-----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, Ew1sdQVfAAhlAwy7HPSMsEXpkdbZEf9PiJjOv3CXVSa/Bzt05LFcgtP30QBvZiaX x/GU4Oz0qUM6Wdk964cnXQ== 0000077543-98-000001.txt : 19980331 0000077543-98-000001.hdr.sgml : 19980331 ACCESSION NUMBER: 0000077543-98-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: AMEX 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: 98578841 BUSINESS ADDRESS: STREET 1: 73 MT WAYTE AVE CITY: FRAMINGHAM STATE: MA ZIP: 01701 BUSINESS PHONE: 5086282000 10-K 1 PERINI CORPORATION 1997 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, 1997 [ ] 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 $35,463,300 as of February 27, 1998. 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 27, 1998 is 5,157,046. - -------------------------------------------------------------------------------- Documents Incorporated by Reference Portions of the annual proxy statement for the year ended December 31, 1997 are incorporated by reference into Part III. PERINI CORPORATION INDEX TO ANNUAL REPORT ON FORM 10-K PAGE ---- PART I - ------ Item 1: Business 2 - 12 Item 2: Properties 12 Item 3: Legal Proceedings 13 Item 4: Submission of Matters to a Vote of Security Holders 13 PART II - ------- Item 5: Market for the Registrant's Common Stock and Related 13 Stockholder Matters Item 6: Selected Financial Data 14 Item 7: Management's Discussion and Analysis of Financial 15 - 20 Condition and Results of Operations 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 - 22 Item 11: Executive Compensation 22 Item 12: Security Ownership of Certain Beneficial Owners and 22 Management Item 13: Certain Relationships and Related Transactions 22 PART IV - ------- Item 14: Exhibits, Financial Statement Schedules and Reports on 23 Form 8-K Signatures 24
1 PART I. ITEM 1. BUSINESS - ------------------ General Perini Corporation and its subsidiaries (the "Company" unless the context indicates otherwise) provides general contracting, including building and civil construction, and construction management and design-build services to private clients and public agencies throughout the United States and selected overseas locations. The Company is also engaged in real estate development operations which are conducted by Perini Land & Development Company, a wholly-owned subsidiary with offices in Arizona, Georgia and Massachusetts. The Company was incorporated in 1918 as a successor to businesses which had been engaged in providing construction services since 1894. Because the Company's results consist in part of a limited number of large transactions in both construction and real estate, 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, 1997. Annual Report On Form 10-K Caption Page Number ------- ----------- Selected Consolidated Financial Information Page 14 Management's Discussion and Analysis Pages 15 - 20 Footnote 13 to the Consolidated Financial Statements, entitled Business Segments and Pages 48 - 50 Foreign Operations
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, 1997, additional information (business segment and foreign operations) required by Statement of Financial Accounting Standards No. 14 for the three years ended December 31, 1997 is included in Note 13 to the Consolidated Financial Statements. 2 A summary of revenues by product line for the three years ended December 31, 1997 is as follows:
Revenues (in thousands) Year Ended December 31, ----------------------------------------------- 1997 1996 1995 ---- ---- ---- Construction: Building $ 888,809 $ 834,888 $ 748,412 Heavy 387,224 389,540 308,261 -------------- -------------- -------------- Total Construction Revenues $ 1,276,033 $ 1,224,428 $ 1,056,673 -------------- -------------- -------------- Real Estate: Sales of Real Estate $ 22,423 $ 7,639 $ 10,738 Building Rentals 9,481 19,446 16,799 Interest Income 12,347 14,406 12,396 All Other 4,207 4,365 4,462 -------------- -------------- -------------- Total Real Estate Revenues $ 48,458 $ 45,856 $ 44,395 -------------- -------------- -------------- Total Revenues $ 1,324,491 $ 1,270,284 $ 1,101,068 ============== ============== =============
Construction The general contracting and construction management 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 was engaged in over 160 construction projects in the United States and overseas during 1997. The Company has two principal construction operations: building and civil. The civil operation undertakes large heavy construction projects throughout the United States, with current emphasis on major metropolitan areas such as Boston, New York City, Chicago and Los Angeles. The civil operation performs construction and rehabilitation of highways, subways, tunnels, dams, bridges, airports, marine projects, piers 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 the late 1990's and beyond. The building operation provides its services through regional offices located in several metropolitan areas: Boston and Philadelphia, serving New England and the Mid-Atlantic area; Detroit, operating in Michigan and the Midwest region; and Phoenix and Las Vegas, serving Arizona, Nevada and California. In 1992, the Company combined its building operations into a new wholly-owned subsidiary, Perini Building Company, Inc. This new 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, correctional facilities, sports complexes, residential, commercial, civic, cultural and educational facilities. 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. 3 Construction Strategy The Company plans to continue to increase the amount of civil construction work it performs because of the relatively higher margin opportunities available from such work. The Company believes the best opportunities for growth in the coming years are in the urban infrastructure market, particularly in Boston, metropolitan New York, Los Angeles 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 maximize profit margins; to take advantage of certain market niches; and to expand into new markets compatible with its expertise. Internally, the Company plans to continue both to strengthen its management through management development and job rotation programs, and to improve efficiency through strict attention to the control of overhead expenses and implementation of improved project management systems. Finally, the Company continues to expand its expertise to assist public owners to develop necessary facilities through creative public/private ventures. 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 calls 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". Backlog As of December 31, 1997 the Company's construction backlog was $1.31 billion compared to backlogs of $1.52 billion and $1.53 billion as of December 31, 1996 and 1995, respectively.
Backlog (in thousands) as of December 31, ----------------------------------------------------------------------------------------- 1997 1996 1995 ---- ---- ---- Northeast $ 574,779 44% $ 643,114 42% $ 749,017 49% Mid-Atlantic 97,212 7 113,289 8 179,324 12 Southeast 46,629 4 56,925 4 33,223 2 Midwest 26,130 2 97,954 6 325,055 21 Southwest 481,068 37 425,901 28 94,725 6 West 28,707 2 139,079 9 134,259 9 Foreign 54,929 4 41,438 3 18,919 1 ------------- -------- ------------- -------- ------------- ----- Total $ 1,309,454 100% $ 1,517,700 100% $ 1,534,522 100% ============= ======== ============= ======== ============= =====
The Company includes a construction project in its backlog at such time 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. The Company estimates that approximately $536 million of its backlog will not be completed in 1998. The Company's backlog in the Northeast region of the United States remains strong because of its 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 continued increase in backlog in the Southwest region is indicative of the increased demand by the hotel-casino market in Nevada, while the decrease in backlog in the Midwest is due, in part, to a downsizing or closing of certain unprofitable business units. Other fluctuations in backlog are viewed by management as transitory. 4 Types of Contracts The four general types of contracts in current use in the construction industry are: o Fixed price contracts ("FP"), which include unit price contracts, usually transfer more risk to the contractor but offer the opportunity, under favorable circumstances, for greater profits. With the Company's increasing move into publicly bid civil construction projects, the percentage of fixed price contracts continue to represent the major portion of the backlog. o Cost-plus-fixed-fee or award fee contracts ("CPFF") 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-fixed-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 subcontracts. Historically, a high percentage of company contracts have been of the fixed price type. Construction management 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, - ----------------------------------- ------------------------------------- 1997 1996 1995 1997 1996 1995 ---- ---- ---- ---- ---- ---- 58% 59% 67% Fixed Price 53% 62% 74% 42 41 33 CPFF, GMP or CM 47 38 26 ------- ------- ------- ------- ------- ---- 100% 100% 100% 100% 100% 100% ======= ======= ======= ======= ======= ====
Clients During 1997, the Company was active in the building, civil and international construction markets. The Company performed work for over 120 federal, state and local governmental agencies or authorities and private customers during 1997. No material part of the Company's business is dependent upon a single or limited number of private customers; the loss of any one of which would not have a materially adverse effect on the Company. As illustrated in the following table, the Company continues to serve a significant number of private owners. During the period 1995-1997, the portion of construction revenues derived from contracts with various governmental agencies remains relatively constant at 51% in 1997, 52% in 1996 and 56% in 1995. Revenues by Client Source
Year Ended December 31, ----------------------------------- 1997 1996 1995 ---- ---- ---- Private Owners 49% 48% 44% Federal Governmental Agencies 5 5 8 State, Local and Foreign Governments 46 47 48 ---- ---- ---- 100% 100% 100% ==== ==== ====
5 All Federal government contracts are subject to termination provisions, but as shown in the table above, the Company does not have a material amount of such contracts. 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 financial resources 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 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. 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 a possible example of this situation, see "Legal Proceedings" on page 13. For further information regarding certain joint ventures, see Note 2 to 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. Gasoline, diesel fuel 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 1998 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 carry insurance or receive satisfactory indemnification from customers to cover the risks associated with this business. The Company also owns real estate in seven 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 6 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 with two construction divisions in the Midwest and Perini Environmental referred to above. Real Estate The Company's real estate development operations are conducted by Perini Land & Development Company ("PL&D"), a wholly owned subsidiary, which has been involved in real estate development since the early 1950's. PL&D has traditionally engaged in real estate development in Arizona, California, Florida, Georgia and Massachusetts. In late 1996, PL&D changed its strategy on certain of its properties from maximizing value by holding them through the necessary development and stabilization periods to a new strategy of generating short-term liquidity through an accelerated disposition or bulk sale. This change in strategy substantially reduced the estimated future cash flow from these properties. Therefore, an impairment loss on those properties resulted in PL&D recording a non-cash charge in an aggregate amount of approximately $80 million as of December 31, 1996, in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". An estimated allocation of the write-down, by geographic areas, was California ($59 million), Arizona ($18 million), and Florida ($3 million). In early 1998, in its capacity as managing general partner of Rincon Center Associates ("RCA"), a joint venture which owns Rincon Center, a mixed-use property in San Francisco (see Real Estate Properties below), PL&D reached a preliminary agreement, subject to various approvals and further negotiations, with regard to the refinancing of the obligations on the project. If the preliminary agreement is implemented, it is expected that RCA may lose all or most of its beneficial interest in Rincon Center Phase I. In anticipation of the completion of this transaction, a reserve of $17.2 million against the potential write-off of a note receivable and other assets related to the Phase I portion of the project was taken by RCA at December 31, 1997. PL&D's share of that reserve is $7.8 million, which has been charged to existing reserves it carries on the project. Based on a current net realizable value analysis, the Company's investment in RCA will be recoverable from the full development and disposition of the remaining segments of the property. If the preliminary refinancing agreement is completed as currently proposed, all guarantees provided by RCA, its partners and the Company, under the existing master lease covering Rincon Phase I, would be released at that time in association with the termination of the master lease. PL&D will continue periodically to review its portfolio to assess the desirability of accelerating its sales through price concessions or sale at an earlier stage of development. In circumstances in which asset strategies are changed, such as in 1997, and properties brought to market on an accelerated basis, those assets, if necessary, are adjusted to reflect the lower of carrying amounts or fair value less cost to sell. Similarly, if the long term outlook for a property in development or held for future sale is adversely changed, the Company will adjust its carrying value to reflect such an impairment in value. To achieve full value for some of its real estate holdings, in particular its investments in Rincon Center, PL&D may have to hold that property several years and currently intends to do so. 7 Real Estate Strategy Since 1990, PL&D has taken a number of steps to reduce the size of its operations. In early 1990, all new real estate investment was suspended pending market improvement, all but critical capital expenditures were curtailed on on-going projects, and PL&D's work force was substantially reduced. Certain project loans were extended, with such extensions usually requiring pay downs and increased annual amortization of the remaining loan balance. Since that time, PL&D has operated with a further reduced staff and has adjusted its activity to meet the demands of the market. PL&D currently has offices in Arizona, Georgia and Massachusetts. PL&D's real estate development project mix includes planned community, industrial park, commercial office, multi-unit residential, urban mixed use and single family home developments. PL&D's emphasis is on the sale of completed product and also developing the projects in its inventory with the highest near term sales potential. It may also selectively seek new development opportunities in which it serves as development manager with limited equity exposure, if any. 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 which provides for 570,500 square feet of mixed commercial uses at the intersection of Interstate 95 and 45th Street in West Palm Beach, no property was sold in 1997. The park consists of 17 parcels, of which 5 acres currently remain unsold. Massachusetts Perini Land and Development or Paramount Development Associates, Inc. ("Paramount"), a wholly-owned subsidiary of PL&D, own the following projects: Raynham Woods Commerce Center, Raynham - In 1987, Paramount acquired a 409-acre site located in Raynham, Massachusetts. During 1988, Paramount completed infrastructure work on a major portion of the site (330 acres) which is being developed as a mixed use corporate campus style park known as "Raynham Woods Commerce Center". From 1989 through 1995, Paramount sold an aggregate of 56 acres to various users, including the division of a major U.S. company for use as its headquarters, to a developer who was working with a major national retailer for a retail site, and to a major insurance company. In 1990, Paramount built two commercial buildings in the park which are currently approximately 95% occupied. The park is planned to eventually contain 2.5 million square feet of office, R&D, light industrial and mixed commercial space. No sales were closed in 1997. However, a sale of the two commercial buildings is under contract and expected to close in early 1998. Easton Business Center, Easton - In 1989, Paramount acquired a 40-acre site in Easton, Massachusetts, which already had been partially developed. Paramount completed the work and is currently marketing the site to commercial/industrial users. No sales were closed in 1997. 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 1997. 8 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," six miles south of Atlanta's Hartsfield International Airport. The development plan calls for mixed residential densities of apartments and moderate priced single-family homes totaling 1,158 dwelling units in the residential tracts, plus 220,000 square feet of retail and 220,000 square feet of office space in the commercial tracts. Since its acquisition, the joint venture has put in a substantial portion of the infrastructure, all of the recreational amenities, and through 1996 had sold 293 single family lots to builders , along with a 13.6 acre tract designed for 52 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 1997 the joint venture sold an additional 19 lots to builders, an 8.7 acre tract designed for 36 lots and 2.9 acres of commercial property. California Rincon Center, San Francisco - Major construction on this mixed-use project in downtown San Francisco was completed in 1989. The project, constructed in two phases, consists 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, the first phase of the project was sold and leased back by the developing partnership. The first phase consists of about 223,000 square feet of office space and 42,000 square feet of retail space. The Phase I office space is 100% leased with the regional telephone directory company as the major tenant on a lease which runs to 2002. The retail space is currently 97% leased. Phase II of the project, which began operations in late 1989, consists of approximately 200,000 square feet of office space, 21,000 square feet of retail space, a 14,000 square foot U.S. postal facility, and 320 apartment units. Currently, 100% of the office space, 70% of the retail space and 98% of the 320 residential unit are leased. The major tenant in the office space in Phase II is a large national insurance company which occupies 173,000 square feet. PL&D currently holds a 46% interest in, and is managing general partner of, the partnership which developed the project. The land related to this project is being leased from the U.S. Postal Service under a ground lease which expires in 2050. Two major loans on this property, in aggregate totaling over $75 million, were scheduled to mature in 1993. During 1993, both loans were extended for five additional years. To extend these loans, PL&D provided approximately $6 million in new funds which were used to reduce the principal balances of the loans. Between 1993 and 1998, PL&D has continued to provide funding used to further amortize these loans. Both loans mature again in 1998. In late 1997, as part of the agreement to extend the letter of credit which supports the tax exempt bonds, PL&D allowed the lender to call the $3.65 million letter of credit provided as support for the Rincon Phase II commercial loan and apply the proceeds against the commercial loan balance. Rincon Center Associates has reached a preliminary agreement for the restructure of the Rincon financing which will , if completed, extend the Rincon Center Phase II loans until late 2000. As part of the restructure, Rincon Center Associates would be required to make additional principal and interest payments early in 1998 and relinquish all or most of its economic interest in Rincon Center Phase I, such relinquished interests being derived from the terms of the master lease documents which would be terminated at the closing of the transaction. Based on Company forecasts, PL&D may be required to contribute as much as $7.2 million in 1998. However, based on the completion of the refinancing, the cash flow expectations for the property after 1998 are significantly improved from prior years. In addition to the project financing and guarantees disclosed in Note 11 to Notes to Consolidated Financial Statements, the Company has advanced approximately $89.2 million to the partnership through December 31, 1997, of which approximately $7.1 million was advanced during 1997, primarily to pay down some of the principal portion of project debt which was renegotiated during 1993. During 1993 PL&D agreed, if necessary, to lend Pacific Gateway Properties (PGP), the other General Partner in the project, funds to meet its 20% share of cash calls. In return, PL&D receives a priority return from the partnership on those funds and penalty fees in the form of rights to certain distributions due PGP by the partnership controlling Rincon. From 1993-1997, PL&D advanced $5.4 million under this agreement, primarily to meet the principal payment obligations of the loan extensions 9 described above. These funds advanced as loans to PGP are in addition to the advances described above. The interest rates on much of the debt financing covering Rincon Center are variable based on various rate indices. With the exception of approximately $14 million of the financing, none of the debt has been hedged or capped and is subject to market fluctuations. From time to time, the Company reviews the costs and anticipated benefits from hedging Rincon Center's interest rate commitments. Based on current costs to further hedge rate increases and market conditions, the Company has elected not to provide any additional hedges at this time. As part of the Rincon Center Phase I sale and operating lease-back transaction, the lease provides that if an additional financial commitment to replace at least $33 million of long-term financing has not been arranged by January 1, 1998, the lessee will be 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 has been made to delay this event to allow the parties to arrange for the financial restructuring as described above. The Resort at Squaw Creek - Early in 1997, PL&D signed a letter of intent to sell its interest in the joint venture through which the Company held its ownership interest in the Resort. Based on the proposed transaction, the Company took a write down on this project of approximately $57 million at the end of 1996. The transaction closed in the second quarter of 1997. Corte Madera, Marin County - After many years of intensive planning, PL&D obtained approval for a 151 single-family home residential development on its 85-acre site in Corte Madera and, in 1991, was successful in gaining water rights for the property. In 1992, PL&D initiated development on the site which was continued into 1993. This development is one of the last remaining in-fill areas in southern Marin County. In 1993, when PL&D decided to scale back its operations in California, it also decided to sell this development in a transaction which closed in early 1994. The transaction calls for PL&D to get the majority of its funds from the sale of residential units or upon the sixth anniversary of the sale whichever takes place first, and, although indemnified, to leave in place certain bonds and other assurances previously given to the town of Corte Madera guaranteeing performance in compliance with approvals previously obtained. Sale of the units began in August of 1995 and by the end of 1996, 39 sales were closed. During 1997, another 37 closings were recorded. Arizona Airport Commerce Center, Tucson - In 1982, the I-10 partnership purchased 112 acres of industrially-zoned property near the Tucson International Airport. During 1983, the partnership added 54 acres to that project, bringing its total size to 166 acres. The partnership built and fully leased a 14,600 square foot office/warehouse building in 1987 on a building lot in the park, which was sold during 1991. From 1990 through 1996, the partnership sold 73 acres within the park. In 1997 PL&D sold its remaining interest in the project to its partner. 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. In early 1998, the Company entered into an agreement to sell the property. 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 will include approximately 650,000 square feet of office, hotel, restaurant and/or retail space. Development, which began in 1986, is scheduled to proceed in phases as market conditions dictate. In 1987, a 150,000 square foot office building was completed within the park. The building leased up immediately and maintained an average occupancy in the low 90% range until late 1997. The building is now 65% leased with approximately half of the building leased to a major area utility company. The partnership is currently in 10 negotiations with two major tenants that, if successful, would bring the occupancy level to 95%. During 1993, PL&D (50%) successfully restructured the financing on the project by obtaining a seven year extension with some amortization and a lower fixed interest rate. The annual amortization commitment is not currently covered by operating cash flow. In the near term, it appears approximately $700,000 per year of support to cover loan amortization will continue to be required. In 1996, the lease covering space occupied by the major office tenant was extended an additional seven years to the year 2004 on competitive terms. In 1995, a day care center was completed on an 8-acre site along the north entrance of the park. In 1997, a 1.5 acre site was sold to a local small business for development of an owner occupied office building and a 2.7 acre site was sold to a national hotel chain for development of an all-suites hotel. Both projects broke ground in the latter part of the year. 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 Tent Jones, Jr. designed championship golf course and clubhouse were completed within the project in 1995. Although it will require some infrastructure development before sale, PL&D still retains 33 estate lots for sale in future years. General The Company's real estate business is influenced by both economic conditions and demographic trends. A depressed economy may result in lower real estate values and longer absorption periods. Higher inflation rates may increase the values of current properties, but often are accompanied by higher interest rates which may result in a slow down in property sales because of higher carrying costs. Important demographic trends are population and employment growth. A significant reduction in either of these may result in lower real estate prices and longer absorption periods. Generally, there has been no material impact on PL&D's real estate development operations over the past 10 years due to interest rate increases. However, an extreme and prolonged rise in interest rates could create market resistance for all real estate operations in general, and is always a potential market obstacle. Historically, PL&D has, in some cases, employed hedges or caps to protect itself against increases in interest rates on any of its variable rate debt. The future use of such hedges or caps is somewhat restricted under the terms of the New Credit Agreement. Because several of the Company's real estate projects have been written down to net realizable value, future gross profits from real estate sales will be minimal, which has been the case during the three year period ended December 31, 1997. 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. Year 2000 The Company began a project to review all of its computer systems during 1995. Among the many considerations at that time was what impact, if any, would the year 2000 have on computer systems. During 1997, 11 the Company made a commitment to purchase and install new computer systems to meet its current and projected needs. In addition to providing new fully integrated on line construction specific systems applications, the software complies with the year 2000 requirement. The process of implementing the new software package began in 1997 and was completed early in 1998. Management believes that due to the implementation of this new software package, the year 2000 issue will not have a material adverse impact on the Company's 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 1997 the maximum number of employees employed was approximately 2,200 and the minimum was approximately 1,900. 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 8 through 11. All other properties used in operations are summarized below:
Owned or Leased Approximate Approximate Square Principal Offices by Perini Acres Feet of Office Space ----------------- --------- ----- -------------------- Framingham, MA Owned 9 100,000 Phoenix, AZ Leased - 22,700 Southfield, MI Leased - 7,300 Hawthorne, NY Leased - 12,500 Atlantic City, NJ Leased - 900 Las Vegas, NV Leased - 2,900 Atlanta, GA Leased - 200 Chicago, IL Leased - 1,600 Philadelphia, PA Leased - 2,500 -------- ----------- 9 150,600 ======== ===========
Owned or Leased Approximate Principal Permanent Storage Yards by Perini Acres --------------------------------- --------- ----- Bow, NH Owned 70 Framingham, MA Owned 6 Las Vegas, NV Leased 2 Novi, MI Leased 3 ----- 81 12 The Company's properties are generally well maintained, in good condition, adequate and suitable for the Company's purpose and fully utilized. ITEM 3. LEGAL PROCEEDINGS - -------------------------- As previously reported, the Company is a party to an action entitled Mergentime Corporation et. al. v. Washington Metropolitan Transit Authority 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 judge now 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 Court, which awarded approximately $4.3 million to the joint venture, thereby reducing the net amount payable to approximately $12.2 million. The joint venture has appealed the decision. As a result of the decision, there is no immediate impact on the Company's Statement of Operations because of the reserve provided in prior years. The actual funding of net damages, if any, will be deferred until the appeal process is complete. In the ordinary course of its construction business, the Company is engaged in other lawsuits, arbitration and alternative dispute resolution ("ADR") proceedings. The Company believes that such 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. 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 1997 and 1996 are summarized below: 1997 1996 ------ ------ Market Price Range per Common Share: High Low High Low - ----------------------------------- ---- --- ---- --- Quarter Ended March 31 9 1/2 - 6 7/8 9 - 7 1/2 June 30 7 3/4 - 6 1/4 12 1/8 - 7 3/4 September 30 8 3/8 - 7 12 1/4 - 8 5/8 December 31 9 3/8 - 7 13/16 9 1/4 - 7 1/2
13 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 27, 1998, there were approximately 1,198 record holders of the Company's Common Stock. ITEM 6. SELECTED FINANCIAL DATA - -------------------------------- Selected Consolidated Financial Information (In thousands, except per share data) OPERATING SUMMARY 1997 1996 1995 1994 1993 ------------- ------------ ------------ ------------ ------------- Revenues: Construction Operations $ 1,276,033 $ 1,224,428 $ 1,056,673 $ 950,884 $ 1,030,341 Real Estate Operations 48,458 45,856 44,395 61,161 69,775 ------------- ------------ ------------ ------------ ------------- Total Revenues $ 1,324,491 $ 1,270,284 $ 1,101,068 $ 1,012,045 $ 1,100,116 ------------- ------------ ------------ ------------ ------------- Costs: Cost of Operations $ 1,275,614 $ 1,215,806 $ 1,086,213 $ 960,248 $ 1,047,330 Write down of Certain Real Estate Assets (Note 4) - 79,900 - - - ------------- ------------ ------------ ------------ ------------- $ 1,275,614 $ 1,295,706 $ 1,086,213 $ 960,248 $ 1,047,330 ------------- ------------ ------------ ------------ ------------- Gross Profit (Loss) $ 48,877 $ (25,422) $ 14,855 $ 51,797 $ 52,786 General, Administrative & Selling Expenses 30,556 33,988 37,283 42,985 44,212 ------------- ------------ ------------ ------------ ------------- Income (Loss) From Operations $ 18,321 $ (59,410) $ (22,428) $ 8,812 $ 8,574 Other Income (Expense), Net (1,665) (492) 814 (856) 5,207 Interest Expense (10,334) (9,871) (8,582) (7,473) (5,655) ------------- ------------ ------------ ------------ ------------- Income (Loss) Before Income Taxes $ 6,322 $ (69,773) $ (30,196) $ 483 $ 8,126 (Provision) Credit for Income Taxes (950) (830) 2,611 (180) (4,961) ------------- ------------ ------------ ------------ ------------- Net Income (Loss) $ 5,372 $ (70,603) $ (27,585) $ 303 $ 3,165 ------------- ------------ ------------ ------------ ------------- Per Share of Common Stock: Basic and diluted earnings (loss) $ 0.01 $ (15.13) $ (6.38) $ (0.42) $ 0.24 ------------- ------------ ------------ ------------ ------------- Cash dividends declared $ - $ - $ - $ - $ - ------------- ------------ ------------ ------------ ------------- Book value $ 2.44 $ 2.14 $ 17.06 $ 23.79 $ 24.49 ------------- ------------ ------------ ------------ ------------- Weighted Average Number of Common Shares Outstanding 5,059 4,808 4,655 4,380 4,265 ------------- ------------ ------------ ------------ ------------- FINANCIAL POSITION SUMMARY Working Capital $ 71,971 $ 56,744 $ 36,545 $ 29,948 $ 36,877 ------------- ------------ ------------ ------------ ------------- Current Ratio 1.31:1 1.19:1 1.12:1 1.13:1 1.17:1 ------------- ------------ ------------ ------------ ------------- Long-term Debt, less current maturities $ 84,898 $ 96,893 $ 84,155 $ 76,986 $ 82,366 ------------- ------------ ------------ ------------ ------------- Stockholders' Equity $ 40,900 $ 35,558 $ 105,606 $ 132,029 $ 131,143 ------------- ------------ ------------ ------------ ------------- Ratio of Long-term Debt to Equity 2.08:1 2.72:1 .80:1 .58:1 .63:1 ------------- ------------ ------------ ------------ ------------- Total Assets $ 414,924 $ 464,292 $ 539,251 $ 482,500 $ 476,378 ------------- ------------ ------------ ------------ ------------- OTHER DATA Backlog at Year End $ 1,309,454 $ 1,517,700 $ 1,534,522 $ 1,538,779 $ 1,238,141 ------------- ------------ ------------ ------------ -------------
14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Results of Operations - 1997 Compared to 1996 The Company's total operations resulted in net income of $5.4 million (or $.01 per Common Share) in 1997 compared to a net loss of $70.6 million (or $15.13 per Common Share) in 1996. The improvement in 1997 results compared to 1996 is substantially due to the non-recurring non-cash write-down in 1996 related to a change in the Company's real estate strategy for certain properties from maximizing value by holding them through the necessary development and stabilization periods to a new strategy of generating short-term liquidity through an accelerated disposition or bulk sale (see Notes 1(d) and 4 to Notes to Consolidated Financial Statements). Revenues amounted to $1.324 billion in 1997, a record level for the third consecutive year, an increase of $54.2 million (or 4.3%), compared to 1996 revenues of $1.270 billion. This increase resulted primarily from increased construction revenues of $51.6 million (or $4.2%) from $1.224 billion in 1996 to $1.276 billion in 1997, due primarily to an increase in revenues from building construction operations of $53.9 million (or 6.5%), from $834.9 million in 1996 to $888.8 million in 1997, which more than offset a slight decrease in revenues from civil construction operations of $2.3 million (or 0.6%), from $389.5 million in 1996 to $387.2 million 1997. These revenue fluctuations reflect the timing in the start-up of new construction projects, in particular several fast track hotel/casino projects in the Southwestern United States, several prison/detention and medical facilities projects in the Northeastern United States, and several long-term infrastructure rehabilitation projects in the metropolitan New York, Boston and Los Angeles areas. Revenues from real estate operations increased $2.6 million , from $45.9 million in 1996 to $48.5 million in 1997 because of revenues related to the sale of the Company's interest in The Resort at Squaw Creek. Gross profit increased by $74.3 million, from a loss of $25.4 million in 1996 to a profit of $48.9 million in 1997 due to the 1996 non-recurring $79.9 million real estate write-down. After adjusting for the 1996 real estate write-down, the pro forma gross profit actually decreased by $5.6 million in 1997, from $54.5 million in 1996 to $48.9 million in 1997, in spite of the increase in revenues described above, due primarily to a $5.2 million decrease in gross profit from construction operations, from $55.4 million in 1996 to $50.2 million in 1997 because the increased profits related to the increase in construction revenues was more than offset by additional write-downs related to contracts from two unprofitable Midwest construction divisions, which are being closed. The impact of these write-downs were partially offset by an approximate $3.2 million gain from the sale of the Company's interest in two joint ventures (see Note 14 to Notes to the Consolidated Financial Statements). The gross loss from real estate operations was $1.3 million in 1997 compared to an adjusted gross loss of $0.9 million in 1996. General, administrative and selling expenses decreased by $3.4 million (or 10%), from $34.0 million in 1996 to $30.6 million in 1997 primarily due to the closing out of two construction divisions in the Midwest and Perini Environmental Services, Inc., its wholly-owned hazardous waste subsidiary. Other income (expense), net increased $1.2 million, from a net expense of $0.5 million in 1996 to a net expense of $1.7 million in 1997 due primarily to increased amortization of deferred debt expense related to the new credit agreement, a $0.4 million decrease in gains on sales of fixed assets, and a $0.3 million decrease in minority interest. Interest expense increased by $0.4 million (or 4%), from $9.9 million in 1996 to $10.3 million in 1997 due to a higher average level of borrowings during 1997. The lower than normal tax rate for the three year period ended December 31, 1997 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, an amount estimated to be approximately $75.0 million of future pretax earnings should 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, 15 be realized (see Note 5 to Notes to Consolidated Financial Statements). Results of Operations - 1996 Compared to 1995 In spite of record revenues and earnings from domestic construction operations during 1996, the Company's total operations resulted in a net loss of $70.6 million (or $15.13 per Common Share) on revenues of $1.3 billion in 1996 compared to a net loss of $27.6 million in 1995 (or $6.38 per Common Share) on revenues of $1.1 billion. The reason for the net loss in 1996 was a change in the Company's real estate strategy on certain of its properties from maximizing value by holding them through the necessary development and stabilization periods to a new strategy of generating short-term liquidity through an accelerated disposition or bulk sale. The change in strategy substantially reduced the estimated future cash flows from these properties. Therefore, a non-cash impairment loss on those properties, in the aggregate amount of $79.9 million, was provided in 1996 in accordance with SFAS No. 121 (see Notes (1)(d) and 4 to Notes to Consolidated Financial Statements). Revenues amounted to $1.270 billion in 1996, a record level for the second consecutive year, an increase of $169 million (or 15%) compared to the 1995 revenues of $1.101 billion. This increase was almost entirely due to an increase in construction revenues of $167 million (or 16%), from $1.057 billion in 1995 to $1.224 billion in 1996. This increase in construction revenues was divided fairly equally between building and heavy (or "civil") construction operations. Building construction revenues increased $87 million (or 12%), from $748 million in 1995 to $835 million in 1996 while civil construction revenues increased $80 million (or 26%), from $309 million in 1995 to $389 million in 1996. These revenue increases reflect the impact of several fast track hotel/casino projects in the western and midwestern United States, several prison/detention and medical facilities projects in the northeastern United States, and several long-term infrastructure rehabilitation projects in the metropolitan New York, Boston and Los Angeles areas. In spite of the 15% increase in revenues, the gross profit decreased $40.3 million, from a gross profit of $14.9 million in 1995 to a gross loss of $25.4 million in 1996. The primary reason for the gross loss in 1996 was the $79.9 million real estate write down referred to above which caused the increase in gross loss from real estate from $1.0 million in 1995 to $80.9 million in 1996. This increase in gross loss was partially offset by a substantial increase in gross profit from construction operations of $39.6 million, from $15.9 million in 1995 to $55.5 million in 1996. Overall gross profit margins on both building and civil construction operations in 1996 exceeded those experienced in 1995. The lower than normal gross profit from construction operations recognized in 1995 included a pretax charge, which aggregated $25.6 million, to provide for a liability related to previously disclosed litigation in Washington, D.C. (see Note 11 to Notes to Consolidated Financial Statements), and downward revisions in estimated probable recoveries on certain outstanding contract claims. These pretax charges in 1995, coupled with the increased construction revenues in 1996 referred to above, including the favorable profit impact in 1996 of several large infrastructure projects, primarily in the metropolitan New York, Boston and Los Angeles areas, resulted in the substantial increase in gross profit from construction operations in 1996. General, administrative and selling expenses decreased by $3.3 million (or 9%), from $37.3 million in 1995 to $34.0 million in 1996 due primarily to continued emphasis on reducing overall overhead expenses in conjunction with the Company's re-engineering efforts commenced in prior years, the sale in June of 1996 of Pioneer Construction, a former subsidiary of the Company located in West Virginia, and the continuation of the gradual down-sizing of the Company's real estate and environmental remediation construction operations. Other income (expense), net decreased $1.3 million, from income of $.8 million in 1995 to a loss of $.5 million in 1996 primarily due to higher bank charges experienced in 1996 in conjunction with the Company's renegotiation of certain provisions of its Revolving Credit Agreement and Bridge Loan Agreement and, to a lesser degree, a reduction in gains from the sale of certain underutilized operating facilities and less interest income. Interest expense increased by $1.3 million (or 15%), from $8.6 million in 1995 to $9.9 million in 1996 due to a higher average level of borrowings during 1996. 16 The Company recognized income tax expense for the year ending December 31, 1996 of $.8 million on a pretax loss of $69.8 million, whereas in 1995, the Company recognized a tax benefit of $2.6 million on a pretax loss of $30.2 million. The 1996 income tax expense is primarily for state income taxes relating to certain jurisdictions in which the Company had net taxable income. The Company did not provide any federal tax benefit in 1996, whereas in 1995, a partial tax benefit was provided on the Company's pretax loss, due to certain accounting limitations. Financial Condition Cash and Working Capital During 1997, the Company provided $12.7 million in cash from operating activities, primarily from proceeds related to the sale of The Resort at Squaw Creek, and $14.6 million in cash from financing transactions, due to the net proceeds received on the sale of Series B Preferred Stock less paydowns of long-term debt. These funds were used for investing activities ($5.7 million) primarily for joint ventures and to increase the cash on hand by $21.6 million. During 1996, the Company used $24.3 million in cash for operating activities, primarily for changes in working capital, and $21.1 million for investment activities, primarily to fund construction and real estate joint ventures. These uses of cash were provided by $21.6 million from financing activities, primarily increases in borrowings under the Company's Revolving Credit and Bridge Loan facilities, and a $19.3 million reduction in cash on hand. During 1995, the Company provided $24.6 million in cash from operating activities, primarily due to an overall increase in accounts payable and advances from joint ventures; $9.0 million from financing activities due to an increase in borrowings under its revolving credit facility; and $23.9 million from cash distributions from certain joint ventures. These increases in cash were used to increase cash on hand by $21.2 million, with the balance used for various investment activities, primarily to fund construction and real estate joint ventures. Since 1990, the Company has paid down $45.6 million of real estate debt on wholly-owned real estate projects (from $50.9 million to $5.3 million), utilizing proceeds from sales of property and general corporate funds. Similarly, real estate joint venture debt has been reduced by $167 million over the same period. As a result, the Company has reached a point at which revenues from further real estate sales that, in the past, have been largely used to retire real estate debt will be increasingly available to improve general corporate liquidity subject to certain restrictions contained in the New Credit Agreement referred to in Note 3 to Notes to Consolidated Financial Statements. With the exception of a major property referred to in Note 11 to Notes to Consolidated Financial Statements, this trend should continue over the next several years with debt on projects often being fully repaid prior to full project sell-out. In addition, the Company made a strategic decision in the early 1990's to change its mix of construction work by increasing the relative percentage of potentially higher margin civil construction projects. The working capital required to support civil construction projects is substantially more than the normal building construction project because of its equipment intensive nature, progress billing terms imposed by certain public owners and, in some instances, time required to process contract change orders. The Company has addressed these problems by relying on corporate borrowings, extending certain maturing real estate loans (with such extensions usually requiring pay downs and increased annual amortization of the remaining loan balance), suspending the acquisition of new real estate inventory, significantly reducing development expenses on certain projects, utilizing stock in payment of certain expenses, utilizing cash internally generated from operations and selling its interest in certain engineering and construction business units that were not an integral part of the Company's ongoing building and civil construction operations. The Company also implemented company-wide cost reduction programs in the early 1990's, and which are ongoing, to improve long-term financial results and suspended the dividend on its Common Stock during the fourth quarter of 1990 and suspended payment of dividends on its $21.25 Convertible Exchangeable Preferred Stock in the first quarter of 1996. Also, the Company increased the aggregate amount available under its revolving credit agreement during the period from $70 million to $114.5 million at December 31, 1997. In addition to internally generated funds, at December 31, 1997, the Company has $31.5 million available under its revolving credit facility. The financial covenants to which the Company is subject include minimum levels of working capital, debt/net worth ratio, net worth level, interest coverage and certain restrictions on real estate investments, all as defined in the loan documents. Although the Company would have been in violation of certain of the covenants during 1997, it 17 obtained waivers of such violations. 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 to Notes to Consolidated Financial Statements) and the New Credit Agreement referred to in Note 3 to Notes to Consolidated Financial Statements. Also, during 1997, 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. The working capital current ratio increased to 1.31:1 at the end of 1997, compared to 1.19:1 at the end of 1996 and compared to 1.12:1 at the end of 1995. Of the total working capital of $72.0 million at the end of 1997, approximately $14.6 million may not be converted to cash within the next 12 to 18 months. Long-term Debt Long-term debt was $84.9 million at the end of 1997, a decrease of $12.0 million compared with $96.9 million at the end of 1996, which was an increase of $12.7 million compared with $84.2 million at the end of 1995. The ratio of long-term debt to equity increased from 0.80:1 at the end of 1995 to 2.72:1 at the end of 1996 and decreased to 2.08:1 at the end of 1997 due primarily to the negative impact on equity of the net losses experienced by the Company in 1995 and 1996 and the net income in 1997. Stockholders' Equity The Company's book value per Common Share stood at $2.44 at December 31, 1997, compared to $2.14 per Common Share and $17.06 per Common Share at the end of 1996 and 1995, respectively. The major factors impacting stockholders' equity during the three-year period under review were the net income in 1997, the net losses recorded in 1995 and 1996 and, to a lesser extent, Preferred dividends paid or accrued, and stock issued in partial payment of certain expenses. At December 31, 1997, there were 1,212 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, 1997. 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 1995 Amended Revolving Credit Agreement (see Note 3 to 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 in 1996 and 1997, have not been declared or paid (although they have been fully accrued due to the "cumulative" feature of the Preferred Stock). A New Credit Agreement, superseding the loan agreements referred to above, was approved January 17, 1997 and provides that the Company may not pay cash dividends or make other restricted payments, as defined, prior to September 30, 1998 and thereafter 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 credit facility have been reduced to less than $90 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, adjusted for non-cash charges incurred in connection with any disposition or 18 write-down of any real estate investment, provided that net worth must be at least $60 million: Net Worth --------- (In thousands) October 1, 1998 to December 30, 1998 $161,977 December 31, 1998 to March 31, 1999 $167,303 April 1, 1999 to June 30, 1999 $170,129 July 1, 1999 to September 30, 1999 $172,955 October 1, 1999 to January 1, 2000 $175,781 For purposes of the New 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); provided, however, that the Company shall have elected and paid cash dividends on the Series B Preferred Stock for the preceding four quarters. The Board of Directors intends to resume payment of dividends as 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 Looking ahead, the overall construction backlog at the end of 1997 was $1.309 billion, down 14% from the 1996 year end backlog of $1.518 billion. This decrease primarily reflects suspension of work acquisition in certain divisions that are being closed. This backlog has a good balance between building and civil work and a relatively high overall estimated profit margin. Approximately 56% of the current backlog relates to building construction projects which generally represent lower risk, lower margin work, and approximately 44% of the current backlog relates to heavy construction projects which generally represent higher risk, but correspondingly potentially higher margin work. 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. Consistent with that Plan, the Company closed or downsized and refocused four business units during 1997. The Company believes the outlook for its building and civil construction businesses continues to be promising. Because several of the Company's real estate projects have been written down to net realizable value, future gross profits from real estate sales will be minimal, which has been the case during the three year period ended December 31, 1997. A major objective for 1998 is the renegotiation and extension of debt at Rincon Center (see Note 11 to Notes to Consolidated Financial Statements). 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 has 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 will continue to sell certain real estate assets as market opportunities present themselves; to actively pursue the favorable conclusion of various 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 19 Exchangeable Preferred Stock; and to continue to seek ways to control overhead expenses. In addition, at the end of 1996 the Company completed a review of all of its real estate assets which resulted in a change of strategies related to certain of those assets to a new strategy of generating short-term liquidity. This resulted in generating cash proceeds in excess of $20 million during 1997 and up to an additional $10 million which may be generated during 1998. Management believes that cash generated from operations, existing credit lines, additional borrowings and projected sale of certain real estate assets referred to above should be adequate to meet the Company's funding requirements for at least the next twelve months. Forward-looking Statements This Management's Discussion and Analysis of Financial Condition and Results of Operations, including "Outlook" and other sections of this Annual Report, contain 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 that are based on current expectations, estimates and projections about the industries in which the Company operates, management's beliefs and assumptions made by management. Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates", variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from those in such forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. 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 14, 1998 (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, 1997 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 - -------------------------- -------------------------------------------- David B. Perini, Director and Since January 1, 1998 he serves as a Chairman - 60 Director and Chairman. Prior to that, he served as a Director, President, Chief Executive Officer and Acting Chairman since 1972. He became Chairman on March 17, 1978 and has worked for the Company since 1962 in various capacities. Prior to being elected President, he served as Vice President and General Counsel. Roger J. Ludlam, Director, He was elected President and Chief Executive President and Chief Executive Officer effective January 1, 1998. Prior to Officer - 55 that, he served as Senior Vice President, Civil Construction since June 1997. Prior thereto, he served as Chief Executive Officer of Park Construction, a Minnesota based civil construction contractor since January 1994 and in a similar capacity for S.J. Groves & Sons Company since 1989. Robert Band, Executive Vice He was elected to his current position in President, Chief Financial December 1997. Prior to that, he served as Officer - 50 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. Richard J. Rizzo, Executive He was elected to his current position Vice President, Business effective January 1, 1998. Prior to that, he Development - 54 served as Executive Vice President, Building Construction since January 1994, which entailed overall responsibility for the Company's building construction operations. Prior thereto, he served as President of Perini Building Company (formerly known as Mardian Construction Co.) since 1985, and in various other operating capacities since 1977. John H. Schwarz, Executive Vice He has served as Executive Vice President, President, Finance and Finance and Administration since August Administration of the Company 1994. He also served as Chief Executive - - 59* Officer of Perini Land and Development Company, which entails overall responsibility for the Company's real estate operations since April 1992 through 1995. Prior to that, he served as Vice President, Finance and Controls of Perini Land and Development Company. Previously, he served as Treasurer from August 1984, and Director of Corporate Planning since May 1982. He joined the Company in 1979 as Manager of Corporate Development. Donald E. Unbekant, Executive He has served in this capacity since January Vice President, Civil 1994, which entails overall responsibility Construction - 66* for the Company's civil construction operations. Prior thereto, he served in the Metropolitan New York Division of the Company as President since 1992, Vice President and General Manager since 1990 and Division Manager since 1984. * Messrs. Schwarz and Unbekant retired at the end of 1997. 21 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED) - ------------------------------------------------------------------------ The Company's officers are elected on an annual basis at the Board of Directors Meeting immediately following the Shareholders Meeting in May, to hold such offices until the Board of Directors Meeting following the next Annual Meeting of Shareholders and until their respective successors have been duly appointed or until their tenure has been terminated by the Board of Directors, or otherwise. 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, 1997 and 1996 25 - 26 Consolidated Statements of Operations for the three years ended December 31, 1997, 1996 and 27 1995 Consolidated Statements of Stockholders' Equity for the three years ended December 31, 1997, 28 1996 and 1995 Consolidated Statements of Cash Flows for the three years ended December 31, 1997, 1996 and 29 - 30 1995 Notes to Consolidated Financial Statements 31 - 51 Report of Independent Public Accountants 52
(a)2. The following financial statement schedules are filed as part of this report: Pages ----- Report of Independent Public Accountants on Schedules 53 Schedule I -- Condensed Financial Information of Registrant 54 - 59 Schedule II -- Valuation and Qualifying Accounts and Reserves 60
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 61 through 64. 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, 1997, the Registrant made no filings on 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 30, 1998 David B. Perini Chairman Pursuant to the requirements of the Securities and 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 David B. Perini Chairman March 30, 1998 /s/David B. Perini ------------------ David B. Perini (ii) Principal Financial Officer Robert Band Executive Vice President, Chief Financial Officer March 30, 1998 /s/Robert Band -------------- Robert Band (iii) Principal Accounting Officer Barry R. Blake Vice President and Controller March 30, 1998 /s/Barry R. Blake ----------------- Barry R. Blake (iv) Directors David B. Perini ) Richard J. Boushka ) Marshall M. Criser ) Albert A. Dorman ) /s/ David B. Perini Arthur J. Fox, Jr. ) David B. Perini Nancy Hawthorne ) Michael R. Klein ) Attorney in Fact Roger J. Ludlam ) Dated: March 30, 1998 Douglas J. McCarron ) John H. McHale ) Jane E. Newman ) Bart W. Perini ) Ronald N. Tutor )
24
Consolidated Balance Sheets December 31, 1997 and 1996 (In thousands except per share data) Assets 1997 1996 ------------- ------------- CURRENT ASSETS: Cash, including cash equivalents of $ 23,585 and $9,071 (Note 1) $ 31,305 $ 9,745 Accounts and notes receivable, including retainage of $54,234 and $63,423 139,221 188,120 Unbilled work (Note 1) 36,574 35,600 Construction joint ventures (Notes 1 and 2) 71,056 78,233 Real estate inventory, at the lower of cost or market (Notes 1 and 4) 25,145 37,914 Deferred tax asset (Notes 1 and 5) 1,067 3,513 Other current assets 1,808 1,655 ------------- ------------- Total current assets $ 306,176 $ 354,780 ------------- ------------- REAL ESTATE DEVELOPMENT INVESTMENTS (Notes 1 and 4): Land held for sale or development (including land development costs) at the lower of cost or market $ 7,093 $ 21,520 Investments in and advances to real estate joint ventures (Notes 2 and 11) 86,598 71,253 Other - 49 ------------- ------------- Total real estate development investments $ 93,691 $ 92,822 ------------- ------------- PROPERTY AND EQUIPMENT, at cost (Note 1): Land $ 826 $ 793 Buildings and improvements 13,026 13,075 Construction equipment 7,580 10,535 Other equipment 8,450 9,726 ------------- ------------- $ 29,882 $ 34,129 Less - Accumulated depreciation 19,406 23,013 ------------- ------------- Total property and equipment, net $ 10,476 $ 11,116 ------------- ------------- OTHER ASSETS: Other investments $ 3,069 $ 3,999 Goodwill (Note 1) 1,512 1,575 ------------- ------------- Total other assets $ 4,581 $ 5,574 ------------- ------------- $ 414,924 $ 464,292 ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 25
Liabilities and Stockholders' Equity 1997 1996 --------------- -------------- CURRENT LIABILITIES: Current maturities of long-term debt (Note 3) $ 11,873 $ 16,421 Accounts payable, including retainage of $49,884 and $57,131 145,118 183,407 Advances from construction joint ventures (Note 2) 29,801 47,544 Deferred contract revenue (Note 1) 17,117 23,841 Accrued expenses 30,296 26,823 --------------- -------------- Total current liabilities $ 234,205 $ 298,036 --------------- -------------- DEFERRED INCOME TAXES AND OTHER LIABILITIES (Notes 1, 5 & 6) $ 24,101 $ 31,297 --------------- -------------- LONG-TERM DEBT, less current maturities included above (Note 3): Real estate development $ 322 $ 4,287 Other 84,576 92,606 --------------- -------------- Total long-term debt $ 84,898 $ 96,893 --------------- -------------- MINORITY INTEREST (Note 1) $ 1,064 $ 2,508 --------------- -------------- CONTINGENCIES AND COMMITMENTS (Note 11) REDEEMABLE SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK (Note 7): Authorized - 500,000 shares Issued and outstanding - 164,300 shares ($32,860 aggregate liquidation preference) $ 29,756 $ - --------------- -------------- STOCKHOLDERS' EQUITY (Notes 1, 3, 7, 8, 9 and 10): Preferred Stock, $1 par value - Authorized - 500,000 shares Designated, issued and outstanding - 100,000 shares of $21.25 Convertible Exchangeable Preferred Stock ($25,000 aggregate liquidation preference) $ 100 $ 100 Series A junior participating Preferred Stock, $1 par value - Designated - 200,000 Issued - none - - Stock Purchase Warrants 2,233 - Common Stock, $1 par value - Authorized - 15,000,000 shares Issued - 5,267,130 shares and 5,032,427 shares 5,267 5,032 Paid-in surplus 53,012 57,080 Retained earnings (deficit) (15,294) (20,666) ESOT related obligations (2,663) ( 3,856) --------------- -------------- $ 42,655 $ 37,690 Less - Common Stock in treasury, at cost - 110,084 shares and 133,779 shares 1,755 2,132 --------------- -------------- Total stockholders' equity $ 40,900 $ 35,558 --------------- -------------- $ 414,924 $ 464,292 =============== ==============
26
Consolidated Statements of Operations For the Years Ended December 31, 1997, 1996 & 1995 (In thousands, except per share data) 1997 1996 1995 ---------------- --------------- ---------------- REVENUES (Notes 2 and 13) $ 1,324,491 $ 1,270,284 $ 1,101,068 ---------------- --------------- ---------------- COSTS AND EXPENSES (Notes 2 and 10): Cost of operations $ 1,275,614 $ 1,215,806 $ 1,086,213 Write down of certain real estate assets (Note 4) - 79,900 - General, administrative and selling expenses 30,556 33,988 37,283 ---------------- --------------- ---------------- $ 1,306,170 $ 1,329,694 $ 1,123,496 ---------------- --------------- ---------------- INCOME (LOSS) FROM OPERATIONS (Note 13) $ 18,321 $ (59,410) $ (22,428) ---------------- --------------- ---------------- Other income (expense), net (Note 6) (1,665) (492) 814 Interest expense (Note 3) (10,334) (9,871) (8,582) ---------------- --------------- ---------------- INCOME (LOSS) BEFORE INCOME TAXES $ 6,322 $ (69,773) $ (30,196) (Provision) credit for income taxes (Notes 1 and 5) (950) (830) 2,611 ---------------- --------------- ---------------- NET INCOME (LOSS) $ 5,372 $ (70,603) $ (27,585) ================ =============== ================ BASIC & DILUTED EARNINGS (LOSS) PER COMMON SHARE (Note 1) $ 0.01 $ (15.13) $ (6.38) ================ =============== ================
The accompanying notes are an integral part of these consolidated financial statements. 27
Consolidated Statements of Stockholders' Equity For the Years Ended December 31, 1997, 1996 & 1995 (In thousands, except per share data) Stock Retained ESOT Preferred Purchase Common Paid-In Earnings Related Treasury Stock Warrants Stock Surplus (Deficit) Obligation Stock Total - ---------------------------- ---------- --------- ---------- ---------- ----------- ----------- ----------- ---------- Balance - December 31, 1994 $ 100 $ - $ 4,985 $ 59,001 $ 81,772 $ (6,009) $ (7,820) $ 132,029 - ---------------------------- ---------- --------- ---------- ---------- ----------- ----------- ----------- ---------- Net Loss - - - - (27,585) - - (27,585) Preferred Stock-cash dividends declared or accrued ($21.25 per share*) - - - - (2,125) - - (2,125) Treasury Stock issued in partial payment of incentive compensation - - - (1,342) - - 3,585 2,243 Payments related to ESOT notes - - - - - 1,044 - 1,044 Balance - December 31, 1995 $ 100 $ - $ 4,985 $ 57,659 $ 52,062 $ (4,965) $ (4,235) $ 105,606 - ---------------------------- ---------- --------- ---------- ---------- ----------- ----------- ----------- ---------- Net Loss - - - - (70,603) - - (70,603) Preferred Stock dividends accrued ($21.25 per share*) - - - - (2,125) - - (2,125) Treasury Stock issued in partial payment of incentive compensation - - - (830) - - 1,867 1,037 Payment of director fees - - - (102) - - 236 134 Payment of finance fee (Note 3) - - 47 353 - - - 400 Payments related to ESOT notes - - - - - 1,109 - 1,109 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 3) - 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 - ---------------------------- ---------- --------- ---------- ---------- ----------- ----------- ----------- ----------
*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, 1997, 1996 & 1995 (In thousands) Cash Flows from Operating Activities: 1997 1996 1995 ------------ ------------ ------------ Net income (loss) $ 5,372 $ (70,603) $ (27,585) Adjustments to reconcile net income (loss) to net cash from operating activities - Depreciation 1,936 2,527 2,707 Amortization of deferred debt expense, Stock Purchase Warrants and other 2,011 895 614 Distributions greater (less) than earnings of joint ventures and affiliates (1,859) (4,586) 12,880 Write down of certain real estate properties - 79,900 - 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 48,899 (7,142) (29,358) (Increase) decrease in unbilled work (974) (7,296) (8,095) (Increase) decrease in construction joint ventures 820 (380) 2,643 (Increase) decrease in deferred tax asset 2,446 9,526 (6,973) (Increase) decrease in other current assets (153) 849 2,109 Increase (decrease) in accounts payable (38,289) (13,645) 48,997 Increase (decrease) in advances from construction joint ventures (17,743) 12,714 26,020 Increase (decrease) in deferred contract revenue (6,724) 398 (15,486) Increase (decrease) in accrued expenses 1,348 (8,080) (3,106) Non-current deferred taxes and other liabilities (7,196) (21,366) 19,175 Proceeds from sale of interests in real estate joint ventures 20,260 - - Real estate development investments other than joint ventures 3,741 4,500 2,757 Other non-cash items, net (1,200) (1,689) (2,174) ------------ ------------ ------------ NET CASH PROVIDED FROM (USED BY) OPERATING ACTIVITIES $ 12,695 $ (23,478) $ 25,125 ------------ ------------ ------------ Cash Flows from Investing Activities: Proceeds from sale of property and equipment $ 383 $ 2,098 $ 3,115 Cash distributions of capital from unconsolidated joint ventures 16,614 8,753 23,858 Acquisition of property and equipment (1,663) (1,449) (1,960) Improvements to land held for sale or development (666) (515) (193) Improvements to real estate properties used in operations - (123) (263) Capital contributions to unconsolidated joint ventures (7,063) (20,224) (29,373) Advances to real estate joint ventures, net (13,030) (7,312) (7,735) Investments in other activities (273) (3,206) (362) ------------ ------------ ------------ NET CASH USED BY INVESTING ACTIVITIES $ (5,698) $ (21,978) $ (12,913) ------------ ------------ ------------
29
Consolidated Statements of Cash Flows (Continued) For the Years Ended December 31, 1997, 1996 & 1995 (In thousands) Cash Flows from Financing Activities: 1997 1996 1995 ------------ ------------ ------------ Proceeds from Issuance of Redeemable Series B Preferred Stock, net $ 26,558 $ - $ - Proceeds from long-term debt 5,035 27,006 12,033 Repayment of long-term debt (18,897) (2,435) (3,145) Cash dividends paid - - (2,125) Common Stock issued 1,701 - - Treasury Stock issued 166 1,171 2,243 Finance fee paid in stock - 400 - ------------ ------------ ------------ NET CASH PROVIDED FROM FINANCING ACTIVITIES $ 14,563 $ 26,142 $ 9,006 ------------ ------------ ------------ Net Increase (Decrease) in Cash $ 21,560 $ (19,314) $ 21,218 Cash and Cash Equivalents at Beginning of Year 9,745 29,059 7,841 ------------ ------------ ------------ Cash and Cash Equivalents at End of Year $ 31,305 $ 9,745 $ 29,059 ============ ============ ============ Supplemental Disclosures of Cash Paid During the Year For: Interest $ 10,133 $ 9,596 $ 8,715 ============ ============ ============ Income tax payments $ 330 $ 221 $ 121 ============ ============ ============ Supplemental Disclosure of Noncash Transactions: Dividends paid in shares of Series B Preferred Stock (Note 7) $ 2,830 $ - $ - ============ ============ ============ Value assigned to Stock Purchase Warrants (Note 3) $ 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, 1997, 1996 & 1995 [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 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 of real estate development projects (see Note 1(d) below) 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 All real estate sales are recorded in accordance with SFAS No. 66, "Accounting for Sales of Real Estate". Gross profit is not recognized in full unless the collection of the sale price is reasonably assured and the Company is not obliged to perform significant activities after the sale. Unless both conditions exist, recognition of all or a part of gross profit is deferred. The gross profit recognized on sales of real estate is determined by relating the estimated total land, land development and construction costs of each development area to the estimated total sales value of the property in the development. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 & 1995 (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 exceed 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 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. In 1996, the Company changed its strategy with respect to certain real estate assets which resulted in a write-down that is described in Note 4 below. [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 dividend 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. 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 & 1995 (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, 1997 are calculated as follows (in thousands except per share amounts): 1997 1996 1995 ------------ -------------- ------------- Net income (loss) $ 5,372 $ (70,603) $ (27,585) ------------ -------------- ------------- Less: Declared or accrued dividends on $21.25 Senior Preferred Stock $ (2,125) $ (2,125) $ (2,125) Dividends declared on Series B Preferred Stock (2,830) --- --- Accretion deduction required to reinstate mandatory redemption value of Series B Preferred Stock over a period of 8-10 years (368) --- --- ------------ -------------- ------------- $ (5,323) $ (2,125) $ (2,125) ------------ -------------- ------------- Earnings available for Common Shares $ 49 $ (72,728) $ (29,710) ============ ============== ============= Weighted average shares outstanding 5,059 4,808 4,655 ------------ -------------- ------------- Basic and diluted earnings (loss) per Common Share $ 0.01 $ (15.13) $ (6.38) ============ ============== =============
[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. [k] Impact of Recently Issued Accounting Standards During 1997, SFAS No. 129 "Disclosure of Information about Capital" was issued. The Statement continues the requirements to disclose certain information about an enterprise's capital structure prescribed by previous accounting standards. The Company's current disclosures are in compliance with the requirements of the Statement. During 1997, SFAS No. 130 "Reporting Comprehensive Income" was issued. The Company will implement the provisions of the Statement in the quarter ending March 31, 1998. The Statement requires an enterprise to report certain changes in stockholders' equity that are not reported in net income, except those resulting from investments by and distributions to stockholders, and display these gains and losses below net income in the income statement, in a separate statement that begins with net income or in the statement of changes in stockholders' equity. The provisions of the Statement are limited to issues of reporting and presentation and do not affect matters of recognition and measurement of items of comprehensive income. Consequently, the Company does not expect the effect of its adoption of the Statement to be material. 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 & 1995 (continued) [1] Summary of Significant Accounting Policies (continued) [k] Impact of Recently Issued Accounting Standards (continued) Also during 1997, SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information", which supersedes Statement No. 14 "Financial Reporting for Segments of a Business Enterprise", was issued. The Company will implement the provisions of the Statement for the year ending December 31, 1998. Generally, financial information is required to be reported on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. The Statement requires an enterprise to report a measure of segment profit or loss, certain specific revenue and expense items and segment assets. It requires reconciliations of total segment revenues, total segment profit or loss, total segment assets, and other amounts disclosed for segments to corresponding amounts in the enterprise's financial statements. It requires an enterprise to report information about the revenues derived from its products or services (or groups of similar products and services), about the countries in which the enterprise earns revenues and holds assets, and about major customers. The provisions of the Statement relate primarily to issues of reporting and presentation, and the Company does not expect the effect of its adoption of the Statement to be material. [2] 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, 1997 follows:
Construction Joint Ventures Financial position at December 31, 1997 1996 1995 ----------------- --------------- --------------- Current assets $ 403,058 $ 329,999 $ 227,578 Property and equipment, net 11,482 32,145 22,491 Current liabilities (292,184) (236,752) (151,311) ----------------- --------------- --------------- Net assets $ 122,356 $ 125,392 $ 98,758 ================= =============== =============== Equity $ 71,056 $ 78,233 $ 61,846 ================= =============== =============== Operations for the year ended December 31, 1997 1996 1995 ----------------- --------------- --------------- Revenue $ 1,030,347 $ 753,214 $ 348,730 Cost of operations 974,571 702,997 329,414 ----------------- --------------- --------------- Pretax income $ 55,776 $ 50,217 $ 19,316 ================= =============== =============== Company's share of joint ventures Revenue $ 555,363 $ 446,793 $ 182,799 Cost of operations 518,576 413,935 177,990 ----------------- --------------- --------------- Pretax income $ 36,787 $ 32,858 $ 4,809 ================= =============== ===============
34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 & 1995 (continued) [2] Joint Ventures (continued) The Company has a centralized cash management arrangement with certain 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 1997 ($29.8 million) and 1996 ($47.5 million), approximately $20.0 million in 1997 and $25.6 million in 1996 was deemed to be temporary.
Real Estate Joint Ventures Financial position at December 31, 1997 1996 1995 ----------------- --------------- --------------- Property held for sale or development $ 11,544 $ 12,683 $ 18,350 Investment properties, net 125,234 168,833 173,468 Other assets 20,645 64,530 61,700 Long-term debt (61,712) (69,195) (72,603) Other liabilities* (222,131) (334,087) (305,755) ----------------- --------------- --------------- Net assets (liabilities) $ (126,420) $ (157,236) $ (124,840) ================= =============== =============== Equity ** $ (58,434) $ (125,877) $ (46,640) Advances 146,332 222,341 198,741 ----------------- --------------- --------------- Total Equity and Advances $ 87,898 $ 96,464 $ 152,101 ================= =============== =============== Total Equity and Advances, Long-term $ 86,598 $ 71,253 $ 148,225 Total Equity and Advances, Short-term *** 1,300 25,211 3,876 ----------------- --------------- --------------- $ 87,898 $ 96,464 $ 152,101 ================= =============== =============== Operations for the year ended December 31, 1997 1996 1995 ----------------- --------------- --------------- Revenue $ 24,486 $ 42,921 $ 49,560 ----------------- --------------- --------------- Cost of operations - Depreciation $ 3,662 $ 6,614 $ 7,304 Other 63,225 64,289 73,829 ----------------- --------------- --------------- $ 66,887 $ 70,903 $ 81,133 ----------------- --------------- --------------- Pretax income (loss) $ (42,401) $ (27,982) $ (31,573) ================= =============== =============== Company's share of joint ventures Revenue $ 13,252 $ 22,502 $ 23,424 ----------------- --------------- --------------- Cost of operations - Depreciation $ 1,709 $ 3,441 $ 3,275 Other **** 12,132 19,127 20,888 ----------------- --------------- --------------- $ 13,841 $ 22,568 $ 24,163 ----------------- --------------- --------------- Pretax income (loss) $ (589) $ (66) $ (739) ================= =============== ===============
* Included in "Other liabilities" are advances from joint venture partners in the amount of $287.6 million in 1995, $255.0 million in 1996, and $195.2 million in 1997. Of the total advances from joint venture partners, $198.7 million in 1995, $222.3 million in 1996, and $146.3 million in 1997 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 & 1995 (continued) [2] Joint Ventures (continued) 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, 1997. *** Included in real estate inventory classified as current. **** Other costs are reduced by the amount of interest income recorded by the Company on its advances to the respective joint ventures. [3] Long-term Debt Long-term debt of the Company at December 31, 1997 and 1996 consists of the following (in thousands): 1997 1996 -------------- -------------- Real Estate Development: Industrial revenue bonds, at 65% of prime, payable in semi-annual installments $ 432 $ 891 Mortgages on real estate, at rates ranging from 8% to 10.82%, payable in installments 4,889 7,222 -------------- -------------- Total $ 5,321 $ 8,113 Less - current maturities 4,999 3,826 -------------- -------------- Net real estate development long-term debt $ 322 $ 4,287 ============== ============== Other: Revolving credit loans at an average rate of 8.2% in 1997 and 8.1% in 1996 $ 80,000 $ 85,000 Less - unamortized deferred value attributable to the Stock Purchase Warrants (see below) (1,488) --- -------------- -------------- $ 78,512 $ 85,000 PB Capital bridge loan at a rate of prime plus 4% --- 10,000 ESOT Notes at 8.24%, payable in semi-annual installments (Note 8) 2,423 3,495 Industrial revenue bonds at various rates, payable in 2005 4,000 4,000 Bank loan at a rate of prime plus 1%, payable in May 1998 3,650 --- Other indebtedness 2,865 2,706 -------------- -------------- Total $ 91,450 $ 105,201 Less - current maturities 6,874 12,595 -------------- -------------- Net other long-term debt $ 84,576 $ 92,606 ============== ==============
Payments required under these obligations amount to approximately $11,873 in 1998, $1,997 in 1999, $80,389 in 2000, and $4,000 in 2005. Effective December 12, 1994, the Company entered into a revolving credit agreement with a group of major banks which provided, among other things, for the Company to borrow up to an aggregate of $125 million, with a $25 million maximum of such amount also being available for letters of credit. The Company could choose from three 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 & 1995 (continued) [3] Long-term Debt (continued) 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 revolving credit agreement, as well as certain other loan agreements, provided for, among other things, maintaining specified working capital and tangible net worth levels and, additionally, imposed limitations on indebtedness and future investment in real estate development projects. During 1996, the Company would have been in violation of certain of these financial covenants; however, the Company obtained waivers of any such violations. Effective February 26, 1996, certain modifications were made to the revolving credit agreement ("Amended Revolving Credit Agreement") including, among other things, additional collateral which consists of all available assets not included as collateral in other agreements and 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. Also, effective February 26, 1996, the Company entered into a Bridge Loan Agreement with its revolver banks to borrow up to an additional $15 million at an interest rate of prime plus 2%. During November 1996, the Bridge Loan Facility was temporarily increased by $10 million to allow PB Capital Partners, L.P. ("PB Capital"), one of the investors in the Company's new Series B Cumulative Convertible Preferred Stock ("Series B Preferred Stock") (see Note 7 for details of this transaction), to participate 100% in the additional Bridge Loan by temporarily loaning $10 million to the Company until such time as the issuance of the new Series B Preferred Stock was approved by the Company's shareholders. In connection with this transaction, the Company paid PB Capital a fee of $400,000 payable in shares of the Company's $1.00 par value Common Stock (47,267 shares) valued at fair market value at the time of the transaction. Concurrent with the approval of the Series B Preferred Stock by the Company's shareholders on January 17, 1997, the Company issued its Series B Preferred Stock for approximately $30 million, repaid the $10 million temporary Bridge Loan from PB Capital, and entered into a new revolving credit agreement with its bank group (the "New Credit Agreement"). Under the New Credit Agreement, the previous Revolving Credit Agreement and Bridge Loan Facility were combined into a single $129.5 million Credit Facility and the expiration dates extended from 1997 to January 1, 2000. The New Credit Agreement provides for scheduled mandatory reductions of the total $129.5 million Credit Facility in the amount of $15.0 million in 1997, $15.0 million in 1998, $12.5 million in 1999 and the balance in 2000. Receipt of 50% of the net proceeds from real estate sales in excess of $20 million and 80% of net proceeds from the sale of certain other assets immediately reduce the total commitment under the Credit Facility and can represent all or part of the decrease on the scheduled mandatory reduction dates. After the $15.0 million reduction on December 31, 1997, the total Credit Facility now aggregates $114.5 million. In consideration of the restructuring of the Credit Facilities, the Bank Group received fees in the amount of $444,000 and Stock Purchase Warrants 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 is being amortized over the approximate three-year term of the New Credit Agreement, with the offsetting charge ($745,000 during 1997) being to Other Income (Expense), net. The remaining unamortized balance is approximately $1,488,000 at December 31, 1997. The New Credit 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 future cash dividends. In addition, the covenants of the Company's Amended Revolving Credit Agreement as well as the New Credit Agreement, effective January 17, 1997, required the Company to suspend the payment of quarterly dividends on its $21.25 Preferred Stock (equivalent to $2.125 per Depositary Share) ("$21.25 Preferred 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 & 1995 (continued) [3] Long-term Debt (continued) Stock") until certain financial criteria are met (see Note 8). [4] Write Down of Certain Real Estate Assets As of December 31, 1996, the Company changed its real estate strategy on certain of its properties from maximizing value by holding them through the necessary development and stabilization periods to a new strategy of generating short-term liquidity through an accelerated disposition or bulk sale. This change in strategy substantially reduced the estimated future cash flow from those properties. Therefore, an impairment loss on those properties, in an aggregate amount of $79.9 million, representing the excess of book value of those properties over their estimated future cash flow, was provided in the fourth quarter of 1996 in accordance with SFAS No. 121. An estimated allocation of the write-down by geographic area was California ($59.9 million), Arizona ($18 million), and Florida ($2 million). Revenues and pretax loss related to these properties included in the 1996 Statement of Operations were approximately $14.6 million and $.5 million, respectively. [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. The (provision) credit for income taxes is comprised of the following (in thousands): Federal State Foreign Total ------------- ------------- ------------- -------------- 1997 Current $ - $ (569) $ (381) $ (950) Deferred - - - - ------------- ------------- ------------- -------------- $ - $ (569) $ (381) $ (950) ============= ============= ============= ============== 1996 Current $ - $ (736) $ - $ (736) Deferred - (94) - (94) ------------- ------------- ------------- -------------- $ - $ (830) $ - $ (830) ============= ============= ============= ============== 1995 Current $ - $ (11) $ - $ (11) Deferred 2,726 (104) - 2,622 ------------- ------------- ------------- -------------- $ 2,726 $ (115) $ - $ 2,611 ============= ============= ============= ==============
The table below reconciles the difference between the statutory federal income tax rate and the effective rate provided in the statements of operations. 1997 1996 1995 -------------- ------------- -------------- Statutory federal income tax rate 34% (34)% (34)% State income taxes, net of federal tax benefit 6 1 - Foreign taxes 6 - - Change in valuation allowance (33) 34 25 Goodwill and other 2 - - -------------- ------------- -------------- Effective tax rate 15% 1 % (9)% ============== ============= ==============
38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 & 1995 (continued) [5] Income Taxes (continued) The following is a summary of the significant components of the Company's deferred tax assets and liabilities as of December 31, 1997 and 1996 (in thousands): 1997 1996 ---------------------------------- -------------------------------- Deferred Deferred Deferred Deferred Tax Tax Tax Tax Assets Liabilities Assets Liabilities ------------- -------------- ------------- -------------- Provision for estimated losses $ 9,527 $ - $ 30,291 $ - Contract losses 4,071 - 6,562 - Joint ventures - construction - 8,093 - 8,176 Joint ventures - real estate - 6,243 - 21,962 Timing of expense recognition 1,972 - 4,370 - Capitalized carrying charges - 1,894 - 1,813 Net operating loss carryforwards 23,798 - 16,157 - Alternative minimum tax credit carryforwards 2,442 - 2,419 - General business tax credit carryforwards 3,532 - 3,532 - Foreign tax credit carryforwards 979 - 979 - Other, net 517 - 413 321 ------------- -------------- ------------- -------------- $ 46,838 $ 16,230 $ 64,723 $ 32,272 Valuation allowance for deferred tax assets (30,608) - (32,945) - ------------- -------------- ------------- -------------- Total $ 16,230 $ 16,230 $ 31,778 $ 32,272 ============= ============== ============= ==============
The net of the above is deferred taxes in the amount of $0 in 1997 and $494 in 1996, which is classified in the respective Consolidated Balance Sheets as follows: 1997 1996 ---------- ----------- Long-term deferred tax liabilities (included in "Deferred Income Taxes and Other Liabilities") $ 1,067 $ 4,007 Short-term deferred tax asset 1,067 3,513 ---------- ----------- $ 0 $ 494 ========== ===========
A valuation allowance is provided to reduce the deferred tax assets to a level which, more likely than not, will be realized. The net deferred 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, 1997 earnings benefited by approximately $2.1 million by not having to provide for any Federal income tax and approximately $75 million of future pretax earnings should benefit from minimal, if any, federal tax provisions. 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 & 1995 (continued) [5] Income Taxes (continued) At December 31, 1997, the Company has unused tax credits and net operating loss carryforwards for income tax reporting purposes which expire as follows (in thousands): Unused Foreign Net Operating Investment Tax Loss Tax Credits Credits Carryforwards ---------------- --------------- -------------------- 1998 - 1999 $ -- $ 979 $ -- 2001 - 2006 3,532 -- 1,404 2007 - 2012 -- -- 68,590 ---------------- --------------- -------------------- $ 3,532 $ 979 $ 69,994 ================ =============== ==================== Net operating loss carryforwards and unused tax credits may be limited in the event of certain changes in ownership interests of significant stockholders. 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, 1997 and 1996 consist of the following (in thousands): 1997 1996 ------------- --------------- Deferred Income Taxes $ 1,067 $ 4,007 Insurance related liabilities 8,173 9,385 Employee benefit-related liabilities 2,470 5,016 Other 12,391 12,889 ------------- --------------- $ 24,101 $ 31,297 ============= =============== Other Income (Expense), Net - --------------------------- Other income (expense) items for the three years ended December 31, 1997 consist of the following (in thousands): 1997 1996 1995 ------------ ----------- ----------- Interest and dividend income $ 1,022 $ 1,018 $ 1,369 Minority interest (Note 1) 75 416 10 Bank fees (2,172) (1,906) (1,099) Miscellaneous income (expense), net (590) (20) 534 ------------ ----------- ----------- $ (1,665) $ (492) $ 814 ============ =========== =========== [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. immediately after the meeting. 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 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 & 1995 (continued) [7] Redeemable Series B Cumulative Convertible Preferred Stock (continued) 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, appointment of these same new directors to constitute a majority of the Executive Committee referred to above and repayment of the $10 million temporary Bridge Loan referred to in Note 3. Tutor-Saliba Corporation, a corporation controlled by a newly appointed Director, who is also a member of the Executive Committee and a newly appointed Officer of the Company, 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), (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 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 capital. Subsequent to January 17, 1997, four quarterly dividends were paid-in-kind which aggregated 14,150 shares of Series B Preferred Stock at $200.00 per share (or $2,830,000). An analysis of Series B Preferred Stock transactions for the year ended December 31, 1997 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 ---------------- ------------------ 164,300 $ 29,756 ================ ================== 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 & 1995 (continued) [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 as well as the New Credit Agreement, effective January 17, 1997 (see Note 3), 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 $4,781,000 at December 31, 1997, which represents approximately $47.81 per share of Preferred Stock or approximately $4.78 per Depositary Share and is included in accrued expenses in the accompanying Consolidated Balance Sheet. Under the terms of the Preferred Stock, the holders of the Depositary Shares are entitled to elect two additional Directors since dividends have been deferred for more than six quarters and they currently plan to do so at the May 14, 1998 Annual Meeting. (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 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 & 1995 (continued) [8] Capitalization (continued) 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. (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 are 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, will be used to repay the Notes. Since the Notes are guaranteed by the Company, they are included in "Long-Term Debt" with an offsetting reduction in "Stockholders' Equity" in the accompanying Consolidated Balance Sheets. The amount included in "Long-Term Debt" will be reduced and "Stockholders' Equity" reinstated as the Notes are paid by the ESOT (see Note 3). [9] Stock Options At December 31, 1997 and 1996, 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 240,000 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, 1995 378,650 $10.44-$33.06 $16.65 102,960 Granted -- $ - $ - Canceled (15,150) $11.06-$33.06 $20.53 Outstanding at December 31, 1996 363,500 $10.44-$33.06 $16.48 118,110 Granted 10,000 $ 8.00 $ 8.00 Canceled (25,150) $11.06-$33.06 $28.01 Outstanding at December 31, 1997 348,350 $ 8.00-$24.00 $15.41 133,260
In addition, 225,000 shares of Common Stock, $1.00 par value, were reserved for options granted on January 17, 1997 to four members of the redefined Executive Committee (see Note 7) at $8.38 per share, fair market value at the date of grant. The terms of these options are generally similar to options granted under the 1982 Plan except as to the timing of the exercisability, which is May 17, 2000. These options expire on January 16, 2005. 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 & 1995 (continued) [9] Stock Options (continued) Options outstanding at December 31, 1997 and related weighted average price and life information follows: Remaining Grant Options Options Exercise Life (Years) Date Outstanding Exercisable Price - ------------ ---- ----------- ----------- ----- 1 05/17/90 17,150 17,150 $24.00 2 07/16/91 51,200 51,200 $11.06 3 12/21/92 240,000 90,000 $16.44 5 03/22/94 20,000 20,000 $13.00 6 05/18/95 10,000 5,000 $10.44 8 01/17/97 225,000 -- $ 8.38 8 07/08/97 10,000 -- $ 8.00 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 estimated values shown below are based on the Black-Scholes option pricing model for options granted in 1995 through 1997.
Assumptions ------------------------------------------------------------------ Expected Risk-free Grant Date Fair Value Dividend Yield Volatility Interest Rate Expected Life ---------- ---------- -------------- ---------- ------------- ------------- 05/18/95 $ 58,000 0% 37% 6.58% 8 01/17/97 $ 1,070,127 0% 39% 6.50% 8 07/08/97 $ 44,086 0% 38% 6.31% 8
If SFAS No. 123 had been fully implemented, stock based compensation costs would have decreased net income in 1997 by $354,992 (or $0.07 per Common Share) and increased the net loss in 1996 and 1995 by $19,000. 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. Net pension cost for 1997, 1996 and 1995 follows (in thousands): 1997 1996 1995 ---------- ----------- ----------- Service cost - benefits earned during the period $ 1,072 $ 1,247 $ 988 Interest cost on projected benefit obligation 3,298 3,062 2,956 Return on plan assets: Actual (6,901) (4,053) (6,971) Deferred 3,838 1,263 4,217 ---------- ----------- ----------- Net pension cost $ 1,307 $ 1,519 $ 1,190 ========== =========== =========== Actuarial assumptions used: Discount rate 7 % * 7 1/2% ** 7 % *** Rate of increase in compensation 4 % 4 % 4 % *** Long-term rate of return on assets 8 % 8 % 8 %
44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 & 1995 (continued) [10] Employee Benefit Plans (continued) * Rate was changed effective December 31, 1997 and resulted in a $2.8 million increase in the projected benefit obligation referred to below. ** Rate was changed effective December 31, 1996 and resulted in a $2.7 million decrease in the projected benefit obligation referred to below. *** Rates were changed effective December 31, 1995. The decrease in the discount rate resulted in an increase in the projected benefit obligations of $8.1 million, while the decrease in the rate of increase in compensation resulted in a decrease in the projected benefit obligations of $1.3 million, resulting in a net increase of $6.8 million in 1995 in the projected benefit obligations. The Company's plan has assets in excess of its accumulated benefit obligations. Plan assets generally include equity and fixed income funds. The status of the Company's employee pension benefit plan is summarized below (in thousands): December 31, ---------------------------- 1997 1996 ----------- ----------- Assets available for benefits: Funded plan assets at fair value $ 46,774 $ 40,618 Accrued pension expense 4,037 4,355 ----------- ----------- Total assets $ 50,811 $ 44,973 ----------- ----------- Actuarial present value of benefit obligations: Accumulated benefit obligations, including vested benefits of $45,821 and $40,198 $ 46,282 $ 40,596 Effect of future salary increases 3,885 3,628 ----------- ----------- Projected benefit obligations $ 50,167 $ 44,224 ----------- ----------- Excess of assets available over projected benefits $ 644 $ 749 =========== =========== Consisting of: Unamortized net liability existing at date of adopting SFAS No. 87 $ (18) $ (24) Unrecognized net gain (loss) 358 347 Unrecognized prior service cost 304 426 ----------- ----------- $ 644 $ 749 =========== ===========
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 is based on a specified percentage of profits, subject to certain limitations. Contributions to the related ESOT are determined by the Board of Directors and may be paid in cash or shares of the Company's Common Stock. The Company's policy is generally to fund currently the costs accrued under the pension plan, Section 401(k) plan and the ESOP. The Company also has an unfunded supplemental retirement plan for certain employees whose benefits under principal salaried retirement plans are reduced because of compensation limitations under federal tax laws. Pension expense for this plan was $.2 million in each of the last three years. At December 31, 1997, the projected benefit obligation was $1.5 million. A corresponding accumulated benefit obligation of $1.2 million has been recognized as a liability in the consolidated balance sheet and is equal to the amount of the vested benefits. 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 & 1995 (continued) [10] Employee Benefit Plans (continued) 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 aggregate amounts provided under these employee benefit plans were $8.5 million in 1997, $8.5 million in 1996 and $7.6 million in 1995. 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 $8.8 million in 1997, $8.5 million in 1996 and $12.6 million in 1995. 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 In connection with the Rincon Center real estate development joint venture, the Company's wholly-owned real estate subsidiary currently guarantees the payment of interest on both mortgage and bond financing covering the project with loans totaling $49.2 million; has guaranteed amortization payments on these borrowings which the Company estimates to be a maximum of $2.5 million; and has guaranteed a master lease under a sale operating lease-back transaction. In calculating the potential obligation under the master lease guarantee, the Company has an agreement with its lenders which employs a 10% discount rate and no increases in future rental rates beyond current lease terms. Based on these assumptions, Management believes its additional future obligation will not exceed $1.9 million. The Company has also guaranteed the subsidiary's $2.5 million amortization guaranty and 80% of the master lease payments through June of 1998. During 1997, a $3.7 million secured letter of credit, which had been issued as security for the project borrowings, was allowed by the Company's subsidiary to be drawn and the funds applied to reduce the loan balance. This accommodation was made in connection with an agreement with the lender to extend credit support provided for the bond financing. As part of the sale operating lease-back transaction, the joint venture, in which the Company's real estate subsidiary is a 46% general partner, agreed to obtain a financial commitment on behalf of the lessor to replace at least $43 million of long-term financing by July 1, 1993. To satisfy this obligation, the partnership successfully extended existing financing to July 1, 1998. To complete the extension, the partnership had to advance funds to the lessor sufficient to reduce the financing from $46.5 million to $40.5 million. Subsequent payments through 1997 have further reduced the loan to $33.9 million. In addition, as part of the obligations of the extension, the partnership will have to further amortize the debt from its current level to $33 million through additional lease payments through June of 1998. Under the master lease, if by January 1, 1998, a further extension or new commitment for financing on the property for at least $33 million had not been arranged, then the joint venture is deemed to have offered to purchase the property for approximately $18.8 million in excess of the then outstanding debt. As of that date, no new commitment had been secured although negotiations with the current lender were in progress. In order to allow those discussions to continue, the lessor agreed to temporarily delay the enforcement of the purchase requirement. In addition, the joint venture has disputed its obligation to make a $226,000 payment to lessor, which the lessor claims was due on February 1, 1998. The lessor has issued a notice of default in order to preserve its rights, but has agreed temporarily to delay the exercise of any remedies in order to facilitate a continuation of the parties' discussions. Since January 1, 1998, the joint venture and the lender have reached a preliminary agreement on a restructure of the existing financing. That preliminary agreement is subject to further negotiations and approvals of several parties including the lessor and the Company's revolving credit facility banks. If implemented, this preliminary agreement may require the joint venture to give up all or part of its economic interest in the commercial and retail segments of that portion of the property identified as Rincon One. The preliminary agreement would also release the joint venture from all future liabilities under the master lease, including the obligation to repurchase that segment of the property. In the opinion of management, the final resolution of any 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 & 1995 (continued) [11] Contingencies and Commitments (continued) adjustment to the terms of the master lease and extension of the existing financing is not expected to have a material impact on the results of operations or financial condition as reported in the accompanying financial statements. In 1993, the joint venture also extended $29 million of the $61 million financing, then outstanding through October 1, 1998. This extension required a $.6 million up front paydown. Subsequent paydowns through 1997 further reduced the loan by $10.7 million. This included the application of the $3.7 million letter of credit funds in 1997 described above. The joint venture may be required to amortize up to $3.3 million more of the principal in 1998, however, under certain conditions that amortization could be as low as $2.5 million. At the same time that it reached a preliminary agreement on the extension of financing under the sale operating lease-back transaction, the joint venture also reached a preliminary agreement covering the extension of this financing to December 1, 2000. The terms of the proposed extension still require additional approvals and final documentation. However, if implemented, the agreement provides for the elimination of any joint venture, partner or Company guarantees beyond the current October 1, 1998 maturity date. Total lease payments and debt service including amortization at Rincon Center are $11.7 million through 1998. It is expected that some but not all of these requirements will be generated by the project's operations. The Company's real estate subsidiary and, to a more limited extent, the Company, are obligated to fund any of the loan amortization and/or lease payments at Rincon in the event sufficient funds are not generated by the property or contributed to it by its partners. Based on current Company forecasts, it is expected the maximum exposure to service these commitments in 1998 is $8.1 million. If the current financing agreements are approved and implemented, any requirement of the Company and/or its wholly-owned real estate subsidiary to provide cash to the joint venture after 1998, will be significantly reduced or eliminated. In a separate agreement related to this same property, the 20% co-general partner has indicated it does not currently have nor does it expect to have the financial resources to fund its share of capital calls. Therefore, the Company's wholly-owned real estate subsidiary agreed to lend this 20% co-general partner on an as-needed basis, its share of any capital calls which the partner cannot meet. In return, the Company's subsidiary receives a priority return from the partnership on those funds it advances for its partner and penalty fees in the form of rights to certain other distributions due the borrowing partner from the partnership. The severity of the penalty fees increases in each succeeding year for the next several years. The subsidiary advanced approximately $1.8 million during 1997 and $5.3 million to date under this agreement. Included in the current loan agreements related to the Rincon joint venture, among other things, are provisions that, under certain circumstances, could limit the subsidiary's ability to dividend funds to the Company. In the opinion of management, these provisions should not affect the operations of the Company or the subsidiary. During 1997, a joint venture, in which the Company is a 50% participant, entered into a $5 million line of credit, secured by the joint venture 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, and as of December 31, 1997, no amounts were 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 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 & 1995 (continued) [11] Contingencies and Commitments (continued) 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 the Court, which awarded approximately $4.3 million to the joint venture, thereby reducing the net amount payable to approximately $12.2 million. The joint venture has appealed the decision. As a result of the decision, there is no additional impact on the Company's Statement of Operations because of the reserve provided in prior years. The actual funding of net damages, if any, will be deferred until the appeal 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 financial statements. [12] Unaudited Quarterly Financial Data The following table sets forth unaudited quarterly financial data for the years ended December 31, 1997 and 1996 (in thousands, except per share amounts):
1997 by Quarter --------------------------------------------------------------- 1st 2nd 3rd 4th ------------ ------------ ------------ ------------ Revenues $ 327,219 $ 388,924 $ 328,169 $ 280,179 Net income (loss) $ 1,861 $ 2,333 $ 2,927 $ (1,749) Basic & diluted earnings (loss) per common share $ 0.15 $ 0.19 $ 0.30 $(0.62) 1996 by Quarter --------------------------------------------------------------- 1st 2nd 3rd 4th ------------ ------------ ------------ ------------ Revenues $ 270,029 $ 316,492 $ 340,670 $ 343,093 Net income (loss) $ 1,487 $ 2,024 $ 2,311 $ (76,425) * Basic & diluted earnings (loss) per common share $ 0.20 $ 0.31 $ 0.37 $ (15.79)
* Includes a non-cash $79.9 million write-down of certain real estate assets (see Note 4). [13] Business Segments and Foreign Operations The Company is currently engaged in the construction and real estate development businesses. 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 three types of operations: civil, building and international. The Company's real estate development operations are concentrated in Arizona, California, Florida, Georgia and Massachusetts; however, the Company has not commenced the development of any new real estate projects since 1990. The following tables set forth certain business and geographic segment information relating to the Company's operations for the three years ended 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 & 1995 (continued) [13] Business Segments and Foreign Operations (continued) December 31, 1997 (in thousands): Business Segments Revenues ------------------------------------------------------------ 1997 1996 1995 --------------- ----------------- ---------------- Construction $ 1,276,033 $ 1,224,428 $ 1,056,673 Real Estate 48,458 45,856 44,395 --------------- ----------------- ---------------- $ 1,324,491 $ 1,270,284 $ 1,101,068 =============== ================= ================ Income (Loss) From Operations ------------------------------------------------------------ 1997 1996 1995 --------------- ----------------- ---------------- Construction $ 26,464 $ 28,198 $ (15,322) Real Estate (2,187) (82,467) (2,921) Corporate (5,956) (5,141) (4,185) --------------- ----------------- ---------------- $ 18,321 $ (59,410) $ (22,428) =============== ================= ================ Assets ------------------------------------------------------------ 1997 1996 1995 --------------- ----------------- ---------------- Construction $ 260,815 $ 318,333 $ 298,564 Real Estate 119,735 132,215 209,789 Corporate* 34,374 13,744 30,898 --------------- ----------------- ---------------- $ 414,924 $ 464,292 $ 539,251 =============== ================= ================ Capital Expenditures ------------------------------------------------------------ 1997 1996 1995 --------------- ----------------- ---------------- Construction $ 1,696 $ 1,449 $ 1,960 Real Estate 14,740 8,989 9,555 --------------- ----------------- ---------------- $ 16,436 $ 10,438 $ 11,515 =============== ================= ================ Depreciation ------------------------------------------------------------ 1997 1996 1995 --------------- ----------------- ---------------- Construction $ 1,709 $ 1,969 $ 2,307 Real Estate** 227 558 400 --------------- ----------------- ---------------- $ 1,936 $ 2,527 $ 2,707 =============== ================= ================ 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 & 1995 (continued) [13] Business Segments and Foreign Operations (continued) Geographic Segments Revenues ------------------------------------------------------------ 1997 1996 1995 --------------- ----------------- ---------------- United States $ 1,305,465 $ 1,256,323 $ 1,084,390 Foreign 19,026 13,961 16,678 --------------- ----------------- ---------------- $ 1,324,491 $ 1,270,284 $ 1,101,068 =============== ================= ================ Income (Loss) From Operations ------------------------------------------------------------ 1997 1996 1995 --------------- ----------------- ---------------- United States $ 23,473 $ (55,047) $ (15,405) Foreign 804 778 (2,838) Corporate (5,956) (5,141) (4,185) --------------- ----------------- ---------------- $ 18,321 $ (59,410) $ (22,428) =============== ================= ================ Assets ------------------------------------------------------------ 1997 1996 1995 --------------- ----------------- ---------------- United States $ 376,771 $ 446,408 $ 503,114 Foreign 3,779 4,140 5,239 Corporate* 34,374 13,744 30,898 --------------- ----------------- ---------------- $ 414,924 $ 464,292 $ 539,251 =============== ================= ================ * In all years, corporate assets consist principally of cash, cash equivalents, marketable securities and other investments available for general corporate purposes. ** Does not include approximately $2 to $3 million of depreciation that represents its share from real estate joint ventures. (See Note 2 to Notes to the Consolidated Financial Statements.) Contracts with various federal, state, local and foreign governmental agencies represented approximately 51% of construction revenues in 1997, 52% in 1996 and 56% in 1995. [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. TSC holds a 6.81% interest in the Company's $1.00 par value Common Stock and currently participates in active joint ventures with the Company with a total contract value of approximately $800 million. Mr. Tutor was appointed as one of the three new directors in accordance with the terms of the Series B 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. Compensation for the management services consists of a monthly payment of $12,500 to TSC and options granted to Mr. Tutor to 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 & 1995 (continued) [14] Related Party Transactions (continued) 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). 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 current 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. 51 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, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts February 13, 1998 52 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 13, 1998. Our audits were made for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The supplemental schedules listed in the accompanying index are the responsibility of the Company's management and are presented for the purpose of complying with the Securities and Exchange Commission's rules and are not part of the consolidated financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the consolidated financial statements and, in our opinion, fairly state, 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 13, 1998 53 Schedule I
Perini Corporation (Parent Company) Condensed Financial Information of Registrant Balance Sheet (In Thousands of Dollars) Assets December 31, ----------------------------- 1997 1996 ---- ---- CURRENT ASSETS: Cash and cash equivalents $ 24,789 $ 10,614 Accounts and notes receivable, including retainage of $8,110 and $11,041, respectively 24,168 31,795 Unbilled work 19,699 20,375 Construction joint ventures 62,919 71,070 Deferred tax asset 1,067 3,513 Other current assets 1,183 1,423 ----------- ----------- Total current assets $ 133,825 $ 138,790 ----------- ----------- INVESTMENTS AND OTHER ASSETS: Investments in subsidiaries $ 147,177 $ 138,559 Other 4,336 3,804 ----------- ----------- Total investments and other assets $ 151,513 $ 142,363 ----------- ----------- PROPERTY AND EQUIPMENT, at cost Land $ 826 $ 793 Buildings and improvements 11,868 11,931 Construction equipment 5,306 7,411 Other 5,464 5,556 ----------- ----------- $ 23,464 $ 25,691 Less: Accumulated depreciation 13,976 15,807 ----------- ----------- Total property and equipment, net $ 9,488 $ 9,884 ----------- ----------- $ 294,826 $ 291,037 =========== ===========
The "Notes to Consolidated Financial Statements of Perini Corporation and Subsidiaries" are an integral part of these statements. See accompanying "Notes to Condensed Financial Information of Registrant". 54 Schedule I
Perini Corporation (Parent Company) Condensed Financial Information of Registrant Balance Sheet (Continued) (In Thousands of Dollars) Liabilities and Stockholders' Equity December 31, --------------------------------- 1997 1996 ---- ---- CURRENT LIABILITIES: Current maturities of long-term debt $ 6,874 $ 12,595 Accounts payable, including retainage of $3,520 and $5,639, respectively 10,103 22,350 Advances from construction joint ventures 26,501 44,478 Deferred contract revenue 2,217 2,612 Accrued expenses 19,884 16,648 ----------- ---------- Total current liabilities $ 65,579 $ 98,683 ----------- ---------- DEFERRED INCOME TAXES AND OTHER LIABILITIES $ 19,287 $ 25,094 ----------- ---------- INTERCOMPANY NOTES AND ADVANCES PAYABLE, net $ 54,728 $ 39,096 ----------- ---------- LONG-TERM DEBT, less current maturities included above $ 84,576 $ 92,606 ----------- ---------- REDEEMABLE SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK: Authorized: 500,000 shares Issued and Outstanding: 164,300 shares ($32,860 aggregate liquidation preference) $ 29,756 $ --- ----------- ---------- STOCKHOLDERS' EQUITY: Preferred Stock, $1 par value: Authorized: 500,000 shares Designated, issued and outstanding: 100,000 shares ($25,000 aggregate liquidation preference) $ 100 $ 100 Series A junior participating Preferred Stock, $1 par value: Designated: 200,000 shares Issued: None Stock Purchase Warrants 2,233 --- Common Stock, $1 par value: Authorized: 15,000,000 shares Issued: 5,267,130 shares and 5,032,427 shares 5,267 5,032 Paid-in surplus 53,012 57,080 Retained earnings (deficit) (15,294) (20,666) ESOT related obligations (2,663) (3,856) ----------- ----------- $ 42,655 $ 37,690 Less: Common Stock in treasury, at cost - 110,084 shares and 133,779 shares 1,755 2,132 ----------- ----------- Total stockholders' equity $ 40,900 $ 35,558 ----------- ----------- $ 294,826 $ 291,037 =========== ===========
The "Notes to Consolidated Financial Statements of Perini Corporation and Subsidiaries" are an integral part of these statements. See accompanying "Notes to Condensed Financial Information of Registrant". 55 Schedule I
Perini Corporation (Parent Company) Condensed Financial Information of Registrant Statement of Operations (In Thousands of Dollars) For the years ended December 31, ---------------------------------------------- 1997 1996 1995 ---- ---- ---- REVENUE: Construction operations $ 44,921 $ 102,786 $ 161,444 Share of construction joint ventures 339,639 276,739 129,987 --------- --------- --------- $ 384,560 $ 379,525 $ 291,431 --------- --------- --------- COST OF OPERATIONS: Construction operations $ 44,577 $ 101,107 $ 174,239 Share of construction joint ventures 315,508 253,210 127,384 --------- --------- --------- $ 360,085 $ 354,317 $ 301,623 --------- --------- --------- GROSS PROFIT FROM OPERATIONS $ 24,475 $ 25,208 $ (10,192) General, administrative and selling expenses 17,100 17,758 16,983 --------- --------- --------- INCOME (LOSS) FROM OPERATIONS $ 7,375 $ 7,450 $ (27,175) Other Income (Expense), net (1,977) (1,391) 306 Interest expense including intercompany interest of $7,183, $1,726 and $4,805, respectively (17,083) (11,123) (12,933) --------- --------- --------- LOSS BEFORE INCOME TAXES AND EQUITY IN NET INCOME (LOSS) OF SUBSIDIARIES $ (11,685) $ (5,064) $ (39,802) Equity in net income (loss) of subsidiaries 18,007 (64,709) 9,606 --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES $ 6,322 $ (69,773) $ (30,196) (Provision) Credit for income taxes (950) (830) 2,611 --------- --------- --------- NET INCOME (LOSS) $ 5,372 $ (70,603) $ (27,585) ========= ========= =========
The "Notes to Consolidated Financial Statements of Perini Corporation and Subsidiaries" are an integral part of these statements. See accompanying "Notes to Condensed Financial Information of Registrant". 56 Schedule I
Perini Corporation (Parent Company) Condensed Financial Information of Registrant Statement of Cash Flows (In Thousands of Dollars) For the years ended December 31, -------------------------------------------- 1997 1996 1995 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 5,372 $(70,603) $(27,585) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 1,110 1,128 1,141 Amortization of deferred debt expense, Stock Purchase Warrants and other 2,010 895 614 Noncurrent deferred taxes and other liabilities (5,807) (20,371) 13,100 Distributions greater (less) than earnings of joint ventures (2,092) (5,734) 12,385 Equity in net (income) loss of subsidiaries (18,007) 64,709 (9,606) Cash provided from (used by) changes in components of working capital other than cash and current maturities of long-term debt (17,710) 14,418 36,898 Other non-cash items, net (431) (732) (1,455) ------------ ------------ ----------- NET CASH (USED BY) PROVIDED FROM OPERATING ACTIVITIES $ (35,555) $ (16,290) $ 25,492 ------------ ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property and equipment $ 906 $ 1,359 $ 1,069 Cash distributions of capital from unconsolidated construction joint ventures 14,447 4,642 19,445 Acquisition of property and equipment (1,189) (745) (1,242) Capital contributions to unconsolidated construction joint ventures (5,013) (12,920) (27,734) Increase (decrease) in intercompany notes, advances and equity 23,687 (23,949) (169) Investment in other activities (463) (2,995) (239) ------------ ------------ ------------ NET CASH PROVIDED FROM (USED BY) INVESTING ACTIVITIES $ 32,375 $ (34,608) $ (8,870) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of Redeemable Series B Preferred Stock, net $ 26,558 $ - $ - Proceeds from long-term debt 5,035 24,706 12,033 Repayment of long-term debt (16,105) (1,693) (1,802) Treasury Stock issued 166 1,171 2,243 Finance fee paid in stock - 400 - Common Stock issued 1,701 - - Cash dividends paid - - (2,125) ------------ ------------ ------------ NET CASH PROVIDED FROM FINANCING ACTIVITIES $ 17,355 $ 24,584 $ 10,349 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents $ 14,175 $ (26,314) $ 26,971 Cash and cash equivalents at beginning of year 10,614 36,928 9,957 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 24,789 $ 10,614 $ 36,928 ============ ============ ============
57 Schedule I (continued)
Perini Corporation (Parent Company) Condensed Financial Information of Registrant Statement of Cash Flows (In Thousands of Dollars) For the years ended December 31, -------------------------------------------- 1997 1996 1995 ---- ---- ---- Supplemental disclosures of cash paid during the year for: Interest $ 9,686 $ 9,122 $ 8,227 =========== =========== ========== Income tax payments $ 330 $ 221 $ 121 =========== =========== ========== Supplemental disclosures of noncash transactions: Dividends paid in shares of Series B Preferred Stock (Note 7) $ 2,830 $ - $ - =========== =========== ========== Value assigned to Stock Purchase Warrants (Note 3) $ 2,233 $ - $ - =========== =========== ==========
The "Notes to Consolidated Financial Statements of Perini Corporation and Subsidiaries" are an integral part of these statements. See accompanying "Notes to Condensed Financial Information of Registrant". 58 Schedule I NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT [1] Basis of Presentation Pursuant to the rules and regulations of the Securities and Exchange Commission, the Condensed Financial Statements of the Registrant do not include all of the information and notes normally included with financial statements prepared in accordance with generally accepted accounting principles. It is, therefore, suggested that these Condensed Financial Statements be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Registrant's Annual Report as referenced in Form 10-K, Part II, Item 8, page 20. Certain financial statement amounts have been reclassified to conform to the 1997 presentation. [2] Cash Dividends from Subsidiaries Dividends of $12.3 million in 1997, $8.9 million in 1996 and $1.0 million in 1995 were paid to the Registrant by certain unconsolidated construction joint ventures. [3] Long-term Debt Payments required by the Registrant amount to the following (in thousands): $6,874 in 1998, $1,675 in 1999, $80,389 in 2000 and $4,000 in the year 2005. 59 Schedule II
Perini Corporation and Subsidiaries Valuation and Qualifying Accounts and Reserves for the Years Ended December 31, 1997, 1996 and 1995 (In Thousands of Dollars) Additions ------------------------------ Balance at Charged Charged Deductions Balance Beginning to Costs & to Other from at End Description of Year Expenses Accounts Reserves of Year -------------- ------------- ------------ ------------- ----------- Year Ended December 31, 1997 Reserve for doubtful accounts $ 160 $ -- $ -- $ 120 (1) $ 40 ============== ============= ============ ============= =========== Reserve for depreciation on real estate properties used in operations $ -- $ 226 $ -- $ 226 (3) $ -- ============== ============= ============ ============= =========== Reserve for real estate investments $ 84,083 $ 508 $ -- $ 61,420 (4) $ 23,171 ============== ============= ============ ============= =========== Year Ended December 31, 1996 Reserve for doubtful accounts $ 351 $ -- $ -- $ 191 (1) $ 160 ============== ============= ============ ============= =========== Reserve for depreciation on real estate properties used in operations $ 3,444 $ 558 $ -- $ 4,002 (2) $ -- ============== ============= ============ ============= =========== Reserve for real estate investments $ 10,497 $ 79,900 $ -- $ 6,314 (4) $ 84,083 ============== ============= ============ ============= =========== Year Ended December 31, 1995 Reserve for doubtful accounts $ 351 $ -- $ -- $ -- $ 351 ============== ============= ============ ============= =========== Reserve for depreciation on real estate properties used in operations $ 3,698 $ 387 $ -- $ 641 (3) $ 3,444 ============== ============= ============ ============= =========== Reserve for real estate investments $ 11,471 $ -- $ -- $ 974 (4) $ 10,497 ============== ============= ============ ============= ===========
(1) Represents write-off of a bad debt. (2) Represents $265 of reserve reclassified with related asset to "Real estate inventory", with the balance representing sales of real estate properties. (3) Represents reserves reclassified with related asset to "Real estate inventory". (4) Represents sales of real estate properties. 60 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 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 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 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 61 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) - filed herewith. 10.3 Perini Corporation Amended and Restated Construction Business Unit Incentive Compensation Plan - filed herewith. 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. 62 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 63 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. 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 Joint Ventures - filed herewith. 64 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 International Corporation Massachusetts 100% Bow Leasing Company, Inc. New Hampshire 100% Perini Land & Development Company Massachusetts 100% Paramount Development Associates, Inc. Massachusetts 100% Perini Resorts, Inc. California 100% Perland Realty Associates, Inc. Florida 100% Rincon Center Associates CA Limited Partnership 46% 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%
65 Exhibit 23 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the use of our reports, dated February 13, 1998, included in Perini Corporation's Annual Report on this Form 10-K for the year ended December 31, 1997, 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 and 333-26423. ARTHUR ANDERSEN LLP Boston, Massachusetts March 25, 1998 66 Exhibit 24 Power of Attorney We, the undersigned, Directors of Perini Corporation, hereby severally constitute David B. Perini, Robert Band and Robert E. Higgins, 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/David B. Perini Director March 11, 1998 - ------------------ -------- -------------- David B. Perini Date /s/Richard J. Boushka Director March 11, 1998 - --------------------- -------- -------------- Richard J. Boushka Date /s/Marshall M. Criser Director March 11, 1998 - --------------------- -------- -------------- Marshall M. Criser Date /s/Albert A. Dorman Director March 11, 1998 - ------------------- -------- -------------- Albert A. Dorman Date /s/Arthur J. Fox, Jr. Director March 11, 1998 - --------------------- -------- -------------- Arthur J. Fox, Jr. Date /s/ Nancy Hawthorne Director March 11, 1998 - ------------------- -------- -------------- Nancy Hawthorne Date /s/ Michael R. Klein Director March 11, 1998 - -------------------- -------- -------------- Michael R. Klein Date /s/ Roger J. Ludlam Director March 11, 1998 - ------------------- -------- -------------- Roger J. Ludlam Date /s/ Douglas J. McCarron Director March 11, 1998 - ----------------------- -------- -------------- Douglas J. McCarron Date /s/John J. McHale Director March 11, 1998 - ----------------- -------- -------------- John J. McHale Date /s/Jane E. Newman Director March 11, 1998 - ----------------- -------- -------------- Jane E. Newman Date /s/Bart W. Perini Director March 11, 1998 - ----------------- -------- -------------- Bart W. Perini Date /s/ Ronald N. Tutor Director March 11, 1998 - ------------------- -------- -------------- Ronald N. Tutor Date 67 EX-27 2 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 This schedule contains summary financial information extracted from Consolidated Balance Sheets as of December 31, 1997 and the Consolidated Statements of Operations for the twelve months ended December 31, 1997 as qualified in its entirety by reference to such financial statements. 0000077543 1,000 12-MOS DEC-31-1997 31,305 0 139,221 0 25,145 306,176 29,882 (19,406) 414,924 234,205 84,898 100 0 5,267 0 414,924 0 1,324,491 0 (1,275,614) (1,665) 0 (10,334) 6,322 (950) 5,372 0 0 0 5,372 .01 .01 Includes Equity in Construction Joint Ventures of $71,056, Unbilled Work of $36,574, and Other Short-Term Assets of $2,875, not currently reflected in this tag list. Includes investments in and advances to Real Estate Joint Ventures of $86,598, Land Held for Sale or Development of $7,093, and Other Long-Term Assets of $4,581, not currently reflected in this tag list. Includes Deferred Income Taxes and Other Liabilities of $24,101, Minority Interest of $1,064, Redeemable Series B Preferred Stock $29,756, Stock Purchase Warrants $2,233, Paid-In Surplus of $53,012, Retained Deficit of $15,294, ESOT Related Obligations of $(2,663), and Treasury Stock of $(1,755). Includes General, Administrative and Selling Expenses of $30,556 not currently reflected on this tag list.
EX-10 3 EXHIBIT 10.2 PERINI CORPORATION AMENDED AND RESTATED (1997) GENERAL INCENTIVE COMPENSATION PLAN 1. PURPOSE This incentive plan is designed to encourage profitable performance at the corporate level and real estate business unit level and to reward and recognize those who directly affect and contribute to the achievement of targeted profits and cash flow levels. It is anticipated that by tying incremental compensation to operating performance over which the Participants have a substantial degree of influence, the Plan will promote higher levels of productivity and substantial additional profit and cash flow for the Company's stockholders. In order to accomplish the objective of increased productivity, corporate profitability and cash flow, the Plan has been designed to meet the following criteria: - That there be a bonus available to key executives at the corporate Executive and staff levels or real estate business unit staff levels that is directly related to overall corporate or real estate business unit profitability and cash flow. - That the total bonus payable to managers with responsibilities at more than one level would depend on the profitability of each level. - That outstanding achievement will result in outstanding reward, subject to overall Plan limitations. 2. DEFINITIONS For Plan purposes, except where the context otherwise indicates, the following terms shall have the meanings which follow: "Base Salary" shall mean the annual base salary of a Participant as reported on such Participant's W-2 Form, inclusive of a "gross up" for 401K and group insurance deductions but exclusive of overtime compensation, housing or travel allowances, bonuses, deferred compensation or other special compensation of any kind. "Beneficiary" shall mean the person or persons, who may be designated by a Participant from time to time in writing to the Committee, and who shall receive the Bonus, if the Participant dies. "Board" shall mean the Board of Directors of the Company. "Bonus" shall mean Stock issued or cash paid to a Participant. "Business Unit Participant" shall mean an individual designated by the CEO with the approval of the Committee. Such individual shall be a participant at the real estate business unit level of the Company. "Bonus Period" shall mean a period, generally a fiscal year, over which performance will be measured as determined by the Committee. "CEO" shall mean the Chief Executive Officer of the Company. "Committee" shall mean the Compensation Committee, or such other Committee of the Board, which shall be designated by the Board to administer the Plan. The Committee shall be composed of such number of directors as from time to time are appointed to serve by the Board. Each member of the Committee, while serving as such, shall also be a member of the Board and shall be a disinterested person within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934. "Company or Corporation" shall mean Perini Corporation and its consolidated subsidiaries. "Corporate Participant" shall mean an individual designated as a participant 2 hereunder by the CEO with the approval of the Committee. Such individual shall be a participant at the corporate level of the Company. "Fair Market Value" shall mean, with respect to any given Payment Date, the greater of (i) the closing sale price of the Company's Common Stock, $1.00 par value, as reported by the American Stock Exchange Composite Tape the day prior to the Payment Date; and (ii) the unweighted average of the daily closing sale price for the five (5) consecutive business days immediately preceding Payment Date. "Payment Date" shall mean the date in any year the Bonus is paid to the Participant with respect to performance during the prior year, which will generally be on or before April 14 of the year following the Bonus Period in which the Bonus is earned. "Performance Goal" shall mean such Bonus Period objective or objectives for such Participants as determined by the Committee. With respect to Corporate Participants, such objective or objectives shall be, a minimum earnings per share result, cash flow and/or such other performance indicators of the Company's results during a Bonus Period. With respect to Business Unit Participants, such objective or objectives shall be Business Unit Pretax Profit, Cash Flow and/or such other performance indicators of the Business Unit's results during a Bonus Period. "Plan" shall mean the Perini Corporation Amended and Restated (1997) General Incentive Compensation Plan as set forth herein and as amended from time to time. "Pretax Business Unit Profit" shall mean the contribution to corporate earnings after deduction for all business unit expenses, including, without limitation, general and administrative expenses (including general and administrative expenses allocated from "in-house" service departments), interest income or expense (including imputed interest), 401K plan expenses, and bonuses under the Company's Incentive 3 Compensation Plans, but prior to provision for taxes. "Pretax Earnings" shall mean pretax earnings of the Corporation after Bonuses for Corporate and Business Unit Performance, unless otherwise defined. "Return on Equity" shall mean the amount earned on beginning stockholders' equity. "Stock" shall mean the common stock of the Corporation having a par value of $1.00 per share. 3. ADMINISTRATION (a) The Compensation Committee, or such other Committee of the Board of Directors designated by the Board, shall administer the Plan. The administration of the Plan shall include the power to: (i) approve Participants participation in the Plan, (ii) establish Performance Goals, (iii) determine if and when any Bonuses shall be paid, (iv) pay out any Bonuses, in cash or Stock or a combination thereof, as the Committee shall determine from year to year, (v), determine the amount, which may be calculated utilizing the allocations established in accordance with Sections 6 and 7 hereof, and form of the Bonus, and if deemed appropriate to adjust targets or payments to reflect special achievements for which no bonus would, by strictest adherence to the plan, be due or to adjust actual results to be used for bonus performance measures in the event of one-time-only or unusual charges or additions to earnings such as special write-offs or extraordinary gains, (vi) impose, and change from time to time, the maximum amounts or percentages payable under the Plan, (vii) construe and interpret the Plan, and (viii) establish rules and regulations and to perform all other acts it believes reasonable and proper, including the authority to delegate responsibilities to others to assist in administering the Plan. Any decision made, or action taken, by the 4 Committee, arising out of, or in connection with, the interpretation and administration of the Plan shall be final and conclusive. (b) Until such time as the Committee makes a determination to make payment of the incentive compensation hereunder with respect to the actual results compared to the Performance Goals for the immediately preceding Bonus Period, no Participant shall have any vested right to receive any amount which might be calculated as payable pursuant to the Plan. Furthermore, for any Bonus Period and up until the Payment Date, the Committee may cancel any Bonuses awarded under the Plan if a Participant conducts oneself in a manner which the Committee determines to be inimical to the best interests of the Company. 4. ELIGIBILITY (a) Eligibility to participate under the Plan is limited to individuals who are executives, managers and key employees of the Company whose duties and responsibilities provide them the opportunity to (i) make a material and significant impact to the financial performance of the Company; (ii) have major responsibility in the control of the corporate assets; and (iii) provide critical staff support necessary to enhance operating profitability. (b) Eligibility and designated levels of participation will be determined by the CEO subject to Committee approval. Such eligibility and level of participation may be revised and updated from time to time up until July 31 of the Bonus Period, and thereafter only for unusual circumstance. The fixing of eligibility and level of participation shall not create any vested right in any participant to receive a bonus hereunder. (c) A Participant may have responsibilities at more than one level and therefore 5 qualify to receive a bonus, if any, based on the performance of such other level or levels. The Committee, as it deems fair and equitable in its sole discretion, shall apportion such Participant's Base Salary between such pools for purposes of determining such Participant's Bonus allocation. (d) Eligible Participants who are transferred during the Bonus Period may have their Bonuses pro-rated, based on their normal Base Salary charged to such corporate, business unit or other level within the Company during such Bonus Period. 5. RESERVATION OF STOCK FOR ISSUANCE After the end of each Bonus Period but prior to the Payment Date applicable for such Bonus Period, the Board shall reserve for issuance, from authorized but unissued Stock or reacquired shares of Stock held in Treasury, such number of shares of Stock sufficient to pay that portion, if any, of the Bonus to be paid in Stock under the Plan as may be determined for such year in accordance with subsection 3 (a) (iv) hereof for the immediately preceding Bonus Period; provided, however, the aggregate number of shares of Stock issued and reserved for issuance under the Plan shall not violate the rules or regulations of any stock exchange (including but not limited to any rule requiring stockholder approval for the issuance of Stock hereunder) on which the Stock is listed or any governmental authority having jurisdiction thereunder. 6. ESTABLISHMENT AND ALLOCATION OF THE BONUS POOL (CORPORATE) For each Bonus Period, the pool established for the determination of bonuses (the "Bonus Pool") is a function of (i) the goals established, (ii) levels of achievement, (iii) base salary of participants and (iv) individuals(s) bonus limits(s) assigned to participant(s) expressed as a percentage of base salary. 6 At the beginning of the Bonus Period, the CEO will recommend to the Committee (1) certain goals, generally financial, to be achieved during the current fiscal year, (ii) a list of participants and (iii) level of participation expressed as the maximum percentage of Base Compensation that could be earned as a bonus assuming 100% achievement of each goal. The individual levels of participation (or bonus limits) are as follows: Executive Management - up to 100% of Base Salary Corporate Officers - up to 45% of Base Salary Corporate Staff - up to 30% of Base Salary From the above information, the maximum bonus can be calculated assuming all goals are achieved at the 100% level. Eligible bonuses for levels of achievement less than 100% can be summarized below: Actual Target Percentage Payout Achievement Level of Maximum Bonus <80% -- 80 - 84% 40% 85 - 89% 75% 90 - 100% 100% Percentage payout of Maximum Bonus is not subject to interpolation. In the event of multiple goals, the achievement of one could still result in a partial bonus depending on the weighting of each objective and the actual target level of achievement. Example: (1) Corporate Profit Target: $25 (Basis for 60% of Bonus) Corporate Profit Actual: 20 % 80 (2) Corporate Cash Flow Target: $10 (Basis for 40% of Bonus) Corporate Cash Flow Actual: 9 % 90 7 A person with a potential bonus of 100% of salary would get 64.00% x 100.00% or 64.0% of salary as bonus based as follows: Corporate Profit 60% x 40% = 24.00% (80-84%=40%) Corporate Cash Flow 40% x 100%= 40.00% (>90% = 100%) ------ TOTAL 64.00% 7. ESTABLISHMENT AND ALLOCATION OF BONUS POOL (REAL ESTATE) The establishment of the Bonus Pool for Participants from the Real Estate business unit and the allocation of the Bonus Pool to the Participants can be calculated similar to the Corporate Participants as described above in Section 6 or in accordance with the overall concepts described in the Construction Business Unit Plan dated December 14, 1995. 8. PAYMENT OF BONUSES (a) If approved by the Committee, payment of the cash portion of any Bonus under the Plan shall be made on the Payment Date. Bonuses may be paid in cash or Stock or any percentage of cash and Stock as the Committee shall determine in its sole discretion. (b) If any portion of the Bonus is to be paid in Stock, on the Payment Date, or as soon thereafter as practical, the Participant shall be issued a certificate registered in his or her name, for the number of shares of Stock which would result by dividing the dollar value of that portion of the Participant's Bonus to be received in Stock by the Fair Market Value with respect to the Payment Date. No fractional shares will be issued. Cash will be paid in lieu of any fractional shares. 8 9. TERMINATION OF EMPLOYMENT In the event a Participant ceases to be employed by the Company : (a) Due to normal retirement, or early retirement with Committee consent, under a formal plan or policy of the Company, or total and permanent disability, as determined by the Committee, or death, a Participant's eligibility, pro rata, shall continue to remain in effect for the duration of the applicable Bonus Period. In the event of such a termination of employment, the Participant, or her or his Beneficiary, on the Payment Date, shall receive the Participant's pro rated Bonus for the applicable Bonus Period. (b) In the event that a Participant shall cease to be an employee of the Company upon the occurrence of any other event, the Participant's eligibility under the Plan shall be canceled and terminated forthwith, and no Bonuses shall be payable under the Plan except as and to the extent the Committee may determine otherwise. (c) For purposes of the preceding, it shall not be considered a termination of employment when a Participant is placed by the Company on military or sick leave or such other type of leave of absence, for a period of six months or less, which is considered as continuing intact the employment relationship of the Participant. For any such leave extending beyond six months, the Committee shall decide whether and when there has been a termination of employment. 10. ADJUSTMENTS If there shall be any change in the Stock subject to the Plan through merger, consolidation, reorganization, recapitalization, stock dividend, stock split, exchange of stock or other change in the corporate structure, appropriate adjustments shall be made in the aggregate number and kind of shares subject to the Plan to reflect such changes, 9 if and to the extent determined by the Committee, whose determination shall be conclusive. 11. AMENDMENT AND TERMINATION OF PLAN The Board may, at any time, and from time to time, suspend or terminate the Plan in whole or in part or amend it from time to time in such respects as the Board may deem appropriate and in the best interests of the Company. 12. GOVERNMENT AND OTHER REGULATIONS The obligation of the Company to issue, or transfer and deliver shares for Bonuses under the Plan shall be subject to all applicable laws, regulations, rules and orders which shall then be in effect. 13. UNFUNDED PLAN The Plan, insofar as it provides for payments, shall be unfunded and the Company shall not be required to segregate any assets which may at any time be subject to Bonuses under the Plan. Any liability of the Company to any person with respect to any award under this Plan shall be based solely upon any contractual obligations which may be created under this Plan. 14. MISCELLANEOUS PROVISIONS (a) Right to Continued Employment: No person shall have any claim or right to be granted a Bonus under the Plan, and the grant of a Bonus under the Plan shall not be construed as giving any Participant the right to be retained in the employ of the Company and the Company expressly reserves the right at any time to dismiss a Participant with or without cause, free from any liability, or any claim under the Plan. (b) Non-Transferability: Except by will or the laws of descent and distribution, no right or interest of any Participant in the Plan shall be assignable or transferable and 10 no right or interest of any Participant shall be liable for, or subject to, any lien, obligation or liability of such Participant. (c) Withholding Taxes: The Company shall have the right to withhold from cash payments sufficient amounts to cover tax withholding for income and employment taxes, and if the amount of cash payment is insufficient, the Company may require the Participant to pay to it the balance required to be withheld. Likewise, the Company may require a payment to cover applicable withholding for income and employment taxes in the event any part of the Bonus is paid in Stock. (d) Plan Expenses: Any expenses of administering this Plan shall be borne by the Company. (e) Legal Considerations: No persons, including a Participant, or his or her Beneficiary, shall have any claim or right to the payment of an award, if, in the opinion of counsel for the Company, such payment does not comply with legal requirements, or is opposed to governmental public policy. (f) Other Plans: Nothing contained herein shall prevent the Company from establishing other incentive and benefit plans in which Participants in the Plan may also participate. However, any amounts paid to a Participant with respect to Bonuses under the Plan shall not affect the level of benefits provided to or received by any Participant (or his or her estate or Beneficiary) as part of any other employee benefit plan of the Company. (g) No Warranty of Tax Effect: No opinion shall be deemed to be expressed or warranties made as to the effect for federal, state or local tax purposes of any Bonuses. (h) Construction of Plan: The place of administration of the Plan shall be in the Commonwealth of Massachusetts, and the validity, construction, interpretation, 11 administration and effect of the Plan and of its rules and regulations, and rights relating to the Plan, shall be determined solely in accordance with the laws of the Commonwealth of Massachusetts. 12 EX-10 4 10.3 December 14, 1995 PERINI CORPORATION AMENDED AND RESTATED CONSTRUCTION BUSINESS UNIT INCENTIVE COMPENSATION PLAN 1. PURPOSE This incentive plan is designed to encourage profitable performance at the Business Unit level and to reward and recognize those who directly affect and contribute to the achievement of specifically targeted profit levels. It is anticipated that by tying incremental compensation to operating performance over which the Participants have a substantial degree of influence, the Plan will promote higher levels of productivity and additional profits for the Company's stockholders. It is also designed to tie all business unit Participants to the overall performance of the Corporation and to provide a portion of their incremental compensation from how well the Corporation meets its targets. In order to accomplish the objective of increased productivity and corporate profitability, the Plan has been designed to meet the following criteria: - That there be a bonus available to Managers and other key Business Unit personnel that is directly related to predetermined levels of profit. - That outstanding achievement will result in outstanding reward, i.e., the more profit earned, the more Bonus key personnel will receive, subject to overall Plan limitations. 1 2. DEFINITIONS For Plan purposes, except where the context otherwise indicates, the following terms shall have the meanings which follow: "Base Salary" shall mean the annual base salary of a Participant as reported on such Participant's W-2 Form, inclusive of a "gross up" for 401K and group insurance deductions but exclusive of overtime compensation, housing or travel allowances, bonuses, deferred compensation or other special compensation of any kind. "Beneficiary" shall mean the person or persons, who may be designated by a Participant from time to time in writing to the Committee, and who shall receive the Bonus, if the Participant dies. "Board" shall mean the Board of Directors of the Corporation. "Bonus" shall mean stock issued or cash paid to a Participant. "Bonus Period" shall mean a period, generally a fiscal year, over which performance will be measured as determined by the Committee. "Business Unit" shall mean a construction division or subsidiary of the Company or its subsidiaries designated as a construction business unit by the Committee. "CEO" shall mean the Chief Executive Officer of the Company. "Committee" shall mean the Compensation Committee, or such other Committee of the Board, which shall be designated by the Board to administer the Plan. The Committee shall be composed of such number of directors as from time to time are appointed to serve by the Board. Each member of the Committee, while 2 serving as such, shall also be a member of the Board and shall be a disinterested person within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934. "Company" shall mean Perini Corporation and its consolidated subsidiaries. "Corporation" shall mean Perini Corporation and its consolidated subsidiaries. "Fair Market Value" shall mean, with respect to any given Payment Date, the average of the last reported sale of Stock as reported by the American Stock Exchange Composite Tape for the five (5) consecutive business days immediately preceding the first (1st) business day prior to the Payment Date. "Participant" shall mean an individual designated as a participant hereunder by the CEO with the approval of the Committee. Such individual shall be a participant at the construction business unit level. "Payment Date" shall mean the date in any year the Bonus is paid to the Participant with respect to performance during the prior year, which will generally be on or before April 14 of the year following the Bonus Period in which the Bonus is earned. "Performance Goal" shall mean such Bonus Period objective or objectives as determined by the Committee. Such objective or objectives shall be Pretax Profits and/or such other performance indicators of the business unit's results during a Bonus Period, which may involve establishment of predetermined ranges of Pretax Profits with a bonus pool calculated based upon a percentage of actual Pretax Profits achieved as set forth in Schedule A(I) with such schedule subject to review by the Committee annually. In the case of the Corporate Performance goal, a minimum earnings per 3 share result and/or other minimum hurdle required to qualify for bonus payments will be applied consistent with the minimum earnings per share result and/or other minimum hurdle required by the Perini Corporation Corporate General Incentive Compensation Plan in each year and payment under this segment of the plan will be made as indicated in Schedule A(II). "Plan" shall mean the Perini Corporation Amended and Restated Construction Business Unit Incentive Compensation Plan as set forth herein and as amended from time to time. "Pretax Profit - Business Unit" shall mean the contribution to corporate earnings after deduction for all business unit expenses, including, without limitation, general and administrative expenses (including general and administrative expenses allocated from general corporate overhead and "in-house" service departments), over- or under-absorbed equipment costs, over-or under-absorbed payroll fringes, interest income or expense (including imputed interest), bonuses payable under the Company's Project Management Incentive Plan and 401K plan expenses, but prior to provision for taxes and for Bonuses under this Plan. "Pretax Profit - Corporation" shall mean pretax earnings of the corporation, after Bonuses for Corporate and Business Unit performance. "Stock" shall mean the common stock of the Company having a par value of $1.00 per share. 3. ADMINISTRATION (a) The Compensation Committee, or such other Committee of the Board of Directors designated by the Board, shall administer the Plan. The administration of the Plan shall include the power to: (i) approve Participants participation in the Plan, (ii) establish Performance goals, (iii) determine if and when any Bonuses shall be paid, (iv) pay out any Bonuses, in cash or Stock or a combination thereof, as the Committee shall determine from year to year, (v) determine the amount, which may be calculated utilizing the allocations established in accordance with Section 6 hereof, and the form of the Bonus, and if deemed appropriate to adjust targets or payments to reflect special achievements for which no bonus would, by strictest adherence to the plan, be due or to adjust actual results to be used for bonus performance measures in the event of one- time-only or unusual charges or additions to earnings such as special write-offs or extraordinary gains. (vi) impose, and change from time to time, the maximum amounts or percentages payable under the Plan, (vii) construe and interpret the Plan, and (viii) establish rules and regulations and to perform all other acts it believes reasonable and proper, including the authority to delegate responsibilities to others to assist in administering the Plan. Any decision made, or action taken, by the Committee, arising out of, or in connection with, the interpretation and administration of the Plan shall be final and conclusive. (b) Until such time as the Committee makes a determination to make payment of the incentive compensation hereunder with respect to the actual results compared to the Performance Goals for the immediately preceding Bonus Period, no Participant shall have any vested right to receive any amount which might be calculated as payable pursuant to the Plan. Furthermore, for any Bonus Period and up until the Payment 4 Date, the Committee may cancel any Bonuses awarded under the Plan if a Participant conducts himself or herself in a manner which the Committee determines to be inimical to the best interests of the Company. 4. ELIGIBILITY (a) Eligibility to participate under the Plan is limited to individuals who are managers and key employees at the Company's construction Business Unit level whose duties and responsibilities provide them the opportunity to (i) make a material and significant impact to the financial performance of the Company; (ii) have major responsibility in the control of the business unit assets; and (iii) provide critical staff support necessary to enhance operating profitability. (b) Eligibility and designated levels of participation will be determined by the CEO subject to Committee approval. Such eligibility and level of participation may be revised and updated from time to time up until July 31 of the Bonus Period, and thereafter only for unusual circumstance. The fixing of eligibility and level of participation shall not create any vested right in any participant to receive a bonus hereunder. (c) A Participant may have responsibilities at levels other than at the Business Unit level and therefore qualify to receive a bonus, if any, based on the performance of such other level under another plan of the Company. The Committee, as it deems fair and equitable in its sole discretion, shall apportion such Participant's Base Salary between such pools for purposes of determining such Participant's Bonus allocation. (d) Eligible Participants who are transferred during the Bonus Period may have their Bonus pro-rated, based on their normal Base Salary charged to the business unit level or other level within the Company during such Bonus Period. 5. RESERVATION OF STOCK FOR ISSUANCE After the end of each Bonus Period but prior to the Payment Date applicable for such Bonus Period, the Board shall reserve for issuance, from authorized but unissued Stock or reacquired shares of Stock held in Treasury, such number of shares of Stock sufficient to pay that portion, if any, of the Bonus to be paid in Stock under the Plan as may be determined for such year in accordance with subsection 3(a)(iv) hereof for the immediately preceding Bonus Period; provided, however, the aggregate number of shares of Stock issued and reserved for issuance under the Plan shall not violate the rules or regulations of any stock exchange (including but not limited to any rule requiring stockholder approval for the issuance of Stock hereunder) on which the Stock is listed or any governmental authority having jurisdiction thereunder. 6. EARNING THE BONUS The Bonus to be earned will depend on the following factors: (a) 75% of the bonus earned will be based on Achievement of Business Unit Pretax Profit as established in Section 7 and Schedule A. (b) 25% of the bonus earned will be based on Achievement of Corporate Pretax Profit, as described in Section 2. The total payout will be limited by the amount established from the Business Unit Bonus Pool. 5 7. ESTABLISHMENT OF THE BONUS POOL For each Bonus Period, the pool to be established for the determination of Bonuses (the "Bonus Pool") shall be the lower of a percentage, subject to a maximum of 10%, of the applicable business unit's Pretax Profits as determined by the Committee in its sole discretion or $1000 per point based on the aggregate number of Participants' points. Such percentages and levels of Pretax Profits will be reviewed annually and may be revised by the CEO subject to Committee approval. The initial Performance Goals for the construction Business Units and the resulting Bonus Pool percentages are as set forth in Schedule A annexed hereto. 8. ALLOCATION OF BONUS POOL (a) The number of points to which the Participant is entitled is determined by multiplying the Participant's Base Salary, in thousandths, by the Point Factors assigned to his or her level of participation as set forth in Schedule B annexed hereto. For example, a Level IV Participant earning $66,000 will have 33 points [66 (Base Salary in thousandths) x .50 (Point Factor assigned to Level IV) = 33]. (b) The total number of points awarded to all Participants is divided into the available Bonus Pool to determine the "dollar value per point", subject to a maximum of $1,000 per point. (c) The amount of a Participant's Bonus is then determined by multiplying the number of points to which the Participant is entitled by the "dollar value per point". (d) Up to 25% of each Participant's Bonus may be (i) reallocated to previously established pool Participants on a basis other than the initial salary points assigned, or (ii) reduced by such amount, at the discretion of the CEO, subject to Committee approval. This reallocation to other Participants may result in such other Participants earning Bonuses of greater than $1,000 per point, subject to a maximum of one times the Participant's Base Salary. In the event of reallocation, the amount of the total Bonus Pool may not exceed $1,000 multiplied by the total points assigned to such Business Unit. 9. PAYMENT OF BONUSES (a) If approved by the Committee, payment of the cash portion of any Bonus under the Plan shall be made on the Payment Date. Bonuses may be paid in cash or Stock or any percentage of cash and Stock as the Committee shall determine in its sole discretion. (b) If any portion of the Bonus is to be paid in Stock, on the Payment Date, or as soon thereafter as practical, the Participant shall be issued a certificate registration in his or her name, for the number of shares of Stock which would result by dividing the dollar value of that portion of the Participant's Bonus to be received in Stock by the Fair Market Value with respect to the Payment Date. No fractional shares will be issued. Cash will be paid in lieu of any fractional shares. (c) Payment of 75% of the bonus pool calculated in accordance with Sections 7 and 8 under this plan will be paid out based on the achievement of Business Unit Pretax Profit Targets and 25% of the bonus pool calculated in accordance with Sections 7 and 8 under this plan will be paid out based on the achievement of the Corporate Pretax Profit Target. 6 10. TERMINATION OF EMPLOYMENT In the event a Participant ceases to be employed by the Company or any subsidiary Company of the Company: (a) Due to normal retirement, or early retirement with Committee consent, under a formal plan or policy of the Company, or total and permanent disability, as determined by the Committee, or death, Participant's eligibility, pro rata, shall continue to remain in effect for the duration of the applicable Bonus Period. In the event of such a termination of employment, the Participant, or her or his Beneficiary, on the Payment Date, shall receive the Participant's pro rated Bonus for the applicable Bonus Period. (b) In the event that a Participant shall cease to be an employee of the Company or any subsidiary corporation of the Company upon the occurrence of any other event, participant's eligibility under the Plan shall be cancelled and terminated forthwith, and no Bonuses shall be payable under the Plan except as and to the extent the Committee may determine otherwise. (c) For purposes of the preceding, it shall not be considered a termination of employment when a Participant is placed by the Company or subsidiary company of the Company on military or sick leave or such other type of leave of absence, for a period of six months or less, which is considered as continuing intact the employment relationship of the Participant. For any such leave extending beyond six months the Committee shall decide whether and when there has been a termination of employment. 7 11. ADJUSTMENTS If there shall be any change in the Stock subject to the Plan through merger, consolidation, reorganization, recapitalization, stock dividend, stock split, exchange of stock or other change in the corporate structure, appropriate adjustments shall be made in the aggregate number and kind of shares subject to the Plan to reflect such changes, if and to the extent determined by the Committee, whose determination shall be conclusive. 12. AMENDMENT AND TERMINATION OF PLAN The Board may, at any time, and from time to time, suspend or terminate the Plan in whole or in part or amend it from time to time in such respects as the Board may deem appropriate and in the best interests of the Company. 13. GOVERNMENT AND OTHER REGULATIONS The obligation of the Company to issue, or transfer and deliver shares for Bonuses under the Plan shall be subject to all applicable laws, regulations, rules and orders which shall then be in effect. 14. UNFUNDED PLAN The Plan, insofar as it provides for payments, shall be unfunded and the Company shall not be required to segregate any assets which may at any time be subject to Bonuses under the Plan. Any liability of the Company to any person with respect to any award under this Plan shall be based solely upon any contractual obligations which may be created under this Plan. 8 15. MISCELLANEOUS PROVISIONS (a) Right to Continued Employment: No person shall have any claim or right to be granted a Bonus under the Plan, and the grant of a Bonus under the Plan shall not be construed as giving any Participant the right to be retained in the employ of the Company or any subsidiary company of the Company and the Company expressly reserves the right at any time to dismiss a Participant with or without cause, free from any liability, or any claim under the Plan. (b) Non-Transferability: Except by will or the laws of descent and distribution, no right or interest of any Participant in the Plan shall be assignable or transferable and no right or interest of any Participant shall be liable for, or subject to, any lien, obligation or liability of such Participant. (c) Withholding Taxes: The Company shall have the right to withhold from cash payments sufficient amounts to cover tax withholding for income and employment taxes, and if the amount of cash payment is insufficient, the Company may require the Participant to pay to it the balance required to be withheld. Likewise, the Company may require a payment to cover applicable withholding for income and employment taxes in the event any part of the Bonus is paid in Stock. (d) Plan Expenses: Any expenses of administering this Plan shall be borne by the Company. (e) Legal Considerations: No person, including a Participant, or his or her Beneficiary, shall have any claim or right to the payment of an award, if, in the opinion of counsel for the Company, such payment does not comply with legal requirements, or 9 is opposed to governmental public policy. (f) Other Plans: Nothing contained herein shall prevent the Company from establishing other incentive and benefit plans in which Participants in the Plan may also participate. However, any amounts paid to a Participant with respect to Bonuses under the Plan shall not affect the level of benefits provided to or received by any Participant (or his or her estate or Beneficiary) as part of any other employee benefit plan of the Company. (g) No Warranty of Tax Effect: No opinion shall be deemed to be expressed or warranties made as to the effect for federal, state or local tax purposes of any Bonuses. (h) Construction of Plan: The place of administration of the Plan shall be in the Commonwealth of Massachusetts, and the validity, construction, interpretation, administration and effect of the Plan and of its rules and regulations, and rights relating to the Plan, shall be determined solely in accordance with the laws of the Commonwealth of Massachusetts. 10 Schedule A Calculation of Bonus Pools I. Contributions to Pretax Profits* by Construction's Building Heavy Bonus Pool Business Units Business Units Percentages** -------------- -------------- ------------- <= $ 1,999,000 <= $ 2,999,000 0% 2,000,000 3,000,000 2% 2,500,000 4,000,000 3% 3,000,000 5,000,000 4% 3,500,000 6,000,000 5% 4,000,000 7,000,000 6% 4,500,000 8,000,000 7% 5,000,000 9,000,000 8% 5,500,000 10,000,000 9% >= 6,000,000 >= 11,000,000 10% ---- * Pretax Profits falling within the above specified levels will result in a Bonus Pool percentage based upon straightline interpolation between the specified levels. For example, building construction's contribution of $2,225,000 to Pretax Profits will result in a Bonus Pool equal to 2.5% of the Pretax Profits. ** Represents percentages applied to Pretax Profits to determine amount in Bonus Pool, subject to maximum bonus pool limitation of $1000 per point. II. The payout of the 25% based on Corporate Pretax Profits will be as follows: 75-79% of Corporate Performance Goal = 10% of bonus (2 1/2% of total) 80-84% of Corporate Performance Goal = 35% of bonus (8 3/4% of total) 85-89% of Corporate Performance Goal = 75% of bonus (18 3/4% of total) 90% + of Corporate Performance Goal = 100% of bonus (25% of total) 11 Schedule B Participant's Level of Participation and Related Point Factors Point Factor Assigned -------- Level I 1.00 Level II 0.75 Level III 0.60 Level IV 0.50 Level V 0.40 Level VI 0.25 12 EX-99 5 99.1 Report of Independent Public Accountants To the Stockholders of Perini Corporation: We have audited the accompanying combined balance sheet of the joint ventures identified in Note 1 as of December 31, 1997, and the related combined statements of income, venturers' equity and cash flows for the year then ended. These financial statements are the responsibility of the joint venturers' management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides 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, 1997, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts March 25, 1998 Exhibit 99.1 Perini Corporation Combined Balance Sheet of Significant Joint Ventures For the Year Ended December 31, 1997 (In thousands) ASSETS Current Assets: Cash and Cash Equivalents $ 37,978 Accounts Receivable - Contracts, including Retainage of $35,243 (Note 2) 113,072 Due from Perini Corporation 20,600 Unbilled Work (Note 2) 49,618 Equipment Held for Sale 10,024 Other Current Assets 286 -------------- Total Current Assets 231,578 -------------- Property, Plant & Equipment 17,427 Less - Accumulated Depreciation (16,829) -------------- 598 -------------- TOTAL ASSETS $ 232,176 ============== LIABILITIES Current Liabilities: Accounts Payable, including Retainage of $19,239 (Note 2) $ 111,661 Accrued Expenses 6,832 Deferred Contract Revenue (Note 2) 30,472 Other Current Liabilities 5,507 -------------- Total Current Liabilities 154,472 -------------- Contingencies and Commitments (Note 3) VENTURERS' EQUITY Perini Corporation 41,168 Other Venturers 36,536 -------------- Total Venturers' Equity 77,704 -------------- TOTAL LIABILITIES AND VENTURERS' EQUITY $ 232,176 ============== The accompanying notes are an integral part of these financial statements. 1 Exhibit 99.1 Perini Corporation Combined Statement of Income of Significant Joint Ventures For the Year Ended December 31, 1997 (In thousands) Contract Revenues (Note 2) $ 622,419 -------------- Cost of Operations: Materials, Supplies and Subcontracts 469,414 Salaries and Wages 84,874 Depreciation 16,292 -------------- Total Contract Costs 570,580 -------------- Income from Operations 51,839 Interest Income 3,155 Other Income/(Expense) 745 -------------- Net Income $ 55,739 ============== The accompanying notes are an integral part of these financial statements. 2 Exhibit 99.1 Perini Corporation Combined Statement of Venturers' Equity of Significant Joint Ventures For the Year Ended December 31, 1997 (In thousands) Perini Other Corporation Venturers Total ----------------- ---------------- ------------- Balance, December 31, 1996 $ 40,064 $ 31,401 $ 71,465 Capital Distributions (9,340) (7,660) (17,000) Net Income 25,394 30,345 55,739 Profit Distributions (14,950) (17,550) (32,500) ----------------- ---------------- ------------- Balance, December 31, 1997 $ 41,168 $ 36,536 $ 77,704 ================= ================ ============= The accompanying notes are an integral part of these financial statements. 3 Exhibit 99.1 Perini Corporation Combined Statement of Cash Flows of Significant Joint Ventures For the Year Ended December 31, 1997 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 55,739 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 16,292 Changes in Operating Assets and Liabilities: (Increase) Decrease in Accounts Receivable (14,744) (Increase) Decrease in Unbilled Work (39,037) (Increase) Decrease in Due from Perini Corporation 9,100 (Increase) Decrease in Other Current Assets 677 Increase (Decrease) in Accounts Payable 30,458 Increase (Decrease) in Accrued Expenses (923) Increase (Decrease) in Deferred Contract Revenue (11,583) Increase (Decrease) in Other Current Liabilities 4,073 -------------- Net Cash Provided from Operating Activities $ 50,052 -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of Property, Plant & Equipment, net $ (17) Proceeds from Disposal of Equipment Held for Sale 3,550 -------------- Net Cash Provided by Investing Activities $ 3,533 -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Capital Distributions to Venturers $ (17,000) Profit Distributions (32,500) -------------- Net Cash Used by Financing Activities $ (49,500) -------------- Net Increase in Cash and Cash Equivalents $ 4,085 Cash and Cash Equivalents, Beginning of Period 33,893 -------------- Cash and Cash Equivalents, End of Period $ 37,978 ============== The accompanying notes are an integral part of these financial statements. 4 Exhibit 99.1 Perini Corporation Notes to Combined Financial Statements of Significant Joint Ventures For the Year Ended December 31, 1997 [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 joint ventures considered to be significant under the test, because the Company believes that reporting the financial results of any one 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 joint ventures have been combined in the accompanying financial statements: Joint Venture Name Type of Work - ------------------------------------------ ------------------------------------------------ Perini/ICA/O&G, A Joint Venture Construction of an approximately 9 mile tunnel in Chicago, IL for the Metropolitan Water Reclamation District of Greater Chicago. J.M. Cashman Inc./Kiewit Eastern Spectacle Island Material Disposal Systems in Co./Perini Corporation/Guy F. Boston, MA for the Massachusetts Atkinson Construction Company, A Department of Public Works. Joint Venture 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 Tunnel and road work in Boston, MA for the Venture Massachusetts Highway Department. Bridgeton Prison Constructors, A Joint Construction of a prison in Bridgeton, NJ for Venture the State of New Jersey, Department of the Treasury. 5 Joint Venture Name Type of Work - ------------------------------------------ ------------------------------------------------ Grow-Perini, A Joint Venture Rehabilitation work on the Queensboro Bridge in New York City for the New York City Department of Transportation, Bureau of Bridges. Tutor-Saliba Corporation, Perini Construction of Phase II at the Hyperion Corporation and Scott Company of Waste Water Treatment Plant in Los Angeles, California, A Joint Venture CA for the City of Los Angeles. Redondo/Perini, A Joint Venture Railway System and Track project in Puerto Rico for the Puerto Rico Highways & Transportation Authority. Perini/Henderson Constructors, Inc., A Satellite Terminal at McCarron Airport in Las Joint Venture Vegas, NV for the Board of Commissioners of Clark County, Nevada. 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 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 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 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 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 financial statements related 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 6 contingencies, as discussed in Note 3. 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, accounts payable and accrued expenses. The carrying amount of these financial instruments approximates fair value due to their short-term nature. [e] Property and Equipment Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated remaining life of the contract. [f] Cash and Cash Equivalents Cash equivalents include short-term, highly liquid investments with original maturities of three months or less. [3] Contingencies and Commitments Certain joint ventures have noncancellable office and equipment leases with varying expiration dates through March 31, 2000. The following is a schedule, by year, of future minimum rental payments required under all operating leases that have initial or remaining noncancellable lease terms as of December 31, 1997: Lease Year Commitments - ------------------ ------------------ 1998 $ 1,217,062 1999 1,052,263 2000 128,441 ------------------ $ 2,397,766 ================== Rent expense included in contract costs amounted to $680,846 for the year ended December 31, 1997. During 1997, a 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, and as of December 31, 1997, no amounts were outstanding under the line. Contingent liabilities include liability of contractors for performance and completion of joint venture construction contracts. In addition, the joint ventures are defendants in various lawsuits, 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. [4] Related Party Transactions [a] Perini Corporation Significant billings from the Company to a certain joint venture, included in the accompanying combined financial statements, for various services for the year ended December 31, 1997 were as follows: 1997 ------------------ Equipment Rental $ 1,748,342 Job Material & Labor 15,513,048 ------------------ $ 17,261,390 ================== 7 The above amounts include contract costs and profit being paid to the Company as a subcontractor to the joint venture. As of December 31, 1997, the subcontract price is $22,725,581. In addition, included in the combined joint ventures' cost of operations are charges for administrative costs including management fees. [b] Other Joint Venturers Included in the combined joint ventures' cost of operations are changes for subcontract labor, rent and other administrative costs, including management fees, that were incurred with the various related parties. [5] Employee Benefit Plans The combined 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. 8 -----END PRIVACY-ENHANCED MESSAGE-----