Tutor Perini Corp (TPC) 2006 Q3 法說會逐字稿

Good afternoon. My name is Whitney and I will be your conference operator today. At this time I would like to welcome everyone to the Perini third-quarter 2006 results call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (OPERATOR INSTRUCTIONS)

Mr. Colson, you may begin your conference.

Thank you, Whitney. Good afternoon, everyone. Thanks a lot for joining us on Perini's third-quarter fiscal 2006 call. With us this afternoon are Perini's President, Mr. Robert Band; the Company's Chief Financial Officer, Mike Ciskey; and Dick Rizzo, Chairman of Perini Building, which is the Company which is the largest business unit of the company.

Our agenda for today follows our usual format. Bob is going to open up by discussing some of the highlights of the third quarter, some new contract wins, and other successes, as well as provide an outlook for the rest of the year. After that, Mike Ciskey will review the Company's third-quarter financial results in detail and then Bob is going to come back and make some closing remarks and at that point we're going to open up the call to your questions.

Before we start I would like to remind our listeners that our comments today will contain some forward-looking statements and management may make some 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 do involve risks and uncertainties that could cause the 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 risks and actual results may differ materially. These types of statements and underlying risk factors related to them are listed in filed information with the SEC, including the Company's annual report on Form 10-K for the fiscal year ended December 31, 2005, as well as in today's news release.

Our statements on this call are made as of today, November 2, 2006, and Perini 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.

Well with those formalities out of the way, it is now my pleasure to turn this call over to Bob Band.

Thanks, Crocker. Good afternoon everyone and thank you for joining us on the call today. In the third quarter of 2006, Perini achieved yet another quarter of successful performance, with record revenues of $773 million up over 100% from last year's quarter and net income of $9.6 million, up 60% from last year. Backlog remains steady at $9 billion.

Once again our building segment was the main driver behind our successful performance due to strong volume from our large projects and the contribution of Rudolph and Sletten. Our Management Services segment realized higher revenues and strong profitability during the quarter. The Civil segment's performance was adversely affected by losses on certain projects during the quarter including a roadway job in Maryland. Mike Ciskey will review our financial results in more detail later in the call.

The U.S. building market has been on an upswing for the past two years and in particular the hospitality and gaming markets are enjoying high levels of activity. The current outlook is for these conditions to continue well into the future. Activity in the gaming and hospitality markets remains strong, particularly in the Las Vegas area, where Perini has a reputation as the builder of choice.

During the third quarter of 2006, Perini continued to make good progress in converting its large project backlog into revenues. New contract awards during the quarter totaled $719 million and as a result backlog remains stable at $9 billion as of September 30, 2006.

New contract awards and adjustments to contracts in process added to the backlog in the third quarter included $256 million of new work awards at Rudolph and Sletten, the bulk of which approximately $222 million, were healthcare related projects; and $225 million in new civil construction projects came in during the quarter; as well as $164 million of additional work with existing clients in gaming and hospitality projects in Las Vegas, Nevada, Connecticut, and Maryland.

As I mentioned on our last call, the building segment is focused on executing the substantial backlog of work we received over the past year, particularly in the Las Vegas area. In keeping with our reputation for on-time delivery of large and complex projects, I am pleased to report another quarter of consistent and steady progress on each other large jobs.

Our largest project, the MGM Project City Center, is right on track. The scope of this project includes a 400-room hotel tower, casino, convention center, showroom, approximately 500,000 square feet of retail space and restaurants, three branded boutique hotels, and numerous residential towers. The entire 66-acre site has been released to us for construction and infrastructure is underway on all fronts.

We are moving into our 88,000 square foot two-story office on site and as of October 31, have completed our work on the 13th story 5000-car Bellagio employee parking garage and we are up to the fourth elevation in our construction of the 50-story 4 million square foot hotel casino tower.

We are also on schedule on the $1.6 billion contract for the Cosmopolitan Resort and Casino in Las Vegas. This project involves two high-rise hotel and condo hotel towers with approximately 3000 luxury hotel rooms, suites, and condo hotel residences. During the quarter, the entire perimeter slurry wall has been completed. We have completed half the underground work, the west side of the 70-foot deep foundation excavation. In addition we expect to start next month similar work on the east side of the foundation excavation.

Steel mill orders have been placed and steel is in fabrication. Steel erection is to start in the first quarter of 2007. We expect to have the foundation poured to ground level by May or June of next year.

Our work on the Trump International Hotel and tower in Las Vegas is also on schedule. This $370 million contract includes the condo hotel tower with over 1200 units, a 36,000 square foot recreation deck and pool, and a five-story parking garage. We are currently up to the 34th elevation on tower one and are completing an additional floor per week. At this rate, tower one should be topped out and fully enclosed by mid 2007.

Our other major building projects outside of Las Vegas are moving forward as planned. These include the $469 million expansion of the Foxwoods Resort Casino in Southeastern Connecticut and $635 million joint venture contract for the Gaylord National Resort and Convention Center in Prince George's County, Maryland. Both projects are on schedule. We were awarded additional work on the Gaylord National Resort that was added to backlog during the third quarter.

Almost a year following our acquisition of Rudolph and Sletten, this unit has proven to be a valuable addition to the Perini family of companies. During the quarter, Rudolph and Sletten leveraged its expertise in the construction of corporate campuses, healthcare, biotech, pharmaceutical, and high-tech projects to win $256 million in new work awards, approximately $222 million of which were healthcare related. This included additional work in the El Camino Hospital in Mountain View, California that was awarded last quarter.

As I discussed in our last call, one of our goals for Rudolph and Sletten this year was to incorporate them on some of our smaller scale Native American gaming projects. We began with preconstruction work like the Chumash Casino in Santa Ynez, California and just recently Rudolph and Sletten was awarded a $50 million design build project for a new casino and parking structure at the Sycuan Resort and Casino in El Cajon, California. This is so recent it is not currently in backlog at September 30.

We have begun to see a slight uptake in the number of projects in the Native American gaming market and with Rudolph and Sletten now seasoned for this type of work, we have additional resources available for new projects.

The performance of our civil segment was adversely affected by some downward profit adjustments on some smaller projects performed by Cherry Hill Construction during the quarter. However we see this as a short-term issue as we transition Cherry Hill to larger scale projects. On that front, we have seen some recent successes as Cherry Hill was awarded two large scale projects during the quarter, $44 million of work on the Ninth Street Bridge in Washington, D.C. and $53 million of work on the I-895 Bridge in Baltimore, Maryland.

The market for civil projects remains active and we continue to selectively bid additional work. In fact Perini Civil is the 50% majority partner in a joint venture that is low bidder on a $1.1 billion water treatment plant in New York which we expect to be awarded in the fourth quarter of 2006. This project is not yet in our backlog.

Our management services segment experienced an exceptional quarter of profitability. There was a result of favorable profit adjustments on project execution of our work in Iraq and some contract closeout. During the quarter, PMSI was awarded an additional $35 million project in Iraq similar to our existing work on overhead coverage systems at U.S. military bases there. We continue to bid and propose on additional projects selectively throughout the world, primarily under our CENTCOM and [HURTH] program contracts.

This quarter, Perini delivered another solid financial performance. Going forward, our number one priority is unchanged, converting our significant backlog into profitable revenues through steady and consistent execution. Given the increased volume in the building segment and the strong contribution from Management Services, we are increasing our guidance for the remainder of 2006 as follows.

We expect full year 2006 revenues to be in the range of $2.7 billion to $2.9 billion and diluted earnings per share to be in the range of $1.10 to $1.20 per share. Looking forward to 2007, our initial guidance is for revenues in the range of $3.8 billion to $4 billion and diluted earnings per share in the range of $2.00 to $2.20 per share. This again is based on our expectation of increased revenues from the building segment coming out of our record backlog, continued profit contributions for Management Services, and improved performance from civil.

Now let me turn the discussion over to Mike Ciskey, who will give you the financial details for the quarter.

Thank you, Bob. I will now cover the third quarter financial results in some detail. In the third quarter of 2006, revenues were $773 million, an increase of 103% from the $380 million reported in the third quarter of 2005. On a reportable segment basis, revenues from our building segment were $644 million, an increase of 161% from $247 million in the third quarter of 2005. Of the $397 million increase in building revenues, $217 million was due to the addition of Rudolph and Sletten, which was acquired in October of 2005, with the remaining $180 million related to increased volume of work in our building operations primarily related to the significant contract awards received in the latter half of 2005 in the hospitality and gaming markets.

Revenues from our civil segment were $64 million, down 18% from $78 million reported in the third quarter of 2005. This decline is primarily due to a decreased volume of work in the mid-Atlantic region due to the timing of startup on new contract awards.

Management Services revenues were $65 million, up 18% $55 million a year ago. This was primarily the result of an increase in volume on task orders for work in Iraq under our CENTCOM contract.

Our total gross profit increased to $18.3 million or 74% to $43.1 million -- from $24.8 million in the third quarter of 2005. Overall gross margin percentage for the quarter to declined 5.6% from 6.5% a year ago. The overall decline in gross margin is due to the larger proportional contribution of the building segment to our operations, which commands lower margins due to its less volatile risk profile and to downward profit adjustments in our civil segment for the quarter.

General and administrative expenses were $26.2 million or 3.4% of revenues compared to $14.7 million or 3.9% of revenues in the third quarter of 2005. This reflects a 78% increase in general and administrative expenses on 103% increase in revenues. Third quarter of 2006 general and administrative expenses on a 103% increase in revenues. Third quarter of 2006 general and administrative expenses includes $6 million due to the addition of Rudolph and Sletten and an increase of $3.5 million in stock-based compensation expense compared to the third quarter of 2005.

Income from construction operations before corporate G&A was $22.8 million in the third quarter of 2006 versus $13.7 million reported in the third quarter of 2005. Breaking down income from construction operations by segment, the building segment income from construction operations for the quarter was $15.6 million, an increase of 133% from $6.7 million in the third quarter of 2005. Of the $8.9 million increase in building income from operations, $6.2 million was due to the addition of Rudolph and Sletten with the remaining $2.7 million related to the increased volume of work in our other building operations.

Operating margin for the building segment was 2.4% in the third quarter of 2006 compared to 2.7% in the third quarter of 2005. Civil segment loss from construction operations was $6.7 million in the third quarter of 2006 versus income from construction operations of $3.3 million in the third quarter 2005. As Bob already mentioned, this loss was due to downward profit adjustments, most notably on a roadway project in Maryland.

Management Services income from construction operations was $13.9 million, compared to $3.7 million in the third quarter of 2005. Management Services operating margin was 21.2% versus 6.7% a year ago. This substantial increase in margin was due to favorable profit adjustments on projects in Iraq including savings on Project Execution and Contract Closeout.

Other income was $600,000 in the third quarter of 2006 compared to other income of $100,000 in 2005, primarily the result of increased cash available for short-term investments due to the positive cash flow generated from operating activities.

Interest expense was $1 million, up from $400,000 in the second quarter of 2005 due to increased borrowings related to the term loan portion of our credit agreement.

The provision for income taxes was $7 million compared to $3.8 million in the third quarter of 2005. Net income was $9.6 million in the third quarter of 2006, a 60% increase compared to $6 million in the same quarter a year ago. Diluted earnings per common share were $0.36 versus $0.22 for the same period of 2005. Excluding the impact of the stock-based compensation expense related to restricted stock units granted in April and in May of 2006, diluted earnings per share would've been $0.45 in the third quarter of 2006.

Looking at our balance sheet at September 30, 2006, our working capital stood at $171.6 million, up from $153.3 million at December 31, 2005. This represents a current ratio of 1.23 to 1, unchanged from year end. As of September 30, 2006, we had $123.8 million in cash and cash equivalents compared to the December 31, 2005 balance of $139.9 million.

The $16.1 million decrease in cash was the result of $12.2 million in cash flow provided by operating activities; $16.2 million in cash used in investing activities related to the purchase of construction equipment and properties used in our construction operations; and $12.1 million in cash used by financing activities including $8.8 million in cash used to redeem the remaining outstanding shares of our 2125 preferred stock and $4.5 million used to pay down the term loan portion of our credit agreement as well as to pay down debt we assumed in conjunction with the Cherry Hill acquisition.

At September 30, 2006, long-term debt stood at $36.7 million, excluding current portion, down from $40 million at December 31, 2005. Our long-term debt is comprised of a secured term loan which was used to refinance a portion of the purchase price of Rudolph and Sletten and to finance properties and construction equipment used in our operation.

At September 30, 2006, we had $38.4 million available under our revolving credit facility. We believe our credit facility combined with our strong cash position provides us with sufficient liquidity to meet our near-term working capital requirements. In addition, we are currently in discussions with our lead bank to increase the amount of our revolving credit facility.

Stockholders equity increased 17% to $214 million from $183 million at December 31, 2005. As Bob mentioned earlier, our backlog at September 30, 2006 remained at a record $9 billion and was up 13% from year-end level of $7.9 billion at December 31, 2005.

Backlog by segment is building segment backlog, $8.3 billion; civil segment backlog, $462 million; and Management Services backlog of $215 million.

With that said, I will now turn the call back over for Bob for his closing comments.

Thanks, Mike. Perini delivered another quarter of solid performance in the third quarter of 2006. Revenues reached a record $773 million, up 103% from a year ago, and net income of $9.6 million, up 60% from last year. Backlog remains at a record $9 billion.

Our building segment was the main driver behind our performance this quarter with a positive contribution by the Management Services segment. While the civil business incurred a loss this quarter, we see this as short-lived and expect a positive contribution in the near term.

As I mentioned earlier, our main priority is converting our significant backlog into revenues through steady and consistent execution. Perini's consistent on-time delivery of high-profile projects has been the basis of our success to date and we are committed to this in the future.

That concludes our prepared remarks. Mike Ciskey and Dick Rizzo and I are happy to take your questions.

(OPERATOR INSTRUCTIONS) Richard Rossi, Ferris, Baker and Watts.

A couple things. Let's start with Las Vegas. The economy is slowing. Housing market is slowing. I think this is a question -- I think is out there and is not new, but part of that backlog is condo related and hotel related, where one wonders whether if not certainly not cancellation, whether there is postponement of some of these projects from a timing standpoint as the possibility. Maybe not so much in the '07 but in '08 and beyond. Do you have long history dealing with this? Historically how do we go into this period where the economy is slowing relative to these jobs?

I would say that certainly the hotel and gaming features are full steam ahead, as are the condo features right now. Most of the condo product -- and Dick can come in after me -- is a fairly high-end product. So at the moment we do not see at the moment cancellation on these projects. We are aware that some projects were proposed that never really moved to fruition, but these of course are financed and underway.

Dick, what is your take on this?

All of our projects that are underway, particularly Trump and Cosmopolitan, are all presold units. 100% of them are presold and are under contract. So there is no backing off of those and they are as solid as they could be.

The ones that are currently probably in the sales mode right now and there really is not any determination as to how well that is going to go are the ones that are part of City Center and they just recently opened up their sales office and started to kick that off. So I think in the next quarter or two we'll see how they do and how they fare in the sale of their condo projects. But as far as City Center alone, that represents maybe less than 20% of the total program. So even if it were to be a little slower, it would not significantly affect the overall project itself.

Historically -- have you a record historically of dealing with these kinds -- not obviously the same magnitude in dollars -- but these kinds of mixed projects going into a slower economy?

No, we have not. We've been there for 25 years and the mixed use kind of development that's going on right now, i.e. Cosmopolitan and City Center, is unique to the market. So I don't think we have any real history other than the casino portions of them. We have a tremendous amount of history there and they continue to just be steady growers. I don't know if you saw in the paper recently but even have now Tropicana coming back on and Echelon Project and a whole bunch of other things being talked about after City Center is underway. As far as major mixed-use development, still being planned each with a centerpiece of a casino involved with it.

Some no, I don't know that anyone has yet said they are going to be slowed down more than the amount, the ability for the marketplace to actually build them.

That brings up another point. Maybe the flip side of a slowing construction market on the residential side, does that loosen up labor that might migrate to Las Vegas and add to capacity there?

It does, because we are union contractors all in construction on the strip is union and many of the folks that are working the residential market when it slows down, they also are union members that will put their card in their shoe and will come back available to the marketplace for us to take advantage of when the residential slows down. So yes, it would actually have a positive effect on us.

Okay. Moving on, you mentioned Cherry Hill had some negative adjustments. Since I did not see anything specific in the press release, is it fair to assume that they were relatively small and under that meaningful category?

Yes, there were a number of small adjustments. Remember our strategy with Cherry Hill is to transition them, Richard, away from the smaller jobs in the $2.5 million to $5 million range, of which they had quite a few, into the larger projects where there's bigger budgets, more opportunity for creative thinking, innovative solutions. On that score I thought we fit in pretty well. We added a couple of fairly large jobs this quarter.

So as we go through the transition and complete out there backlog of smaller work, this is not totally unexpected. Obviously we have pressured the management down there to scrub through the backlog once again and look at all the indicators and dig in. We are sharing the lessons learned throughout the organization with Cherry Hill management. We are focusing on quantity reporting and good cost control, the earthworks and time related costs we are focused on, so we are putting all of the emphasis we can on that and we expect that that should be behind us.

Moving on to the loss in the civil section, could you give us a little more detail about this Maryland job? How far along is it?

That is a Cherry Hill project, so that is one of the projects that was 64% complete at the end of September. So it is getting a lot of love and attention and that is one of the focuses of management down there on an ongoing basis.

Does it finish in '07?

It finishes in '07, correct, mid '07.

Now as far as margins in the building segment are concerned, with the ramp up in business and the accompanying changes in terms of materials and passthroughs etc., etc., should we be looking for further very modest erosion of those -- erosion is not the right word -- reduction in the calculated margin even though obviously profit contributions should be up substantially?

I think in '07 we will see it turn the other way because we will be leveraging off essentially the same level of administrative costs on these large projects and generating continuously increasing revenue results. So I think we anticipate and our forecast is that margins will strengthen in '07.

You of course are assuming that several will come back as well in '07?

Yes, we are. (multiple speakers) Modestly. Not in a wild sense.

What about the Iraq work? Where are we there in terms of as we look out into '07? How much is left?

Interesting that you bring that up. The Iraq work continues to be a strong market for us. At the end of September, we had $176 million of work remaining in Iraq that included a couple million remaining in Afghanistan. So we were able to add in the third quarter a $35 million job, essentially the same product that we are producing now. And then previously added another $30 million of additions to existing contracts at U.S. military bases, so there has been a steady stream of work roughly equal to the revenue burn and we have a strong presence there.

The market is fairly specific. We are building a certain facility type for the U.S. government, more of in a protective nature of existing facilities on bases and embassy compounds. And so it is a good market for us. We have a lot of experience with the fabrication and the logistics chain and hope to recognize continued efficiencies as we go along.

Very good. Thank you very much.

John Rogers, D.A. Davidson.

Congratulations. A couple of things. First of all, this water treatment plant that you mentioned in New York City where you are the low bidder, just so I have that right, Bob, you said $1.1 billion and you are a 50% of partner on that?

We are the 50% managing partner.

(multiple speakers) Oh you are the managing partner to it?

That is correct. It has not yet been awarded so it is not in backlog and very enthusiastic about that project. So hopefully if it stays on schedule, it should be awarded in the fourth quarter of '06 and probably in worst-case hopefully in the first quarter of '07, in that timeframe.

Would that begin work then in '07?

It would begin right away, sure.

The other question I had was just in terms of your comments on guidance for '07, particularly on the revenue side, the big ramp up that you're looking at next year, is that -- I realize this water treatment project will be helping on the civil, but is it predominantly on the building side what you see scheduled out ahead of you there?

Absolutely. Most of it is on the building side of course. I mean it is not a mystery where it is coming from. It's coming right out of Cosmo and MGM City Center and continued work on Gaylord and Foxwoods. It is scheduled out.

Okay. If you can just give us a sense of how that is going to ramp? Does it step up each quarter now for awhile or is there a big uptick again in mid '07? Or just kind of the projects as they lay out?

We don't like to give quarterly forecasts.

No I know, but (multiple speakers)

Because of the lumpiness of the business, but notionally it will step up quarter-to-quarter.

It will build, John, probably during the fourth quarter of this year and the first two quarters of next year and then kind of level off.

Okay. Then in terms of the loss on that project in Maryland, did you say what the amount was?

We did not give the exact -- we lumped all the civil impacts together. That project we singled out simply because it was the largest one of the bunch. Most of the projects are fairly small in Cherry Hill. This happened to be one of their larger projects.

I know without getting too specific on the project, would that division have been profitable without this or is it that order of magnitude on that one project?

Yes, they would have been profitable without that one, sure.

But at this point you're feeling pretty -- you have scrubbed through that backlog pretty well?

We have scrubbed through pretty well. We have encouraged them to emulate the rest of the Perini review process. They are doing the monthly job reviews. As of this time, all projects have been converted to the Perini cost system. We have scrubbed through their entire backlog looking at jobs that have any indicators of problems. Those indicators being negative cash flow, unbilled work, etc., disputes, so we have kind of let's say assisted management at that level.

John, just let me clarify something, though. The civil segment had a $6.7 million loss for the quarter. The loss on that project was smaller than that. So it would not have -- that in itself would not have made the whole civil operation profitable, the reversal of that one job.

Okay, but you are expecting the civil business to turn profitable?

Yes, we are.

Because presumably you've got to run the rest of -- whatever those projects -- (multiple speakers)

Frankly we expect that this was a onetime kind of event down there and that civil should operate close to its margin rate we have kind of said was 5 to 6%. It may not be that in the fourth quarter, but certainly that is what we expect it to be.

To trend back towards?

Right.

Okay, then two other numbers questions probably for Mike is the stock-based compensation, do you expect it to stay at that sort of quarterly level now? $0.5 million?

It will be a little less than that.

It will run off a little bit --?

Actually it will be fairly close to that going forward, 3 to 3.5.

Okay, just for modeling. And tax rate?

The tax rate for this year we're running about 42.3 and for next year we are anticipating 36.5.

Okay, great. Congratulations again.

Richard Paget, Morgan Joseph.

Just kind of wanted to be clear on the stock compensation expense for next year? Roughly how much is built into that $2.00, $2.20 guidance?

Next year --

I guess if it is the same relative run rate to what was in this quarter --.

It is about $12.8 million.

For the year?

For the year.

Next year?

Right.

Okay, and then on more of a macro in terms of your casino business, obviously you have a pretty full plate, but eventually that market could cool down in the long term. Have some of your clients been asking you to follow them overseas? I know Asia there is a lot of work to be done, some rumblings about Japan legalizing gaming. Do you think you would venture out into those areas?

Well, we have been asked in prior years by clients to look at overseas projects with them. We have not exported that skill set overseas. Again, we are more comfortable with the environment in the U.S., the legal environment and the contracting and subcontractor community in the U.S. for that type of work. It is very schedule sensitive, as you can imagine. If you get involved overseas, you run the risk of with foreign subcontractors perhaps losing some of the control that we have currently in the U.S. on the schedule. That is principally the heart of our success, huh Dick? Making the schedule.

Definitely, and I think domestically there is certainly significant amount of work still out there that we have been tracking both in Pennsylvania, New York, and then the resurrection of an explosion of work in California, Native American California, where there certainly is -- we are very bullish on in terms of what the future is for us there. I think we are very comfortable with the amount of work we believe we are attracting that we can manage to provide resources for sometime in the first or second quarter of '08 and into '09 is what we're looking for for new starts right now. There's significant opportunity still identified out there for that.

Thanks. That's it for me.

Steven Fisher, UBS.

You have seen an uptick in the native gaming. I know there was some gaming [compacts] out in California that did not quite get passed over the summer, but I think they still could. Is the uptick you have seen, is that in anticipation of that legislation or exclusive of it?

There was a federal ruling just last month I believe it was that allowed them to go class three gaming in all of their facilities now versus having a limitation on class three verses class two. Part of the uptick is because of that. And then the second piece being that it is anticipated and it has been publicly stated that a majority of the renegotiations of the additional machines that these tribes are asking for will be approved by the State of California sometime in the next quarter to two.

So all of that being said, I think that has caused a real focus now on what are we going to do about taking advantage of all of that?

That market size, Dick is roughly -- where do we see that, over $2 billion?

It's probably $3 billion now over the next two to three years, potentially new work. Rudolph and Sletten is in a great position to take advantage of a good piece of that as well, hopefully with our assistance.

Great. On the City Center, MGM has been talking for a couple of quarters about focusing on and achieving cost savings. I think maybe with your help. At this point you are cost plus. Do those cost savings reduce your revenue dollars or do you share in any savings that you deliver to them?

At this point being cost-plus, the features of the guaranteed max contract haven't been put in place in terms of shared savings. So savings that could be generated, say, by purchasing components in Asia and what not would largely accrue to the owner on that project.

It would not be through us. It would be through ownership.

And that would be outside of your revenue?

We don't think that would affect our revenue base at all.

Okay, that's fine. Then your civil business is growing nicely. How much of your $462 million of backlog is lump sum turnkey?

All of it is, basically (multiple speakers) price.

Okay, and I guess there's been some other E&Cs taking charges lately in this area and as costs go up and as this area grows, how do you plan to manage the growth for profitability in the rising cost environment particularly as even Cherry Hill is taking on bigger projects?

One, we're looking selectively, so in Cherry Hill the strategy was to move them out of the small projects where it is virtually impossible to protect yourself to the larger projects, which by their nature have bigger budgets, more room for creative thinking, scheduling the works in such a way that you can achieve savings. So that is our approach. The larger the budgets on the civil works projects, the more the opportunity for savings there are.

Bob, isn't it fair to say that the margins themselves have been increased?

That is a good point, Dick. This has been a feature that we have looked at for a number of years and we have put in place certainly throughout our civil business and the rest of our business. We have pushed fees up everywhere. Fees in the civil business are moving into a higher region, Steve, mainly because a lot of civil contracting capability has shrunk in this country and there's only a handful of companies can look at large projects now like that water treatment plant. So many times we're going to see big projects with only, let's say, two competitors. So you know what that does for the fee possibilities.

That gives you essentially more cushion in terms of the rising cost environment?

Correct, as well as anticipating the cost escalation. We have several years of experience now with the steel escalation, with the petroleum-based product cost escalation. So we're not shy about putting escalation factors in these jobs.

Plus, Steve, most of the civil works that we bid are of a nature that we get firm quotes from either suppliers or subcontractors that are good for the life of the project and that any major subcontractor is then bonded or is entered into what is called us subguard program, which helps protect our risk against their default. So the significant escalation would be in things like fuels and that type of stuff where you really can't do anything but forward price based on escalation. Our contracts tend to not be too equipment intensive.

Great. Lastly can you just give us an update on the Big Dig? Have you been named in any lawsuits or is no news good news?

That is a no news good news. We're not named in any of the lawsuits that deal with either the leaks or the ceiling problem. We are pursuing the dispute resolution process. There are hearings that are underway this month and next month and continue into early 2007.

Okay, great. Great quarter.

[Ben Wharman], Bishop Rosen & Co.

(multiple speakers) We are tickled pink about this report. I have a couple of questions. Number one, have you made an appeal on the Washington D.C. situation?

No, Ben. We paid that judgment and moved on. We paid that in the first quarter of '06.

And you don't plan to do anything more about it?

No, it reached the end of its course. Remember those contracts were originally awarded in 1985 and '86. We won the case originally in '93 -- lost it originally in '93. We won on appeal in '99 and lost it again on the retrial in '05, so we did an evaluation and we did not think we had a good shot for another appeal, so we paid the judgment and moved on. That is history now.

Okay, that is water under the bridge. The other question I have, it seems to me after speaking to you at the last conference call that you are pretty much fully engaged your resources. Are you able to take on new work? Are you still able to go after infrastructure work or whatever is a fill out there?

Yes, we are only at full capacity in the Vegas market. Everywhere else we are aggressively pursuing new work and landing new work and the proof of the pudding is each quarter we have taken in as much work as we have burned off in revenue, so the backlog has remained strong up at $9 billion.

Okay, then the last question, that was a terrific takeover, Rudolph and Sletten. Anything else like that on the horizon?

That was a big acquisition for Perini. They are slated in the coming year to do a substantial amount of work over and above their normal levels, so we are busy digesting and they are a great organization and it would take us a while before we really focus in on additional acquisitions, not that we're not looking. We always are screening.

Is anything else new about the New York situation? I know there were some casinos that were on the drawing boards.

Dick, have you heard anything new?

No, none new and I think nothing will be new in the near term. It seems to still be caught up in the political process of New York.

We are still on at least one team, aren't we?

We are actually on two, so yes.

On two teams, okay.

But I would not hold your breath for it. The politics seem to really delay the process there.

Once again, congratulations.

(OPERATOR INSTRUCTIONS) Brian Smoluch, Roxbury Capital.

With respect to this water project, how much of that is implicit in your 2007 earnings guidance?

A fairly small amount. We have new work in the total '07 numbers. There's about -- of the total revenue that we anticipate in '07, about 75 or 80% of that is coming out of the existing backlog and then the remaining, if you will, 20% to 25% would be from new work awards. We don't specifically address how much is coming from any one job. That job is not in our backlog so it would fall in the new work category. And in the civil operations in total we're kind of anticipating $100 million to $125 million of new work (multiple speakers) position and burn off from all sources.

From all sources. So that project would be well within that confine.

Yes. That gives you a little bit more visibility there if you end up getting that. How that does compare to '06 in terms of visibility that you had going into the year without the percent new work number that you gave?

Certainly assuming that contract gets awarded, it would provide us with greater visibility than we had going into '06, let's say.

For the civil operation.

And as far as the total goes, that is pretty much what we anticipated would come out of backlog going into '06 from '05 was around 75%.

Okay, thank you.

At this time, there are no further questions.

Okay, everybody. I wish to thank you all for taking the time in sharing the quarterly call with us. We will be back to you with the year-end results. Thanks again. Goodbye now.

This concludes today's Perini third-quarter 2006 results conference call. You may now disconnect.