

John Rogers – D.A. Davidson

Yes.

Ken Burk

Probably about 2 million – a little under 2 million.

John Rogers – D.A. Davidson

Over the three quarters or in the first quarter?

Ken Burk

In total, the first quarter was just under 2, most of that is in there, so I think it will start to trial off from there, but we don’t expect it to grow significantly.

John Rogers – D.A. Davidson

Okay, great. Thank you.

Operator

And that concludes our question-and-answer session for today. I would now like to turn the call back over to Mr. Ken Burk for closing remarks.

Ken Burk

I don’t have any closing remarks, but thank you for joining the call.

Ronald Tutor

Thank you everybody.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation and you may now disconnect. Have a great day.

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