Tutor Perini Corp (TPC) 2008 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2008 Perini Corporation earnings conference call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (Operator Instructions). As a reminder, this conference call is being recorded for replay purposes.

I will now turn the call over to Mr. Ken Burk, Senior Vice President and Chief Financial Officer. Please proceed.

Good afternoon, everyone. Thanks for joining us on Perini's second quarter of 2008 conference call. My name is Ken Burk, Chief Financial Officer of Perini Corporation. 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 second quarter, and Bob Band will share details about new contract wins, prospects and other successes. After that, I will review the Company's second-quarter financial results in 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 the call up 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 risks and uncertainties that could cause actual results to differ materially from anticipated results. The Company cautions that any such forward-looking statements are based upon assumptions that the Company believes are reasonable, but that are subject to a wide range of risks, 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 2007; our Quarterly Report on Form 10-Q for the quarter ended March 31, 2008; our definitive proxy statement, which was filed on August 6, 2008; as well as in today's news release. Our statements on this call are made as of today, August 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 is my pleasure to turn the call over to Ron Tutor.

Thanks, Ken. Good afternoon, everyone, and thank you again for joining us on the call. This was another outstanding quarter, with record revenues of $1.39 billion, up 21% from a year ago, and record net income of $28.6 million, up 4% from a year ago.

Diluted earnings per share were $1.03 for the second quarter of 2008. The backlog of uncompleted construction work at June 30 was $6.8 billion, which does not include the recently announced July 15 signing of a $1.2 billion construction contract to build the new Terminal 3 at McCarran International Airport in Las Vegas.

In addition, we have approximately $2.8 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 our backlog over the next two to three quarters, with most of the new work coming from our Building segment.

For example, we announced last quarter that we had been selected to build a substantial portion of the new MGM Grand Atlantic City, with a budgeted scope in the $1.1 billion to $1.2 billion range. In California, we announced that Rudolph and Sletten had signed a preconstruction services agreement with a developer for a high-end luxury condominium project in Beverly Hills, which would lead to a construction contract in excess of $550 million.

Overall, we continue to see many opportunities to secure new business in each of our business segments, both domestic and international. Bob will share more details of our prospects in a few minutes, including our strategy to become a significant contractor in both Dubai and Abu Dhabi in the Middle East.

The current economic climate involving the credit markets has caused some customers delay in certain new project starts, primarily in the hospitality and gaming markets. Some customers have decided to postpone preconstruction activity until financial markets regain their footing and open up credit capacity. What we see is the probability of a shift of new starts for certain of our customers for up to a year. There have been no indications that any of our prospects have canceled any of the programs being considered.

We have a solid backlog of contracts, pending awards and excellent prospects that can put us in a position to sustain the momentum we have generated over the past few years.

On August 6, 2008, we filed our definitive proxy statement with the SEC. As most of you know, we announced that we entered into a merger agreement with Tutor-Saliba Corporation, pursuant to which Tudor-Saliba will become a wholly owned subsidiary of Perini upon the completion of the merger contemplated.

As discussed last quarter, we believe that the combination of Perini and Tutor-Saliba will create for our shareholders a stronger and more diversified construction company in each of our core markets and operating segments, capable of generating enhanced value. With the added resources, relationships and market position of Tutor-Saliba, we are excited about its growth prospects with the new Perini.

Now I would like Bob Band, our President and CEO, to share more detail of the second-quarter results. Bob?

Thanks, Ron. Our success in the quarter was the result of an outstanding performance by our Building and Management Services segments. We remain focused on superior execution and customer satisfaction.

As anticipated, our Building business continued to convert our significant backlog of work into revenues and profits and cash flows, as anticipated. Management Services made a solid contribution to our performance this quarter, continuing its fine work for the US government on overhead coverage protection systems in Iraq, as well as fuel and water storage projects, also in Iraq.

With our backlog at $6.8 billion as of June 30, 2008, combined with the July 15 award of the $1.2 billion construction contract to build the new Terminal 3 at McCarran International Airport in Las Vegas and the pending awards and targeted prospects in 2008 and 2009, we believe we have a platform to deliver solid financial results for the foreseeable future.

The June 30, 2008, backlog includes new contract awards and adjustments to contracts in process added during the second quarter of 2008 totaling approximately $1 billion, which includes approximately $200 million of additional awards in the hospitality and gaming market, principally in Las Vegas, and approximately $694 million of primarily healthcare and office building projects at Rudolph and Sletten in California.

The Civil operation added a $73 million bridge rehab project in Westchester County, New York, for the New York State DOT. In addition to the pending awards of $2.8 billion that Ron mentioned earlier, we have targeted prospects totaling approximately $11.1 billion in the gaming and hospitality markets that could be awarded in the next 24 months.

In addition, spending on education, healthcare and civil transportation projects continues to make those areas very attractive markets for Perini. For example, we have identified approximately $5.4 billion in targeted projects that could be awarded in '08 or 2009 in the education, healthcare, and office and industrial building markets in California and Florida.

Our Building segment continued its work on the ongoing large-scale projects. We're 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 in total of approximately $6 billion. We have poured the 60th floor of the 66-story Pelli Tower Hotel Casino, recently named ARIA, and are in the process of installing curtain walls on the 50th and 51st floors.

Having topped off the 66th floor of the Vdara condo hotel, we are currently installing exterior curtain wall on the 58th through 63rd floors. We're currently pouring the 53rd floor of the Mandarin Tower, with exterior enclosure up to level 22. We have begun pouring decks at both the twin Veer Towers and are up to the 26th floor at the West Tower and the 19th floor at the East Tower.

We're preparing to pour the 21st floor at the Harmon Hotel, and structural steel erection nears completion at the retail and entertainment district, with exterior enclosure wall well underway.

Our work at the Cosmopolitan Resort and Casino in Las Vegas continues. 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, with certain areas on hold while they work out an agreement with a new developer and flagship operator. Structural steel has been completed, and we're up to the 32nd floor at the West Tower and up to the 29th floor at the East Tower.

Due to the on-hold status of certain areas at the Cosmo, it has been agreed with Deutsche Bank that a new completion date will be mutually agreed to once the foreclosure is complete and the new developer and operator have been selected.

Our work on the 31-story Sheraton Phoenix Downtown Hotel continues ahead of schedule, with a certificate of occupancy received August 1, four months in advance of the October 9, 2008, grand opening.

As mentioned in our last Quarterly Report, in our continuing efforts to acquire projects in the Northeast, preconstruction services have commenced at the MGM Atlantic City, with an anticipated fourth-quarter 2009 construction start. The value of Perini's portion of that work is estimated to be $1 billion to $1.2 billion.

In the West, a contract has been awarded and notice to proceed has been received for the $1.2 billion expansion to McCarran Airport in Las Vegas. The McCarran Airport project is scheduled to be complete in the fourth quarter of 2011.

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 a contract for preconstruction activities for a high-end luxury condominium in Los Angeles, which should lead to a contract over $550 million once the developer has finalized their plans and received approval from local government agencies.

In addition, Rudolph and Sletten continues preconstruction services and recently started the site work for the 600,000-square-foot resort hotel and casino in Sonoma County, California, for the Dry Creek Rancheria Band of Pomo Indians. This project, currently budgeted at $325 million, will not be added to our backlog until the customer finalizes their financing for the entire development.

As discussed last quarter, we expect to benefit from the February 2008 approval of gaming compacts in California. These measures allow the Pechanga, Morongo and Sycuan bands of Native Americans 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 these three tribes in the past. There are also some opportunities for Native American gaming projects in Florida for our James A. Cummings unit.

In Florida, James A. Cummings has approximately $207 million of new pending awards of education, gaming and hospitality projects in Dade County and should be entered into backlog in 2008 and early 2009.

Regarding our Civil segment, there has been some growing concerns that lower toll collections resulting from higher gas prices could impact the funding for civil projects. While there may be some pressure on funding and delay in bidding work, overall in our markets in New York, Maryland and Washington, DC, we continue to see plenty of opportunities to win our share of larger, more complex work that fits our expertise.

Our Management Services segment delivered another quarter of excellent performance due to our work with the Army Corps of Engineers and the US Department of State on overhead coverage systems in the Green Zone and elsewhere in Iraq and upgrading fuel and water storage and infrastructure at various military bases throughout the country.

We currently have approximately $125 million of pending awards for new work in Iraq, including a $25 million administrative building and $100 million of additional overhead cover projects. These projects will likely be awarded as we get closer to the September 30, 2008, end of the US government's fiscal year.

There are several promising project opportunities in Guam under our existing SATOC contract with the US Air Force, which will be proposed on prior to September 30, 2008. The estimates range from $10 billion to $15 billion for construction spending for the relocation of the previously announced move of the Marines from Okinawa, Japan, to Guam.

The construction market in Dubai and Abu Dhabi is extraordinary, with well-publicized spending estimates in excess of $400 billion. Through our reputation in gaming and hospitality and network of relationships and strategic alliances, we have been introduced to a number of strategic partners and customers who have expressed interest in teaming with Perini and Tutor-Saliba in that market. Therefore, we have dedicated some of our talented resources from our gaming and hospitality building business and our international businesses in the anticipation of becoming a significant contractor in this part of the world.

In Dubai, we have agreements in principle with substantial local and international partners to participate in construction joint ventures which may be awarded within 90 days. These are for large hospitality and mixed-use projects for which we have participated in several design workshops to date. The value of our joint venture share of these project opportunities is in excess of $4 billion. We are also pursuing additional task order-based work on our HERC project at an existing RAF base in the United Kingdom.

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

Thank you, Bob. I will now review the second-quarter results in some detail. As Bob mentioned earlier, our backlog at June 30 is $6.8 billion, down 10% from $7.6 billion at the end of '07. However, this excludes the $1.2 billion that we recently signed at McCarran Airport. Backlog by segment is Building, $6.3 billion; Civil, $430 million; and Management Services, $110 million.

In the second quarter of '08, revenues were $1.39 billion, an increase of 21% from $1.15 billion reported in the second quarter a year ago. On a reportable segment basis, revenues from our Building segment were $1.3 billion, an increase of 24% from $1.05 billion in the second quarter of '07. This increase was primarily due to the conversion of our substantial backlog into revenues, primarily from our hospitality and gaming projects, and to a lesser extent from our Rudolph and Sletten operation's healthcare and office building projects in California.

Revenues from our Civil segment were $59 million, down 7% from $63 million a year ago. Management Services were $30 million, down 16% from $36 million a year ago. This decline was primarily due to the decreased volume of work in Iraq.

Our total gross profit increased 9% to $71 million from $64.9 million in the second quarter of '07. This increase is primarily due to the revenue growth and associated profitability in our Building segment. The extraordinary results by our Management Services segment in the second quarter of '07 partially offset the overall gross profit increase in '08.

General and administrative expenses were $28.4 million, up 17% from $24.2 million in the second quarter of '07. This was primarily the result of increases in building construction G&A expenses. Total G&A expenses were 2% of revenues compared to 2.1% in the second quarter of '07, reflecting a continued improvement in efficiency of overhead against a 21% increase in revenues for the same period.

Income from construction operations was $42.6 million in the second quarter of '08, a 5% increase from $40.7 million in the second quarter of '07. Breaking down income from construction operations by segment, the Building segment income from construction operations for the quarter was $42.2 million, an increase of 18% from $35.6 million in the second quarter of '07. This increase was due primarily to higher revenues, as I discussed earlier.

Civil segment income from construction operations was $700,000 in the second quarter of '08 compared to a loss from construction operations of $2.1 million a year ago. The second quarter of '07 included downward profit adjustments at a few projects in metropolitan New York region.

Management Services' income from construction operations was $5.3 million in the second quarter of '08 compared to $12 million in the second quarter of '07. Management Services' operating margin was 17.7% for the quarter versus 33.6% a year ago. This decrease in margin reflects extraordinary operating results we recorded in the second quarter of '07 due to favorable performance on certain projects in Iraq.

Other income was $2.5 million in the second quarter of '08 compared to $2.8 million in the second quarter of '07. And interest expense was $400,000 in both second quarter of '08 and second quarter of '07.

Provision for income taxes was $16.2 million compared to $15.5 million a year ago. And finally, net income was $28.6 million in the second quarter of '08 compared to $27.6 million in the same quarter a year ago. Diluted earnings per share were $1.03 in the second quarter of '08 compared to $1.01 for the same period of '07.

Looking now at our balance sheet, at June 30, 2008, our working capital stood at $244.5 million, down from $293.5 million at December 31, 2007. This represents a current ratio of 1.18 to 1.0. While we were able to generate substantial cash flow from operations during the first six months of '08, the decrease in working capital reflects the classification of $101 million of our investment in auction rate securities as long term at June 30, 2008, due to the well-publicized liquidity issues currently surrounding this type of investment.

As of June 30, 2008, we had $416.7 million in cash and equivalents compared to the December 31, 2007, cash balance of $459.2 million. The decrease in our cash balance is a result of the investments that we made in auction rate securities in the amount of $104.8 million not converted to cash before June 30.

For the first six months of 2008, we generated $72.9 million in operating cash flows due to the substantial increase in Building segment revenues, combined with favorable performance by the Management Services segment.

In the first six months of '08, cash used by investing activities was $121.4 million, primarily for the net purchase of auction rate securities and the purchase of construction equipment to be used in support of our construction operations. In addition, cash provided from financing activities was $6 million, due primarily to the proceeds received from financing of a portion of our construction equipment purchases.

At June 30, long-term debt stood at $17.5 million, excluding current portion, and we had $113.7 million available under our revolving credit facility, plus an additional $112.8 million available under a temporary standby line of credit for the incremental liquidity support, should we need it, while we await opportunities to liquidate our investment in auction rate securities. The temporary standby line of credit will reduce dollar for dollar as we liquidate our positions in auction rate securities.

Stockholders' equity increased 16% to $428 million from $368.3 million at December 31, 2007. We believe that our strong financial position and credit arrangements provide us with adequate resources to meet our liquidity and working capital requirements and implement our business plans in the future.

We expect to complete the merger with Tutor-Saliba in early September, following the annual meeting, which is now scheduled for September 5, 2008. The transaction is expected to be accretive to earnings per share beginning in the first full fiscal year of combined operations. Assuming the merger closes in September, 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 continuing to target fiscal 2009 revenue and diluted earnings per share in the range of $7.3 billion to $7.8 million and $4 to $4.20, respectively, and continuing to target diluted earnings per share growth in 2010 of 10% to 20%.

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

Thanks, Ken. The second quarter marked the 11th consecutive quarter of record revenues for Perini and a new record for net income. Our Building segment continues to deliver strong performance as we complete large-scale, complex projects for customers in Las Vegas, California, Connecticut and Maryland. Rudolph and Sletten and James A. Cummings have sustained their leadership positions with the execution of healthcare, educational and industrial building construction, as well as our significant role in the Native American gaming projects.

Our Management Services segment continues to deliver outstanding performance in Iraq on overhead coverage systems and the design and construction of water and fuel storage projects, and believe ourselves to be uniquely positioned to capture new business in Guam and Dubai.

Our Civil business will continue to improve its performance through the course of this year.

Finally, I want to share my confidence that we have in the proposed combination of Perini and Tutor-Saliba, and my personal commitment to realize all of the synergies and market opportunities in front of us. It is truly an extraordinary time for the venture of these companies, and we expect the combined company to deliver outstanding returns for our shareholders by leveraging the strengths of both companies in the markets we serve.

That concludes our prepared remarks. Now, Bob, Ken and I will take your questions.

(Operator Instructions). Richard Paget, Morgan Joseph.

I wonder if you could talk about the change here in how you guys have identified your targeted prospects over the next couple quarters? It seems $11.1 billion was -- I think you said maybe $18 billion on the last call. And I wondered, what were the big changes there?

It's Ken. Basically, what we have is we have seen the movement of some projects out a little bit, as we discussed, out into perhaps 2010. We have also seen some movement inward, which includes some of the projects that we mentioned like Atlantic City, MGM, which now become pending awards.

So really, what we suggest you do is you look at backlog and then you look at pending awards, and then the last one is what we refer to as the targeted prospects. So I think you will see that we're still pretty much on target with the overall picture that we painted for the markets, with the notable exception that there could be some shift into 2010.

Okay, so it is more of a timing issue than some of these projects going away?

That is correct. We did mention, I think Ron was the one that mentioned that we haven't seen any of our targeted projects or prospects canceled -- programs. What we have experienced have been some of our customers have indicated that they would like to delay some of the starts. Some of the preconstruction activity has slowed. But none of them that we have on our targeted list have indicated any reason or any indication of canceling the program.

And then with the Middle East, you talked about $4 billion in opportunities there. Is that part of that $11 billion, or is that incremental?

Well, again, it comes back to the timing of when it actually comes in. So when you consider that some of the projects would go into 2010, then you would bring in the Dubai in the shorter term. So it is included in the overall number.

Okay. And then how are those JVs going to work? Are you providing more management capabilities, or are you actually going to be moving equipment over there and personnel?

This is Bob. We will principally be providing management talent into those projects. And our partners will provide the trade labor, and the joint venture itself will probably provide the equipment.

Okay. And then finally, in terms of volumes right now at CityCenter, do you think we have hit peak levels right now, and we might not see the sequential increase, I mean, this second quarter would be a good run rate?

This is Ron Tutor. I think that is a fair statement. I think CityCenter, we and MGM have a handle on the overall budget, with a completion target at the end of 2009. I think you will see it pretty much go at this level. I don't see it jumping up any further. You will probably level off.

John Rogers, D.A. Davidson.

I guess, first, Ken, how much cash do you have as of the end of the quarter?

Including equivalents, $416.6 million.

And that does not include the auction rate securities (multiple speakers)?

That's correct. We've reclassified those out into longer-term investments.

Okay. And then secondly, in terms of your work in Dubai and the Middle East, would that be similar contract terms to what you're doing in the Building segment, where it's guaranteed or fee basis?

This is Bob. The terms that we've discussed with the owners on the current projects in Dubai do not incorporate a guaranteed max feature. They are cost-plus projects.

So it is similar to what you're doing in Las Vegas now?

Well, some of the work in Las Vegas provides for guaranteed max prices. The work we are discussing in Dubai does not.

This is Ron Tutor. The work in Dubai also affords the partners higher fees than we normally achieve in Las Vegas.

Okay, that was my second question.

I beat you to it.

Okay. And I don't know whether you are going to answer this, but can you give us an update about how Tutor-Saliba's business is?

Yes. I can share that at this particular stage, John, we are on track. We have gone through a review of forecasts, and we are happy to say that we see that the business is on track and according to our expectations.

Steve Fisher, UBS.

Just want to clarify again on the Dubai, you said $4 billion within 90 days. What happens in 90 days? Do you get awarded and sign a contract, and then that will go in your backlog in 90 days?

We are anticipating at least a portion of that will go under contract within 90 days, correct.

Okay. Would you say it would be the majority of it or a small piece of it? Just trying to get a sense if there's going to be a huge ramp-up in backlog 90 days from now.

This is Ron Tutor. A major portion of it will go to contract. If we close, it will close within 90 days. That's the timeframe. You still have to close. And we are in the final stages of discussion. But there is no contract until it is executed.

Okay. And then I guess as some of these projects get pushed out by another year or so, but at the same time you still keep the $4 to $4.20 of guidance for 2009, what is the offsetting benefit there? Is it this Dubai work? Is it the extra $100 million of overhead coverage systems? How should we think about that?

This is Ron Tutor. First of all, we have ramped up significantly our civil and public works operation, particularly with this pending merger in its final stages. You don't have our prospects list, but there is an enormous amount of public sector work which generates significantly higher margins of profit, as well as we believe that our Dubai operation is definitely ramping up from our initial call some three months or four months ago, when we were just getting involved. It appeared that we thought we had the opportunity for a certain amount of revenue.

There is no question in my mind that we have an opportunity to replace whatever casino work slips with not casino, but work in our other sectors, meaning Rudolph and Sletten, and even more significantly so in the public sectors, where Perini has been a very small player, with the exception of their Civil operation.

Okay, great. And then on MGM Atlantic City, has MGM actually made a final investment decision on that project?

No.

Okay. When do you anticipate that might happen?

You would have to ask them. Right now, our take is they've deferred it a year from when our original anticipated start, but if they are like all our other good casino customers -- I don't know that that decision has been made, and they haven't shared it with us.

But one of the reasons for the deferral, too, is they wanted to get much further along on the design before they started.

Okay, that's fair. And then when do you think the Pomo Indian contract could come into backlog?

We indicated, Steve, that we have started the site work, continue the preconstruction. I think what they're doing is trying to finalize their financing now, and I think the last indication we had was it could be as much as six months. So they are going ahead to get the site work going, and then they would like to go ahead and fill in the rest of that, which is the time we'd see that enter our backlog.

Okay, great. Then lastly, Ken, you were just talking about the Tutor-Saliba estimates and expectations. Just to clarify, that is $1.9 billion to $2 billion of revenue and $145 million to $165 million of operating income in 2009. Is that still right?

Yes. Basically, Steve, we are not really able to get into all the details. But what our message is is that when we look at the combined forecasts, including the contributions from Tutor-Saliba, that we are on track.

Avi Fisher, BMO Capital.

The Cosmopolitan, you mentioned it was continuing. How much -- but there is a new completion date. Is there a new completion date, and how much backlog is left to complete?

It's Ron Tutor. Since I watch it, right now we are negotiating a new completion date, because, A., they have significantly increased our work. On the one hand, they have slowed work in the restaurants, gaming and certain areas specific to whoever takes over, which has put a hold on about $100 million to $150 million worth of work. At the same time where we had shelled in significant areas of space that the owner or another builder might do the compilations, they are now talking to us about completing it.

So the net result of that is all delays, it's probably in order of magnitude of as much as three to four months. But really, instead of a decrease in our contract projections, it is probably ending up a net increase.

So we see the completion sliding, and we are in the process of working with Deutsche Bank, A., to see when they are going to release the areas they put a hold on, which at this point is only a fraction of the project. Everything else -- as you can see, the towers are completing and finishing. It is only limited to certain space that's already been framed out, and it is in terms of the interior finishes and people flows.

So the net result of what I've been looking at is an ultimate increase in the contract value and a delay consistent with relooking at some of those spaces. And if I had to hazard a guess, I would say three to four months in delaying completion.

Thanks for those comments, Ron. And getting back, your guidance implies, okay, some of the things that are in backlog now get pushed out, but they get replaced by other opportunities?

Yes, that's right. And to answer your other question, the backlog for the Cosmopolitan is at $1 billion.

Let me add one other thing. Right now, we are experiencing an extraordinary influx of major civil and public works that is helping a great deal to reduce that commitment to the Vegas casino work. Between New York, California and Las Vegas, we have absolutely covered up with public works we're currently bidding.

Got you. Keeping to Las Vegas for a second, though, what portion -- and it was really impressive, the amount of work you've been doing there? What portion of that project has -- from my understanding, and I'm not sure if I'm right, using the right terminology -- triggered into GMP, or where you have the maximum price set already?

Which project are you talking about?

Well, they're all the different -- within CityCenter.

CityCenter, we are in the final throes of concluding our guaranteed prices, which from a timeline varies from building to building. But my guess is we will complete our guarantees probably by October or November.

When you say that, you mean in October or November you will have a guaranteed price?

Yes, but it isn't -- well, I suppose that once we guarantee them all, that you will add them up and it will be a -- we're ending up guaranteeing them component by component, because they are all in different stages.

Okay. Just circling to Ken for a second, were there any charges on auction rate securities in the quarter?

No, not in the second quarter.

Not in the second quarter. It was just in the first quarter.

That's right.

And the McCarran bid -- and congratulations for winning that -- I presume that all goes into Civil. Is that the way to look at it?

No, that is in our Building business.

Public building.

McCarran is a Building, but it is a fixed-price contract, right?

Right.

Okay.

There are civil components to the project, but that is not the significant portion.

And do you have any expectation on what kind of margins you can get on that? It sounds like it will have a different margin component than your typical building work.

We will just say that on all of our public sector projects, where we take substantially more risk, we believe we are entitled to substantially more reward.

Okay. And do you -- since I have been watching you guys, you haven't done too much civil work, so I haven't drilled too much down into it, or I should say fixed price work. Is there any accounting, anything in terms of how you time the recognition of profits, or do you recognize profits from day one?

There are no differences. We're on the same percentage of completion, which are based on our estimated costs, including our contingencies. Those are all accounted for the same way.

(Operator Instructions). Shaun Kelley, Banc of America.

Just a quick question, just to clarify on MGM Grand Atlantic City. Did you say that it has moved from pending awards or from the backlog to pending awards? Did I catch that correctly?

No. It has never been added to our backlog. It has been in our pending awards from the first-quarter conference call that we had. And that is where it is today.

Got it. Thanks. And then the $200 million of additional work on Las Vegas, was that related to the Cosmopolitan piece that you just talked about and the potential increase there, or is that related to something else?

These are related primarily to budget and scope changes on CityCenter, primarily.

None of the Cosmopolitan increases have been added to backlog, because we are at various stages of negotiation in them. I was only pointing out that that is how it will end up. We have not adjusted the backlog.

Understood. So it was related to CityCenter?

Yes.

And then any update on progress for the Kerzner opportunity up on the north part of the Strip?

We haven't spoken to them in the last 60 days. In fact -- this is Ron Tutor -- I've asked our people to talk to Jim Booker, who is in Dubai, to get an update on when they are talking about that going forward. Our take is that has an opportunity to stay in place for a start toward the end of next year, but we haven't been able to get anyone to confirm it one way or the other.

I think MGM recently announced, as Bob indicated, that they're looking at spending more time in the planning and design area to try and lock in a tighter budget for financing and other reasons.

And then just one last one on -- obviously there is a large development that was delayed on the Strip for the foreseeable future. Any thoughts on what that does to the market out there in terms of labor, and I guess bigger picture --

I assume you're talking about the Boyd Gaming --

That's right.

(multiple speakers) of the Echelon?

But just maybe your big-picture perspective and then how it actually would trickle into availability of labor and that kind of thing.

What it really means, without any immediate new starts, an Echelon mothball, my take is it is a dramatic play. It is one thing to mothball; it's another thing to start it up. Right now, labor is freeing up already. We are wrapping up the Wynn at Tutor-Saliba. MGM will peak over the next few months and then it will begin to lay off. I think what you're going to see over the next 90 to 180 days is a dramatic reduction in demand on staff, and the people will become more and more available, because there is simply -- the new work is not replacing the enormity of that -- for one thing, MGM CityCenter itself.

Steve Fisher.

I'm wondering if you can just give us a sense of, assuming the timing on the Dubai works out with your 90-day plan, any sense of how much revenues you could generate from that opportunity in 2009?

No, Steve, we're not really in a position to comment on that level of detail right now.

Okay. And then in terms of the MGM, a follow-up there. You said that the Atlantic City was delayed a year from your original expectation. Could you just remind me what your original expectation was?

We thought it would start the first quarter of '09. That was our original belief in the discussions we had. We're now deferring it to the first quarter of '10.

Okay, great. Then lastly, the prospect of more work in the overhead coverage system is certainly very good. Just wondering, in terms of the margin outlook there, it looks like the last couple of quarters have started to come down. Do you think we will see a continued ramping down of the margins there, or could they sustain in this upper-teens range?

The margins in '08 are pretty much where we said they would be, in the high teens. And we expect that to continue over the additional 80 to 100 of additional overhead cover projects.

Avi Fisher.

Just two other quick questions, one on Dubai. The prospective work you're talking about doing, it sounds like it will be through a JV. Will the fee be based on the backlog, or are you just getting a fee that hits the EBIT line directly? How might that look? Or should I wait until you have more disclosure on it?

Well, no, a joint venture -- we would recognize our share of the revenues, and it would flow through just like any other project. We wouldn't be booking it on a pure fee basis, in other words.

So you will generate backlog and burn the backlog just like a typical --

Yes, that is correct.

Got you. And any sense of what the margins would be on that? Would that look like a Vegas buildings project, or like Ron said before, you take on more risk, you (multiple speakers)?

We are in the middle of negotiations. This is Ron Tutor. It will be higher than Las Vegas. When we've concluded those negotiations, I will be happy to share with you.

All right, I look forward to that.

So do I.

And then just a final follow-up question. You've talked about labor, the labor market in Las Vegas. If that is softening up, do you expect to see or are you seeing both labor price improvements from your perspective and also material price improvements?

There doesn't seem to be any relief for material price improvements anywhere in the United States. If anything, they're hardening and going up. Labor, and because there is so much more labor available, we are getting more competitive pricing from our subcontractors because of that availability.

But if you ever do a study on the major labor components of a construction building project, they are pretty much controlled by a very limited group of suppliers who very quietly are buying up all of our resources. And they set prices. It is a mini-version of the oil companies. It has nothing to do with inflation or deflation. It is a controlled pricing atmosphere, and there are no such thing that I'm aware of, material prices going down.

How about any sense on the rate of change? Is it still inflating at the same rates we have been seeing?

No, I don't think so. I think labor is stabilizing dramatically. If we're looking at inflation -- I think we had such enormous material increases over the last two to three years. At this point, it is relatively flat, although I always wait for the next crop.

Right, right. And what about on the materials side?

Well, that's what I'm talking about, is purely material. The risk in exposure is material escalation.

Dennis Sabo, Jodocus Capital.

A quick question -- it was mentioned earlier that MGM hasn't committed to the financing of the Atlantic City project, and yet I think it was stated that you expect to recognize $1 billion to $1.2 billion in contract wins over the next two quarters. I'm not sure I understand the discrepancy there.

It's Ken Burk. I think the question was, has the project been committed to? We haven't really dialed in to MGM's financing plan. So I think that was the basis for that. So I don't think there is really any disconnect. Do we have it as a pending project the same way we had it in the first quarter --

There is no reference to that producing revenue in the next two quarters. There is no reference to it. It has been put back a year. I think what you are talking about is we originally indicated in a call months ago that we thought we would get a start in the first quarter of '09. We have now, subsequent to conversations and MGM announcements, believe that it will get put back to the first quarter of '10.

Okay. So you will see the project; it is just pushed back, but you are pretty confident that it will still happen?

(multiple speakers) we're seeing everywhere. That is the way we see it.

And we are continuing to have contract discussions with them, too. They still want to continue down that path. So that leads us to believe that we're going to continue. It is just a matter of timing.

There are no more questions at this time. I will turn the call back over to Mr. Ken Burk for closing remarks.

Okay, well, I would just like to thank everyone for joining in on the call. And we will look forward to our call in the third quarter. Thank you all very much.

Thank you for your participation in today's conference. This concludes our presentation. You may now disconnect. Have a great day.