Tutor Perini Corp (TPC) 2005 Q2 法說會逐字稿

At this time I would like to welcome everyone to the second-quarter fiscal year 2005 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. (OPERATOR INSTRUCTIONS). Mr. Collinson (ph), you may begin your conference.

Good afternoon, everyone. Thanks for joining us on Perini's second-quarter fiscal 2005 conference call. With us today are Perini's President, Robert Band, and the Company's Chief Financial Officer, Mike Ciskey, and we're hoping that sometime during the call we'll add Dick Rizzo who is the Chairman of Perini Building Company, the largest business unit of the Company.

Our agenda for today follows the usual format. Bob Band is going to discuss the highlights of the second quarter, new contract wins and other successes and issues and after that Mike Ciskey will review the Company's Q2 financial results in detail. Then Bob is going to come back and make some closing remarks and at that point we'll open the call up for questions.

Before I start I'd just like to remind our listeners that our comments today will contain forward-looking statements and that management may 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. Listeners and investors are cautioned that such forward-looking statements do involve risks and uncertainties that could cause actual results to differ materially from anticipated results.

The Company further cautions that any such forward-looking statements are based on assumptions that the Company believes are reasonable, but that are subject to a wide range of risks and actual results may differ materially. These types of statements and the underlying risk factors related to the statements are listed in filed information with the SEC including Perini's annual report on Form 10-K for the fiscal year ended December 31, 2004 as well as in today's news release.

Our statements on this call today are made as of today, August 4, 2005, 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 Bob Band.

Thanks, Mark. Good afternoon, everyone. Our second-quarter and six-month revenues were 378 million and 750 million, respectively. Our second-quarter and six-month net income was 6.5 million and 12 million, respectively. Mike Ciskey will review these financial results and compare to prior years and provide some interesting analysis of our results shortly. It's important to note that we are profitable across all business units. In the short time available I would like to address our future growth and expectations.

In our first-quarter conference call we gave you our view that the level of pre-construction activity in the building segment was very robust and that we had been selected for substantial contracts at a rate that reflected the strong growth trend of the building market in the U.S. in general and in particular the hospitality and gaming market that we principally work in.

While we have continued to experience further pickup since our last call, during the second quarter of 2005 we continued to convert pending awards and new work opportunities into contracts. As a result, in the second quarter of 2005 backlog reached 1.82 billion, an increase of 58% from the level at December 31, 2004 and an increase of 70 million from the 1.75 billion at the end of last quarter.

New contract awards and adjustments to contracts in process added to the backlog totaled 429 million in the second quarter and included 275 million of hotel and casino work in Las Vegas -- also in California and the D.C. area as well, and 85 million in school and residential construction work in Florida. New contracts signed in the quarter also include over 57 million of new projects for Cherry Hill Construction acquired in January 2005. Meanwhile, we have experienced continued negotiation and contracting activity at what I think it would be fair to say are unprecedented levels since the end of last quarter; so much so that we feel it's important to share with you our latest view on the overall likely effect on Perini's backlog from this activity.

For that reason we have said in today's press release that we anticipate that pending contracts and pre-construction assignments that we have in hand now will generate between 5 and 6 billion of new contracts that will move into backlog in the last half of 2005 and continuing through early 2006. Prominent amongst this activity was the award of an approximate $3 billion contract from MGM Mirage for Project CityCenter, a multibillion urban complex covering 66 acres located between the Bellagio and Monte Carlo casino resorts in Las Vegas, Nevada. The construction contract includes a 4,000 room hotel tower, casino, convention Center, showroom, approximately 500,000 square feet of retail and restaurants, three branded boutique hotels and numerous residential towers.

You may have also seen in their news release that we are selected as a general contractor for the new Trump International Hotel & Tower in Las Vegas. This is a 2 million square foot tower that is expected to feature almost 1,300 luxury condominium hotel units. However, there are a number of other projects that are very close to announcement as well. That is why we want to share our view with you. As you perhaps know, we do not include a project in backlog until a firm letter of intent or contract is agreed to and the requisite financing is in place. The projects in that 5 to 6 billion number are very close to that point and we expect to be making continued announcements in the balance of this year into early '06.

In management services we are still working at full speed on our task order contract for the projects contracting office of the U.S. Department of State and Iraq and on our Afghan national army bases in Afghanistan. We are still actively bidding and proposing on task orders under the $1.5 billion five-year indefinite delivery indefinite quantity contract that we received from the U.S. Army Corps of Engineers in January of 2004. We call that that CENTCOM II. And we believe good opportunities still exist for us to obtain new work under this contract in Iraq and Afghanistan.

Our remaining backlog in those two countries is approximately 98 million at June 30, 2005 while overall management services backlog is approximately 190 million at this time. Additional military work opportunities continue at a high level in the U.S. and overseas. Also recently the increased price of oil is driving exploration to new fields -- new levels internationally opening up opportunities in the oil services sector of PMSI.

Our civil business with the addition of Cherry Hill is shaping up well. The larger organization with its greater geographic coverage and increased areas of expertise and resources is giving us additional options in bidding opportunities as we realize the synergies between Perini's traditional civil operations and Cherry Hill. We are moving towards our goal of a civil business unit with sustainable long-term profitability.

In all, the second quarter was a slower revenue quarter than we had originally hoped for this year, but understandable in view of the slower timing of pending new contracts moving into backlog in 2005 than we had expected. As a result of our performance in the first half and our view of near-term prospects we are narrowing our guidance range for 2005 to 1.5 to 1.6 billion in revenues from a range of 1.5 to 1.8 billion and for diluted EPS to a range of $0.95 to $1.10 from a range of $0.95 to $1.15. Of course this reflects slightly decreased revenues for 2005.

With regard to our longer-term prospects, the most satisfying thing to report is the expected near-term significant increase in our backlog in the hospitality and gaming market in Las Vegas and other select areas. These factors more than anything are evidence of our long held view of Perini's business as somewhat lumpy in the short term, but highly sustainable with strong growth trends in the long-term. And that trend is something we can control by delivering consistent outstanding on time and on budget performance on complex large-scale projects worldwide, delivering the highest quality and safest construction services possible to our clients.

Acquisition opportunities continue to be evaluated with an eye toward expanding into profitable new markets and attaining high-quality resources to supplement our management team in delivering the record level of gaming and hospitality projects when they convert to backlog. Good progress is being made in this area and an announcement may be forthcoming in the third quarter of 2005. Now let me turn the discussion over to Mike Ciskey who will give you the financial details for the quarter. Mike?

Thanks, Bob. Turning to the second-quarter financial results. Second-quarter revenues were 378 million, a decline of 24% from the 496 million reported in the second quarter of 2004. On a reportable segment basis revenues from our building segment were 231 million, a decrease of 37% from the 370 million in the second quarter of 2004. This decrease was primarily due to slower than anticipated startup of work in the hospitality and gaming market.

Management services revenues were 84 million, down 7% from 89 million a year ago. This decrease was due to volume of work related to the rebuilding in Iraq. Revenues from our civil segment were 63 million, an increase of 75% from the 36 million reported in the second quarter of 2004. This increase is due to the addition of Cherry Hill Construction to our consolidated results effective January 1, 2005.

Our total gross profit increased by 900,000 or 4% to 24.6 million from 23.7 million in the second quarter of 2004. And overall gross margin percentage for the quarter increased to 6.5% as compared to 4.8% a year ago. Gross margin percentage in the building and civil segments improved during the second quarter of 2005 compared to the second quarter of 2004 while the management services segment's gross profit margin in the second quarter was comparable to that of 2004.

General and administrative expenses were 12.9 million or 3.4% of revenues in the quarter compared to 9 million or 1.8% of revenues in the second quarter of 2004. This increase was primarily due to the additional expenses for Cherry Hill Construction and increased compensation expense related to the amortization of certain restrictive stock grants awarded in the second half of 2004.

Income from construction operations before corporate G&A was 14.8 million in the quarter, a decrease of 12% from the 16.8 million reported in the second quarter of 2004. Income from construction operations was favorably impacted -- was unfavorably impacted by the slower than anticipated new work awards, partially offset by an improved operating margin of 3.9% in the quarter, up from 3.4% a year ago.

Breaking down income from construction operations by segment, the building segment income from construction operations for the quarter was 6.2 million compared to 9.2 million in the second quarter of 2004 as a result of the decline in revenues. However, operating margin improved to 2.7% versus 2.5% a year ago due primarily to an increase in profit recognition upon the completion and closeout of several hospitality and gaming market projects.

Management services income from construction operations was 5.6 million compared to 6.6 million, again due to a previously mentioned decrease in revenues associated with the rebuilding of Iraq. Management services operating margin declined to 6.7 million versus 7.4% a year ago primarily due to the timing of favorable profit adjustments in the second quarter of 2004.

Civil segment income from construction operations increased to 3 million in the second quarter of 2005 from 1 million a year ago due primarily to the addition of Cherry Hill in 2005. Operating margin in the civil segment improved to 4.7% in the second quarter of 2005 versus 2.8% last year. The improvement in gross margin percentage in the second quarter is due to the addition of Cherry Hill.

Other expenses fell by 900,000 to 500,000 in second quarter 2005 from 1.24 million in the same quarter last year. This reduction reflected a $600,000 decrease in expenses related to a secondary stock offering which was completed in the second quarter 2004 as well as a $200,000 decrease for a onetime charge in quarter two of 2004 related to the freezing of all benefit accruals under our defined pension plan.

The provision for income taxes was 4.4 million compared to 1 million in the second quarter of 2004. The 2004 provision for income taxes was lower than normal due to the utilization of net operating loss carryforwards which were totally utilized for book purposes in 2004. GAAP net income was 6.5 million in the second quarter compared to 12.2 million in the same quarter a year ago. Diluted earnings per share were $0.24 for the quarter as compared to $0.48 for the same period of 2004.

On a pro forma basis, adjusting our actual results for the second quarter of 2004 to reflect a more normal tax provision at a 39%, net income for that quarter would have been 8 million and diluted earnings per share would have been $0.31 compared to the 6.5 million net income and $0.24 reported diluted earnings per share for the second quarter of 2005.

While we believe in some instances pro forma results are useful to investors in comparing our performance over these periods, they are not meant to substitute for GAAP earnings. A reconciliation of reported earnings in accordance with GAAP to pro forma earnings is contained in the press release published this afternoon.

For the six months ended June 30th, revenues were 750 million, a decline of 23% from the 976 million reported in the first quarter -- first half of 2004. On a reportable segment basis, revenues from our building segment were 473 million, a decrease of 29% from 661 million in the first half of 2004. Again, this decrease was primarily due to the completion of several hospitality and gaming market projects -- in addition to the timing of startup work in the hospitality and gaming market being lower than anticipated.

Management services revenues were 163 million, down 35% from 251 million a year ago. This decrease, as mentioned earlier, is a result of the volume of work related to rebuilding in Iraq. Revenues from our civil segment were 114 million, an increase of 79% from 64 million reported in the first half of 2004. This increase is again due to the addition of Cherry Hill to our consolidated results effective January 1, 2005.

Despite lower revenues, our total gross profit was unchanged at 47.3 million. Gross margin percentage for the first six months of 2005 increased to 6.3% as compared to 4.8% in the first half of 2004. All of our three business segments experienced improved gross margins in 2005 compared to 2004.

General and administrative expenses were 26.3 million or 3.5% of revenues in the first half of 2005 compared to 18.8 million or 1.9% of revenues in the first half of 2004 primarily due to the addition of Cherry Hill Construction and increased compensation expenses relating to the amortization of certain restricted stock award grants during the second half of 2004.

Income from construction operations before G&A was 27.6 million in the first six months of 2005, a decrease of 16% from the 33 million reported in the first half of 2005. Operating margin again improved to 3.7% in the quarter from 3.4% a year ago. Building segment income from construction operations for the first half was 10.9 million compared to 14.7 million in the second quarter of 2004 as a result of the decline in revenues. However, operating margin improved to 2.3% versus 2.2% a year ago due primarily to an increase in profit recognition upon the completion and closeout of several hospitality and gaming market projects.

Management services income from construction operations was 12.1 million compared to 17.1 million, again due to the fall in revenues, while operating margin increased to 7.4% versus 6.8% in the same period in 2004 once again reflecting favorable profit increases on several overseas projects as they near completion. Civil segment income from construction operations increased to 4.6 million in the first half of 2005 from 1.2 million a year ago due primarily to the addition of Cherry Hill in 2005. Operating margin in the civil segment was 4% in the first six months of 2005 versus 1.9% in the same period last year. The improvement in gross margin experienced in the civil segment in the first half primarily reflects the addition of Cherry Hill.

Other expenses fell by 2.6 million to 700,000 in the first half of 2005 from 3.3 million in the same period last year. This reduction reflected a 1.3 million decrease in expenses related to a secondary stock offering which was completed in the second quarter of 2004 as well as a 1.1 million decrease in the amortization of an intangible asset associated with the acquisition of James A. Cummings in January 2003 and a $200,000 decrease resulting from a onetime charge in the second quarter of 2004 relating to the freezing of the benefit accruals under our defined pension plan.

The provision for income taxes was 7.7 million compared to 1.5 million in the first half of 2004. Again, the 2004 provision for income taxes was lower than normal due to the utilization of net operating loss carryforwards which were totally utilized for book purposes in 2004.

GAAP net income was 12 million in the first half of 2005 compared to 23.4 million in the same period a year ago. Diluted earnings per share were $0.44 for the first six months of 2005 as compared to $0.91 for the same period of 2004. On a pro forma basis adjusting our reported results for the first half of 2004 to reflect a more normal tax provision at a rate of 39%, net income for that period would have been 15.2 million and diluted earnings per share would have been $0.59 compared to the 12 million net income and $0.44 diluted earnings per share reported in the first half of 2004.

Looking at our balance sheet. At June 30, 2005 our working capital stood at 172.2 million compared to 178 million at December 31, 2004. This represents a current ratio of 1.47 to 1 versus 1.41 to 1 at December 31, 2004. The decrease in working capital is primarily due to the $20 million acquisition of Cherry Hill Construction in January 2005 offset by 12 million of reported net income for this year.

As of June 30, 2005 we had a 94.6 million in cash and cash equivalents compared to the December 31, 2004 balance of 136.3 million. The 41.7 million reduction in cash was due in part to the funding of working capital requirements, the purchase of Cherry Hill Construction for approximately $20 million and the retirement of debt assumed as a result of the Cherry Hill acquisition.

During the six months of this year cash used by operations was 18.3 million compared to 20.3 million of cash provided by operations last year. Long-term debt stood at 18.5 million excluding current portion compared to 8.6 million at December 31, 2004. The long-term debt is comprised of mortgage debt on properties and equipment financing used in our construction operations. We continue to have a $50 million revolving credit facility available to help us fund working capital or other requirements should the need arise.

Shareholder's equity increased to 189 million compared to 174 million at December 31, 2004. As Bob mentioned earlier, our backlog at June 30, 2005 improved to 1.82 billion from a year-end backlog of 1.15 billion. As stated in the press release, the backlog does not include the MGM Project CityCenter or the Trump International Hotel & Tower, both of which are in Las Vegas and both of which are in the contract finalization stage. Backlog by construction segment is building segment backlog of 1.18 billion, civil segment backlog of 452 million and management services backlog of 190 billion (ph). With that I'll now turn the call back over to Bob for his closing comments.

Thanks, Mike. Three months ago I said that we were enthusiastic with our prospects for 2005 fiscal year due to the number of pending awards and high level of pre-construction activity particularly in our core markets of hospitality and gaming. I'm pleased to put a number on that for you as I have earlier this quarter by saying that we expect 5 to 6 billion in new contract awards to convert to backlog in our building business by the end of 2005 and into early 2006.

In our other two businesses we have increased stability. In management services we have a base built on U.S. government business combined with commercial and military work for Epsilon and other commercial clients such as Raytheon and General Dynamics. And we also are doing general construction for Zurich (ph) surety's business in the completion contracting for defaulted contractors. In the civil business we have a return to historical profitability for Perini Civil and an exciting new source of business through Cherry Hill Construction in the mid-Atlantic and Florida region.

As the new gaming and hospitality projects convert to backlog and then on to active construction, we are confident that we have the expertise and capacity to make the most of them. Going forward we will continually look for internal growth from our businesses but, armed with a strong balance sheet, we are actively seeking opportunities to grow by acquisition as we have in the recent past. We look forward to reporting further progress across the business next quarter. That ends our prepared remarks. Mike Ciskey and hopefully Dick Rizzo and I are happy to take your questions.

Bob, I am on.

Great. Welcome aboard, Dick.

(OPERATOR INSTRUCTIONS). John Rogers, D.A. Davidson.

Good afternoon. Congratulations on the potential or the pending bookings here. I have a couple of questions first, just on the income statement, Bob or Mike I guess. The other nonoperating charge of $520,000 in the quarter, what was that?

That's the 524,000 (multiple speakers) other income. That's bank fees, it's amortization of a revolving debt fee, that type of thing.

Okay. But I know that number bounces around quite a bit quarter-to-quarter, but it sounds like it's a lot of onetime things that you seem to -- pop up every quarter. Is that fair?

It's got some expense of the 2125 settlement that's pending.

Oh, it does?

It's got some expense of a secondary offering that was in a stop and start mode for a while. It's kind of a collection of --.

There are actually about 12 different items in that number, John. Not any one of them is significant, but obviously in total it's $0.5 million.

Okay. And then the other question was in terms of your tax rate -- came up a little bit in the quarter, is the six-month rate what you expect for the rest of the year?

It is for this year, yes. Although we expect that going forward it will probably reduce back down roughly to the 38%, but for 2005 we're looking at 39.

Okay. And then I guess the other question is in terms of your guidance, if we just look at the midpoints of this, it looks as if you're expecting revenues in the second half of '05 that are comparable to the first-half in total. But presumably it must be higher margin business because your profitability is going up. Can you talk about that a little? Is it just a mix issue?

I think to some extent we have consistently pushed on margins where possible. So there's been some improvement in margins in some of the new bookings and also we have some jobs tailing out that have some upside anticipated as they closeout, which is fairly typical.

I think the other thing, John, is we've said all along that the civil operating margins for the last several years have been well below our historical norm. And although they're not there yet, they are certainly returning back to that historical norm. So again, the overall mix, as you said, is showing an improvement in our margin rate.

Okay. And with the large projects that you're looking at for the second half of the year in terms just adding in the backlog -- and I know a lot of this stuff will stretch out then over several years, but are margins there expected to be comparable to what you've seen in the past for your building business?

Obviously this work is still in the development stage, so we don't have a complete forecast yet of the impact in years going forward. But just on a logical basis, given that increased volume we would expect to see some improvement in our building margin.

Okay.

Because the G&A, although it will go up, will not go up proportionate to the revenue and operating incomes.

And how much more capacity do you have to handle this work?

I want to say one thing. We have mapped our project teams into these projects. We're very sensitive to that point and we've actually made some preliminary plans to joint venture as we get to the top you of the -- you might say the top of the cup. We continue client relationships and maybe we take a somewhat reduced piece of particular projects, but we don't miss out on them. That's one thing we've done. Clearly we have to know who the project team is going to consist of to take a project and that's the way we do work.

Okay. And then just -- final question. In terms of some of your legal issues and contract disputes, can you give us an update -- any new developments there? I think the Boston project was hoping to get a settlement at some point, maybe later this year, and some of the other ones.

That's still online, we're still hoping for a settlement there. Of course all costs have been recorded and expended, so we're just waiting for that cash to come back. In terms of the preferred, we had anticipated that on August 8th the judge would hear and approve the final settlement so that shortly thereafter in September we could begin the actual redemption of those shares. We just learned today that the judge had a medical injury or so and so that's somewhat deferred. We don't have a -- follow-up data on that yet.

Bob, on that one, with the shares that have been tendered, how much -- I know these are non-cash gains, but in terms of the dividend recovery how much of a benefit is that in the third quarter then?

John, it's really not possible to estimate that benefit because part of the transaction involves a share of common, so depending on what the market price of the common is at that time, that will determine the benefit back, if you will, from the accrued but unpaid dividend.

And it's not included in any ranges that we've talked about.

That's correct.

Okay.

I lost my train on that one.

The other legal --.

The other legal issues are pretty much as they were and we'll report on any changes in the Q that will be filed shortly.

All right, thank you.

Richard Rossi, Morgan Joseph.

The revenues -- as you said, the revenues in the building side were below your expectations due mostly to slow starts on a number of projects. These are all finance so there's not an issue of whether the client wants to do them.

Actually, Richard, on the work that we've laid out as potentially coming into backlog balance of '05, early '06, that work is essentially ready to go and in most cases financing has been lined up. In fact, I think in many -- I mean several it's already closed. And so it's really timing on getting the contracts signed, perhaps getting permits and getting ready to go. It's strictly a timing issue at this point.

Okay. But on the work that did not materialize in the second quarter that you thought and I thought would be there, is there any common thread as to what is delaying it? Is it just a bunch of oddball issues that just happen to coincide or is there some common thread to those delays?

Dick, I'd ask you. I mean, Dick, it seems to me it's mostly contract negotiations at this point.

It truly is. There is no question the programs will go forward. It's just a matter of either finalizing their financing and the timing it's taking to do that. The speed of the market right now, the backlog in building permits is at an historical high. So the lag time to get a permit out of the county is an extremely long time right now -- about a month to two months longer than it anticipated it should be and has been. So combining all that is just those kind of things that have caused us to delay the starts. But it's not a question of whether they're going to go forward, it's just when.

Is there a cost that you're absorbing for people that you had earmarked for these jobs that are being, let's just say underutilized in the interim period? As well as the absence of the revenues, are you also incurring some costs that would have normally been covered?

Dick, you've got the pre-construction all budgeted, right?

Yes, most of our pre-construction services are reimbursable by contract with our clients, so any of that "pre" stuff which would be the budgeting and the scheduling and the pre-purchasing is already being reimbursed to us by our clients under a separate contract prior to going into the contract to build it. As far as that's concerned that's covered. We always put a certain amount in our budget for our unallocated resources just for those very reasons. We can't always expect that everybody is going to be gainfully employed and we try to anticipate that in our budgeting and I believe we've done that here and we'll continue to do so. And it won't show any extraordinary impact on our financials.

But there has been some increase in G&A as a result of people that we are carrying pending assignment to these projects. So our effective G&A rate obviously for the first six months of 2005 is higher than it is when compared to 2004 when the volume was bigger.

And at least part of that is a function of this absorption?

Part of that is in our building operation where we are holding certain people until projects start.

Back to the capacity question just for a second, I mean, obviously assembling your team of senior people, project managers, Foreman possibly, etc., what about workers? I know you don't assemble them in front of the job, you go out and get them as the job gets sealed. But is there any tightening in the field that is a cause of concern?

Yes, very much so. We have a great amount of analysis that has been gone on in the last six months in looking at we're a union contractor and all the work in the Las Vegas area particularly is all union, so we have a very, very close tab on the number of union people in the local halls and have made projections on what the future looks like and our needs. And we are already discussing that with the unions and encouraging them to make arrangements with other unions throughout the country to bring resources in when needed. And we are concerned about it but we are working on it.

So travelers will fill that gap?

Travelers will hopefully fill most of the GAAP.

One other thing on Vegas. As I recall the housing market -- at least pricing on housing has come down sharply -- residential housing in Vegas, probably due to speculation. Does that have any bearing on the progress of projects that you're looking at in terms of a step back by the client base?

No, not that I'm aware of. I've not heard that -- even that justification.

I just wanted to run that by you.

No, not at all.

Richard, to the contrary, on some of the condo projects we've heard that they're largely presold.

Okay. And then one final thing. I may have missed this or maybe you didn't give it out. Did you give out the Iraq revenues for the quarter?

The revenues -- the quarter I didn't give out, for the six months I can give you a comparison.

Okay.

For the six months 2005 Iraq revenues were 62.6 million versus 176.9 million in 2004, and the Afghanistan revenues in 2005 were 51.3 million versus 22.4 million in 2004. So the combined revenues in Iraq and Afghanistan were 113.9 in 2005 six months and 199.3 in 2004 six months.

Very good, that's it for me. Thanks very much.

James Milton (ph), private investor.

The question I have relates to taxes. I'm wondering if your reserve for income tax is adequate if you consider the accumulated income excess as a factor, the penalty inherent in that especially when you're not paying out any of the dividends.

We have our tax reserve analyzed quarterly.

I'm not sure I understand your question, but dividends are paid out with after-tax dollars, so the provision for income taxes is provided on our pretax earnings.

And it also includes accumulated earnings taxes?

Certainly we've accrued those dividends -- the dividends that are in the arrears we've accrued every quarter going back to --.

But the tax itself?

The tax has been provided as the income has been earned.

That's the income tax.

They're not related items is what I'm trying to say.

But the accumulated earnings tax is separate and distinct from the income tax.

We'll have to take a look at that.

And the net operating deductions are not available for that purposes, neither are the capital loss carrybacks.

That's an interesting question, we'll review that.

Okay. The other question I'd pose is you've acquired the Cummings and Cherry Hill operations, have you analyzed whether or not these things are breaking even or making money individually and for each year?

Well, I'll tell you actually there have been very good results on that front. In the James A. Cummings acquisition, we acquired that company for 20 million, but what came with it on the balance sheet was about 12 million in excess cash which came right back to Perini for a net cost of about 8 and they've earned approximately 4 million a year. So we look at that as a two-year payback which is an excellent result.

You're talking about cash flow or you're talking about --?

We're talking cash on cash. And basically what we're saying is they had excess cash on their balance sheet at the date of acquisition which came to Perini. From a net income point of view they've earned, as I said, approximately 4 million per year. So we're very satisfied with that operation. And then cherry Hill, which is new this year, as we've said, has been profitable through the six months and expects to continue that all the way through the year.

So we're fairly well satisfied with these acquisitions from an economic standpoint. And the question, "do we analyze that?", we spend considerable time analyzing and budgeting and tracking variances and laying plans for cost savings and future growth. So I mean, this is a fairly sophisticated management team here.

I understand. That's why I question whether or not you analyzed both projects separately and if it's available in any of your documents.

No, we don't release any results by individual business unit.

We release by segment.

We release by reportable segment, and that is in our filed documents.

The segments are mixed up with all prior and subsequent segments of equal status.

Well, any time you'd like to talk to us further on that you can certainly call us in the office. We're here all the time.

I'm not here all the time. My problem is I am 84 years old and I'm in and out of the hospitals. I'm a World War II vet -- I was going to say I but I'm not that old. Okay. Thank you.

You're welcome.

John Rogers, D.A. Davidson.

Bob, could you talk for just a second if you can about acquisitions, the types of things that you're looking for? I appreciate the comments relative to Cherry Hill, obviously that's worked out very well. Are you thinking that you would like to expand your geographic range or your service offering or if you can talk about the segments you'd like to be in.

All three. Really what we're doing, John, is we're looking for companies that have continued profitability and management teams that want to stay in place and help us grow. So we're looking, one, to diversify into some additional profitable niche businesses as well as picking up companies that could provide additional resources to assist us in putting in place this large influx of new work that's anticipated near term. And that's actually going along quite well, we have a lot of activity on that front. And as I said in my prepared remarks, we would hope to be able to make a release in the near-term.

And size wise, are these going to increase your revenue base by 50% or are they more along the lines of Cherry Hill?

Well, we actually have looked at varying sizes, so I don't want to discuss too many details right now. As you can appreciate, we're under some confidentiality agreements. So we'll just leave it at that.

Okay, thank you.

(OPERATOR INSTRUCTIONS). You have no further questions at this time.

Wonderful. Well, thank you, everybody. I appreciate the time spent with us and we look forward to the next quarter and some additional conversion of new work opportunities into backlog. Thanks again.

This concludes today's second-quarter fiscal year 2005 earnings conference call. You may now disconnect.