Tutor Perini Corp (TPC) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2011 Tutor Perini Corporation earnings conference call. My name is Jeremy and I'll be your operator for today. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator instructions.) At this time I would like to turn the conference over to your host for today's call, Mr. Kenneth Burk, Executive Vice President and CFO. Sir, you may proceed.

Thank you. Good afternoon everyone. Thank you for joining us on Tutor Perini's first-quarter 2011 conference call. With us today is Ronald Tutor, our Chairman and CEO, and our President, Robert Band.

Before we start, I'd 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 risk, and actual results may vary materially. These risks and uncertainties are disclosed in detail in our filings with the SEC, including Tutor Perini's annual report on Form 10-K for the fiscal year ended December 31, 2010, our definitive proxy statement filed on April 15, 2011, as well as in today's news release. Our statements on this call are made as of today, May 5, 2011. 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 our Chairman and CEO, Ron Tutor.

Good afternoon everyone and thank you for joining us on the call today. At March 31, 2011, our backlog was $4.2 million. We continue to increase the mix of civil projects in our backlog which is currently 33% of our total. Our building group is 60% of total backlog and the [balance] is management services.

New contract awards and adjustments to contracts in process and the value of uncompleted contract work acquired with the acquisition of Fisk Electric during the first quarter of 2011 added approximately $562 million to backlog. Major additions during the quarter include $190 million assumed from the acquisition of Fisk, our joint venture share of the Seattle Viaduct contract allowances of $117 million and a $108 million task order contract under the US Department of State for containerized housing in Iraq.

Currently we have approximately $1.9 billion in pending awards, consisting of $600 million of power projects; $495 million in hospitality, gaming and entertainment; $210 million in education; $173 million in mass transit and highways; $167 million in government; $110 million in industrial buildings; and $108 million in healthcare. These awards are expected to enter our backlog over the next two quarters.

The power projects have been delayed due to customer permitting issues, which are expected to be resolved in the near future. Included in the pending awards is $147 million Plaza substation project in New York for the Transit Authority where we were the low bidder. We expect to sign this contract in the second quarter.

As we look ahead to the remainder of 2011 we estimate the size of prospective opportunities in our civil infrastructure target market to be $13 billion over the next 12 months for mass transit, bridges, highways and other civil work, including projects using the public/private partnerships, to finance and build for state and local agencies. As we shared during our last conference call, Tutor Perini will be a major player in this market and be a part of a movement that addresses our nation's aging infrastructure.

In the nonresidential building markets we see some incremental improvement, evidenced by increase customer inquiries and a better climate for financing. We have specifically identified in our tracking approximately $19 billion in targeted projects. Approximately 50% of this market is in the public sector including corrections, education, municipal office and transportation buildings.

We continue to make progress with our acquisition strategy to grow our Company vertically and geographically. To date, we have utilized approximately 50% of the capital we raised in the bond market for strategic acquisitions. On April 4, we completed the acquisition of The Anderson Companies which provide general contracting, design,/build and construction management services to public and private clients throughout the Southeastern US.

The addition of The Anderson Companies, headquartered in Gulf Port, Mississippi, dramatically strengthens our position in the Southeastern United States and gives us a nonunion company of substance, that in those markets where our union operations cannot perform, gives us an opportunity to participate.

Our acquisition pipeline remains full of potential companies that are in various stages of closing and each will complement our operating segments. We are in the midst of due diligence on two deals under a signed letter of intent and would expect those closings to take place over the next 30 to 45 days.

By the end of the next quarter we expect to have put all of the capital we raised in the bond market to work. Overall we expect that all of the transactions combined will be accretive during the first year of ownership.

Now we would like Bob Band to share more details of our management services group.

Thanks, Ron. In the management services group last quarter we explained our increased participation in a number of US government IDIQ contracts, including programs for the US Navy; the MACC contract on Guam, a $4 billion program for the relocation of the US Marines from Okinawa to that island; the US Coast Guard, Department of Homeland Security, covering work for those agencies including FEMA and ICE; the US Department of State Worldwide Construction project for containerized housing and offices in Iraq and other locations; and the vertical structures contract for USAID in Afghanistan.

These four newer programs add significant opportunities when combined with our existing IDIQ contracts including SATARK and HERC for the US Air Force and the MACC awarded in late 2009 by the US Fish and Wildlife Service covering all agencies for the Department of the Interior.

All of these contracts will provide us with substantial new work in 2011 and beyond. In 2011, so far, we've been awarded a $108 million task order under the US Department of State contract for containerized housing and office facilities in Southern Iraq and a $73 million task order under the US Navy MACC for an aircraft parking apron at Anderson Air Force Base in Guam.

To date, we've been awarded over a third of the total task orders and a significant percentage of the total value of awards made under the US Navy MACC on Guam. As that program ramps up it is our expectation that we will receive substantial work matching our capacity on the Island. This month we will be bidding substantial contracts under the Mamizu MACC on Guam and expect to win a fair share of that work.

Currently we have over $250 million of task order bids outstanding in Iraq which we should hear on this quarter.

In Haiti we continue to closely monitor relief-related projects with USAID and the nongovernmental organizations, which are now expected to be bid and awarded in 2011. So far, it looks like electrical sector repairs including substations and hydro-power, as well as housing and rubble removal, will be the priority for USAID.

Now Ken will give you the financial details for the quarter.

Thank you, Bob. Our net income was $6.9 million for the first quarter of 2011 as compared to net income of $20.9 million for the first quarter of 2010. Diluted earnings per share were $0.14 for the first quarter of '11 as compared to $0.42 for the first quarter of 2010. The breakdown of our backlog by business group at March 31, 2011 -- building group, $2.5 billion; civil, $1.4 billion, management services, $329 million.

In the first quarter of '11 revenues were $615.3 million, a 28.9% decrease from the $865 million reported in the first quarter a year ago. On a reportable segment basis, revenues from our building group were $440 million, a decrease of 36% from $ 686 million in the first quarter of '10. The decrease is primarily related to the substantial completion of large hospitality and gaming work in Las Vegas during the first quarter of 2010.

Revenues from our civil group were $129 million, an increase of 3.3% from $125 million reported in the first quarter of 2010. The increase is primarily due to the start-up of new infrastructure projects in the Western US, partly offset by a decline in the volume for several projects nearing completion in the New York area.

Management services revenues were $46 million, a decrease of 14.8% from $54 million reported in the first quarter of 2010. The decrease is due to substantial completion of work in Iraq.

Our total gross profit was $62.5 million, a decrease of 18% from $76 million in the first quarter of 2010. Most of the decrease is due to reduced revenue volume in our building group, partially offset by a greater mix of higher margin public works projects in civil during the quarter.

Overall, gross profit margins have increased from 8.8% to 10.2%. Our G&A expenses were $44 million, up from $42 million in the first quarter of '10. The increase reflects the additions of our newly acquired acquisitions of Fisk Electric and Superior Gunite in the first quarter of 2011 results.

We had income from construction operations of $18.5 million in the first quarter of '11 compared to $34 million in the first quarter of '10. Operating margins decreased from 3.9% to 3% as a result of the lower revenues during the quarter as compared to last year.

Breaking down our income from construction operations by group, building was $13.1 million in the first quarter of '11, a 59.4% decrease from $32 million in the first quarter of 2010. This decrease was primarily due to reduced revenues and associated margin contribution from larger public works projects.

Civil group income from operations was $12.1 million in the first quarter of this year, a 45.8% increase from $8.3 million in the first quarter of 2010, primarily due to an increase in our operating margin as a result of favorable performance on projects in the Western US and a highway project in Virginia. The civil group operating margin was 9.4% in the first quarter of 2011 compared to 6.7% in the first quarter of 2010.

Management services income from operations was $2.7 million for the quarter, a decrease of 13% from $3 million in the first quarter of 2010. This decrease is primarily due to the completion of work I mentioned in Iraq.

Other income and expense was an expense of $0.4 million in the quarter compared to an income of $0.3 million in the first quarter of '10. Interest expense increased to $7.2 million in the quarter from $1.5 million in the first quarter of last year due primarily to the $300 million senior secured notes we issued last October.

The provision for income taxes was $4 million compared to $12 million a year ago. The effective tax rate remained unchanged at 36.5%.

Looking at the balance sheet, at March 31, our working capital stood at $576 million, down $16.5 million from $593 million at year end, 12/31/ 2010. Current ratio at March 31 was 1.61 to 1, consistent with our current ratio at the beginning of the year.

As of March 31 we had $367.1 million in cash and equivalents compared to $471 million at December 31, 2010. The decrease in our cash balance during the quarter reflects the impact of cash used to complete the acquisition of Fisk, which was done in January, the first of January, and cash required to fund operating activities,

During the first quarter of this year we used $47.7 million in cash to fund operating activities which was primarily due to the completion of certain large projects in our building group.

At March 31, long term debt excluding the current portion stood at $408 million which is an increase of $34 million from year end, as a result of completing the refinancing of a portion of our construction equipment fleet in the first quarter of this year.

On May 4th, 2011, yesterday, we entered into a newly-amended and restated credit agreement which increased the borrowing capacity under our revolving credit facility by $55 million. The revolving line of credit of $260 million will mature in five years, in May of 2016, and the supplemental line of $99.6 million will mature November of 2012.

We currently have $360 million available under our credit facilities. Our guidance for 2011 has remained the same as previously reported with revenues estimated to be in the range of $4.2 billion to $4.7 billion and diluted earnings per share estimated to be in the range of $2.20 to $2.40 per share. The ranges reflect our current view of new work prospects that could enter our backlog and be converted to revenue and profits this year, as well as estimated revenues and earnings from acquisitions in process.

I'll now turn the call over to Ron for his closing comments.

Thanks, Ken. As we move into the middle part of this year, we are focused on winning our share of new work in each of our targeted markets, particularly on the Eastern seaboard. As stated earlier, there are many prospects in our market that support our plans to achieve continuing growth with particular emphasis on the civil marketplace, as well as Guam, which is beginning to grow.

When we layer in the acquisitions that we're currently working on -- we expect to close in the next 60 days -- 2012 should be the first year where we will have our entire organization fully integrated and hitting on all cylinders to achieve the significant growth in both revenues, earnings and margins that we have been working toward.

That concludes our prepared remarks. Now we'll take your questions.

(Operator instructions.) Steven Fisher with UBS.

So I guess with a light first quarter of EPS but no change to guidance, you need to see a significant ramp up throughout the balance of the year. So what's going to drive that ramp up and how ratable would that be across the next three quarters? Is it really going to be very back-end loaded?

This is Ron Tutor. I would expect that it will come into play in the third and fourth quarters in a combination of a very significant level of work that we have been sitting on, being promised award, some up to as long as a year, which are imminent, as well as significant acquisitions that are extremely accretive that we expect to close by June.

Okay, so that imminent work can get ramped up quickly enough to have that impact in the third and fourth quarters?

I think it's a combination of that and the acquisitions we've worked on for the last 6 months.

And what is the chance that, since that work has kind of been lingering for a year, what are the chances that it continues to slip? Or what gives you the confidence that it's now ready to get signed and --

It's like Guam. We've had a contract for almost $200 million sitting there. We believe we're low bidder. All indications we are, and every 90 days it stalls another 90 days. We're told that the necessary documents by our beloved government have been concluded and to expect an award in the next 60 days. Like in all dealings with the government, the only thing that's guaranteed are taxes.

But we feel strongly -- I felt this would have been awarded by last October, November. So therein lies the risk, is this work constantly keeps getting pushed forward. It's like the power plant for $600 million that we're told we're the bidder, we're the contractor, they've got to get through their permit process. Every 30 days the process will be over in 30 days for the last five months. So it's really hard to say. The work hasn't gone, it just keeps sliding, and it's very frustrating. But I simply can't decide for the owners when they finally award.

Okay, and then on the building side, from a margin perspective, is it fair to assume that with more revenues as that ramp up you'd see some operating leverage on that margin? You'd see it go up from the 3%?

I don't think so. I think the entire building sector is under pressure. We have fought off the urge to cut fees to get revenues. But I'm not sure it will ramp up much given the state of the industry.

Okay. Then can you just give an update on McCarron? I dialed in a couple minutes late, so I don't' know if you updated. But when does that project finish and would be there be any close-out benefits that we'd see as that does get finished?

Well, we are in to a point where I believe we'll achieve substantial completion by the end of June. We're already in a testing and turn-over mode with the owners. It continues to be successful. There could be some added rewards from the job but that will not be predictable, probably, for another 90 days.

Okay, great. Thanks a lot.

John Rogers with D.A. Davidson.

Ron, on the civil work that you've won and that's coming in, are the margins in line with what you've talked about in the past or expected? How's the competition in that market look?

Absolutely. We have been maintaining margins that are of the same level of significance -- short of repeating it on an open conference call -- they are significant. And as you watch closely we continue to take those margins that we bid, i.e., the World Trade Center project and the JFK paving job, which we finished, where we significantly increased those margins with our performance on the work. You heard in this report from Cherry Hill we did a major highway job and almost doubled our margins in performance. So that civil piece of our operation continues to reward us with significant margins that we've had the good fortune to grow further as we built the work.

Now let me state that that is prevalent so long as we are doing projects of substantial size and complexity so that we're dealing with other national construction companies and foreign construction companies, as opposed to the much smaller work which is under great margin pressure.

Okay, so it sounds like we could see the same sort of margin swings that we saw last year on a quarterly basis from the first quarters into the second, third, fourth quarters. Is that fair?

Well it's hard -- I honestly don't remember the margin swings. But, Ken, maybe --

Yes. I mean, certainly it's possible John. As you know we've had, as Ron indicated, the favorable performance that ultimately developed in New York, on the New York project, so that's possible. Certainly we feel very strongly about establishing a very strong foundation with our basic price and margins coming out of the gate, so I think it's entirely possible to see those kind of swings. As you know, you've seen some of those swings in our management services for projects like in Iraq.

That was going to be my next question. The management services margins over the last couple of years have had a huge range and I don't know whether you can comment on the work that you're getting now, what -- maybe frame that a little bit for us.

John, this is Bob. And truthfully, the margin potential in management services remains the same, but we're cautious on recognizing the improvements in those margins until we have enough history on any one job to say, okay, it's secure. You follow me on that?

Yes.

We're very reluctant across the board in the first, at least, 50% of the job, even though our experience may be very good, to run those margins up. So if you see a consistency where in the latter half or a quarter of the job we're writing jobs up it's because we're trying to be conservative and assume that until you're much further along you should not write a job up. So that's probably what we will continue to follow, that pattern. There's nothing more disconcerting than writing a job up and then writing it down.

Sure. Okay. I'm just trying to understand the difference between the quarter run rate and what you're talking about for this year in terms of earning potential.

Well, obviously, we're going to have to push significantly more revenue through at those higher margins to meet the earnings that we've stated. There's no question.

Okay. All right. And last thing, if I could, the acquisitions, are -- I mean you talk about them being accretive in the first year. but are they initially dilutive? And what's the magnitude there?

They're all for cash, even with the amortization associated, they contribute from day one. They're significant acquisitions that are significant both in revenue and the amount of backlog and the profitability. I really can't go much beyond that because they're imminent in the near term, but they are very significant. They are not minor.

I think, John, too, when we talk about accretive and the whole picture of our strategy, the $300 million, basically, for all intents and purposes, was really dedicated to executing an acquisition strategy. So if you take the full value, the interest carried for that $300 million, that's what we're really talking about, that our plan is to reach an accretive state overall, as well as Ron mentioned, on a company-by-company basis.

Okay, so earning more than your cost of issuing the debt.

Absolutely.

Significantly more. I mean, it doesn't make any sense to make a lateral move if the cost of the debt is as much as we're earning. I would say in all cases the earnings are significantly higher than the cost of debt. And there's no shares involved, so it's pure cash. The earnings against debt are typically multiples up.

Okay. Thank you very much. Appreciate the color.

Kalpesh Patel with Jefferies & Company.

Staying on the acquisition questions, so you said there's two that you have signed letters of intent for. Is that the only ones left and is that going to use the remaining debt that you raised?

We have two in various stages of the definitive agreement that we hope to close over the next 60 days. Those two will use up the balance of the $300 million and we have one more significant acquisition, larger than the two of them combined, that we hope to get into by June, and we already have the balance of financing lined up.

So that's separate from the debt you've already raised?

Correct.

Okay. In terms of these acquisitions, or the ones that you've already completed, three of them, how is the integration going there? Are you cutting costs? Have you reduced head count, divested any real estate? If you could update us on that.

The Fisk Electric, quite to contrary -- I shouldn't say -- that doesn't sound right. With Fisk we are in the midst of going through integration. We just closed the first of January. We are closing an office. We are reducing in some and increasing in others. I would say it will be the end of the year before we conclude it. We're going to move out of the headquarters buildings they're in to property that we're acquiring and I believe the result of that will be positive.

With respect to Superior Gunite, we're going through that integration as we speak and their operation continues to grow on the East Coast where they're playing off Tutor Perini Civil. And both of the acquisitions we are currently in the final stages of right now, I don't know that there's significant savings in the integration, as much as it will be converting them to our culture, our reporting and our methods of doing business.

What about Anderson?

Anderson will be a task because they have three offices. We're considering folding others of our offices under them in the South. That will be an integration that will take place over the next 12 months but it's too early to finalize our strategy. I would guess by the next call we'll have a better sense of the steps we're going to take.

Okay, and to finish on the acquisitions, how is that going to impact your SG&A going forward, just for modeling purposes?

Very limited in the home office aspect. These are very self-contained units that will frankly dovetail into our existing reporting systems and audit controls. We don't see adding -- if we add anything it would be nominal at corporate and then we'll simply go through the integration process at the acquisition headquarters.

Okay. This has been discussed a little bit, the revenue shortfall in the first quarter here. Now I understand some projects are being delayed and whatnot. Is it one or two specific projects that led to the revenue shortfall based on our expectations, or just a host of projects being pushed forward?

It's probably two major ones and a number of smaller ones that have slid. Maybe they haven't gone to a year, but have slid 90 to 120 days. It just keeps shifting this revenue. And of course our concern is that it doesn't slip to where only a limited portion of the revenue and profits go this year, then of course it all piles into 2012. It's just a frustrating experience that we have never seen before, holding projects in abeyance for 6 months, 9 months after you're announced low bidder. I guess it's a product of the times we need to get used to.

So that's the (technical difficulty) project and the $200 million Guam project?

Yes.

Okay. If you could also just update us on the MGM dispute, where you guys are there.

We currently -- our initial litigation was something in the $530 million range. MGM in their wisdom has settled with all but about 10 or 12 of our subcontractors out of an initial list of well over 100. The balance due us and our remaining subs is approximately $230 million by memory, give or take, $230 million, $240 million. Right now the case is at the Supreme Court in Nevada where the judge removed the attorneys for MGM and they've appealed to the Nevada Supreme Court to be reinstated. The case has been, basically, held, awaiting that Supreme Court decision.

Further information is we believe we've unequivocally proved that the Harmon Tower that MGM has used for the substantial reason for their withholding payment will be proved by our experts and the County's, to be false, that in fact it's strictly a contrivance by MGM that will be brought to court once court reopens. We feel our case is stronger than ever and that MGM will ultimately be taught what it's like to try to defraud a general contractor.

Okay. Well, thank you for answering my questions.

[Harsh] enough words?

What's that?

Are those harsh enough words for anyone from MGM that may be listening?

Good luck.

Richard Paget with WJB Capital.

Ron, you talked about the prospects in the buildings market being up significantly, or at least a good deal from the last quarter. And I know you said things are getting a little bit better. Is part of your more favorable outlook related to acquisitions that you've made and it has expanded your net, so to speak, that it's a bigger market opportunity? Or is it just generally things are getting a bit better and you're seeing more projects coming in the pipeline?

Oh, I think it's a combination of that, Richard. One of the things, when we bought Anderson, we opened up an entire market in the South from Texas to all the way to Georgia, Alabama, Louisiana that we just simply could not penetrate, nor did we try. Theirs is a significant backlog and I think, with our strength and expertise and experience behind their abilities, we'll be able to help them significantly grow in those markets where they've already made a major impact. Over the years, I think a potential acquisition we have in New York, opens us into the building markets in New York, and also some of the subcontracting categories where New York remains to be strong in both the building markets and the civil markets.

So the acquisitions will help us, not just profitably, but to penetrate markets that have been difficult for us to penetrate prior to these acquisitions. It's going to open up horizons that we want to get into that would have taken much longer in the normal course were we not able to make these acquisitions.

Richard, we're also opening up a bigger pipeline with the [P3] opportunities as well.

All right, and then NAVFAC had been talking about accelerating the Guam task orders and I think the number was $1.2 billion to go out within the year. I mean, have you seen them actually pick up the pace or is it still kind of business as usual up to date?

Well, we just turned in, again, our first Mamizu with further revisions. We were awarded the $70 million-plus apron paving job at Anderson which will start this quarter. And we're about to turn in another very significant bid for another site development for the upcoming program. It's our feedback from the government and Guam that this first batch of work, be it $1 billion plus, will be funded and the work will start and get in the ground by year end.

Have events in Japan impacted the whole program in any way, maybe accelerating it or delaying it, especially on the Japan side of it?

Your guess would be as good as mine. We can't get any feedback that it's had any impact yet at all in Mamizu, so we're going. Two big site development jobs, Mamizu 1 and 2, are moving forward and being funded. They're a very significant set of contracts that develops the sites, the utilities and the roads for all of the housing that follows.

And if you recall, Richard, the Mamizu is the Japanese-funded portion of the program.

Right.

So, you know what the truth is? We're not getting any feedback that it's affecting at all.

Okay. And then finally, Ken, what's a good number to use for interest expense on a quarterly basis going forward?

I would say, Richard, what the run rate was in the first quarter.

Okay.

It was about $7.5 million. I don't see any reason why it would be different than that. Obviously it will tie to one of the acquisitions that Ron mentioned. If we're fortunate to close that it could bring some there, but that would be what my estimation would be.

Okay, I just didn't know if there was any financing costs or any other things in there. Okay, great. That's all I got.

Avi Fisher, BMO Capital Markets.

You guys are talking about McCarron finishing up soon. I think it's, as I recall, a little bit ahead of schedule. Do you get any margin capture on the completion of that?

Well, you know, as I said, I think I answered it earlier and said we're ahead of schedule, it's very successful. We're reserving any margin increase until it's closed and we do a final accounting. We're at 97%, 98% right now. It doesn't make any sense to revisit margin until we're at 100% and there can't be any surprises. That probably will take place in the second quarter when we review through June 30. That will be in September. I think then whatever that will be will be.

Should we anticipate anything or should we wait --

If there is a major increase it's not going to be significant to a point it will add $0.25 a share.

Okay.

I think there is some that's held in reserve, but not the kind of pop that would knock your socks off. It will be one of those nice increases. Remember, we have earned that project up dramatically from where it started.

Okay, I mean you have had -- in the past done knock your socks off contingency harvesting, so that's why I'm asking. Ken, I know -- hopefully you have this data handy -- can you talk about the backlog by type?

Backlog by type?

Yes, by the type of project, you know, healthcare, industrial, hospitality, gaming.

I think we broke it down.

Yes, we gave you building, civil and --

And management services.

-- and management services.

I apologize, I missed it. I will wait for the transcript then.

$2.5 billion was building, $1.4 billion was civil and the balance was management services.

In the past you've broken it down a little further by type of project within each segment. Do you have that available? You know, highways, bridges --

We do, actually. We can give you a little bit more color, just some of the bigger pieces. The government -- hold on a minute.

If that's helpful to you we'll go back to that.

Here's what -- just a high level, Avi. Government -- municipal government projects about 850 --

You're talking about in the building sector?

This is the building sector.

Yes.

Healthcare, $572 million; industrial, $356 million; hospitality and gaming, $253 million; transportation $200 million. And then there's some other pieces in there. Then on the civil, highway's $890 million; bridges $250 million; mass transit $118 million; and other $114 million.

So you understand we have classified the Seattle job as highway, even though a significant portion of it is tunnel. It's really a highway realignment.

Since you speak of the Seattle job, have you booked -- I mean I know it's being booked in phases, or being awarded in phases, have you booked --

No it isn't being awarded in phases. They made a contract award in December and then August 1st we get a notice to proceed physically with the work.

So you'll get -- the notice to proceed should come in the third quarter --

Yes.

-- and so that will be relatively idle until then.

Well, what we're doing is we've provided over $100 million of insurances, we mobilized on site. We still are expending costs during the first six months of the year, to the tune of probably $200 million of engineering bonds, insurances, mobilization, for which we're reimbursed, but the physical work out on the highway will start after August 1st.

And is there any margin on the cost that you're expending?

Sure. The way we account for our margins, we're on a percentage of completion based on cost, so if we have a job that is a 20% margin job, as we expend cost we earn that margin.

Got you. You're not saying that the Seattle job is a 20% margin job though, are you?

(Laughter.)

You talked about how margins -- on the topic of margins, on the larger complex jobs that's where you feel you can get the most margins and the smaller work is the most competitive. But are you seeing any competition from large, either international companies or even the domestic companies? Is competition heating up in even the large complex project sizes?

Not really. With all due respect, we still compete with the Kiewits and the Walshes and the same four or five large US -- what I call domestic generals, who are all very disciplined as we are, and very margin conscious, and I haven't seen any of those margins erode.

As far as our foreign competitors, they're very large companies. They've come to the US on a sizeable basis, but they still have to compete with the US companies like ourself based on cost and efficiency, which, in my opinion, is not a crux of the European model. So, we haven't found them to be particularly difficult to beat. And once they decide that they're going to have to earn money here and not just take work, we'll see how that plays out.

Also, on the topic of margins, are you seeing any movement in material costs that's changing after contracts are closed or anything on materials?

Ron Tutor. None. In fact, the truth of it is the material costs have been under such pressure, with the exception of our beloved fuel costs, which seem to have no limit to what they go up, everything else is stabilized year to year. And it's rare that a vendor or supplier won't hold his material price for two and three years. They're just happy to have the sale.

Okay. You mentioned, when you talked about the additions to backlog, there were some contact allowances in there. Can you give a little bit more color on that?

Well what happened after the award -- and it's really a technicality. We furnished all the bonds and insurances on the Seattle contract, which there was an allowance of $100 million-plus. And in furnishing them they wrote a change order and added that to our baseline contract, and in fact, paid us. It was the mechanism to pay us. So it adjusted our contract by over $100 million, even though it was always a part of the initial bid.

Also, on the topic of claims, I've heard -- and I don't know if you can comment on this -- but the California Water Board has made new regulations for contractors tied to run-off on construction projects. Have you heard anything about this or if there's any impact positive or negative on your projects?

No, I haven't heard of anything. The California Water Board imposes those run-off regulations on owners when they build new facilities and horizontal work where they predict, by calculation, the amount of run-off and then impose that they build facilities to both trap and treat the water. In other words, if you have 10-acre parking lot they'll tell you've got to build an ability to trap all that water run-off from rains and put it through your own onsite treatment plant, believe it or not, before you put it back in the storm drain system.

Is that a new regulation?

No they've been talking about it for years. I think they're just beginning to threaten to impose it, as absurd as it may sound. It's just another imposition on costs in California that new developments will have to take.

All right. Well, I appreciate taking the time to answer my questions.

Philip Volpicelli from Deutsche Bank.

This is Shawn Wondrack sitting in for Phil. Just had a question about the backlog again. Can you comment on the pace of the backlog over the course of the quarter? Was it lumpier or was it pretty consistent across?

I would say it's consistent and predictable in terms of how we would have expected it to go. As you probably know we're talking about a long-cycle business here, and we have a pretty good handle on the schedule of completion. As Ron mentioned, the cost is what the driver is of recognition so I would say it's as expected, and fairly consistent.

Okay. And then, you guys also remarked earlier about increased customer inquiry surrounding the building space. Can you remark a little bit more about that, please? Hello?

We didn't die. I was just trying to think of some specifics and my mind was drawing a blank. Let me take a deep breath. We've had, believe it or not, the Indian gaming people have come to us at 3 or 4 locations, and are talking about potential new gaming. We have one in Florida that's on the borderline of whether they go ahead or not. Our Rudolph and Sletten Group in California seems to be putting forth more and more requests of me of projects to propose on. Their feeling is that even with the issues in California that their revenues will predictably go up in the latter part of '11 and particularly '12.

It seems like the feedback we're getting from all our building divisions, and interestingly enough even Anderson, that there is more work in the pipeline and more work than ever to discuss, even to a point we are contemplating and in the process of opening a New York City building office that we think could be extremely significant.

Okay. Thank you very much.

You do have a follow-up from Avi Fisher.

Regarding the acquisitions, can you talk a little bit about whether the acquisitions you're pursuing, are they opportunistic or do you have a bigger picture, a bigger vision for the Company that ties all these acquisitions together?

I think it's more a vision. We get a significant number of acquisitions presented to us regularly and I look at them primarily for the quality of the company. And if I like the quality of the company, they're of substance, they're significant, they have significant earnings, which to me proves up their management, it then has got to fit both geographically and disciplinarily. In other words, if another building group comes from the South I wouldn't look at them. We've already covered that geographical area and it's up to us now to support those people we have, to grow their own business.

As we try to conclude our acquisitions in New York, we will have accomplished everything we sought to fill in and round out our New York/New England operation in both the building and civil business.

The Midwest is an area we're looking at, and probably the last area of significant interest that I would like to see us make a major acquisition. Other than that and what we have right now, I believe this year, hopefully, concluding all that we're looking at, will put us in a position that we cover the country in both our civil sector and our building sector, such that the balance of growth will be with the new company and its acquisitions working together.

I don't see us being a significant acquirer after this year.

Thank you.

At this time there are no further questions.

Okay, thank you everybody.

Thank you.

Ladies and gentlemen, this does conclude today's conference. We thank you for your participation and you may now disconnect. Have yourselves a wonderful day.