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Executives

Kenneth Burk – EVP and CFO

Bob Band – President

Ron Tutor – Chairman and CEO

Analysts

Richard Paget – Morgan Joseph

Steven Fisher – UBS

John Rogers – D.A. Davidson

Avi Fisher – BMO Capital Markets

Tyson Strauser – Longhorn Capital

Tutor Perini Corporation (PCR) Q4 2009 Earnings Call Transcript February 25, 2010 4:30 PM ET

Operator

Good day, ladies and gentlemen and welcome to the Q4 2009 Tutor Perini Corporation earnings conference call. My name is Glenn and I will be your operator for today. (Operator Instructions) I would now like to turn the conference over to your host for today, Mr. Kenneth Burk, Executive Vice President and Chief Financial Officer. Please proceed.

Kenneth Burk

Good afternoon, everyone. Thanks for joining us on Tutor Perini's fourth-quarter 2009 conference call. With us today is our President, Robert Band. Ronald Tutor, our Chairman and CEO, is attending a meeting with a customer and will be joining the call for closing comments and Q&A. 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 risk and uncertainties that can 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 disclosed in detail in our filings with the SEC, including Tutor 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, February 25, 2010 and the company undertakes no obligation to update any of these forward-looking statements contained in the call, whether 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 Bob Band.

Bob Band

Thanks, Ken. Good afternoon, everyone and thank you for joining us on the call today. This quarter, we continued to generate momentum in our civil group with 16% growth in civil backlog and a 41% increase in civil revenues, up from the third quarter. For the year, we have nearly doubled the civil backlog from $528 million to $1 billion at the end of 2009.

With increased focus on our civil business, we have positioned the company for long-term growth and have a more diversified base of business in both the public and private sectors achieving a good balance between building and civil markets. Our backlog of uncompleted construction work at December 31, 2009 was $4.3 billion. New awards for this quarter include a $215 million tunnel in Caldecott, California and a $48 million project for another phase of work for an existing solar panel manufacturing client in California.

Currently, we have approximately $1 billion of pending awards for which we have received positive indication from our clients, who have designated us as their preferred contractor. Due to continuing challenges for some customers to get project financing, we removed approximately $600 million from pending awards during the quarter and put them back in our prospects category.

The breakdown of pending awards is $495 million in healthcare, $257 million in education and $166 million in hospitality and gaming and $84 million in other categories. We expect approximately 90% of these projects to enter backlog this year.

As we look ahead to 2010, our civil business is expected to provide us with the best growth opportunities. We estimate that more than 40% of our operating income in 2010 will come from our civil group. This is up from 21% in 2009.

We estimate the size of our prospective opportunities in our civil infrastructure target market for roads, bridges and mass transit projects to be $24.3 billion for 2010. The breakdown is $6.3 billion in bridges, $7.5 billion in highways, $7.5 billion in mass transit and $3 billion in other categories. There are over 50 projects included in our prospects list that have an estimated value greater than $100 million each.

In spite of the sluggishness in the non-residential building markets, there are some signs of economic recovery. Project financing remains the biggest issue for most of the building market.

For the building group, we have identified and are attracting approximately $11.4 billion in targeted projects, most of which could be bid and awarded in 2010. A significant portion of this market is in the public sector, including corrections, education, municipal office and transportation buildings.

For example, the correctional facility market, both public and private has heated up with estimates of 200,000 beds to be built over the next five years. Additionally, healthcare, industrial buildings and gaming and hospitality outside of Nevada will present opportunities for us this year. Las Vegas continues to be a depressed market for new construction work.

The Fontainebleau property is in the process of being sold through bankruptcy proceedings through a development team led by Carl Icahn. MGM CityCenter opened in December. We're in the process of closing out open commercial issues, which are expected to be finalized in second quarter.

Cosmopolitan will be completed later in 2010 and to date, we have not experienced any funding issue on either project. As for Management Services, we are finally beginning to see some of the larger proposal opportunities in Guam surface, which should contribute to new work awards in a more meaningful way in the second half of 2010.

The strategic realignment of U.S. forces, including the relocation of 8000 U.S. Marines and their dependents from Okinawa to Guam, is starting to generate project opportunities for the company. Our team has submitted its proposal to the U.S. Navy for a $4 billion indefinite delivery/indefinite quantity, ID/IQ, construction contract. And the Navy intends to award at least three ID/IQ contracts covering a base year and four one-year option periods.

Work under these contracts will include wharf repairs and construction, aircraft parking aprons, taxiways, runways and hangars as well as general and special-purpose buildings. Selection is anticipated again for early 2010. In addition, separate competitive construction opportunities on Guam for infrastructure utilities, housing, medical, education and other facilities are anticipated throughout 2010, '11 and beyond. For example, the Mumiso [ph] program, which is the Japanese government-funded portion of the construction program on Guam is expected to exceed $2.5 billion.

Prospects for new work in Iraq and Afghanistan continue on a limited and very competitive basis. On the other hand, Perini Management Services was recently awarded a $400 million multiple award Task Order contract for comprehensive technical design-build and construction services for all U.S. Fish and Wildlife Service's regional and central offices and other bureaus within the Department of the Interior.

At least, a dozen requests for proposals have been received to date from the U.S. Fish and Wildlife Services and U.S. Geological Services under this Task Order contract. And today, we received our first task order award from this contract.

We are tracking U.S. Departments of State and Defense projects expected to be bid in 2010 as well as private work through sureties and multinational clients. Now, Ken will give you the financial details for the quarter.

Kenneth Burk

Thank you, Bob. Our net income was $32.5 million for the fourth quarter of 2009 as compared to a net loss of $163 million for the fourth quarter of '08. Excluding a $202.8 million after tax non-cash impairment charge related to valuation of goodwill and other intangible assets, the fourth quarter of 2008 net income would have been $39.9 million. For financial comparison purposes, I will provide our fourth quarter 2008 results excluding the impact of the impairment charge I just mentioned.

Diluted earnings per share were $0.66 for the fourth quarter of 2009 as compared to $0.79 for the fourth quarter of 2008. We ended the fourth quarter with a backlog of $4.3 billion. The breakdown by business group of our backlog at December 31, '09, is as follows, the building group $3.1 billion; civil $1 billion; Management Services, $182.9 million. The breakdown of the total building group backlog by major end market type is as follows, hospitality and gaming, $783.8 million, transportation facilities, $737.1 million, healthcare, $713.3 million; municipal buildings, $460.8 million, education, $105.7 million, industrial, $255.9 million and other building markets, $69.3 million.

The civil group backlog breakdown is as follows, mass transit, $457.8 million, highways, $319.5 million and bridges, $181.9 million with another category at $42.3 million. Management Services backlog is predominantly all government contracts. In the fourth quarter of 2009, revenues were $1.1 billion, a decrease from $1.6 billion reported in the fourth quarter a year ago.

On a reportable segment basis, revenues from our building group were $908.2 million, a decrease of 34.6% from $1.4 billion in the fourth quarter of '08. The projects at CityCenter and Cosmopolitan reached their peak and earned revenues during 2008, which would explain the decrease.

Revenues from our civil group were $102.5 million, which decreased by 13.1% from $117.9 million reported in the fourth quarter of '08. The decrease is due to the completion of Tutor-Saliba civil projects in California during the fourth quarter of '08. Management Services revenues were $71.5 million, which decreased 25.1% from $95.5 million reported in the fourth quarter of '08. The decrease is due to the completion of a significant portion of our work in Iraq.

Our total gross profit decreased 20.5% to $87.6 million from $110.2 million in the fourth quarter of '08. This decrease is due to a $12.5 million write-down against the receivable from Fountainebleu and a lower volume of earned revenues during the period.

General and administrative expenses were $44.9 million, up fractionally from $44.8 million in the fourth quarter of '08. We expect a lower run rate in G&A going forward as we work off and move past one-time charges for severance and other integration-related costs experienced during the period.

We had income from construction operations of $42.7 million in the fourth quarter of '09 compared to $65.4 million in the fourth quarter of '08. Breaking down income from construction operations by group, our civil group income from construction operations was $3.6 million in the fourth quarter of '09, a decrease of $10.9 million from $14.5 million in the fourth quarter of '08.

The decrease is primarily due to favorable close-out performance on three Tutor-Saliba civil projects in California during the fourth quarter of '08. In addition, the overhead during the fourth quarter of '09 was underabsorbed as new contracts awarded in the third and fourth quarter of '09 are beginning to ramp up.

Building income from construction operations for the quarter was $35.3 million, a decrease of 11.1% from $39.7 million in the fourth quarter of '08. This decrease was primarily due to the write-down for the Fountainebleu bankruptcy matter, partially -- which is also partially offset by higher profit margins from public works projects in our backlog.

Management Services income from construction operations was $15.1 million in the fourth quarter of '09, a decrease of 15.1% from $17.7 million in the fourth quarter of '08. This decrease again is due to the completion of work in Iraq. Other income and expense was an expense of $1.3 million in the fourth quarter of '09 compared to income of $2.9 million in the fourth quarter of 2008.

This is due primarily to lower interest earnings on available cash invested and other acquisition-related costs in 2009. Interest expense decreased to $1.4 million in the fourth quarter of '09 from $2.4 million in the fourth quarter of '08. This is due primarily to lower average interest rates on debt balance during the fourth quarter of '09.

The provision for income taxes was $7.5 million compared to $26 million in the fourth quarter of '08. The provision was adjusted in the fourth quarter of '09 for a favorable variance in permanent tax liability differences from current and prior years.

The incremental benefit to diluted EPS was $0.09 for the fourth quarter based on a tax rate of 37.5%. Now, looking at our balance sheet at December 31, '09, our working capital stood at $303.1 million, up from $225 million at December 31, '08. This represents a current ratio of 1.23 to 1.

As of December 31, '09, we had $348.3 million in cash and cash equivalents compared to $386.2 million at December 31, 2008. The decrease in our cash balance during '09 is due to normal completion of work and the timing of billings on the startup of new projects, as well as we had $37 million of investments in property and equipment and $29.1 million of cash received from financing activities.

For the fourth quarter of '09, operating cash flow was $26 million. At December 31, '09, long-term debt stood at $84.8 million, excluding the current portion and we had $241 million under our credit facilities. In January of 2010, we amended our existing credit facility in order to increase our available borrowing capacity, which we intend to use for general working capital needs and potential acquisitions.

Stockholders' equity increased $150 million to $1.3 billion from $1.1 billion at December 31, '08, which was primarily due to the net income recorded during the period. We believe that our current financial position and credit arrangements provide us with adequate resources to meet our working capital requirements for executing existing and new projects. Looking forward, our guidance for 2010 has been lowered from the ranges previously provided.

Revenues are estimated to be in the range of $3.4 billion to $3.9 billion and diluted earnings per share are estimated to be in the range to $2 to $2.20 per share. The ranges reflect our current view of new work prospects that could enter our backlog and be converted to revenue and profits this year. Of our existing backlog, we estimate that approximately $3 billion in revenues will be earned this year.

Our tax rate is estimated to be at 36.5% for 2010. I will now ask to see if Ron Tutor has joined the call for his closing comments before we open it up to Q&A. Okay, I'll make a few comments here on his behalf and then we will open it up for Q&A. We enter 2010 a more integrated company, capable of leveraging our resources across all of our operations as we execute our strategy to grow our civil group and be a more vertically integrated company.

We will generate more momentum with our civil group this year and capitalize on core strengths in the building group as we work our way through current economic pressures. I believe that 2010 will be the beginning of a multi-year buildup in Guam as the U.S. military construction program gets off the ground.

We have placed a greater emphasis on earning higher margins and will perform an increasing share of work with our own forces in the future. We like our geographic position and will be fully prepared to capture our share of new work as the economy improves through the course of this year.

That concludes our prepared remarks. And I would like to open it up for questions. And then if Mr. Tutor is able to join our call, then he may have some additional comments. So if it's okay, we will interrupt Q&A for that purpose.

Question-and-Answer Session

Operator

(Operator Instructions). And our first question comes from the line of Richard Paget of Morgan Joseph. Please proceed.

Richard Paget – Morgan Joseph

Hey, guys.

Kenneth Burk

Hey, Richard.

Richard Paget – Morgan Joseph

So with the delta in guidance, what was the kind of the biggest change? Was it your pending awards that you took out? Was that the biggest change? Was it you didn't get some awards in the fourth quarter that you thought you might, or was it just bidding has slowed down a little bit?

Kenneth Burk

Richard. It's Ken Burk. I would say the biggest reason is really related to bidding of new business and our success, also combined with some delay in receiving indication of new proposals. The pending award change that we mentioned really did not have an impact on us. Those were projects that we had hoped to see financing come together. We've had them, as you may know, for several quarters on our list and we just felt that it didn't look like it was going to happen in the near-term and decided that we would just put it in our prospects category.

Richard Paget – Morgan Joseph

Okay. And then one of your competitors this morning was talking about bidding on the Guam package. They are a group of U.S-based companies. Have you seen a lot more competition for that particular contract that you are seeing a lot more non-Guam-based companies try and get in on that piece of business?

Bob Band

Richard, this is Bob Band. There have been a lot of companies that have shown an interest in the work in Guam. However, remember, Guam is at the very tail end of a very long logistics chain. And Black Construction is very well positioned with a sizable workforce, a sizable equipment fleet and effectively supplies and warehousing already on the island and in use. So in order for someone to have a credible proposal, they must somehow figure out how to link these logistics challenges. We feel we're in very, very good position for this work.

Richard Paget – Morgan Joseph

Okay. And then just to make sure I understand how these contracts should go forward from here is that – the military is going to designate a couple contractors who are qualified and then bid the packages out to those specific groups?

Bob Band

Well, that's just on the multiple award contract. Yes. They said they would designate at least three and then they will compete the work out. They have the ability to just source it directly to contractors, but typically they compete it.

Richard Paget – Morgan Joseph

Okay. And then that 2014 deadline, it seems that's getting closer and closer. Do you think once they designate the various contractors that they're going to accelerate some of these awards?

Bob Band

I would say there will be a mad dash to get a lot of the work out on the street, right.

Richard Paget – Morgan Joseph

Okay. Thanks. I will get back in queue.

Bob Band

Thank you.

Operator

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

Steven Fisher – UBS

Good afternoon, guys.

Bob Band

Hi, Steve.

Steven Fisher – UBS

I'm just wondering, as a follow-up on Guam, has the military confirmed that they will award contracts while there is some, I guess, uncertainty as to the Japanese plans for their part of it?

Bob Band

Well, I mean there's already proposal request on the street for parts of it, which include the Japanese funding. So, yes, I think the project is moving ahead.

Steven Fisher – UBS

Okay. And sorry, can you just repeat, what are the next most immediate contracts under that program that you expect to be awarded?

Bob Band

Well, actually, we even have an outstanding proposal that has already been submitting, other than the ID/IQ proposal. We're waiting to hear on that, which is an electrical project on Guam. So I would say there will be several projects that will be tendered under the Japanese-funded portion, sooner rather than later.

Steven Fisher – UBS

Okay. And then on the civil side, you talked about the large volume of prospects out there. Can you give us a sense of what actual bids you have outstanding?

Kenneth Burk

Well, Steve, it's Ken Burk. As you probably know, most all of the bids are public bids and are very quick in terms of the bidding process, being a bid that day and an opening of the bid results that day. So there really aren't any open proposals in the civil category of that nature.

We do have some design-build proposals, some public, private opportunities we're looking at. And I'm not aware of any particular pending outcome on those programs at this particular moment, but those could have a longer tail in terms of actually being in the running and it may take a number of months before we know, though I think the shorter answer is there is really no open proposals at this particular stage.

Bob Band

On the international side, we have two outstanding proposals in Afghanistan. We're waiting to hear who the selected contractor is. They're best-value proposals, so they take longer to sort out. We have a proposal into the Coast Guard for their multiyear ID/IQ contract. That was proposed on a second time, following the results of a protest. And we also have a SEED project connected with that Coast Guard proposal.

Steven Fisher – UBS

Great. And so it sounds like, at least as far as the first quarter is concerned, we may not see any Caldecott Tunnel or JFK airport type projects this quarter?

Kenneth Burk

No. I wouldn't say that. I mean I know if Ron were on the call, he would certainly describe how busy we are in bidding and estimating work. I know we just talked this morning and talked about that we have four major bids that are being prepared for the month of March. So I think that we could still have some exciting news.

Bob Band

Sure. Any one of those could be awarded.

Steven Fisher – UBS

Okay. That's good. And then just on the -- you mentioned the closeout of the MGM CityCenter. What might that entail? Could that entail some incentives that might get booked, or could there be profit adjustments downward or some of both? What should we just be expecting there?

Kenneth Burk

Steve. It's Ken. I think the way we're approaching this is we're working very closely with MGM in settling out all of the GMPs that were part of the agreement. We're working through remaining punch lists and obviously we're looking at working out final payment arrangements.

So I would tell you that we have a position that we think is reasonable today. So I wouldn't be -- we're not in a position where we could predict an outcome up or down. I will tell you, however, that there are no additional incentives that are out there for our contract. That's not in the cards. And it was not originally part of our contract to begin with.

Steven Fisher – UBS

Okay. And then just lastly here, do you have any projects in backlog that are I guess kind of on hold, or would that just be stuff that is in the pending awards?

Kenneth Burk

Well, it's a good question, Steve. Again, it's Ken Burk. We do have some projects that are in what we call a preconstruction activity mode that are in backlog that could take some time. As you probably recall, we talked about healthcare. Healthcare can have an extended preconstruction phase to it that could last several months of programming before the full work of revenue recognition, for example, would start.

The pending awards are a totally separate category. Those are classified as work that we have been identified as the preferred contractor, but we still haven't negotiated a final contract.

Steven Fisher – UBS

Okay. That's helpful. I'll get back in queue.

Operator

Our next question comes from the line of John Rogers of D.A. Davidson.

John Rogers – D.A. Davidson

Hi. Good afternoon.

Kenneth Burk

Hi, John.

John Rogers – D.A. Davidson

If we could go back just a second to the civil earnings in the quarter and Ken, you mentioned that there were some higher costs involved there because margins dropped down a little bit or quite a bit. I'm just trying to -- but you're expecting a pretty healthy ramp going into 2010. Is that just the project schedule or maybe you could walk us through that a little bit more?

Kenneth Burk

Yeah. That's a good question. And actually, I'm glad you asked it, John. Basically, there was no additional costs. So that's not -- there weren't any particular project issues or anything like that. So there's no additional costs what we have here and it was similar to a lesser degree in the third quarter is really the ramping up of the civil business overall. And so that's why I made the comment earlier that we have in effect an under absorbed overhead that needs to be balanced with the influx of new business to be earned. So in other words, we view it as a timing item. We've ramped -- we are in the process of ramping up the projects that we were awarded in the third and fourth quarter.

For example, JFK runway was essentially shut down during the winter months but it's going to have a very, very aggressive and heavy schedule that will start -- I think March 12 is the date which will give you an indication. And a lot of this lumpiness over a period of a couple of quarters will work itself out and be what we believe on target with our expectations in terms of margin.

John Rogers – D.A. Davidson

Okay.

Kenneth Burk

Does that help at all John?

John Rogers – D.A. Davidson

It does. It sounds like -- that implies, then, that at least the first quarter of 2010 will be similarly overhead to be absorbed?

Kenneth Burk

Well, it could be and we don't, as you know, give guidance for the quarters. But it's certainly possible but we still are maintaining our guidance in terms of our expectations on margins, operating margins. It is just -- the other thing, back to the fourth-quarter comparison John, we had three very good projects at Tutor-Saliba. We had the runway project, we had I-80 and we had a pier job in Long Beach that all three contributed very nice profits near the end of the project. And again, this is part of the lumpiness of the business, which is why we really try and steer clear of trying to predict a quarter.

It's hard enough just to get a year. But these are the kind of things that can play out. Now, that being said, over time and over a stretch of three to four quarters, we feel pretty confident that that earnings stream will actually level out and achieve the type of targets that we've given.

John Rogers – D.A. Davidson

Okay. And then just on the Fountainebleu charge that you had there, the $12 million, that was all in the building segment?

Kenneth Burk

Yes.

John Rogers – D.A. Davidson

Okay. And Cosmopolitan, you said scheduled to finish in the third quarter?

Kenneth Burk

We didn't say that but we think it will be the end of 2010. We're still working very closely with Deutsche Bank and their related companies in terms of really just nailing everything down. But we believe it will be finished by the end of this year.

John Rogers – D.A. Davidson

Okay. And then finally, just relative to your cash position, how much -- to operate the business as you see it right now, how much working capital do you need?

Kenneth Burk

We could push the replay button on this question, couldn't we John? I think we maintain and Bob can jump in, that we feel that $200 million working capital with our size of backlog and operation is adequate to do what we need to do. Obviously, we have maintained a position of a very strong balance sheet because we really are focused on growing our civil business and carrying forward that way. So I can't really give you a definitive answer other than we've always kind of maintained that $150 million to $200 million range as a reasonable level under the circumstances. Bob, do you want to add anything to that?

Bob Band

And that's true. And then, of course, the acquisitions -- we have made acquisitions running as high as $50 million-plus each. So we typically finance those out of cash or a revolving credit arrangement. So I would say we're not outside the realm of being in a safe working capital position.

John Rogers – D.A. Davidson

Okay. I was just trying to figure out how much might be left over for acquisitions or other opportunities.

Kenneth Burk

Well, that we did increase our line of credit by 50 million. And we are looking at acquisitions opportunistically. We don't have, obviously, anything to report today but we do have that in mind as we move forward. Of course, we will see how the market plays out through the course of this year.

John Rogers – D.A. Davidson

Okay. And then lastly, if I could, any comments or thoughts on what you're seeing in terms of pricing in the market?

Kenneth Burk

Pricing for -- what pricing?

John Rogers – D.A. Davidson

Well, bid pricing on projects. I know that World Trade Center project was a little more competitive and just any change in the market from your perspective?

Bob Band

I'll tell you frankly we have anticipated correctly that it's a very aggressively priced market right now. We're not wavering from our margin targets. We're pretty careful monitoring the pricing that goes on. And if a market gets priced to a point where we think it's too cheap to play in, we will move on to another market. That's typically how we look at it.

John Rogers – D.A. Davidson

Okay. All right, I appreciate the color. Thank you.

Operator

Our next question comes from the line of Avi Fisher of BMO Capital Markets. Please proceed.

Avi Fisher – BMO Capital Markets

Hi. Ken. Thanks for taking my questions. What was the value of that backlog on hold or in pre-construction activity mode?

Kenneth Burk

We haven't reported that. It's not as -- I will just say that we haven't -- it's not a significant number in terms of the component of our $4.3 billion.

Avi Fisher – BMO Capital Markets

Okay. So it's less than 10% or no comment?

Kenneth Burk

No comment.

Avi Fisher – BMO Capital Markets

Okay. And just so I understand Richard asked a question about the expectations for guidance. And as I understood it, you said the change in guidance was because of expectations of backlog that was going to enter the pipeline. Is that associated with the 600 million that you removed from pending awards?

Kenneth Burk

No. I think I'd answered that but I will mention it again. The 600 million was related to a couple of prospects that we had identified, that they had asked us to do the project but ran into some of their own challenges getting them financed and dealing with some other owner-related issues. So it wasn't that particular event that gave rise to our change in guidance. It really is about the amount of new business that we were able to book through the last quarter or two of '09 and what's transpired through the first few months of 2010.

Avi Fisher – BMO Capital Markets

And is that on -- is there any segment where that is really most dramatic, either -- is it in the private markets, the public markets?

Kenneth Burk

Well, I would say that certainly the private market continues to be challenged, as we've indicated about financing. The credit markets have still been very challenging for customers to be able to get their projects financed. We have seen a number of competitive bidding events that have taken place. We bid the World Trade Center project a few weeks ago and we were not successful. That was a 500 -- I think the winning bid was 542 million. So we would have loved to have won that job and that certainly would have played nicely into 2010.

Avi Fisher – BMO Capital Markets

Okay. That's helpful. So it really -- and you had indicated in your prepared comments, I think Bob did, the percent of revenues you expected to come from civil?

Kenneth Burk

No. Bob made a comment that operating income -- the contribution from civil to operating income is expected to be over 40% this year.

Avi Fisher – BMO Capital Markets

Over 40%.

Kenneth Burk

Yes. Which is comparing it to '09 at 21% of operating income for 2009.

Avi Fisher – BMO Capital Markets

I got it. Okay. And again John asked about the Fountainebleu write-down. That's all in building. So if we back that out, we get about a 5.3% EBIT margin in the building segment. Does that sound about right?

Kenneth Burk

I don't have it calculated right in front of me but I'm sure the math will work very clearly 12.5 million out.

Avi Fisher – BMO Capital Markets

Right. Are there any -- and I'm just trying to back out other one-time items. Were there any other ones in the quarter or is that really it?

Kenneth Burk

Well, I think the two that really are clear is the tax provision adjustment which I went ahead and gave the $0.09, because I didn't want to make it too difficult to be able to get to with an assumed tax rate. And then the Fontainebleau, I mean, we obviously have had continued success in some of our projects like with management services. We've had the continuation of just good performance, nothing that would strike out. I did mention that we have worked through our integration and transactional costs from '09. We don't expect those to be repeated. I think we've held our $10 million to $12 million of run rate G&A improvement year-over-year. We still have that as our objective. And we believe we will hit that.

Avi Fisher – BMO Capital Markets

Okay. And you said you were maintaining your guidance on the civil segment margins. What are those again?

Kenneth Burk

Well, I think we've said that we expect them to be in the double digits. We've said a couple of things in the -- over 10%. We've also been quoted as saying 2.5 to 3 times what we see in the building business.

Avi Fisher – BMO Capital Markets

Okay.

Kenneth Burk

We're maintaining that objective and we're quite happy with the projects that we have bid in the third and fourth quarter starting with JFK and the Caldecott and Shasta, to name a few.

Avi Fisher – BMO Capital Markets

Right.

Kenneth Burk

And also the Greenwich Corridor Station and for the World Trade Center. We're very, very happy with those project awards and their profit contribution that we expect to happen this year.

Avi Fisher – BMO Capital Markets

Thanks. And you mentioned that there was a first Task Order on the -- I think the Department of Interior may talk today. What’s the value of that?

Bob Band

That is a small one, Avi. That's a remediation of an existing building. It's very small.

Avi Fisher – BMO Capital Markets

Okay. And those…

Bob Band

But the significance of it is, it's really the beginning of a program of work which as you know, will spread over four years and will contribute, we hope the full amount of the contract to us.

Avi Fisher – BMO Capital Markets

And while I have you, Bob, any Task Orders yet on the Coast Guard later?

Bob Band

The Coast Guard was -- they went out and asked for essentially a best and final based on the guidelines that were laid down by the GAO under a protest filed by one of the proposal offers that was not successful. So that's still under consideration right now.

Avi Fisher – BMO Capital Markets

Were you the low bid on that before the protest?

Bob Band

They had announced I think the award to five contractors and we were one of the five. And then it was -- there was a protest. And after some, I think it was about 100 days, the GAO sustained the protest and the Coast Guard went out and essentially amended its solicitation. And we've already resubmitted. So we're waiting to hear.

Avi Fisher – BMO Capital Markets

Okay. Thanks. And I just have just a very few quick more questions. In terms of backlog, what’s the value of the Cosmopolitan remaining in backlog?

Kenneth Burk

Fisher, I don't have the exact number in front of me. But it's the lion's share of the gaming piece that I referred to earlier.

Avi Fisher – BMO Capital Markets

Okay. And McCarran, is that south of $1 billion yet or --?

Kenneth Burk

Is it south of $1 billion?

Avi Fisher – BMO Capital Markets

Well, what's the value of that in backlog, I guess?

Kenneth Burk

It represents the lion's share of the backlog breakout for end market that I gave you.

Avi Fisher – BMO Capital Markets

For…

Kenneth Burk

For the transportation facilities.

Avi Fisher – BMO Capital Markets

Got you. And then the courthouse in San Francisco or San Diego?

Kenneth Burk

No. That's San Bernardino.

Avi Fisher – BMO Capital Markets

San Bernardino.

Kenneth Burk

Yeah. That is still in preconstruction phases, so there's not really much burned off on that job.

Avi Fisher – BMO Capital Markets

And the JFK runway, that’s a very aggressive schedule, right? Is that all burning off in second quarter and third quarter?

Kenneth Burk

Not necessarily. I don't remember exactly the schedule. But the original estimated completion date is in '11.

Avi Fisher – BMO Capital Markets

Okay.

Kenneth Burk

So I think that we will see how it goes with weather and other circumstances. But again, we're very happy with the job and are looking forward to the ramp-up that's going to occur in a few weeks.

Avi Fisher – BMO Capital Markets

I asked a lot of questions. I appreciate your time. And Ken, you don't read Ron's script quite the way he does, so let's get him back next time.

Kenneth Burk

Thank you, Avi. I will accept that as your criticism.

Operator

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

Richard Paget – Morgan Joseph

Hey, guys. Just a quick follow-up on John's question.

Ron Tutor

This is Ron Tutor. Kenneth, you can hear me?

Kenneth Burk

Yeah, Ron. We can hear quite well.

Ron Tutor

I tried to get in about five minutes ago and I've been run around by this conference call operator.

Kenneth Burk

Okay. Well, I was just criticized for not doing a very good job on closing remarks. Would you like to provide some closing comments? We're right in the middle of the Q&A.

Ron Tutor

We're down to closing already?

Kenneth Burk

We're down to Q&A. Do you have -- we covered the whole program and we've handled -- I think each of the analysts have made a round through the calls or questions.

Ron Tutor

Well, is there any questions which would be specific to me that anybody wants to be answered?

Bob Band

Richard, you're up. Okay, I guess that's it.

Kenneth Burk

Well, hold on a minute. Let's let them get re-grouped now that we've got our Chairman on the phone. Operator, Glenn, do you have anybody in queue for a question?

Operator

All right. Next question comes from the line of Tyson Strauser of Longhorn Capital. Please proceed.

Tyson Strauser – Longhorn Capital

Yeah. This question is for Ron. Ron, just based on the type of work that you are bidding in the market right now, what is the phasing profile of that work? In other words, given the revenue projections on your backlog and the amount of burn that you will run through in 2010, when do you need to have bid work in the backlog in order to keep a smooth profile going into 2011?

Ron Tutor

Excuse me, I would assume that awards that are made between now and the end of the second quarter would be in the ground by August or September. That would pretty much consistently support 2010. 2011, all awards then will probably peak. Any 2010 awards will peak in the 2011 year. And with a few exceptions, most of these large projects are 36 to 42 months. So you can pretty much straight-line the revenue over that timeframe.

Tyson Strauser – Longhorn Capital

And a second and a follow up. A couple of quarters ago, you said that you thought that Tutor Perini as a combined entity now can book $4 billion of backlog in any environment. Do you continue to believe that this environment supports that comment?

Ron Tutor

Yes.

Tyson Strauser – Longhorn Capital

Okay. Great. Thank you.

Operator

(Operator Instructions) There are no further questions at this time. I would now like to turn the call over to Ron Tutor for closing remarks.

Ron Tutor

Well, since unfortunately I was unable to be on the call, I would give it to you, Ken, because you know the text of the call better than I do and the questions. Other than I would just simply say, we continue to be very positive in the civil works business. Our building business is difficult, as everybody understands. And the national private work sector, although unfortunately public works and government-supported public works, both in prisons, courts' buildings, hospitals, et cetera are beginning to pick up which will of course support some of those operations.

And as I'm sure Ken pointed out, we have two very large projects in-house to bid in Guam, both of them in the 2 to $300 million range which is much larger than anything that is ever built in Guam. It appears to us that Guam will commence to generate a major work program. Hopefully, since those works are out to bid, typically the balance will follow. And our civil work or at least the amount of quality major civil work available continues to increase. And toward that end, we expect to continue to get our share. Anything, Ken, you would like to add?

Kenneth Burk

I think that sums it up very well. We are obviously focused on generating new business this year and are ready to go. So, thank you all for joining the call and we will look forward to the next time. Thank you.

Ron Tutor

Thank you.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

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Source: Tutor Perini Corporation Q4 2009 Earnings Call Transcript
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