-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C3kJKB1fY9yRvMydwagpCEbRj7t7GLC6zb5ZMDAhxYaBL13oGd3jxaWCXjo2mDYM JUjpMXBOUAX0+RvrPbrTOA== 0000077543-00-000009.txt : 20000316 0000077543-00-000009.hdr.sgml : 20000316 ACCESSION NUMBER: 0000077543-00-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PERINI CORP CENTRAL INDEX KEY: 0000077543 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL BUILDING CONTRACTORS - NONRESIDENTIAL BUILDINGS [1540] IRS NUMBER: 041717070 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-06314 FILM NUMBER: 570399 BUSINESS ADDRESS: STREET 1: 73 MT WAYTE AVE CITY: FRAMINGHAM STATE: MA ZIP: 01701 BUSINESS PHONE: 5086282000 10-K 1 1999 FORM 10-K FORM 10-K Securities and Exchange Commission Commission File No. 1-6314 Washington, DC 20549 (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Act of 1934. For the fiscal year ended December 31, 1999 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to ____________ Perini Corporation (Exact name of registrant as specified in its charter) Massachusetts 04-1717070 (State of Incorporation) (IRS Employer Identification No.) 73 Mt. Wayte Avenue, Framingham, Massachusetts 01701 (Address of principal executive offices) (Zip Code) (508) 628-2000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of each exchange on which registered Common Stock, $1.00 par value The American Stock Exchange $2.125 Depositary Convertible Exchangeable The American Stock Exchange Preferred Shares, each representing 1/10th Share of $21.25 Convertible Exchangeable Preferred Stock, $1.00 par value Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X The aggregate market value of voting Common Stock held by nonaffiliates of the registrant is $19,938,000 as of February 28, 2000. The Company does not have any non-voting Common Stock. The number of shares of Common Stock, $1.00 par value per share, outstanding at February 28, 2000 is 5,682,287. Documents Incorporated by Reference Portions of the annual proxy statement for the year ended December 31, 1999 are incorporated by reference into Part III.
PERINI CORPORATION INDEX TO ANNUAL REPORT ON FORM 10-K PAGE ---- PART I - ------ Item 1: Business 2 - 9 Item 2: Properties 9 Item 3: Legal Proceedings 10 Item 4: Submission of Matters to a Vote of Security Holders 10 PART II - ------- Item 5: Market for the Registrant's Common Stock and Related Stockholder Matters 11 Item 6: Selected Financial Data 12 Item 7: Management's Discussion and Analysis of Financial Condition and Result of Operations 13 - 19 Item 7A: Quantative and Qualitative Disclosure About Market Risk 19 Item 8: Financial Statements and Supplementary Data 20 Item 9: Disagreements on Accounting and Financial Disclosure 20 PART III - -------- Item 10: Directors and Executive Officers of the Registrant 21 Item 11: Executive Compensation 22 Item 12: Security Ownership of Certain Beneficial Owners and Management 22 Item 13: Certain Relationships and Related Transactions 22 PART IV - ------- Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K 23 Signatures 24
1 PART I. ITEM 1. BUSINESS - ------------------ General - ------- Perini Corporation and its subsidiaries (the "Company" unless the context indicates otherwise) is engaged in the construction business. The Company was incorporated in 1918 as a successor to businesses which had been engaged in providing construction services since 1894. The Company currently provides general contracting, construction management and design-build services to private clients and public agencies throughout the United States and selected overseas locations. The Company's construction business involves two basic segments: building and civil. The Company was also engaged in the real estate development business which was conducted by Perini Land & Development Company, a wholly-owned subsidiary. As discussed in Note 2 of Notes to Consolidated Financial Statements, effective June 30, 1999 the Company adopted a plan to withdraw completely from the real estate development business and to wind down the operations of the Company's real estate development subsidiary. Because the Company's results consist, in part, of a limited number of large transactions, results in any given fiscal quarter can vary depending on the timing of transactions and the profitability of the projects being reported. As a consequence, quarterly results may reflect such variations. Information on lines of business and foreign business is included under the following captions of this Annual Report on Form 10-K for the year ended December 31, 1999. Annual Report On Form 10-K Caption Page Number ------- ----------- Selected Consolidated Financial Information Page 12 Management's Discussion and Analysis Pages 13 - 19 Note 13 of Notes to the Consolidated Financial Statements, entitled Business Segments Pages 49 - 50
While the "Selected Consolidated Financial Information" presents certain lines of business information for purposes of consistency of presentation for the five years ended December 31, 1999, additional information (business segment) required by Statement of Financial Accounting Standards No. 131, "Disclosures About Segements of an Enterprise and Related Information", for the three years ended December 31, 1999 is included in Note 13 to the Consolidated Financial Statements. A summary of revenues by business segment for the three years ended December 31, 1999 is as follows (in thousands):
Revenues For Year Ended December 31, ------------------------------------------------------ 1999 1998 1997 ---- ---- ---- Construction: Building $ 696,407 $ 679,296 $ 888,809 Civil 323,077 332,026 387,224 ------------ ------------ ------------- Total Construction Revenues $ 1,019,484 $ 1,011,322 $ 1,276,033 ============ ============ =============
2 Construction - ------------ The general building and civil contracting services provided by the Company consist of planning and scheduling the manpower, equipment, materials and subcontractors required for the timely completion of a project in accordance with the terms and specifications contained in a construction contract. The Company provides these services using the traditional general contracting method as well as under construction management or design-build contracting arrangements. The Company was engaged in over 100 construction projects in the United States and overseas during 1999. The building operation provides its services through regional offices located in several metropolitan areas: Boston and Atlantic City, serving New England and the Mid-Atlantic area; Phoenix and Las Vegas, serving Arizona, Nevada and California; and Detroit, serving the Midwest area. The Company's building contracting services are provided by Perini Building Company, Inc., a wholly-owned subsidiary. This company combines substantial resources and expertise to better serve clients within the building construction market and enhances Perini's name recognition in this market. The Company undertakes a broad range of building construction projects including hotels, casinos, health care facilities, correctional facilities, sports complexes, residential, commercial, civic, cultural and educational facilities. The civil operation undertakes large public civil projects in the East, with current emphasis on major metropolitan areas such as Boston and New York City and selectively, in other geographic locations. The civil operation performs construction and rehabilitation of highways, bridges subways, tunnels, dams, airports, marine projects and waste water treatment facilities. The Company has been active in civil operations since 1894 and believes that it has particular expertise in large and complex projects. The Company believes that infrastructure rehabilitation is, and will continue to be, a significant market in 2000 and beyond. Perini Management Services, Inc. (formerly Perini International Corporation), a wholly-owned subsidiary, provides a broad range of both civil and building construction services to U.S. government agencies in the U.S. and selected overseas locations, funded primarily in U.S. dollars. In selected situations, it pursues other work internationally. Construction Strategy --------------------- The Company's current strategy is to concentrate on the civil construction market in the East and specialized niche building construction markets throughout the United States, with the goal in both markets to continue to improve profit margins. The Company believes the best opportunities for growth in the coming years for its civil construction business are in the urban infrastructure market, particularly in Boston and metropolitan New York and other major cities where it has a significant presence, and in other large, complex projects. The Company's strategy in building construction is to take advantage of certain market niches, and to expand into new markets compatible with its expertise. Internally, the Company plans to continue to improve efficiency through strict attention to the control of overhead expenses. Finally, the Company continues to expand its expertise to assist public owners to develop necessary facilities through creative alternative project delivery methods, including public/private ventures, design-build and design-build-operate-maintain ("DBOM") arrangements. During 1996, the Company also adopted a plan to enhance the profitability of its construction operations by emphasizing gross margin and bottom line improvement ahead of top line revenue growth. This plan called for the Company to focus its financial and human resources on construction operations which are consistently profitable and to de-emphasize marginal business units. During 1997, the Company closed or downsized and refocused four business units and combined its two remaining civil construction entities (U.S. Heavy and Metropolitan New York divisions) under a consolidated management structure named "Perini Civil". During 1998 and 1999, the Company has continued to implement these plans. 3 Backlog ------- The Company includes a construction project in its backlog at such times as a contract is awarded or a firm letter of commitment is obtained. As a result, the backlog figures are firm, subject only to the cancellation provisions contained in the various contracts. As of December 31, 1999, the Company has a record construction backlog of $1.66 billion compared to backlogs of $1.23 billion and $1.31 billion as of December 31, 1998 and 1997, respectively. The backlog is summarized below by geographic area and also by business segment:
Backlog (in thousands) as of December 31, ----------------------------------------------------------------------------------- 1999 1998 1997 ------------------------- ----------------------- ------------------------- Northeast $ 1,089,234 66% $ 682,774 55% $ 574,779 44% Mid-Atlantic 45,084 3 45,417 4 97,212 7 Southeast 210,395 12 35,801 3 46,629 4 Midwest 144,895 9 92,928 8 26,130 2 Southwest 44,994 3 294,931 24 481,068 37 West 1,264 - 26,843 2 28,707 2 Foreign 122,211 7 53,562 4 54,929 4 ------------ -------- ------------ ------- -------------- ------- Total $ 1,658,077 100% $ 1,232,256 100% $ 1,309,454 100% ============ ======== ============ ======= ============== =======
Backlog in the Northeast region of the United States increased substantially during 1999 due to the addition of the construction management services contract for the $650 million Mohegan Sun Phase II Expansion project ("Mohegan Sun Project") and otherwise remains strong because of the Company's ability to meet the needs of the growing infrastructure construction and rehabilitation market in this region, particularly in the metropolitan Boston and New York City areas. The decrease in backlog in the Southwest region is due to the timing in signing new contracts that are being negotiated and the redeployment of some of its resources from that region to the Southeast and Northeast regions, rather than a longer term trend. Other fluctuations in backlog are viewed by management as transitory.
Backlog (in thousands) as of December 31, ----------------------------------------------------------------------------------- 1999 1998 1997 ------------------------- ----------------------- ------------------------- Building $ 1,114,366 67% $ 581,776 47% $ 726,734 55% Civil 543,711 33 650,480 53 582,720 45 ------------ -------- ------------ ------- -------------- ------- Total $ 1,658,077 100% $ 1,232,256 100% $ 1,309,454 100% ============ ======== ============ ======= ============== =======
The historical relationship between Building and Civil is somewhat distorted in 1999 due to the impact of the Mohegan Sun Project. If that project was excluded from the backlog at the end of 1999, the remaining backlog would be divided equally between the Company's Building and Civil construction segments. The Company estimates that approximately $865 million of its backlog will not be completed in 2000. Types of Contracts ------------------ The four general types of contracts in current use in the construction industry are: o Fixed price contracts ("FP"), which include fixed unit price contracts, usually transfer more risk to the contractor but offer the opportunity, under favorable circumstances, for greater profits. With the Company's 4 concentration in publicly bid civil construction projects, fixed price contracts continue to represent a significant portion of the backlog. o Cost plus award fee contracts ("CPAF") which provide greater safety for the contractor from a financial standpoint, but limit profits. o Guaranteed maximum price contracts ("GMP") which provide for a cost plus fee arrangement up to a maximum agreed price. These contracts place risks on the contractor, but may permit an opportunity for greater profits than cost plus award fee contracts through sharing agreements with the client on any cost savings. o Construction management contracts ("CM") under which a contractor agrees to manage a project for the owner for an agreed-upon fee which may be fixed or may vary based upon negotiated factors. The contractor generally provides services to supervise and coordinate the construction work on a project, but does not directly purchase contract materials, provide construction labor and equipment or enter into agreements with subcontractors. Historically, a high percentage of company contracts have been of the fixed price and GMP type contracts and during 1999, the percentage of construction management contracts increased significantly due to the addition of the Mohegan Sun Project referred to above. Cost plus award fee contracts remain a relatively small percentage of company contracts. A summary of revenues and backlog by type of contract for the most recent three years follows:
Revenues - Year Ended December 31, Backlog as of December 31, - --------------------------------------- --------------------------------------- 1999 1998 1997 1999 1998 1997 ---- ---- ---- ---- ---- ---- 46% 50% 58% Fixed Price 38% 68% 53% 54 50 42 CPAF, GMP or CM 62 32 47 ---- ---- ---- ---- ---- ---- 100% 100% 100% 100% 100% 100% ==== ==== ==== ==== ==== ====
Clients ------- During 1999, the Company was active in the building, civil and to a lesser extent, the international construction markets. The Company performed work for over 50 federal, state and local governmental agencies or authorities and private customers during 1999. Due to the Company's trend toward fewer, but larger contracts, a material part of the Company's business has been dependent on a single or limited number of private customers and/or public agencies in recent years (see Note 13 of Notes to the Consolidated Financial Statements), the loss of any one of which could have a materially adverse effect on the Company. During the period 1997-1999, the portion of construction revenues derived from contracts with various governmental agencies was 40% in 1999, 43% in 1998 and 51% in 1997.
Revenues by Client Source ------------------------- Year Ended December 31, ---------------------------------- 1999 1998 1997 ---- ---- ---- Private Owners 60% 57% 49% Federal Governmental Agencies 3 2 5 State, Local and Foreign Governments 37 41 46 ---- ---- ---- 100% 100% 100% ==== ==== ====
General ------- The construction business is highly competitive. Competition is based primarily on price, reputation for on time completion, quality, reliability and financial strength of the contractor. While the Company experiences a great deal of competition from other large general contractors, some of which may be larger with greater financial resources than the Company, as well as from a number of smaller local contractors, it believes it has sufficient technical, managerial and 5 financial resources combined with a positive reputation of performance to be competitive in each of its major market areas. The Company will endeavor to spread the financial and/or operational risk, as it has from time to time in the past, by participating in construction joint ventures, both in a majority and in a minority position, for the purpose of bidding and if awarded, performing on projects. These joint ventures are generally based on a standard joint venture agreement whereby each of the joint venture participants is usually committed to supply a predetermined percentage of capital, as required, and to share in the same predetermined percentage of income or loss of the project on a joint and several basis. Although joint ventures tend to spread the risk of loss, the Company's initial obligations to the venture may increase if one of the other participants is financially unable to bear its portion of cost and expenses. For further information regarding certain joint ventures, see Note 3 of Notes to Consolidated Financial Statements. While the Company's construction business may experience some adverse consequences if shortages develop or if prices for materials, labor or equipment increase excessively, provisions in certain types of contracts often shift all or a major portion of any adverse impact to the customer. On fixed price type contracts, the Company attempts to insulate itself from the unfavorable effects of inflation by incorporating escalating wage and price assumptions, where appropriate, into its construction bids. Construction and other materials used in the Company's construction activities are generally available locally from multiple sources and have been in adequate supply during recent years. Construction work in selected overseas areas primarily employs expatriate and local labor which can usually be obtained as required. The Company does not anticipate any significant impact in 2000 from material and/or labor shortages or price increases. Economic and demographic trends tend not to have a material impact on the Company's civil construction operation. Instead, the Company's civil construction markets are dependent on the amount of heavy civil infrastructure work funded by various governmental agencies which, in turn, may depend on the condition of the existing infrastructure or the need for new expanded infrastructure. The building markets in which the Company participates are dependent on economic and demographic trends, as well as governmental policy decisions as they impact the specific geographic markets. The Company has minimal exposure to environmental liability as a result of the activities of Perini Environmental Services, Inc. ("Perini Environmental"), a wholly-owned subsidiary of the Company that was phased out during 1997. Perini Environmental provided hazardous waste engineering and construction services to both private clients and public agencies nationwide. Perini Environmental was responsible for compliance with applicable laws in connection with its clean up activities and bore the risk associated with handling such materials. In addition to strict procedural guidelines for conduct of this work, the Company and Perini Environmental generally carried insurance or received satisfactory indemnification from customers to cover the risks associated with this business. The Company also owns real estate in four states and as an owner, is subject to laws governing environmental responsibility and liability based on ownership. The Company is not aware of any environmental liability associated with its ownership of real estate property. The Company has been subjected to a number of claims from former employees of subcontractors regarding exposure to asbestos on the Company's projects. None of the claims have been material. The Company also operates construction machinery in its business and will, depending on the project or the ease of access to fuel for such machinery, install fuel tanks for use on site. Such tanks run the risk of leaking hazardous fluids into the environment. The Company, however, is not aware of any emissions associated with such tanks or of any other significant environmental liability associated with its construction operations or any of its corporate activities. Progress on projects in certain areas may be delayed by weather conditions depending on the type of project, stage of completion and severity of the weather. Such delays, if they occur, may result in more volatile quarterly operating results due to less progress than anticipated being achieved on projects. In the normal course of business, the Company periodically evaluates its existing construction markets and seeks to identify any growing markets where it feels it has the expertise and management capability to successfully compete or withdraw from markets which are no longer economically attractive, which it did during 1997 as discussed above. 6 Real Estate - ----------- The Company's real estate development operations were conducted by Perini Land & Development Company ("PL&D"), a wholly-owned subsidiary, which had real estate development projects in Arizona, California, Florida, Georgia and Massachusetts at the beginning of 1999. Effective June 30, 1999, management adopted a plan to withdraw completely from the real estate development business and to wind down the operations of PL&D. Therefore, both historical and current real estate results have been presented in the Company's financial statements as discontinued operations in accordance with generally accepted accounting principles. Based on the plan, the 1999 results include a $99.3 million non-cash provision which represents the estimated loss on disposal of this business segment. This non-cash charge reflects the impact of the disposition of the Rincon Center property located in San Francisco and the reduction in projected future cash flow from the disposition of PL&D's remaining real estate development operations resulting from the change in strategy of holding the properties through the necessary development and stabilization periods to a new strategy of generating short-term liquidity through an accelerated disposition or bulk sale. Real Estate Properties ---------------------- The following is a description of the Company's major development projects and properties by geographic area: Florida West Palm Beach and Palm Beach County - At Metrocentre, a 51-acre commercial/office park at the intersection of Interstate 95 and 45th Street in West Palm Beach, the last 5 acres of land were sold in 1999. Massachusetts Perini Land & Development or Paramount Development Associates, Inc. ("Paramount"), a wholly-owned subsidiary of PL&D, own the following projects: Raynham Woods Commerce Center, Raynham - During the late 1980's, Paramount acquired a 409-acre site located in Raynham, Massachusetts and completed infrastructure work on a major portion of the site (330 acres) which was being developed as a mixed-use corporate campus style park known as "Raynham Woods Commerce Center". From 1989 through 1998, Paramount sold an aggregate of 75 acres to various users. During 1999, Paramount sold 10 acres which leaves approximately 150 saleable acres to be sold. Easton Business Center, Easton - In 1989, Paramount acquired a 40-acre site in Easton, Massachusetts, which already had been partially developed and completed the development. The site was sold during 1999. Wareham - In early 1990, Paramount acquired an 18.9-acre parcel of land at the junction of Routes 495 and 58 in Wareham, Massachusetts. The property is being marketed to both retail and commercial/industrial users. No sales were closed in 1999. Georgia The Villages at Lake Ridge, Clayton County - During 1987, PL&D (49%) entered into a joint venture with 138 Joint Venture Partners to develop a 348-acre planned commercial and residential community in Clayton County called "The Villages at Lake Ridge". Since its acquisition, the joint venture has put in a substantial portion of the infrastructure, all of the recreational amenities, and through 1998 had sold 352 single family lots to builders, along with a 22.3-acre tract designed for 88 lots, a 16-acre parcel for use as an elementary school and developed a 278-unit apartment complex which it later sold to a third party buyer. In 1999 the joint venture sold the remaining lots and commercial tracts except for a single family tract of 28 acres and a 22 acre apartment tract, both of which are under contract to be sold in 2000. 7 California Rincon Center, San Francisco - Major construction on this mixed-use project in downtown San Francisco was completed in 1989 for Rincon Center Associates, a joint venture in which PL&D held a 46% interest and was the managing general partner. The project, known as "Rincon Center" consisted of 320 residential units, approximately 423,000 square feet of office space, 63,000 square feet of retail space, and a 700-space parking garage. Following its completion in 1988, Phase I of the project was sold and leased backed under a master lease by the developing partnership. Loans on the project aggregating $48.3 million matured in 1998 and were not refinanced pending certain debt restructuring negotiations that continued into the third quarter of 1999. As part of the Rincon Center Phase I sale and operating lease-back transaction, the lease provided that if an additional financial commitment to replace at least $33 million of long-term financing relating to Phase I had not been arranged by January 1, 1998, the lessee would have been deemed to have made an offer to purchase the property for a stipulated amount of approximately $18.8 million in excess of the then outstanding debt. An arrangement had been made to delay this event to allow the parties to finalize the financial restructuring referred to above and to eventually cancel this requirement as part of the terms to the various restructuring agreements. The restructuring negotiations terminated during the third quarter of 1999. Subsequently, the Company and PL&D, the managing general partner in the project, entered into a full and final non-cash settlement regarding its interest in the property. As part of the settlement and in exchange for the transfer of its ownership interest in the property, the Company has exchanged mutual releases with the other general partner, the project-related lenders, the lessor on Phase I and all other entities formally associated with the property from any claims, lawsuits or other liabilities they might have had with respect to each other in connection with the property. Arizona Perini Central Limited Partnership, Phoenix - In 1985, PL&D (75%) entered into a joint venture with the Central United Methodist Church to master plan and develop approximately 4.4 acres of the church's property in midtown Phoenix. In 1990, the project was successfully rezoned to permit development of 580,000 square feet of office, 37,000 square feet of retail and 162 luxury apartments. During 1999, the Company continued to look for a prospective buyer. Grove at Black Canyon, Phoenix - The project consists of an office park complex on a 30-acre site located off of Black Canyon Freeway, a major Phoenix artery, approximately 20 minutes from downtown Phoenix. When complete, the project could include approximately 650,000 square feet of office, hotel, restaurant and/or retail space. In 1987, a 150,000-square foot office building was completed within the park and substantially leased up immediately, with approximately half of the building leased to a major area utility company. Land sales since that time have aggregated approximately 12 acres and during 1999, the office building was sold. At December 31, 1999, the remaining 6 acres are under contract to be sold in 2000. Sabino Springs Country Club, Tucson - During 1990, the Tucson Board of Supervisors unanimously approved a plan for this 410-acre residential golf course community close to the foothills on the east side of Tucson. In 1991, that approval, which had been challenged, was affirmed by the Arizona Supreme Court. When fully developed, the project will consist of 496 single-family homes. In 1993, PL&D recorded the master plat on the project and sold a major portion of the property to an international real estate company. An 18-hole Robert Trent Jones, Jr. designed championship golf course and clubhouse were completed within the project in 1995. In 1998, PL&D settled a lawsuit with the prior purchaser of the major portion of the property which required PL&D to complete a certain portion of the infrastructure by the end of the Year 2000. During 1999, PL&D commenced the required infrastructure development which must be completed before PL&D can sell the 33 estate lots it still retains. 8 Insurance and Bonding - --------------------- All of the Company's properties and equipment, both directly owned or owned through partnerships or joint ventures with others, are covered by insurance, and management believes that such insurance is adequate. In conjunction with its construction business, the Company is often required to provide various types of surety bonds. The Company has a co-surety arrangement with three sureties, one of which it has dealt with for over 75 years, and it has never been refused a bond. Although from time-to-time the surety industry encounters limitations affecting the bondability of very large projects and the Company occasionally has encountered limits imposed by its surety, these limits have not had an adverse impact on its operations. Employees - --------- The total number of personnel employed by the Company is subject to seasonal fluctuations, the volume of construction in progress and the relative amount of work performed by subcontractors. During 1999, the maximum number of employees was approximately 2,750 and the minimum was approximately 1,500. The Company operates as a union contractor. As such, it is a signatory to numerous local and regional collective bargaining agreements, both directly and through trade associations, throughout the country. These agreements cover all necessary union crafts and are subject to various renewal dates. Estimated amounts for wage escalation related to the expiration of union contracts are included in the Company's bids on various projects and, as a result, the expiration of any union contract in the current fiscal year is not expected to have any material impact on the Company. ITEM 2. PROPERTIES - ------- ---------- Properties applicable to the Company's real estate development activities are described in detail by geographic area in Item 1. Business on pages 7 and 8. All other properties used in operations are summarized below: Owned or Approximate Approximate Square Principal Offices Leased by Perini Acres Feet of Office Space - ----------------- ---------------- ----------- -------------------- Framingham, MA Owned 9 100,000 Phoenix, AZ Leased - 22,700 Hawthorne, NY Leased - 12,500 Atlantic City, NJ Leased - 900 Las Vegas, NV Leased - 2,900 Chicago, IL Leased - 1,600 Detroit, MI Leased - 2,800 --- ------- 9 143,400 === ======= Owned or Approximate Principal Permanent Storage Yards Leased by Perini Acres - --------------------------------- ---------------- ----------- Bow, NH Owned 70 Framingham, MA Owned 6 Las Vegas, NV Leased 2 --- 78 ===
The Company's properties are well maintained, in good condition, adequate and suitable for the Company's purpose and fully utilized. 9 ITEM 3. LEGAL PROCEEDINGS - ------- ----------------- As previously reported, the Company is a party to an action entitled Mergentime Corporation et. al. v. Washington Metropolitan Area Transit Authority ("WMATA") v. Insurance Company of North America (Civil Action No. 89-1055) in the U.S. District Court for the District of Columbia. The action involves WMATA's termination of the general contractor, a joint venture in which the Company was a minority partner, on two contracts to construct a portion of the Washington, D.C. subway system, and certain claims by the joint venture against WMATA for claimed delays and extra work. On July 30, 1993, the Court upheld the termination for default, and found both joint venturers and their surety jointly and severally liable to WMATA for damages in the amount of $16.5 million, consisting primarily of WMATA's excess reprocurement costs, but specifically deferred ruling on the amount of the joint venture's claims against WMATA. Since the other joint venture partner may be unable to meet its financial obligations under the award, the Company could be liable for the entire amount. At the direction of the successor judge presiding over the action, during the third quarter of 1995, the parties submitted briefs on the issue of WMATA's liability on the joint venture's claims for delays and for extra work. As a result of that process, the Company established a reserve with respect to the litigation. In July 1997, the remaining issues were ruled on by the successor judge, who awarded approximately $4.3 million to the joint venture, thereby reducing the net amount payable to approximately $12.2 million. The joint venture appealed the decision. As a result of the decision, there was no immediate impact on the Company's Statement of Operations because of the reserve provided in prior years. On February 16, 1999, the U.S. Court of Appeals for the District of Columbia vacated the April 1995 and July 1997 Orders and remanded the case back to the successor judge with instructions for the successor judge to consider certain post-trial motions to the same extent an original judge would have, and to make findings and conclusions regarding the unresolved issues, giving appropriate consideration to whether or not witnesses must be recalled. During 1999, a new successor judge was appointed. Based on the suggestions of the successor judge, the parties have agreed to participate in non-binding mediation. If the parties do not agree to a settlement based on the mediation process or otherwise, a final judgment will be entered by the District Court upon the completion of these Appeals Court-directed procedures. The actual funding of net damages, if any, will be deferred until the litigation process is complete. In the ordinary course of its construction business, the Company is engaged in other lawsuits, and arbitration and alternative dispute resolution ("ADR") proceedings. The Company believes that such other lawsuits and proceedings are usually unavoidable in major construction operations and that their resolution will not materially affect its results of future operations and financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- --------------------------------------------------- None. 10 PART II. -------- ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS - ------- ------------------------------------------------------------------------ The Company's Common Stock is traded on the American Stock Exchange under the symbol "PCR". The quarterly market price ranges (high-low) for 1999 and 1998 are summarized below:
1999 1998 -------------------- ------------------- High Low High Low -------- ------ ------- -------- Market Price Range per Common Share: Quarter Ended March 31 7 1/2 - 4 3/8 9 1/8 - 7 3/8 June 30 5 7/8 - 4 1/2 11 1/4 - 7 7/8 September 30 6 3/16 - 2 5/8 8 1/2 - 6 December 31 4 3/4 - 3 1/4 7 - 4 1/4
For information on dividend payments, see Selected Financial Data in Item 6 below and "Dividends" under Management's Discussion and Analysis in Item 7 below. As of February 28, 2000, there were approximately 1,086 record holders of the Company's Common Stock. 11 ITEM 6. SELECTED FINANCIAL DATA - ------- -----------------------
Selected Consolidated Financial Information (In thousands, except per share data) 1999 1998 1997 1996 1995 ------------- -------------- ------------- -------------- ------------- OPERATING SUMMARY CONTINUING OPERATIONS: Revenues: Building $ 696,407 $ 679,296 $ 888,809 $ 834,888 $ 748,412 Civil 323,077 332,026 387,224 389,540 308,261 ------------- -------------- ------------- -------------- ------------- Total $1,019,484 $1,011,322 $1,276,033 $1,224,428 $1,056,673 ============= ============== ============= ============== ============= Cost of Operations $ 969,015 $ 957,651 $1,225,814 $1,168,997 $1,040,805 ------------- -------------- ------------- -------------- ------------- Gross Profit $ 50,469 $ 53,671 $ 50,219 $ 55,431 $ 15,868 G&A Expense 26,635 27,397 29,715 32,385 35,441 ------------- -------------- ------------- -------------- ------------- Income (Loss) From Operations $ 23,834 $ 26,274 $ 20,504 $ 23,046 $ (19,573) Other (Income) Expense, Net (72) 652 1,695 665 (697) Interest Expense 7,128 8,473 9,910 9,397 8,159 Income (Loss) From Continuing Operations Before Income Taxes $ 16,778 $ 17,149 $ 8,899 $ 12,984 $ (27,035) Provision (Credit) for Income Taxes $ 421 $ 1,100 $ 950 $ 830 $ (1,351) ------------- -------------- ------------- -------------- ------------- Income (Loss) From Continuing Operations $ 16,357 $ 16,049 $ 7,949 $ 12,154 $ (25,684) ------------- -------------- ------------- -------------- ------------- DISCONTINUED OPERATIONS: Loss From Operations $ (694) $ (4,397) $ (2,577) $ (82,757) $ (1,901) Estimated Loss on Disposal of Real Estate Business Segment (99,311) - - - - ------------- -------------- ------------- -------------- ------------- Loss From Discontinued Operations $ (100,005) $ (4,397) $ (2,577) $ (82,757) $ (1,901) ------------- -------------- ------------- -------------- ------------- Net Income (Loss) $ (83,648) $ 11,652 $ 5,372 $ (70,603) $ (27,585) ============= ============== ============= ============== ============= Per Share of Common Stock: Basic and Diluted Earnings (Loss): Income (Loss) From Continuing Operations $ 1.80 $ 1.91 $ 0.52 $ 2.08 $ (5.97) Loss From Discontinued Operations (.12) (0.83) (0.51) (17.21) (0.41) Estimated Loss on Disposal (17.72) - - - - ------------- -------------- ------------- -------------- ------------- Total $ (16.04) $ 1.08 $ 0.01 $ (15.13) $ (6.38) ============= ============== ============= ============== ============= Cash Dividends Declared $ - $ - $ - $ - $ - ------------- -------------- ------------- -------------- ------------- Book Value $ (11.31) $ 4.17 $ 2.44 $ 2.14 $ 17.06 ------------- -------------- ------------- -------------- ------------- Weighted Average Common Shares Outstanding 5,606 5,318 5,059 4,808 4,655 ------------- -------------- ------------- -------------- ------------- FINANCIAL POSITION SUMMARY Working Capital $ 48,430 $ 57,665 $ 76,752 $ 56,744 $ 36,545 ------------- -------------- ------------- -------------- ------------- Current Ratio 1.23:1 1.29:1 1.34:1 1.19:1 1.13:1 ------------- -------------- ------------- -------------- ------------- Long-term Debt, less current $ 41,091 $ 75,857 $ 84,576 $ 92,606 $ 80,495 maturities ------------- -------------- ------------- -------------- ------------- Stockholders' Equity (Deficit) $ (36,618) $ 50,558 $ 40,900 $ 35,558 $ 105,606 ------------- -------------- ------------- -------------- ------------- Ratio of Long-term Debt to Equity n.a. 1.50:1 2.07:1 2.60:1 0.76:1 ------------- -------------- ------------- -------------- ------------- Total Assets $ 275,488 $ 375,466 $ 407,288 $ 451,619 $ 525,259 ------------- -------------- ------------- -------------- ------------- OTHER DATA Backlog at Year End $1,658,077 $1,232,256 $1,309,454 $1,517,700 $1,534,522 ------------- -------------- ------------- -------------- -------------
12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - -------------------------------------------------------------------------------- OF OPERATIONS - ------------- Results of Operations - 1999 Compared to 1998 Continuing Operations - --------------------- The Company's continuing construction operations produced income of $16.4 million (or $1.80 per Common Share) in 1999 compared to income of $16.0 million (or $1.91 per Common Share) in 1998. Overall, the 1999 results from continuing operations include strong profit contributions from both the building and civil construction segments as well as lower interest expense. Revenues from continuing construction operations increased $8.2 million (or 0.8%) from $1,011.3 million in 1998 to $1,019.5 million in 1999. This increase was due primarily to an increase in building construction revenues of $17.1 million (or 2.5%) from $679.3 million in 1998 to $ 696.4 million in 1999, which more than offset a decrease in revenues from civil construction operations of $8.9 million (or 2.7%) from $332.0 million in 1998 to $323.1 million in 1999. The increase in revenues from building construction operations was due primarily to the start up of several new projects in the East. The slight decrease in revenues from civil construction operations was due primarily to the completion of several major mass transit and infrastructure projects in late 1998 and early 1999. Overall, gross profit decreased $3.2 million (or 6.0%) from $53.7 million in 1998 to $50.5 million in 1999, due to decreases in gross profit from both building and civil construction operations. Despite the increase in revenues noted above, gross profit from building construction operations decreased $1.7 million (or 5.5%) from $30.7 million in 1998 to $29.0 million in 1999 due primarily to additional losses attributable to the phasing out of a building construction division in the Midwest. Gross profit from civil construction operations decreased $1.5 million (or 6.5%) from $23.0 million in 1998 to $21.5 million in 1999 due primarily to the decrease in revenues noted above. The decrease in general, administrative and selling expenses of $0.8 million (or 2.9%) from $27.4 million in 1998 to $26.6 million in 1999, resulted primarily from the continued phase out of two construction divisions in the Midwest and ongoing cost reduction programs. Other income (expense), net improved by $0.7 million from a net expense of $0.6 million in 1998 to a net income of $0.1 million in 1999. This improvement was due to a $1.5 million increase in gain on sale of investments which was partly offset by a $0.8 million increase in bank fees relating to the Company's revolving credit facility. Interest expense decreased by $1.4 million from $8.5 million in 1998 to $7.1 million in 1999, due primarily to lower average levels of borrowing during 1999. The lower than normal tax rate for the three year period ended December 31, 1999 is due to the utilization of tax loss carryforwards from prior years. Because of certain accounting limitations, the Company was not able to recognize a portion of the tax benefit related to the operating losses experienced in fiscal 1996 and 1995. As a result of these losses and the loss recognized in 1999, an amount estimated to be approximately $142 million of pretax earnings subsequent to 1999 could benefit from minimal, if any, federal tax charges. The net deferred tax assets reflect management's estimate of the amount that will, more likely than not, be realized (see Note 5 of Notes to Consolidated Financial Statements). Discontinued Operations - ----------------------- Effective June 30, 1999, management adopted a plan to withdraw completely from the real estate development business and to wind down the operations of Perini Land and Development Company ("PL&D"), the Company's real estate development subsidiary. Therefore, both historical and current real estate results have been presented as a discontinued operation in accordance with generally accepted accounting principles. Based on the plan, the 1999 results include a $99.3 million non-cash provision which represents the estimated loss on disposal of this business segment. This non-cash charge reflects the impact of the disposition of the Rincon Center property located in San Francisco and the 13 reduction in projected future cash flow from the disposition of PL&D's remaining real estate development operations resulting from the change in strategy of holding the properties through the necessary development and stabilization periods to a new strategy of generating short-term liquidity through an accelerated disposition or bulk sale. The estimated loss on disposal of the real estate business segment also includes a provision for shut down costs related to PL&D during the wind down period. No federal tax benefit was attributable to the estimated loss on disposal of the real estate business segment due to certain accounting limitations. During the fourth quarter of 1999, the Company and PL&D, the managing general partner of Rincon Center Associates ("RCA"), entered into a full and final non-cash settlement regarding its interests in the Rincon Center property. As part of the settlement and in exchange for the transfer of its ownership interest in the RCA property, the Company has exchanged mutual releases with the other RCA general partner, the RCA-related lenders and all other entities formally associated with the RCA property from any claims, lawsuits or other liabilities they may have with respect to each other in connection with the RCA property. This completes a major step in the Company's plan to discontinue its real estate development operations. In addition, during the last half of 1999, PL&D concluded the sale of two other properties at prices approximating those originally anticipated in calculating the estimated loss on disposal of the real estate business segment at June 30, 1999. The actual loss from the sale of these two properties and loss on disposition of the RCA property approximated the losses originally estimated as of June 30, 1999. Several of the remaining real estate properties now being offered for sale are currently under or are pending purchase and sale agreements. Results of Operations - 1998 Compared to 1997 Continuing Operations - --------------------- The Company's continuing construction operations produced income of $16.0 million (or $1.91 per Common Share) in 1998 compared to income of $7.9 million (or $.52 per Common Share) in 1997. This substantially improved performance is attributable to higher margins on the work performed by both the Company's building and civil operating units, primarily from the hotel/casino market in Nevada and from civil infrastructure work in the Northeast and further reductions in general and administrative and interest expense. These improvements more than offset the impact of a decrease in 1998 construction revenues. Revenues from continuing construction operations decreased $264.7 million (or 21%) from $1,276.0 million in 1997 to $1,011.3 million in 1998. This decrease was due primarily to a decrease in revenues from both building and civil construction operations. Revenues from building operations decreased $209.5 million (or 24%) from $888.8 million in 1997 to $679.3 million in 1998, due primarily to the timing of the start up of new hotel/casino projects in Las Vegas, a decrease in revenues from airport facilities and a sports complex in the West, and a decrease in revenues from correctional facilities projects in the East. Revenues from civil construction operations decreased $55.2 million (or 14%) from $387.2 million in 1997 to $332.0 million in 1998, due primarily to the timing in the start up of new work in the Northeast. The phasing out of two divisions in the Midwest also contributed to the decrease in revenues from both the building and civil operations. In spite of the overall 21% decrease in total revenues described above, total gross profit actually increased by $3.5 million (or 7%), from $50.2 million in 1997 to $53.7 million in 1998, due primarily to improved margins on both the building and civil construction work performed in 1998. The decrease in general, administrative and selling expenses of $2.3 million (or 7.7%) from $29.7 million in 1997 to $27.4 million in 1998, resulted primarily from phasing out two construction divisions in the Midwest, efficiencies achieved by combining certain other divisions and continuation of downsizing certain corporate departments. Other income (expense), net improved by $1.1 million from a net expense of $1.7 million in 1997 to a net expense of $0.6 million in 1998, due to an increase in interest income and a decrease in bank fees. Interest expense decreased by $1.4 million from $9.9 million in 1997 to $8.5 million in 1998, due primarily to lower average levels of borrowing during 1998. 14 Financial Condition - ------------------- Cash and Working Capital During 1999, cash generated from operating activities in the amount of $27.8 million, due primarily to changes in various elements of working capital, was approximately equal to the amount of cash generated from operating activities in 1998 and continued to reflect improvement over recent prior years. The funds generated were used for investing activities ($13.5 million), primarily for funding the working capital needs of certain construction joint ventures, and for financing activities ($2.6 million), primarily to pay down borrowings and to increase cash on hand by $11.7 million. During 1998, the Company generated $27.8 million in cash from operating activities, due primarily to changes in various elements of working capital. The funds generated were used for investing activities ($2.2 million), primarily for funding the working capital needs of the Company's discontinued real estate operations, and for financing activities ($10.4 million), primarily to pay down borrowings and to increase cash on hand by $15.2 million. During 1997, the Company generated $11.8 million from investing activities, primarily from net cash distributions from construction joint ventures and the sale of The Resort at Squaw Creek property, and $17.4 million from financing activities, due to the net proceeds received on the sale of Series B Preferred Stock less pay downs of long-term debt. These funds were used for operating activities ($7.6 million) and to increase the cash on hand by $21.6 million. Effective January 17, 1997, the Company's liquidity and access to future borrowings, as required, during the next few years were significantly enhanced by the issuance of $30 million in Redeemable Series B Cumulative Convertible Preferred Stock (see Note 7 of Notes to Consolidated Financial Statements) and the Amended and Restated Credit Agreement referred to in Note 4 of Notes to Consolidated Financial Statements. The aggregate amount available under its revolving credit agreement increased to $129.5 million at that time, although it has subsequently been reduced and stands at $73.0 million at December 31, 1999. In addition to internally generated funds, at December 31, 1999, the Company has approximately $2.0 million available under its revolving credit facility. The financial covenants to which the Company is subject include minimum levels of working capital, tangible net worth and operating cash flow and certain restrictions on real estate investments and future cash dividends, all as defined in the loan documents. Although the Company would have been in violation of certain of the covenants during 1999, it obtained waivers of such violations. Also, during the last three years, the Company made substantial progress on a strategy adopted at the end of 1996 that called for liquidating certain real estate assets which were written down at that time, resolving several major construction claims and minimizing overhead expenses. On February 5, 2000, the Company entered into a definitive Securities Purchase Agreement, subject to certain conditions, whereby the new investors have agreed to purchase $40 million of the Company's Common Stock, $1.00 par value. If this transaction is consummated, the Company's liquidity, working capital and access to future borrowings, as required, during the next few years will be significantly enhanced by the "New Equity" and "New Credit Agreement" referred to in Note 15 of Notes to Consolidated Financial Statements. The working capital current ratio was 1.23:1 at the end of 1999 compared to 1.29:1 at the end of 1998, and 1.34:1 at the end of 1997. Of the total working capital of $48.4 million at the end of 1999, approximately $24 million may not be converted to cash within the next 12 to 18 months. Long-term Debt Long-term debt was $41.1 million at the end of 1999, down from $75.9 million in 1998, $84.6 million in 1997 and $92.6 million in 1996. In addition to the $51.5 million reduction in long-term debt during the three year period ended December 31, 1999, the Company paid down all of its $8.1 million of real estate debt on wholly-owned real estate projects, utilizing proceeds from sales of property and general corporate funds. Similarly, real estate joint venture debt of $69.2 million has been reduced to zero during the same three year period. 15 Stockholders' Equity (Deficit) As a result of the net loss recorded in 1999, due to the $100 million loss from discontinued real estate operations, the Company's stockholders' equity was reduced to a negative $36.6 million. The Company's book value per Common Share stood at a negative $(11.31) at December 31, 1999, compared to $4.17 per Common Share and $2.44 per Common Share at the end of 1998 and 1997, respectively. The major factors impacting stockholders' equity during the three-year period under review were the net income recorded in 1998 and 1997, the net loss recorded in 1999 and, to a lesser extent, preferred dividends paid in-kind or accrued and stock issued in partial payment of certain expenses. As mentioned above under "Cash and Working Capital" and in more detail in Note 15 of Notes to Consolidated Financial Statements, the Company recently entered into a definitive Securities Purchase Agreement, subject to certain conditions, whereby the new investors have agreed to purchase $40 million of the Company's common stock. A condition to the Purchase Agreement is that all of the holders of the Company's Series B Preferred Stock, which has a current accreted face amount of approximately $40 million, will convert their securities into Common Stock, $1.00 par value, of the Company at $5.50 per share of common stock. The impact on the Company's Stockholders' Equity (Deficit) will be to increase it by approximately $75 million after estimated expenses related to the transaction (or improving it from a Stockholders' Deficit of $36.6 million at December 31, 1999 to a positive Stockholders' Equity of $38.6 million on a pro forma basis). If the transaction is consummated, shares of Common Stock held by the new investors and the former holders of the Series B Preferred Stock will represent approximately 42.0% and 32.5% of the Company's voting rights, respectively. At December 31, 1999, there were 1,098 common stockholders of record based on the stockholders list maintained by the Company's transfer agent. Dividends There were no cash dividends declared or paid on the Company's outstanding Common Stock during the three years ended December 31, 1999. During 1995, the Company declared and paid the regular quarterly cash dividends of $5.3125 per share on the Company's Convertible Exchangeable Preferred Shares for an annual total of $21.25 per share (equivalent to quarterly dividends of $.53125 per Depositary Share for an annual total of $2.125 per Depositary Share). In conjunction with the covenants of the Company's Revolving Credit Agreement (see Note 4 of Notes to Consolidated Financial Statements), the Company was required to suspend the payment of quarterly dividends on its Preferred Stock. Therefore, the dividend that normally would have been declared during December of 1995 and payable on March 15, 1996, as well as subsequent quarterly dividends through 1999, have not been declared or paid (although they have been fully accrued due to the "cumulative" feature of the Preferred Stock). The current Credit Agreement, approved January 17, 1997, provides that the Company may not pay cash dividends or make other restricted payments unless: (i) the Company is not in default under the Credit Agreement; (ii) commitments under the credit facility have been reduced to less than $75 million; (iii) restricted payments in any quarter, when added to restricted payments made in the prior three quarters, do not exceed fifty percent (50%) of net income from continuing operations for the prior four quarters; and (iv) certain net worth levels (after taking into consideration the amount of the proposed cash dividend or restricted payment and as adjusted for non-cash charges incurred in connection with any disposition or write-down of any real estate investment) are not exceeded and provided that net worth must be at least $60 million. For purposes of the current Credit Agreement, net worth shall include the net proceeds from the sale of the Series B Preferred Stock to the Investors. In addition, under the terms of the Series B Preferred Stock, the Company may not pay any cash dividends on its Common Stock until after September 1, 2001, and then only to the extent such dividends do not exceed in aggregate more than twenty-five percent (25%) of the Company's consolidated net income available for distribution to Common shareholders (after Preferred dividends). Prior to any such dividends, the Company must have elected and paid cash dividends on the Series B Preferred Stock for the preceding four quarters. Subject to and concurrent with the closing of the new equity transaction described in Note 15 of Notes to Consolidated Financial Statements, the Company's Bank Group has agreed in principle to extend and restructure its Revolving Credit 16 Agreement (the "New Credit Agreement"). Covenants in the New Credit Agreement provide that the Company may not pay cash dividends or make other restricted payments unless: (i) the Company is not in default under the New Credit Agreement; (ii) commitments under the New Credit Agreement have been reduced to less than $41 million; (iii) restricted payments in any quarter, when added to restricted payments made in the prior three quarters, do not exceed fifty percent (50%) of net income from continuing operations for the prior four quarters; and (iv) net worth (after taking into consideration the amount of the proposed cash dividend or restricted payment) is at least equal to the amount shown below: Minimum Consolidated As of: Adjusted Tangible Net Worth ------ --------------------------- (In millions) March 31, 2000 $36.3 June 30, 2000 38.8 September 30, 2000 41.8 December 31, 2000 46.6 March 31, 2001 48.2 June 30, 2001 51.1 September 30, 2001 55.3 December 31, 2001 60.0 March 31, 2002 61.6 June 30, 2002 64.7 September 30, 2002 71.1 December 31, 2002 75.1 The aggregate amount of dividends in arrears is approximately $9,030,000 at December 31, 1999, which represents approximately $90.30 per share of Preferred Stock or approximately $9.03 per Depositary Share and is included in "Other Liabilities" (long-term) in the Consolidated Balance Sheet. Under the terms of the Preferred Stock, the holders of the Depositary Shares are entitled to elect two additional Directors when dividends have been deferred for more than six quarters, and they did so at both the May 14, 1998 and the May 13, 1999 Annual Meetings. The Board of Directors intends to resume payment of dividends when the Company satisfies the terms of the New Credit Agreement, the provisions of the Series B Preferred Stock and the Board deems it prudent to do so. Outlook o Continuing Construction Operations - Looking ahead, the overall construction backlog at the end of 1999 was $1.658 billion, up 35% from the 1998 year end backlog of $1.232 billion. This increase primarily reflects the addition of the construction management services contract for the $650 million Mohegan Sun Phase II Expansion project in Uncasville, CT. Approximately 67% of the current backlog relates to building construction projects which generally represent lower risk, lower margin work, and approximately 33% of the current backlog relates to civil construction projects which generally represent higher risk, but correspondingly potentially higher margin work. During 1996, the Company adopted a plan to enhance the profitability of its construction operations by emphasizing gross margin and bottom line improvement ahead of top line revenue growth. This plan called for the Company to focus its financial and human resources on construction operations which are consistently profitable and to de-emphasize marginal business units. Consistent with that Plan, the Company implemented plans to close or downsize and refocus four business units during 1997 and during 1998 and 1999 has continued to implement these plans. The Company believes the outlook for its building and civil construction businesses continues to be promising. o Discontinued Real Estate Operations - As described in detail on pages 2 and 7, and in Notes 1 and 2 of Notes to Consolidated Financial Statements, the Company is proceeding to implement its plan to wind down its discontinued real estate development operations. A major step in the plan was completed during the fourth quarter of 1999 whereby the Company entered into a settlement agreement regarding its interest in the Rincon Center property. As 17 part of the settlement and in exchange for the transfer of its ownership interest in the RCA property, the Company has exchanged mutual releases with the other RCA general partners, the RCA-related lenders and all other entities formally associated with the RCA property from any claims, lawsuits or other liabilities they may have with respect to each other in connection with the Rincon Center property. In addition, during the last six months of 1999, PL&D concluded the sale of two other properties at prices approximating those originally anticipated in calculating the estimated loss on disposal of the real estate business segment at June 30, 1999. Several of the remaining real estate properties now being offered for sale are currently under or are pending a purchase and sale agreement. o Rebuilding Equity - As a result of the net loss recorded in 1999, the Company's stockholders' equity has been reduced to a negative $36.6 million. As described in detail in "Stockholders' Equity (Deficit)" on page 16 and in Note 15 of Notes to Consolidated Financial Statements, the Company and an investor group have entered into a definitive Securities Purchase Agreement. Subject to, among other things, shareholder approval and agreement of the holders of Series B Preferred Stock to convert their securities into common stock at $5.50 per share of common stock, the transaction should close in the first or second quarter of 2000 and result in a restoration of balance sheet net worth and improve liquidity and working capital to support the ongoing core construction operations. o Liquidity - With the receipt of $30 million from the sale of its Redeemable Series B Preferred Stock and the New Credit Agreement both becoming effective on January 17, 1997, the Company's near term liquidity position improved substantially, enabling payments to vendors to generally be made in accordance with normal payment terms. In order to generate cash and reduce the Company's dependence on bank debt to fund the working capital needs of its core construction operations as well as to lower the Company's substantial interest expense and strengthen the balance sheet in the longer term, the Company has discontinued its real estate development business and is in the process of liquidating its real estate portfolio. The Company will continue to actively pursue the favorable conclusion of various unapproved change orders and construction claims; to focus new construction work acquisition efforts on various niche markets and geographic areas where the Company has a proven history of success; to downsize or close operations with marginal prospects for success; to continue to restrict the payment of cash dividends on the Company's $1 par value Common Stock and $2.125 Depositary Convertible Exchangeable Preferred Stock; and to continue to seek ways to control overhead expenses. o New Equity and New Credit Agreement - As described in Note 15 of Notes to Consolidated Financial Statements, the Transaction would, if consummated, significantly improve the Company's financial condition and liquidity. If the Transaction is not consummated, management's intent would be to renegotiate the terms of its credit facility and continue to pay the in-kind dividend on the Series B Preferred Stock. Management believes that cash generated from operations, existing credit lines, additional borrowings and projected sale of certain real estate assets referred to above and timely resolution and payment of various unapproved change orders and construction claims referred to above should be adequate to meet the Company's funding requirements for at least the next twelve months. o Year 2000 Readiness Disclosures - Since many computers, related software and certain devices with embedded microchips record only the last two digits of a year, they may not have been able to recognize that January 1, 2000 (or subsequent dates) comes after December 31, 1999. This situation could have caused erroneous calculations or system shutdowns, causing problems that could have ranged from merely inconvenient to significant. As previously reported, the Company began a project to review all of its computer systems in 1995. One factor, among many, to consider was what impact, if any, would the Year 2000 have on computer systems. As a result of this project, the Company implemented new fully integrated on-line construction specific financial systems during the first quarter of 1998 which are Year 2000 compliant. The cost of these new systems, including the hardware, software and implementation costs, approximated $1.5 million which was capitalized and is being amortized over ten years on a straight-line basis. During 1998, the Company designated a Year 2000 Project Manager who organized a Year 2000 Team. The Year 2000 Team prepared a Year 2000 Readiness Plan which included the following phases: (1) potential problem identification, (2) resource commitment, (3) inventory, (4) assessment, (5) prioritization, (6) remediation and (7) 18 testing. The Company completed the problem identification, resource commitment and prioritization phases during 1998, the inventory phase during the first quarter of 1999, and the "assessment", "testing", and "remediation" phases as of September 30, 1999. As a result of completing its Year 2000 Plan, as well as the actual commencement of the Year 2000 without any significant computer-related failures or errors experienced or reported to date, the Company believes its internal financial and operating systems are compliant. The Company estimates that costs related to implementation of the Year 2000 Plan, over and above the cost of the new financial systems referred to above, were approximately $0.4 million which were expensed as incurred. The Company, as a general contractor, generally provides its construction services in accordance with detailed contracts and specifications provided by its clients. In addition to addressing its own computer applications, facilities, and construction equipment, the Plan included communication with critical third parties. The Company had in place and continues to maintain a Year 2000 Urgent Response Team defined and available to respond to any Year 2000 issues raised by clients or others, in a timely, proactive and cost effective manner. To date, no significant Year 2000 related issues have been experienced by or reported to the Company. Forward-looking Statements The statements contained in this Management's Discussion and Analysis of the Consolidated Financial Statements, including "Outlook", and other sections of this Annual Report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding the Company's expectations, hopes, beliefs, intentions or strategies regarding the future. Forward-looking statements involve a number of risks, uncertainties or other factors that may cause actual results or performance to be materially different from those expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the continuing validity of the underlying assumptions and estimates of total forecasted project revenues, costs and profits and project schedules; the outcomes of pending or future litigation, arbitration or other dispute resolution proceedings; changes in federal and state appropriations for infrastructure projects; possible changes or developments in worldwide or domestic, social, economic, business, industry, market and regulatory conditions or circumstances; and actions taken or omitted by third parties including the Company's customers, suppliers, business partners, and competitors and legislative, regulatory, judicial and other governmental authorities and officials. In addition, forward-looking statements regarding the year 2000 issue carry risk factors which include, without limitation, the availability and cost of personnel trained in these areas; the ability to locate and correct all relevant computer codes; changes in consulting fees and costs to remediate or replace hardware and software; changes in non-incremental costs resulting from redeployment of internal resources; timely responses to and corrections by third parties such as significant customers and suppliers; and similar uncertainties. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK - -------- --------------------------------------------------------- The Company's exposure to market risk for changes in interest rates relates primarily to the Company's revolving credit debt (see Note 4 of Notes to Consolidated Financial Statements) and short-term investment portfolio. As of December 31, 1999, the Company had $68.0 million borrowed under its revolving credit agreement and $54.8 million of short-term investments classified as cash equivalents. The Company borrows under its bank revolving credit facility for general corporate purposes, including working capital requirements and capital expenditures. Borrowings under the bank credit facility bear interest at the applicable LIBOR or base rate, as defined, and therefore, the Company is subject to fluctuations in interest rates. If the average effective 1999 borrowing rate of 8.1% changed by 10% (or 0.81%) during the next twelve months, the impact, based on the Company's ending 1999 revolving debt balance, would be an increase or decrease in net income and cash flow of $550,800. The Company's short-term investment portfolio consists primarily of highly liquid instruments with maturities of less than one month. 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- ------------------------------------------- The Reports of Independent Public Accountants, Consolidated Financial Statements, and Supplementary Schedules, are set forth on the pages that follow in this Report and are hereby incorporated herein. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - ------- ---------------------------------------------------- None. 20 PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ----------------------------------------------------------- Reference is made to the information to be set forth in the section entitled "Election of Directors" in the definitive proxy statement involving election of directors in connection with the Annual Meeting of Stockholders to be held on May 25, 2000 (the "Proxy Statement"), which section is incorporated herein by reference. The Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 1999 pursuant to Regulation 14A of the Securities and Exchange Act of 1934, as amended. Listed below are the names, offices held, ages and business experience of all executive officers of the Company. Name, Offices Held and Age Year First Elected to Present Office and Business Experience - -------------------------- ------------------------------------------------------------ Ronald N. Tutor, Director and Since May 14, 1999 he serves as a Director and Chairman. Prior to that, Chairman - 59 he served as a Director and Vice Chairman since January 1, 1998 and as a Director and Acting Chief Operating Officer since January 17, 1997. He is the Chairman, President and Chief Executive Officer of Tutor-Saliba Corporation, a California based construction contractor, since prior to 1994 and has actively managed that company since 1966. Robert Band, Director, President and He was elected a Director, President and Chief Executive Officer Chief Executive Officer - 52 effective May 12, 1999. He has served as Chief Financial Officer since December 1997. Prior to that, he served as President of Perini Management Services, Inc. since January 1996 and as Senior Vice President, Chief Operating Officer of Perini International Corporation since April 1995. Previously, he served as Vice President Construction from July 1993 and in various operating and financial capacities since 1973, including Treasurer from May 1988 to January 1990. Zohrab B. Marashlian, President, Perini He was elected to his current position in December 1997, which entails Civil Construction - 55 overall responsibility for the Company's civil construction operations. Prior to that, he served as President of the Company's Metropolitan New York Division since April 1995 and as Senior Vice President, Operations of the Company's Metropolitan New York Division since January 1994. Previously, he served in various project management capacities with the Company since 1985, including Project Manager and Vice President - Area Manager. Prior to that, he served in various capacities for the Company on projects in New York and overseas since 1971. Craig W. Shaw, President, Perini He was elected to his current position in October 1999, which entails Building Company - 45 overall responsibility for the Company's building construction operations. Prior to that he served as President, Perini Building Company, Western U.S. Division since April 1995 and Senior Vice President, Construction for Perini Building Company's Western U.S. Division since January 1994 and as Vice President, Construction for Perini Building Company's Western U.S. Division since 1986. Previously, he served in various project management capacities with the Company since 1978, including Project Manager from 1979 to 1986.
The Company's officers are elected on an annual basis at the Board of Directors Meeting immediately following the Stockholders Meeting in May, to hold such offices until the Board of Directors' Meeting following the next Annual Meeting of Stockholders and until their respective successors have been duly appointed or until their tenure has been terminated by the Board of Directors, or otherwise. 21 ITEM 11. EXECUTIVE COMPENSATION - -------- ---------------------- ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------- -------------------------------------------------------------- ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ---------------------------------------------- In response to Items 11-13, reference is made to the information to be set forth in the section entitled "Election of Directors" in the Proxy Statement, which is incorporated herein by reference. 22 PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K ------------------------------------------------------------------------ PERINI CORPORATION AND SUBSIDIARIES ----------------------------------- (a)1. The following financial statements and supplementary financial information are filed as part of this report: Pages ----- Financial Statements of the Registrant Consolidated Balance Sheets as of December 31, 1999 and 1998* 25 - 26 Consolidated Statements of Operations for each of the three years ended December 31, 1999, 27 1998* and 1997* Consolidated Statements of Stockholders' Equity (Deficit) for each of the three years 28 ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for each of the three years ended December 31, 1999, 29 - 30 1998* and 1997* Notes to Consolidated Financial Statements 31 - 52 Report of Independent Public Accountants 53 * As restated to report the Company's real estate development business as a discontinued operation (see Notes 1 and 2 of Notes to Consolidated Financial Statements). (a)2. The following financial statement schedules are filed as part of this report: Pages ----- Report of Independent Public Accountants on Schedules 54 Schedule II - Valuation and Qualifying Accounts and Reserves 55 All other schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in the Consolidated Financial Statements or in the Notes thereto. (a)3. Exhibits The exhibits which are filed with this report or which are incorporated herein by reference are set forth in the Exhibit Index which appears on pages 56 through 60. The Company will furnish a copy of any exhibit not included herewith to any holder of the Company's Common and Preferred Stock upon request. (b) During the quarter ended December 31, 1999, the Registrant made the following filings on Form 8-K: A Form 8-K was filed on October 15, 1999 and reported on "Perini Completes a Major Step in Previously Announced Real Estate Wind Down Plan" under "Item 5. Other Events" in said Form 8-K. A Form 8-K was filed on November 30, 1999 and reported on "Perini Announces Letter of Intent With Investor Group" under "Item 5. Other Events" in said Form 8-K.
23 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. Perini Corporation (Registrant) Dated: March 15, 2000 /s/Robert Band ---------------------- Robert Band President and CEO Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated. Signature Title Date - --------- ----- ---- (i) Principal Executive Officer Robert Band President and Chief Executive March 15, 2000 Officer /s/Robert Band - -------------------- Robert Band (ii) Principal Financial Officer Robert Band President and Chief Executive March 15, 2000 Officer /s/Robert Band - -------------------- Robert Band (iii) Principal Accounting Officer Michael E. Ciskey Vice President and March 15, 2000 Controller /s/Michael E. Ciskey - -------------------- Michael E. Ciskey
(iv) Directors Ronald N. Tutor ) Robert Band ) Richard J. Boushka ) Arthur I. Caplan ) Marshall M. Criser )/s/Robert Band Frederick Doppelt )-------------------- Arthur J. Fox, Jr. )Attorney in Fact Nancy Hawthorne )Dated: March 15, 2000 Michael R. Klein ) Douglas J. McCarron ) Jane E. Newman ) David B. Perini ) 24
Consolidated Balance Sheets December 31, 1999 and 1998 (Restated) (In thousands, except share data) Assets 1999 1998 ------------- ------------ CURENT ASSETS: Cash, including cash equivalents of $54,759 and $38,175 (Note 1) $ 58,193 $ 46,507 Accounts and notes receivable, including retainage of $20,458 and $30,450 93,785 113,052 Unbilled work (Note 1) 14,283 19,585 Construction joint ventures (Notes 1 and 3) 82,493 67,100 Net current assets of discontinued operations (Note 2) 12,695 8,068 Deferred tax asset (Notes 1 and 5) - 1,076 Other current assets 647 2,469 ------------- ------------ Total current assets $262,096 $257,857 ------------- ------------ NET LONG-TERM ASSETS OF DISCONTINUED OPERATIONS (Note 2) $ - $104,017 ------------- ------------ PROPERTY AND EQUIPMENT, at cost (Note 1): Land $ 536 $ 536 Buildings and improvements 11,551 11,286 Construction equipment 8,185 7,600 Other equipment 6,983 6,814 ------------- ------------ $ 27,255 $ 26,236 Less - Accumulated depreciation 17,438 16,378 ------------- ------------ Total property and equipment, net $ 9,817 $ 9,858 ------------- ------------ OTHER ASSETS: Other investments $ 2,433 $ 2,469 Goodwill (Note 1) 1,142 1,265 ------------- ------------ Total other assets $ 3,575 $ 3,734 ------------- ------------ $275,488 $375,466 ============= ============
The accompanying notes are an integral part of these consolidated financial statements. 25
Liabilities and Stockholders' Equity (Deficit) 1999 1998 ------------- ------------- CURRENT LIABILITIES: Current maturities of long-term debt (Note 4) $ 32,158 $ 2,036 Accounts payable, including retainage of $24,501 and $31,859 83,578 127,349 Advances from construction joint ventures (Note 3) 14,104 17,300 Deferred contract revenue (Note 1) 45,088 14,350 Accrued expenses 38,738 39,157 ------------- ------------- Total current liabilities $213,666 $200,192 ------------- ------------- DEFERRED INCOME TAXES AND OTHER LIABILITIES (Notes 1, 5 & 6) $ 19,664 $ 15,319 ------------- ------------- LONG-TERM DEBT, less current maturities included above (Note 4) $ 41,091 $ 75,857 ------------- ------------- CONTINGENCIES AND COMMITMENTS (Note 11) REDEEMABLE SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK (Note 7): Authorized - 500,000 shares Issued and outstanding - 200,184 shares and 181,357 shares (aggregate liquidation preferences of $40,037 and $36,271) $ 37,685 $ 33,540 ------------- ------------- STOCKHOLDERS' EQUITY (DEFICIT) (Notes 1, 4, 7, 8, 9, 10 and 15): Preferred Stock, $1 par value - Authorized - 500,000 shares Designated, issued and outstanding - 99,990 shares of $21.25 Convertible Exchangeable Preferred Stock ($24,998 aggregate liquidation preference) $ 100 $ 100 Series A junior participating Preferred Stock, $1 par value - Designated - 200,000 Issued - none - - Stock Purchase Warrants 2,233 2,233 Common Stock, $1 par value - Authorized - 15,000,000 shares Issued - 5,742,816 shares and 5,506,341 shares 5,743 5,506 Paid-in surplus 43,561 49,219 Retained earnings (deficit) (87,290) (3,642) ESOT related obligations - (1,381) ------------- ------------- $(35,653) $ 52,035 Less - Common Stock in treasury, at cost - 60,529 shares and 92,694 shares 965 1,477 ------------- ------------- Total stockholders' equity (deficit) $(36,618) $ 50,558 ------------- ------------- $275,488 $375,466 ============= =============
26
Consolidated Statements of Operations For the Years Ended December 31, 1999, 1998 (Restated) & 1997 (Restated) (In thousands, except per share data) 1999 1998 1997 ------------ ------------- ------------ CONTINUING OPERATIONS: Revenues (Notes 3 and 13) $ 1,019,484 $ 1,011,322 $ 1,276,033 ------------ ------------- ------------ Cost and Expenses (Notes 3 and 10): Cost of Operations $ 969,015 $ 957,651 $ 1,225,814 General, Administrative and Selling Expenses 26,635 27,397 29,715 ------------ ------------- ------------ $ 995,650 $ 985,048 $ 1,255,529 ------------ ------------- ------------ INCOME FROM OPERATIONS (Note 13) $ 23,834 $ 26,274 $ 20,504 Other (Income) Expense, Net (Note 6) (72) 652 1,695 Interest Expense (Note 4) 7,128 8,473 9,910 ------------ ------------- ------------ Income from Continuing Operations before Income Taxes $ 16,778 $ 17,149 $ 8,899 Provision for Income Taxes (Notes 1 and 5) 421 1,100 950 ------------ ------------- ------------ INCOME FROM CONTINUING OPERATIONS $ 16,357 $ 16,049 $ 7,949 DISCONTINUED OPERATIONS (Notes 2 and 5): Loss from Operations $ (694) $ (4,397) $ (2,577) Estimated Loss on Disposal of Real Estate Business Segment (99,311) - - ------------ ------------- ------------ LOSS FROM DISCONTINUED OPERATIONS $ (100,005) $ (4,397) $ (2,577) ------------ ------------- ------------ NET INCOME (LOSS) $ (83,648) $ 11,652 $ 5,372 ============ ============= ============ BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE (Note 1): Income from Continuing Operations $ 1.80 $ 1.91 $ .52 Loss from Discontinued Operations (.12) (.83) (.51) Estimated Loss on Disposal (17.72) - - ------------ ------------- ------------ Total $ (16.04) $ 1.08 $ .01 ============ ============= ============
The accompanying notes are an integral part of these consolidated financial statements. 27
Consolidated Statements of Stockholders' Equity (Deficit) For the Years Ended December 31, 1999, 1998 & 1997 (In thousands, except per share data) Stock Retained ESOT Preferred Purchase Common Paid-In Earnings Related Treasury Stock Warrants Stock Surplus (Deficit) Obligations Stock Total - ---------------------------------------------------------------------------------------------------------------------------- Balance - December 31, 1996 $ 100 $ - $ 5,032 $57,080 $(20,666) $ (3,856) $ (2,132) $ 35,558 - ---------------------------------------------------------------------------------------------------------------------------- Net Income - - - - 5,372 - - 5,372 Value of Stock Purchase Warrants issued (Note 4) - 2,233 - - - - - 2,233 Preferred Stock dividends accrued ($21.25 per share*) - - - (2,125) - - - (2,125) Series B Preferred Stock dividends in kind issued (Note 7) - - - (2,830) - - - (2,830) Accretion related to Series B Preferred Stock (Note 7) - - - (368) - - - (368) Common Stock issued in partial payment of incentive compensation - - 235 1,466 - - - 1,701 Payment of director fees - - - (211) - - 377 166 Payments related to ESOT notes - - - - - 1,193 - 1,193 - ---------------------------------------------------------------------------------------------------------------------------- Balance - December 31, 1997 $ 100 $ 2,233 $ 5,267 $53,012 $(15,294) $ (2,663) $ (1,755) $ 40,900 - ---------------------------------------------------------------------------------------------------------------------------- Net Income - - - - 11,652 - - 11,652 Preferred Stock dividends accrued ($21,25 per share*) - - - (2,125) - - - (2,125) Series B Preferred Stock dividends in kind issued (Note 7) - - - (3,411) - - - (3,411) Accretion related to Series B Preferred Stock (Note 7) - - - (373) - - - (373) Common Stock issued in partial payment of incentive compensation - - 239 2,243 - - - 2,482 Payment of director fees - - - (127) - - 278 151 Payments related to ESOT notes - - - - - 1,282 - 1,282 - ---------------------------------------------------------------------------------------------------------------------------- Balance - December 31, 1998 $ 100 $ 2,233 $ 5,506 $ 49,219 $ (3,642) $ (1,381) $ (1,477) $ 50,558 - ---------------------------------------------------------------------------------------------------------------------------- Net Loss - - - - (83,648) - - (83,648) Preferred Stock dividends accrued ($21.25 per share*) - - - (2,125) - - - (2,125) Series B Preferred Stock dividends in kind issued (Note 7) - - - (3,765) - - - (3,765) Accretion related to Series B Preferred Stock (Note 7) - - - (379) - - - (379) Common Stock issued in partial payment of incentive compensation - - 237 960 - - - 1,197 Payment of director fees - - - (349) - - 512 163 Payments related to ESOT notes - - - - - 1,381 - 1,381 - ---------------------------------------------------------------------------------------------------------------------------- Balance - December 31, 1999 $ 100 $ 2,233 $ 5,743 $ 43,561 $(87,290) $ - $ (965) $ (36,618) - ----------------------------------------------------------------------------------------------------------------------------
*Equivalent to $2.125 per Depositary Share (see Note 8). The accompanying notes are an integral part of these consolidated financial statements. 28
Consolidated Statements of Cash Flows For the Years Ended December 31, 1999, 1998 (Restated) & 1997 (Restated) (In thousands) 1999 1998 1997 ------------ ------------ ------------ Cash Flows from Operating Activities: Net income (loss) $ (83,648) $ 11,652 $ 5,372 Adjustments to reconcile net income (loss) to net cash from operating activities - Loss from discontinued operations 100,005 4,397 2,577 Depreciation 1,585 1,463 1,709 Amortization of deferred debt expense, Stock Purchase Warrants and other 1,757 1,596 2,011 (Gain) loss on sale of investment (1,406) 118 68 Distributions greater (less) than earnings of joint ventures and (1,571) 1,367 (2,404) affiliates Cash provided from (used by) changes in components of working capital other than cash, notes payable, and current maturities of long-term debt: (Increase) decrease in accounts receivable 19,267 25,345 48,338 (Increase) decrease in unbilled work 5,302 16,989 (974) (Increase) decrease in construction joint ventures (307) (1,509) 820 (Increase) decrease in deferred tax asset 1,076 (9) 2,446 (Increase) decrease in other current assets 1,822 354 23 Increase (decrease) in accounts payable (43,771) (17,585) (38,109) Increase (decrease) in advances from construction joint ventures (3,196) (12,501) (17,743) Increase (decrease) in deferred contract revenue 30,738 (2,767) (6,724) Increase (decrease) in accrued expenses (1,244) 12,190 (688) Non-current deferred taxes and other liabilities 1,033 (13,169) (4,540) Other non-cash items, net 363 (153) 177 ------------ ------------ ------------ NET CASH PROVIDED FROM (USED BY) OPERATING ACTIVITIES $ 27,805 $ 27,778 $ (7,641) ------------ ------------ ------------ Cash Flows from Investing Activities: Proceeds from sale of property and equipment $ 585 $ 608 $ 383 Cash distributions of capital from unconsolidated joint ventures 1,475 5,625 14,747 Acquisition of property and equipment (1,599) (1,418) (1,696) Capital contributions to unconsolidated joint ventures (14,990) (1,527) (5,986) Investment in discontinued operations (615) (5,288) 4,866 Proceeds from sale of investment 4,000 200 - Investment in other activities (2,328) (390) (468) ------------ ------------ ------------ NET CASH PROVIDED FROM (USED BY) INVESTING ACTIVITIES $ (13,472) $ (2,190) $ 11,846 ------------ ------------ ------------
29
Consolidated Statements of Cash Flows (Continued) For the Years Ended December 31, 1999, 1998 (Restated) & 1997 (Restated) (In thousands) 1999 1998 1997 ------------ ------------ ------------ Cash Flows from Financing Activities: Proceeds from issuance of Redeemable Series B Preferred Stock, net $ - $ - $ 26,558 Proceeds from long-term debt 656 113 5,035 Repayment of long-term debt (4,663) (13,132) (16,105) Common stock issued 1,197 2,482 1,701 Treasury stock issued 163 151 166 ------------ ------------ ------------ NET CASH PROVIDED FROM (USED BY) FINANCING ACTIVITIES $ (2,647) $ (10,386) $ 17,355 ------------ ------------ ------------ Net Increase in Cash $ 11,686 $ 15,202 $ 21,560 Cash and Cash Equivalents at Beginning of Year 46,507 31,305 9,745 ------------ ------------ ------------ Cash and Cash Equivalents at End of Year $ 58,193 $ 46,507 $ 31,305 ============ ============ ============ Supplemental Disclosures of Cash Paid During the Year For: Interest $ 7,369 $ 8,137 $ 10,133 ============ ============ ============ Income tax payments $ 101 $ 160 $ 330 ============ ============ ============ Supplemental Disclosure of Noncash Transactions: Dividends paid in shares of Series B Preferred Stock (Note 7) $ 3,765 $ 3,411 $ 2,830 ============ ============ ============ Value assigned to Stock Purchase Warrants (Note 4) $ - $ - $ 2,233 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1999, 1998 & 1997 [1] Summary of Significant Accounting Policies [a] Principles of Consolidation The consolidated financial statements include the accounts of Perini Corporation, its subsidiaries and certain majority-owned real estate joint ventures (the "Company"). All subsidiaries are currently wholly-owned. All significant intercompany transactions and balances have been eliminated in consolidation. Non-consolidated joint venture interests are accounted for on the equity method with the Company's share of revenues and costs in these interests included in "Revenues" and "Cost of Operations," respectively, in the accompanying consolidated statements of operations. All significant intercompany profits between the Company and its joint ventures have been eliminated in consolidation. Taxes are provided on joint venture results in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". [b] Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates with regard to these financial statements relate to the estimating of final construction contract profits in accordance with accounting for long-term contracts (see Note 1(c) below), estimating future cash flows from real estate dispositions (see Note 1(d) below and Note 2) and estimating potential liabilities in conjunction with certain contingencies and commitments, as discussed in Note 11 below. Actual results could differ from these estimates. [c] Method of Accounting for Contracts Profits from construction contracts and construction joint ventures are generally recognized by applying percentages of completion for each year to the total estimated profits for the respective contracts. The percentages of completion are determined by relating the actual cost of the work performed to date to the current estimated total cost of the respective contracts. When the estimate on a contract indicates a loss, the Company's policy is to record the entire loss. The cumulative effect of revisions in estimates of total cost or revenue during the course of the work is reflected in the accounting period in which the facts that caused the revision become known. An amount equal to the costs attributable to unapproved change orders and claims is included in the total estimated revenue when realization is probable. Profit from unapproved change orders and claims is recorded in the year such amounts are resolved. In accordance with normal practice in the construction industry, the Company includes in current assets and current liabilities amounts related to construction contracts realizable and payable over a period in excess of one year. Unbilled work represents the excess of contract costs and profits recognized to date on the percentage of completion accounting method over billings to date on certain contracts. Deferred contract revenue represents the excess of billings to date over the amount of contract costs and profits recognized to date on the percentage of completion accounting method on the remaining contracts. [d] Methods of Accounting for Real Estate Operations Effective June 30, 1999, the Company adopted a plan to withdraw completely from its real estate development business segment, which is presented as a discontinued operation in accordance with Accounting Principles Board ("APB") Opinion No. 30, Reporting the Results of Operations (see Note 2). Accordingly, the historical amounts for 1998 and 1997 have been restated to conform to the requirements of APB No. 30. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1999, 1998 & 1997 (continued) [1] Summary of Significant Accounting Policies (continued) [d] Methods of Accounting for Real Estate Operations (continued) Real estate investments are stated at the lower of the carrying amounts, which includes applicable interest and real estate taxes during the development and construction phases, or fair value less cost to sell in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ". SFAS No. 121 requires that assets to be held and used be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment has occurred when the carrying amount of the assets exceeds the related undiscounted future cash flows of a development. SFAS No. 121 also provides that when management has committed to a plan to dispose of specific real estate assets, the assets should be reported at the lower of the carrying amount or fair value less cost to sell. Estimating future cash flows of a development involves estimating the current sales value of the development less the estimated costs of completion (to the stage of completion assumed in determining the selling price), holding and disposal. Estimated sales values are forecast based on comparable local sales (where applicable), trends as foreseen by knowledgeable local commercial real estate brokers or others active in the business and/or project specific experience such as offers made directly to the Company relating to the property. If the estimated undiscounted future cash flows of a development are less than the carrying amount of a development, SFAS No. 121 requires a provision to be made to reduce the carrying amount of the development to fair value less cost to sell. [e] Depreciable Property and Equipment Land, buildings and improvements, construction and computer-related equipment and other equipment are recorded at cost. Depreciation is provided primarily using accelerated methods for construction and computer-related equipment and the straight-line method for the remaining depreciable property. [f] Goodwill Goodwill represents the excess of the costs of subsidiaries acquired over the fair value of their net assets as of the dates of acquisition. These amounts are being amortized on a straight-line basis over 40 years. [g] Income Taxes The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes," (see Note 5). Deferred income tax assets and liabilities are recognized for the effects of temporary differences between the financial statement carrying amounts and the income tax basis of assets and liabilities using enacted tax rates. In addition, future tax benefits, such as net operating loss carryforwards, are recognized currently to the extent such benefits are more likely than not to be realized as an economic benefit in the form of a reduction of income taxes in future years. [h] Earnings (Loss) Per Common Share Earnings (loss) per common share amounts were calculated in accordance with SFAS No. 128, "Earnings Per Share". Basic earnings (loss) per common share ("EPS") was computed by dividing net income (loss) less dividends and other requirements related to Preferred Stock by the weighted average number of common shares outstanding. Diluted earnings (loss) per common share was computed by giving effect to all dilutive potential common shares outstanding. The weighted average shares used in the diluted earnings (loss) per common share computations were essentially the same as those used in the basic earnings (loss) per common share computations (see below). Basic EPS equals diluted EPS for all periods presented due to the immaterial effect of stock options and the antidilutive effect of conversion of the Company's Depositary Convertible Exchangeable Preferred Shares, Series B Preferred Shares and Stock Purchase Warrants. 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1999, 1998 & 1997 (continued) [1] Summary of Significant Accounting Policies (continued) [h] Earnings (Loss) Per Common Share (continued) Basic and diluted earnings (loss) per common share for the three years ended December 31, 1999 are calculated as follows (in thousands except per share amounts): 1999 1998 1997 ------------ -------------- ------------ Income from continuing operations $ 16,357 $ 16,049 $ 7,949 ------------ -------------- ------------ Less: Accrued dividends on $21.25 Senior Preferred Stock (Note 8) $ (2,125) $ (2,125) $ (2,125) Dividends declared on Series B Preferred Stock (Note 7) (3,765) (3,411) (2,830) Accretion deduction required to reinstate mandatory redemption value of Series B Preferred Stock over a period of 8-10 years (Note 7) (379) (373) (368) ------------ -------------- ------------ $ (6,269) $ (5,909) $ (5,323) ------------ -------------- ------------ Earnings from continuing operations $ 10,088 $ 10,140 $ 2,626 Loss from discontinued operations (100,005) (4,397) (2,577) ------------ -------------- ------------ Total available for common stockholders $(89,917) $ 5,743 $ 49 ============ ============== ============ Weighted average shares outstanding 5,606 5,318 5,059 ------------ -------------- ------------ Basic and diluted earnings (loss) per Common Share from - Continuing operations $ 1.80 $ 1.91 $ .52 Discontinued operations (17.84) (.83) (.51) ------------ -------------- ------------ Total $ (16.04) $ 1.08 $ .01 ============ ============== ============
[i] Cash and Cash Equivalents Cash equivalents include short-term, highly liquid investments with original maturities of three months or less. [j] Reclassifications Certain prior year amounts have been reclassified to be consistent with the current year classifications, including reclassifications of prior year financial statements and footnotes to reflect the discontinued operations referred to in Note 2. [k] Impact of Recently Issued Accounting Standards During 1998, SFAS No. 133, "Accounting for Derivative Financial Instruments and Hedging Activities" was issued. The Company will implement the provisions of the Statement (as amended by SFAS No. 137) in the quarter ending March 31, 2001. The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1999, 1998 & 1997 (continued) [1] Summary of Significant Accounting Policies (continued) [k] Impact of Recently Issued Accounting Standards (continued) either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that the Company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. The Company does not currently hold any significant derivative instruments or engage in significant hedging activities and, therefore, the impact of adopting Statement No. 133 is expected to be immaterial. [2] Discontinued Operations Effective June 30, 1999, management adopted a plan to withdraw completely from the real estate development business and to wind down the operations of Perini Land and Development Company ("PL&D"), the Company's wholly-owned real estate development subsidiary. Therefore, both historical and current real estate results have been presented as a discontinued operation in accordance with generally accepted accounting principles. Based on the plan, the 1999 results include a $99,311,000 non-cash provision which represents the estimated loss on disposal of this business segment. This non-cash charge reflects the impact of the disposition of the Rincon Center property located in San Francisco and the reduction in projected future cash flow from the disposition of PL&D's remaining real estate development operations resulting from the change in strategy of holding the properties through the necessary development and stabilization periods to a new strategy of generating short-term liquidity through an accelerated disposition or bulk sale. The estimated loss on disposal of the real estate business segment also includes a provision for shut down costs related to PL&D during the wind down period. No Federal tax benefit was attributable to Losses from Discontinued Operations due to certain accounting limitations. Several of the remaining real estate properties now being offered for sale are currently under or are pending purchase and sale agreements. Real estate revenues were $18,073,000 in 1999, $24,578,000 in 1998, and $48,458,000 in 1997. Net current and long-term assets of discontinued operations at December 31, 1999 and 1998 consisted of the following (in thousands): 1999 1998 -------------- --------------- Current assets $ 14,566 $ 9,735 Current liabilities (413) (1,667) Minority interest (1,458) - -------------- --------------- Net current assets of discontinued operations $ 12,695 $ 8,068 ============== =============== Real estate development investment $ - $ 105,475 Minority interest - (1,458) -------------- --------------- Net long-term assets of discontinued operations $ - $ 104,017 ============== ===============
During the six month period ended December 31, 1999, PL&D concluded the sale of two properties. The net proceeds of $14.6 million realized from the sale of these two properties was equal to the net proceeds originally anticipated in calculating the estimated loss on disposal of the real estate business segment at June 30, 1999. The actual loss from the sale of these two properties was approximately equal to the loss originally anticipated in calculating the estimated loss on disposal of the real estate business segment at June 30, 1999. In addition, the Company completed a major step in its plan to discontinue its real estate development operations by concluding the disposition of the Rincon Center property. The Company and PL&D, the managing partner of Rincon Center Associates ("RCA"), entered into a full and final non-cash settlement regarding its interest in Rincon Center. As part of the settlement and in exchange for the transfer of its 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1999, 1998 & 1997 (continued) [2] Discontinued Operations (continued) ownership interest in the RCA property, the Company exchanged mutual releases with the other RCA general partner, the RCA-related lenders and all other entities formally associated with the RCA property from any claims, lawsuits or other liabilities they may have with respect to each other in connection with the Rincon Center property. The loss realized upon disposition of this property approximated the estimated loss originally calculated at June 30, 1999. [3] Joint Ventures The Company, in the normal conduct of its business, has entered into partnership arrangements, referred to as "joint ventures," for certain construction and real estate development projects. Each of the joint venture participants is usually committed to supply a predetermined percentage of capital, as required, and to share in a predetermined percentage of the income or loss of the project. Summary financial information (in thousands) for construction and real estate joint ventures accounted for on the equity method for the three years ended December 31, 1999 follows:
Construction Joint Ventures Financial position at December 31, 1999 1998 1997 --------------- --------------- -------------- Current assets $ 509,859 $ 398,061 $ 403,058 Property and equipment, net 7,800 7,358 11,482 Current liabilities (349,328) (285,197) (292,184) --------------- --------------- -------------- Net assets $ 168,331 $ 120,222 $ 122,356 =============== =============== ============== Equity $ 82,493 $ 67,100 $ 71,056 =============== =============== ============== Operations for the year ended December 31, 1999 1998 1997 --------------- --------------- -------------- Revenue $1,131,350 $ 891,026 $1,030,347 Cost of operations 1,075,460 844,688 974,571 --------------- --------------- -------------- Pretax income $ 55,890 $ 46,338 $ 55,776 =============== =============== ============== Company's share of joint ventures Revenue $ 400,670 $ 368,733 $ 555,363 Cost of operations 375,591 343,753 518,576 --------------- --------------- -------------- Pretax income $ 25,079 $ 24,980 $ 36,787 =============== =============== ==============
The Company has a centralized cash management arrangement with two construction joint ventures in which it is the sponsor. Under this arrangement, excess cash is controlled by the Company; cash is made available to meet the individual joint venture requirements, as needed; and interest income is credited to the ventures at competitive market rates. In addition, certain joint ventures sponsored by other contractors, in which the Company participates, distribute cash at the end of each quarter to the participants who will then return these funds at the beginning of the next quarter. Of the total cash advanced at the end of 1999 ($14.1 million) and 1998 ($17.3 million), approximately $12.4 million in 1999 and $13.2 million in 1998 was deemed to be temporary. 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1999, 1998 & 1997 (continued) [3] Joint Ventures (continued)
Real Estate Joint Ventures Financial position at December 31, 1999 1998 1997 ---------------- --------------- -------------- Property held for sale or development $ 8,398 $ 11,128 $ 11,544 Investment properties, net - 122,474 125,234 Other assets 56 22,902 20,645 Long-term debt - (57,572) (61,712) Other liabilities* (8,866) (243,228) (222,131) ---------------- --------------- -------------- Net assets (liabilities) $ (412) $ (144,296) $ (126,420) ================ =============== ============== Equity ** $ 773 $ (67,088) $ (58,434) Advances 6,957 158,668 146,332 ---------------- --------------- -------------- Total Equity and Advances $ 7,730 $ 91,580 $ 87,898 ================ =============== ============== Total Equity and Advances, Long-term*** $ - $ 89,499 $ 86,598 Total Equity and Advances, Short-term*** 7,730 2,081 1,300 ---------------- --------------- -------------- $ 7,730 $ 91,580 $ 87,898 ================ =============== ============== Operations for the year ended December 31, 1999 1998 1997 ---------------- --------------- -------------- Revenue $ 31,513 $ 20,897 $ 24,486 ---------------- --------------- -------------- Cost of operations - Depreciation $ 2,286 $ 3,071 $ 3,662 Other 97,338 37,672 63,225 ---------------- --------------- -------------- $ 99,624 $ 40,743 $ 66,887 ---------------- --------------- -------------- Pretax income (loss) $ (68,111) $ (19,846) $ (42,401) ================ =============== ============== Company's share of joint ventures Revenue $ 15,111 $ 9,567 $ 13,252 ---------------- --------------- -------------- Cost of operations - Depreciation $ 1,056 $ 1,420 $ 1,709 Other**** 44,057 10,423 12,132 ---------------- --------------- -------------- $ 45,113 $ 11,843 $ 13,841 ---------------- --------------- -------------- Pretax income (loss)***** $ (30,002) $ (2,276) $ (589) ================ =============== ==============
* Included in "Other liabilities" are advances from joint venture partners in the amount of $8.8 million in 1999, $226.5 million in 1998 and $208.9 million in 1997. Of the total advances from joint venture partners, $7.0 million in 1999, $158.7 million in 1998 and $146.3 million in 1997 represented advances from the Company. ** When the Company's equity in a real estate joint venture is combined with advances by the Company to that joint venture, each joint venture has a positive investment balance at December 31, 1999. *** Included in net current or long-term assets of discontinued operations, as indicated. **** Other costs are reduced by the amount of interest income recorded by the Company on its advances to the respective joint ventures. ***** Included in loss from discontinued operations. 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1999, 1998 & 1997 (continued) [4] Long-term Debt Long-term debt of the Company at December 31, 1999 and 1998 consists of the following (in thousands): 1999 1998 -------------- ------------- Revolving credit loans at an average rate of 8.1% in 1999 and 8.0 % in 1998 $68,000 $72,000 Less - unamortized deferred value attributable to the Stock Purchase Warrants (see below) - (744) -------------- ------------- $68,000 $71,256 Industrial revenue bonds at various rates - 4,000 ESOT Notes at 8.24%, payable in semi-annual installments (Note 8) - 1,260 Mortgages on real estate 4,005 446 Other indebtedness 1,244 931 -------------- --- ------------- Total $73,249 $77,893 Less - current maturities 32,158 2,036 -------------- ------------- Net long-term debt $41,091 $75,857 ============== =============
Payments required under these obligations amount to approximately $32,158 in 2000, $41,077 in 2001 and $14 in 2002. Effective January 17, 1997, and amended at various dates through January 2000, the Company is party to an Amended and Restated Credit Agreement with a group of major U.S. banks. This Credit Agreement with original commitments totaling $129.5 million has been reduced to commitments of $73.0 million as of December 31, 1999 as a result of scheduled amortization payments and proceeds from sales of real estate. The expiration of the Credit Agreement is January 2, 2001. The Credit Agreement provides that the Company can choose from three interest rate alternatives including a prime-based rate, as well as other interest rate options based on LIBOR (London Inter-Bank Offered Rate) or participating bank certificate of deposit rates. The Agreement provides for, among other things, maintaining specified working capital and tangible net worth levels, minimum operating cash flow levels, as defined, limitations on indebtedness and certain limitations on investment in real estate development projects and future cash dividends. The Agreement also provides that collateral shall consist of all available assets not included as collateral in other agreements and for the continuation of the suspension of payment of the 53 1/8 cent per share quarterly dividend on the Company's Depositary Convertible Exchangeable Preferred Shares (see Note 8) until certain financial criteria are met. In addition to a fee, the Bank Group received Stock Purchase Warrants as partial compensation for the credit facility enabling the participating banks to purchase up to 420,000 shares of the Company's Common Stock, $1.00 par value, at $8.30 per share, the average fair market value of the stock for the five business days prior to the January 17, 1997 closing, at any time during the ten year period ended January 17, 2007. The grant date present value of the Stock Purchase Warrants ($2,233,000) was calculated using the Black-Scholes option pricing model and was accounted for by an increase in Stockholders' Equity, with the offset being a valuation account netted against the related Revolving Credit Loans. The valuation account was amortized over the approximate three-year term of the Credit Agreement on the straight-line method, with the offsetting charge being to Other Income (Expense), Net. The balance was fully amortized at December 31, 1999. 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1999, 1998 & 1997 (continued) [4] Long-term Debt (continued) Subsequent to December 31, 1999, the Company has reached an agreement in principle with its Bank Group to extend and restructure the Revolving Credit Agreement into a revolving credit facility and a $35 million term loan ("New Credit Agreement"). Amortization of the term loan will total $15 million in 2000, and $10 million annually in 2001 and 2002. The revolving credit facility may be as high as $35 million at closing but must be reduced to $21 million by April 20, 2000. The revolving credit facility will be reduced by the net proceeds from certain real estate sales, with the remaining balance due January 21, 2003. Up to $12 million of the unborrowed revolving commitment will be available for letters of credit. The New Credit Agreement otherwise has generally similar terms to that of the existing facility. The New Credit Agreement will close simultaneously with the new equity transaction (see Note 15). Amortization under the current Credit Agreement has been amended to conform to that of the New Credit Agreement. [5] Income Taxes The Company accounts for income taxes in accordance with SFAS No. 109. This standard determines deferred income taxes based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities, given the provisions of enacted tax laws. Total income tax expense for the three years ended December 31, was allocated as follows (in thousands): 1999 1998 1997 ----------- ------------- ----------- Continuing Operations $ (421) $ (1,100) $ (950) Discontinued Operations - - - ----------- ------------- ----------- Total Tax Expense $ (421) $ (1,100) $ (950) =========== ============= =========== The (provision) credit for income taxes expense attributable to income from continuing operations is comprised of the following (in thousands): Federal State Foreign Total ---------- ---------- ---------- ---------- 1999 Current $ - $ (590) $ 169 $ (421) Deferred - - - - ---------- ---------- ---------- ---------- $ - $ (590) $ 169 $ (421) ========== ========== ========== = ========== 1998 Current $ - $ (480) $ (620) $ (1,100) Deferred - - - - ---------- ---------- ---------- ---------- $ - $ (480) $ (620) $ (1,100) ========== ========== ========== ========== 1997 Current $ - $ (569) $ (381) $ (950) Deferred - - - - ---------- ---------- ---------- ---------- $ - $ (569) $ (381) $ (950) ========== ========== ========== ========== 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1999, 1998 & 1997 (continued) [5] Income Taxes (continued) The table below reconciles the difference between the statutory federal income tax rate and the effective rate provided for income from continuing operations in the statements of operations. 1999 1998 1997 -------- -------- ------- Statutory federal income tax rate 34% 34% 34% State income taxes, net of federal tax benefit 2 2 6 Foreign taxes (1) 5 6 Change in valuation allowance (33) (33) (33) Goodwill and other 1 1 2 -------- -------- ------- Effective tax rate 3% 9% 15% ======== ======== ======= The following is a summary of the significant components of the Company's deferred tax assets and liabilities as of December 31, 1999 and 1998 (in thousands):
1999 1998 ----------------------------- ------------------------------ Deferred Deferred Deferred Deferred Tax Tax Tax Tax Assets Liabilities Assets Liabilities ------------- ------------ -------------- ------------ Provision for estimated losses $ 9,859 $ - $ 9,562 $ - Contract losses 3,079 - 119 - Joint ventures - construction - 10,628 - 9,271 Joint ventures - real estate - 662 - 8,770 Timing of expense recognition 1,020 - 468 - Capitalized carrying charges - 1,491 - 1,587 Net operating loss and capital loss carryforwards 45,821 - 27,994 - Alternative minimum tax credit carryforwards 2,442 - 2,442 - General business tax credit carryforwards 3,532 - 3,532 - Foreign tax credit carryforwards - - 26 - Other, net 892 - 1,025 - ----------- ------------ -------------- ------------ $66,645 $ 12,781 $ 45,168 $ 19,628 Valuation allowance for deferred tax assets (53,864) - (25,540) - ------------- ------------ -------------- ------------ Total $12,781 $ 12,781 $ 19,628 $ 19,628 ============= ============ ============== ============
The overall increase in the valuation allowance for deferred tax assets is attributable to the excess of loss from discontinued operations versus income from continuing operations. The net of the above is deferred taxes in the amount of $ -0- in 1999 and 1998, which is classified in the respective Consolidated Balance Sheets as follows: 1999 1998 -------------- ----------- Long-term deferred tax liabilities (included in "Deferred Income Taxes and Other Liabilities") $ - $ 1,076 Short-term deferred tax asset - 1,076 -------------- ----------- $ - $ - ============== ===========
39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1999, 1998 & 1997 (continued) [5] Income Taxes (continued) A valuation allowance is provided to reduce the deferred tax assets to a level which, more likely than not, will be realized. The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible. The net deferred tax assets reflect management's estimate of the amount which will be realized from future taxable income which can be predicted with reasonable certainty. As a result of not providing any federal income tax benefit in 1996 and only a partial benefit in 1995, earnings benefited in 1998 and 1997 by approximately $4.3 million and $2.1 million, respectively, by not having to provide for any federal income tax. Approximately $142 million of future pretax earnings could benefit from minimal, if any, federal tax provisions. At December 31, 1999, the Company has unused tax credits and net operating loss carryforwards for income tax reporting purposes which expire as follows (in thousands): Unused Capital Net Operating Investment Loss Loss Tax Credits Carryforward Carryforwards ------------- --------------- ---------------- 2001 - 2006 $ 3,532 $ 4,049 $ 1,404 2007 - 2019 -- -- 129,315 ------------- --------------- ---------------- $ 3,532 $ 4,049 $ 130,719 ============= =============== ================ Net operating loss carryforwards and unused tax credits may be limited in the event of certain changes in ownership interests of significant stockholders. As explained in Note 15, the additional equity generated from the new equity transaction is not expected to give rise to such a limitation. In addition, approximately $1.4 million of the net operating loss carryforwards can only be used against the taxable income of the corporation in which the loss was recorded for tax and financial reporting purposes. [6] Deferred Income Taxes and Other Liabilities and Other (Income) Expense, Net Deferred Income Taxes and Other Liabilities Deferred income taxes and other liabilities at December 31, 1999 and 1998 consist of the following (in thousands): 1999 1998 -------------- --------------- Deferred income taxes $ - $ 1,076 Insurance related liabilities 7,062 5,625 Employee benefit related liabilities 2,375 1,400 Accrued dividends on $21.25 Preferred Stock (Note 8) 9,030 6,906 Other 1,197 312 -------------- --------------- $ 19,664 $ 15,319 ============== =============== 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1999, 1998 & 1997 (continued) [6] Deferred Income Taxes and Other Liabilities and Other (Income) Expense, Net (continued) Other (Income) Expense, Net Other (income) expense items for the three years ended December 31, 1999 consist of the following (in thousands): 1999 1998 1997 ---------- ---------- ----------- Interest and dividend income $ (1,432) $ (1,140) $ (1,022) Bank fees 2,585 1,833 2,172 (Gain) loss on sale of investments (1,406) 118 68 Miscellaneous (income) expense, net 181 (159) 477 ---------- ---------- ----------- $ (72) $ 652 $ 1,695 ========== ========== =========== [7] Redeemable Series B Cumulative Convertible Preferred Stock At a special stockholders' meeting on January 17, 1997, the Company's stockholders approved two proposals that allowed the Company to close a new equity transaction with a private investor group led by Richard C. Blum & Associates, L.P. The transaction included, among other things, classification by the Board of Directors of 500,000 shares of Preferred Stock of the Company as Redeemable Series B Cumulative Convertible Preferred Stock, par value $1.00 per share, (the "Series B Preferred Stock"), issuance of 150,150 shares of Series B Preferred Stock at $200 per share (or $30 million) to the investor group, (with the remainder of the shares set aside for possible future payment-in-kind dividends to the holders of the Series B Preferred Stock), amendments to the Company's By-Laws that redefined the Executive Committee and added certain powers (generally financial in nature), including the power to give overall direction to the Company's Chief Executive Officer, appointment of three new members, recommended by the investor group, to the Board of Directors, and appointment of these same new directors to constitute a majority of the Executive Committee referred to above. Tutor-Saliba Corporation, a corporation controlled by the Chairman of the Board of Directors of the Company, who is also a member of the Executive Committee, is a participant in certain construction joint ventures with the Company (see Note 14 "Related Party Transactions"). Dividends on the Series B Preferred Stock are generally payable at an annual rate of 7% when paid in cash and 10% of the liquidation preference of $200.00 per share when paid in-kind with Series B Preferred Stock compounded on a quarterly basis. According to the terms of the Series B Preferred Stock, it (i) ranks junior in cash dividend and liquidation preference to the $21.25 Convertible Exchangeable Preferred Stock and senior to Common Stock, (ii) provides that no cash dividends will be paid on any shares of Common Stock except for certain limited dividends beginning in 2001, (iii) is convertible into shares of Common Stock at an initial conversion price of approximately $9.68 per share (equivalent to 3,101,571 shares on January 17, 1997), (iv) has the same voting rights as shareholders of Common Stock immediately equal to the number of shares of Common Stock into which the Series B Preferred Stock can be converted, (v) generally has a liquidation preference of $200 per share of Series B Preferred Stock, (vi) is optionally redeemable by the Company after three years at a redemption price equal to the liquidating value per share and higher amounts if a Special Default, as defined, has occurred, (vii) is mandatorily redeemable by the Company if a Special Default has occurred and a holder of the Series B Preferred Stock requests such a redemption, (viii) is mandatorily redeemable by the Company for approximately one-third of the shares still outstanding on January 17, 2005 and one-third of the remaining shares in each of the next two years. The initial proceeds ($30,030,000) received upon the issuance of 150,150 Series B Preferred Shares were reduced by related expenses of approximately $3.5 million. Due to the redeemable feature of the Series B Preferred Stock, this 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1999, 1998 & 1997 (continued) [7] Redeemable Series B Cumulative Convertible Preferred Stock (continued) reduction has to be added back (or accreted) to reinstate its mandatory redemption value over a period of 8-10 years, with an offsetting charge to paid-in surplus. An analysis of Series B Preferred Stock transactions for the three years ended December 31, 1999 follows: Number of Shares Amount ------------- -------------- (in thousands) Initial issuance on January 17, 1997 150,150 $ 30,030 Less - related expenses - (3,472) ------------- -------------- 150,150 $ 26,558 10% in-kind dividends issued 14,150 2,830 Accretion - 368 ------------- -------------- Balance at December 31, 1997 164,300 $ 29,756 10% in-kind dividends issued 17,057 3,411 Accretion - 373 ------------- -------------- Balance at December 31, 1998 181,357 $ 33,540 10% in-kind dividends issued 18,827 3,766 Accretion - 379 ------------- -------------- Balance at December 31, 1999 200,184 $ 37,685 ============= ============== Subject to and concurrent with the closing of the new equity transaction described in Note 15, the holders of the Series B Preferred Stock, which has a current accreted face amount of approximately $40 million as of December 15, 1999, have agreed to convert their shares into shares of common stock, $1.00 par value, of the Company at $5.50 per share of common stock. [8] Capitalization (a) $21.25 Convertible Exchangeable Preferred Stock ("$21.25 Preferred Stock") In June 1987, net proceeds of approximately $23,631,000 were received from the sale of 1,000,000 Depositary Convertible Exchangeable Preferred Shares (each Depositary Share representing ownership of 1/10 of a share of $21.25 Convertible Exchangeable Preferred Stock, $1 par value) at a price of $25 per Depositary Share. Annual dividends are $2.125 per Depositary Share and are cumulative. Generally, the liquidation preference value is $25 per Depositary Share plus any accumulated and unpaid dividends. The Preferred Stock of the Company, as evidenced by ownership of Depositary Shares, is convertible at the option of the holder, at any time, into Common Stock of the Company at a conversion price of $37.75 per share of Common Stock. The Preferred Stock is redeemable at the option of the Company at any time at $25 per share plus any unpaid dividends. The Preferred Stock is also exchangeable at the option of the Company, in whole but not in part, on any dividend payment date into 8 1/2% convertible subordinated debentures due in 2012 at a rate equivalent to $25 principal amount of debentures for each Depositary Share. In conjunction with the covenants of the Company's Amended Revolving Credit Agreement (see Note 4), the Company was required to suspend the payment of quarterly dividends on its $21.25 Preferred Stock (equivalent to $2.125 per Depositary Share) until certain financial criteria are met. Therefore, the dividends on the $21.25 Preferred Stock have not been declared since 1995 (although they have been fully accrued due to the "cumulative" feature of the Preferred Stock). The aggregate amount of dividends in arrears is approximately $9,030,000 at December 31, 1999, which represents approximately $90.30 per share of Preferred Stock or approximately $9.03 per Depositary Share and is included in "Other Liabilities" (long-term) in the accompanying Consolidated Balance Sheet. Under the terms of the Preferred Stock, the holders of the Depositary Shares were entitled to elect two additional Directors since dividends had been deferred for more than six quarters and they did so at both the May 14, 1998 and the May 13, 1999 Annual Meetings. 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1999, 1998 & 1997 (continued) [8] Capitalization (continued) (b) Series A Junior Participating Preferred Stock Under the terms of the Company's Shareholder Rights Plan, as amended, the Board of Directors of the Company declared a distribution on September 23, 1988 of one Preferred Stock purchase right (a "Right") for each outstanding share of Common Stock. Under certain circumstances, each Right will entitle the holder thereof to purchase from the Company one one-hundredth of a share (a "Unit") of Series A Junior Participating Cumulative Preferred Stock, $1 par value (the "Preferred Stock"), at an exercise price of $100 per Unit, subject to adjustment. The Rights will not be exercisable or transferable apart from the Common Stock until the earlier to occur of (i) 10 days following a public announcement that a person or group (an "Acquiring Person") has acquired 20% or more of the Company's outstanding Common Stock (the "Stock Acquisition Date"), (ii) 10 business days following the announcement by a person or group of an intention to make an offer that would result in such persons or group becoming an Acquiring Person or (iii) the declaration by the Board of Directors that any person is an "Adverse Person", as defined under the Plan. The Rights will not have any voting rights or be entitled to dividends. Upon the occurrence of a triggering event as described above, each Right will be entitled to that number of Units of Preferred Stock of the Company having a market value of two times the exercise price of the Right. If the Company is acquired in a merger or 50% or more of its assets or earning power is sold, each Right will be entitled to receive Common Stock of the acquiring company having a market value of two times the exercise price of the Right. Rights held by such a person or group causing a triggering event may be null and void. The Rights are redeemable at $.02 per Right by the Board of Directors at any time prior to the occurrence of a triggering event. On January 17, 1997, the Board of Directors amended the Company's Shareholder Rights Plan to (i) permit the acquisition of the Series B Preferred Stock by certain investors (see Note 7 above), any additional Preferred Stock issued as a dividend thereon, any Common Stock issued upon conversion of the Series B Preferred Stock and certain other events without triggering the distribution of the Rights; (ii) lower the threshold for the occurrence of a Stock Acquisition Date from 20% to 10%; and (iii) extend the expiration date of the Plan from September 23, 1998 to January 21, 2007. Subject to and concurrent with the closing of the new equity transaction described in Note 15, the Board of Directors has voted to amend the Company's Shareholder Rights Plan to permit the sale of 9,411,765 shares of the Company's common stock, $1.00 par value, to the new investors at $4.25 per share (or $40 million) and certain other events without triggering the distribution of the Rights. (c) ESOT Related Obligations In July 1989, the Company sold 262,774 shares of its $1 par value Common Stock, previously held in treasury, to its Employee Stock Ownership Trust ("ESOT") for $9,000,000. The ESOT borrowed the funds via a placement of 8.24% Senior Unsecured Notes ("Notes") guaranteed by the Company. The Notes were payable in 20 equal semi-annual installments of principal and interest commencing in January 1990. The Company's annual contribution to the ESOT, plus any dividends accumulated on the Company's Common Stock held by the ESOT, were used to repay the Notes. Since the Notes were guaranteed by the Company, they were included in "Long-Term Debt" with an offsetting reduction in "Stockholders' Equity" in the Consolidated Balance Sheets. The amount included in "Long-Term Debt" was reduced and "Stockholders' Equity" reinstated as the Notes were paid by the ESOT (see Note 4). The final repayment of the Notes was made in 1999 and, accordingly, such amount is classified in "Current maturities of long-term debt" as of December 31, 1998. 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1999, 1998 & 1997 (continued) [9] Stock Options At December 31, 1999 and 1998, 481,610 shares of the Company's authorized but unissued Common Stock were reserved for issuance to employees under its 1982 Stock Option Plan. Options are granted at fair market value on the date of grant, as defined, and generally become exercisable in two equal annual installments on the second and third anniversary of the date of grant and expire eight years from the date of grant. Options for 184,000 shares of Common Stock granted in 1992 become exercisable on March 31, 2001 if the Company achieves a certain profit target in the year 2000; may become exercisable earlier if certain interim profit targets are achieved; and to the extent not exercised, expire 10 years from the date of grant. A summary of stock option activity related to the Company's 1982 Stock Option Plan is as follows:
Option Price Per Share ----------------------------- Shares Number Weighted Available of Shares Range Average to Grant ---------- -------------- ---------- ---------- Outstanding at December 31, 1997 348,350 $ 8.00-$24.00 $15.41 133,260 Granted 117,500 $ 5.29 $ 5.29 Canceled (100,550) $10.44-$24.00 $16.39 Outstanding at December 31, 1998 365,300 $ 5.29-$16.44 $11.88 116,310 Granted -- -- -- Canceled (103,800) $ 5.29-$11.06 $ 7.99 Outstanding at December 31, 1999 261,500 $ 5.29-$16.44 $13.43 220,110
In addition, the Company has authorized but unissued Common Stock reserved for certain other options granted as follows: Grant Options Exercise Grantee Date Outstanding Price ------------------------------------------- ---------- ------------ ----------- Members of Board Executive Committee, as Redefined (see Note 7) 01/17/97 225,000 $8.38 Certain Executive Officers 01/19/98 135,000 $8.66 Member of Board Executive Committee 12/10/98 45,000 $5.29 01/04/99 30,000 $5.13
The terms of these options are generally similar to options granted under the 1982 Plan, including the exercise price being equal to fair market value, as defined, at date of grant, and timing of installment exercise dates, except for the timing of the exercisability of the January 1997 options, which is May 17, 2000. 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1999, 1998 & 1997 (continued) [9] Stock Options (continued) Options outstanding at December 31, 1999 and related weighted average price and life information follows: Remaining Grant Options Options Exercise Life (Years) Date Outstanding Exercisable Price ------------ ---- ----------- ----------- ----- 3 12/21/92 184,000 69,000 $16.44 3 03/22/94 10,000 10,000 $13.00 6 01/17/97 225,000 -- $ 8.38 7 01/19/98 135,000 -- $ 8.66 7 12/10/98 112,500 -- $ 5.29 8 01/04/99 30,000 -- $ 5.13 When options are exercised, the proceeds are credited to stockholders' equity. In addition, the income tax savings attributable to nonqualified options exercised are credited to paid-in surplus. The Company elected the optional pro forma disclosures under SFAS No. 123 as if the Company adopted the cost recognition requirements in 1995. The Company has no options outstanding relating to either 1995 or 1996. The estimated values shown below are based on the Black-Scholes option pricing model for options granted in 1997 through 1999.
Assumptions --------------------------------------------------------------- Expected Risk-free Grant Date Fair Value Dividend Yield Volatility Interest Rate Expected Life - --------------- ----------- -------------- --------- ------------- -------------- 01/17/97 $1,070,127 0% 39% 6.50% 8 07/08/97 $ 44,086 0% 38% 6.31% 8 01/19/98 $1,027,758 0% 37% 5.57% 8 12/10/98 $ 399,485 0% 39% 4.63% 8 01/04/99 $ 75,600 0% 37% 4.82% 8
If SFAS No. 123 had been fully implemented, stock based compensation costs would have increased net loss in 1999 by $692,170 (or $.12 per Common Share), decreased net income in 1998 by $811,481 (or $0.15 per Common Share) and decreased net income in 1997 by $335,733 (or $0.07 per Common Share). The effect of applying SFAS No. 123 in this pro forma disclosure may not be indicative of future amounts. [10] Employee Benefit Plans The Company and its U.S. subsidiaries have a defined benefit plan that covers its executive, professional, administrative and clerical employees, subject to certain specified service requirements. The plan is noncontributory and benefits are based on an employee's years of service and "final average earnings", as defined. The plan provides reduced benefits for early retirement and takes into account offsets for social security benefits. All employees are vested after 5 years of service. Pension and other benefit plan disclosure as presented below was determined in accordance with SFAS No. 132, "Employers' Disclosures About Pension and Other Post-Retirement Benefits". Net pension cost for 1999, 1998 and 1997 follows (in thousands): 1999 1998 1997 ---------- --------- ----------- Service cost - benefits earned during the period $ 1,207 $ 1,251 $ 1,072 Interest cost on projected benefit obligation 3,848 3,601 3,298 Expected return on plan assets (4,227) (3,341) (2,991) Amortization of transition obligation 6 6 6 Amortization of prior service costs (78) (78) (78) Amortization of net loss 521 198 - ---------- --------- ----------- Net pension cost $ 1,277 $ 1,637 $ 1,307 ========== ========= =========== Actuarial assumptions used: Discount rate 7 3/4 %* 6 1/2%** 7 %*** Rate of increase in compensation 6% 6%** 4% Long-term rate of return on assets 9% 8% 8%
45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1999, 1998 & 1997 (continued) [10] Employee Benefit Plans (continued) * The increase in the discount rate and increase in long-term rate of return on assets were changed effective December 31, 1999. The increase in the discount rate resulted in a decrease in the projected benefit obligation referred to below of $9.1 million and the increase in the long-term rate of return on assets had no impact on the projected benefit obligation referred to below. ** The decrease in the discount rate and the increase in the rate of increase in compensation were changed effective December 31, 1998, and resulted in increases in the projected benefit obligation referred to below of $3.5 million and $1.8 million, respectively. *** Rate was changed effective December 31, 1997 and resulted in a $2.8 million increase in the projected benefit obligation. The Company's plan has assets in excess of its accumulated benefit obligations. Plan assets generally include equity and fixed income funds. The following tables provide a reconciliation of the changes of the fair value of assets in the plan and plan benefit obligations during the two-year period ended December 31, 1999, and a statement of the funded status as of December 31, 1999 and 1998 (in thousands):
Reconciliation of Fair Value of Plan Assets 1999 1998 -------------- -------------- Balance at beginning of year $ 52,912 $ 46,774 Actual return on plan assets 7,999 5,912 Employer contribution 1,406 3,096 Benefit payments (3,135) (2,870) -------------- -------------- Balance at end of year $ 59,182 $ 52,912 ============== ============== Reconciliation of Benefit Obligation 1999 1998 -------------- -------------- Balance at beginning of year $ 58,492 $ 50,167 Service cost 1,207 1,251 Interest cost 3,848 3,601 Actuarial (gain) loss (6,534) 6,343 Benefit payments (3,135) (2,870) -------------- -------------- Balance at end of year $ 53,878 $ 58,492 ============== ============== Funded Status 1999 1998 -------------- -------------- Funded status at December 31, $ 5,304 $ (5,580) Unrecognized transition obligation 6 12 Unrecognized prior service cost (147) (226) Unrecognized (gain) loss (7,612) 3,216 -------------- -------------- Net amount recognized, before additional minimum liability $ (2,449) $ (2,578) ============== ==============
46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1999, 1998 & 1997 (continued) [10] Employee Benefit Plans (continued) The Company also has an unfunded supplemental retirement plan for certain employees whose benefits under the defined benefit plan described above are reduced because of compensation limitations under federal tax laws. Pension expense for this plan was $0.3 million in 1999 and $0.2 million in both 1998 and 1997. At December 31, 1999, the projected benefit obligation was $2.0 million. A corresponding accumulated benefit obligation of $1.4 million at December 31, 1999 and $1.3 million at December 31, 1998, which approximate the amount of vested benefits, have been recognized as a liability in the consolidated balance sheets. The Company also has a contributory Section 401(k) plan and a noncontributory Employee Stock Ownership Plan ("ESOP") which cover its executive, professional, administrative and clerical employees, subject to certain specified service requirements. Under the terms of the Section 401(k) plan, the provision, which averaged $0.2 million for each of the three years ended December 31, 1999, is based on a specified percentage of profits, subject to certain limitations. Contributions to the related ESOT, which averaged $1.3 million for each of the three years ended December 31, 1999, are determined by the Board of Directors and may be paid in cash or shares of the Company's Common Stock. In accordance with the provisions of the ESOP and effective as of December 31, 1999, the Board of Directors of the Company approved the termination of the ESOP and the distribution of all remaining shares of common stock of the Company held by the ESOT to the ESOP participants in 2000. In addition, the Company has an incentive compensation plan for key employees which is generally based on achieving certain levels of profit within their respective business units. The Company also contributes to various multi-employer union retirement plans under collective bargaining agreements which provide retirement benefits for substantially all of its union employees. The aggregate amounts provided in accordance with the requirements of these plans were $5.4 million in 1999, $4.9 million in 1998 and $4.4 million in 1997. The Multi-employer Pension Plan Amendments Act of 1980 defines certain employer obligations under multi-employer plans. Information regarding union retirement plans is not available from plan administrators to enable the Company to determine its share of unfunded vested liabilities. [11] Contingencies and Commitments All contingencies and commitments previously related to Rincon Center, a real estate development joint venture in which the Company's wholly-owned real estate subsidiary was the managing general partner, were satisfactorily resolved in connection with the disposition of this property during 1999 (see Note 2). During 1997, a construction joint venture, in which the Company is a 50% participant, entered into a $5 million line of credit, secured by the joint venture's accounts receivable. The line of credit is available for the duration of the joint venture and is guaranteed by the Company on a joint and several basis. As of December 31, 1999, $3.1 million was outstanding under the line. On July 30, 1993, the U.S. District Court (D.C.), in a preliminary opinion, upheld terminations for default on two adjacent contracts for subway construction between Mergentime-Perini, under two joint ventures, and the Washington Metropolitan Area Transit Authority ("WMATA") and found the Mergentime Corporation, Perini Corporation and the Insurance Company of North America, the surety, jointly and severally liable to WMATA for damages in the amount of $16.5 million, consisting primarily of excess reprocurement costs to complete the projects. Many issues were left partially or completely unresolved by the opinion, including substantial joint venture claims against WMATA. As a result of developments in the case during the third quarter of 1995, the Company established a reserve with respect to the litigation. In July 1997, the remaining issues were ruled on by a successor judge, who awarded approximately $4.3 million to the joint venture, thereby reducing the net amount payable to approximately $12.2 million. The joint venture appealed the decision. As a result of the decision, there was no additional impact on the Company's Statement of Operations because of the reserve provided in prior years. 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1999, 1998 & 1997 (continued) [11] Contingencies and Commitments (continued) On February 16, 1999, the U.S. Court of Appeals for the District of Columbia vacated the April 1995 and July 1997 Orders and remanded the case back to the successor judge with instructions for the successor judge to consider certain post-trial motions to the same extent an original judge would have, and to make findings and conclusions regarding the unresolved issues, giving appropriate consideration to whether or not witnesses must be recalled. During 1999 a new successor judge was appointed. Based on the suggestion of the successor judge, the parties have agreed to participate in non-binding mediation. If the parties do not agree to a settlement based on the mediation process or otherwise, a final judgement will be entered by the District Court upon the completion of these Appeals Court-directed procedures. The actual funding of net damages, if any, will be deferred until the litigation process is complete. Contingent liabilities also include liability of contractors for performance and completion of both company and joint venture construction contracts. In addition, the Company is a defendant in various lawsuits, arbitration and alternative dispute resolution ("ADR") proceedings. In the opinion of management, the resolution of these proceedings will not have a material effect on the results of operation or financial condition as reported in the accompanying consolidated financial statements. [12] Unaudited Quarterly Financial Data The following table sets forth unaudited quarterly financial data for the years ended December 31, 1999 and 1998 (in thousands, except per share amounts):
1999 by Quarter ---------------------------------------------------------- 1st* 2nd 3rd 4th ----------- ------------- ----------- ----------- Revenues $ 251,819 $ 279,527 $ 244,887 $ 243,251 ----------- ------------- ----------- ----------- Income from continuing operations $ 2,805 $ 4,321 $ 4,601 $ 4,630 Loss from discontinued operations (381) (99,624)** -- -- ----------- ------------- ----------- ----------- Net income (loss) $ 2,424 $ (95,303) $ 4,601 $ 4,630 ----------- ------------- ----------- ----------- Basic and diluted earnings (loss) per common share: Continuing operations $ .23 $ .49 $ .53 $ .53 Discontinued operations (.07) (17.72) -- -- ----------- ------------- ----------- ----------- Total $ .16 $ (17.23) $ .53 $ .53 ----------- ------------- ----------- ----------- 1998 by Quarter* ---------------------------------------------------------- 1st 2nd 3rd 4th ----------- ------------- ----------- ----------- Revenues $ 219,202 $ 273,761 $ 247,730 $ 270,629 ----------- ------------- ----------- ----------- Income from continuing operations $ 2,594 $ 3,550 $ 4,352 $ 5,553 Loss from discontinued operations (375) (436) (615) (2,971) ----------- ------------- ----------- ----------- Net income $ 2,219 $ 3,114 $ 3,737 $ 2,582 ----------- ------------- ----------- ----------- Basic and diluted earnings (loss) per common share: Continuing operations $ .22 $ .39 $ .53 $ .75 Discontinued operations (.07) (.08) (.11) (.55) ----------- ------------- ----------- ----------- Total $ .15 $ .31 $ .42 $ .20 ----------- ------------- ----------- -----------
* Restated to reflect the treatment of discontinued real estate development operations in accordance with APB No. 30. ** Includes a $99.3 million change based on a plan adopted by the Company effective June 30, 1999, to withdraw completely from the real estate development business (see Note 2). 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1999, 1998 & 1997 (continued) [13] Business Segments Business segment information presented below was determined in accordance with SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information". The Company is currently engaged in the construction business. As discussed in Note 2, effective June 30, 1999 the Company adopted a plan to withdraw completely from the real estate development business and to wind down the operations of the Company's real estate development subsidiary. The Company provides general contracting, construction management and design-build services to private clients and public agencies throughout the United States and selected overseas locations. The Company's construction business involves two basic segments: building and civil. The building operation services both private clients and public agencies from regional offices located in Boston, Phoenix, Las Vegas, Detroit and Atlantic City and includes a broad range of building construction projects, such as hotels, casinos, health care, correctional facilities, sports complexes, residential, commercial, civic, cultural and educational facilities. The civil operation is focused on public civil work in the East and selectively in other geographic locations and includes large, ongoing urban infrastructure repair and replacement projects such as highway and bridge rehabilitation, mass transit projects and waste water treatment facilities. During 1998 and 1999, the Company's chief operating decision making group consisted of the Chairman, the President & Chief Executive Officer, the President of Perini Building Company and the President of Perini Civil Construction which decided how to allocate resources and assess performance of the business segments. Generally, the Company evaluates performance of its operating segments on the basis of pre-tax profit and cash flow. The accounting policies applied by each of the segments are the same as those described in the Summary of Significant Accounting Policies (see Note 1). The following tables set forth certain business and geographic segment information relating to the Company's operations for the three years ended December 31, 1999 (in thousands):
1999: Reportable Segments ----------------------------------------------- Consolidated Building Civil Totals Corporate Total ------------- ------------ ------------- ------------- -------------- Revenues $ 696,407 $ 323,077 $ 1,019,484 $ - $ 1,019,484 Income from Operations $ 16,716 $ 14,644 $ 31,360 $ (7,526)* $ 23,834 Assets $ 95,915 $ 106,252 $ 202,167 $ 73,321** $ 275,488 Capital Expenditures $ 596 $ 1,003 $ 1,599 $ - $ 1,599 1998 (Restated): Reportable Segments ----------------------------------------------- Consolidated Building Civil Totals Corporate Total ------------- ------------ ------------- ------------- -------------- Revenues $ 679,296 $ 332,026 $ 1,011,322 $ - $ 1,011,322 Income from Operations $ 18,213 $ 15,495 $ 33,708 $ (7,434)* $ 26,274 Assets $ 113,919 $ 100,486 $ 214,405 $ 161,061** $ 375,466 Capital Expenditures $ 504 $ 914 $ 1,418 $ - $ 1,418 1997 (Restated): Reportable Segments ----------------------------------------------- Consolidated Building Civil Totals Corporate Total ------------- ------------ ------------- ------------- -------------- Revenues $ 888,809 $ 387,224 $ 1,276,033 $ - $ 1,276,033 Income from Operations $ 14,637 $ 13,849 $ 28,486 $ (7,982)* $ 20,504 Assets $ 146,384 $ 115,336 $ 261,720 $ 1 45,568** $ 407,288 Capital Expenditures $ 632 $ 1,064 $ 1,696 $ - $ 1,696
49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1999, 1998 & 1997 (continued) [13] Business Segments (continued) * In all years, consists of corporate general and administrative expenses. ** In all years, corporate assets consist principally of cash, cash equivalents, marketable securities, other investments available for general corporate purposes, and net assets from discontinued operations. In 1999, revenues from one customer of the building segment totaled approximately $148 million of consolidated revenues. Also in 1999, revenues from various agencies of both the Commonwealth of Massachusetts and the City of New York in the civil segment totaled approximately $167 million and $118 million, respectively, of consolidated revenues. In 1998, revenues from one customer of the building segment totaled approximately $330 million of consolidated revenues. Also in 1998, revenues from various agencies of both the Commonwealth of Massachusetts and the City of New York in the civil segment totaled approximately $153 million and $115 million, respectively, of consolidated revenues. In 1997, revenues from one customer of the building segment totaled approximately $276 million of consolidated revenues. Also in 1997, revenues from various agencies of both the Commonwealth of Massachusetts and the City of New York in the civil segment totaled approximately $141 million and $165 million, respectively, of consolidated revenues. Information concerning principal geographic areas was as follows: Revenues ----------------------------------------------------- 1999 1998 1997 (Restated) (Restated) --------------- --------------- -------------- United States $ 968,825 $ 982,471 $ 1,257,007 Foreign 50,659 28,851 19,026 --------------- --------------- -------------- Total $ 1,019,484 $ 1,011,322 $ 1,276,033 =============== =============== ============== Income (Loss) from Operations ----------------------------------------------------- 1999 1998 1997 (Restated) (Restated) --------------- --------------- -------------- United States $ 30,508 $ 31,516 $ 26,561 Foreign 852 2,192 1,925 Corporate (7,526) (7,434) (7,982) --------------- --------------- -------------- Total $ 23,834 $ 26,274 $ 20,504 =============== =============== ============== Because a substantial portion of the Company's international revenues is derived mainly from construction management services, long-lived assets outside the United States are immaterial and therefore not presented here. There have been no differences from the last annual report in the basis of measuring segment profit or loss. There have been no material changes in the amount of assets since the last annual report, except for the breakout between segments and the negative impact on total assets in 1999 caused by the estimated loss on disposal of the real estate business segment. 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1999, 1998 & 1997 (continued) [14] Related Party Transactions Effective with the issuance of the Series B Preferred Stock described in Note 7 above, the Company entered into an agreement with Tutor-Saliba Corporation ("TSC"), a California corporation engaged in the construction industry, and Ronald N. Tutor, Chief Executive Officer and sole stockholder of TSC, to provide certain management services, as defined. At January 17, 1997, TSC held and still holds 351,318 shares of the Company's $1.00 par value Common Stock which currently represents an approximate 6.2% interest, and participates in joint ventures with the Company, the Company's share of which contributed $8.6 million, $40.4 million and $113.6 million to the Company's consolidated revenues in 1999, 1998 and 1997, respectively. Mr. Tutor was appointed as one of the three new directors in accordance with the terms of the Series B Preferred Stock transaction, a member of the Executive Committee of the Board and, during 1997, acting Chief Operating Officer of the Company. Effective January 1, 1998, Mr. Tutor was elected Vice Chairman of the Board of Directors and effective May 13, 1999 was elected Chairman of the Board of Directors. Compensation for the management services consists of a monthly payment of $12,500 to TSC and options granted to Mr. Tutor to purchase 150,000 shares of the Company's $1.00 par value Common Stock at fair market value (which are included as part of the 225,000 options granted in 1997 as described in Note 9) and additional options granted to Mr. Tutor to purchase 75,000 shares of the Company's $1.00 par value Common Stock at fair market value, of which options to acquire 45,000 shares were granted in December 1998 and the remaining options to acquire 30,000 shares were granted effective in early 1999 (see Note 9). During 1997, the Company, with the approval of its Board of Directors, consummated a transaction whereby it sold its 20% interest in two joint ventures to TSC, the sponsoring partner, for a negotiated price of $4.5 million, representing the Company's share of the total forecasted profit less a discount of approximately 7%. Since one project was approximately 24% complete and the other project was 57% complete as of December 31, 1997, the impact of this transaction was to accelerate approximately $3.2 million of contract profits and receipt of the related cash into 1997. The new investors that are planning to invest $40 million of new equity in the Company as described in Note 15 consist of Tutor-Saliba Corporation (see above), O&G Industries, Inc. ("O&G"), a participant in certain construction joint ventures with the Company, and National Union Fire Insurance Company of Pittsburgh, Pa., a wholly-owned subsidiary of American International Group, Inc. ("AIG"), a provider of insurance and insurance related services to the Company. Each of the new investors will be entitled to appoint a member to the Company's Board of Directors. O&G currently holds 150,000 shares of the Company's common stock, $1.00 par value, and participates in joint ventures with the Company, the Company's share of which contributed $4.2 million, $39.4 million and $121.3 million to the Company's consolidated revenues in 1999, 1998 and 1997, respectively. Payments to AIG for insurance and insurance related services approximated $5.2 million in 1999, $4.8 million in 1998 and $5.9 million in 1997. [15] Subsequent Events New Equity On February 5, 2000, the Company entered into a definitive Securities Purchase Agreement ("Purchase Agreement") with Tutor-Saliba Corporation, a company controlled by Ronald N. Tutor, Chairman of the Board of Directors of the Company, O&G Industries, Inc., and National Union Fire Insurance Company of Pittsburgh, Pa., a wholly-owned subsidiary of American International Group, Inc., (collectively, the "New Investors"), whereby the New Investors have agreed to purchase 9,411,765 shares of common stock at $4.25 per share for an aggregate amount of $40 million ("the Transaction"). These funds would be used to mitigate the continuing effects of the Company's negative net worth on its business and financial condition and to provide additional working capital and liquidity for its ongoing core construction operations. The Company's net worth became negative as of June 30, 1999 due to the $99.3 million non-cash provision for estimated loss on the disposal of the Company's real estate development business segment as described in more detail under "Discontinued Operations" in Note 2. 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1999, 1998 & 1997 (continued) [15] Subsequent Events (continued) The Transaction is subject to, among other things, the following events or approvals: (i) Approval by a majority of the shareholders entitled to vote and not affiliated or associated with the New Investors of (a) the Transaction as described in the Purchase Agreement and (b) an increase in the number of authorized shares of the Company's Common Stock to at least as many shares as are required to consummate the Transaction; (ii) Agreement by all of the holders of the Company's Series B Preferred Stock, which has a current accreted face amount of approximately $40 million as of December 15, 1999, (see Note 7), to convert their securities into shares of $1.00 par value common stock of the Company at $5.50 per share of common stock; and (iii) Certain other conditions, including the completion of due diligence. If the Transaction is consummated, the shares of common stock held by the New Investors and the former holders of the Series B Preferred Stock will approximate 42.0% and 32.5% of the Company's voting rights, respectively. If this Transaction had been closed on December 31, 1999, the pro forma impact on the December 31, 1999 balance sheet would have been as follows (in millions): As Reported Pro Forma ------------ ------------ Working Capital $ 48.4 $ 75.4 Long-term Debt $ 41.1 $ 30.6 Series B Preferred Stock $ 37.7 $ - Stockholders' Equity (Deficit) $ (36.6) $ 38.6 Total Assets $ 275.5 $ 275.5 The Company's Common Stock, $1.00 par value, issued in connection with the above Transactions will initially be restricted in that it may not be sold or otherwise disposed of except pursuant to the terms of a shareholders' agreement between and among the New Investors, the former owners of the Series B Preferred Stock and the Company for a period of time, generally six years from the date of the Transaction being consummated. If the Transaction is not consummated, management's intent would be to renegotiate the terms of its credit facility and continue to pay the in-kind dividend on the Series B Preferred Stock. New Credit Agreement Subject to and concurrent with the closing of the new equity transaction referred to above, the Company's Bank Group has agreed in principle to extend and restructure its Revolving Credit Agreement (see Note 4). 52 Report of Independent Public Accountants To the Stockholders of Perini Corporation: We have audited the accompanying consolidated balance sheets of PERINI CORPORATION (a Massachusetts corporation) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Perini Corporation and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts February 11, 2000 53 Report of Independent Public Accountants on Schedules To the Stockholders of Perini Corporation: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in this Form 10-K, and have issued our report thereon dated February 11, 2000. Our audits were made for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The supplemental schedule listed in the accompanying index is the responsibility of the Company's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the consolidated financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Boston, Massachusetts February 11, 2000 54 Schedule II Perini Corporation and Subsidiaries Valuation and Qualifying Accounts and Reserves for the Years Ended December 31, 1999, 1998 and 1997 (In Thousands of Dollars)
Additions ----------------------------- Balance at Charged to Charged to Deductions Balance Beginning Costs & Other from at End Description of Year Expenses Accounts Reserves of Year - ----------- ------------- ------------ ------------- ------------ ---------- Year Ended December 31, 1999 Reserve for real estate investments $ 21,724 $ 99,311 $ -- $ 97,413 (1) $ 23,622 ============= ============ ============= ============ ========== Year Ended December 31, 1998 Reserve for doubtful accounts $ 40 $ -- $ -- $ 40 (2) $ -- ============= ============ ============= ============ ========== Reserve for real estate investments $ 23,171 $ 400 $ -- $ 1,847 (1) $ 21,724 ============= ============ ============= ============ ========== Year Ended December 31, 1997 Reserve for doubtful accounts $ 160 $ -- $ -- $ 120 (3) $ 40 ============= ============ ============= ============ ========== Reserve for depreciation on real estate properties used in operations $ -- $ 226 $ -- $ 226 (4) $ -- ============= ============ ============= ============ ========== Reserve for real estate investments $ 84,083 $ 508 $ -- $ 61,420 (1) $ 23,171 ============= ============ ============= ============ ==========
(1) Represents sales or other dispositions of real estate properties. (2) Represents reserve no longer required. (3) Represents write-off of a bad debt. (4) Represents reserves reclassified with related asset to "Real estate inventory". 55 Exhibit Index The following designated exhibits are, as indicated below, either filed herewith or have heretofore been filed with the Securities and Exchange Commission under the Securities Act of 1933 or the Securities Act of 1934 and are referred to and incorporated herein by reference to such filings. Exhibit 3. Articles of Incorporation and By-laws Incorporated herein by reference: 3.1 Restated Articles of Organization - As amended through January 17, 1997 - Exhibit 3.1 to 1996 Form 10-K as filed. 3.2 By-laws - As amended and restated as of January 17, 1997 - Exhibit 3.2 to Form 8-K filed on February 14, 1997. Exhibit 4. Instruments Defining the Rights of Security Holders, Including Indentures Incorporated herein by reference: 4.1 Certificate of Vote of Directors Establishing a Series of a Class of Stock determining the relative rights and preferences of the $21.25 Convertible Exchangeable Preferred Stock - Exhibit 4(a) to Amendment No. 1 to Form S-2 Registration Statement filed June 19, 1987; SEC Registration Statement No. 33-14434. 4.2 Form of Deposit Agreement, including form of Depositary Receipt - Exhibit 4(b) to Amendment No. 1 to Form S-2 Registration Statement filed June 19, 1987; SEC Registration Statement No. 33-14434. 4.3 Form of Indenture with respect to the 8 1/2% Convertible Subordinated Debentures Due June 15, 2012, including form of Debenture - Exhibit 4(c) to Amendment No. 1 to Form S-2 Registration Statement filed June 19, 1987; SEC Registration Statement No. 33-14434. 4.4 Shareholder Rights Agreement dated as of September 23, 1988, as amended and restated as of May 17, 1990, as amended and restated as of January 17, 1997, between Perini Corporation and State Street Bank and Trust Company, as Rights Agent - Exhibit 4.4 to Amendment No. 1 to Registration Statement on Form 8-A/A filed on January 29, 1997. 4.5 Stock Purchase and Sale Agreement dated as of July 24, 1996 by and among the Company, PB Capital and RCBA, as amended - Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q/A for the fiscal quarter ended September 30, 1996 filed on December 11, 1996. 4.8 Certificate of Vote of Directors Establishing a Series of Preferred Stock, dated January 16, 1997 - Exhibit 4.8 to Form 8-K filed on February 14, 1997. 4.9 Stock Assignment and Assumption Agreement dated as of December 13, 1996 by 56 Exhibit Index (Continued) and among the Company, PB Capital and ULLICO (filed as Exhibit 4.1 to the Schedule 13D filed by ULLICO on December 16, 1996 and incorporated herein by reference). 4.10 Stock Assignment and Assumption Agreement dated as of January 17, 1997 by and among the Company, RCBA and The Common Fund - Exhibit 4.10 to Form 8-K filed on February 14, 1997. 4.11 Voting Agreement dated as of January 17, 1997 by and among PB Capital, David B. Perini, Perini Memorial Foundation, David B. Perini Testamentary Trust, Ronald N. Tutor, and Tutor-Saliba Corporation - Exhibit 4.11 to Form 8-K filed on February 14, 1997. 4.12 Registration Rights Agreement dated as of January 17, 1997 by and among the Company, PB Capital and ULLICO - Exhibit 4.12 to Form 8-K filed on February 14, 1997. Exhibit 10. Material Contracts Incorporated herein by reference: 10.1 1982 Stock Option and Long Term Performance Incentive Plan - Exhibit A to Registrant's Proxy Statement for Annual Meeting of Stockholders dated April 15, 1992. 10.2 Perini Corporation Amended and Restated General Incentive Compensation Plan (1997) - Exhibit 10.2 to 1997 Form 10-K, as filed. 10.3 Perini Corporation Amended and Restated Construction Business Unit Incentive Compensation Plan - Exhibit 10.3 to 1997 Form 10-K, as filed. 10.4 $125 million Credit Agreement dated as of December 6, 1994 among Perini Corporation, the Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Shawmut Bank, N.A., Co-Agent - Exhibit 10.4 to 1994 Form 10-K, as filed. 10.5 Amendment No. 1 as of February 26, 1996 to the Credit Agreement dated as of December 6, 1994 among Perini Corporation, the Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.), as Co-Agent - Exhibit 10.5 to 1995 Form 10-K, as filed. 10.6 Bridge Credit Agreement dated as of February 26, 1996 among Perini Corporation, the Bridge Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.) as Co-Agent - Exhibit 10.6 to 1995 Form 10-K, as filed. 57 Exhibit Index (Continued) 10.7 Amendment No. 2 as of July 30, 1996 to the Credit Agreement dated as of December 6, 1994 and Amendment No. 1 as of July 30, 1996 to the Bridge Credit Agreement dated February 26, 1996 among Perini Corporation, the Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank of Massachusetts, as Co-Agent - Exhibit 10.7 to Perini Corporation's Form 10-Q/A for the fiscal quarter ended September 30, 1996 filed on December 11, 1996. 10.8 Amendment No. 2 as of September 30, 1996 to the Bridge Credit Agreement dated as of February 26, 1996 among Perini Corporation, the Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank of Massachusetts, as Co-Agent - Exhibit 10.8 to Perini Corporation's Form 10-Q/A for the fiscal quarter ended September 30, 1996 filed on December 11, 1996. 10.9 Amendment No. 3 as of October 2, 1996 to the Bridge Credit Agreement dated as of February 26, 1996 among Perini Corporation, the Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank of Massachusetts, as Co-Agent - Exhibit 10.9 to Perini Corporation's Form 10-Q/A for the fiscal quarter ended September 30, 1996 filed on December 11, 1996. 10.10 Amendment No. 4 as of October 15, 1996 to the Bridge Credit Agreement dated as of February 26, 1996 among Perini Corporation, the Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank of Massachusetts, as Co-Agent - Exhibit 10.10 to Perini Corporation's Form 10-Q/A for the fiscal quarter ended September 30, 1996 filed on December 11, 1996. 10.11 Amendment No. 5 as of October 21, 1996 to the Bridge Credit Agreement dated as of February 26, 1996 among Perini Corporation, the Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank of Massachusetts, as Co-Agent - Exhibit 10.11 to Perini Corporation's Form 10-Q/A for the fiscal quarter ended September 30, 1996 filed on December 11, 1996. 10.12 Amendment No. 6 as of October 24, 1996 to the Bridge Credit Agreement dated as of February 26, 1996 among Perini Corporation, the Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank of Massachusetts, as Co-Agent - Exhibit 10.12 to Perini Corporation's Form 10-Q/A for the fiscal quarter ended September 30, 1996 filed on December 11, 1996. 10.13 Amendment No. 7 as of November 1, 1996 to the Bridge Credit Agreement dated as of February 26, 1996 among Perini Corporation, the Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank of Massachusetts, as Co-Agent - Exhibit 10.13 to Perini Corporation's Form 10-Q/A for the fiscal quarter ended September 30, 1996 filed on December 11, 1996. 10.14 Amendment No. 8 as of November 4, 1996 to the Bridge Credit Agreement dated as of February 26, 1996 and Amendment No. 3 as of November 4, 1996 to the Credit Agreement dated December 6, 1994 among Perini Corporation, the Banks listed 58 Exhibit Index (Continued) herein, Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank of Massachusetts, as Co-Agent - Exhibit 10.14 to Perini Corporation's Form 10-Q/A for the fiscal quarter ended September 30, 1996 filed on December 11, 1996. 10.15 Amendment No. 9 as of November 12, 1996 to the Bridge Credit Agreement dated as of February 26, 1996 and Amendment No. 4 as of November 12, 1996 to the Credit Agreement dated December 6, 1994 among Perini Corporation, the Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank of Massachusetts, as Co-Agent - Exhibit 10.15 to Perini Corporation's Form 10-Q/A for the fiscal quarter ended September 30, 1996 filed on December 11, 1996. 10.16 Management Agreement dated as of January 17, 1997 by and among the Company, Ronald N. Tutor and Tutor-Saliba Corporation - Exhibit 10.16 to Form 8-K filed on February 14, 1997. 10.17 Amended and Restated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - Exhibit 10.17 to 1996 Form 10-K - as filed. 10.18 Amendment No. 1 as of November 10, 1997 to the Amended and Reinstated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - Exhibit 10.18 to 1998 Form 10-K as filed. 10.19 Amendment No. 2 as of August 31, 1998 to the Amended and Reinstated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - Exhibit 10.19 to 1998 Form 10-K as filed. 10.20 Amendment No. 3 as of September 9, 1998 to the Amended and Reinstated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - Exhibit 10.20 to 1998 Form 10-K as filed. 10.21 Amendment No. 4 as of September 30, 1998 to the Amended and Reinstated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - Exhibit 10.21 to 1998 Form 10-K as filed. 10.22 Amendment No. 5 as of November 16, 1998 to the Amended and Reinstated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - Exhibit 10.22 to 1998 Form 10-K as filed. 59 Exhibit Index (Continued) 10.23 Amendment No. 6 as of December 1, 1998 to the Amended and Reinstated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - Exhibit 10.23 to 1998 Form 10-K as filed. 10.24 Amendment No. 7 as of March 23, 1999 to the Amended and Restated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - Exhibit 10.24 to Perini Corporation's Form 10-Q for the fiscal quarter ended March 31, 1999 filed on May 14, 1999. 10.25 Amendment No. 8 as of July 19, 1999 to the Amended and Restated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - Exhibit 10.25 to Perini Corporation's Form 10-Q for the fiscal quarter ended June 30, 1999 filed on August 13, 1999. 10.26 Amendment No. 9 as of October 1, 1999 to the Amended and Restated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - Exhibit 10.26 to Perini Corporation's Form 10-Q for the fiscal quarter ended September 30, 1999 filed on November 12, 1999. 10.27 Amendment No. 10 as of October 19, 1999 to the Amended and Restated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - Exhibit 10.27 to Perini Corporation's Form 10-Q for the fiscal quarter ended September 30, 1999 filed on November 12, 1999. 10.28 Amendment No. 11 as of January 21, 2000 to the Amended and Restated Credit Agreement dated January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - filed herewith. Exhibit 21. Subsidiaries of Perini Corporation - filed herewith. Exhibit 23. Consent of Independent Public Accountants - filed herewith. Exhibit 24. Power of Attorney - filed herewith. Exhibit 27. Financial Data Schedule - filed herewith. Exhibit 99. Additional Exhibits 99.1 Combined Financial Statements of Significant Construction Joint Ventures - filed herewith. 60 Exhibit 21
Perini Corporation Subsidiaries of the Registrant Percentage of Interest or Voting Place of Securities Name Organization Owned - ----------------------------------------------------------------- ---------------------------- -------------- Perini Corporation Massachusetts Perini Building Company, Inc. Arizona 100% Perini Environmental Services, Inc. Delaware 100% International Construction Management Services, Inc. Delaware 100% Percon Constructors, Inc. Delaware 100% Perini Management Services, Inc. (f/k/a Perini International Corporation) Massachusetts 100% Bow Leasing Company, Inc. New Hampshire 100% Perini Land & Development Company, Inc. Massachusetts 100% Paramount Development Associates, Inc. Massachusetts 100% Perini Resorts, Inc. California 100% Perini Central Limited Partnership AZ Limited Partnership 75% Perini Eagle Limited Partnership AZ Limited Partnership 50% Perini/138 Joint Venture GA General Partnership 49% Perini/RSEA Partnership GA General Partnership 50%
61 Exhibit 23 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the use of our reports, dated February 11, 2000, included in Perini Corporation's Annual Report on this Form 10-K for the year ended December 31, 1999, and into the Company's previously filed Registration Statements Nos. 2-82117, 33-24646, 33-46961, 33-53190, 33-53192, 33-60654, 33-70206, 33-52967, 33-58519, 333-03417, 333-26423, 333-51911 and 333-75905. ARTHUR ANDERSEN LLP Boston, Massachusetts March 14, 2000 62 Exhibit 24 Power of Attorney We, the undersigned, Directors of Perini Corporation, hereby severally constitute Robert Band and Dennis M. Ryan, and each of them singly, our true and lawful attorneys, with full power to them and to each of them to sign for us, and in our names in the capacities indicated below, any Annual Report on Form 10-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 to be filed with the Securities and Exchange Commission and any and all amendments to said Annual Report on Form 10-K, hereby ratifying and confirming our signatures as they may be signed by our said Attorneys to said Annual Report on Form 10-K and to any and all amendments thereto and generally to do all such things in our names and behalf and in our said capacities as will enable Perini Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission. WITNESS our hands and common seal on the date set forth below. /s/Robert Band Director March 10, 2000 - --------------------- --------- --------------------- Robert Band Date /s/Richard J. Boushka Director March 10, 2000 - --------------------- --------- --------------------- Richard J. Boushka Date /s/Arthur I. Caplan Director March 10, 2000 - --------------------- --------- --------------------- Arthur I. Caplan Date /s/Marshall M. Criser Director March 10, 2000 - --------------------- --------- --------------------- Marshall M. Criser Date /s/Frederick Doppelt Director March 10, 2000 - --------------------- --------- --------------------- Frederick Doppelt Date /s/Arthur J. Fox, Jr. Director March 10, 2000 - --------------------- --------- --------------------- Arthur J. Fox, Jr. Date /s/Nancy Hawthorne Director March 10, 2000 - --------------------- --------- --------------------- Nancy Hawthorne Date /s/Michael R. Klein Director March 10, 2000 - --------------------- --------- --------------------- Michael R. Klein Date /s/Douglas J. McCarron Director March 10, 2000 - --------------------- --------- --------------------- Douglas J. McCarron Date /s/Jane E. Newman Director March 10, 2000 - --------------------- --------- --------------------- Jane E. Newman Date /s/ David B. Perini Director March 10, 2000 - --------------------- --------- --------------------- David B. Perini Date /s/Ronald N. Tutor Director March 10, 2000 - --------------------- --------- --------------------- Ronald N. Tutor Date 63 EX-27 2
5 This schedule contains summary financial information extracted from Consolidated Balance Sheets as of December 31, 1999 and the Consolidated Statements of Operations for the twelve months ended December 31, 1999 as qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1999 DEC-31-1999 58,193 0 93,785 0 0 262,096 27,255 17,438 275,488 213,666 41,091 0 100 5,743 0 275,488 0 1,019,484 0 (969,015) 72 0 (7,128) 16,778 (421) 16,357 (100,005) 0 0 (83,648) (16.04) (16.04) Includes Equity in Construction Joint Ventures of $82,493, Unbilled Work of $14,283, Net Current Assets of Discontinued Operations of $12,695 and Other Short-Term Assets of $647, not currently reflected in this tag list. Includes Other Long-Term Assets of $3,575, not currently reflected in this tag list. Includes Deferred Income Taxes and Other Liabilities of $19,664, Redeemable Series B Preferred Stock $37,685, Stock Purchase Warrants $2,233, Paid-In Surplus of $43,561, Retained Deficit of $(87,290), and Treasury Stock of $(965). Includes General, Administrative and Selling Expenses of $26,635 not currently refelected on this tag list.
EX-10 3 EXHIBIT 10.28 Exhibit 10.28 AMENDMENT NO. 11 TO CREDIT AGREEMENT AND WAIVER AMENDMENT and WAIVER dated as of January 21, 2000 among PERINI CORPORATION (the "Borrower"), the banks listed on the signature pages hereof (collectively, the "Banks"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"). W I T N E S S E T H : WHEREAS, the Borrower, the Banks and the Agent are parties to an Amended and Restated Credit Agreement dated as of January 17, 1997 (as heretofore amended, the "Credit Agreement"); WHEREAS, Section 6.01(p) of the Credit Agreement provides that an Event of Default shall occur if the $3,000,000 Letter of Credit issued in favor of Perini/Suitt (the "Perini/Suitt LC") shall not have expired or been terminated on or before January 21, 2000 or the Capital Restructuring shall not have become effective on or before January 21, 2000; WHEREAS, the Borrower has informed the Banks that the Peirni/Suitt LC will not expire or terminate on or before January 21, 2000 and the Capital Restructuring will not become effective on or before January 21, 2000; WHEREAS, the Borrower has failed to reimburse Harris Trust and Savings Bank ("Harris Bank") for the amount of a drawing under a letter of credit issued by Harris Bank, as described in the Forbearance Agreement dated as of September 23, 1999 among Harris Bank, the Borrower and Perini Building Corporation (as amended, the "Forbearance Agreement"); WHEREAS, the Borrower's failure to reimburse Harris Bank when due for the amount of such drawing (the "Harris Default") constitutes an Event of Default under the Credit Agreement, and the Borrower has requested an extension of the previous waiver granted with respect to the Harris Default; WHEREAS, the Borrower and the Banks wish to record certain understandings in connection with the letter dated December 8, 1999 among the Banks, the Borrower and Ronald N. Tutor (the "Term Sheet Cover Letter") and the Term Sheet attached thereto (as modified by changed pages distributed subsequent to the initial distribution of execution pages, the "Term Sheet"); WHEREAS, the parties have agreed to amend the Credit Agreement as provided herein, and at the request of the Borrower the Banks have agreed to grant the waiver provided herein; NOW, THEREFORE, the parties hereto agree as follows: Section 1. Definitions. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement shall have the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall from and after the date hereof refer to the Credit Agreement as amended hereby. Section 2. Amendment to Perini/Suitt LC and Capital Restructuring Event of Default. Section 6.01(p) of the Credit Agreement is amended by deleting each of the references to "January 21, 2000" therein and inserting "March 15, 2000" in lieu thereof. 1 Section 3. Waiver With Respect to the Harris Default. Solely for the period from January 27, 1999 through and including the "Harris Waiver Termination Date" (as defined below), the Banks hereby waive the Default existing under the Credit Agreement due solely to the Harris Default. As used herein, "Harris Waiver Termination Date" means the earlier of March 15, 2000 and the first date, if any, when any of the following events shall occur: (a) A "Standstill Termination" (as defined in the Forbearance Agreement) shall occur; or (b) Harris Bank shall exercise any rights or remedies available to it in connection with the Harris Default. Section 4. Amendment and Waiver Fee. (a) In consideration for this Amendment and Waiver, the Borrower agrees to pay to the Agent a fee for the account of the Banks in the aggregate amount of $100,000 (to be shared in proportion to their aggregate Commitments). (b) In addition, if by February 20, 2000 the Borrower or any Subsidiary have not received at least $14,000,000 of Net Proceeds from the completion of the specified real estate sales and headquarters refinancing referred to in the Term Sheet, the Borrower shall pay to the Agent an additional fee for the account of the Banks in the aggregate amount of $33,333 (to be shared in proportion to their aggregate Commitments). Section 5. Certain Understandings in Connection with the Term Sheet. For purposes of recording certain further understandings between the parties concerning, and in certain respects modifying, the Term Sheet, the Banks and the Borrower note (subject to the reservations in the Term Sheet Cover Letter) the following: (a) the Banks will credit the fee paid by the Borrower in accordance with Section 4(a) of this Amendment and Waiver against the $200,000 restructuring fee contemplated by the Term Sheet to be paid at the closing of the proposed new credit agreement between the Borrower and the Banks (the "New Credit Agreement"); and (b) regardless of the actual closing date of the New Credit Agreement, (i) the maturity date for final repayment of the term loans contemplated by the Term Sheet will be the last business day of December, 2002 (and the schedule of required amortization will be based on this date, beginning with the last business day of March, 2000), (ii) the termination date for the revolving commitments under the New Credit Agreement will be January 21, 2003, (iii) the outside date by which the revolving commitments must be reduced to no more than $21 million will be April 20, 2000 and (iv) the determination of the Borrower's obligation to pay the three installments of supplemental restructuring fees will be measured by a number of days (30, 60 and 90) from January 21, 2000 (but in the case of the first such installment, if the deadline falls before the actual closing date, such installment will not apply, having been paid pursuant to Section 4(b)). Section 6. Representations and Warranties Correct; No Default. The Borrower represents and warrants that on and as of the date hereof, after giving effect to this Amendment and Waiver, (a) the representations and warranties of each Obligor contained in each Financing Document, as amended, to which it is a party are true and (b) no Default under the Credit Agreement exists. Section 7. Effect of Amendments and Waiver. Except as expressly set forth herein, this Amendment and Waiver shall not constitute an amendment or waiver of any term or condition of the Credit Agreement or any other Financing Document, and all such terms and conditions shall remain in full force and effect and are hereby ratified and confirmed in all respects. 2 Section 8. Governing Law. This Amendment and Waiver shall be governed by and construed in accordance with the laws of the State of New York. Section 9. Counterparts. This Amendment and Waiver may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. Section 10. Consent by Subsidiary Guarantors. By signing this Amendment and Waiver below, each Subsidiary Guarantor affirms its obligations under the Subsidiary Guarantee Agreement and acknowledges that this Amendment and Waiver shall not alter, release, discharge or otherwise affect any of such obligations, all of which shall remain in full force and effect and are hereby ratified and confirmed in all respects. Section 11. Effectiveness. This Amendment and Waiver shall become effective as of the date hereof when the Agent shall have received: (a) duly executed counterparts hereof signed by the Borrower, each Bank and each Subsidiary Guarantor (or, in the case of any party as to which an executed counterpart shall not have been received, the Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party); and (b) the fee payable under Section 4 of this Amendment and Waiver. IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Waiver to be duly executed by their respective authorized officers as of the date first above written. 3 EX-99 4 EXHIBIT 99.1 Exhibit 99.1 Report of Independent Public Accountants To the Stockholders of Perini Corporation: We have audited the accompanying combined balance sheets of the joint ventures identified in Note 1 as of December 31, 1999 and 1998, and the related combined statements of income, venturers' equity and cash flows for each of the two years in the period ended December 31, 1999. These financial statements are the responsibility of the joint ventures' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the joint ventures identified in Note 1 as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts February 11, 2000 1 Exhibit 99.1
Perini Corporation Combined Balance Sheet of Significant Construction Joint Ventures December 31, 1999 and 1998 (In thousands) 1999 1998 ------------- ------------- ASSETS Current Assets: Cash and Cash Equivalents (Notes 2 and 3) $ 8,160 $ 5,244 Accounts Receivable, including Retainage of $7,736 and $14,733, respectively (Note 2) 41,052 42,081 Advances to Venturers (Note 5) 16,200 13,000 Unbilled Work (Note 2) 47,594 33,982 Other Current Assets 4 4 -------- -------- TOTAL ASSETS $113,019 $ 94,311 ======== ======== LIABILITIES Current Liabilities: Cash Overdraft (Note 3) $ 4,477 $ 4,318 Accounts Payable, including Retainage of $8,005 and $10,586, respectively (Note 2) 29,577 43,779 Deferred Contract Revenue (Note 2) 36,100 22,313 Other Current Liabilities 4,772 3,979 -------- -------- Total Current Liabilities 74,926 74,389 -------- -------- Contingencies and Commitments (Note 4) VENTURERS' EQUITY Perini Corporation 22,505 12,877 Other Venturers 15,588 7,045 -------- -------- Total Venturers' Equity 38,093 19,922 -------- -------- TOTAL LIABILITIES AND VENTURERS' EQUITY $113,019 $ 94,311 ======== ========
The accompanying notes are an integral part of these financial statements. 2 Exhibit 99.1 Perini Corporation Combined Statement of Income of Significant Construction Joint Ventures For the Years Ended December 31, 1999 and 1998 (In thousands) 1999 1998 -------------- ------------- Contract Revenues (Note 2) $ 188,070 $ 211,895 Cost of Operations: Materials, Supplies and Subcontracts 118,212 141,710 Salaries and Wages 55,687 46,536 -------------- ------------- Total Contract Costs 173,899 188,246 -------------- ------------- Net Income $ 14,171 $ 23,649 ============== ============= The accompanying notes are an integral part of these financial statements. 3 Exhibit 99.1
Perini Corporation Combined Statement of Venturers' Equity of Significant Construction Joint Ventures For the Years Ended December 31, 1999 and 1998 (In thousands) Perini Other Corporation Venturers Total ------------------ ----------------- ---------------- Balance, December 31, 1997 $ 12,055 $ 5,218 $ 17,273 Net Income 13,722 9,927 23,649 Distributions (12,900) (8,100) (21,000) ------------------ ----------------- ---------------- Balance, December 31, 1998 $ 12,877 $ 7,045 $ 19,922 Capital Contributions 10,080 7,920 18,000 Net Income 7,748 6,423 14,171 Distributions (8,200) (5,800) (14,000) ------------------ ----------------- ---------------- Balance, December 31, 1999 $ 22,505 $ 15,588 $ 38,093 ================== ================= ================
The accompanying notes are an integral part of these financial statements 4 Exhibit 99.1
Perini Corporation Combined Statement of Cash Flows of Significant Construction Joint Ventures For the Years Ended December 31, 1999 and 1998 (In thousands) 1999 1998 --------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 14,171 $ 23,649 Adjustments to Reconcile Net Income to Net Cash Provided from Operating Activities: - Depreciation 2 Changes in Operating Assets and Liabilities: 1,029 Decrease in Accounts Receivable (13,612) 3,965 Increase in Unbilled Work - (8,778) Decrease in Other Current Assets 159 126 Increase (Decrease) in Cash Overdraft (14,202) (5,719) Decrease in Accounts Payable 13,787 (2,723) Increase (Decrease) in Deferred Contract Revenue 793 (1,772) Increase in Other Current Liabilities 2,098 --------------- ---------------- Net Cash Provided from Operating Activities $ 2,125 $ 10,848 --------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from Sale of Fixed Assets $ - $ 37 --------------- ---------------- Net Cash Provided from Investing Activities $ - $ 37 --------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Capital Contributions from Venturers $ 18,000 $ - Distributions to Venturers (14,000) (21,000) (Increase) Decrease in Advances to Venturers (3,200) 2,000 --------------- ---------------- Net Cash Provided from (Used by) Financing Activities $ 800 $ (19,000) --------------- ---------------- Net Increase (Decrease) in Cash and Cash Equivalents $ 2,925 $ (8,115) Cash and Cash Equivalents, Beginning of Period 5,244 13,359 --------------- ---------------- Cash and Cash Equivalents, End of Period $ 8,169 $ 5,244 =============== ================
The accompanying notes are an integral part of these financial statements 5 Exhibit 99.1 Perini Corporation Notes to Combined Financial Statements of Significant Construction Joint Ventures For the Years Ended December 31, 1999 and 1998 [1] Basis of Combination Perini Corporation (the "Company"), in the normal conduct of its business, has entered into partnership arrangements, referred to as "joint ventures", for certain construction projects in order to share risk, working capital, bonding and other financial requirements and, in some instances, to obtain more extensive knowledge of a new local construction market or certain unique construction expertise required. Each of the joint venture participants is usually committed to supply a predetermined percentage of capital, as required, and to share in a predetermined percentage of the income or loss of the project. These joint ventures are temporary in nature, generally from three to five years, since they are formed to bid on a specific project, execute the work if awarded the contract, and are liquidated at the end of the project. While control over the actual construction work performed is normally delegated to the designated joint venture sponsor, usually the partner with a 50% or higher percentage interest in the project, the overall management of the joint venture resides with a Management Committee that requires unanimous approval of certain key operational and financial matters such as the amount of the original bid, ability to borrow funds, incur debt, guarantees and lease commitments and investment policy regarding venture funds. In addition, the Management Committee requires unanimous approval over terms of sale of venture assets, settlement guidelines related to contract claims and any transaction between the joint venture and any of its partners. In accordance with Rule 3-09 of Regulation S-X, the Company has presented combined financial statements of construction joint ventures rather than separate financial statements for each joint venture, because the Company believes that reporting the financial results of any one construction joint venture by itself would not be significant to users and could be detrimental to the Company when negotiating unapproved contract change orders and claims with the owner of the project or could unfairly assist competitors when bidding against the Company on similar contracts in the future. The following construction joint ventures have been combined in the accompanying financial statements: Joint Venture Name Type of Work - ------------------------------------------------------------ --------------------------------------------------------- Perini/O&G, A Joint Venture Rehabilitation work on the Williamsburg Bridge in New York City for the New York City Department of Traffic. Perini/Kiewit/Cashman, A Joint Venture Tunnel and road work in Boston, MA for the Massachusetts Highway Department. Perini/Slattery, A Joint Venture Hudson-Bergen Light Rail Transit project in New Jersey for the New Jersey Transit Corporation.
[2] Significant Accounting Policies [a] Long-Term Contracts Profits from construction joint venture contracts are generally recognized by applying the percentages of completion for each year to the total estimated profits for the contracts. The percentages of completion are determined by relating the actual cost of the work performed to date to the current estimated total cost of the respective contracts. When the estimate on a contract indicates a loss, the ventures' policy is to record the entire loss. The cumulative effect of revisions in estimates of total cost or revenue during the course of the work is reflected in the accounting period in which the facts that caused the revision become known. An amount equal to the costs attributable to unapproved change orders and 6 Exhibit 99.1 Perini Corporation Notes to Combined Financial Statements of Significant Construction Joint Ventures For the Years Ended December 31, 1999 and 1998 (Continued) [2] Significant Accounting Policies (continued) [a] Long-Term Contracts (continued) claims is included in the total estimated revenue when realization is probable. Profit from unapproved change orders and claims is recorded in the year such amounts are resolved. In accordance with normal practice in the construction industry, the joint ventures include in current assets and current liabilities amounts related to construction contracts realizable and payable over a period in excess of one year. Unbilled work represents the excess of contract costs and profits recognized to date on the percentage of completion accounting method over billings to date on certain contracts. Deferred contract revenue represents the excess of billings to date over the amount of contract costs and profits recognized to date on the percentage of completion accounting method on the remaining contracts. [b] Income Taxes The joint ventures have not recorded any provision for income taxes in the accompanying combined financial statements as such liabilities are the responsibility of the joint venture partners. [c] Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates with regard to the accompanying combined financial statements relate to the estimating of final construction contract profit in accordance with accounting for long-term contracts (see Note 2[a]) and estimating potential liabilities in conjunction with certain commitments and contingencies, as discussed in Note 4. Actual results could differ from management's estimates and assumptions. [d] Fair Value of Financial Instruments The joint ventures' financial instruments consist primarily of cash and cash equivalents, contract accounts receivable and accounts payable. The carrying amount of these financial instruments approximates fair value due to their short-term nature. [e] Cash and Cash Equivalents Cash equivalents include short-term, highly liquid investments with original maturities of three months or less. [3] Cash Management The joint ventures regularly invest excess cash in highly liquid, interest bearing investments. These temporary investments are converted to cash on an "as needed" basis to fund obligations as they become due. The amount of cash overdraft represents the amount of checks outstanding which have not been presented for payment as of December 31, 1999 and 1998. 7 Exhibit 99.1 Perini Corporation Notes to Combined Financial Statements of Significant Construction Joint Ventures For the Years Ended December 31, 1999 and 1998 (Continued) [4] Contingencies and Commitments The joint ventures have noncancellable office and equipment leases with varying expiration dates through July 31, 2005. The following is a schedule, by year, of future minimum rental payments required under all operating leases that have remaining noncancellable lease terms as of December 31, 1999: Year Lease Commitments ------------ ----------------- 2000 $ 1,314,315 2001 489,913 2002 361,092 2003 208,092 2004 208,092 2005 121,387 ----------------- $ 2,702,891 ================= For the years ended December 31, 1999 and 1998, rent expense relating to noncancellable operating leases amounted to $1,764,182 and $1,261,350, respectively, which is included in contract costs. Contingent liabilities include liability of contractors for performance and completion of the joint venture construction contracts. In addition, the joint ventures are involved in arbitration and alternative dispute resolution ("ADR") proceedings. In the opinion of management of the various joint ventures, the resolution of these proceedings will not have a material effect on the results of operations or financial condition as reported in the accompanying combined financial statements. [5] Related Party Transactions Certain joint ventures periodically make temporary cash advances to the joint venture participants. At December 31, 1999, the amount of such temporary cash advances to Perini Corporation and other joint venture participants totalled $8,760,000 and $7,440,000, respectively. At December 31, 1998, the amount of such temporary cash advances to Perini Corporation and other joint venture participants totalled $8,000,000 and $5,000,000, respectively. [a] Perini Corporation Significant billings from the Company to the joint ventures, included in the accompanying combined financial statements, for various services for the years ended December 31, 1999 and 1998 were as follows: 1999 1998 --------------- -------------- Equipment Rental $2,948,330 $1,658,258 Labor, Job Materials and Administrative Costs, including management fees 9,647,313 7,172,284 --------------- -------------- $12,595,643 $8,830,542 =============== ==============
The above amounts include contract costs and profit paid to the Company as a subcontractor to a certain joint venture. At December 31, 1999, the subcontract was complete and had a final price of $33,871,625. 8 Exhibit 99.1 Perini Corporation Notes to Combined Financial Statements of Significant Construction Joint Ventures For the Years Ended December 31, 1999 and 1998 (Continued) [5] Related Party Transactions (continued) [b] Other Joint Venturers Included in the combined joint ventures' cost of operations are charges for labor and certain other job material costs that were incurred with the various related parties. [6] Employee Benefit Plans The combined construction joint ventures contribute to various multi-employer union retirement plans under collective bargaining agreements, which provide retirement benefits for substantially all of its union employees. The Multi-employer Pension Plan Amendments Act of 1980 defines certain employer obligations under multi-employer plans. Information regarding union retirement plans are not available from plan administrators to enable the Company to determine its share of unfunded vested liabilities. Supervisory personnel are generally covered under the sponsoring joint venturer's plan. 9 -----END PRIVACY-ENHANCED MESSAGE-----