Perini Corporation Q1 2008 Earnings Call Transcript

May.16.08 | About: Perini Corp. (PCR)

Perini Corporation (PCR) Q1 2008 Earnings Call Transcript May 7, 2008 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

Shaun Kelley – Banc of America Securities

Robert Ramilan [ph] – Axle Capital

Operator

Good day, ladies and gentlemen, and welcome to the first quarter 2008 Perini Corporation earnings conference call. My name is Amanda and I'll be your coordinator for today. (Operator instructions) As a reminder, this conference is being recorded for replay purposes. I'd now like to turn the presentation over to your host for today's call, Mr. Ken Burk, Senior Vice President and Chief Financial Officer of Perini. Please proceed, sir.

Ken Burk

Good afternoon everyone. Thanks for joining us on Perini's first-quarter conference call for 2008. With us today are Ronald Tutor, Chairman and CEO; and our President and Chief Operating Officer, Robert Band.

For our agenda today, Ron Tutor will discuss the highlights of the first quarter and Bob Band will share details about new contract wins, prospects, and other successes. After that, I'll review the first-quarter financial results in some 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 risk 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 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, 2007, as well as in today's news release. Our statements on this call are made as of today, May 7, 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. With those formalities out of the way, it's my pleasure to turn the call over to Ron Tutor.

Ronald Tutor

Thanks Ken. Good afternoon everyone or maybe even good evening, and thank you for joining us on the call today. This was another outstanding quarter with record revenues of $1.26 billion, up 27% from a year ago and net income of $25.2 million, up 11% from a year ago. Diluted earnings per share were $0.91 for the first quarter. The backlog of uncompleted construction work at March 31 was 7.2 billion. In addition, we have approximately 3.6 billion of pending awards for which we have received letters of intent or notices that we are the apparent low bidder. The pending awards are expected to enter [ph] our backlog over the next two to three quarters as they are consummated. Most of the new work is coming from our building segment. For example, we have been selected to build a substantial portion of the new MGM Grand Atlantic City. And in California, we have letters of intent to build a high-end luxury condominium project and a major healthcare medical center and campus. Our pipeline of targeted prospects is full of opportunities in each of our business segments. While there have been some delays in new project starts in the hospitality and gaming market, the economic headwinds affecting many sectors have generally had little impact on us with most of our customers focused on delivering new products for their customers in 2010 through 2012.

On April 2, 2008, as you are all aware, we announced that we entered into a merger agreement with Tutor-Saliba Corporation pursuant to which Tutor-Saliba will become a wholly-owned subsidiary of Perini upon the completion of the merger contemplated by the agreement. We believe that combination will create for our shareholders and customers a stronger and more diversified construction company in each of our core markets and operating segments capable of generating significant enhanced value. With the added resources, relationships, and market strength of Tutor-Saliba, the new Perini will be a significantly stronger company with enhanced growth prospects.

Ken will talk about the closing process and the estimated timeline shortly. Now I'd like Bob Band, our President and Chief Operating Officer, to share more details of our first-quarter results and prospects.

Robert Band

Our success in the quarter was a result of an outstanding performance by our building and management services segments' operations. We remain focused on superior execution and customer satisfaction. As anticipated, our building business continued to convert a significant backlog of work into revenues and profit as planned. Management services made a solid contribution to our performance in this quarter, continuing its fine work on overhead coverage protection systems as well as fuel and water storage projects in Iraq. With our backlog at 7.2 billion as of the end of March, combined with the pending awards and targeted prospects in 2008 and 2009, we have a platform to deliver solid financial results for the foreseeable future. The March 31, 2008 backlog includes new contract awards and adjustments to contracts in process added during the first quarter of ‘08 totaling $895 million, which include approximately $274 million of various new work awards at Rudolph and Sletten and $590 million of additional work on our hospitality and gaming projects in Las Vegas, Maryland, and California.

The turmoil in credit markets and slowdown in residential construction continued to fuel concerns about the economy at large and the outlook for non-residential building market. While some forecasts anticipate non-residential construction to be down in ‘08 and ‘09, our outlook for future growth remains positive. Many of the major projects we are pursuing have a gaming element and are planned years in advance by existing operators of large projects rather than by small private developers. In addition to the pending awards of 3.6 billion mentioned earlier, we have targeted prospects totaling approximately 12 billion in the gaming and hospitality market that could be awarded in late ‘08 or 2009. In addition, spending on education, healthcare, and civil transportation projects continue to make those areas very attractive markets for Perini. For example, we have identified approximately 6 billion in targeted projects that could be awarded in ‘08 or ‘09 in the education healthcare and office and industrial building markets in California and Florida.

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 CityCenter in Las Vegas with a current contract value of $6 billion. We have poured the 54th floor of the 61-story Pelli Tower hotel casino and are in the process of installing curtain walls on the 28th and 29th floors. We've topped off the 61st floor of the Vdara Condo Hotel and are currently pouring the 33rd floor of the Mandarin Tower. We've begun pouring decks at both the twin Veer Towers and are up to the 17th floor at the West Tower and the 10th floor at the East Tower. We are preparing for the 10th floor at the Harmon Hotel and structural steel erection continues at the retail and entertainment district. Our work at the $1.8 billion Cosmopolitan Resort & Casino in Las Vegas continues unabated. All current amounts due to us have been paid and we have an interim agreement with Deutsche Bank for payments continuing on a monthly basis, while they work out an agreement with a new developer and operator.

Meanwhile, work is proceeding on schedule. Structural steel is 85% complete, and we're up to the 20th floor at the West Tower and the 17th floor at the East Tower. This project has a prominent location on the Strip, just south of the Bellagio Hotel and Casino, and we are confident that this project will be completed on the original timeline at the end of 2009. The Trump International Hotel & Tower in Las Vegas has been completed three months ahead of schedule. The grand opening was held on April 11 this year. Our work on the 31-story Sheraton Phoenix Downtown Hotel continues on schedule with a certificate of occupancy anticipated in August in conjunction with a grand opening scheduled for October 2008. The MGM Grand at Foxwoods is on track to open on schedule on May 17, this year. The joint venture contract for the Gaylord National Resort & Convention Center and Prince George's County, Maryland had its grand opening on April 28.

In our continuing efforts to acquire projects in the Northeast, we are pleased to have been selected along with another contractor to build a portion of the MGM Grand CityCenter. Pre-construction services have commenced and contract terms are being finalized. The value of Perini's portion of the work is estimated to be between $1 billion and $1.2 billion. In California, Rudolph and Sletten continues to build on its reputation for quality and expertise in constructing healthcare and educational facilities, corporate campuses and biotech labs. We have signed letters of intent for pre-construction activities for a $500 million medical center and campus and an estimated $550 million high-end luxury condominium. In addition, Rudolph and Sletten is poised to benefit from the February 2008 approval of four gaming compacts in California. These measures allow the Pechanga, Morongo, Sycuan and Agua Caliente bands of Native American Indians to expand their gaming operations. We believe we are in an excellent position to win substantial new work in this area, especially since we have worked with three of these tribes in the past.

There are also some opportunities for Native American gaming projects in Florida for our James A. Cummings unit. Rudolph and Sletten recently signed a letter of intent with a Dry Creek Rancheria band of Pomo Indians for a 600,000 square foot resort hotel and casino in Sonoma County, California. We have been performing pre-construction activities and plan to get started on-site shortly. This project currently budgeted at $350 million will not be added to our backlog until our customer finalizes its financing for the development. In Florida, James A. Cummings has approximately 200 million of new pending awards of education and healthcare projects that should be entered into our backlog in late 2008 or early ‘09.

Our civil segment recognized operating income of $2.9 million in the first quarter of ‘08. This was primarily due to increased profitability on a road project in Florida. We are actively bidding on a number of attractive civil projects in the Northeast and the Baltimore and Washington, D.C. areas. Our management services segment delivered another quarter of excellent performance due to our work with the US Army Corps of Engineers and the US State Department on overhead coverage systems and upgrading fuel and water storage infrastructure at bases and embassy compounds in Iraq. We are currently in talks with our end-users regarding additional work. In January 2008, we were among 10 contractors; each awarded a sustainment restoration and modernization acquisition task order contract, known as SATOC from the US Air Force. We have not yet received any task orders under this IDIQ contract which is currently funded at $4 billion. We are also pursuing additional task orders on work with our Herc [ph] project in the United Kingdom and under the CENTCOM program in Iraq and Afghanistan.

With that, I'll turn the call over to Ken Burk who will give you the financial details for the quarter.

Ken Burk

Thank you, Bob. I will now review the first-quarter results in some detail. As Bob mentioned earlier, our backlog at March 31, 2008 totaled 7.2 billion, down 5% from 7.6 billion at December 31, 2007. Backlog by segment is building, 6.7 billion; civil, 412 million; and management services, 108 million. In the first quarter of ‘08, revenues were $1.26 billion, an increase of 27% from $987 million reported in the first quarter of 2007. On a reportable segment basis, revenues from our building segment were 1.2 billion, an increase of 31% from 887 million in the first quarter of 2007. This increase was primarily due to the conversion of our substantial building backlog and to revenues primarily from our hospitality and gaming projects. Revenues from our civil segment were $60 million, up 5% from $57 million reported in the first quarter of ‘07. Management services revenues were $33 million, down 23% from $43 million a year ago. This decline was primarily due to a decreased volume of work in Iraq.

Our total gross profit increased 15% to $66.6 million from $57.9 million in the first quarter of ‘07. This increase is primarily due to the revenue growth and associated profitability in the building segment. General and administrative expenses were $27.6 million, up 10% from $25.2 million in the first quarter of 2007. This was primarily the result of increases in building construction and administrative expenses. Total general and administrative expenses were 2.2% of revenues compared with 2.5% in the first quarter of 2007. This reflects an improvement in overhead efficiency with a 27% increase in revenues for the same period. Income from construction operations was $39 million in the first quarter of ‘08, an increase of 19% from $32.7 million in the first quarter of ‘07. Breaking down income from construction operations by segment, the building segment income from construction operations for the quarter was $34.8 million, an increase of 46% from $23.9 million in the first quarter of ‘07. This increase was primarily due to higher revenues as we discussed earlier.

Operating margin for the building segment was 3% in the first quarter of ’08, up from 2.7% in the first quarter of 2007. Civil segment income from construction operations was $2.9 million in the first quarter of 2008 compared to the income from construction operations of $800,000 in the first quarter of 2007. The first quarter of 2007 included downward profit adjustments on road projects in Maryland and Florida. Management services income from construction operations was $6.3 million in the first quarter of 2008 compared to $13.7 million in the first quarter of 2007. Management services operating margin was 19% for the quarter versus 31.6% a year ago. This decrease in margin reflects extraordinary operating results that we recorded in the first quarter last year due to favorable performance on certain projects in Iraq. Other income was $1.5 million in the first quarter of ‘08 compared to $2.4 million in the first quarter of 2007. The $1.8 million increase in interest income due to significant positive cash flow from operations in the first quarter of ‘08 was more than offset by recognition of a $2.7 million loss due to adjustment of certain of our investments in auction rate securities to fair value at March 31, 2008. This adjustment is in accordance with the newly adopted FAS 157 effective 1/1/2008.

Interest expense was $400,000 compared to $700,000 in the first quarter of 2007. This decline was the result of decreased borrowings on our term loan which was paid in full in conjunction with the closing of our new credit agreement in February 2007. The provision for income taxes was $15 million compared to $11.8 million in the first quarter of ‘07 and net income was $25.2 million in the first quarter of ‘08 compared to $22.7 million in the same quarter a year ago. Diluted earnings per share were $0.91 in the first quarter of 2008 versus $0.84 for the same period of 2007.

Now, looking at our balance sheet. At March 31, 2008, our working capital stood at $297 million, up from $293.5 million at December 31, 2007. This represents the current ratio of 1.23 to 1. As of March 31, 2008, we had $349.7 million in cash and cash equivalents compared to the December 31, ‘07 cash balance of $459.2 million. The decrease in our cash balance as a result of investments we made in auction rate securities in the amount of $125.8 million not converted as planned to cash before March 31, 2008. For the quarter, we generated $25 million in operating cash flows due to the substantial increase in our building segment revenues combined with favorable performance by the management services segment. In the first three months of 2008, cash used by investing activities was $132.7 million, primarily for the purchase of auction rate securities and purchase of construction equipment to be used in support of our construction operations. Cash used by financing activities was $1.8 million, primarily to pay down equipment financing debt. At March 31, 2008, long-term debt stood at $13.6 million, excluding current portion, and we had $113.7 million under our credit facility. In addition, today we entered into a revised credit agreement for an additional $117.3 million temporary standby line of credit for incremental liquidity support should we need it while we continue to sell our investments down in auction rate securities. The standby line of credit will reduce dollar for dollar as we liquidate our positions in auction rate securities. This line is not expected to be an incremental expense to the company.

Stockholders' equity increased 8% to $396.4 million from $368.3 million in December 31, 2007. We believe that our strong financial position and credit arrangements provide us with resources to meet our liquidity and working capital requirements and implement our plans in the future. As we have said, we expect to complete the merger with Tutor-Saliba in the third quarter of 2008. We have submitted the required Hart-Scott-Rodino filings in mid-April. We are currently working on the proxy statement for our annual meeting at which we will seek the necessary approval of our shareholders. We expect to file the proxy statement within the next two weeks. The timing of the shareholders' meeting will depend upon how long it takes to complete the SEC process, which is always difficult to predict. But once the proxy statement is cleared, we will schedule the meeting and we will expect to close the merger promptly following the meeting. The transaction is expected to be accretive to earnings per share beginning in the first full fiscal year of combined operations.

The company is maintaining its existing guidance for 2008, revenues in the range of $5.5 billion to $5.9 billion and diluted earnings per share in the range of $3.50 to $3.75. Beyond fiscal 2008, the company is targeting fiscal 2009 revenue and diluted earnings per share in the range of $7.3 billion to $7.8 billion and $4.00 to $4.20 respectively and targeting beyond that, diluted earnings per share growth in 2010 of 10% to 20%.

I'd like now to turn the call back over to Ron for his closing comments.

Ronald Tutor

Thanks Ken. The first quarter marked the 10th consecutive quarter of record revenues for Perini. Our building segment continues to live up to its reputation for on-time delivery of large complex projects in the hospitality and gaming markets of Nevada, California, Connecticut, and Maryland. Rudolph and Sletten excelled in its execution of healthcare and industrial building construction as well as its Native American gaming projects. James A. Cummings continues to deliver profitable results in the maintenance of its relationships with customers in Florida and its continuing growth. Our management services segment also performed well during the quarter due to its work in Iraq on overhead coverage systems and the design and construction of water and fuel storage projects. Our civil works operation continues to work on growing its backlog and believes we are setting a process in place where we will generate significant earnings growth in 2009.

Our backlog remains strong with approximately 90% of our contracts in a cost-plus-fee and guaranteed maximum price mode. This provides excellent visibility as to revenues, profits, and cash flow due to our consistent and steady execution of these significantly large-scale projects. We have attractive opportunities that continue for new projects in each of our four geographic regions and have a positive outlook for sustained growth. Finally, I want to reiterate the level of enthusiasm and confidence we have in the proposed combination of Perini Corporation and Tutor-Saliba Corporation. We expect and believe the transaction to significantly enhance value for Perini shareholders by completely aligning the common business interests of both companies into a single enterprise focusing the combined management resources of each to drive future growth and earnings.

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

Question-and-Answer Session

Operator

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

John Rogers – D.A. Davidson

Hi, good afternoon.

Ronald Tutor

Hi John.

John Rogers – D.A. Davidson

A couple of things. First of all on the MGM project, congratulations on that. But, the $1 billion to $1.2 billion for your portion of that, how big is the entire project? At least is this the entire project or the first phase of it? Because numbers that were out there previously I think (inaudible).

Ronald Tutor

The whole project – this is Ron Tutor speaking. The whole project, John, in Atlantic City is between $2.7 billion and $3 billion. We have been assured at a minimum the hotel tower, the garages, and certain other towers that will be the equivalent of $1.2 billion or thereabouts. The balance – Tishman Construction is the construction manager. The podium and other components of the $3 billion are still up in the air. That’s just our committed piece as we speak.

John Rogers – D.A. Davidson

So there is a chance that it could grow over time at least what MGM has talked about it in the past?

Ronald Tutor

That's correct.

John Rogers – D.A. Davidson

Secondly, in terms of the auction rate securities, I mean any sense on how quickly you might be able to unwind that position?

Ken Burk

This is Ken. We did classify part of them that are student loan back that are privately insured to non-current. That's about 21 million. We left the rest in current. We've got about 80 million in student loan that are government backed and the balance in municipals which we've been very successful liquidating since this all started in mid-February. We've actually liquidated I think about 70 million since that time. And we feel that with the latest news that we're able to gather in the marketplace that it's possible and reasonable to expect those to be liquidated in the short-term, that being in less than 12 months.

John Rogers – D.A. Davidson

And I guess just finally, and then I'll jump back in the queue, relative – since you made the announcement of the combination with Tutor-Saliba in early April – I think you had talked at that time about Tutor-Saliba's backlog being – I don't have my notes in front of me; I am sorry – but $1.5 billion in terms of backlog.

Ken Burk

It was 1.6 billion in backlog at that time.

John Rogers – D.A. Davidson

Okay. That's why I was curious. It was at that time.

Ken Burk

At 12/31 at the end of fiscal 2007, it was 1.6 billion.

John Rogers – D.A. Davidson

I know the proxy is coming out but any comment on how that business is going?

Ken Burk

We're going to wait until we file the proxy, John, as you know it's a couple of weeks away. What we are sharing is that the first-quarter results are coming in and we believe them to be on track. And we'll be looking forward to completing the proxy work and getting that out which will have all of this disclosure. And then we will be prepared to move forward with responding to questions and that sort of thing.

John Rogers – D.A. Davidson

Congratulations on the quarter.

Operator

Your next question comes from the line of Richard Paget with Morgan Joseph.

Richard Paget – Morgan Joseph

Just for clarification then that 3.6 billion in pending awards, that does not include Tutor-Saliba?

Ronald Tutor

That does not include Tutor-Saliba.

Ken Burk

No, those are Perini pending awards.

Richard Paget – Morgan Joseph

Okay. Then with CityCenter Las Vegas, could you maybe just remind us what the initial I guess contract level was and what the kind of – the project kind of expanded to over time just to get a sense of–?

Ronald Tutor

This is Ron Tutor. We originally started when we were awarded all of it at approximately 4.3 billion. It has continued to grow in probably simply put increments of 300 million to 500 million. As we speak, we are currently at approximately $6 billion projecting a phase completion toward the end of 2009.

Richard Paget – Morgan Joseph

Okay. And then on that project, have we kind of hit peak revenue run-through? I mean, is it everything – it seems like you're still pouring a lot of concrete. Is that eventually going to slow down or has it topped at where it is now?

Ronald Tutor

We will probably top off most of the tower work by the end of summer. And our real peak months in revenue which of course will generate profit will be from – we're beginning to rise to a peak, because as you know, major revenue comes in the finished stages of the towers. So, we will begin to peak by this summer all the way through the following summer revenue.

Richard Paget – Morgan Joseph

Okay. And then getting back to the auction rate securities, so since you have some more to unwind, can we expect similar write-downs over the next couple of quarters?

Ken Burk

No, I don't think that's – that's not our assessment. We've taken evaluation and reviewed it. It made what we believe the appropriate adjustment as of March 31.

Richard Paget – Morgan Joseph

Okay. So that 2.7 is taking into account everything as it stands now?

Ronald Tutor

That's correct.

Operator

Your next question comes from the line of Steven Fisher with UBS.

Steven Fisher – UBS

Hi, good afternoon and congratulations on the Atlantic City. I am just wondering it sounded like there could be another $3 billion of opportunity there. What's the timing do you think that you could take that into either be awarded or into backlog?

Ronald Tutor

In Atlantic City?

Steven Fisher – UBS

Yes.

Ronald Tutor

Steve, this is Ron Tutor. I'd guess we won't know the full amount of our award until probably the first quarter of 2009. Their target groundbreaking is the first quarter of 2009 and they will obviously have to make that decision prior to – so it will be either the fourth quarter or first quarter.

Steven Fisher – UBS

Okay, great. That’s helpful. And then in terms of the management services business, the margins did trend down in the quarter. It sounded like last quarter, we were talking about somewhere in the low-to-mid teens. Do you still think we will trend down to that area or is the kind of 19% in the quarter more sustainable?

Ken Burk

I think that the mid-teens is probably the right look for 2008. And we're expecting additional work to come in so some of that will be impacted by new work as well.

Steven Fisher – UBS

Okay. And then I guess, your commentary on the general non-residential construction market is down at – very similar to last quarter where it's still a very positive outlook for you guys. Are you seeing any signs of deterioration in the broader market and it's just not affecting the types of projects that you are looking at?

Ronald Tutor

This is Ron Tutor, Steve. It just seems irregardless of what we read about the economy and how it affects the other markets, there isn't a time that goes by that we're not looking at opportunities with major owners who are not as dramatically impacted by the tightening of credit as we've seen for example at the Cosmopolitan in some of our secondary developers. Our major hotels continue to build and we continue to hold sessions and planning with our major hotels. And as you are aware, last week, the Wynn announced their next major expansion. It just doesn't appear that any of this is affecting us as a company in the markets we work. Hard to fathom as it is, that's where we are.

Steven Fisher – UBS

Okay. And then I guess just lastly, I noticed the Tropicana filed for bankruptcy. Does that affect your project with them at all?

Ronald Tutor

My assumption is, and I haven't had a chance to talk to them since they did that it was a defensive mode by their crumbling position. The only comment I could make would be that is the best location in Las Vegas. And someone will build a major hotel on that corner. We're certainly in hopes that it's the Tropicana because we believe we are their builder. However, it is entirely too valuable a corner not to build. So I guess time will play out.

Steven Fisher – UBS

Got it. Thanks a lot.

Ronald Tutor

Sure, Steve.

Operator

(Operator instructions) Your next question comes from the line of Avi Fisher, BMO Capital Markets.

Avi Fisher – BMO Capital Markets

Hi, thanks for taking my questions, and congratulations on a good quarter. You had really good solid cost management in the quarter in spite of the $2.7 million write-down. Where does that hit the income statement?

Ken Burk

Other income? Well, are you talking about just from an operating standpoint?

Robert Band

He's talking about the write-down on the auction rate.

Avi Fisher – BMO Capital Markets

On the auction rate securities, yes.

Ken Burk

I don't understand the question, Avi.

Robert Band

Well, you say where is it classified in the income statement, Avi?

Avi Fisher – BMO Capital Markets

Correct exactly.

Ken Burk

Okay, I'm sorry. It's in other income.

Robert Band

Other income expense, right.

Avi Fisher – BMO Capital Markets

Got you. It's just solid cost control this quarter obviously. Where should we expect that going forward? I mean you had a 2.2% for SG&A was sort of reversing the slight trend where it was above that. Is this sort of the run rate or does it – should it lump between 2 and 2.5?

Ken Burk

I think that we're seeing obviously the continued revenue growth and I think we're realizing the benefits of scalability of our business. And I think that's what we continue to see is that we are able to manage the higher level of volume that's going through with the G&A and the administration that we have in place. So, it becomes pretty scalable.

Avi Fisher – BMO Capital Markets

Got you, okay. Did you receive any – I just have like three quick questions. You said you finished the Trump Tower three months early. Were there any bonuses associated with that?

Ronald Tutor

No, that was a straight fee job.

Avi Fisher – BMO Capital Markets

Got you. And then, also MGM on their conference call was talking about GMPs on the CityCenter in Las Vegas completing all the GMPs in the third quarter. I'm not really sure what that meant. And I was wondering if you could provide some color (inaudible).

Ronald Tutor

This is Ron Tutor. The goal of Perini Corporation and MGM is hopefully by the end of the third quarter to reach agreement on the guaranteed pricing consistent with all of the facets of CityCenter. Obviously at that point, the project is well on its way toward completion and I believe all the parties to the contract will be able to reach an agreement on what the final cost will be.

Avi Fisher – BMO Capital Markets

Got you. So does it sort of trigger into a fixed price at that point sort of?

Ronald Tutor

Well, no, it's not a fixed price. It's still a guaranteed maximum such that they get the benefit of any cost savings. But what it does is it tells them I suppose subject to any more changes made that is just what it sounds like, the guaranteed maximum price.

Avi Fisher – BMO Capital Markets

Got you. Also, it sounds like – thanks for the color on that. It sounds like in civil, it was sort of a light bookings quarter. And you alluded to sort of putting processes in place where you could bid on projects. Can you give some color on what the processes are and were those sort of the bookings this quarter in civil your choice or are you waiting to sort of get things in place to actively bid?

Ronald Tutor

We're taking steps right now at Tutor-Saliba to be more actively involved with Perini Civil work. Initially, as we speak as joint venture partners because obviously with the merger not concluded to commit people and resources would be inappropriate. But with our audit company's approval, we have taken a much more significant role in Perini's civil operation in terms of doing it together and beginning to move people and look at projects. We see a significant ramp-up in major civil work occurring on the East Coast that dovetails with the type of work Tutor-Saliba has historically done out West, meaning cut-and-cover subway stations in New York, large highway jobs in Virginia and Maryland, where Perini is well situated and where we can couple our expertise with theirs and I believe can add significantly to our civil backlog by the end of the year, the benefit of which will begin to come to the company in ‘09 and ‘10.

Avi Fisher – BMO Capital Markets

And are there any fees associated with this or is it kind of like brotherly love in advance of the merger?

Ronald Tutor

There's never fees. What you do is subject to of course the merger. Like we used to, we pose a joint venture role with a sharing of people and expertise. Assuming the merger goes through, it all melds into one. If it doesn't, we're the joint venture partners sharing the risk and sharing the management.

Robert Band

Avi, these related party transactions are always reviewed by the Audit Committee prior to when they occur.

Avi Fisher – BMO Capital Markets

Okay, thanks. Just one final question, I've kind of always looked at your business and said you are in a specific niche where you can likely book roughly 2 billion more or less in most environments. I wonder if you could agree or disagree with that. I mean, does that sort of sound sort of like what you're looking at?

Ronald Tutor

Who are you referring that to, Avi?

Avi Fisher – BMO Capital Markets

Just to Perini. The core Perini business across all three segments.

Robert Band

You mean $2 billion a quarter? Is that what you're saying?

Avi Fisher – BMO Capital Markets

No, $2 billion – from your mouth to God's ears – $2 billion per year.

Robert Band

No, I don't think that's necessarily a cap. Remember in 2005 we booked a total of 6.1 billion.

Avi Fisher – BMO Capital Markets

I wasn't saying that as a cap. I just mean in any environment, you can book roughly at least –

Ronald Tutor

You mean as an absolute minimum regardless?

Avi Fisher – BMO Capital Markets

Yes, around.

Ronald Tutor

I'd raise it beyond that. I'd say in a virtual economic collapse of the U.S., we could do that much or more.

Robert Band

Yes, I think you're looking really more in the $4 billion range than $2 billion.

Avi Fisher – BMO Capital Markets

So you can book – 2 is highly conservative in most economic environments. You think you could do $4 billion per year.

Ronald Tutor

I've been through every economic collapse imaginable in the last 40 years and the truth of it is, we've always been able to maintain the revenue and backlog to take care of all our bills and still eke out a profit under the worst of times. And I think Perini – with our across the country position and the fact that no matter what happens in the private sector, due to credit squeezes, bank pullbacks, there's always a public sector marketplace in highway and bridgework that have to go and never stops in every state DOT and every federal project. So, there's always fallbacks no matter what.

Avi Fisher – BMO Capital Markets

All right. Thanks for taking my questions.

Ronald Tutor

Sure.

Operator

(Operator instructions) Your next question comes from the line of Shaun Kelley with Banc of America. Please proceed.

Shaun Kelley – Banc of America Securities

Hi, guys. Thanks. In the beginning of your remarks, you mentioned some delays in new project starts. Was there something specific there or could you just give us a little bit more color on what you're seeing on that front?

Ronald Tutor

Well, you're talking about consistent with the backlog reported?

Shaun Kelley – Banc of America Securities

Yes, it was just – I think at the very beginning, you mentioned something about maybe seeing some delays on some new projects.

Ken Burk

Yes, like Dry Creek in the project that Bob mentioned. We're still waiting for them to get their financing lined up. We've been doing pre-construction activities and also talked with them about doing some of their site work, access roads, things like that. So, that we would consider a delay and there may be some other.

Ronald Tutor

Well, some of the other ones were we talked about the letter of intent on the $500 million condo project. Once again, we get a commitment. We talk about pre-construction, the permit that generally says we'll do pre-construction with an understanding subject to budgeting and financing we'll do the work. And what's happened now is there's more pressure on arranging financing and that's what's primarily causing the delays.

The Elad project in Las Vegas at the old Frontier site is a classic case of a targeted project. Because of the difficulties of finance in spite of having paid cash for the land, Elad Properties has deferred a decision on when they're going to start the hotel until in their mind these finance markets begin to open up.

Shaun Kelley – Banc of America Securities

That’s helpful, thanks. And then, on Cosmopolitan, you mentioned in your remarks there, do they have a new developer operator for that project yet or is that something – where exactly is that?

Ronald Tutor

I can only tell you they are, and I've been – this is Ron Tutor again – I've attended two meetings with the principles of Deutsche Bank. They are negotiating with a major national developer. As you might expect, it's a difficult negotiation. Our role is to continue to be paid by them and keep the project going on schedule and in hopes that they conclude those negotiations and we finally have an owner back onboard.

Shaun Kelley – Banc of America Securities

And then, last thing, could you just give us your thoughts just generally on labor and the hard construction costs? What is the environment like out there right now, particularly in Vegas but I guess generally as well?

Ronald Tutor

Labor – believe it or not – with all the work in Las Vegas has not been nearly the issue that everybody wrung their hands over. We continue to be able to man the projects. We have over 4000 people on the Wynn project in excess of 15,000 people on MGM's CityCenter. We've not had a problem manning any of the crafts or any of the disciplines in Las Vegas. What we continue to see and see particularly recently is material and cost escalations in products, nothing extraordinary as to be damaging but more than the norm. And, that's really about the only impacts we've seen and some of the reasons these budgets before they go to guaranteed pricing have crept. It's as much material increases as anything else.

Operator

Your next question comes for the line of Robert Ramilan [ph] of Axle Capital.

Robert Ramilan – Axle Capital

A couple of questions. First off, the booked orders in the quarter, how much of that amount was expansion of existing projects?

Ken Burk

I'd say most of that was – at least half was expansion of existing projects.

Robert Ramilan – Axle Capital

Does that include an expansion on the seasoned [ph] projects?

Ronald Tutor

Yes.

Robert Ramilan – Axle Capital

And going forward, you mentioned that the rest of CityCenter is going to GMP by the third quarter. Given what you have provided to MGM, do you expect there to be more budget increases there?

Ronald Tutor

First of all, if I had to answer it, it wouldn't surprise me. The way these projects you arrive at a final guaranteed price literally at the moment in which reference to a set of drawings and specific timelines. These projects have a life of their own. And from that day forward, you continue to negotiate increases based on scope changes, operational changes. So, does it mean it's the final price? Probably not. However, at least you set a price on that timeline and every change or increase in scope adds to it from that time forward. Did that clarify it or did I confuse you more?

Robert Ramilan – Axle Capital

I think you confused me more. So, you provided them a budget for finishing the project on schedule.

Ronald Tutor

That's right.

Robert Ramilan – Axle Capital

Does that anticipate putting more order into backlog for you or no?

Ronald Tutor

No, it only occurs [ph] at that time. Right now, the project is at $6 billion. By September, we'll have a better handle and remember we're still awarding contracts. They are still issuing revised drawings. The project continues to change on a regular basis. What both we and MGM are in hopes is that by September, we'll be able to arrive at a mutually agreed final scope and price that will always be subject to more changes. And we typically will budget contingencies but we won't budget for continuing owner changes. If they really don't make any more changes after September, that price will hold. But our experience is the changes will continue.

Robert Band

Generally, the changes continue right through to the opening.

Robert Ramilan – Axle Capital

But between now and September, there shouldn't be any changes.

Robert Band

No, there will be changes between now and September, probably significant changes.

Ronald Tutor

To better explain it, it is an enormous project in constant review by the owner adjusting space, adjusting finishes, adjusting equipment. The process is still ongoing. The reason it's targeted for September it is everyone's belief that at that point, they will have concluded the changes. You fix a price. That doesn't preclude the owner as we move forward from making additional changes if for example he gets different tenants. If a tenant looks at a space and wants to change it to suit his, the truth of the matter is you reach a guaranteed price and changes hopefully of limited magnitude will continue until the end.

Robert Ramilan – Axle Capital

Okay, got it. And then you provided an update on the MGM Atlantic City project and the Plaza project. Where does the MGM-Kerzner project stand?

Ronald Tutor

We continue to talk to them. We believe that we have simply put an understanding. It's our hopes that we will be selected but nothing has been concluded.

Robert Ramilan – Axle Capital

Okay, great. Thank you.

Ronald Tutor

Sure.

Operator

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

John Rogers – D.A. Davidson

You guys obviously have a lot on your plate. But I know at one time a number of quarters ago, I think, Bob you talked about maybe at some point looking at other international opportunities or other government work outside of Iraq. Any updates there or anything to report?

Ronald Tutor

This is Ron Tutor. John, it's interesting that you ask that. We are looking at some significant opportunities. Bob Band and one of our senior executives, Marshall Cutting, just got back from Dubai. We think over a period of the next few weeks, we're going to be able to reach an agreement in principle with certain other partners to make Dubai one of our significant focuses in the future.

John Rogers – D.A. Davidson

That's very interesting. In terms of working with what types of markets or can you say?

Ronald Tutor

Let's say they will be markets consistent with what we build here with international construction companies of consequence with projects of a size that are remarkable. Hopefully, we'll have more information for you over the next three to four weeks.

John Rogers – D.A. Davidson

Okay. Thank you.

Operator

There are no further questions at this time. I'd now like to turn the call back to Mr. Ken Burk, the Senior Vice President and Chief Financial Officer of Perini. Please proceed.

Ken Burk

Thank you everyone for joining us on the conference call today.

Ronald Tutor

Thank you very much. Bye-bye now.

Operator

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

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