-----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, OAsn8g6JWuzfbD9ynDlpQySAKIWd9RQ94cLlUQw73367NeAEwP0RSVlKJ5roN64A AKuUozqQZDWfud7iCV3xyg== 0000077543-99-000002.txt : 19990316 0000077543-99-000002.hdr.sgml : 19990316 ACCESSION NUMBER: 0000077543-99-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990315 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: 99564867 BUSINESS ADDRESS: STREET 1: 73 MT WAYTE AVE CITY: FRAMINGHAM STATE: MA ZIP: 01701 BUSINESS PHONE: 5086282000 10-K 1 PERINI CORPORATION 1998 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, 1998 [ ]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 $24,346,000 as of February 22, 1999. 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 22, 1999 is 5,444,010. - -------------------------------------------------------------------------------- Documents Incorporated by Reference Portions of the annual proxy statement for the year ended December 31, 1998 are incorporated by reference into Part III. PERINI CORPORATION INDEX TO ANNUAL REPORT ON FORM 10-K PAGE ---- PART I - ------ Item 1: Business 2 - 11 Item 2: Properties 11 Item 3: Legal Proceedings 12 Item 4: Submission of Matters to a Vote of Security Holders 12 PART II Item 5: Market for the Registrant's Common Stock and Related 12 Stockholder Matters Item 6: Selected Financial Data 13 Item 7: Management's Discussion and Analysis of Financial 14 - 20 Condition and Results of Operations Item 7A: Quantitative and Qualitative Disclosure About Market Risk 20 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 currently in 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, 1998. Annual Report On Form 10-K Caption Page Number ------- ----------- Selected Consolidated Financial Information Page 13 Management's Discussion and Analysis Pages 14 - 20 Note 13 to the Consolidated Financial Statements, entitled Business Segments Pages 48 - 50
While the "Selected Consolidated Financial Information" presents certain lines of business information for purposes of consistency of presentation for the five years ended December 31, 1998, additional information (business segment) required by Statement of Financial Accounting Standards No. 131, "Disclosures About Segements of an Enterprise and Related Information", for the three years ended December 31, 1998 is included in Note 13 to the Consolidated Financial Statements. A summary of revenues by business segment for the three years ended December 31, 1998 is as follows:
Revenues (in thousands) Year Ended December 31, ---------------------------------------- 1998 1997 1996 ---- ---- ---- Construction: Building $ 679,296 $ 888,809 $ 834,888 Civil 332,026 387,224 389,540 ------------ ---------- ------------ Total Construction Revenues $ 1,011,322 $1,276,033 $ 1,224,428 Real Estate 24,578 48,458 45,856 ------------ ---------- ------------ Total Revenues $ 1,035,900 $1,324,491 $ 1,270,284 ============ ========== ============
2 Construction The general contracting services provided by the Company consist of planning and scheduling the manpower, equipment, materials and subcontractors required for the timely completion of a project in accordance with the terms and specifications contained in a construction contract. The Company provides these services using the traditional contracting method as well as under construction management or design-build contracting arrangements. The Company was engaged in over 130 construction projects in the United States and overseas during 1998. The Company has two principal construction operations: building and civil. The building operation provides its services through regional offices located in several metropolitan areas: Boston, serving New England and the Mid-Atlantic area; and Phoenix and Las Vegas, serving Arizona, Nevada and California. In 1992, the Company combined its building operations into a wholly-owned subsidiary, Perini Building Company, Inc. This company combines substantial resources and expertise to better serve clients within the building construction market and enhances Perini's name recognition in this market. The Company undertakes a broad range of building construction projects including hotels, casinos, health care, correctional facilities, sports complexes, residential, commercial, civic, cultural and educational facilities. The civil operation undertakes large public civil projects in the East, with current emphasis on major metropolitan areas such as Boston and New York City and selectively, in other geographic locations. The civil operation performs construction and rehabilitation of highways, 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 1999 and beyond. Perini Management Services, Inc. (formerly Perini International Corporation), a wholly-owned subsidiary, provides a broad range of both civil and building construction services to U.S. government agencies in the U.S. and selected overseas locations, funded primarily in U.S. dollars. In selected situations, it pursues other work internationally. Construction Strategy The Company's current strategy is to concentrate on the civil construction market in the East and specialized niche building construction markets throughout the United States, with the goal in both markets to improve profit margins. The Company believes the best opportunities for growth in the coming years for its civil construction business are in the urban infrastructure market, particularly in Boston and metropolitan New York and other major cities where it has a significant presence, and in other large, complex projects. The Company's strategy in building construction is to take advantage of certain market niches, and to expand into new markets compatible with its expertise. Internally, the Company plans to continue to improve efficiency through strict attention to the control of overhead expenses 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 called for the Company to focus its financial and human resources on construction operations which are consistently profitable and to de-emphasize marginal business units. During 1997, the Company closed or downsized and refocused four business units and combined its two remaining civil construction entities (U.S. Heavy and Metropolitan New York divisions) under a consolidated management structure named "Perini Civil". During 1998, the Company continued its plan to enhance profitability and to implement certain other decisions made in 1997 by closing down two marginal business units in the Midwest. 3 Backlog As of December 31, 1998, the Company's construction backlog was $1.23 billion compared to backlogs of $1.31 billion and $1.52 billion as of December 31, 1997 and 1996, respectively.
Backlog (in thousands) as of December 31, ----------------------------------------------------------------------------------------- 1998 1997 1996 ---- ---- ---- Northeast $ 682,774 55% $ 574,779 44% $ 643,114 42% Mid-Atlantic 45,417 4 97,212 7 113,289 8 Southeast 35,801 3 46,629 4 56,925 4 Midwest 92,928 8 26,130 2 97,954 6 Southwest 294,931 24 481,068 37 425,901 28 West 26,843 2 28,707 2 139,079 9 Foreign 53,562 4 54,929 4 41,438 3 Total $1,232,256 100% $1,309,454 100% $1,517,700 100%
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 $500 million of its backlog will not be completed in 1999. The Company's backlog in the Northeast region of the United States continues to remain 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 decrease in backlog in the Southwest region is due to the timing in signing new contracts that are being negotiated rather than a longer term trend. Other fluctuations in backlog are viewed by management as transitory. Types of Contracts The four general types of contracts in current use in the construction industry are: O Fixed price contracts ("FP"), which include fixed unit price contracts, usually transfer more risk to the contractor but offer the opportunity, under favorable circumstances, for greater profits. With the Company's concentration in publicly bid civil construction projects, 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 agreements with subcontractors. 4 Historically, a high percentage of company contracts have been of the fixed price and GMP type contracts. 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, - ----------------------------------- ------------------------------------- 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- 50% 58% 59% Fixed Price 68% 53% 62% 50 42 41 CPFF, GMP or CM 32 47 38 ---- ---- ---- ---- ---- ---- 100% 100% 100% 100% 100% 100%
Clients During 1998, the Company was active in the building, civil and international construction markets. The Company performed work for over 100 federal, state and local governmental agencies or authorities and private customers during 1998. Due to the Company's trend toward fewer, but larger contracts, a material part of the Company's business has been dependent on a single or limited number of private customers and/or public agencies in recent years (see Note 13 to Notes to the Consolidated Financial Statements), the loss of any one of which could have a materially adverse effect on the Company. During the period 1996-1998, the portion of construction revenues derived from contracts with various governmental agencies was 43% in 1998, 51% in 1997 and 52% in 1996. Revenues by Client Source
Year Ended December 31, ----------------------------------- 1998 1997 1996 ---- ---- ---- Private Owners 57% 49% 48% Federal Governmental Agencies 2 5 5 State, Local and Foreign Governments 41 46 47 ---- ---- ---- 100% 100% 100%
General The construction business is highly competitive. Competition is based primarily on price, reputation for on time completion, quality, reliability and financial strength of the contractor. While the Company experiences a great deal of competition from other large general contractors, some of which may be larger with greater financial resources than the Company, as well as from a number of smaller local contractors, it believes it has sufficient technical, managerial and 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 and if awarded, performing on projects. These joint ventures are generally based on a standard joint venture agreement whereby each of the joint venture participants is usually committed to supply a predetermined percentage of capital, as required, and to share in the same predetermined percentage of income or loss of the project. 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 an example of this situation, see "Legal Proceedings" on page 12. 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 5 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 1999 from material and/or labor shortages or price increases. Economic and demographic trends tend not to have a material impact on the Company's civil construction operation. Instead, the Company's civil construction markets are dependent on the amount of heavy civil infrastructure work funded by various governmental agencies which, in turn, may depend on the condition of the existing infrastructure or the need for new expanded infrastructure. The building markets in which the Company participates are dependent on economic and demographic trends, as well as governmental policy decisions as they impact the specific geographic markets. The Company has minimal exposure to environmental liability as a result of the activities of Perini Environmental Services, Inc. ("Perini Environmental"), a wholly-owned subsidiary of the Company that was phased out during 1997. Perini Environmental provided hazardous waste engineering and construction services to both private clients and public agencies nationwide. Perini Environmental was responsible for compliance with applicable laws in connection with its clean up activities and bore the risk associated with handling such materials. In addition to strict procedural guidelines for conduct of this work, the Company and Perini Environmental generally carried insurance or received satisfactory indemnification from customers to cover the risks associated with this business. The Company also owns real estate in 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 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 most recently 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 6 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). Since January 1, 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 nonbinding agreement on the restructure of the existing financing and other obligations on the project, subject to final documentation and final approval of several parties. The agreement provides, among other things, that the joint venture give up all of its economic interest in Phase I of Rincon Center. Once the refinancing agreement is completed, all guarantees provided by RCA, its partners and the Company, under the existing master lease covering Rincon I, would be released at that time in connection with the termination of the master lease. 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 was $7.8 million, which was charged against 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 phase of the property identified as Rincon II. 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 1996, 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. 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 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. 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 1998. The park consists of 17 parcels, of which 5 acres currently remain unsold. 7 Massachusetts Perini Land & Development or Paramount Development Associates, Inc. ("Paramount"), a wholly-owned subsidiary of PL&D, own the following projects: Raynham Woods Commerce Center, Raynham - 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 1997, Paramount sold an aggregate of 58 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. The park is planned to eventually contain 2.5 million square feet of office, R&D, light industrial and mixed commercial space. Two land sales totalling 8 acres were closed in 1998, along with the sale of the two commercial buildings mentioned above, leaving approximately 160 saleable acres to be sold. Easton Business Center, Easton - In 1989, Paramount acquired a 40-acre site in Easton, Massachusetts, which already had been partially developed. Paramount completed the work and is currently marketing the site to commercial/industrial users. No sales were closed in 1998. 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 1998. 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 1997 had sold 312 single family lots to builders, along with a 22.3-acre tract designed for 88 lots, a 16-acre parcel for use as an elementary school and developed a 278-unit apartment complex which it later sold to a third party buyer. In 1998 the joint venture sold an additional 24 lots and a 5.6-acre tract designed for 16 lots to builders. California Rincon Center, San Francisco - Major construction on this mixed-use project in downtown San Francisco was completed in 1989 for Rincon Center Associates, a joint venture in which PL&D holds a 46% interest and is the managing general partner. 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 backed under a master lease by the developing partnership. The first phase, referred to as Rincon I, consists of about 223,000 square feet of office space and 42,000 square feet of retail space. The Rincon 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 100% leased. Phase II of the project, referred to as Rincon II, 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, 95% of the office space, 100% of the retail space and 97% of the 320 residential units are leased. The major tenant in the office space in Rincon II is a large national insurance company which occupies 164,000 square feet. 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. 8 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, which currently aggregate $48.3 million, matured in 1998 and were not refinanced pending the debt restructure referred to below. 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 II commercial loan. RCA, the lessor, and the lender have reached a nonbinding agreement on the restructure of the Rincon financing. The agreement is subject to final documentation and final approvals of several parties including the lessor and the Company's revolving credit facility banks. The portion of the agreement relating to Rincon I provides, among other things, that the joint venture give up all of its economic interest in the commercial and retail segments of that portion of the property identified as Rincon I, and that the joint venture make a one-time payment of $7.5 million to the lessor of Rincon I (which includes a final loan payment of $6.5 million to the lenders of Rincon I). The 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 under certain conditions. The portion of the agreement relating to Rincon II provides for, among other things, a $1.5 million interest payment, a $2.8 million principal payment, amortization of the commercial loan of $20,000 per month, a new letter of credit in the amount of $2.0 million issued to secure the remaining borrowings at Rincon II and the elimination of further Company or joint venture guarantees. Total restructure payments related to Rincon I and II are estimated to be $12.7 million through 1999, of which $5.3 million will be funded by the Company and $7.4 million will be funded by the other co-general partner of the joint venture. 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 (refers to one of the loans mentioned above) 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 finalize the financial restructuring as described above and to eventually cancel this requirement as part of the terms to the various restructuring agreements. In addition to the project financing and guarantees mentioned above and described in more detail in Note 11 to Notes to Consolidated Financial Statements, the Company has advanced approximately $92.5 million to the partnership through December 31, 1998, of which approximately $3.3 million was advanced during 1998, 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 1993-1998, PL&D advanced $6.2 million under this agreement, primarily to meet the principal payment obligations of the loan extensions described above. These funds, advanced as loans to PGP, are in addition to the advances described above. 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 1997, 76 sales were closed. During 1998, another 54 sales were closed, leaving a balance of 21 lots remaining. 9 Arizona Perini Central Limited Partnership, Phoenix - In 1985, PL&D (75%) entered into a joint venture with the Central United Methodist Church to master plan and develop approximately 4.4 acres of the church's property in midtown Phoenix. In 1990, the project was successfully rezoned to permit development of 580,000 square feet of office, 37,000 square feet of retail and 162 luxury apartments. In early 1998, the Company entered into a preliminary agreement to sell the property which was terminated late in 1998. Negotiations for the sale of the property to another prospective buyer are currently in process. 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 75% leased with approximately half of the building leased to a major area utility company. 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 are completed and operating. During the latter part of 1998, a judgment was rendered against the joint venture which required payment of a portion of a note, related interest and expenses which could aggregate between $1 and 2 million. The joint venture and its counsel are in the process of reviewing the possibility of appealing the decision. Sabino Springs Country Club, Tucson - During 1990, the Tucson Board of Supervisors unanimously approved a plan for this 410-acre residential golf course community close to the foothills on the east side of Tucson. In 1991, that approval, which had been challenged, was affirmed by the Arizona Supreme Court. When fully developed, the project will consist of 496 single-family homes. In 1993, PL&D recorded the master plat on the project and sold a major portion of the property to an international real estate company. An 18-hole Robert Trent Jones, Jr. designed championship golf course and clubhouse were completed within the project in 1995. In 1998, PL&D settled a lawsuit with the prior purchaser of the major portion of the property which required PL&D to complete a certain portion of the infrastructure by the end of the Year 2000. Although it will require some additional 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 10 gross profits from real estate sales will be minimal, which has been the case during the three year period ended December 31, 1998. Insurance and Bonding All of the Company's properties and equipment, both directly owned or owned through partnerships or joint ventures with others, are covered by insurance, and management believes that such insurance is adequate. In conjunction with its construction business, the Company is often required to provide various types of surety bonds. The Company has a co-surety arrangement with three sureties, one of which it has dealt with for over 75 years, and it has never been refused a bond. Although from time-to-time the surety industry encounters limitations affecting the bondability of very large projects and the Company occasionally has encountered limits imposed by its surety, these limits have not had an adverse impact on its operations. Employees The total number of personnel employed by the Company is subject to seasonal fluctuations, the volume of construction in progress and the relative amount of work performed by subcontractors. During 1998, the maximum number of employees employed was approximately 2,700 and the minimum was approximately 1,600. 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 6 through 10. 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 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 Detroit, MI Leased - 2,800 ----- ------- 9 143,600
Owned or Leased Approximate Principal Permanent Storage Yards by Perini Acres - --------------------------------- --------- ----- Bow, NH Owned 70 Framingham, MA Owned 6 Las Vegas, NV Leased 2 ----- 78 ===== 11 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 sucessor judge presiding over the action, during the third quarter of 1995, the parties submitted briefs on the issue of WMATA's liability on the joint venture's claims for delays and for extra work. As a result of that process, the company established a reserve with respect to the litigation. In July 1997, the remaining issues were ruled on by the sucessor Judge, who awarded approximately $4.3 million to the joint venture, thereby reducing the net amount payable to approximately $12.2 million. The joint venture appealed the decision. As a result of the decision, there was no immediate impact on the Company's Statement of Operations because of the reserve provided in prior years. The actual funding of net damages, if any, will be deferred until the litigation process is complete. On February 16, 1999, the U.S. Court of Appeals for the District of Columbia vacated the April 1995 and July 1997 Orders and remanded the case back to the successor judge with instructions for the successor judge to consider certain post-trial motions to the same extent an original judge would have, and to make findings and conclusions regarding the unresolved issues, giving appropriate consideration to whether or not witnesses must be recalled. A final judgment will be entered by the District Court upon the completion of these Appeals Court-directed procedures. 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 1998 and 1997 are summarized below: 1998 1997 ---- ---- Market Price Range per Common Share: High Low High Low - ------------------------------------ ---- --- ---- --- Quarter Ended March 31 9 1/8 - 7 3/8 9 1/2 - 6 7/8 June 30 11 1/4 - 7 7/8 7 3/4 - 6 1/4 September 30 8 1/2 - 6 8 3/8 - 7 December 31 7 - 4 1/4 9 3/8 - 7 13/16
12 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 22, 1999, there were approximately 1,144 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 1998 1997 1996 1995 1994 ------------- ------------ ------------ ------------ ------------- Revenues: Construction Operations - Building $ 679,296 $ 888,809 $ 834,888 $ 748,412 $ 626,391 Civil 332,026 387,224 389,540 308,261 324,493 ------------- ------------ ------------ ------------ ------------- $ 1,011,322 $ 1,276,033 $ 1,224,428 $ 1,056,673 $ 950,884 Real Estate Operations 24,578 48,458 45,856 44,395 61,161 ------------- ------------ ------------ ------------ ------------- Total Revenues $ 1,035,900 $ 1,324,491 $ 1,270,284 $ 1,101,068 $ 1,012,045 ------------- ------------ ------------ ------------ ------------- Costs: Cost of Operations $ 984,871 $ 1,275,614 $ 1,215,806 $ 1,086,213 $ 960,248 Write down of Certain Real Estate Assets (Note 4) - - 79,900 - - ------------- ------------ ------------ ------------ ------------- $ 984,871 $ 1,275,614 $ 1,295,706 $ 1,086,213 $ 960,248 ------------- ------------ ------------ ------------ ------------- Gross Profit (Loss) $ 51,029 $ 48,877 $ (25,422) $ 14,855 $ 51,797 General, Administrative & Selling Expenses 28,780 30,556 33,988 37,283 42,985 ------------- ------------ ------------ ------------ ------------- Income (Loss) From Operations $ 22,249 $ 18,321 $ (59,410) $ (22,428) $ 8,812 Other Income (Expense), Net (812) (1,665) (492) 814 (856) Interest Expense (8,685) (10,334) (9,871) (8,582) (7,473) ------------- ------------ ------------ ------------ ------------- Income (Loss) Before Income Taxes $ 12,752 $ 6,322 $ (69,773) $ (30,196) $ 483 (Provision) Credit for Income Taxes (1,100) (950) (830) 2,611 (180) ------------- ------------ ------------ ------------ ------------- Net Income (Loss) $ 11,652 $ 5,372 $ (70,603) $ (27,585) $ 303 ------------- ------------ ------------ ------------ ------------- Per Share of Common Stock: Basic and diluted earnings (loss) $ 1.08 $ 0.01 $ (15.13) $ (6.38) $ (0.42) ------------- ------------ ------------ ------------ ------------- Cash dividends declared $ - $ - $ - $ - $ - ------------- ------------ ------------ ------------ ------------- Book value $ 4.17 $ 2.44 $ 2.14 $ 17.06 $ 23.79 ------------- ------------ ------------- ------------ ------------- Weighted Average Number of Common Shares Outstanding 5,318 5,059 4,808 4,655 4,380 ------------- ------------ ------------ ------------ ------------- FINANCIAL POSITION SUMMARY Working Capital $ 57,665 $ 76,752 $ 56,744 $ 36,545 $ 29,948 ------------- ------------ ------------ ------------ ------------- Current Ratio 1.29:1 1.33:1 1.19:1 1.12:1 1.13:1 ------------- ------------ ------------ ------------ ------------- Long-term Debt, less current maturities $ 75,857 $ 84,898 $ 96,893 $ 84,155 $ 76,986 ------------- ------------ ------------ ------------ ------------- Stockholders' Equity $ 50,558 $ 40,900 $ 35,558 $ 105,606 $ 132,029 ------------- ------------ ------------ ------------ ------------- Ratio of Long-term Debt to Equity 1.50:1 2.08:1 2.72:1 .80:1 .58:1 ------------- ------------ ------------ ------------ ------------- Total Assets $ 378,591 $ 414,924 $ 464,292 $ 539,251 $ 482,500 ------------- ------------ ------------ ------------ ------------- OTHER DATA Backlog at Year End $ 1,232,256 $ 1,309,454 $ 1,517,700 $ 1,534,522 $ 1,538,779 ------------- ------------ ------------ ------------ -------------
13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------------------------------------------------------------------------ RESULTS OF OPERATIONS - --------------------- Results of Operations - 1998 Compared to 1997 The Company's total operations produced net income of $11.7 million (or $1.08 per Common Share) in 1998 compared to net income of $5.4 million (or $.01 per Common Share) in 1997. This substantially improved performance is attributable to higher margins on the work performed by both the Company's building and civil operating units, primarily from the hotel/casino market in Nevada and from civil infrastructure work in the Northeast and further reductions in general and administrative and interest expense. These improvements more than offset a decrease in 1998 construction revenues and continued losses from real estate operations. Revenues decreased $288.6 million (or 22%) from $1,324.5 million in 1997 to $1,035.9 million in 1998. This decrease resulted from a decrease in construction revenues of $264.7 million (or 21%) from $1,276.0 million in 1997 to $1,011.3 million in 1998, due primarily from a decrease in revenues from both building and civil construction operations. Revenues from building operations decreased $209.5 million (or 24%) from $888.8 million in 1997 to $679.3 million in 1998, due primarily to the timing of the start up of new hotel/casino projects in Las Vegas, a decrease in revenues from airport facilities and a sports complex in the West, and a decrease in revenues from correctional facilities projects in the East. Revenues from civil construction operations decreased $55.2 million (or 14%) from $387.2 million in 1997 to $332.0 million in 1998, due primarily to the timing in the start up of new work in the Northeast. The phasing out of two divisions in the Midwest also contributed to the decrease in revenues from both the building and civil operations. The decline in real estate revenues of $23.9 million (or 49%) is primarily due to the non-recurring revenues related to the 1997 sale of the Company's interest in the Resort at Squaw Creek. In spite of the overall 22% decrease in total revenues described above, total gross profit actually increased by $2.1 million (or 4%), from $48.9 million in 1997 to $51.0 million in 1998, due primarily to improved margins on both the building and civil construction work performed in 1998. Real estate operations contributed a gross loss of $2.7 million, a $1.4 million increase over 1997 which was caused primarily by adverse operating results in Arizona. The decrease in general, administrative and selling expenses of $1.8 million (or 5.9%) from $30.6 million in 1997 to $28.8 million in 1998, resulted primarily from phasing out of two construction divisions in the Midwest, efficiencies achieved by combining certain other divisions and continuation of downsizing certain corporate departments. Other income (expense), net improved by $0.9 million from a net expense of $1.7 million in 1997 to a net expense of $0.8 million in 1998, due to an increase in interest income and a decrease in bank fees. Interest expense decreased by $1.6 million from $10.3 million in 1997 to $8.7 million in 1998, due primarily to lower average levels of borrowing during 1998. The lower than normal tax rate for the three year period ended December 31, 1998 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 $59.0 million of pretax earnings subsequent to 1998 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, be realized (see Note 5 to Notes to Consolidated Financial Statements). 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 14 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 in 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. Financial Condition Cash and Working Capital During 1998, cash generated from operating activities in the amount of $29.7 million, due primarily to changes in various elements of working capital, continued to reflect improvement over recent years. In addition, net cash provided from investing activities amounted to $0.3 million which was generated by net cash distributions to the Company from joint ventures. The funds generated were used for financing activities ($14.8 million) to pay down borrowings and to increase cash on hand by $15.2 million. During 1997, the Company generated $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 pay downs 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 $23.4 million in cash for operating activities, primarily for changes in working capital, and $22.0 million for investment activities, primarily to fund construction and real estate joint ventures. These uses of 15 cash were provided by $26.1 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. Since 1990, the Company has paid down $50.0 million of real estate debt on wholly-owned real estate projects (from $50.9 million to $0.9 million), utilizing proceeds from sales of property and general corporate funds. Similarly, real estate joint venture debt has been reduced by $171.0 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 (Rincon Center) referred to in Note 11 to Notes to Consolidated Financial Statements, this trend should continue over the next few 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. 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. The aggregate amount available under its revolving credit agreement increased to $129.5 million at that time, although it has subsequently been reduced and stands at $96.6 million at December 31, 1998. In addition to internally generated funds, at December 31, 1998, the Company has $21.6 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 1998, it obtained waivers of such violations. Also, during 1997 and 1998, 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 was 1.29:1 at the end of 1998 compared to 1.33:1 at the end of 1997, and 1.19:1 at the end of 1996. Of the total working capital of $57.7 million at the end of 1998, approximately $17.6 million may not be converted to cash within the next 12 to 18 months. Long-term Debt Long-term debt was $75.9 million at the end of 1998 and continued to decrease during the period under review, $9.0 million during 1998 and $12.0 million during 1997. The ratio of long-term debt to equity improved substantially during this same period to 1.50:1 at the end of 1998 from 2.08:1 and 2.72:1 at the end of 1997 and 1996, respectively. The improvement in the debt to equity ratio is due primarily to a combination of the Company continuing to pay down its long-term debt and to earnings recorded in both 1998 and 1997. Stockholders' Equity The Company's book value per Common Share stood at $4.17 at December 31, 1998, compared to $2.44 per Common Share and $2.14 per Common Share at the end of 1997 and 1996, respectively. The major factors impacting 16 stockholders' equity during the three-year period under review were the net income recorded in 1998 and 1997, the net loss recorded in 1996 and, to a lesser extent, Preferred dividends paid in-kind or accrued and stock issued in partial payment of certain expenses. At December 31, 1998, there were 1,146 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, 1998. 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, 1997 and 1998, 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 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 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). Prior to any such dividends, the Company must have elected and paid cash dividends on the Series B Preferred Stock for the preceding four quarters. The aggregate amount of dividends in arrears is approximately $6,906,000 at December 31, 1998, which represents approximately $69.06 per share of Preferred Stock or approximately $6.91 per Depositary Share and is included in "Other Liabilities" (long-term) in the Consolidated Balance Sheet. Under the terms of the Preferred Stock, the holders of the Depositary Shares are entitled to elect two additional Directors since dividends had been deferred for more than six quarters and they did so at the May 14, 1998 Annual Meeting. The Board of Directors intends to resume payment of dividends when the Company satisfies the terms of the New Credit Agreement, the provisions of the Series B Preferred Stock and the Board deems it prudent to do so. 17 Outlook O Construction - Looking ahead, the overall construction backlog at the end of 1998 was $1.232 billion, down 6% from the 1997 year end backlog of $1.309 billion. This decrease primarily reflects a timing lag in signing up new work under negotiation at December 31, 1998 and 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 47% of the current backlog relates to building construction projects which generally represent lower risk, lower margin work, and approximately 53% of the current backlog relates to civil 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 implemented plans to close or downsize and refocus four business units during 1997 and during 1998 it continued to implement these plans. The Company believes the outlook for its building and civil construction businesses continues to be promising. O Real Estate - 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, 1998. A major objective for 1999 is to finalize the renegotiation and extension of debt at Rincon Center (see Note 11 to Notes to Consolidated Financial Statements). O Liquidity - With the receipt of $30 million from the sale of its Redeemable Series B Preferred Stock and the New Credit Agreement both becoming effective on January 17, 1997, the Company's near term liquidity position improved substantially, enabling payments to vendors to generally be made in accordance with normal payment terms. In order to generate cash and reduce the Company's dependence on bank debt to fund the working capital needs of its core construction operations as well as to lower the Company's substantial interest expense and strengthen the balance sheet in the longer term, the Company will continue to sell certain real estate assets as market opportunities present themselves; to actively pursue the favorable conclusion of various unapproved change orders and construction claims; to focus new construction work acquisition efforts on various niche markets and geographic areas where the Company has a proven history of success; to downsize or close operations with marginal prospects for success; to continue to restrict the payment of cash dividends on the Company's $1 par value Common Stock and $2.125 Depositary Convertible Exchangeable Preferred Stock; and to continue to seek ways to control overhead expenses. 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. Subsequent to December 31, 1998, the Company reached an agreement in principle with its Bank Group to extend its Revolving Credit Facility for an additional year from the beginning of the Year 2000 to the beginning of 2001 (see Note 3 to Notes to the Consolidated Financial Statements). Management believes that cash generated from operations, existing credit lines, additional borrowings and projected sale of certain real estate assets referred to above and timely resolution and payment of various unapproved change orders and construction claims referred to above should be adequate to meet the Company's funding requirements for at least the next twelve months. O Year 2000 Disclosure - Since many computers, related software and certain devices with embedded microchips record only the last two digits of a year, they may not be able to recognize that January 1, 2000 (or subsequent dates) comes after December 31, 1999. This situation could cause erroneous calculations or system shutdowns, causing problems that could range from merely inconvenient to significant. 18 As previously reported, the Company began a project to review all of its computer systems in 1995. One factor, among many to consider, was what impact, if any, Year 2000 would have on computer systems. As a result of this project, the Company implemented new, fully integrated, online, construction specific financial systems during the first quarter of 1998 which are Year 2000 compliant. The cost of these new systems, including the hardware which is also Year 2000 compliant, software and implementation costs, approximated $1.5 million which was capitalized and is being amortized over ten years on a straight-line basis. The Company recognized that the Year 2000 issue could be an overall business problem, not just a technical problem. Therefore, it established a Year 2000 Committee early in 1998 to identify all of the other potential Year 2000 issues that could impact the Company, including readiness issues for its computer applications and business processes, non-information technology systems such as those of its facilities and equipment, along with relationships with third parties, such as its customers, vendors, subcontractors, joint venture, and other business partners; develop plans to evaluate the significance of the potential problem; develop plans to remedy or minimize the potential problem; assign appropriate resources; and monitor the implementation of the plans. During the third quarter of 1998, the Committee, which included both the Company's Chairman and CEO, designated the Year 2000 Project Manager. The Project Manager has organized a Year 2000 Team, consisting of specific individuals assigned from each operating unit and each corporate department. In addition, the Company developed, published and commenced implementation of its Year 2000 Readiness Plan which has as its overall objective "to eliminate or minimize the potential internal and external impact of the Year 2000 issue on the normal business operations of the Company, its subsidiaries, and joint ventures in a timely and cost effective manner". In addition to addressing its own computer applications, facilities, and construction equipment, the Plan includes communication with critical third parties as stated above. The Year 2000 Plan includes the following phases: (1) potential problem identification, (2) resource commitment, (3) inventory, (4) assessment, (5) prioritization, (6) remediation, and (7) testing. While the Company completed the problem identification and resource commitment phases during the third quarter, and prioritization phase during the fourth quarter of 1998, it is in various stages of "inventory", "assessment", "testing", and "remediation" phases as of December 31, 1998. As part of the Plan, the Company is evaluating alternative solutions and developing contingency plans for handling certain critical areas in the event remediation is unsuccessful. Completion of the Year 2000 Plan, including final testing and development of final contingency plans, is currently on schedule and should be completed by its October 1999 targeted completion date. The Company currently estimates that costs related to the Year 2000 Plan over and above the cost of the new financial systems referred to above will approximate $0.3 million which are being expensed currently. The Company, as a general contractor, generally provides its construction services in accordance with detailed contracts and specifications provided by its clients. Also, the Company recently installed all new mission critical financial system software on new hardware, all of which are Year 2000 compliant. In light of the above, the Company has defined its most reasonable likely worse case scenario at this stage of implementing its Year 2000 Plan to include last minute inquiries and requests for assistance in determining Year 2000 compliance by some limited number of clients who have not properly prepared for this event. In addition, the possible filing of frivolous lawsuits against the Company, among others, by a party or parties that claim they were adversely impacted by a Year 2000 issue related to one of the many projects with which the Company was associated is also a concern. The Company currently plans to have a Year 2000 Urgent Response Team defined and available to respond to last minute Year 2000 issues raised by clients or others in a timely, proactive and cost effective manner. In addition, the Company currently plans to develop prepackaged legal defenses in advance assuming various types of complaints. Forward-looking Statements This Management's Discussion and Analysis of Financial Condition and Results of Operations, including "Outlook", 19 "Year 2000 Disclosure" 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK - ------------------------------------------------------------------- The Company's exposure to market risk for changes in interest rates relates primarily to the Company's revolving credit debt (see Note 3 to Notes to the Consolidated Financial Statements) and short-term investment portfolio. As of December 31, 1998, the Company had $72.0 million borrowed under its revolving credit agreement that is classified in long-term debt and $38.2 million of short-term investments classified as cash equivalents. The Company borrows under its bank revolving credit facility for general corporate purposes, including working capital requirements and capital expenditures. Borrowings under the bank credit facility bear interest at the applicable LIBOR or base rate, as defined, and therefore, the Company is subject to fluctuations in interest rates. If the average effective 1998 borrowing rate of 8.0% changed by 10% (or 0.8%) during the next twelve months, the impact, based on the Company's ending 1998 revolving debt balance, would be an increase or decrease in net income and cash flow of $576,000. The Company's short-term investment portfolio consists primarily of highly liquid instruments with maturities of less than one month. 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 13, 1999 (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, 1998 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 - 61* 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. Ronald N. Tutor, Director and Vice Since January 1, 1998 he serves as a Chairman - 58* Director and Vice Chairman. Prior to that,he served as a Director and Acting Chief Operating Officer since January 17, 1997. He is the Chairman, President and Chief Executive Officer of Tutor-Saliba Corporation, a California based construction contractor since prior to 1994 and has actively managed that company since 1966. Roger J. Ludlam, Director, President He was elected President and Chief and Chief Executive Officer - 56* Executive Officer effective January 1, 1998 and has served as a Director since May 1998. Prior to 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 President, He was elected to his current Chief Financial Officer - 51 position in December 1997. Prior to that, he served as President of Perini Management Services, Inc. since January 1996 and as Senior Vice President, Chief Operating Officer of Perini International Corporation since April 1995. Previously, he served as Vice President Construction from July 1993 and in various operating and financial capacities since 1973, including Treasurer from May 1988 to January 1990. *Effective January 31, 1999, Mr. Ludlam resigned as President and Chief Executive Officer of the Company. Since January 31, 1999, David B. Perini and Ronald N. Tutor have shared the responsibilities of President and Chief Executive Officer of the Company pending the appointment of a new Chief Executive Officer. 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. 21 ITEM 11. EXECUTIVE COMPENSATION - -------------------------------- ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------ ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- In response to Items 11-13, reference is made to the information to be set forth in the section entitled "Election of Directors" in the Proxy Statement, which is incorporated herein by reference. 22 PART IV. -------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K ------------------------------------------------------------------------ PERINI CORPORATION AND SUBSIDIARIES ----------------------------------- (a)1. The following financial statements and supplementary financial information are filed as part of this report: Pages ----- Financial Statements of the Registrant Consolidated Balance Sheets as of December 31, 1998 and 1997 25 - 26 Consolidated Statements of Operations for each of the three years ended December 31, 1998, 1997 27 and 1996 Consolidated Statements of Stockholders' Equity for each of the three years ended December 31, 28 1998, 1997 and 1996 Consolidated Statements of Cash Flows for each of the three years ended December 31, 1998, 1997 29 - 30 and 1996 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 65. 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, 1998, 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 15, 1999 /s/David B. Perini David B. Perini Chairman Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- (i) Principal Executive Officer David B. Perini Chairman March 15, 1999 /s/David B. Perini ------------------ David B. Perini (ii) Principal Financial Officer Robert Band Executive Vice President, Chief Financial Officer March 15, 1999 /s/Robert Band -------------- Robert Band (iii) Principal Accounting Officer Barry R. Blake Vice President and Controller March 15, 1999 /s/Barry R. Blake ----------------- Barry R. Blake (iv) Directors David B. Perini ) Richard J. Boushka ) Arthur I. Caplan ) Marshall M. Criser ) Frederick Doppelt )/s/ David B. Perini Albert A. Dorman ) David B. Perini Arthur J. Fox, Jr. ) Nancy Hawthorne )Attorney in Fact Michael R. Klein )Dated: March 15, 1999 Douglas J. McCarron ) John J. McHale ) Jane E. Newman ) Ronald N. Tutor )
24
Consolidated Balance Sheets December 31, 1998 and 1997 (In thousands except share data) Assets 1998 1997 ------------- ------------- CURRENT ASSETS: Cash, including cash equivalents of $38,175 and $23,585 (Note 1) $ 46,507 $ 31,305 Accounts and notes receivable, including retainage of $30,450 and $54,234 113,855 139,221 Unbilled work (Note 1) 19,585 36,574 Construction joint ventures (Notes 1 and 2) 67,100 71,056 Real estate inventory, at the lower of cost or market (Notes 1 and 4) 10,069 25,145 Deferred tax asset (Notes 1 and 5) 1,076 1,067 Other current assets 1,332 1,808 ------------- ------------- Total current assets $ 259,524 $ 306,176 ------------- ------------- 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 $ 15,541 $ 7,093 Investments in and advances to real estate joint ventures (Notes 2 and 11) 89,499 86,598 ------------- ------------- Total real estate development investments $ 105,040 $ 93,691 ------------- ------------- PROPERTY AND EQUIPMENT, at cost (Note 1): Land $ 536 $ 826 Buildings and improvements 11,286 13,026 Construction equipment 7,600 7,580 Other equipment 6,814 8,450 ------------- ------------- $ 26,236 $ 29,882 Less - Accumulated depreciation 16,378 19,406 ------------- ------------- Total property and equipment, net $ 9,858 $ 10,476 ------------- ------------- OTHER ASSETS: Other investments $ 2,719 $ 3,069 Goodwill (Note 1) 1,450 1,512 ------------- ------------- Total other assets $ 4,169 $ 4,581 ------------- ------------- $ 378,591 $ 414,924 ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 25
Liabilities and Stockholders' Equity 1998 1997 --------------- -------------- CURRENT LIABILITIES: Current maturities of long-term debt (Note 3) $ 2,956 $ 11,873 Accounts payable, including retainage of $31,859 and $49,884 127,774 145,118 Advances from construction joint ventures (Note 2) 17,300 29,801 Deferred contract revenue (Note 1) 14,350 17,117 Accrued expenses 39,479 25,515 --------------- -------------- Total current liabilities $ 201,859 $ 229,424 --------------- -------------- DEFERRED INCOME TAXES AND OTHER LIABILITIES (Notes 1, 5 & 6) $ 15,713 $ 28,882 --------------- -------------- LONG-TERM DEBT, less current maturities included above (Note 3) $ 75,857 $ 84,898 --------------- -------------- MINORITY INTEREST (Note 1) $ 1,064 $ 1,064 --------------- -------------- CONTINGENCIES AND COMMITMENTS (Note 11) REDEEMABLE SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK (Note 7): Authorized - 500,000 shares Issued and outstanding - 181,357 shares and 164,300 shares (aggregate liquidation preferences of $36,271 and $32,860) $ 33,540 $ 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 2,233 Common Stock, $1 par value - Authorized - 15,000,000 shares Issued - 5,506,341 shares and 5,267,130 shares 5,506 5,267 Paid-in surplus 49,219 53,012 Retained earnings (deficit) (3,642) (15,294) ESOT related obligations (1,381) (2,663) --------------- -------------- $ 52,035 $ 42,655 Less - Common Stock in treasury, at cost - 92,694 shares and 110,084 shares 1,477 1,755 --------------- -------------- Total stockholders' equity $ 50,558 $ 40,900 --------------- -------------- $ 378,591 $ 414,924 =============== ==============
26
Consolidated Statements of Operations For the Years Ended December 31, 1998, 1997 & 1996 (In thousands, except per share data) 1998 1997 1996 ---------------- --------------- ---------------- REVENUES (Notes 2 and 13) $ 1,035,900 $ 1,324,491 $ 1,270,284 ---------------- --------------- ---------------- COSTS AND EXPENSES (Notes 2 and 10): Cost of operations $ 984,871 $ 1,275,614 $ 1,215,806 Write down of certain real estate assets (Note 4) - - 79,900 General, administrative and selling expenses 28,780 30,556 33,988 ---------------- --------------- ---------------- $ 1,013,651 $ 1,306,170 $ 1,329,694 ---------------- --------------- ---------------- INCOME (LOSS) FROM OPERATIONS (Note 13) $ 22,249 $ 18,321 $ (59,410) ---------------- --------------- ---------------- Other income (expense), net (Note 6) (812) (1,665) (492) Interest expense (Note 3) (8,685) (10,334) (9,871) ---------------- --------------- ---------------- INCOME (LOSS) BEFORE INCOME TAXES $ 12,752 $ 6,322 $ (69,773) Provision for income taxes (Notes 1 and 5) (1,100) (950) (830) ---------------- --------------- ---------------- NET INCOME (LOSS) $ 11,652 $ 5,372 $ (70,603) ================ =============== ================ BASIC & DILUTED EARNINGS (LOSS) PER COMMON SHARE (Note 1) $ 1.08 $ 0.01 $ (15.13) ================ =============== ================
The accompanying notes are an integral part of these consolidated financial statements. 27
Consolidated Statements of Stockholders' Equity For the Years Ended December 31, 1998, 1997 & 1996 (In thousands, except per share data) Stock Retained ESOT Preferred Purchase Common Paid-In Earnings Related Treasury Stock Warrants Stock Surplus (Deficit) Obligations Stock Total - --------------------------------------------------------------------------------------------------------------------- Balance - December 31, 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 - - 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 - ---------------------------------------------------------------------------------------------------------------------- Net Income - - - - 11,652 - - 11,652 Preferred Stock dividends accrued ($21.25 per share*) - - - (2,125) - - - (2,125) Series B Preferred Stock dividends in kind issued (Note 7) - - - (3,411) - - - (3,411) Accretion related to Series B Preferred Stock (Note 7) - - - (373) - - - (373) Common Stock issued in partial payment of incentive compensation - - 239 2,243 - - - 2,482 Payment of director fees - - - (127) - - 278 151 Payments related to ESOT notes - - - - - 1,282 - 1,282 - ---------------------------------------------------------------------------------------------------------------------- Balance - December 31, 1998 $ 100 $ 2,233 $ 5,506 $ 49,219 $ (3,642) $ (1,381) $ (1,477) $ 50,558 - ----------------------------------------------------------------------------------------------------------------------
*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, 1998, 1997 & 1996 (In thousands) Cash Flows from Operating Activities: 1998 1997 1996 ------------ ------------ ------------ Net income (loss) $ 11,652 $ 5,372 $ (70,603) Adjustments to reconcile net income (loss) to net cash from operating activities - Depreciation 1,463 1,936 2,527 Amortization of deferred debt expense, Stock Purchase Warrants and other 1,596 2,011 895 Distributions less than earnings of joint ventures and affiliates (134) (1,859) (4,586) 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 25,366 48,899 (7,142) (Increase) decrease in unbilled work 16,989 (974) (7,296) (Increase) decrease in construction joint ventures (1,509) 820 (380) (Increase) decrease in deferred tax asset (9) 2,446 9,526 (Increase) decrease in other current assets 476 (153) 849 Increase (decrease) in accounts payable (17,346) (38,289) (13,645) Increase (decrease) in advances from construction joint ventures (12,501) (17,743) 12,714 Increase (decrease) in deferred contract revenue (2,767) (6,724) 398 Increase (decrease) in accrued expenses 11,839 (1,308) (8,080) Non-current deferred taxes and other liabilities (13,169) (4,540) (21,366) Proceeds from sale of interests in real estate joint ventures - 20,260 - Real estate development investments other than joint ventures 7,749 3,741 4,500 Other non-cash items, net (33) (1,200) (1,689) ------------ ------------ ------------ NET CASH PROVIDED FROM (USED BY) OPERATING ACTIVITIES $ 29,662 $ 12,695 $ (23,478) ------------ ------------ ------------ Cash Flows from Investing Activities: Proceeds from sale of property and equipment $ 608 $ 383 $ 2,098 Cash distributions of capital from unconsolidated joint ventures 9,380 16,614 8,753 Acquisition of property and equipment (1,418) (1,663) (1,449) Improvements to land held for sale or development (339) (666) (515) Improvements to real estate properties used in operations - - (123) Capital contributions to unconsolidated joint ventures (3,531) (7,063) (20,224) Advances to real estate joint ventures, net (3,933) (13,030) (7,312) Investments in other activities (440) (273) (3,206) ------------ ------------ ------------ NET CASH PROVIDED FROM (USED BY) INVESTING ACTIVITIES $ 327 $ (5,698) $ (21,978) ------------ ------------ ------------
29
Consolidated Statements of Cash Flows (Continued) For the Years Ended December 31, 1998, 1997 & 1996 (In thousands) Cash Flows from Financing Activities: 1998 1997 1996 ------------ ------------ ------------ Proceeds from Issuance of Redeemable Series B Preferred Stock, net $ - $ 26,558 $ - Proceeds from long-term debt 155 5,035 27,006 Repayment of long-term debt (17,575) (18,897) (2,435) Common stock isued 2,482 1,701 - Treasury Stock issued 151 166 1,171 Finance fee paid in stock - - 400 ------------ ------------ ------------ NET CASH PROVIDED FROM (USED BY) FINANCING ACTIVITIES $ (14,787) $ 14,563 $ 26,142 ------------ ------------ ------------ Net Increase (Decrease) in Cash $ 15,202 $ 21,560 $ (19,314) Cash and Cash Equivalents at Beginning of Year 31,305 9,745 29,059 ------------ ------------ ------------ Cash and Cash Equivalents at End of Year $ 46,507 $ 31,305 $ 9,745 ============ ============ ============ Supplemental Disclosures of Cash Paid During the Year For: Interest $ 8,137 $ 10,133 $ 9,596 ============ ============ ============ Income tax payments $ 160 $ 330 $ 221 ============ ============ ============ Supplemental Disclosure of Noncash Transactions: Dividends paid in shares of Series B Preferred Stock (Note 7) $ 3,411 $ 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, 1998, 1997 & 1996 [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, 1998, 1997 & 1996 (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, Series B Preferred Shares and Stock Purchase Warrants. 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1998, 1997 & 1996 (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, 1998 are calculated as follows (in thousands except per share amounts): 1998 1997 1996 ------------ -------------- ------------- Net income (loss) $ 11,652 $ 5,372 $ (70,603) ------------ -------------- ------------- Less: Accrued dividends on $21.25 Senior Preferred Stock (Note 8) $ (2,125) $ (2,125) $ (2,125) Dividends declared on Series B Preferred Stock (Note 7) (3,411) (2,830) --- Accretion deduction required to reinstate mandatory redemption value of Series B Preferred Stock over a period of 8-10 years (373) (368) --- (Note 7) ------------ -------------- ------------- $ (5,909) $ (5,323) $ (2,125) ------------ -------------- ------------- Earnings available for common stockholders $ 5,743 $ 49 $ (72,728) ============ ============== ============= Weighted average shares outstanding 5,318 5,059 4,808 ------------ -------------- ------------- Basic and diluted earnings (loss) per Common Share $ 1.08 $ 0.01 $ (15.13) ============ ============== =============
[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 1998, SFAS No. 133, "Accounting for Derivative Financial Instruments and Hedging Activities" was issued. The Company will implement the provisions of the Statement in the quarter ended March 31, 2000. The statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that the Company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. The Company does not currently hold any significant derivative instruments or engage in significant hedging activities and, therefore, the impact of adopting Statement No. 133 is expected to be immaterial. 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1998, 1997 & 1996 (continued) [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, 1998 follows:
Construction Joint Ventures Financial position at December 31, 1998 1997 1996 ----------------- --------------- --------------- Current assets $ 398,061 $ 403,058 $ 329,999 Property and equipment, net 7,358 11,482 32,145 Current liabilities (285,197) (292,184) (236,752) ----------------- --------------- --------------- Net assets $ 120,222 $ 122,356 $ 125,392 ================= =============== =============== Equity $ 67,100 $ 71,056 $ 78,233 ================= =============== =============== Operations for the year ended December 31, 1998 1997 1996 ----------------- --------------- --------------- Revenue $ 891,026 $ 1,030,347 $ 753,214 Cost of operations 844,688 974,571 702,997 ----------------- --------------- --------------- Pretax income $ 46,338 $ 55,776 $ 50,217 ================= =============== =============== Company's share of joint ventures Revenue $ 368,733 $ 555,363 $ 446,793 Cost of operations 343,753 518,576 413,935 ----------------- --------------- --------------- Pretax income $ 24,980 $ 36,787 $ 32,858 ================= =============== ===============
The Company has a centralized cash management arrangement with two construction joint ventures in which it is the sponsor. Under this arrangement, excess cash is controlled by the Company; cash is made available to meet the individual joint venture requirements, as needed; and interest income is credited to the ventures at competitive market rates. In addition, certain joint ventures sponsored by other contractors, in which the Company participates, distribute cash at the end of each quarter to the participants who will then return these funds at the beginning of the next quarter. Of the total cash advanced at the end of 1998 ($17.3 million) and 1997 ($29.8 million), approximately $13.2 million in 1998 and $20.0 million in 1997 was deemed to be temporary. 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1998, 1997 & 1996 (continued) [2] Joint Ventures (continued)
Real Estate Joint Ventures Financial position at December 31, 1998 1997 1996 ----------------- --------------- --------------- Property held for sale or development $ 11,128 $ 11,544 $ 12,683 Investment properties, net 122,474 125,234 168,833 Other assets 22,902 20,645 64,530 Long-term debt (57,572) (61,712) (69,195) Other liabilities* (243,228) (222,131) (334,087) ----------------- --------------- --------------- Net assets (liabilities) $ (144,296) $ (126,420) $ (157,236) ================= =============== =============== Equity ** $(67,088) $ (58,434) $ (125,877) Advances 158,668 146,332 222,341 ----------------- --------------- --------------- Total Equity and Advances $ 91,580 $ 87,898 $ 96,464 ================= =============== =============== Total Equity and Advances, Long-term $ 89,499 $ 86,598 $ 71,253 Total Equity and Advances, Short-term *** 2,081 1,300 25,211 ----------------- --------------- --------------- $ 91,580 $ 87,898 $ 96,464 ================= =============== =============== Operations for the year ended December 31, 1998 1997 1996 ----------------- --------------- --------------- Revenue $ 20,897 $ 24,486 $ 42,921 ----------------- --------------- --------------- Cost of operations - Depreciation $ 3,071 $ 3,662 $ 6,614 Other 37,672 63,225 64,289 ----------------- --------------- --------------- $ 40,743 $ 66,887 $ 70,903 ----------------- --------------- --------------- Pretax income (loss) $ (19,846) $ (42,401) $ (27,982) ================= =============== =============== Company's share of joint ventures Revenue $ 9,567 $ 13,252 $ 22,502 ----------------- --------------- --------------- Cost of operations - Depreciation $ 1,420 $ 1,709 $ 3,441 Other **** 10,423 12,132 19,127 ----------------- --------------- --------------- $ 11,843 $ 13,841 $ 22,568 ----------------- --------------- --------------- Pretax income (loss) $ (2,276) $ (589) $ (66) ================= =============== ===============
* Included in "Other liabilities" are advances from joint venture partners in the amount of $226.5 million in 1998, $208.9 million in 1997, and $255.0 million in 1996. Of the total advances from joint venture partners, $158.7 million in 1998 , $146.3 million in 1997, and $222.3 million in 1996, 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, 1998. *** 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. 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1998, 1997 & 1996 (continued) [3] Long-term Debt Long-term debt of the Company at December 31, 1998 and 1997 consists of the following (in thousands): 1998 1997 -------------- -------------- Revolving credit loans at an average rate of 8.0% in 1998 and 8.2% in 1997 $ 72,000 $ 80,000 Less - unamortized deferred value attributable to the Stock Purchase Warrants (see below) (744) (1,488) -------------- -------------- $ 71,256 $ 78,512 Industrial revenue bonds at various rates, payable in 2005 4,000 4,000 ESOT Notes at 8.24%, payable in semi-annual installments (Note 8) 1,260 2,423 Mortgages on real estate, at rates ranging from 8% to 10.82%, payable in installments or release payments 446 4,889 Other indebtedness 1,851 6,947 -------------- -------------- Total $ 78,813 $ 96,771 Less - current maturities 2,956 11,873 -------------- -------------- Net long-term debt $ 75,857 $ 84,898 ============== ==============
Payments required under these obligations, prior to the extension of the Revolving Credit Agreement discussed below, amount to approximately $2,956 in 1999, $71,857 in 2000 and $4,000 in 2005. Effective January 17, 1997, the Company entered into an Amended and Restated Credit Agreement with a group of major U.S. banks. Under this New Credit Agreement, the previous Revolving Credit Agreement and Bridge Loan Facility were combined into a single $129.5 million Credit Facility, with a $25 million maximum of such amount also being available for letters of credit, and the expiration dates extended from 1997 to January 3, 2000. The New Credit Agreement, as amended, provides for scheduled mandatory reductions of the total $129.5 million Credit Facility in the amount of $15.0 million in 1997, $17.9 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 1997 and 1998 reductions referred to above, the total Credit Facility now aggregates $96.6 million. The New Credit Agreement provides that the Company can choose from three interest rate alternatives including a prime-based rate, as well as other interest rate options based on LIBOR (London inter-bank offered rate) or participating bank certificate of deposit rates. The Agreement, as well as certain other loan agreements, provide for, among other things, maintaining specified working capital and tangible net worth levels, minimum operating cash flow levels, as defined, limitations on indebtedness and certain limitations on investment in real estate development projects and future cash dividends. The Agreement also provides that collateral shall consist of all available assets not included as collateral in other agreements and for the continuation of the suspension of payment of the 53 1/8 cent per share quarterly dividend on the Company's Depositary Convertible Exchangeable Preferred Shares (see Note 8) until certain financial criteria are met. In 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 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1998, 1997 & 1996 (continued) [3] Long-term Debt (continued) 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 in 1997 and $744,000 in 1998) being to Other Income (Expense), net. The remaining unamortized balance is approximately $744,000 at December 31, 1998. Subsequent to December 31, 1998, the Company has reached an Agreement in principle with its Bank Group to extend the Revolving Credit Agreement from January 3, 2000 to January 3, 2001. Other changes to the Revolving Credit Agreement include, among other things, a scheduled mandatory reduction of $20.0 million in 1999 and $15.0 million in 2000, with the balance in 2001, additional permanent mandatory reductions, as defined, from the net proceeds from real estate sales, an interest rate increase of 1/2 of 1% in 1999 and an additional 1/4 of 1% increase in 2000, and a one-time bank fee of $483,000. [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 fair value, 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 for income taxes is comprised of the following (in thousands): Federal State Foreign Total ------------- ------------- ------------- -------------- 1998 Current $ - $ (480) $ (620) $ (1,100) Deferred - - - - ------------- ------------- ------------- -------------- $ - $ (480) $ (620) $ (1,100) ============= ============= ============= ============== 1997 Current $ - $ (569) $ (381) $ (950) Deferred - - - - ------------- ------------- ------------- -------------- $ - $ (569) $ (381) $ (950) ============= ============= ============= ============== 1996 Current $ - $ (736) $ - $ (736) Deferred - (94) - (94) ------------- ------------- ------------- -------------- $ - $ (830) $ - $ (830) ============= ============= ============= ==============
37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1998, 1997 & 1996 (continued) [5] Income Taxes (continued) The table below reconciles the difference between the statutory federal income tax rate and the effective rate provided in the statements of operations. 1998 1997 1996 -------------- ------------- -------------- Statutory federal income tax rate 34% 34% (34)% State income taxes, net of federal tax benefit 2 6 1 Foreign taxes 5 6 - Change in valuation allowance (33) (33) 34 Goodwill and other 1 2 - -------------- ------------- -------------- Effective tax rate 9% 15% 1 % ============== ============= ==============
The following is a summary of the significant components of the Company's deferred tax assets and liabilities as of December 31, 1998 and 1997 (in thousands): 1998 1997 ---------------------------------- -------------------------------- Deferred Deferred Deferred Deferred Tax Tax Tax Tax Assets Liabilities Assets Liabilities ------------- -------------- ------------- -------------- Provision for estimated losses $ 9,562 $ - $ 9,527 $ - Contract losses 119 - 4,071 - Joint ventures - construction - 9,271 - 8,093 Joint ventures - real estate - 8,770 - 6,243 Timing of expense recognition 468 - 1,972 - Capitalized carrying charges - 1,587 - 1,894 Net operating loss and capital loss carryforwards 27,994 - 23,798 - Alternative minimum tax credit carryforwards 2,442 - 2,442 - General business tax credit carryforwards 3,532 - 3,532 - Foreign tax credit carryforwards 26 - 979 - Other, net 1,025 - 517 - ------------- -------------- ------------- -------------- $ 45,168 $ 19,628 $ 46,838 $ 16,230 Valuation allowance for deferred tax assets (25,540) - (30,608) - ------------- -------------- ------------- -------------- Total $ 19,628 $ 19,628 $ 16,230 $ 16,230 ============= ============== ============= ==============
The net of the above is deferred taxes in the amount of $ -0- in 1998 and 1997, which is classified in the respective Consolidated Balance Sheets as follows: 1998 1997 ----------- ----------- Long-term deferred tax liabilities (included in "Deferred Income Taxes and Other Liabilities") $ 1,076 $ 1,067 Short-term deferred tax asset 1,076 1,067 ----------- ----------- $ - 0- $ - 0- =========== ===========
38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1998, 1997 & 1996 (continued) [5] Income Taxes (continued) A valuation allowance is provided to reduce the deferred tax assets to a level which, more likely than not, will be realized. The 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, earnings benefited in 1998 and 1997 by approximately $4.3 million and $2.1 million, respectively, by not having to provide for any Federal income tax. Approximately $59 million of future pretax earnings should benefit from minimal, if any, federal tax provisions. At December 31, 1998, 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 Capital Loss Tax Credits Credits Carryforwards ---------------- --------------- ------------------- 1999 $ -- $ 26 $ -- 2001 - 2006 3,532 -- 1,404 2007 - 2018 -- -- 80,932 ---------------- --------------- ------------------- $ 3,532 $ 26 $ 82,336 ================ =============== ===================
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, 1998 and 1997 consist of the following (in thousands): 1998 1997 ------------- --------------- Deferred Income Taxes $ 1,076 $ 1,067 Insurance related liabilities 5,625 8,173 Employee benefit related liabilities 1,400 2,470 Accrued dividends on $21.25 Preferred Stock (Note 8) 6,906 4,781 Other 706 12,391 ------------- --------------- $ 15,713 $ 28,882 ============= =============== 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1998, 1997 & 1996 (continued) [6] Deferred Income Taxes and Other Liabilities and Other Income (Expense), Net (continued) Other Income (Expense), Net Other income (expense) items for the three years ended December 31, 1998 consist of the following (in thousands): 1998 1997 1996 ------------ ----------- ----------- Interest and dividend income $ 1,140 $ 1,022 $ 1,018 Minority interest (Note 1) -- 75 416 Bank fees (1,833) (2,172) (1,906) Miscellaneous income (expense), net (119) (590) (20) ------------ ----------- ----------- $ (812) $ (1,665) $ (492) ============ =========== ===========
[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 Convertible Preferred Stock, par value $1.00 per share, (the "Series B Preferred Stock"), issuance of 150,150 shares of Series B Preferred Stock at $200 per share (or $30 million) to the investor group, (with the remainder of the shares set aside for possible future payment-in-kind dividends to the holders of the Series B Preferred Stock), amendments to the Company's By-Laws that redefined the Executive Committee and added certain powers (generally financial in nature), including the power to give overall direction to the Company's Chief Executive Officer, appointment of three new members, recommended by the investor group, to the Board of Directors, and appointment of these same new directors to constitute a majority of the Executive Committee referred to above. Tutor-Saliba Corporation, a corporation controlled by a Director, who is also a member of the Executive Committee and an 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 on January 17, 1997), (iv) has the same voting rights as shareholders of Common Stock immediately equal to the number of shares of Common Stock into which the Series B Preferred Stock can be converted, (v) generally has a liquidation preference of $200 per share of Series B Preferred Stock, (vi) is optionally redeemable by the Company after three years at a redemption price equal to the liquidating value per share and higher amounts if a Special Default, as defined, has occurred, (vii) is mandatorily redeemable by the Company if a Special Default has occurred and a holder of the Series B Preferred Stock requests such a redemption, (viii) is mandatorily redeemable by the Company for approximately one-third of the shares still outstanding on January 17, 2005 and one-third of the remaining shares in each of the next two years. The initial proceeds ($30,030,000) received upon the issuance of 150,150 Series B Preferred Shares were reduced by related expenses of approximately $3.5 million. Due to the redeemable feature of the Series B Preferred Stock, this 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1998, 1997 & 1996 (continued) [7] Redeemable Series B Cumulative Convertible Preferred Stock (continued) reduction has to be added back (or accreted) to reinstate its mandatory redemption value over a period of 8-10 years, with an offsetting charge to paid-in surplus. An analysis of Series B Preferred Stock transactions for the two years ended December 31, 1998 follows: Number of Shares Amount ---------------- ------------------ (in thousands) Initial issuance on January 17, 1997 150,150 $ 30,030 Less - related expenses --- (3,472) ---------------- ------------------ 150,150 $ 26,558 10% in-kind dividends issued 14,150 2,830 Accretion --- 368 ---------------- ------------------ Balance at December 31, 1997 164,300 $ 29,756 10% in-kind dividends issued 17,057 3,411 Accretion --- 373 ---------------- ------------------ Balance at December 31, 1998 181,357 $ 33,540 ================ ================== [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 $6,906,000 at December 31, 1998, which represents approximately $69.06 per share of Preferred Stock or approximately $6.91 per Depositary Share and is included in "Other Liabilities" (long-term) in the accompanying Consolidated Balance Sheet. Under the terms of the Preferred Stock, the holders of the Depositary Shares were entitled to elect two additional Directors since dividends had been deferred for more than six quarters and they did so at the May 14, 1998 Annual Meeting. 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1998, 1997 & 1996 (continued) [8] Capitalization (continued) (b) Series A Junior Participating Preferred Stock Under the terms of the Company's Shareholder Rights Plan, as amended, the Board of Directors of the Company declared a distribution on September 23, 1988 of one Preferred Stock purchase right (a "Right") for each outstanding share of Common Stock. Under certain circumstances, each Right will entitle the holder thereof to purchase from the Company one one-hundredth of a share (a "Unit") of Series A Junior Participating Cumulative Preferred Stock, $1 par value (the "Preferred Stock"), at an exercise price of $100 per Unit, subject to adjustment. The Rights will not be exercisable or transferable apart from the Common Stock until the earlier to occur of (i) 10 days following a public announcement that a person or group (an "Acquiring Person") has acquired 20% or more of the Company's outstanding Common Stock (the "Stock Acquisition Date"), (ii) 10 business days following the announcement by a person or group of an intention to make an offer that would result in such persons or group becoming an Acquiring Person or (iii) the declaration by the Board of Directors that any person is an "Adverse Person", as defined under the Plan. The Rights will not have any voting rights or be entitled to dividends. Upon the occurrence of a triggering event as described above, each Right will be entitled to that number of Units of Preferred Stock of the Company having a market value of two times the exercise price of the Right. If the Company is acquired in a merger or 50% or more of its assets or earning power is sold, each Right will be entitled to receive Common Stock of the acquiring company having a market value of two times the exercise price of the Right. Rights held by such a person or group causing a triggering event may be null and void. The Rights are redeemable at $.02 per Right by the Board of Directors at any time prior to the occurrence of a triggering event. On January 17, 1997, the Board of Directors amended the Company's Shareholder Rights Plan to (i) permit the acquisition of the Series B Preferred Stock by certain investors (see Note 7 above), any additional Preferred Stock issued as a dividend thereon, any Common Stock issued upon conversion of the Series B Preferred Stock and certain other events without triggering the distribution of the Rights; (ii) lower the threshold for the occurrence of a Stock Acquisition Date from 20% to 10%; and (iii) extend the expiration date of the Plan from September 23, 1998 to January 21, 2007. (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). Since the final repayment of the Notes is scheduled in 1999, the remaining amount payable is classified in "Current maturities of long-term debt" as of December 31, 1998. [9] Stock Options At December 31, 1998 and 1997, 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 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1998, 1997 & 1996 (continued) [9] Stock Options (continued) anniversary of the date of grant and expire eight years from the date of grant. Options for 184,000 shares of Common Stock granted in 1992 become exercisable on March 31, 2001 if the Company achieves a certain profit target in the year 2000; may become exercisable earlier if certain interim profit targets are achieved; and to the extent not exercised, expire 10 years from the date of grant. A summary of stock option activity related to the Company's 1982 Stock Option Plan is as follows:
Option Price Per Share ---------------------- Shares Number Weighted Available of Shares Range Average To Grant --------- ----- ------- -------- Outstanding at December 31, 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 Granted 117,500 $ 5.29 $ 5.29 Canceled (100,550) $10.44-$24.00 $16.39 Outstanding at December 31, 1998 365,300 $ 5.29-$16.44 $11.88 116,310
In addition, the Company has authorized but unissued Common Stock reserved for certain other options granted as follows: Grant Options Exercise Grantee Date Granted Price - ------------------------------------ ---------- ------------ ----------- Members of Board Executive Committee, as Redefined (see Note 7) 01/17/97 225,000 $ 8.38 Certain Executive Officers 01/19/98 225,000 $ 8.66 Member of Board Executive Committee 12/10/98 45,000 $ 5.29
The terms of these options are generally similar to options granted under the 1982 Plan, including the exercise price being equal to fair market value, as defined, at date of grant, and timing of installment exercise dates, except for the timing of the exercisability of the January 1997 options, which is May 17, 2000. Options outstanding at December 31, 1998 and related weighted average price and life information follows: Remaining Grant Options Options Exercise Life (Years) Date Outstanding Exercisable Price ------------ ---- ----------- ----------- ----- 1 07/16/91 43,800 43,800 $11.06 4 12/21/92 184,000 69,000 $16.44 4 03/22/94 10,000 10,000 $13.00 7 01/17/97 225,000 -- $ 8.38 7 07/08/97 10,000 -- $ 8.00 8 01/19/98 225,000 -- $ 8.66 8 12/10/98 162,500 -- $ 5.29
When options are exercised, the proceeds are credited to stockholders' equity. In addition, the income tax savings attributable to nonqualified options exercised are credited to paid-in surplus. The Company elected the optional pro forma disclosures under SFAS No. 123 as if the Company adopted the cost recognition requirements in 1995. The Company has no options outstanding relating to either 1995 or 1996. The estimated values shown below are based on the Black-Scholes option pricing model for options granted in 1997 through 1998. 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1998, 1997 & 1996 (continued) [9] Stock Options (continued)
Assumptions --------------------------------------------------------------------- Expected Risk-free Grant Date Fair Value Dividend Yield Volatility Interest Rate Expected Life ---------- ---------- -------------- ---------- ------------- ------------- 01/17/97 $1,070,127 0% 39% 6.50% 8 07/08/97 $ 44,086 0% 38% 6.31% 8 01/19/98 $1,027,758 0% 37% 5.57% 8 12/10/98 $ 399,485 0% 39% 4.63% 8
If SFAS No. 123 had been fully implemented, stock based compensation costs would have decreased net income in 1998 by $811,481 (or $0.15 per Common Share) and decreased net income in 1997 by $335,733 (or $0.07 per Common Share). The effect of applying SFAS No. 123 in this pro forma disclosure may not be indicative of future amounts. [10] Employee Benefit Plans The Company and its U.S. subsidiaries have a defined benefit plan that covers its executive, professional, administrative and clerical employees, subject to certain specified service requirements. The plan is noncontributory and benefits are based on an employee's years of service and "final average earnings", as defined. The plan provides reduced benefits for early retirement and takes into account offsets for social security benefits. All employees are vested after 5 years of service. Pension and other benefit plan disclosure as presented below was determined in accordance with SFAS No. 132, "Employers' Disclosures About Pension and Other Post-Retirement Benefits". Net pension cost for 1998, 1997 and 1996 follows (in thousands): 1998 1997 1996 --------- ----------- ------------ Service cost - benefits earned during the period $ 1,251 $ 1,072 $ 1,247 Interest cost on projected benefit obligation 3,601 3,298 3,062 Expected return on plan assets (3,341) (2,991) (2,718) Amortization of transition obligation 6 6 6 Amortization of prior service costs (78) (78) (78) Amortization of net loss 198 - - --------- ----------- ------------ Net pension cost $ 1,637 $ 1,307 $ 1,519 ========= =========== ============ Actuarial assumptions used: Discount rate 6 1/2% * 7 % ** 7 1/2 % Rate of increase in compensation 6 %* 4 % 4 % Long-term rate of return on assets 8 % 8 % 8 %
* The decrease in the discount rate and the increase in the rate of increase in compensation were changed effective December 31, 1998, and resulted in increases in the projected benefit obligation referred to below of $3.5 million and $1.8 million, respectively. ** Rate was changed effective December 31, 1997 and resulted in a $2.8 million increase in the projected benefit obligation referred to below. The Company's plan has assets in excess of its accumulated benefit obligations. Plan assets generally include equity and fixed income funds. The following tables provide a reconciliation of the changes of the fair value of assets in the Plan and Plan benefit obligations during the two-year period ended December 31, 1998, and a statement of the funded status as of December 31, 1998 and 1997 (in thousands): 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1998, 1997 & 1996 (continued) [10] Employee Benefit Plans (continued)
Reconciliation of Fair Value of Plan Assets 1998 1997 ------------- --------------- Balance at beginning of year $ 46,774 $ 40,689 Actual return on Plan assets 5,912 6,901 Employer contribution 3,096 1,625 Benefit payments (2,870) (2,441) ------------- --------------- Balance at end of year $ 52,912 $ 46,774 ============= =============== Reconciliation of Benefit Obligation 1998 1997 ------------- --------------- Balance at beginning of year $ 50,167 $ 44,224 Service cost 1,251 1,072 Interest cost 3,601 3,298 Actuarial loss 6,343 4,014 Benefit payments (2,870) (2,441) ------------- --------------- Balance at end of year $ 58,492 $ 50,167 ============= =============== Funded Status 1998 1997 ------------- --------------- Funded status at December 31, $ (5,580) $ (3,393) Unrecognized transition obligation 12 18 Unrecognized prior service cost (226) (304) Unrecognized (gain) loss 3,216 (358) ------------- --------------- Net amount recognized, before additional minimum liability (2,578) $ (4,037) ============= ===============
The Company also has an unfunded supplemental retirement plan for certain employees whose benefits under the defined benefit plan described above are reduced because of compensation limitations under federal tax laws. Pension expense for this plan was $0.2 million in each of the last three years. At December 31, 1998, the projected benefit obligation was $1.8 million. A corresponding accumulated benefit obligation of $1.3 million, which approximates the amount of vested benefits, has been recognized as a liability in the consolidated balance sheet. 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1998, 1997 & 1996 (continued) [10] Employee Benefit Plans (continued) The Company also has a contributory Section 401(k) plan and a noncontributory Employee Stock Ownership Plan (ESOP) which cover its executive, professional, administrative and clerical employees, subject to certain specified service requirements. Under the terms of the Section 401(k) plan, the provision, which averaged $0.2 million for each of the three years ended December 31, 1998, is based on a specified percentage of profits, subject to certain limitations. Contributions to the related ESOT, which averaged $1.3 million for each of the three years ended December 31, 1998, are determined by the Board of Directors and may be paid in cash or shares of the Company's Common Stock. In addition, the Company has an incentive compensation plan for key employees which is generally based on achieving certain levels of profit within their respective business units. The Company also contributes to various multi-employer union retirement plans under collective bargaining agreements, which provide retirement benefits for substantially all of its union employees. The aggregate amounts provided in accordance with the requirements of these plans were $9.8 million in 1998, $8.8 million in 1997 and $8.5 million in 1996. 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 $45.8 million; has guaranteed amortization payments on these borrowings; and has guaranteed a master lease under a sale operating lease-back transaction under which management estimates its future obligations will not exceed $2.0 million. As part of the sale operating lease-back transaction related to the first phase of the project referred to as Rincon I, 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 1998 have further reduced the loan to $33.1 million. 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. 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, the lessor and the lender have reached a nonbinding agreement on a restructure of the existing financing. The agreement is subject to final documentation and final approvals of several parties including the lessor and the Company's revolving credit facility banks. The agreement provides, among other things, that the joint venture give up all of its economic interest in the commercial and retail portion of the property identified as Rincon I, and that the joint venture make a one-time payment of $7.5 million to the lessor of Rincon I (which includes a final loan payment of $6.5 million to the lenders of Rincon I). The 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. 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1998, 1997 & 1996 (continued) [11] Contingencies and Commitments (continued) In 1993, the joint venture also extended $29 million of the $61 million financing then outstanding on Rincon II through October 1, 1998. Payments through 1998 reduced the loan to $14.3 million. At the same time that it reached a nonbinding agreement on the proposed extension of financing under the Rincon I sale operating lease-back transaction, the joint venture also reached a nonbinding agreement covering the extension of this financing to December 15, 2001. The terms of this proposed extension include a $1.5 million interest payment, a $2.8 million principal payment, amortization of the commerical loan of $20,000 per month, a new letter of credit in the amount of $2.0 million issued to secure the remaining borrowings at Rincon II and the elimination of further Company or joint venture guarantees. The terms of the proposed extension still require additional final documentation and final approvals. Total restructure payments related to Rincon I and II are estimated to be $12.7 million through 1999, of which $5.3 million will be funded by the Company and $7.4 million will be funded by the other co-general partner of the joint venture. In a separate agreement related to this same property, the 20% co-general partner indicated in prior years that it does not 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 $0.8 million during 1998 and $6.2 million to date under this agreement. Subject to the finalization of the restructuring agreement referred to above, the Company's real estate subsidiary has entered into an agreement with the co-general partner which provides, among other things, to have the co- general partner contribute approximately $7.4 million (including application of approximately $3.7 million previously drawn down by the lender under a letter of credit of the co-general partner) to the restructure transactions and transfer 3.5% of the co-general partner's general partnership interest in the joint venture to the Company's real estate subsidiary and convert their remaining 6.5% general partnership interest to a limited partnership interest. During 1997, a construction joint venture, in which the Company is a 50% participant, entered into a $5 million line of credit, secured by the joint venture's accounts receivable. The line of credit is available for the duration of the joint venture and is guaranteed by the Company on a joint and several basis, and as of December 31, 1998, 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 venture claims against WMATA. As a result of developments in the case during the third quarter of 1995, the Company established a reserve with respect to the litigation. In July 1997, the remaining issues were ruled on by a successor judge, who awarded approximately $4.3 million to the joint venture, thereby reducing the net amount payable to approximately $12.2 million. The joint venture appealed the decision. As a result of the decision, there was no additional impact on the Company's Statement of Operations because of the reserve provided in prior years. The actual funding of net damages, if any, will be deferred until the litigation 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1998, 1997 & 1996 (continued) [11] Contingencies and Commitments (continued) process is complete. On February 16, 1999, the U.S. Court of Appeals for the District of Columbia vacated the April 1995 and July 1997 Orders and remanded the case back to the successor judge with instructions for the successor judge to consider certain post-trial motions to the same extent an original judge would have, and to make findings and conclusions regarding the unresolved issues, giving appropriate consideration to whether or not witnesses must be recalled. A final judgement will be entered by the District Court upon the completion of these Appeals Court-directed procedures. 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, 1998 and 1997 (in thousands, except per share amounts):
1998 by Quarter --------------------------------------------------------------- 1st 2nd 3rd 4th ------------ ------------ ------------ ------------ Revenues $ 229,382 $ 278,211 $ 251,286 $ 277,021 Net income $ 2,219 $ 3,114 $ 3,737 $ 2,582 Basic and diluted earnings per common share $ 0.15 $ 0.31 $ 0.42 $ 0.20 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 and diluted earnings (loss) per common share $ 0.15 $ 0.19 $ 0.30 $ (0.62)
[13] Business Segments Business segment information presented below was determined in accordance with SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information". The Company is currently engaged in the construction 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 two basic segments: building and civil. The building operation services both private clients and public agencies from regional offices located in Boston, Phoenix, Las Vegas and Detroit and includes a broad range of building construction projects, such as hotels, casinos, health care, correctional facilities, sports complexes, residential, commercial, civic, cultural and educational facilities. The civil operation is focused on public civil work in the East and selectively, in other geographic locations and includes large, ongoing urban infrastructure repair and replacement projects such as highway and bridge rehabilitation, mass transit projects and waste water treatment facilities. The Company's real estate development operations are concentrated in Arizona, California, Georgia and Massachusetts; however, the Company has not commenced the development of any new real estate projects since 1990. During 1998, the Company's chief operating decision making group consisted of the President & Chief Executive Officer, Chairman, Vice Chairman and the Chief 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1998, 1997 & 1996 (continued) [13] Business Segments (continued) Financial Officer which decided how to allocate resources and assess performance of the business segments. Generally, the Company evaluates performance of its operating segments on the basis of pre-tax profit and cash flow. The accounting policies applied by each of the segments are the same as those described in the Summary of Significant Accounting Policies (see Note 1). The following tables set forth certain business and geographic segment information relating to the Company's operations for the three years ended December 31, 1998 (in thousands):
1998: Reportable Segments ------------------------------------------------------------------------- Consolidated Building Civil Real Estate Totals Corporate Total -------------- ---------------- -------------- ------------- ------------- -------------- Revenues $ 679,296 $ 332,026 $ 24,578 $ 1,035,900 $ - $ 1,035,900 Income (Loss) from Ops. $ 18,213 $ 15,495 $ (4,025) $ 29,683 $ (7,434)* $ 22,249 Assets $ 116,582 $ 96,669 $ 116,114 $ 329,365 $ 49,226 ** $ 378,591 Capital Expenditures $ 504 $ 914 $ 6,276 $ 7,694 $ - $ 7,694 1997: Reportable Segments ------------------------------------------------------------------------- Consolidated Building Civil Real Estate Totals Corporate Total -------------- ---------------- -------------- ------------- ------------- -------------- Revenues $ 888,809 $ 387,224 $ 48,458 $ 1,324,491 $ - $ 1,324,491 Income (Loss) from Ops. $ 14,638 $ 13,849 $ (2,184) $ 26,303 $ (7,982)* $ 18,321 Assets $ 145,533 $ 115,282 $ 119,735 $ 380,550 $ 34,374 ** $ 414,924 Capital Expenditures $ 632 $ 1,064 $ 14,740 $ 16,436 $ - $ 16,436 1996: Reportable Segments ------------------------------------------------------------------------- Consolidated Building Civil Real Estate Totals Corporate Total -------------- ---------------- -------------- ------------- ------------- -------------- Revenues $ 834,888 $ 389,540 $ 45,856 $ 1,270,284 $ - $ 1,270,284 Income (Loss) from Ops. $ 16,275 $ 14,987 $ (82,456) $ (51,194) $ (8,216)* $ (59,410) Assets $ 182,143 $ 136,190 $ 132,215 $ 450,548 $ 13,744 ** $ 464,292 Capital Expenditures $ 734 $ 715 $ 8,989 $ 10,438 $ - $ 10,438
* In all years, consists of corporate general and administrative expenses. ** In all years, corporate assets consist principally of cash, cash equivalents, marketable securities and other investments available for general corporate purposes. In 1998, revenues to one customer of the building segment totaled approximately $330 million of consolidated revenues. Also in 1998, revenues with various agencies of both the Commonwealth of Massachusetts and the City of New York in the civil segment totaled approximately $153 million and $115 million, respectively, of consolidated revenues. In 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1998, 1997 & 1996 (continued) [13] Business Segments (continued) 1997, revenues to one customer of the building segment totaled approximately $276 million of consolidated revenues. Also in 1997, revenues with various agencies of both the Commonwealth of Massachusetts and the City of New York in the civil segment totaled approximately $141 million and $165 million, respectively, of consolidated revenues. In 1996, revenues with various agencies of the City of New York in the civil segment totaled approximately $143 million of consolidated revenues. Information concerning principal geographic areas was as follows:
Revenues ---------------------------------------------------------- 1998 1997 1996 -------------- ---------------- ---------------- United States $ 1,007,049 $ 1,305,465 $ 1,256,323 Foreign 28,851 19,026 13,961 -------------- ---------------- ---------------- Total $ 1,035,900 $ 1,324,491 $ 1,270,284 ============== ================ ================ Income (Loss) from Operations ---------------------------------------------------------- 1998 1997 1996 -------------- ---------------- ---------------- United States $ 27,491 $ 24,378 $ (51,972) Foreign 2,192 1,925 778 Corporate (7,434) (7,982) (8,216) -------------- ---------------- ---------------- Total $ 22,249 $ 18,321 $ (59,410) ============== ================ ================
Because a substantial portion of the Company's international revenues is derived mainly from construction management services, long-lived assets outside the United States are immaterial, and thus, not presented here. There have been no differences from the last annual report in the basis of measuring segment profit or loss, except for the breakout between segments and the method of allocating general, administrative and selling expenses ("G&A"). The current building and civil segments were consolidated in prior years as the construction segment. In the 1997 Annual Report, an effort was made to allocate all or part of certain corporate G&A expenses back to the business segments. Since SFAS No. 131 encourages segment disclosure in accordance with how the Executive Group controls and evaluates its business segments, the practice of allocating corporate G&A expenses was discontinued for all periods presented above and resulted in increasing corporate G&A expense by approximately $2.0 million and $3.1 million in 1997 and 1996, respectively. There have been no material changes in the amount of assets since the last annual report, except for the breakout between segments. [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 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1998, 1997 & 1996 (continued) [14] Related Party Transactions (continued) defined. At January 17, 1997, TSC held and still holds 351,318 shares of the Company's $1.00 par value Common Stock which currently represents an approximate 6.5% interest, and participates in active joint ventures with the Company with a total contract value of approximately $750 million during 1998 and $800 million during 1997. Mr. Tutor was appointed as one of the three new directors in accordance with the terms of the Series B Preferred Stock transaction, a member of the Executive Committee of the Board and, during 1997, acting Chief Operating Officer of the Company. Effective January 1, 1998, Mr. Tutor was elected Vice Chairman of the Board of Directors. Compensation for the management services consists of a monthly payment of $12,500 to TSC and options granted to Mr. Tutor to purchase 150,000 shares of the Company's $1.00 par value Common Stock at fair market value (which are included as part of the 225,000 options granted in 1997 as described in Note 9) and additional options granted to Mr. Tutor to purchase 75,000 shares of the Company's $1.00 par value Common Stock at fair market value, of which options to acquire 45,000 shares were granted in December 1998 (see Note 9) and the remaining options to acquire 30,000 shares were granted effective in early 1999. 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 into 1997. 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, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts February 23, 1999 51 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 23, 1999. 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 23, 1999 52 Schedule I
Perini Corporation (Parent Company) Condensed Financial Information of Registrant Balance Sheet (In Thousands of Dollars) Assets December 31, --------------------------------- 1998 1997 ---- ---- CURRENT ASSETS: Cash and cash equivalents $ 48,930 $ 24,789 Accounts and notes receivable, including retainage of $5,711 and $8,110, respectively 24,049 24,168 Unbilled work 10,783 19,699 Construction joint ventures 57,433 62,919 Deferred tax asset 1,076 1,067 Other current assets 1,105 1,183 --------- --------- Total current assets $143,376 $133,825 -------- -------- INVESTMENTS AND OTHER ASSETS: Investments in subsidiaries $153,891 $148,444 Other 2,469 3,069 -------- -------- Total investments and other assets $156,360 $151,513 -------- -------- PROPERTY AND EQUIPMENT, at cost Land $ 537 $ 826 Buildings and improvements 11,175 11,868 Construction equipment 5,501 5,306 Other 3,904 5,464 --------- -------- $ 21,117 $ 23,464 Less: Accumulated depreciation 12,113 13,976 --------- -------- Total property and equipment, net $ 9,004 $ 9,488 --------- -------- $ 308,740 $294,826 ========= ========
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, --------------------------------- 1998 1997 ---- ---- CURRENT LIABILITIES: Current maturities of long-term debt $ 2,036 $ 6,874 Accounts payable, including retainage of $1,661 and $3,520, respectively 9,212 10,103 Advances from construction joint ventures 12,145 26,501 Deferred contract revenue 2,038 2,217 Accrued expenses 25,443 15,103 ---------- ---------- Total current liabilities $ 50,874 $ 60,798 ---------- ---------- DEFERRED INCOME TAXES AND OTHER LIABILITIES $ 13,817 $ 24,068 ---------- ---------- INTERCOMPANY NOTES AND ADVANCES PAYABLE, net $ 84,094 $ 54,728 ---------- ---------- LONG-TERM DEBT, less current maturities included above $ 75,857 $ 84,576 ---------- ---------- REDEEMABLE SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK: Authorized: 500,000 shares Issued and Outstanding: 181,357 shares and 164,300 shares (aggregate liquidation preference of $36,271 and $32,860) $ 33,540 $ 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 2,233 Common Stock, $1 par value: Authorized: 15,000,000 shares Issued: 5,506,341 shares and 5,267,130 shares 5,506 5,267 Paid-in surplus 49,219 53,012 Retained earnings (deficit) (3,642) (15,294) ESOT related obligations (1,381) (2,663) ---------- ---------- $ 52,035 $ 42,655 Less: Common Stock in treasury, at cost - 92,694 shares and 110,084 shares 1,477 1,755 ---------- ---------- Total stockholders' equity $ 50,558 $ 40,900 ---------- ---------- $ 308,740 $ 294,826 ========== ==========
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, ---------------------------------------------- 1998 1997 1996 ---- ---- ---- REVENUE: Construction operations $ 32,573 $ 44,921 $102,786 Share of construction joint ventures 299,619 339,639 276,739 --------- --------- -------- $ 332,192 $ 384,560 $379,525 --------- --------- -------- COST OF OPERATIONS: Construction operations $ 28,412 $ 44,577 $101,107 Share of construction joint ventures 278,880 315,508 253,210 --------- --------- -------- $ 307,292 $ 360,085 $354,317 --------- --------- -------- GROSS PROFIT FROM OPERATIONS $ 24,900 $ 24,475 $ 25,208 General, administrative and selling expenses 14,967 17,100 17,758 --------- --------- -------- INCOME FROM OPERATIONS $ 9,933 $ 7,375 $ 7,450 Other Income (Expense), net (887) (1,977) (1,391) Interest expense including intercompany interest of $ -, $7,183 and $1,726, respectively (8,473) (17,083) (11,123) --------- --------- -------- INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN NET INCOME (LOSS) OF SUBSIDIARIES $ 573 $ (11,685) $ (5,064) Equity in net income (loss) of subsidiaries 12,179 18,007 (64,709) --------- --------- -------- INCOME (LOSS) BEFORE INCOME TAXES $ 12,752 $ 6,322 $(69,773) (Provision) Credit for income taxes (1,100) (950) (830) --------- --------- -------- NET INCOME (LOSS) $ 11,652 $ 5,372 $(70,603) ========== ========== =========
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, -------------------------------------------- 1998 1997 1996 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 11,652 $ 5,372 $(70,603) Adjustments to reconcile net income (loss) to net cash used by operating activities: Depreciation 975 1,110 1,128 Amortization of deferred debt expense, Stock Purchase Warrants and other 1,596 2,010 895 Noncurrent deferred taxes and other liabilities (12,376) (1,026) (20,371) Distributions less than earnings of joint ventures (2,794) (2,092) (5,734) Equity in net (income) loss of subsidiaries (12,179) (18,007) 64,709 Cash provided from (used by) changes in components of working capital other than cash and current maturities of long-term debt 4,390 (22,491) 14,418 Other non-cash items, net - (431) (732) --------- ---------- -------- NET CASH USED BY OPERATING ACTIVITIES $ (8,736) $ (35,555) $(16,290) --------- ---------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property and equipment $ 546 $ 906 $ 1,359 Cash distributions of capital from unconsolidated construction joint ventures 9,305 14,447 4,642 Acquisition of property and equipment (1,037) (1,189) (745) Capital contributions to unconsolidated construction joint ventures (1,397) (5,013) (12,920) Increase (decrease) in intercompany notes, advances and equity 36,036 23,687 (23,949) Investment in other activities (190) (463) (2,995) --------- ---------- -------- NET CASH (USED BY) PROVIDED FROM INVESTING ACTIVITIES $ 43,263 $ 32,375 $(34,608) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of Redeemable Series B Preferred Stock, net $ - $ 26,558 $ - Proceeds from long-term debt 113 5,035 24,706 Repayment of long-term debt (13,132) (16,105) (1,693) Treasury Stock issued 151 166 1,171 Finance fee paid in stock - - 400 Common Stock issued 2,482 1,701 - --------- ---------- -------- NET CASH (USED BY) PROVIDED FROM FINANCING ACTIVITIES $ (10,386) $ 17,355 $ 24,584 Net increase (decrease) in cash and cash equivalents $ 24,141 $ 14,175 $(26,314) Cash and cash equivalents at beginning of year 24,789 10,614 36,928 --------- ---------- -------- Cash and cash equivalents at end of year $ 48,930 $ 24,789 $ 10,614 ========= ========== ========
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, -------------------------------------------- 1998 1997 1996 ---- ---- ---- Supplemental disclosures of cash paid during the year for: Interest $ 7,797 $ 9,686 $ 9,122 ========== ========== ========== Income tax payments $ 160 $ 330 $ 221 ========== ========== ========== Supplemental disclosures of noncash transactions: Dividends paid in shares of Series B Preferred Stock $ 3,411 $ 2,830 $ - ========== ========== ========== Value assigned to Stock Purchase Warrants $ - $ 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 1998 presentation. [2] Cash Dividends from Subsidiaries Dividends of $4.7 million in 1998, $12.3 million in 1997 and $8.9 million in 1996 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): $2,036 in 1999, $71,857 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, 1998, 1997 and 1996 (In Thousands of Dollars) Additions ------------------------------ Balance at Charged to Charged Deductions Balance Beginning Costs & to Other from at End Description of Year Expenses Accounts Reserves of Year -------------- ------------- ------------ ------------- ----------- Year Ended December 31, 1998 Reserve for doubtful accounts $ 40 $ -- $ --- $ 40 (1) $ -- ============== ============= ============ ============= =========== Reserve for real estate investments $ 23,171 $ 400 $ -- $ 1,847 (2) $ 21,7 ============== ============= ============ ============= =========== Year Ended December 31, 1997 Reserve for doubtful accounts $ 160 $ -- $ -- $ 120 (3) $ 40 ============== ============= ============ ============= =========== Reserve for depreciation on real estate properties used in operations $ -- $ 226 $ -- $ 226 (4) $ -- ============== ============= ============ ============= =========== Reserve for real estate investments $ 84,083 $ 508 $ -- $ 61,420 (2) $ 23,171 ============== ============= ============ ============= =========== Year Ended December 31, 1996 Reserve for doubtful accounts $ 351 $ -- $ -- $ 191 (3) $ 160 ============== ============= ============ ============= =========== Reserve for depreciation on real estate properties used in operations $ 3,444 $ 558 $ -- $ 4,002 (5) $ - ============== ============= ============ ============= =========== Reserve for real estate investments $ 10,497 $ 79,900 $ -- $ 6,314 (2) $ 84,083 ============== ============= ============ ============= ===========
(1) Represents reserve no longer required. (2) Represents sales of real estate properties. (3) Represents write-off of a bad debt. (4) Represents reserves reclassified with related asset to "Real estate inventory". (5) Represents $265 of reserve reclassified with related asset to "Real estate inventory", with the balance representing 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 Statement No. 33-14434. 4.2 Form of Deposit Agreement, including form of Depositary Receipt - Exhibit 4(b) to Amendment No. 1 to Form S-2 Registration Statement filed June 19, 1987; SEC Registration Statement No. 33-14434. 4.3 Form of Indenture with respect to the 8 1/2% Convertible Subordinated Debentures Due June 15, 2012, including form of Debenture - Exhibit 4(c) to Amendment No. 1 to Form S-2 Registration Statement filed June 19, 1987; SEC Registration Statement No. 33-14434. 4.4 Shareholder Rights Agreement dated as of September 23, 1988, as amended and restated as of May 17, 1990, as amended and restated as of January 17, 1997, between Perini Corporation and State Street Bank and Trust Company, as Rights Agent - Exhibit 4.4 to Amendment No. 1 to Registration Statement on Form 8-A/A filed on January 29, 1997. 4.5 Stock Purchase and Sale Agreement dated as of July 24, 1996 by and among the Company, PB Capital and RCBA, as amended - Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q/A for the fiscal quarter ended September 30, 1996 filed on December 11, 1996. 4.8 Certificate of Vote of Directors Establishing a Series of Preferred Stock, dated January 16, 1997 - Exhibit 4.8 to Form 8-K filed on February 14, 1997. 4.9 Stock Assignment and Assumption Agreement dated as of December 13, 1996 by 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) - Exhibit 10.2 to 1997 Form 10-K, as filed. 10.3 Perini Corporation Amended and Restated Construction Business Unit Incentive Compensation Plan - Exhibit 10.3 to 1997 Form 10-K, as filed. 10.4 $125 million Credit Agreement dated as of December 6, 1994 among Perini Corporation, the Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Shawmut Bank, N.A., Co-Agent - Exhibit 10.4 to 1994 Form 10-K, as filed. 10.5 Amendment No. 1 as of February 26, 1996 to the Credit Agreement dated as of December 6, 1994 among Perini Corporation, the Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.), as Co-Agent - Exhibit 10.5 to 1995 Form 10-K, as filed. 10.6 Bridge Credit Agreement dated as of February 26, 1996 among Perini Corporation, the Bridge Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.) as Co-Agent - Exhibit 10.6 to 1995 Form 10-K, as filed. 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. 10.18 Amendment No. 1 as of November 10, 1997 to the Amended and Reinstated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - filed herewith. 10.19 Amendment No. 2 as of August 31, 1998 to the Amended and Reinstated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - filed herewith. 10.20 Amendment No. 3 as of September 9, 1998 to the Amended and Reinstated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - filed herewith. 10.21 Amendment No. 4 as of September 30, 1998 to the Amended and Reinstated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - filed herewith. 10.22 Amendment No. 5 as of November 16, 1998 to the Amended and Reinstated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - filed herewith. 64 10.23 Amendment No. 6 as of December 1, 1998 to the Amended and Reinstated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - filed herewith. Exhibit 21. Subsidiaries of Perini Corporation - filed herewith. Exhibit 23. Consent of Independent Public Accountants - filed herewith. Exhibit 24. Power of Attorney - filed herewith. Exhibit 27. Financial Data Schedule - filed herewith. Exhibit 99. Additional Exhibits 99.1 Combined Financial Statements of Significant Construction Joint Ventures - filed herewith. 99.2 Financial Statements of Rincon Center Associates, a California Limited Partnership - filed herewith. 65 Exhibit 21
Perini Corporation Subsidiaries of the Registrant Percentage of Interest or Voting Securities Place of Owned Name Organization - ---------------------------------------------------------------- --------------------------- -------------- Perini Corporation Massachusetts Perini Building Company, Inc. Arizona 100% Perini Environmental Services, Inc. Delaware 100% International Construction Management Services, Inc. Delaware 100% Percon Constructors, Inc. Delaware 100% Perini Management Services, Inc. (f/k/a Perini International Massachusetts 100% Corporation) 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%
66 Exhibit 23 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the use of our reports, dated February 23, 1999, included in Perini Corporation's Annual Report on this Form 10-K for the year ended December 31, 1998, and into the Company's previously filed Registration Statements Nos. 2-82117, 33-24646, 33-46961, 33-53190, 33-53192, 33-60654, 33- 70206, 33-52967, 33-58519, 333-03417, 333-26423 and 333-51911. ARTHUR ANDERSEN LLP Boston, Massachusetts March 15, 1999 67 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 10, 1999 David B. Perini Date Director March 10, 1999 Richard J. Boushka Date /s/Arthur I. Caplan Director March 10, 1999 Arthur I. Caplan Date /s/Marshall M. Criser Director March 10, 1999 Marshall M. Criser Date /s/Frederick Doppelt Director March 10, 1999 Frederick Doppelt Date /s/Albert A. Dorman Director March 10, 1999 Albert A. Dorman Date /s/Arthur J. Fox, Jr. Director March 10, 1999 Arthur J. Fox, Jr. Date /s/ Nancy Hawthorne Director March 10, 1999 Nancy Hawthorne Date /s/ Michael R. Klein Director March 10, 1999 Michael R. Klein Date Director March 10, 1999 Douglas J. McCarron Date /s/John J. McHale Director March 10, 1999 John J. McHale Date Director March 10, 1999 Jane E. Newman Date Director March 10, 1999 Ronald N. Tutor Date 68 EX-27 2
5 This schedule contains summary financial information extracted from Consolidated Balance Sheets as of December 31, 1998 and the Consolidated Statements of Operations for the twelve months ended December 31, 1998 as qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1998 DEC-31-1998 46,507 0 113,855 0 10,069 259,524 26,236 16,378 378,591 201,859 75,857 100 0 5,506 0 378,591 0 1,035,900 0 (984,871) (812) 0 (8,685) 12,752 (1,100) 11,652 0 0 0 11,652 1.08 1.08 Includes Equity in Construction Joint Ventures of $67,100, Unbilled Work of $19,585, and Other Short-Term Assets of $2,408, not currently reflected in this tag list. Includes investments in and advances to Real Estate Joint Ventures of $89,499, Land Held for Sale or Development of $15,541, and Other Long-Term Assets of $4,169, not currently reflected in this tag list. Includes Deferred Income Taxes and Other Liabilities of $15,713, Minority Interest of $1,064, Redeemable Series B Preferred Stock $33,540, Stock Purchase Warrants $2,233, Paid-In Surplus of $49,219, Retained Deficit of $3,642, ESOT Related Obligations of $(1,381), and Treasury Stock of $(1,477). Includes General, Administrative and Selling Expenses of $28,780 not currently refelected on this tag list.
EX-10 3 EXHIBIT 10.18 Exhibit 10.18 AMENDMENT NO. 1 TO CREDIT AGREEMENT AMENDMENT NO. 1 dated as of November 10, 1997 among PERINI CORPORATION (the "Borrower"), the BANKS listed on the signature pages hereof (collectively, the "Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"). W I T N E S S E T H: WHEREAS, the Borrower, the Banks and the Agent are parties to an Amended and Restated Credit Agreement dated as of January 17, 1997 (the "Credit Agreement"); WHEREAS, the Borrower has requested an amendment to the operating cash flow covenant contained in Section 5.10 of the Credit Agreement for the period from January 1, 1997 through September 30, 1997; WHEREAS, the Borrower and the Banks have agreed to modify the obligations of the Borrower under Section 9.03 of the Credit Agreement to pay certain out-of-pocket expenses of the Agent; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement shall have the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall from and after the date hereof refer to the Credit Agreement as amended hereby. SECTION 2. Amendment of Minimum Operating Cash Flow Covenant. Section 5.14 of the Credit Agreement is amended to change the minimum amount Operating Cash Flow required for the period from January 1, 1997 through September 30, 1997 from "$0" to "($8,000,000)". SECTION 3. Amendments to Expense Provision. Section 9.03(a) of the Credit Agreement is amended (a) to change the reference to "$60,000" therein to "$85,000" and (b) to change the reference to "$50,000" therein to "$75,000". SECTION 4. Agreement to Provide Detailed Plan. The Borrower agrees to provide each Bank, prior to the date of its meeting with the Banks in December, 1997, a plan describing the steps that it will take to ensure its future compliance with the covenants contained in the Credit Agreement, which plan shall be in sufficient detail as may be reasonably acceptable to the Required Banks. SECTION 5. Representations and Warranties Correct; No Default. The Borrower and each Subsidiary Guarantor represents and warrants that on and as of the date hereof, after giving effect to this Amendment No. 1, (a) the representations and warranties of each Obligor contained in each Financing Document, as amended, to which it is a party are true and (b) no Default under the Credit Agreement exists. SECTION 6. Effect of Amendments. Except as expressly set forth herein, the amendments contained herein shall not constitute an amendment or waiver of any term or condition of the Credit Agreement or of any other Financing Document, and all such terms and conditions shall remain in full force and effect and are hereby ratified and confirmed in all respects. SECTION 7. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. 1 Exhibit 10.18 SECTION 8. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 9. Consent by Subsidiary Guarantors. By signing this Amendment below, each Subsidiary Guarantor affirms its obligations under the Subsidiary Guarantee Agreement and acknowledges that this Amendment shall not alter, release, discharge or otherwise affect any of such obligations, all of which shall remain in full force and effect and are hereby ratified and confirmed in all respects. SECTION 10. Effectiveness. This Amendment No. shall become effective as of the date hereof when the Agent shall have received dully executed counterparts hereof signed by the Borrower, the Required Banks and the Agent (or, in the case of any party as to which an executed counterpart shall not have been received, the Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party). IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the date first above written. 2 EX-10 4 EXHIBIT 10.19 Exhibit 10.19 AMENDMENT NO. 2 TO CREDIT AGREEMENT AMENDMENT NO. 2 dated as of August 31, 1998 among PERINI CORPORATION (the "Borrower"), the BANKS listed on the signature pages hereof (collectively, the "Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"). W I T N E S S E T H: WHEREAS, the Borrower, the Banks and the Agent are parties to an Amended and Restated Credit Agreement dated as of January 17, 1997 (as heretofore amended, the "Credit Agreement"); WHEREAS, the Borrower has requested an amendment to the covenant limiting Real Estate Investments contained in Section 5.15 of the Credit Agreement, to permit it to invest additional funds in Rincon Center Associates to pay property taxes owed on the Rincon Center project; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement shall have the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall from and after the date hereof refer to the Credit Agreement as amended hereby. SECTION 2. Amendment of Covenant Limiting Real Estate Investments. Section 5.15 of the Credit Agreement is amended to change the maximum amount of Real Estate Investments permitted during the fiscal year ended December 31, 1998 from $4,950,000 to $5,850,000. SECTION 3. Amendment Fee. In consideration for this Amendment, the Borrower agrees to pay the Agent, for the account of each Bank in proportion to its aggregate Commitments, a fee equal to $25,000. SECTION 4. Representations and Warranties Correct; No Default. The Borrower and each Subsidiary Guarantor represents and warrants that on and as of the date hereof, after giving effect to this Amendment, (a) the representations and warranties of each Obligor contained in each Financing Document, as amended, to which it is a party are true and (b) no Default under the Credit Agreement exists. SECTION 5. Effect of Amendments. Except as expressly set forth herein, the amendments contained herein shall not constitute an amendment or waiver of any term or condition of the Credit Agreement or of any other Financing Document, and all such terms and conditions shall remain in full force and effect and are hereby ratified and confirmed in all respects. SECTION 6. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 8. Consent by Subsidiary Guarantors. By signing this Amendment below, each Subsidiary Guarantor affirms its obligations under the Subsidiary Guarantee Agreement and acknowledges that this Amendment shall not alter, release, discharge or otherwise affect any of such obligations, all of which shall remain in full force and effect and are hereby ratified and confirmed in all respects. 1 Exhibit 10.19 SECTION 9. Effectiveness. This Amendment shall become effective as of the date hereof when the Agent shall have received: (a) dully executed counterparts hereof signed by the Borrower, the Required Banks, the Agent and each Subsidiary Guarantor (or, in the case of any party as to which an executed counterpart shall not have been received, the Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party) and (b) for the account of each Bank, the fee required to be paid under Section 3 of this Amendment. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the date first above written. 2 EX-10 5 EXHIBIT 10.20 Exhibit 10.20 AMENDMENT NO. 3 TO CREDIT AGREEMENT AMENDMENT NO. 3 dated as of September 9, 1998 among PERINI CORPORATION (the "Borrower"), the BANKS listed on the signature pages hereof (collectively, the "Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"). W I T N E S S E T H: WHEREAS, the Borrower, the Banks and the Agent are parties to an Amended and Restated Credit Agreement dated as of January 17, 1997 (as heretofore amended, the "Credit Agreement"); WHEREAS, the Borrower has requested an amendment to the covenant limiting Real Estate Investments contained in Section 5.15 of the Credit Agreement; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement shall have the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall from and after the date hereof refer to the Credit Agreement as amended hereby. SECTION 2. Amendment of Covenant Limiting Real Estate Investments. Section 5.15 of the Credit Agreement is amended to change the maximum amount of Real Estate Investments permitted during the fiscal year ended December 31, 1998 from $5,850,000 to $7,650,000 and (b) to decrease the maximum amount of Real Estate Investments permitted during the fiscal year ended December 31, 1999 from $3,000,000 to $1,300,000. SECTION 3. Representations and Warranties Correct; No Default. The Borrower and each Subsidiary Guarantor represents and warrants that on and as of the date hereof, after giving effect to this Amendment, (a) the representations and warranties of each Obligor contained in each Financing Document, as amended, to which it is a party are true and (b) no Default under the Credit Agreement exists. SECTION 4. Effect of Amendments. Except as expressly set forth herein, the amendments contained herein shall not constitute an amendment or waiver of any term or condition of the Credit Agreement or of any other Financing Document, and all such terms and conditions shall remain in full force and effect and are hereby ratified and confirmed in all respects. SECTION 5. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 6. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 7. Consent by Subsidiary Guarantors. By signing this Amendment below, each Subsidiary Guarantor affirms its obligations under the Subsidiary Guarantee Agreement and acknowledges that this Amendment shall not alter, release, discharge or otherwise affect any of such obligations, all of which shall remain in full force and effect and are hereby ratified and confirmed in all respects. 1 Exhibit 10.20 SECTION 8. Effectiveness. This Amendment shall become effective as of the date hereof when the Agent shall have received: (a) dully executed counterparts hereof signed by the Borrower, the Required Banks, the Agent and each Subsidiary Guarantor (or, in the case of any party as to which an executed counterpart shall not have been received, the Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party) and (b) for the account of each Bank, the fee required to be paid under Section 3 of this Amendment. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the date first above written. 2 EX-10 6 EXHIBIT 10.21 Exhibit 10.21 AMENDMENT NO. 4 TO CREDIT AGREEMENT AMENDMENT NO. 4 dated as of September 30, 1998 among PERINI CORPORATION (the "Borrower"), the BANKS listed on the signature pages hereof (collectively, the "Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"). W I T N E S S E T H: WHEREAS, the Borrower, the Banks and the Agent are parties to an Amended and Restated Credit Agreement dated as of January 17, 1997 (as heretofore amended, the "Credit Agreement"); WHEREAS, the Borrower has requested an amendment to the covenant limiting Real Estate Investments contained in Section 5.15 of the Credit Agreement; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement shall have the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall from and after the date hereof refer to the Credit Agreement as amended hereby. SECTION 2. Amendment of Covenant Limiting Real Estate Investments. Section 5.15 of the Credit Agreement is amended to change the maximum amount of Real Estate Investments permitted during the fiscal year ended December 31, 1998 from $7,650,000 to $9,550,000. SECTION 3. Reduction of Commitments. Effective as of the date hereof, the unused portions of the Commitments shall be permanently reduced, ratably among the Banks, by the aggregate amount of $2,900,000. This reduction shall be applied first to reduce the Tranche B Commitments of the Banks ratably in proportion to their respective Tranche B Commitments and, once the Tranche B Commitments are reduced to zero, then to reduce the Tranche A Commitments of the Banks ratably in proportion to their respective Tranche A Commitments. Notwithstanding the provisions of Section 2.10(b) of the Credit Agreement, this reduction shall not reduce the amount of reduction in Commitments required on the Commitment Reduction Date occurring in December, 1998, but instead shall be applied to reduce the aggregate amount of reduction in Commitments required on the last Commitment Reduction Date. This Amendment constitutes the notice of such reduction required by Section 2.09 of the Credit Agreement. SECTION 4. Representations and Warranties Correct; No Default. The Borrower and each Subsidiary Guarantor represents and warrants that on and as of the date hereof, after giving effect to this Amendment, (a) the representations and warranties of each Obligor contained in each Financing Document, as amended, to which it is a party are true and (b) no Default under the Credit Agreement exists. SECTION 5. Effect of Amendments. Except as expressly set forth herein, the amendments contained herein shall not constitute an amendment or waiver of any term or condition of the Credit Agreement or of any other Financing Document, and all such terms and conditions shall remain in full force and effect and are hereby ratified and confirmed in all respects. SECTION 6. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. 1 Exhibit 10.21 SECTION 7. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 8. Consent by Subsidiary Guarantors. By signing this Amendment below, each Subsidiary Guarantor affirms its obligations under the Subsidiary Guarantee Agreement and acknowledges that this Amendment shall not alter, release, discharge or otherwise affect any of such obligations, all of which shall remain in full force and effect and are hereby ratified and confirmed in all respects. SECTION 9. Effectiveness. This Amendment shall become effective as of the date hereof when the Agent shall have received: (a) dully executed counterparts hereof signed by the Borrower, the Required Banks, the Agent and each Subsidiary Guarantor (or, in the case of any party as to which an executed counterpart shall not have been received, the Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party) and (b) for the account of each Bank, the fee required to be paid under Section 3 of this Amendment. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the date first above written. 2 EX-10 7 EXHIBIT 10.22 Exhibit 10.22 AMENDMENT NO. 5 TO CREDIT AGREEMENT AMENDMENT NO. 5 dated as of November 16, 1998 among PERINI CORPORATION (the "Borrower"), the BANKS listed on the signature pages hereof (collectively, the "Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"). W I T N E S S E T H: WHEREAS, the Borrower, the Banks and the Agent are parties to an Amended and Restated Credit Agreement dated as of January 17, 1997 (as heretofore amended, the "Credit Agreement"); WHEREAS, the Borrower has requested an amendment to the covenant limiting Real Estate Investments contained in Section 5.15 of the Credit Agreement; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement shall have the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall from and after the date hereof refer to the Credit Agreement as amended hereby. SECTION 2. Amendment of Covenant Limiting Real Estate Investments. Section 5.15 of the Credit Agreement is amended to change the maximum amount of Real Estate Investments permitted during the fiscal year ended December 31, 1998 from $9,550,000 to $9,800,000. SECTION 3. Amendment Fee. In consideration for this Amendment, the Borrower agrees to pay the Agent, for the account of each Bank in proportion to its aggregate Commitments, a fee equal to $25,000. SECTION 4. Representations and Warranties Correct; No Default. The Borrower and each Subsidiary Guarantor represents and warrants that on and as of the date hereof, after giving effect to this Amendment, (a) the representations and warranties of each Obligor contained in each Financing Document, as amended, to which it is a party are true and (b) no Default under the Credit Agreement exists. SECTION 5. Effect of Amendments. Except as expressly set forth herein, the amendments contained herein shall not constitute an amendment or waiver of any term or condition of the Credit Agreement or of any other Financing Document, and all such terms and conditions shall remain in full force and effect and are hereby ratified and confirmed in all respects. SECTION 6. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 8. Consent by Subsidiary Guarantors. By signing this Amendment below, each Subsidiary Guarantor affirms its obligations under the Subsidiary Guarantee Agreement and acknowledges that this Amendment shall not alter, release, discharge or otherwise affect any of such obligations, all of which shall remain in full force and effect and are hereby ratified and confirmed in all respects. 1 Exhibit 10.22 SECTION 9. Effectiveness. This Amendment shall become effective as of the date hereof when the Agent shall have received: (a) dully executed counterparts hereof signed by the Borrower, the Required Banks, the Agent and each Subsidiary Guarantor (or, in the case of any party as to which an executed counterpart shall not have been received, the Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party) and (b) for the account of each Bank, the fee required to be paid under Section 3 of this Amendment. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the date first above written. 2 EX-10 8 EXHIBIT 10.23 Exhibit 10.23 AMENDMENT NO. 6 TO CREDIT AGREEMENT AMENDMENT NO. 6 dated as of December 1, 1998 among PERINI CORPORATION (the "Borrower"), the BANKS listed on the signature pages hereof (collectively, the "Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"). W I T N E S S E T H: WHEREAS, the Borrower, the Banks and the Agent are parties to an Amended and Restated Credit Agreement dated as of January 17, 1997 (as heretofore amended, the "Credit Agreement"); WHEREAS, the Borrower has requested an amendment to the covenant limiting Real Estate Investments contained in Section 5.15 of the Credit Agreement; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement shall have the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall from and after the date hereof refer to the Credit Agreement as amended hereby. SECTION 2. Amendment of Covenant Limiting Real Estate Investments. Section 5.15 of the Credit Agreement is amended to change the maximum amount of Real Estate Investments permitted during the fiscal year ended December 31, 1998 from $9,800,000 to $10,145,000. SECTION 3. Representations and Warranties Correct; No Default. The Borrower and each Subsidiary Guarantor represents and warrants that on and as of the date hereof, after giving effect to this Amendment, (a) the representations and warranties of each Obligor contained in each Financing Document, as amended, to which it is a party are true and (b) no Default under the Credit Agreement exists. SECTION 4. Effect of Amendments. Except as expressly set forth herein, the amendments contained herein shall not constitute an amendment or waiver of any term or condition of the Credit Agreement or of any other Financing Document, and all such terms and conditions shall remain in full force and effect and are hereby ratified and confirmed in all respects. SECTION 5. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 6. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 7. Consent by Subsidiary Guarantors. By signing this Amendment below, each Subsidiary Guarantor affirms its obligations under the Subsidiary Guarantee Agreement and acknowledges that this Amendment shall not alter, release, discharge or otherwise affect any of such obligations, all of which shall remain in full force and effect and are hereby ratified and confirmed in all respects. 1 Exhibit 10.23 SECTION 8. Effectiveness. This Amendment shall become effective as of the date hereof when the Agent shall have received: (a) dully executed counterparts hereof signed by the Borrower, the Required Banks, the Agent and each Subsidiary Guarantor (or, in the case of any party as to which an executed counterpart shall not have been received, the Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party) and (b) for the account of each Bank, the fee required to be paid under Section 3 of this Amendment. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the date first above written. 2 EX-99 9 99.1 Exhibit 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, 1998, 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 ventures= 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, 1998, 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 February 23, 1999 Exhibit 99.1 Perini Corporation Combined Balance Sheet of Significant Construction Joint Ventures For the Year Ended December 31, 1998 (In thousands) ASSETS Current Assets: Cash and Cash Equivalents (Notes 2 and 3) $ 5,244 Accounts Receivable, including Retainage of $14,733 (Note 2) 42,080 Advances to Venturers (Note 5) 13,000 Unbilled Work (Note 2) 33,982 Other Current Assets 4 ----------- Total Current Assets 94,310 ----------- Property, Plant & Equipment (Note 2) 48 Less - Accumulated Depreciation (47) ----------- 1 ----------- TOTAL ASSETS $ 94,311 =========== LIABILITIES Current Liabilities: Cash Overdraft (Note 3) $ 4,318 Accounts Payable, including Retainage of $10,586 (Note 2) 43,779 Deferred Contract Revenue (Note 2) 22,313 Other Current Liabilities 3,979 ----------- Total Current Liabilities 74,389 ----------- Contingencies and Commitments (Note 4) VENTURERS' EQUITY Perini Corporation 12,877 Other Venturers 7,045 ----------- Total Venturers' Equity 19,922 ----------- TOTAL LIABILITIES AND VENTURERS' EQUITY $ 94,311 =========== The accompanying notes are an integral part of these financial statements. Exhibit 99.1 Perini Corporation Combined Statement of Income of Significant Construction Joint Ventures For the Year Ended December 31, 1998 (In thousands) Contract Revenues (Note 2) $ 211,895 -------------- Cost of Operations: Materials, Supplies and Subcontracts 141,708 Salaries and Wages 46,536 Depreciation 2 -------------- Total Contract Costs 188,246 -------------- Net Income $ 23,649 ============== The accompanying notes are an integral part of these financial statements. 2 Exhibit 99.1 Perini Corporation Combined Statement of Venturers' Equity of Significant Construction Joint Ventures For the Year Ended December 31, 1998 (In thousands) Perini Other Corporation Venturers Total ----------- ---------- --------- Balance, December 31, 1997 $ 12,055 $ 5,218 $ 17,273 Net Income 13,722 9,927 23,649 Distributions (12,900) (8,100) (21,000) ------------ ----------- ---------- Balance, December 31, 1998 $ 12,877 $ 7,045 $ 19,922 ============= =========== =========== The accompanying notes are an integral part of these financial statements 3 Exhibit 99.1 Perini Corporation Combined Statement of Cash Flows of Significant Construction Joint Ventures For the Year Ended December 31, 1998 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 23,649 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 2 Changes in Operating Assets and Liabilities: Decrease in Accounts Receivable 3,965 (Increase) in Unbilled Work (8,778) Decrease in Other Current Assets 126 (Decrease) in Cash Overdraft (5,719) (Decrease) in Accounts Payable (2,723) (Decrease) in Deferred Contract Revenue (1,772) Increase in Other Current Liabilities 2,098 ---------------- Net Cash Provided from Operating Activities $ 10,848 ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from Sale of Fixed Assets $ 37 ---------------- Net Cash Provided from Investing Activities $ 37 ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to Venturers $ (21,000) Decrease in Advances to Venturers 2,000 ---------------- Net Cash Used by Financing Activities $ (19,000) ---------------- Net (Decrease) in Cash and Cash Equivalents $ (8,115) Cash and Cash Equivalents, Beginning of Period 13,359 ---------------- Cash and Cash Equivalents, End of Period $ 5,244 ================ The accompanying notes are an integral part of these financial statements 4 Exhibit 99.1 Perini Corporation Notes to Combined Financial Statements of Significant Construction Joint Ventures For the Year Ended December 31, 1998 [1] Basis of Combination Perini Corporation (the "Company"), in the normal conduct of its business, has entered into partnership arrangements, referred to as Ajoint ventures@, for certain construction projects in order to share risk, working capital, bonding and other financial requirements and, in some instances, to obtain more extensive knowledge of a new local construction market or certain unique construction expertise required. Each of the joint venture participants is usually committed to supply a predetermined percentage of capital, as required, and to share in a predetermined percentage of the income or loss of the project. These joint ventures are temporary in nature, generally from three to five years, since they are formed to bid on a specific project, execute the work if awarded the contract, and are liquidated at the end of the project. While control over the actual construction work performed is normally delegated to the designated joint venture sponsor, usually the partner with a 50% or higher percentage interest in the project, the overall management of the joint venture resides with a Management Committee that requires unanimous approval of certain key operational and financial matters such as the amount of the original bid, ability to borrow funds, incur debt, guarantees and lease commitments and investment policy regarding venture funds. In addition, the Management Committee requires unanimous approval over terms of sale of venture assets, settlement guidelines related to contract claims and any transaction between the joint venture and any of its partners. In accordance with Rule 3-09 of Regulation S-X, the Company has presented combined financial statements of construction joint ventures considered to be significant under the test, because the Company believes that reporting the financial results of any one construction joint venture by itself would not be significant to users and could be detrimental to the Company when negotiating unapproved contract change orders and claims with the owner of the project or could unfairly assist competitors when bidding against the Company on similar contracts in the future. The following construction joint ventures have been combined in the accompanying financial statements: Joint Venture Name Type of Work ---------------------------------------------- ------------------------------------------------ Perini/O&G, A Joint Venture Rehabilitation work on the Williamsburg Bridge in New York City for the New York City Department of Traffic. Perini/Kiewit/Cashman, A Joint Venture Tunnel and road work in Boston, MA for the Massachusetts Highway Department Perini/Slattery, A Joint Venture Hudson-Bergen Light Rail Transit project in New Jersey for the New Jersey Transit Corporation.
[2] Significant Accounting Policies [a] Long-Term Contracts Profits from construction joint venture contracts are generally recognized by applying 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 Exhibit 99.1 Notes to Combined Financial Statements of Significant Construction Joint Ventures For the Year Ended December 31, 1998 (Continued) [2] Significant Accounting Policies (continued) [a] Long-Term Contracts (continued) 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 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 and accounts payable. 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] Cash Management The joint ventures regularly invest excess cash in highly liquid, interest bearing investments. These temporary investments are converted to cash on an "as needed" basis to fund obligations as they become due. The amount of cash overdraft represents the amount of checks outstanding which have not been presented for payment as of December 31, 1998. 5 Exhibit 99.1 Notes to Combined Financial Statements of Significant Construction Joint Ventures For the Year Ended December 31, 1998 (Continued) [4] 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, 1998: Lease Year Commitments ------ ------------ 1999 $ 1,224,545 2000 293,665 ------------ $ 1,518,210 ============ Rent expense included in contract costs amounted to $1,261,350 for the year ended December 31, 1998. Contingent liabilities include liability of contractors for performance and completion of joint venture construction contracts. In addition, the joint ventures are involved in arbitration and alternative dispute resolution (AADR@) proceedings. In the opinion of management of the various joint ventures, the resolution of these proceedings will not have a material effect on the results of operations or financial condition as reported in the accompanying combined financial statements. [5] Related Party Transactions Certain joint ventures periodically make temporary cash advances to the joint venture participants. At December 31, 1998, the amount of such temporary cash advances to Perini Corporation and other joint venture participants totalled $8,000,000 and $5,000,000, respectively. [a] Perini Corporation Significant billings from the Company to a certain joint venture, included in the accompanying combined financial statements, for various services for the year ended December 31, 1998 were as follows: 1998 ------------- Equipment Rental $1,658,258 Job Material & Labor 7,172,284 ============= $8,830,542 ============= The above amounts include contract costs and profit being paid to the Company as a subcontractor to the joint venture. As of December 31, 1998, the total estimated subcontract price is $32,035,000. 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 charges for subcontract labor, rent and other administrative costs, including management fees that were incurred with the various related parties. 6 Exhibit 99.1 Notes to Combined Financial Statements of Significant Construction Joint Ventures For the Year Ended December 31, 1998 (Continued) [6] Employee Benefit Plans The combined construction joint ventures contribute to various multi-employer union retirement plans under collective bargaining agreements, which provide retirement benefits for substantially all of its union employees. The Multi-employer Pension Plan Amendments Act of 1980 defines certain employer obligations under multi-employer plans. Information regarding union retirement plans are not available from plan administrators to enable the Company to determine its share of unfunded vested liabilities. Supervisory personnel are generally covered under the sponsoring joint venturer's plan. EX-99 10 99.2 Exhibit 99.2 Report of Independent Public Accountants To the Partners of Rincon Center Associates, a California Limited Partnership: We have audited the accompanying balance sheets of Rincon Center Associates (a California Limited Partnership) as of December 31, 1998 and 1997, and the related statements of operations, changes in partners' deficit and cash flows for each of the three years ended December 31, 1998. These financial statements are the responsibility of the Partnership'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 financial statements referred to above present fairly, in all material respects, the financial position of Rincon Center Associates, a California Limited Partnership as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years ended December 31, 1998, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts February 23, 1999 Exhibit 99.2
Rincon Center Associates A California Limited Partnership Balance Sheets December 31, 1998 and 1997 Assets 1998 1997 ---- ---- Cash $ 4,925,000 $ 4,720,000 Accounts Receivable 80,000 219,000 Deferred Rent Receivable 272,000 259,000 Notes Receivable, net of reserves of $14,214,000 at December 31, 1997 and 1998 - 23,000 Real Estate Used in Operations, net 104,043,000 107,045,000 Other Assets, net 2,734,000 1,636,000 --------------- --------------- Total assets $ 112,054,000 $ 113,902,000 =============== =============== Liabilities and Partners'Deficit Construction Notes Payable $ 45,788,000 $ 49,228,000 Accounts Payable and Accrued Liabilities 9,913,000 5,666,000 Accrued Ground Rent Liability, net 5,773,000 6,011,000 Accrued Lease Liability, net - 101,000 Deferred Income 883,000 945,000 Accrued Interest due to General Partners 82,456,000 70,776,000 Due to Perini Land and Development Company 92,550,000 89,296,000 Due to Pacific Gateway Properties, Inc. 26,112,000 25,136,000 --------------- --------------- Total liabilities 263,475,000 247,159,000 Commitments and Contingencies (Notes 3, 5 and 6) Partners' Deficit (151,421,000) (133,257,000) --------------- --------------- Total liabilities and partners' deficit $ 112,054,000 $ 113,902,000 =============== ===============
The accompanying notes are an integral part of these financial statements. 1 Exhibit 99.2
RINCON CENTER ASSOCIATES A CALIFORNIA LIMITED PARTNERSHIP Statements of Operations for the Three Years Ended December 31, 1998, 1997 and 1996 1998 1997 1996 ---- ---- ---- Revenue: Rental income $ 17,374,000 $ 13,862,000 $ 17,891,000 Parking and other income 1,615,000 1,469,000 1,304,000 --------------- --------------- --------------- Total revenue 18,989,000 15,331,000 19,195,000 --------------- --------------- --------------- Expenses: Operating 5,120,000 4,520,000 4,668,000 Administrative and other 909,000 1,665,000 1,447,000 Property taxes and insurance 2,868,000 2,424,000 2,115,000 Leases 6,318,000 6,168,000 6,128,000 Ground rent 4,611,000 4,652,000 4,656,000 Interest and letter-of-credit fees 14,664,000 15,017,000 14,217,000 Depreciation and amortization 2,706,000 3,160,000 3,925,000 --------------- --------------- --------------- Total expenses 37,196,000 37,606,000 37,156,000 --------------- --------------- --------------- Net loss from operations (18,207,000) (22,275,000) (17,961,000) Write-Down of Assets Related to Rincon I, operating lease - (17,150,000) - Interest Income 43,000 1,502,000 1,510,000 --------------- --------------- --------------- Net loss $ (18,164,000) $ (37,923,000) $ (16,451,000) =============== =============== ===============
The accompanying notes are an integral part of these financial statements. 3 Exhibit 99.2
Rincon Center Associates A California Limited Partnership Statements of Changes in Partners' Deficit for the Three Years Ended December 31, 1998, 1997 and 1996 General Limited Partners Partners Total -------- -------- ----- Balance, December 31, 1995 $ (39,386,000) $ (39,497,000) $ (78,883,000) Net loss (8,242,000) (8,209,000) (16,451,000) ---------------- ---------------- ---------------- Balance, December 31, 1996 (47,628,000) (47,706,000) (95,334,000) Net loss (19,134,000) (18,789,000) (37,923,000) ---------------- ---------------- ---------------- Balance, December 31, 1997 (66,762,000) (66,495,000) (133,257,000) Net loss (9,100,000) (9,064,000) (18,164,000) ---------------- ---------------- ---------------- Balance, December 31, 1998 $ (75,862,000) $ (75,559,000) $ (151,421,000) ================ ================ ================ Partners' Percentage Interest 50.1% 49.9% 100.0% ===== ===== ======
The accompanying notes are an integral part of these financial statements. 4 Exhibit 99.2
Rincon Center Associates A California Limited Partnership Statements of Cash Flows for the Three Years Ended December 31, 1998, 1997 and 1996 1998 1997 1996 ---- ---- ---- Cash Flows from Operating Activities: Net loss $ (18,164,000) $ (37,923,000) $ (16,451,000) Adjustments to reconcile net loss to net cash used in operating activities - Write-off/disposition of Rincon I - 17,150,000 - Depreciation and amortization 2,706,000 3,160,000 3,925,000 Amortization of deferred income (62,000) (61,000) (62,000) Decrease in accounts receivable 139,000 455,000 47,000 (Increase) decrease in deferred rent receivable (13,000) 2,372,000 2,363,000 Increase in other assets (1,098,000) (281,000) (1,596,000) Increase in accounts payable and accrued liabilities 4,247,000 848,000 551,000 Decrease in accrued ground rent liability (238,000) (159,000) (209,000) (Decrease) increase in accrued lease liability (101,000) (607,000) 170,000 Increase in accrued interest due to general partners 11,680,000 10,792,000 9,167,000 ---------------- ---------------- --------------- Net cash used in operating activities (904,000) (4,254,000) (2,095,000) ---------------- ---------------- --------------- Cash Flows from Investing Activities: Reimbursement of (expenditure) on real estate used in operations, net 296,000 (909,000) (408,000) Additions to leasehold improvements - (143,000) (61,000) Payments on notes receivable 23,000 398,000 331,000 ---------------- ---------------- --------------- Net cash provided by (used in) investing activities 319,000 (654,000) (138,000) ---------------- ---------------- --------------- Cash Flows from Financing Activities: Payments on construction notes payable (3,440,000) (6,784,000) (2,708,000) Advances from general partners 4,230,000 16,260,000 4,954,000 ---------------- ---------------- --------------- Net cash provided by financing activities 790,000 9,476,000 2,246,000 Increase in Cash 205,000 4,568,000 13,000 Cash, beginning of year 4,720,000 152,000 139,000 ---------------- ---------------- --------------- Cash, end of year $ 4,925,000 $ 4,720,000 $ 152,000 ================ ================ ================
The accompanying notes are an integral part of these financial statements. 5 Exhibit 99.2 RINCON CENTER ASSOCIATES A CALIFORNIA LIMITED PARTNERSHIP Notes to Financial Statements December 31, 1998 (1) Partnership Organization Rincon Center Associates, a California Limited Partnership (the Partnership), was formed on September 18, 1984 to lease and develop land and buildings located in the Rincon Point-South Beach Redevelopment Project Area in the City and County of San Francisco, California. The Rincon Center Project (the Project) comprises commercial and retail space, 320 rental housing units and associated off-street parking. The Project was developed in two distinct segments: Rincon I and Rincon II. Profits and losses are shared by the partners in accordance with their percentage interest as provided in the partnership agreement and as shown in the accompanying statements of changes in partners' deficit. Cash profits, as determined by the managing general partner, are distributed to the partners in the same percentage interest. Perini Land and Development Company (PL&D) is the managing general partner of the Partnership and has the responsibility for general management, administration and control of the Partnership's property, business and affairs. In addition, PL&D provides project and general accounting services to the Partnership (Note 7). Pacific Gateway Properties, Inc. (PGP), formerly Perini Investment Properties, Inc., is the other general partner. (2) Summary of Significant Accounting Policies Basis of Accounting The accompanying financial statements have been prepared using the accrual basis of accounting. 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 net realizable value of real estate used in operations and the potential liability in conjunction with certain contingencies and commitments. Actual results could differ from these estimates. 6 Exhibit 99.2 RINCON CENTER ASSOCIATES A CALIFORNIA LIMITED PARTNERSHIP Notes to Financial Statements December 31, 1998 (Continued) Real Estate Used in Operations Real estate used in operations includes all costs capitalized during the development of the Project. These costs include interest and financing costs, ground rent expense during construction, property taxes, tenant improvements and other capitalizable overhead costs. This real estate investment is stated at the lower of cost or market when there is a permanent impairment in the carrying value of the investment. Impairment in the carrying value of the properties is measured by estimating the future cash flows expected to result from the properties in the ordinary course of business and the eventual sale of the properties. Depreciation and Amortization The Partnership uses the straight-line method of depreciation. The significant asset groups and their estimated useful lives are comprised of the following: Structural components of buildings 60 years Nonstructural components of buildings 25 years All other depreciable assets 3-30 years Leasehold improvements are amortized using the straight-line method over the shorter of their useful lives or the lease terms. Income Taxes In accordance with federal and state income tax regulations, no income taxes are levied on the Partnership; rather, such taxes are levied on the individual partners. Consequently, no provision or liability for federal or state income taxes is reflected in the accompanying financial statements. Rental Income Certain lease agreements provide for periods of free rent or stepped increases in rent over the lease term. In such cases, revenue is recognized at a constant rate over the term of the lease. Amounts recognized as income but not yet due under the terms of the leases are shown in the accompanying balance sheets as deferred rent receivable. Statements of Cash Flows 7 Exhibit 99.2 RINCON CENTER ASSOCIATES A CALIFORNIA LIMITED PARTNERSHIP Notes to Financial Statements December 31, 1998 (Continued) Cash paid for interest was $1,986,000, $2,312,000 and $2,372,000 in 1998, 1997 and 1996, respectively. Accrued Lease Liability The Partnership is leasing Rincon I from Chrysler McNally (Chrysler) over a 25-year lease term (Note 3). In connection with this lease, the Partnership was granted a free rent concession for one year. The intent of Chrysler's free rent provision was to match a similar provision granted by the Partnership to an anchor sublease tenant of Rincon I, whose lease is for 10 years. The Partnership expensed rent in the first year of the lease and amortized the accrued lease liability related to Rincon I over 10 years through 1993 and is amortizing the remaining balance over 50 months effective January 1, 1994 to match the expense with the revenue recorded on the sublease. Three amendments to the master lease agreement were made in 1993 in connection with the extension of Chrysler's existing financing on the property (Note 3). The rent schedule was revised, which resulted in adjustments to the accrued lease liability in order to normalize the rent expense over the remaining lease term. Other Assets Other assets include prepaid expenses, deferred lease commissions and fixed assets. Deferred lease commissions are amortized over the life of the lease. Fixed assets are depreciated over the life of the asset, which is generally five years. (3) Operating Lease, Rincon I On June 24, 1988, the Partnership sold Rincon I to Chrysler and subsequently leased the property back under a master lease with a basic term of 25 years, with four five-year renewal options at the Partnership's discretion. The transaction was accounted for as a sale and operating leaseback, and the gain on the sale of $1,540,000 was deferred and is currently being amortized over a 25-year period, which is recorded as a reduction to expenses-leases in the accompanying statements of operations. As part of the sale operating lease-back of Rincon I, the Partnership 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 1998 have further reduced the loan to $33.1 million. 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 Partnership 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. 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 Partnership, the lessor and the lender have reached a nonbinding agreement on a restructure of the existing financing. The agreement is subject to final documentation and final approvals of several parties. The agreement provides, among other things, that the Partnership give up all of its economic interest in the commercial and retail portion of the property identified as Rincon I, and that the Partnership make a one-time payment of $7.5 million to the lessor of Rincon I (which includes a final loan payment of $6.5 million to the lenders of Rincon I). The agreement would also release the Partnership from all future liabilities under the master lease, including the obligation to repurchase that segment of the property. As a result, the Partnership has written-down the carrying value of the assets related to this segment of the property by $17,150,000 in 1997 to the estimated net realizable value. Payments under the master lease agreement, if it is not terminated, may be adjusted to reflect adjustments in the rate of interest payable by Chrysler on the Rincon I debt. Future minimum lease payments based on scheduled payments under the master lease agreement are as follows: 1999 $ 5,875,000 2000 5,875,000 2001 5,875,000 2002 5,875,000 2003 5,875,000 Thereafter 55,747,000 (4) Notes Receivable At December 31, 1998 and 1997, the Partnership had the following notes receivable: 8 Exhibit 99.2 RINCON CENTER ASSOCIATES A CALIFORNIA LIMITED PARTNERSHIP Notes to Financial Statements December 31, 1998 (Continued) 1998 1997 ---- ---- Two notes due from Chrysler secured by second deed of trust on Rincon I, bearing interest at 10%, with monthly principal and interest payments of $150,285; unpaid balance due July 2013, net of reserve of $14,214,000 in 1997 and 1998 $ - $ - Notes from tenants secured by tenant improvements, bearing interest at 8% to 11%, due in monthly installments - 23,000 ----------- ---------- $ - $ 23,000 =========== ==========
(5) Ground Lease The Partnership entered into a 65-year ground lease with the United States Postal Service for the Project property on April 19, 1985. On June 24, 1988, this lease was bifurcated into two leases (Rincon I and Rincon II). Under the terms of the leases, the Partnership must make monthly lease payments (Basic Rent) of $140,415 and $239,085 for Rincon I and Rincon II, respectively. In April 1994, and every six years thereafter, the monthly base payments can be increased based on the increase in the Consumer Price Index, subject to a minimum of 5% per year and a maximum of 8% per year. In addition, the Basic Rent can be increased based on reappraisal of the underlying property on the occurrence of certain events if those events occur prior to the regular reappraisal dates of April 19, 2019, and each 12th year thereafter for the remainder of the lease term. The lease agreement calls for the payment of certain percentage rents based on revenues received from the subleasing of the Rincon I building. Percentage rents paid in 1998, 1997 and 1996 were $273,000, $286,000 and $283,000, respectively. This lease has been accounted for as an operating lease, with the following minimum future lease payments: 9 Exhibit 99.2 RINCON CENTER ASSOCIATES A CALIFORNIA LIMITED PARTNERSHIP Notes to Financial Statements December 31, 1998 (Continued) 1999 $ 4,554,000 2000 5,507,000 2001 5,920,000 2002 5,920,000 2003 5,920,000 Thereafter 918,845,000 Under the provisions of the original lease, no lease payments were to be made from the inception of the lease (April 19, 1985) until April 18, 1987, and one-half of the regular monthly payment was due for the period from April 19, 1987 to April 18, 1988. The remaining deferred ground rent related to the free rent period amounted to $5,773,000 and $6,011,000 at December 31, 1998 and 1997, respectively, and is being amortized over the lease term. (6) Construction Notes Payable Residential The residential portion of the Project is being financed with a $36,000,000 loan from the Redevelopment Agency of the City and County of San Francisco (the Agency), of which $30,600,000 and $31,500,000 was outstanding at December 31, 1998 and 1997, respectively. The Agency raised these funds through the issuance of Variable Rate Demand Multifamily Housing Revenue Bonds (Rincon Center Project) 1985 Issue B (the Bonds). The interest rate on the Bonds is variable at the rate required to produce a market value for the Bonds equal to their par value. At December 31, 1998, 1997 and 1996, the effective interest rate on the Bonds was 3.3%, 3.6% and 3.0%, respectively. Interest payments are to be made on the first business day of each March, June, September and December. The Partnership has the option to convert the Bonds to a fixed interest rate at any of the above interest payment dates. The fixed rate will be the rate required to produce a market value for the Bonds equal to their par value. After conversion to a fixed rate, interest payments must be made on each June 1 and December 1. The Partnership must repay the residential loan as the Bonds become due. The Bonds shall be redeemed in at least the minimum amounts set forth below: 10 Exhibit 99.2 RINCON CENTER ASSOCIATES A CALIFORNIA LIMITED PARTNERSHIP Notes to Financial Statements December 31, 1998 (Continued) 1999 $ 1,000,000 2000 1,000,000 2001 1,100,000 2002 1,200,000 2003 1,300,000 Thereafter 25,000,000 The Bonds are due December 1, 2006. The Bonds are secured by an irrevocable letter of credit issued by Citibank in the name of the Partnership in the amount of approximately $31,556,000. In the event that drawings are made on the letter of credit, the Partnership has agreed to reimburse Citibank for such drawings pursuant to the terms of a Reimbursement Agreement. During 1997, the irrevocable letter of credit was due to expire. The Partnership, however, reached an agreement with Citicorp to extend the letter of credit. Currently, the letter of credit has been extended to March 1, 1999, with a preliminary agreement subject to various approvals, to further extend the letter of credit to December 1, 2000. The Partnership obligations under the Reimbursement Agreement are secured by a deed of trust on the Project and other guarantees described below. At December 1, 1998, Citibank extended a loan, pursuant to the Reimbursement Agreement, to the Partnership in the amount of $900,000 to meet the redemption obligation on the Bonds. The loan bears interest at a variable rate (7.5% at December 31, 1998), is due on demand and is expected to be repaid upon the closing of the refinancing of the commercial loan. Commercial The development and construction of the commercial portion of the Project was financed pursuant to a Construction Loan Agreement between the Partnership and Citibank, of which $14,288,000 and $17,728,000 was outstanding at December 31, 1998 and 1997, respectively. The loan and the irrevocable letters of credit supporting the residential bond are secured by a deed of trust on the Project and cash in lieu of an equity letter of credit currently in the aggregate amount of $3,650,000, held by Citibank on behalf of the general partners. During 1997, a $3,650,000 letter of credit, which had been issued as security for the project borrowings, was allowed by RCA and PL&D to be drawn and the funds applied to reduce the loan balance. This draw of the letter of credit was part of an agreement to extend the letter of credit issued by Citibank as security for the Bonds as described above. An annual fee equal to prime plus 1% of the aggregate amount is due to PGP and PL&D for the use of letters of credit or cash as security. The loan is also secured by the guarantees described in Note 7. The total fee in 1998, 1997 and 1996 was $450,000, $651,000 and $742,000, respectively. In 1993, the Partnership extended this loan through October 1, 1998. At the same time that it reached an agreement on the proposed extension of financing under the Rincon I sale operating lease-back transaction discussed in Note 3, the Partnership also reached an agreement covering the extension of this financing to December 15, 2001. The terms of this proposed extension include a $1.5 million interest payment, a $2.8 million principal payment, amortization of the commercial loan of $20,000 per month, a new letter of credit in the amount of $2.0 million issued to secure the remaining borrowings at Rincon II and the elimination of further Company or Joint Venture Guarantees. The terms of the proposed extension still require additional final documentation and final approval. If the current financing agreements are approved and implemented, any requirement of the partners to provide additional cash to the Partnership, after 1998, will be significantly reduced or eliminated. (7) Transaction with General Partners PL&D has guaranteed the payment of both interest on the financing of the Project and operating deficits, if any. It has also guaranteed the master lease under the sale and operating lease-back transaction (Note 3). In accordance with the Construction Loan Agreement (Note 6), the general partners have advanced monies to the Partnership to fund project costs. At December 31, 1998 and 1997, the general partners had advanced $118,662,000 and $114,432,000, respectively. The advances accrue interest at a rate of prime plus 2%. For the years ended December 31, 1998, 1997 and 1996, interest expense on partner advances was $11,680,000, $10,792,000 and $9,897,000, respectively. 11 -----END PRIVACY-ENHANCED MESSAGE-----