December 17, 1996
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: Perini Corporation Definitive Proxy Materials
Ladies and Gentlemen:
On behalf of Perini Corporation (the "Company"), we enclose herewith the
following documents for filing pursuant to the requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and the applicable rules and
regulations thereunder.
(i) A letter to stockholders, definitive proxy statement, and form of proxy to
be furnished to stockholders of the Company in connection with a Special
Meeting of Stockholders. At the meeting, stockholders of the Company will
be asked to approve two proposals: (a) the issuance of 150,150 shares of
Series B Cumulative Convertible Preferred Stock, par value $1.00 per share,
of the Company (the "Series B Preferred Stock") to PB Capital Partners,
L.P., The Union Labor Life Insurance Company Separate Account P, The Common
Fund for Non-Profit Organizations for the account of its Equity Fund, and
permitted assigns (the "Investors") for an aggregate purchase price of
$30,030,000, upon the terms and conditions described in the Proxy Statement
and the issuance of any other shares of the Series B Preferred Stock as
dividends on outstanding shares of the Series B Preferred Stock upon the
terms and conditions described in the Proxy Statement and (b) an amendment
to the By-Laws of the Company, as more fully described in the Proxy
Statement, which requires the Board of Directors to elect an Executive
Committee and sets forth its powers and composition. This amendment, if
approved, will take effect only if shares of the Series B Preferred Stock
are in fact issued to the Investors.
(ii) The $125 filing fee required to be paid to the Commission pursuant to Rule
14a-6(i) has been paid previously with preliminary materials.
The Company will mail the letter to stockholders, definitive proxy
statement, proxy card, 10-K/A for the fiscal year ended December 31, 1995, and
10-Q/A for the fiscal quarter ended September 30, 1996 on or about December 17,
1996. Please note that portions of the 10-K/A and 10-Q/A have been incorporated
by reference into the Proxy Statement and are attached to the Proxy Statement.
If you have any questions or require any further information with respect
to this filing, please contact me at (617) 570-1087.
Very truly yours,
/s/ Thomas I. Benda
-------------------
Thomas I. Benda
Enclosures:
cc: David B. Perini, Perini Corporation
Richard A. Soden, Esq.
Stephen W. Carr, P.C.
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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission
Only (as permitted by Rule 14(a)-6(e)(2))
[ X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Perini Corporation
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. [ ] $500 per
each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3). [ ] Fee computed on table below per Exchange Act
Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which
transaction applies:
2) Aggregate number of securities to which transaction
applies:
3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ } Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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December 17, 1996
To Our Stockholders:
We will be holding a Special Meeting on January 17, 1997 at 10:00
a.m. at State Street Bank and Trust Company, The Board Room, 33rd
Floor, 225 Franklin Street, Boston, Massachusetts.
At this meeting you will be asked to consider and vote upon
two proposals that will enable Perini to satisfy the final conditions
to closing our previously announced $30 Million issuance of new Series
B Cumulative Convertible Preferred Stock to an investor group led by
Richard C. Blum & Associates, L.P. The two stockholder proposals which
are described in the accompanying Proxy Statement have been unanimously
approved by Perini's Board of Directors.
Perini Corporation has a recognized construction franchise
built upon an enviable record of performance that spans over 100 years.
We have grown to be one of the largest, most respected contractors in
the United States, and our current backlog and prospects are extremely
promising. The new Series B Preferred Stock will enhance our strategic
operating and financial flexibility by increasing our equity base and
concurrently extending the term of our existing bank debt, as well as
favorably adjusting certain bank terms and covenants. The issuance of
the new Series B Preferred Stock may also be supplemented by the
acceleration of the sale of certain real estate assets which would
further bolster the liquidity position of the Company.
As I announced during our Annual Meeting last May, we have
been reviewing options to improve the near and long term liquidity of
the Company, including bringing in new equity. The choice of the
proposed issuance came after an exhaustive review of the options
available. Management and the Board of Directors believe that the
issuance of the new Series B Preferred Stock, together with the
simultaneous extension of our current senior credit agreements, form
key and critical elements of our strategy to regain the financial
health and strength required to sustain and grow our core construction
operations in the years ahead.
Implementation of the issuance of the new Series B Preferred
Stock will reduce the relative voting power of current stockholders.
However, if the new Series B Preferred Stock is not issued, the Company
may not be able to sustain its current level of construction operations
and will have to once again renegotiate its senior credit agreements
without the benefit of new equity coming into the Company. As a result,
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more restrictive financial and operating covenants may be imposed on
the Company.
The Board of Directors believes that approval of these two
proposals is in the best interest of Perini and its stockholders. The
Board of Directors has unanimously approved the proposals and
recommends that stockholders vote FOR approval of the proposals.
Whether or not you expect to attend the Special Meeting of
Stockholders in person, you are encouraged to date, sign and return the
proxy card or voting instructions form in the addressed, postage
prepaid envelope provided. Your vote is important, regardless of the
size of your holdings. To vote in accordance with the recommendation of
your Board of Directors, you need only date, sign and return the proxy
card or voting instructions form in the addressed, postage prepaid
envelope provided.
Thank you for your continued support.
Sincerely,
/s/ David B. Perini
-------------------
DAVID B. PERINI
Chairman, President and
Chief Executive Officer
If you need assistance in voting your shares, please call
Perini's proxy solicitor, D.F. King & Co., Inc., 77 Water Street, New
York, NY 10005-4495 at 1-800-769-5414. You also may call Investor
Relations at Perini for assistance at (508) 628-2402.
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PERINI CORPORATION
73 Mt. Wayte Avenue
Framingham, Massachusetts 01701-9160
--------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON January 17, 1997
-----------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of Perini Corporation (the "Company") will be held on January 17th at
10:00 A.M. at State Street Bank and Trust Company, The Board Room, 33rd Floor,
225 Franklin Street, Boston, Massachusetts for the following purposes:
1. To approve (a) the issuance of 150,150 shares of Series B Cumulative
Convertible Preferred Stock, par value $1.00 per share, of the Company (the
"Series B Preferred Stock") to PB Capital Partners, L.P., The Union Labor
Life Insurance Company Separate Account P, The Common Fund for Non-Profit
Organizations for the account of its Equity Fund, and permitted assigns
(the "Investors") for an aggregate purchase price of $30,030,000, upon the
terms and conditions described in the attached proxy statement (the "Proxy
Statement") and (b) the issuance of any other shares of the Series B
Preferred Stock as dividends on outstanding shares of Series B Preferred
Stock upon the terms and conditions described in the attached Proxy
Statement.
2. To approve an amendment to the By-Laws of the Company, as more fully
described in the attached Proxy Statement, which requires the Board of
Directors to elect an Executive Committee and sets forth its powers and
composition. This amendment, if approved, will take effect only if shares
of the Series B Preferred Stock are in fact issued to the Investors.
Under the Company's Restated Articles of Organization, as amended, and the
Massachusetts Business Corporation Law, the Board of Directors of the Company
has the authority to approve the issuance of the Series B Preferred Stock and to
amend the By-Laws without stockholder approval. However, as explained in more
detail in the Proxy Statement, because the Series B Preferred Stock is
convertible into shares of common stock, par value $1.00 per share, of the
Company ("Common Stock") that represent more than 20% of the presently
outstanding Common Stock at a conversion price that is less than book value,
Rule 713 of the American Stock Exchange requires stockholder approval in order
for the Company to list the Common Stock to be issued upon conversion. Under the
terms of the Stock Purchase and Sale Agreement between the Company and PB
Capital relating to the Series B Preferred Stock, stockholder approval of the
issuance of the Series B Preferred Stock and of the amendment to the By-Laws is
a condition to the Investors' obligation to purchase the Series B Preferred
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Stock.
Action may be taken on the foregoing matters at the Special Meeting on the
date specified above, or on any date or dates to which the Special Meeting may
be postponed or adjourned.
The Board of Directors has fixed the close of business on November 27,
1996 as the record date (the "Record Date") for determining the stockholders
entitled to notice of, and to vote at, the Special Meeting and at any
adjournments thereof. Only stockholders of record of the Company's Common Stock
at the close of business on the Record Date will be entitled to notice of, and
to vote at, the Special Meeting and at any adjournments thereof.
You are requested to fill in and sign the enclosed Proxy Card, which is
being solicited by the Board of Directors, and to mail it promptly in the
enclosed postage-prepaid envelope. Any proxy may be revoked by notice to the
Secretary of the Company or by delivery of a later dated proxy. Stockholders of
record who attend the Special Meeting may vote in person, even if they have
previously delivered a signed proxy.
By Order of the Board of Directors
/s/ Richard E. Burnham
----------------------
Richard E. Burnham
Secretary
Framingham, Massachusetts
December 17, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE AND
PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE POSTAGE-PREPAID ENVELOPE
PROVIDED. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH,
EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
- --------------------------------------------------------------------------------
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PERINI CORPORATION
73 Mt. Wayte Avenue
Framingham, Massachusetts 01701-9160
---------------
PROXY STATEMENT
---------------
FOR SPECIAL MEETING OF STOCKHOLDERS
To Be Held on January 17, 1997
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Perini Corporation (the
"Company") for use at a Special Meeting of Stockholders of the Company to be
held on January 17, 1997 and at any adjournments thereof (the "Special
Meeting"). At the Special Meeting, stockholders will be asked to approve (1) the
issuance of 150,150 shares of Series B Cumulative Convertible Preferred Stock,
par value $1.00 per share, of the Company (the "Series B Preferred Stock") to PB
Capital Partners, L.P. ("PB Capital"), The Union Labor Life Insurance Company
Separate Account P (the "Union"), The Common Fund for NonProfit Organizations
for the account of its Equity Fund ("The Common Fund", collectively with PB
Capital and Union and their permitted assigns, the "Investors") for an aggregate
purchase price of $30,030,000, upon the terms and conditions described herein
and the issuance of any other shares of the Series B Preferred Stock as
dividends on outstanding shares of Series B Preferred Stock upon the terms and
conditions described herein; and (2) to approve an amendment to the By-Laws of
the Company, as more fully described herein, which requires the Board of
Directors to elect an Executive Committee and sets forth its powers and
composition. This amendment, if approved, will take effect only if shares of the
Series B Preferred Stock are in fact issued to the Investors.
This Proxy Statement and the accompanying Notice of Special
Meeting of Stockholders and Proxy Card are first being sent to stockholders on
or about December 17 1996. The Board of Directors has fixed the close of
business on November 27, 1996 as the record date for the determination of
stockholders entitled to notice of and to vote at the Special Meeting (the
"Record Date"). Only stockholders of record of the Company's common stock, par
value $1.00 per share (the "Common Stock"), at the close of business on the
Record Date will be entitled to notice of and to vote at the Special Meeting. As
of the Record Date, there were 4,898,648 shares of
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Common Stock outstanding and entitled to vote at the Special Meeting. Holders of
Common Stock outstanding as of the close of business on the Record Date will be
entitled to one vote for each share held by them.
The presence, in person or by proxy, of holders of at least a
majority of the total number of issued and outstanding shares of Common Stock
entitled to vote is necessary to constitute a quorum for the transaction of
business at the Special Meeting. The Company is seeking the affirmative vote of
the holders of a majority of the shares of Common Stock cast at the Special
Meeting for the approval of the issuance of the Series B Preferred Stock and for
the amendment to the Company's By-Laws. Under Massachusetts law, abstentions and
broker non-votes (that is, shares represented at the meeting which are held by a
broker or nominee and as to which (i) instructions have not been received from
the beneficial owner or the person entitled to vote and (ii) the broker or
nominee does not have discretionary voting power) shall be treated as shares
that are present and entitled to vote for the purpose of determining whether a
quorum is present, but shall not constitute a vote "for" or "against" a matter
and will be disregarded in determining the "votes cast."
Stockholders of the Company are requested to complete, sign,
date and promptly return the accompanying Proxy Card in the enclosed
postage-prepaid envelope. Shares represented by a properly executed Proxy Card
received prior to the vote at the Special Meeting and not revoked will be voted
at the Special Meeting as directed on the Proxy Card. If a properly executed
Proxy Card is submitted but not marked as to a particular item, the shares will
be voted FOR the approval of the issuance of the Series B Preferred Stock and
FOR the amendment to the Company's By-Laws.
A stockholder of record may revoke a proxy at any time before
it has been exercised by filing a written revocation with the Secretary of the
Company at the address of the Company set forth above, by filing a duly executed
proxy bearing a later date, or by appearing in person and voting by ballot at
the Special Meeting. Any stockholder of record as of the Record Date attending
the Special Meeting may vote in person whether or not a proxy has been
previously given, but the presence (without further action) of a stockholder at
the Special Meeting will not constitute revocation of a previously given proxy.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE FOR THE APPROVAL OF THE FOLLOWING PROPOSALS.
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PROPOSAL 1
APPROVAL OF THE ISSUANCE OF THE SERIES B PREFERRED STOCK
Reason for Stockholder Approval
Under the Company's Restated Articles of Organization, as
amended, and the Massachusetts Business Corporation Law, the Board of Directors
of the Company has the authority to approve the issuance of the Series B
Preferred Stock without stockholder approval. However, because the Series B
Preferred Stock is convertible into Common Stock of the Company that represents
more than 20% of the presently outstanding Common Stock at a conversion price
that is less than book value, Rule 713 of the American Stock Exchange requires
stockholder approval in order for the Company to list the Common Stock to be
issued upon conversion. In addition, PB Capital has required stockholder
approval as a condition to the Investors' obligations to acquire the Series B
Preferred Stock. As a result, the Company is seeking stockholder approval for
the issuance of the Series B Preferred Stock.
Need for Additional Equity and Working Capital
As disclosed for the last two years in the Company's reports
to shareholders and in its public filings, the Company has been cash constrained
as its core construction business has experienced growth and, in particular, as
the Company has increased its level of higher margin civil construction work.
Generally, civil construction work requires more working capital than building
construction work because of its equipment intensive nature, progress billing
terms imposed by certain public owners and, in some instances, the time required
to process contract change orders. In addition, some of the Company's real
estate assets have required regular cash support which has adversely affected
its working capital. Over the period from January 1, 1995 to the date of this
Proxy Statement the Company has increased its revolving credit facilities with
its bank group from $70 million to $139.5 million. As previously indicated to
shareholders, since late 1995 the Company has been seeking new equity to support
its growth and to allow the Company over time to reduce debt. In this regard,
the Company in October 1995 retained J.P. Morgan Securities Inc. as its
investment bank to advise the Company on its strategic alternatives to obtain
additional equity. The original efforts focused largely on potential strategic
partners but also sought interest from select financial investors. From those
efforts, the $30,030,000 investment opportunity, before fees and expenses,
presented by PB Capital, a Delaware investment limited partnership managed by
Richard C. Blum & Associates, L.P. ("RCBA"), was determined by the Board of
Directors to be the best opportunity. RCBA has in the past taken significant
ownership positions in public corporations and subsequently worked
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with management to enhance shareholder value. As a result, with the approval of
the Board of Directors, the Company entered into a Stock Purchase and Sale
Agreement, as amended (the "Agreement"), with PB Capital whereby PB Capital
agreed to purchase 150,150 shares of Series B Preferred Stock subject to certain
conditions and subject to the right, prior to the date of the closing of such
purchase (the "Closing Date"), to assign PB Capital's right to purchase a
specified number of shares (not to exceed 65,000) to financially responsible
third parties that are not competitors of the Company (the "Transaction") (see
"Description of Transaction"). Subsequent to execution of the Agreement, PB
Capital and the Company entered into a stock assignment and assumption agreement
with the Union whereby Union agreed to purchase at least 32,500 but no more than
37,500 shares of the Series B Preferred Stock under the Agreement. In addition,
PB Capital has also advised the Company that The Common Fund is expected to
purchase up to 25,000 shares of the Series B Preferred Stock for the account of
its Equity Fund. As a result, the investor group consists at this time, of PB
Capital, Union and The Common Fund.
As reported in the Company's Form 10-K/A for the year ended
December 31, 1995, the Company's primary real estate assets are located in five
states: Florida, Massachusetts, Georgia, California and Arizona. The Company
accounts for those real estate assets in accordance with the provisions of the
Statement of Financial Accounting Standards No. 121. "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS#121). Approximately 77% of the Company's real estate assets represent
properties held and used in rental and other operations. Cash flows to be
derived from those properties are dependent on the results of those operations
and from the ultimate sale of those properties. SFAS #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. Based on the Company's current operating strategy, the estimated
net future cash flows from these properties exceed their carrying values. As a
result, no impairment is currently required to be recognized.
In addition, approximately 23% of the Company's real estate
assets represent fully or partially developed land held for sale in the normal
course of business. Cash flows to be derived from these properties are dependent
on the proceeds from the sale of these properties based on local market
conditions. SFAS #121 provides that when management has committed to a plan to
dispose of long-lived assets that the assets be reported at the lower of the
carrying amount or fair value less cost to sell. Based on the Company's current
operating strategy, the estimated net future cash flows from these properties
exceed their carrying values. As a result, no impairment is currently required
to be recognized.
In conjunction with PB Capital, the Company is reviewing all
the Company's real estate assets and current strategies related to those assets
with the possibility that a plan may be developed to generate short term
liquidity of up to an additional $20 million for the Company. Currently, the
Company's strategy has been to hold all of its real estate assets through the
necessary development and stabilization periods to achieve full value. A
strategy which includes an accelerated disposition or bulk sale of certain of
its real estate assets could substantially reduce the estimated net future cash
flows from these properties, which would require the recognition of an
impairment loss on those assets in accordance with Statement of Financial
Accounting Standards No. 121.
As the Company has not yet adopted a plan to dispose of any of
its real estate assets nor devoted a significant effort to a comprehensive
disposition strategy, it has not compiled detailed estimates, on a specific
property basis, of the potential write-down for these assets. However, as
discussed above in connection with the proposed investment by PB Capital, the
Company has performed a preliminary review of its real estate assets and
estimates that a potential write-down of $20,000,000 to $80,000,000 of the
carrying values of these properties may be required based upon various valuation
methodologies including discounted cash flows (after estimated costs to carry),
comparable sales transactions and unsolicited purchase offers received. This
potential write-down can be summarized as follows:
Location Potential Write-down
-------- --------------------
Arizona Properties $17,000,000 - $20,000,000
California Properties $53,000,000 - $57,000,000
Florida Properties $ 2,000,000 - $ 3,000,000
General Effect of Transaction on Existing Stockholders
If the Transaction is approved, the rights of existing
stockholders will be effected in several principal ways. Since the Series B
Preferred Stock is convertible into Common Stock and has voting rights, the
voting rights of the current stockholders will be diluted. In addition, the
right of holders of the Series B Preferred Stock to designate certain directors
and members of the Executive Committee will also have a dilutive effect on the
voting rights of the current stockholders, including providing such members with
an effective veto over certain major decisions of the Company. In addition, the
issuance of the Series B Preferred Stock may have a dilutive effect on the
earnings per share of the Company due to the increase in number of shares of
Common
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Stock on a fully diluted basis. Furthermore, the book value of each share of
Common Stock may decrease due to a conversion price below book value. These
dilutive effects are a consequence of the significant capital interest that the
Investors will have in the Company. The issuance of the Series B Preferred Stock
will allow the Company to obtain this needed capital and restructure its bank
facilities. Furthermore, it will add the expertise of RCBA to the resources of
the Company. Please refer to the remainder of this Proxy Statement for a more
detailed description of the Transaction.
Description of Transaction
The Agreement provides that the Company's Board of Directors
will classify 500,000 shares of preferred stock of the Company as Series B
Preferred Stock. Of that amount 150,150 shares would be issued to the Investors
at the time of the closing of the Transaction. The remainder would be set aside
for possible future payment-in-kind dividends to the holders of the Series B
Preferred Stock. The purchase price of the Series B Preferred Stock to be issued
on the Closing Date will be $200.00 per share, for a total of $30,030,000.
As a condition to the Investors' obligations to acquire the
Series B Preferred Stock, PB Capital is requiring that the By-Laws of the
Company be amended as described below (see "BY-LAW AMENDMENT"), that the
Company's Shareholder Rights Agreement be revised as described below (see
"Shareholder Rights Agreement Amendment"), that the Company enter into a
management agreement (the "Management Agreement") with Tutor-Saliba Corporation
and Ronald N. Tutor as described below (see "Management Agreement"), and that
three persons designated by holders of the Series B Preferred Stock be elected
to the Board of Directors of the Company (the "Designated Directors") -- one in
Class I, one in Class II, and one in Class III. All three Designated Directors
will be appointed to the newly reconstituted Executive Committee of the Board of
Directors, and certain of them will be appointed to other committees as well.
Other conditions to the Investors' obligations to acquire the Series B Shares
include but are not limited to: (i) compliance by the Company with all terms,
covenants and conditions of the Agreement in all material respects; (ii) that
the Company's representations and warranties in the Agreement are true and
correct in all material respects at and as of the Closing Date; (iii) the
approval by the Company's stockholders of the issuance of the Series B Preferred
Stock sought by this Proxy Statement; (iv) that there be no additional holders
of 5% or more of the equity of the Company (which holders could jeopardize the
Company's ability to use present and future net operating losses (see
"Shareholder Rights Agreement Amendment")); (v) that Ronald N. Tutor shall not
be prevented from serving on the Board of Directors of the Company or
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from serving as acting Chief Operating Officer of the Company by (a) any action
of a state or federal governmental authority, or (b) his death or disability and
that no lawsuit or administrative action shall have been threatened by a state
or federal governmental authority related to Mr. Tutor and further that in the
reasonable judgment of RCBA there is not a material risk of such a suit or
action; and (vi) that given the relationship of a principal of RCBA to a United
States Senator, (a) the Senate Ethics Committee and regular counsel for the
Senator on such matters shall each have given an opinion concerning RCBA's
involvement with the Company that, in the reasonable judgment of RCBA, does not
require the imposition of material restrictions on the business of the Company
or upon the ability of the Senator to vote on matters of concern to her
constituents, and (b) that RCBA be assured by the Executive Committee of the
Company's Board of Directors that it will cause the Company not to bid for a
project when and if advised of RCBA's view that such bid could create a
significant risk of exposing the Company, RCBA, PB Capital, and/or the Senator
to a conflict of interest problem. The issuance of the Series B Preferred Stock
was also conditioned upon (a) the renegotiation and confirmation of the
Company's existing credit agreements and (b) confirmation that the Company's
bonding is adequate, both of which conditions have been satisfied (see "Credit
Facilities").
The conditions to the Company's obligations to sell the Series
B Preferred Stock to the Investors include, but are not limited to: (i)
compliance by the Investors and RCBA with all terms, covenants and conditions of
the Agreement in all material respects; (ii) that their representations and
warranties in the Agreement are true and correct in all material respects at and
as of the Closing Date; (iii) the Company having received certain fairness
opinions regarding the Transaction from its investment bankers; and (iv) the
approval by the Company's stockholders of the issuance of the Series B Preferred
Stock sought by this Proxy Statement.
Use of Proceeds
The net proceeds of the proposed issuance of the Series B
Preferred Stock will be used to repay the recent $10,000,000 increase in the
bridge loans and for working capital purposes (see "Bridge Loan and
Participation Agreement").
Description of Series B Preferred Stock
The vote of the Company's Board of Directors establishing the
terms of the Series B Preferred Stock (the "Certificate of Vote") provides as
follows:
Amount
The number of shares constituting the Series B Preferred Stock
shall be 500,000 of which 150,150 shall be issued initially and the
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remainder shall be reserved for issuance as dividends to the holders of the
Series B Preferred Stock (see "Dividends"). The number of shares designated as
Series B Preferred Stock shall not be increased without a vote of the
stockholders, but may be decreased without a vote of the stockholders so long as
the decrease is approved by 66 2/3% of the then outstanding shares of Series B
Preferred Stock.
Liquidation Preference
Upon liquidation the holders of Series B Preferred Stock would
be entitled to $200.00 per share (the "Liquidation Preference") plus accrued and
unpaid dividends. The Series B Preferred Stock will rank junior in liquidation
preference to the Company's $21.25 Convertible Exchangeable Preferred Stock and
senior to all other currently issued capital stock of the Company (including the
Common Stock).
Dividends
Dividends will be payable on the Series B Preferred Stock
either in cash or in additional shares of Series B Preferred Stock (a
"Payment-In-Kind"). The cash dividend rate is 7 percent per annum (9 percent
while there is a Special Default) of the Liquidation Preference and the
Payment-In-Kind dividend rate is 10 percent per annum (12 percent while there is
a Special Default) of the Liquidation Preference. Dividends will be payable
quarterly commencing on March 15, 1997. A Special Default would occur upon (1)
the making of certain changes to the Executive Committee without the prior
written approval of a majority of the members of the Executive Committee who
were members prior to such change; (2) the taking of the following actions
required to be approved by the Executive Committee: (a) any borrowing or
guarantee by the Company exceeding $15 million, (b) except for issuance of stock
or stock options pursuant to the Company's incentive compensation plans or
programs, any issuance of stock other than Common Stock of the Company in an
aggregate amount not exceeding five percent (5%) of the Common Stock of the
Company issued and outstanding on the date of the initial issuance of Series B
Preferred Stock to the Investors, (c) any strategic alliance (other than a
construction joint venture) involving a capital commitment by the Company
exceeding $5 million, (d) any asset sale by the Company or lease as lessor
exceeding $5 million (other than equipment dispositions in the normal course of
business); (e) any redemption or amendment of the rights issued pursuant to the
Shareholder Rights Agreement or the preferred stock of the Company issuable upon
the exercise of such rights; and (f) any termination of or amendment to the
Management Agreement (see "By-Law Amendment" and "Management Agreement") without
that Committee's approval; (3) any change by the Company in the composition of
the Executive Committee which results in members of such Committee selected by
the
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holders of the Series B Preferred Stock being fewer in number than the number of
directors such shareholders are entitled to designate; and (4) solely for
purposes of the right to elect additional directors, the failure of the Company
to authorize, declare, and pay dividends on the Series B Preferred Stock when
due.
Prior to December 15, 1999, the Company will make annual
elections as to whether dividends will be paid in cash or in kind. Beginning
December 15, 1999, the Company will make such election semiannually. In the
event that, during any period for which the Company has elected to pay cash
dividends, it is unable to pay the full amount of the cash dividend due, the
Board of Directors is required to authorize, declare and pay a supplemental
stock dividend equal to the difference between the dividend that would have been
paid in kind at the Payment-In-Kind rate (assuming that the Board of Directors
had elected to pay dividends for such in-kind and assuming that a Special
Default existed) and the cash dividend actually declared and paid on such
dividend payment date, if any, and on the previous dividend payment date during
such payment period. Dividends not paid will cumulate. There is no sinking fund.
The Series B Preferred Stock will rank junior in cash dividend
preference to the $21.25 Convertible Exchangeable Preferred Stock and senior to
the Common Stock. The terms of the Series B Preferred Stock further provide that
no cash dividends or other distributions payable in cash will be authorized,
declared, paid or set apart for payment on any shares of Common Stock or other
stock of the Company ranking junior as to dividends to the Series B Preferred
Stock except for certain limited dividends on Common Stock beginning in 2001.
In addition, the new credit facilities will further limit the
ability of the Company to pay cash dividends. (see "Credit Facilities").
Redemption by the Company (Optional and Mandatory)
All, but not less than all, of Series B Preferred Stock may be
redeemed after the third anniversary of the Closing Date at the election of the
Board of Directors for the Redemption Price (defined below) plus accrued and
unpaid dividends, if and when the shares of the Common Stock have traded (i) for
at least forty (40) of the forty-five (45) trading days (each of which trading
days shall be after the third anniversary of the original issue date)
immediately preceding the date on which the redemption decision is made by the
Board of Directors (the "Determination Date"), and (ii) on each of the ten (10)
consecutive trading days immediately prior to the Determination Date, at a price
in excess of 150% (125% after the fifth anniversary of the Closing Date) of the
conversion price then in effect for the Series B Preferred Stock for each such
trading day.
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The Redemption Price will be the Liquidation Preference where
there have been no Special Defaults and, if one or more Special Defaults has
occurred, will be 130% of the greater of the Liquidation Preference or the
market value of the Common Stock (valued at the average of the closing prices on
the preceding twenty (20) trading days immediately prior to the occurrence of
the most recent Special Default) into which the Series B Preferred Stock would
then be convertible, assuming such shares were then immediately convertible.
On the eighth, ninth, and tenth anniversaries of the Closing
Date, the Company is required to purchase from each holder of Series B Preferred
Stock at the then- effective Redemption Price (plus accrued but then unpaid
dividends) one-third of the number of shares of the Series B Preferred Stock
held by such holder on the eighth anniversary (plus a portion of any
subsequently issued shares).
In addition, if one or more Special Defaults were to occur at
any time or from time to time on or after the Closing Date, each holder of
Series B Preferred Stock would have the right, at such holder's option
exercisable at any time within 120 days after the occurrence of each such
Special Default, to require the Company to purchase all or any part of the
shares of Series B Preferred Stock then held by such holder as such holder may
elect at the Redemption Price plus the accrued and unpaid dividends thereon. The
terms of the Series B Preferred Stock do not contain any restrictions on the
redemption of the Series B Preferred Stock while there is an arrearage on the
payment of dividends; however, such repurchases shall be for the Redemption
Price plus accrued and unpaid dividends.
The new credit facilities will limit the aforementioned rights
of redemption. (see "Credit Facilities").
Conversion
Each Share of Series B Preferred Stock shall be convertible,
at the election of the holder, at any time (including immediately prior to any
scheduled or announced redemption) into fully paid and nonassessable shares of
Common Stock (or, in certain instances, other securities and property of the
Company) at the rate of that number of shares of Common Stock for each full
share of Series B Preferred Stock that is equal to the Liquidation Preference
plus an amount in cash equal to the accrued and unpaid dividends thereon,
whether or not authorized or declared, divided by the then applicable conversion
price per share of Common Stock. The Company shall at all times reserve and keep
available, out of its authorized and unissued stock, solely for the purpose of
effecting the conversion of the Series B Preferred Stock, such number of shares
of its Common Stock free of preemptive rights as shall from time to time be
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<PAGE>
sufficient to effect the conversion of all Series B Preferred Stock. The
conversion price as initially established represented a 15% premium over the
average closing price of the Company's Common Stock over the 45 day trading
period leading up to the final price negotiations with RCBA. As adjusted for the
issuance of warrants to the Company's bank group (see "Effect of Warrants"), the
conversion price will initially be $9.68219 per share. The conversion price will
be adjusted periodically to account for certain distributions of Common Stock or
other securities convertible into Common Stock.
Election of Directors
In addition to being entitled to select the Designated
Directors, holders of the Series B Preferred Stock have the right to designate
the successors to each Designated Director. The Company is required to nominate
and use its best efforts to elect such directors. In addition, holders of the
Series B Preferred Stock have the right to appoint to the Executive Committee
the same number of directors as they are entitled to designate for election to
the Board of Directors. Holders of the Series B Preferred Stock also have the
right to remove from the Executive Committee any director that they have
appointed to such committee. The number of directors that holders of the Series
B Preferred Stock are entitled to designate (initially, three) drops to two when
the Investors' holdings (including any payment-in-kind dividends) have been
reduced by 66-2/3% from the Investors' holdings at the Closing Date (including
any payment- in-kind dividends), to one when such holdings of the Investors have
been reduced by 80% from their holdings at the Closing Date, and to zero when
such holdings of the Investors have been reduced by 90% from their holdings at
the Closing Date.
PB Capital has informed the Company that it intends to
nominate Michael R. Klein, Douglas J. McCarron, and Ronald N. Tutor as the
initial Designated Directors, and the Company has indicated that such nominees
are acceptable to it. It is contemplated that they will be elected to the Board
of Directors, effective on the Closing Date.
Michael R. Klein. Mr. Klein is 53 years old. Mr. Klein has
been a partner in the law firm of Wilmer, Cutler & Pickering since 1974. Since
1987, he has been the Chairman of Realty Information Group, Inc. (real estate
information). He has been a Director of National Educational Corporation
(education) since April 1991 and a Director of Steck Vaughn Publishing
Corporation (educational publishing) since June 1993.
Douglas J. McCarron. Mr. McCarron is 46 years old. Mr.
McCarron has been President of the Carpenters Local Union No. 1506 (a labor
union) and President
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of the Southern California Conference of Carpenters (a bargaining agent for all
Southern California Carpenters local unions), since 1982. He has also been
General President of the United Brotherhood of Carpenters and Joiners of America
(a labor union) since November 1995 and a Member of the Executive Council of the
AFL-CIO since 1995. Mr. McCarron is a director of ULLICO, Inc. which is the
parent company of The Union Labor Life Insurance Company which through its
Separate Account P is expected to purchase a significant number of shares of
Series B Preferred Stock. From 1992 through 1995, Mr. McCarron was General
Second Vice President of the United Brotherhood of Carpenters and Joiners of
America (a labor union). Mr. McCarron also served as Secretary-Treasurer of the
Southern California District Council of Carpenters (a labor union) from 1987
through 1995. Mr. McCarron has been the Chairman since 1986, and a Trustee since
1987, of the United Brotherhood of Carpenters Pension Fund for Officers and
Directors ("United Brotherhood Pension Fund"). The United Brotherhood Pension
Fund is expected to be a significant investor in PB Capital.
Ronald N. Tutor. Mr. Tutor is 56 years old. Since 1972, Mr.
Tutor has been President and Chief Executive Officer of Tutor-Saliba
Corporation, a California-based company (construction) with 1995 company-wide
revenues of approximately $421 million. Mr. Tutor has been a Director of
Southdown, Inc. since 1993 and a Trustee of the Carpenters Pension Trust, a
pension fund governed by the provisions of the Employee Retirement Income
Security Act of 1974, as amended. In addition, as described below, Mr. Tutor
will be appointed acting Chief Operating Officer of the Company in connection
with the Transaction. Tutor-Saliba Corporation, a corporation controlled by Mr.
Tutor, has been a participant in joint ventures with the Company since 1977. The
Company currently has eight (8) active joint ventures with Tutor- Saliba
Corporation, with a total contract value of over $1 billion. Mr. Tutor is
expected to be an investor in PB Capital.
The new credit facilities provide that it will be an event of
default if the Designated Directors cease to constitute a majority of the
members of the Executive Committee (see "Credit Facilities").
Voting Rights
The holders of Series B Preferred Stock will each initially
have 20.65648 votes for each share held after the issuance of warrants to the
Company's bank group. The Series B Preferred Stock will vote as a class with the
holders of the Common Stock on all matters on which the Common Stock may vote,
except as set forth below. Upon the occurrence of any event that causes an
increase or decrease in the conversion price, the number of votes possessed by
each share of Series B Preferred Stock shall be
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correspondingly decreased or increased.
Whenever a Special Default exists or if the Company has failed
to repurchase Shares of Series B Preferred Stock that it is required to
purchase, (i) the number of members of the Board of Directors shall be increased
by such number as is necessary to allow the election of the directors specified
in clause (ii), and (ii) the holders of the Series B Preferred Stock, voting
separately as a class, shall have the right to elect an additional number of
directors to the Board of Directors such that directors selected by the holders
of the Series B Preferred Stock constitute a majority of the Board of Directors.
The terms of the Series B Preferred Stock provide that, so long as any of the
Series B Preferred Stock is outstanding, the Company shall not, directly or
indirectly, without the affirmative vote or consent of the holders of at least
66-2/3% of all outstanding Series B Preferred Stock voting separately as a
class: (i) amend, alter or repeal any provision of the Company's Restated
Articles of Organization, Certificate of Vote, or By-Laws, if such amendment,
alteration or repeal would alter the contract rights, as expressly set forth in
the Certificate of Vote, of the Series B Preferred Stock or otherwise to
adversely affect the rights of or protections afforded to the holders thereof or
the holders of the Common Stock; (ii) create, authorize or issue, or reclassify
shares of any authorized stock of the Company; or (iii) approve certain
fundamental changes (e.g., any plan or agreement pursuant to which all or
substantially all of the shares of Common Stock shall be exchanged for,
converted into, acquired for or constitute solely the right to receive cash,
securities, property or other assets).
Restrictions on Transfer
The Investors have covenanted not to transfer their interest
in the Company to, and not to permit their investors to transfer their interests
in any of the Investors to, entities that are competitive with the Company for a
period of two years after the Closing Date. Thereafter, for an additional two
years, the Investors have granted to the Company a right of first refusal on any
transfer of Company stock by the Investors to an entity that is competitive with
the Company. In addition, the New Credit Agreement (as hereinafter defined)
provides that certain transfers by the Investors will be considered events of
default (see "Credit Facilities").
Bridge Loan and Participation Agreement
In order to meet the company's need for additional working
capital, in November 1996 the banking group increased the outstanding amount of
its bridge loan facility by $10,000,000 to a total of $25,000,000. As a
condition to the increase in the bridge loan facility, the banking group
required that PB Capital purchase for $10,000,000 a participation interest in
the outstanding bridge loans. Upon the closing
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of the Transaction, the $10,000,000 increase in the bridge loans must be repaid.
In consideration of PB Capital's purchase of a participation interest in the
bridge loans, the Company has paid PB Capital a fee consisting of 47,267 newly
issued shares of Common Stock. The number of shares of Common Stock was
determined by dividing $400,000 by the average daily closing market price of the
Company's Common Stock on the five trading days immediately preceding the date
of the closing of the participation. Upon closing of the Transaction and
repayment of the $10,000,000 increase in the bridge loans, the bridge loan
facility is anticipated to be restructured as part of the New Credit Agreement
(as hereinafter defined) (see "Credit Facilities").
Credit Facilities
In conjunction with the proposed issuance of the Series B
Preferred Stock, the Company, with the assistance of RCBA, has renegotiated the
Company's credit facilities. As a result of these negotiations, the Company has
agreed upon the terms of an Amended and Restated Credit Agreement (the "New
Credit Agreement") which is to become effective upon the consummation of the
Transaction and the satisfaction or waiver of certain customary closing
conditions, but only if such conditions are satisfied or waived on or before
January 31, 1997. The New Credit Agreement provides for a restructuring of the
Company's $114.5 million existing revolving credit facility and its $25 million
existing bridge loan facility into a single $129.5 million revolving credit
facility, comprised of a Tranche A commitment in the amount of $110 million and
a Tranche B commitment in the amount of $19.5 million. The Tranche B commitment
provides for a higher interest rate than the Tranche A commitment. The New
Credit Agreement further requires that the Company repay the loans based upon
the following schedule:
December 31, 1997 $15,000,000
December 31, 1998 $15,000,000
March 31, 1999 $ 2,500,000
June 30, 1999 $ 5,000,000
September 30, 1999 $ 5,000,000
January 1, 2000 Remaining Balance
The New Credit Agreement also requires that a percentage of
certain net proceeds from the disposition of real estate be used to prepay the
loans and reduce the maximum amount of the facility. In this regard, the first
$20 million of net proceeds from real estate sales may be retained by the
Company to fund its operations. Thereafter, fifty percent (50%) of all net
proceeds would be used to reduce the credit facility, with the remaining fifty
percent (50%) available to the Company to fund its operations. In addition,
eighty percent (80%) of the net proceeds from the disposition
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<PAGE>
of other assets must be paid to the banks to prepay the facility when the
aggregate net proceeds from such sales equal at least $125,000 (and at each
$125,000 increment thereafter). All mandatory prepayments resulting from asset
dispositions will reduce the mandatory principal payments detailed above.
In consideration of the restructuring of the credit
facilities, the banks will receive restructuring fees of $323,750, one half
payable at the closing of the New Credit Agreement and one half payable on the
second anniversary of the closing. The agent bank, Morgan Guaranty, will also
receive a $120,000 fee in addition to its share of the aforementioned
restructuring fee. In addition, upon commencement of the New Credit Agreement
the banks will also be granted warrants to purchase an aggregate of 4.9%
(currently equivalent to approximately 410,000 shares) of the Common Stock of
the Company (on a fully diluted basis, after giving effect to the issuance of
the Series B Preferred Stock to the Investors) with an exercise price equal to
the average daily closing market price on the five trading days before the
effective date of the New Credit Agreement. The warrants will be exercisable
three years after the date of grant (or in certain other limited circumstances
at an earlier date) and will expire ten years from the date of grant. The
warrants will have customary antidilution provisions and registration rights.
Among the general covenants of the New Credit Agreement are
certain restrictions on the Company and/or its subsidiaries' ability to incur
new debt. No new debt may be incurred without approval of the banks except as
follows: debt existing on September 30, 1996; debt provided for in the New
Credit Agreement; debt owing to joint ventures of which the Company is a
participant; debt incurred to finance insurance premiums not to exceed $3
million at any time; and debt incurred for financing fixed assets up to $3
million in any twelve consecutive calendar months. In addition, the Company's
aggregate outstanding debt shall not exceed $150 million at any time.
Also provided for in the covenants is a negative pledge that
prohibits the Company from incurring liens on Company assets with the exception
of existing liens at September 30, 1996, liens securing obligations under the
New Credit Agreement, certain bonding company exceptions, purchase money
security interest and certain other permitted encumbrances. The Company also is
restricted to $3 million of capital expenditures annually and to the following
annual limits on investments in real estate: 1996 - $12 million, 1997 - $12.5
million, 1998 - $8.6 million; and 1999 - $3 million.
To remain in compliance with the loan covenants, the Company
also must satisfy certain financial tests, including maintaining a minimum
adjusted tangible net worth as follows:
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MINIMUM CONSOLIDATED
FISCAL QUARTER ADJUSTED TANGIBLE
ENDING NET WORTH
December 31, 1996 $109,244,000
March 31, 1997 $109,661,000
June 30, 1997 $110,078,000
September 30, 1997 $110,495,000
December 31, 1997 $112,899,000
March 31, 1998 $113,275,000
June 30, 1998 $115,651,000
September 30, 1998 $115,977,000
December 31, 1998 $119,303,000
March 31, 1999 $119,629,000
June 30, 1999 $121,955,000
September 30, 1999 $122,281,000
December 31, 1999 $126,611,000
The net worth test is adjustable for non-cash gains or charges
related to real estate investments or of any other real property.
The Company must also maintain a minimum working capital ratio
of 1:1 and is required, starting January 1, 1997, to generate minimum operating
cash flow as follows:
MINIMUM
OPERATING
PERIOD CASH FLOW
January 1, 1997 through March 31, 1997 ($ 20,000,000)
January 1, 1997 through June 30, 1997 ($ 10,000,000)
January 1, 1997 through September 30, 1997 $ 0
January 1, 1997 through December 31, 1997 $ 10,000,000
Each four consecutive fiscal quarters
ending March 31, 1998 and thereafter $ 15,000,000
The New Credit Agreement further provides that there will be
an event of default if (i) PB Capital, Union, The Common Fund, RCBA, Richard C.
Blum, Ronald Tutor, Tutor-Saliba Corporation, and their respective affiliates
(defined in the New
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Credit Agreement as the "Investor Group") fail to maintain collectively an
ownership interest in the Company of at least 75,075 shares of Series B
Preferred Stock, or cease to be the beneficial owners of at least 20% of the
outstanding shares of Common Stock of the Company or the owners collectively of
shares of Series B Preferred Stock convertible into at least 20% of the
outstanding shares of Common Stock of the Company, (ii) any person or group of
persons (excluding the Investor Group and certain other parties) within the
meaning of the Securities Exchange Act of 1934 acquires beneficial ownership of
25% or more of the outstanding shares of Common Stock of the Company,(iii) the
members of Board of Directors designated by members of the Investor Group cease
to constitute a majority of the members of the Executive Committee of the Board
of Directors, or (iv) the powers of the Executive Committee of the Board of
Directors of the Company are diminished in any material respect.
The New Credit Agreement, in addition to general covenants,
further provides that there may be no purchase or redemption by the Company or
any of its subsidiaries of any of the Series B Preferred Stock at any time prior
to the date when the credit facility is paid in full. The New Credit Agreement
also provides that the Company may not pay cash dividends or make other
restricted payments prior to September 30, 1998 and thereafter may not pay cash
dividends or make other restricted payments unless: (i) the Company is not in
default under the New Credit Agreement; (ii) commitments under the credit
facility have been reduced to less than $90 million; (iii) restricted payments
in any quarter, when added to restricted payments made in the prior three
quarters, do not exceed fifty percent (50%) of net income from continuing
operations for the prior four quarters; and (iv) net worth (after taking into
consideration the amount of the proposed cash dividend or restricted payment) is
at least equal to the amount shown below, adjusted for losses from dispositions
of real estate, provided that unadjusted net worth must be at least $60,000,000:
October 1, 1998 to December 30, 1998 $161,977,000
December 31, 1998 to March 31, 1999 $167,303,000
April 1, 1999 to June 30, 1999 $170,129,000
July 1, 1999 to September 30, 1999 $172,955,000
October 1, 1999 to January 1, 2000 $175,781,000
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.
Effect of Warrants
If, as contemplated, the warrants are issued to the Company's
banks (see "Credit Facilities"), the conversion price of the Series B Preferred
Stock will be
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lowered to $9.68219, a reduction from the $10.50 conversion price originally
announced by the Company.
Impact of Failure to Approve the Issuance of the Series B Preferred Stock
If the Transaction is not consummated by January 31, 1997, the
Company would be in default under its existing credit facilities. As a result,
the Company would have to enter into immediate negotiations with its banking
group (including PB Capital) to obtain a waiver of the default and an extension
of the January 31, 1997 termination date of the $25 million bridge loan
facility. In addition, the Company would need to enter into negotiations
regarding an extension of its existing $114.5 million revolving credit facility,
which currently is scheduled to mature on December 6, 1997. Without the
continued availability of these funds the Company cannot conduct operations at
its current level of business. There is no assurance at this time that any such
waiver of default or loan extensions could be obtained and there is also no
assurance that negotiations with the banking group will result in lending levels
sufficient to provide the necessary liquidity to meet the Company's needs.
The failure to obtain such new credit facilities or other
alternative financing might force the Company to change its current real estate
strategies, as they relate to certain of its holdings, and sell some properties
on an accelerated basis to provide near term liquidity. Such a change in
strategy would result in the writedown of those real estate assets to current
disposition levels as opposed to longer term full development values. Moreover,
without the equity infusion from the Investors and the negotiation of new credit
facilities, it is not certain that the real estate sales by the Company could
generate sufficient cash to meet the Company's needs.
Employment and Severance Agreements
In connection with the closing of the Transaction, the Company
plans to enter into separate employment agreements with David B. Perini, John H.
Schwarz, Richard J. Rizzo and Donald E. Unbekant. Under the terms of Mr.
Perini's agreement, Mr. Perini will continue as Chief Executive Officer and
Chairman of the Board of Directors of the Company (subject to election by the
Board of Directors) for a period of three years. Mr. Perini will also remain
President of the Company until the appointment of a Chief Operating Officer for
the Company. The agreement will provide that Mr. Perini will receive his current
salary, which will continue to be reviewed by the Board of Directors. Mr. Perini
will also continue to receive certain benefits, including, but not limited to,
health and life insurance and pension accrual. In addition, Mr. Perini will
continue to receive incentive compensation under the Company's current plans
until the end of 1996 and pursuant to any plans which are in effect thereafter.
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Mr. Perini's agreement will provide that Mr. Perini may
voluntarily terminate his employment for any reason with 60 days notice to the
Company. In such event, Mr. Perini would be entitled to receive his accrued
salary and his accrued bonus up to the date of such termination. Mr. Perini's
agreement will also provide that, during the 90-day period following the first
anniversary of the agreement, Mr. Perini may voluntarily terminate his
employment for any reason with 90 days notice to the Company. In such event, Mr.
Perini would be entitled to receive his salary and benefits for the balance of
the contract term and to the extent that pension benefits cannot be provided
under the Company's qualified plan, they shall be provided under a non-qualified
plan. In the event of Mr. Perini's termination without cause, a reduction in Mr.
Perini's salary, a reduction in other benefits, a material change in his
responsibilities at the Company or certain other events deemed to be a
"Constructive Termination", Mr. Perini would be entitled to terminate his
employment with the Company and receive his base compensation and benefits for
up to three years, depending on when the termination of employment occurred and
to the extent that pension benefits cannot be provided under the Company's
qualified plan, they shall be provided under a non-qualified plan. In the event
Mr. Perini's employment were terminated in accordance with any of the above
provisions, his stock options would become fully exercisable and/or vested and
could be exercised at any time during the salary continuation period (but not
beyond the applicable option term).
Each of the agreements with Messrs. Schwarz, Rizzo and
Unbekant will provide that the executive will continue to serve the Company, in
the position or positions currently held, through December 31, 1997. Each
agreement will provide that the executive will receive his current salary, which
will continue to be reviewed by the Board of Directors. Each executive will also
continue to receive benefits, including, but not limited to, health and life
insurance and pension accrual. In addition, each executive will continue to
receive incentive compensation under the Company's current plans until the end
of 1996 and pursuant to any plans which are in effect thereafter.
Each agreement will provide that the executive may voluntarily
terminate his employment for any reason with 60 days notice to the Company. In
such event, the executive would be entitled to receive his accrued salary and
his accrued bonus up to the date of such termination. Each agreement will
provide that, in the event of the termination of the executive without cause, a
reduction in the executive's salary or other benefits (other than a reduction
that is similar to the reduction made to the salaries or other benefits provided
to all or most other employees of the Company), or a material change in the
executive's responsibilities at the Company or certain other events deemed to be
a "Constructive Termination", the executive would be entitled to terminate his
employment with the Company and receive his base compensation and benefits for
the greater of one year or the remaining contract term and to the extent that
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pension benefits cannot be provided under the Company's qualified plan, they
shall be provided under a non-qualified plan. In the event the executive's
employment were terminated in accordance with the above provision, his stock
options would become fully exercisable and/or vested and could be exercised at
any time during the salary continuation period (but not beyond the applicable
option term).
Bart W. Perini will retire as an active employee of the
Company effective December 31, 1996. He will continue to serve as a Director.
The Company will enter into a severance agreement with Mr. Perini which, in
recognition of his thirty-five years of service, will provide for the
continuation of his base salary and benefits, including health and life
insurance and pension accrual, through December 31, 1998 and to the extent that
pension benefits cannot be provided under the Company's qualified plan, they
shall be provided under a non-qualified plan. In addition, he will continue to
receive incentive compensation under the Company's current plans through the end
of 1996.
Management Agreement
As a condition of the Investors' obligations to acquire the
Series B Preferred Stock, the Stock Purchase Agreement requires that at or prior
to the Closing Date, the Company enter into the Management Agreement. The
Management Agreement will become effective as of the Closing Date. Under the
terms of the Management Agreement, Tutor-Saliba Corporation and Mr. Tutor each
agree to provide the Company with the management services of Mr. Tutor for a
maximum of ten days in any calendar month (unless otherwise agreed by the
parties in writing). Mr. Tutor shall serve as acting Chief Operating Officer and
Tutor-Saliba Corporation will be paid an annual fee of $150,000 for Mr. Tutor's
services. In addition, in order to provide incentive to Mr. Tutor in his role as
acting Chief Operating Officer, he will be granted, on the Closing Date, options
to purchase 150,000 shares of Common Stock. The options will be granted with an
exercise price per share equal to the closing price of a share of Common Stock
on the American Stock Exchange on the day prior to the Closing Date. The options
will not be qualified under Section 422 of the Internal Revenue Code of 1986, as
amended, and will not vest for forty months (or in certain other limited
circumstances at an earlier date). The options expire after eight years.
Unless terminated earlier by the parties, the Management
Agreement terminates upon the earliest to occur of (i) December 31, 1998, (ii)
Mr. Tutor's inability to perform his services under the Management Agreement,
whether because of death,
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disability or otherwise, (iii) written notice from the Company to Mr. Tutor
after, in the determination of a majority of the Executive Committee of the
Board of Directors of the Company, Mr. Tutor has failed to perform his
obligations under the Management Agreement, and (iv) the reasonable
determination by the Board of Directors or Executive Committee of the Company,
along with written notice thereof to Mr. Tutor, that it would be inadvisable for
Mr. Tutor to continue performing the services contemplated by the Management
Agreement.
Executive Committee Compensation
The non-employee members of the Executive Committee will
receive $4,000 for each Executive Committee meeting attended. In addition, each
of the non-employee members of the Executive Committee will also be granted, on
the Closing Date, options to purchase 25,000 shares of Common Stock. The options
will be granted with an exercise price per share equal to the closing price of a
share of Common Stock on the American Stock Exchange on the day prior to the
Closing Date. The options will not be qualified under Section 422 of the
Internal Revenue Code of 1986, as amended, and will not vest for forty months
(or in certain other limited circumstances at an earlier date). The options
expire after eight years.
Registration Rights Agreement
The Series B Preferred Stock will not be listed on the
American Stock Exchange or any other national securities exchange, and the
issuance of the Series B Preferred Stock will not be registered with the SEC.
The shares of Series B Preferred Stock will therefore be restricted securities.
However, the Company will enter into a Registration Rights Agreement (the
"Registration Rights Agreement") with the Investors pursuant to which the
Investors or their permitted successors and assigns under the Agreement (the
"Purchasers") will be entitled to certain additional rights with respect to the
registration under the Securities Act of 1933, as amended, (the "Securities
Act") of the shares of Common Stock received upon conversion of the Series B
Preferred Stock (the "Conversion Shares").
The Registration Rights Agreement will provide that Purchasers
holding unregistered Conversion Shares or Preferred Stock may, upon the receipt
by the Company of a written request by the holders of a majority of all
outstanding Conversion Shares and Preferred Stock, demand that the Company file
with the SEC a registration statement for an offering to be made on a delayed or
continuous basis
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pursuant to Rule 415 of the Securities Act (a "Shelf Registration") for the
purpose of registering the resale of such unregistered Conversion Shares and any
shares of Common Stock into which Preferred Stock may be converted (together,
the "Registrable Securities"). Such agreement will provide that the Company
shall use its best efforts to maintain the effectiveness of such Shelf
Registration until the resale of all such Registrable Securities and, in the
event all Registrable Securities are not resold under such Shelf Registration,
the Company must file a second Shelf Registration statement for the resale of
any and all remaining Registrable Securities.
Voting Agreement
PB Capital, David B. Perini, Bart W. Perini, Ronald N. Tutor,
and Tutor- Saliba Corporation (collectively, the "Stockholders" and each
individually a "Stockholder") will enter into an agreement (the "Voting
Agreement") with the Company, pursuant to which the Stockholders will agree to
vote all of the shares of Common Stock, Series B Preferred Stock, Series A
Junior Participating Cumulative Preferred Stock, and any other series or class
of voting stock to be issued by the Company (collectively, the "Perini Voting
Stock") owned of record or thereafter acquired by them, or over which they have
voting control, in favor of the election to the Board of Directors of the
Company of one representative designated by PB Capital and reasonably
satisfactory to the Company at the first meeting of the Stockholders at which
directors will be elected (the "Meeting"). The terms of the Voting Agreement
will be binding upon transferees of Perini Voting Stock. The Voting Agreement
will remain in effect until immediately after the holding of the Meeting at
which the representative designated by PB Capital is elected.
Shareholder Rights Agreement Amendments
The Company is a party to a Shareholder Rights Agreement,
dated as of September 23, 1988, as amended and restated as of May 17, 1990, with
The First National Bank of Boston as Rights Agent. On September 23, 1988, the
Board of Directors of the Company declared a dividend distribution of one
Preferred Stock Purchase Right (a "Right") for each outstanding share of Common
Stock of the Company to stockholders of record at the close of business on
October 6, 1988. Each Right entitles the registered holder thereof to purchase
one one-hundredth of a share (a "Unit") of Series A Junior Participating
Cumulative Preferred Stock (the "Series A Preferred Stock") at a cash exercise
price of $100.00 per Unit. The Rights expire on September 23, 1998.
The purpose of the Shareholder Rights Agreement is to prevent
hostile attempts
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to acquire control of the Company by making such attempts prohibitively
expensive, unless the Board of Directors acts to redeem the Rights. The Rights
Agreement presently provides that, absent intervention by the Board of
Directors, certain anti-takeover provisions become operative in the event that a
person or group of affiliated or associated persons (other than the Company and
certain of its affiliates and other exempted persons) either: (i) acquires
beneficial ownership of 20% or more of the then outstanding shares of Common
Stock (the date of the announcement of such acquisition being the "Stock
Acquisition Date"), or (ii) acquires beneficial ownership of 10% or more of the
then outstanding shares of Common Stock and the Board of Directors of the
Company determines that such person or group is adverse to the interests of the
Company (an "Adverse Person"). (For purposes of this provision, a person is
deemed to beneficially own the shares of Common Stock into which any class of
preferred stock of the Company is convertible. Such shares issuable on
conversion, however, are generally not counted as part of the number of shares
of Common Stock then outstanding in calculating the percentage of shares owned
by other persons.) Following either such event, the Board of Directors may
provide that each holder of a Right will thereafter have the right to receive
upon exercise that number of Units of Series A Preferred Stock having a market
value of two times the exercise price of the Right, unless the Board of
Directors redeems the Rights. The Board of Directors may also, at its option,
exchange all or any part of the then outstanding and exercisable Rights for
shares of Common Stock or Units of Series A Preferred Stock at an exchange ratio
of one share of Common Stock or one Unit of Preferred Stock per Right.
As part of the Transaction, the Board of Directors plans to
amend the Shareholder Rights Agreement in two ways.
o First, in order to permit the acquisition of the Series B Preferred
Stock by the Investors pursuant to the Agreement, any additional
Preferred Stock issued as dividends, and any Common Stock issued upon
conversion of the Series B Preferred Stock, without triggering the
distribution of the Rights, the Board will amend the Shareholder
Rights Agreement to provide that the issuance of the Series B
Preferred Stock and the Common Stock into which such stock is
convertible will not give rise to a "Stock Acquisition Date" within
the meaning of the Rights Agreement and that none of the Investors
will be deemed to be an "Adverse Person". Accordingly, the issuance of
the Series B Preferred Stock will not trigger the anti-takeover
provisions of the Shareholder Rights Agreement.
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o Second, in order to protect significant potential tax benefits
of the Company attributable to certain net operating losses
("NOLs") that the Company already has, as well as those that
it may have in the future (see "The Company's NOLs and Section
382"), the Company plans to lower the threshold for the
occurrence of a Stock Acquisition Date from 20% to 10% of the
issued and outstanding shares of Common Stock, (the "Second
Amendment") for at least 38 months following the closing date
and plans to extend the expiration of the Shareholder Rights
Agreement to a date that is at least 38 months after the
closing date, at which point, the Board may consider the
adoption of a new shareholder rights agreement. Prior to the
new expiration date of the Shareholder Rights Agreement, this
threshold may not be changed without the prior consent of a
majority of the Executive Committee. The purpose of this
amendment which lowers the trigger threshold for the Rights
is to reduce the risk that one person or a group of persons
will acquire an amount of capital stock of the Company that
would limit the Company's ability to use these NOLs in the
future by making such an acquisition unattractive to buyers.
This amendment does not in any way prevent such acquisitions
from occurring, nor does it render such purchases null and
void. The Company believes that this is the best means
presently available to it to accomplish this end. Depending on
the circumstances in the future, the Company may consider
other means of preventing an "ownership change" as defined by
the Internal Revenue Code of 1986, as amended.
The Second Amendment may be deemed to have an "anti-takeover"
effect because, during the new term of the Shareholder Rights Agreement, it will
make it unattractive for a person or entity (or group thereof) to accumulate
more than 10% of the Company's Common Stock. The Second Amendment thus would
discourage or prohibit accumulations of substantial blocks of shares for which
stockholders might receive a premium above market value. In the opinion of the
Board of Directors of the Company, the fundamental importance to the Company's
stockholders of maintaining the availability of the tax benefits to the Company
outweighs the added anti-takeover effect the Second Amendment may have.
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THE COMPANY'S NOLS AND SECTION 382
As of December 31, 1995, NOLs of approximately $55 million
were available to offset taxable income recognized by the Company in periods
after December 31, 1995. The Company estimates that as of December 31, 1996,
such NOLs will amount to approximately $52 million. There are also unused
investment tax credits and foreign tax credits as indicated on the table below
that are available to the Company to offset future tax liabilities after
utilizing the above mentioned NOLs.
For Federal income tax purposes, the NOLs and tax credits will
expire according to the following schedule:
(000's)
-----------------------------------------------------
Year of Unused Investment Foreign Tax Net Operating Loss
Expiration Tax Credits Credits Carryforwards
---------- ----------- ------- -------------
1998 952
1999 26
2001 449
2002 37
2003 3,046 675
2004 293
2005 728
2006 1,142
2009 26,147
2010 26,283
------- -------- ------------
TOTAL 3,532 978 55,268
======= ======== ============
NOLs benefit the Company by offsetting taxable income dollar for dollar by
the amount of the NOLs, thereby eliminating (subject to a relatively minor
alternative minimum tax) the 35% federal corporate tax on such income. In
contrast, tax credits offset federal taxes dollar for dollar after application
of various enumerated rules and limitations. Perini also has an Alternative
Minimum Tax credit carry over of $2,419,466 from 1995.
The benefit of a company's NOLs and tax credits can be reduced
or eliminated under Section 382 of the Internal Revenue Code ("IRC"). Section
382 limits the use of losses and other tax benefits by a company that has
undergone an "ownership change," as defined in Section 382. Generally, an
ownership change occurs if one or more stockholders, each of whom owns 5% or
more in value of a company's capital stock,
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increase their aggregate percentage ownership by more than 50 percentage
points over the lowest percentage of stock owned by such stockholders over the
preceding three year period. For this purpose, all holders who each own less
than 5% of a company's capital stock are generally treated together as one
stockholder (that is, all holders with less than 5% of a company's stock are
typically treated, in effect, as one "public" stockholder). In addition, certain
constructive ownership rules, which generally attribute ownership of stock to
the ultimate beneficial owner thereof without regard to ownership by nominees,
trusts, corporations, partnerships or other entities, or to related individuals,
are applied in determining the level of stock ownership of a particular
stockholder. Special rules, described below, can result in the treatment of
options (including warrants) as exercised if such treatment would result in an
ownership change. All percentage determinations are based on the fair market
value of a company's capital stock, including any preferred stock which is
voting or convertible (or otherwise participates in corporate growth).
If an ownership change of the Company were to occur, the amount of taxable
income in any year (or portion of a year) subsequent to the ownership change
that could be offset by NOLs or other carryovers existing (or "built in") prior
to such ownership change generally could not exceed the product obtained by
multiplying (i) the aggregate value of the Company's stock immediately prior to
the ownership change (with certain adjustments) by (ii) the federal long-term
tax-exempt rate (currently 5.64%). Because the value of the Company's stock, as
well as the federal long-term tax-exempt rate, fluctuate, it is not possible to
predict with accuracy the annual limitation upon the amount of taxable income of
the Company that could be offset by such NOLs or other items if an ownership
change were to occur on or subsequent to the closing date of the Transaction.
The Company would incur a corporate level tax (current maximum federal rate of
35%) on any taxable income during a given year in excess of such limitation plus
any prior year's unused NOL that was not utilized in such prior year. While the
NOLs not used as a result of this limitation remain available to offset taxable
income in future years, the effect of an ownership change, under certain
circumstances, would be to significantly defer the utilization of the NOLs,
accelerate the payment of federal income tax, and/or cause a portion of the NOLs
to expire prior to their use.
Approval and consummation of the Transaction increases the
risk that the Company will undergo an ownership change because of the
significant change in ownership attributable to the Investors' ownership
interest in the Company. Regulations issued by the Internal Revenue Service (the
"IRS") in March 1994 provide that an "option" will be treated as exercised for
purposes of Section 382 if it meets any one of three tests, each of which will
apply only if a "principal purpose" of the issuance, transfer or structuring of
the option was to avoid or ameliorate the impact of
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an ownership change under Section 382. The term "option" for this purpose is
defined broadly to include, among other things, a contingent purchase, warrant
or put, regardless of whether it is contingent or otherwise not currently
exercisable. Under this definition, the Series B Preferred Stock being reserved
for issuance as payment-in- kind dividends (the "PIK Shares") could be viewed as
"options." The Company believes that, based on its estimate of the potential
values of the Series B Preferred Stock, its knowledge of the current ownership
of Common Stock and $21.25 Preferred Stock by 5 percent stockholders, and the
current trading price of the Common Stock and the $21.25 Preferred Stock, all of
which are subject to change following the date of this Proxy Statement, an
ownership change of the Company will not occur on the closing date of the
Transaction whether or not the PIK Shares are considered as "options" under
Section 382 of the IRC.
The Company did not negotiate the terms of the Agreement,
including the terms of the Series B Preferred Stock (including the stock being
reserved as PIK Shares), with a view to avoid or ameliorate the impact of an
ownership change of the Company under Section 382, and the Company believes that
the issuance, transfer, or structuring of any aspect of the Agreement did not
have as one of its purposes the avoidance or amelioration of the impact of an
ownership change. PB Capital also has indicated that it did not negotiate the
terms of the Agreement with a view to avoiding an ownership change, and it has
indicated its belief that the issuance, transfer, or structuring of any aspect
of the Agreement did not have as one of its purposes the avoidance or
amelioration of an ownership change of the Company. The Company and PB Capital's
conclusions are not binding on the IRS, however, and thus the IRS could
challenge this conclusion. Even if the IRS were to successfully challenge this
position, it is unlikely that the consummation of the Transaction in and of
itself would cause an ownership change of the Company.
However, as indicated in the previous paragraph, such a
challenge, if successful, could increase the risk that purchases by other
stockholders of the Company's Common Stock could effect the percentage shift in
the Company's ownership as determined for purposes of Section 382. Any such
acquisition could increase the likelihood that the Company would experience an
ownership change if such shift, coupled with the consummation of the
Transaction, causes the ownership by 5 percent stockholders (including groups of
less than 5 percent stockholders that are treated as 5 percent stockholders) of
the Company to increase by more than 50 percentage points during a three year
period.
The desire of the Company to maintain its NOLs could make it
difficult for the Company to complete any further significant equity issuances
(public or private) for the three years following the closing date of the
Transaction. That is, even if no holder of
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more than 5% of the Company's capital stock other than the Investors, has
increased its holdings of capital stock of the Company during the past three
years, the fact that, by the Company's estimates, the Investors in the aggregate
will own approximately [32%] of the Company's capital stock after consummation
of the Transaction and that the Company may issue up to an additional estimated
7% of the Company's capital stock as PIK Shares for the payment of dividends
over the next three years, means that the Company may have a reduced ability to
obtain further equity during that same period if it wants to maintain its
ability to use NOLs without application of the Section 382 limitation. Under the
terms of the Series B Preferred Stock, the Investors have the right to approve
certain future issuances of equity, whether junior or senior in rank.
CONTINUED RISK OF OWNERSHIP CHANGE
Notwithstanding the Second Amendment, there remains a risk that certain
changes in relationships among stockholders or other events will cause an
ownership change of the Company under Section 382. Future significant purchases
of the Company's Common Stock and other events that occur prior to the
consummation of the Transaction can effect the percentage shift in the Company's
ownership as determined for purposes of Section 382, and any such acquisition
could increase the likelihood that the Company will experience an ownership
change if such shift, coupled with the consummation of the Transaction, causes
the ownership of 5 percent stockholders of the Company to increase. There also
can be no assurance that the Second Amendment will be effective in preventing an
ownership change, either because a person or group of persons acquires stock in
excess of 10% of the capital stock of the Company (notwithstanding that such
acquisition would trigger the distribution of rights under the Shareholder
Rights Agreement) or because of other factors. For example, while Section 382
provides that fluctuations in the relative values of different classes of stock
are not taken into account in determining whether an ownership change occurs, no
regulations or other guidance have been issued under this provision. Therefore,
the extent to which changes in relative values of the Series B Preferred Stock,
the $21.25 Preferred Stock, and the Common Stock could result in an ownership
change of the Company is unclear, and it is possible that fluctuations in value
could result in an ownership change of the Company.
In addition, the Board of Directors of the Company has the
discretion to prevent the distribution of Rights and also to redeem the Rights
for a nominal sum. Either of these actions may result in an
ownership change that would limit the use of the tax attributes of the Company.
The Board of Directors of the Company intends to consider any such transactions
individually and determine at the time whether it is in the best interests of
the Company, after consideration of any factors that the Board deems relevant
(including possible future events), to permit any such transactions to
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<PAGE>
occur notwithstanding that an ownership change of the Company may occur.
As a result of the foregoing, the Shareholder Rights Agreement
Amendments may serve to reduce, but do not serve to eliminate, the risk that
Section 382 will cause the limitations described above on the use of tax
attributes of the Company to be applicable.
Regulation of Certain Business Combinations under Massachusetts Law
Chapter 110F of the Massachusetts General Laws provides that a
corporation may not engage in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder. Chapter 110F further provides that this
prohibition does not apply if, prior to the date that such stockholder became an
interested stockholder, the board of directors of the corporation approved the
transaction which resulted in the stockholder becoming an interested
stockholder.
Upon consummation of the Transaction, each of PB Capital,
Union and The Common Fund would own more than five percent of the outstanding
voting stock of the Company and each would therefore be an "interested
stockholder" as defined under Chapter 110F. The Board of Directors has voted to
approve the Stock Purchase and Sale Agreement and the transactions contemplated
thereby and has also voted to approve the assignments to Union and The Common
Fund. Accordingly, the prohibition of Chapter 110F will not apply to future
transactions between PB Capital, Union, The Common Fund and the Company.
Fairness Opinions
Opinion of J.P. Morgan Securities Inc.
Pursuant to an engagement letter dated October 9, 1995, the
Company retained J.P. Morgan Securities Inc. ("J.P. Morgan") as its financial
advisor to assist the Company in assessing its alternatives to obtain strategic
capital, including consideration of potential business combinations, private
equity placements, and other transactions including the possible sale of real
estate assets.
At the meeting of the Board of Directors of the Company on
June 12, 1996, J.P. Morgan rendered its oral opinion to the Board of Directors
of the Company that, as of such date, the consideration to be paid to the
Company for the proposed issuance of Series B Preferred Stock was fair from a
financial point of view to the Company. J.P. Morgan has confirmed its June 12,
1996 oral opinion by delivering its written opinion to the Board of Directors of
the Company, dated the date of this Proxy
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<PAGE>
Statement, that, as of such date, the consideration to be paid to the Company in
the proposed Transaction is fair from a financial point of view to the Company.
No limitations were imposed by the Company's Board of Directors upon J.P. Morgan
with respect to the investigations made or procedures followed by it in
rendering its opinions.
The full text of the written opinion of J.P. Morgan dated the
date of this Proxy Statement, which sets forth the assumptions made, matters
considered and limits on the review undertaken, is attached as Annex A to this
Proxy Statement. The Company's stockholders are urged to read the opinion in its
entirety. J.P. Morgan's written opinion is addressed to the Board of Directors
of the Company, is directed only to the consideration to be paid by PB Capital
for the Series B Preferred Stock and does not constitute a recommendation to any
stockholder of the Company as to how such stockholder should vote at the Special
Meeting. The summary of the opinion of J.P. Morgan set forth in this Proxy
Statement is qualified in its entirety by reference to the full text of such
opinion.
In arriving at its opinions, J.P. Morgan reviewed, among other
things, in the case of its June 12, 1996 opinion, the investment offer as then
proposed and negotiated with RCBA, and in the case of its opinion dated the date
of this Proxy Statement, the Stock Purchase and Sale Agreement, related
Transaction documents and this Proxy Statement; the audited financial statements
of the Company for the fiscal years ended December 31, 1995 and December 31,
1994, and the unaudited financial statements of the Company for the period ended
September 30, 1996 in the case of its opinion dated the date of this Proxy
Statement; current and historical market prices of the Common Stock; certain
publicly available information concerning the business of the Company and of
certain other companies engaged in businesses comparable to those of the
Company, and the reported market prices for certain other companies' securities
deemed comparable; publicly available terms of certain transactions involving
companies comparable to the Company and the consideration paid for such
companies; certain agreements with respect to outstanding indebtedness or
obligations of the Company; certain information regarding the Company's real
estate subsidiary and portfolio of assets provided by the Company; and certain
internal financial analyses and forecasts prepared by the Company and its
management. The internal financial analyses and forecasts furnished to J.P.
Morgan were prepared by the management of the Company. The Company does not
publicly disclose internal management financial analyses and forecasts of the
type provided to J.P. Morgan in connection with J.P. Morgan's analysis of the
Transaction and such financial analyses and forecasts were not prepared with a
view toward public disclosure. These financial analyses and forecasts were based
on numerous variables and assumptions that are inherently uncertain and may be
beyond the control of management, including, without limitation, factors
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<PAGE>
related to general economic and competitive conditions and prevailing interest
rates. Accordingly, actual results could vary significantly from those set forth
in such financial analyses and forecasts.
J.P. Morgan also held discussions with certain members of the
management of the Company with respect to certain aspects of the Transaction,
the past and current business operations of the Company, the financial condition
and future prospects and operations of the Company, the effects of the
Transaction on the financial condition and future prospects of the Company, and
certain other matters believed necessary or appropriate to J.P. Morgan's
inquiry. These matters included the overall high debt level of the Company; the
need for further liquidity to support the Company's construction operations and
bonding capacity; limited net proceeds available to the Company if it were to
pursue an accelerated disposition of its real estate assets; potential exposure
to future payments resulting from the Company's WMATA litigation; and the
benefits of the Transaction in strengthening the balance sheet of the Company.
In addition, J.P. Morgan visited certain representative facilities and real
estate assets of the Company, and reviewed such other financial studies and
analyses and considered such other information as deemed appropriate for the
purposes of its opinions.
J.P. Morgan relied upon, without assuming any responsibility
for independent verification, the accuracy and completeness of all information
that was publicly available or that was furnished to it by the Company or
otherwise reviewed by J.P. Morgan, and J.P. Morgan has not assumed any liability
therefor. J.P. Morgan has not conducted any valuation or appraisal of any assets
or liabilities, nor have any valuations or appraisals been provided to J.P.
Morgan. In relying on financial analyses and forecasts provided to J.P. Morgan,
J.P. Morgan has assumed that they have been reasonably prepared based on
assumptions reflecting the best currently available estimates and judgments by
management as to the expected future results of operations and financial
condition of the Company to which such analyses or forecasts relate. J.P. Morgan
has also assumed that the Transaction will have the tax consequences described
in discussions with them, and materials furnished to them by, representatives of
the Company, and that the other transactions contemplated by the Agreement will
be consummated as described in such Agreement.
J.P. Morgan's opinions are based on economic, market and other
conditions as in effect on, and the information made available to J.P. Morgan as
of, the date of such opinions. Subsequent developments may affect the written
opinion dated the date of this Proxy Statement, and J.P. Morgan does not
undertake any obligation to update, revise, or reaffirm such opinion. J.P.
Morgan expresses no opinion as to the price at which the Company's Common Stock
will trade at any future time.
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The following is a summary of the material financial analyses
utilized by J.P. Morgan in connection with providing its opinions. The Company
is engaged in both the construction and real estate businesses. J.P. Morgan
valued the Company's construction operations employing generally accepted
valuation methods. In valuing the real estate business, J.P. Morgan estimated
realizable proceeds from an accelerated disposition strategy, an approach which
differs materially from the Company's current and historical long-term hold
strategy toward its real estate operations.
CONSTRUCTION BUSINESS - DISCOUNTED CASH FLOW ANALYSIS. J.P.
Morgan conducted a discounted cash flow analysis for the purpose of determining
the equity value per share of the Company's construction operations. J.P. Morgan
calculated the unlevered free cash flows that the Company is expected to
generate through its construction operations during fiscal years 1996 through
2000 based upon management financial projections. J.P. Morgan also calculated a
range of terminal values of the Company's construction operations at the end of
the period ending December 31, 2000 by applying exit earnings before interest
and taxes ("EBIT") multiples to the EBIT of the Company during the final year
period. The EBIT multiples applied were equivalent to EBIT multiples at which
certain publicly traded comparable companies are currently trading. The
unlevered free cash flows and the range of terminal asset values were then
discounted to present values using a range of discount rates from 10.0% to 11.0%
which were chosen by J.P. Morgan based upon an analysis of the average weighted
average cost of capital of certain publicly traded comparable companies. After
giving effect to the total corporate level debt and existing preferred stock of
the Company, the discounted cash flow analysis yielded an implied trading value
for the Company's Common Stock of approximately $6.25 to $11.00 per share for
its construction operations.
CONSTRUCTION BUSINESS - PUBLIC TRADING MULTIPLES. J.P. Morgan
compared selected financial data of the Company with similar data for selected
publicly traded companies engaged in businesses which J.P. Morgan judged to be
analogous to the Company. The companies selected by J.P. Morgan were Granite
Construction Inc., Guy F. Atkinson Company of California, and The Turner
Corporation. These companies were selected, among other reasons, because they
were principally engaged in the business of general contracting, specifically
commercial buildings and civil projects, without a substantial component of
design and engineering work. For each comparable company, publicly available
financial performance through the twelve months ended December 31, 1995 and
through the six months ended June 30, 1996 was analyzed. In addition, publicly
available estimates of each comparable company's future financial performance
was reviewed in relation to the current market valuation of that company. J.P.
Morgan selected the median value for each multiple, specifically: firm value
divided by projected 1996 EBIT, market value divided by projected 1996
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net income, and market value divided by projected 1997 net income where
available. These multiples were then applied to the Company's projected 1996
EBIT and projected net income for the twelve months ending December 31, 1996 and
December 31, 1997. After giving effect to certain adjustments including the
total corporate level debt and existing preferred stock of the Company, these
multiples yielded an implied trading value for the Company's Common Stock of
approximately $6.00 to $8.25 per share. J.P. Morgan did not use multiples based
on historical financial results due to the distorting effect of the Company's
losses during 1995.
CONSTRUCTION BUSINESS - SELECTED TRANSACTION ANALYSIS. Using
publicly available information, J.P. Morgan examined selected transactions
involving general contracting companies of the type analogous to the Company.
J.P. Morgan found that such transactions were very limited and identified only
one transaction which involved a suitably comparable company and occurred
recently enough to be relevant to its valuation of the Company. This transaction
was the merger of Washington Contractors Group, Inc. with Kasler Corporation in
July 1993. J.P. Morgan compared the consideration received by Kasler
shareholders to the financial performance of Kasler Corporation and applied the
implied EBIT multiple to the Company's estimated 1996 EBIT. After giving effect
to the total corporate level debt and existing preferred stock of the Company,
this multiple yielded an implied trading value for the Company's Common stock of
approximately $6.00 per share.
REAL ESTATE ASSETS. The Company's real estate portfolio
consists of two large assets, the Resort at Squaw Creek in Squaw Valley,
California and Rincon Center in San Francisco, and a diverse group of thirteen
other assets including office buildings, residential land and lots and
commercial land held for development in several regions of the United States.
The Company has a strategy of holding its major real estate assets as long as
required to realize profits on its investments while selectively selling off its
smaller real estate assets. In addition to reviewing the Company's forecasts for
its long-term real estate strategy and analyzing the portfolio's estimated
near-term negative cash flow performance, J.P. Morgan focused on the near-term
net proceeds realizable through an accelerated disposition strategy. In
estimating near-term liquidity, J.P. Morgan employed several valuation
methodologies including a discounted cash flow approach, comparable sales
transactions, and estimated cost of carry of certain assets. The contribution of
the real estate assets in providing potential near-term liquidity to the Company
is estimated to be approximately $15 to $20 million, or $3.00 to $4.00 per
share. Such estimate does not constitute an appraisal of these assets, and the
actual proceeds realized by the Company in any such sales could be materially
different.
WMATA LITIGATION. J.P. Morgan factored into its financial
analyses a
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preliminary judgment by the U.S. District Court (D.C.) in July 1993 in which the
Company was found liable for $16.5 million, equivalent to approximately $3.40
per share, in connection with subway construction contracts for the Washington
Metropolitan Area Transit Authority (WMATA). The case is awaiting a final
decision and the Company has asked the Court to rule upon undecided claims
outstanding against WMATA which would offset the preliminary judgment and
thereby reduce or eliminate its ultimate exposure at this level or through the
appeals process.
In connection with its opinion dated the date of this Proxy
Statement, J.P. Morgan reviewed the analyses used to render its June 12, 1996
oral opinion to the Board of Directors of the Company by performing procedures
to update certain of such analyses and by reviewing the assumptions upon which
such analyses were based and the factors considered in connection therewith.
The summary set forth above does not purport to be a complete
description of the analyses or data presented by J.P. Morgan. The preparation of
a fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or summary description. J.P. Morgan believes that the summary
set forth above and its analyses must be considered as a whole and that
selecting portions thereof, without considering all of its analyses, could
create an incomplete view of the processes underlying its analyses and opinion.
J.P. Morgan based its analyses on assumptions that it deemed reasonable,
including assumptions concerning general business and economic conditions and
industry-specific factors. The other principal assumptions upon which J.P.
Morgan based its analyses are set forth above under the description of each such
analysis. J.P. Morgan's analyses are not necessarily indicative of actual values
or actual future results that might be achieved, which values may be higher or
lower than those indicated. Moreover, J.P. Morgan's analyses are not and do not
purport to be appraisals or otherwise reflective of the prices at which
businesses actually could be bought or sold.
As a part of its investment banking business, J.P. Morgan and
its affiliates are continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, investments for passive
and control purposes, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements, and valuations for estate,
corporate and other purposes. J.P. Morgan was selected to advise the Company
with respect to the Transaction and to deliver an opinion to the Company's Board
of Directors with respect to the Transaction on the basis of such experience and
its familiarity with the Company.
For services rendered as financial advisor to assist the
Company in assessing its alternatives to obtain strategic capital, including
consideration of potential business
33
<PAGE>
combinations, private equity placements, and other transactions including the
possible sale of real estate assets, J.P. Morgan has received fees totaling
$550,000 prior to the date of this Proxy Statement. Upon the delivery to the
Company's Board of Directors of its written opinion, J.P. Morgan will receive a
fee of $350,000, and upon the closing of the Transaction, J.P. Morgan will
receive an additional fee from the Company of $750,000. In addition, the Company
has agreed to reimburse J.P. Morgan for its expenses incurred in connection with
its services, including the fees and disbursements of counsel, and will
indemnify J.P. Morgan against certain liabilities, including liabilities arising
under the Federal securities laws.
J.P. Morgan and its affiliates maintain banking and other
business relationships with the Company and its affiliates, for which it
receives customary fees. J.P. Morgan's affiliated bank, Morgan Guaranty Trust
Company of New York ("Morgan Guaranty") is the agent bank for the Company's
current revolving credit facility which is being restructured as part of the
Transaction. In connection with the restructuring of the revolving credit
facility, Morgan Guaranty will receive a 20.6% share of the $323,750
restructuring fee and the same percentage of the approximately 410,000 warrants
(see "Credit Facilities"). In addition, Morgan Guaranty will receive a $120,000
fee as the agent bank. In the ordinary course of their businesses, affiliates of
J.P. Morgan may actively trade the debt and equity securities of the Company for
their own accounts or for the accounts of customers and, accordingly, they may
at any time hold long or short positions in such securities.
Opinion of Chase Securities Inc.
The Company engaged Chase Securities Inc. ("Chase") to evaluate the
fairness to the Company of the consideration to be paid to the Company in
connection with the transactions pursuant to the Agreement. On September 27,
1996, Chase delivered its written opinion to the Board of Directors of the
Company and Chase subsequently confirmed such written opinion by delivering its
written opinion to the Board of Directors of the Company dated the date of this
Proxy Statement, in each case to the effect that, based upon and subject to the
assumptions, factors and limitations set forth in such written opinion, as of
the date of such opinion, the consideration to be paid to the Company in
connection with the Transaction is fair, from a financial point of view, to the
Company.
The full text of Chase's written opinion dated the date of this Proxy
Statement, which sets forth assumptions made, factors considered and limitations
on the review undertaken by Chase in rendering such opinion, is attached as
Annex B to this Proxy Statement and is incorporated herein by reference. The
summary set forth below is qualified in its entirety by reference to the full
text of such opinion. Stockholders are urged to read the opinion carefully and
in its entirety.
34
<PAGE>
Chase's opinions are directed only to the fairness, from a financial point
of view, of the consideration to be paid to the Company in connection with the
Transaction and do not address the Company's underlying decision to proceed with
or effect the Transaction. Chase's opinions are rendered for the use and benefit
of the Board of Directors of the Company in its evaluation of the Transaction
and do not constitute a recommendation to any stockholder of the Company as to
how such stockholder should vote at the Special Meeting. Except as set forth in
Chase's opinion dated the date of this Proxy Statement, the Board of Directors
did not impose any limitations upon the scope of the investigation that Chase
deemed necessary to enable it to deliver its opinions.
In arriving at its opinions, Chase, among other things: (i) reviewed the
Agreement and other Transaction documents referred to therein; (ii) reviewed a
draft Proxy Statement of the Company prepared in connection with seeking
stockholder approval for the Transaction; (iii) reviewed certain publicly
available business and financial information of the Company, including the
audited financial statements of the Company for the fiscal years ended December
31, 1995 and December 31, 1994 and the unaudited financial statements of the
Company for the period ended September 30, 1996; (iv) reviewed certain publicly
available business and financial information of certain companies engaged in
businesses Chase deemed comparable to those of the Company; (v) compared current
and historical market prices of the Company's Common Stock and reported market
prices of the securities of certain other companies that were deemed comparable;
(vi) reviewed publicly available financial terms of certain business
transactions Chase deemed comparable to the Transaction and otherwise relevant
to Chase's inquiry; (vii) held discussions with members of the Company's senior
management concerning certain aspects of the Transaction, the Company's past and
current business operations, the Company's financial condition, future
prospects, and operations, before and after giving effect to the Transaction, as
well as their views of the business, operational, strategic benefits, and other
implications of the Transaction, and certain other matters Chase believed
necessary or appropriate to Chase's inquiry, including (a) the overall high debt
level of the Company, (b) the need for further liquidity to support the
Company's construction operations and bonding capacity, (c) limited net proceeds
available to the Company if it were to pursue an accelerated disposition of its
real estate assets, (d) potential exposure to future payments resulting from the
Company's Washington Metropolitan Area Transit Authority litigation in which the
Company was found liable in a preliminary judgment by the U.S. District Court
(D.C.) in July 1993, and (e) the benefits of the Transaction in strengthening
the balance sheet of the Company; (viii) reviewed certain agreements with
respect to outstanding indebtedness or obligations of the Company; (ix) reviewed
certain information provided by the Company regarding its real estate subsidiary
and portfolio of assets; (x) reviewed certain internal non-public financial and
operating data provided by the Company's management concerning the Company's
business, including
35
<PAGE>
management forecasts and projections of future financial results; and (xi) made
such other analyses and examinations as Chase deemed necessary or appropriate.
The forecasts and projections furnished to Chase were prepared by the management
of the Company. The Company does not publicly disclose internal management
projections of the type provided to Chase in connection with Chase's analysis of
the Transaction, and such projections were not prepared with a view toward
public disclosure. These forecasts and projections were based on numerous
variables and assumptions that are inherently uncertain and may be beyond the
control of management, including, without limitation, factors related to general
economic and competitive conditions and prevailing interest rates. Accordingly,
actual results could vary significantly from those set forth in such forecasts
and projections.
In connection with its opinions, Chase relied upon and did not assume any
responsibility for independently verifying the accuracy and completeness of all
of the information provided to, discussed with, or reviewed by or for Chase, or
publicly available for purposes of its opinions, and did not assume any
liability with respect thereto. Chase has not made nor obtained any independent
evaluations or appraisals of the assets or liabilities of the Company, and Chase
has not conducted a physical inspection of the properties and facilities of the
Company. With respect to financial forecasts and projections prepared by the
Company, Chase assumed that they were reasonably prepared on bases reflecting
the best currently available estimates and judgments of the Company's management
as to the future financial performance of the Company. Chase expressed no views
as to such forecasts or projections or the assumptions on which they were based.
Chase also assumed that the Transaction will have the tax consequences described
to it in discussions with, and materials furnished to Chase by, representatives
of the Company, and that the other transactions contemplated by the Agreement
will be consummated as described in such agreement. In addition, Chase was not
authorized to and did not solicit any indications of interest from any third
parties with respect to the purchase of all or part of the Company's business or
assets, and accordingly Chase relied entirely on the results of the process
conducted by representatives of J.P. Morgan in that regard.
For purposes of rendering its opinions, Chase has also assumed, in all
respects material to its analysis, that the representations and warranties of
each party contained in the Agreement are true and correct, that each party has
and will perform all of the covenants and agreements required to be performed by
it under such agreement, and that all conditions to the consummation of the
Transaction will be satisfied without waiver thereof. Chase necessarily based
its opinions on market, economic, and other conditions as they existed on, and
could be evaluated as of, the date of such opinions. Subsequent developments may
affect or have affected Chase's opinions, and Chase did not undertake any
obligation to update, revise, or reaffirm its opinions. Additionally,
36
<PAGE>
Chase expressed no opinion as to the price at which the Company's Common Stock
will trade at any future time.
The following is a summary of certain of the financial analyses utilized by
Chase and reviewed with the Board of Directors of the Company at its meeting on
September 27, 1996, (as updated, in certain identified cases below), in
connection with rendering its opinions and does not purport to be a complete
description of the analyses performed by Chase. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. Selecting portions of the analyses as a whole
could create an incomplete view of the processes underlying Chase's opinion. In
arriving at its fairness determination, Chase considered the results of all such
analyses. The analyses were prepared solely for the purpose of enabling Chase to
render its opinion to the Board of Directors of the Company. Analyses based upon
forecasts of future results are not necessarily indicative of actual future
values, which may be significantly more or less favorable than suggested by such
analyses.
Comparable Company Analysis. Chase compared certain publicly available
financial data of selected companies in the construction and the construction
and engineering industries with that of the Company. The selected construction
companies were Guy F. Atkinson Company of California, Banister Foundation Inc.,
Granite Construction Incorporated and Turner Corporation. The selected
construction and engineering companies were Fluor Corporation, Foster Wheeler
Corporation, Jacobs Engineering Group and Stone & Webster Incorporated. For each
selected company, Chase, among other things, derived an adjusted market value of
such company, consisting of the aggregate market value of the Company's common
stock, plus the amount of total indebtedness and preferred stock of such company
less its cash and cash equivalents, and analyzed the (i) revenues, (ii) earnings
before interest, taxes, depreciation and amortization ("EBITDA") and (iii) EBIT
of these companies for the last twelve months, in each case as a multiple of
adjusted market value. This analysis produced multiples of (i) revenues to
adjusted market value ranging from a high of 0.6x to a low of 0.03x, with a mean
of 0.3x, as compared to a multiple for the Company of 0.lx, (ii) EBITDA to
adjusted market value ranging from a high of 9.3x to a low of 5.10x, with a mean
of 7.6x, as compared to a multiple for the Company of 18.5x and (iii) EBIT to
adjusted market value ranging from a high of 17.6x to a low of 9.0x, with a mean
of 12.9x, as compared to a multiple for the Company of 27.9x. Due to the
financial condition of the Company, as well as the financial condition of some
of the comparable companies, Chase did not derive a specific per share reference
range from this analysis.
Merger & Acquisition Transaction Analysis. Chase reviewed nine merger and
acquisition transactions in the construction industry announced since October 1,
1990.
37
<PAGE>
The transactions reviewed in this analysis (collectively, the "Transaction
Comparables") were Washington Construction Group Inc.'s acquisition of Morrison
Knudsen Corp., Granite Construction Co.'s acquisition of Gibbons Co., Ogden
Corp.'s acquisition of Ogden Projects Inc., Washington Contractors Group Inc.'s
acquisition of Kasler Corp., Karl Steiner Holding Corp.'s acquisition of Turner
Corp, Banister Capital Foundation Inc.'s acquisition of Majestic Contractors
Ltd., Blackstone Capital Partners LP's acquisition of Great Lakes Dredge & Dock
Co., LE Myers Co. Group's acquisition of Hawkeye Construction Inc. and Ogden
Corp's acquisition of ERC Environmental & Energy Services Inc. For each
Transaction Comparable, Chase, among other things, analyzed each acquired
company's EBIT for the last twelve months, in each case as a multiple of the
transaction value, and derived reference multiples ranging from 7.5x to 8.5x.
Based on this range and Chase's updated analysis subsequent to the September 27,
1996 meeting of the Board of Directors of the Company, Chase calculated the
implied equity value of the Company to be approximately $5.69 to $8.67 per
share.
Construction Business Discounted Cash Flow Analysis. Chase performed a
discounted cash flow analysis for the purpose of determining the equity value
per share of the Company's construction business. Based on certain forecasts and
projections provided to Chase by the Company's management for the fourth quarter
of 1996 and the years 1997 through 2000, Chase calculated the projected stream
of unlevered free cash flows of the Company's construction business through the
year 2000. Chase derived the estimated present value of such cash flows using
discount rates ranging from 10.5% (low) to 11.5% (high), which were selected by
Chase based on an analysis of the weighted average cost of capital of the
companies named in the comparable company peer groups. After taking into account
assumed terminal values of the construction business at the end of the year 2000
(based on exit multiples of projected EBIT ranging from 6.0x and 8.0x) and
giving effect to the total corporate debt level and Chase's updated analysis
subsequent to the September 27, 1996 meeting of the Board of Directors of the
Company, Chase calculated a per share reference range of $4.18 to $9.40 for the
Company's construction business.
Public Company Transaction Analysis. Chase summarized eight transactions in
which private equity investors purchased significant equity stakes directly from
publicly traded corporations. The companies used in this analysis were the
investment by Brown Brothers Harriman 1818 Fund L.P. in Columbia Hospital Corp.,
by Kohlberg Kravis Roberts & Co. in TW Holdings, Inc., by Joseph Littlejohn &
Levy in Doskocil Companies Inc., by Blackstone Capital Partners LP in People's
Choice TV Corp., by Warburg Pincus Ventures/International Biotechnology Trust in
Amergen Inc., by Hass Wheat & Harrison Inc. in Playtex Products, Inc., by
Insurance Partners, L.P./Management in Highland Insurance Group Inc. and by
Warburg Pincus Ventures/Richard Snyder in Western Publishing Group Inc. Chase
noted that none of the transactions was identical to the Transaction. However,
despite significant variations among these transactions, this analysis provides
a useful benchmark with
38
<PAGE>
respect to certain structural, corporate governance, and financial aspects of
this type of investment transaction.
In connection with its opinion dated the date of this Proxy Statement,
Chase reviewed the analyses used to render its September 27, 1996 written
opinion to the Board of Directors of the Company by performing procedures to
update certain of such analyses and by reviewing the assumptions upon which such
analyses were based and the factors considered in connection therewith.
The terms of the engagement of Chase by the Board of Directors are set
forth in the letter agreement, dated September 5, 1996, by and between Chase and
the Company (the "Engagement Letter"). Pursuant to the terms of the Engagement
Letter, the Company has paid Chase, in consideration of certain advisory
services with respect to the Transaction, a fee of $500,000 upon delivery of its
written opinion dated as of September 27, 1996. In addition, the Company has
agreed to reimburse Chase for its reasonable out-of-pocket expenses, including
fees and disbursements of its counsel, and to indemnify Chase against certain
liabilities relating to or arising out of this engagement.
In the ordinary course of business, Chase or its affiliates may trade in
the securities of the Company for their own accounts and for the accounts of
their customers and, accordingly, may at any time hold a long or short position
in such securities.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR THE APPROVAL OF THE ISSUANCE
OF THE SERIES B PREFERRED STOCK
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<PAGE>
PROPOSAL 2
APPROVAL OF AMENDMENT OF BY-LAWS
Reason for By-Law Amendment
As part of the Transaction pursuant to which the Series B Preferred Stock
will be issued, the Board of Directors of the Company has approved a By-Law
Amendment that will become operative with no further action of the Board or the
stockholders immediately upon the consummation of the purchase of the Series B
Preferred Stock by the Investors. However, because of the size of their
investment in the Company, the Investors, as a condition of their obligation to
acquire the Series B Preferred Stock, are requiring that the Company obtain
stockholder approval of the By-Law Amendment even though stockholder approval is
not required under Massachusetts law. The By-Law Amendment is described in the
following paragraph.
Description of By-Law Amendment
Under the By-Laws of the Company, as amended by the By-Law Amendment, the
Executive Committee is fixed at five members. Certain powers of the Board of
Directors are expressly delegated to the Executive Committee. More specifically,
neither the Company nor the Board of Directors may take any of the following
actions without the approval of a majority of the members of the Executive
Committee of the Board of Directors: (1) any borrowing or guarantee by the
Company exceeding $15 million, (2) except for issuance of stock or stock options
pursuant to the Company's incentive compensation plans or programs, any issuance
of stock other than Common Stock of the Company in an aggregate amount not
exceeding five percent (5%) of the Common Stock of the Company issued and
outstanding on the date of the initial issuance of Series B Preferred Stock to
the Investors, (3) any strategic alliance (other than a construction joint
venture) involving a capital commitment by the Company exceeding $5 million, (4)
any asset sale by the Company or lease as lessor exceeding $5 million (other
than equipment dispositions in the normal course of business); (5) any
redemption or amendment of the Shareholder Rights Agreement or the preferred
stock of the Company issuable upon the exercise of such rights; and (6) any
termination of or amendment to the Management Agreement (see "Management
Agreement"). The approval of the Executive Committee, however, is not required
for any decision by the Board of Directors to redeem the Preferred Stock. (see
"Redemption by the Company (Optional and Mandatory)"). In addition, the
Executive Committee shall have the
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<PAGE>
power to supervise the activities of the Company's chief executive officer. The
Certificate of Vote provides that the By-Laws of the Company may not be amended
in a manner that affects the rights of the holders of the Series B Preferred
Stock without the affirmative vote or consent of two-thirds of such shares.
THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE FOR THE
AMENDMENT OF THE COMPANY'S BY-LAWS
Principal Stockholders
The following table sets forth the beneficial ownership of the Company's
voting securities as to (i) each person who is known by the Company to
beneficially own more than five percent of any class of the Company's voting
securities, (ii) each of the Company's directors, (iii) the Company's Chief
Executive Officer and each of the three other most highly compensated executive
officers during 1995 (the "Named Executive Officers"), and (iv) all directors
and Named Executive Officers as a group, based on representations of officers
and directors of the Company as of November 1, 1996 and filings as of or prior
to November 1, 1996 received by the Company on Schedules 13D and 13G or Form 13F
under the Exchange Act. All such information was provided by the stockholders
listed and reflects their beneficial ownership based on such representations or
filings. In addition, the table sets forth the pro-forma voting power for the
listed beneficial owners in the event that the closing of the Transaction occurs
and in the event that the Series B Preferred Stock is converted to Common Stock.
41
<PAGE>
<TABLE>
Pro Forma Voting Power
Assuming
-------------------------------
Amount and Approval of
5% Stockholders, Named Executive Nature of Present Issuance of Conversion of
Title of Officers, and Directors and Named Beneficial Percentage Voting Series B Series B
Class Executive Officers as a Group Ownership(1) of Class Power Preferred(2) Preferred(2)
----- ----------------------------- ------------ -------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Series B PB Capital Partners, L.P. 150,150 (3) 100.00% 0.00% 37.09%(7) 37.09%(7)
Preferred 909 Montgomery St. (4)(5)(6)
Suite 400
San Francisco, CA 94133
Common Perini Corporation Employee Stock 472,236 (9) 9.73% 9.73% 5.65% 5.65%
Stock Ownership Trust ("ESOT")(8)
73 Mt. Wayte Avenue
Framingham, MA 01701
Common Tutor-Saliba Corporation 351,318 (10) 7.24% 7.24% 4.20% 4.20%
Stock c/o Ronald N. Tutor
15901 Olden Street
Sylmar, CA 91342
Common Quest Advisory Corp. 327,000 (11) 6.74% 6.74% 3.91% 3.91%
Stock 1414 Avenue of the Americas
New York, NY 10019
</TABLE>
42
<PAGE>
<TABLE>
Pro Forma Voting Power
Assuming
-------------------------------
Amount and Approval of
5% Stockholders, Named Executive Nature of Present Issuance of Conversion of
Title of Officers, and Directors and Named Beneficial Percentage Voting Series B Series B
Class Executive Officers as a Group Ownership(1) of Class Power Preferred(2) Preferred(2)
----- ----------------------------- ------------ -------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Common TCW Group, Inc. 284,500(12) 5.86% 5.86% 3.40% 3.40%
Stock 865 So. Figueroa St.
Los Angeles, CA 90017
Common David B. Perini 375,580(13) 7.74% 7.74% 4.49% 4.49%
Stock Chairman, President and
Chief Executive Officer
Common John J. McHale 4,305(14) * * * *
Stock Director
Common Richard J. Boushka 5,105(14) * * * *
Stock Director
Common Bart W. Perini 218,609(15) 4.51% 4.51% 2.61% 2.61%
Stock Director, Chairman, President and
Chief Executive Officer of Perini
Land and Development Company
Common Marshall M. Criser 4,305(16) * * * *
Stock Director
Common Thomas E. Dailey 12,822(17) * * * *
Stock Director
Common Arthur J. Fox, Jr. 4,468(18) * * * *
Stock Director
Common Jane E. Newman 2,484(19) * * * *
Stock Director
</TABLE>
43
<PAGE>
<TABLE>
Pro Forma Voting Power
Assuming
------------------------------
Amount and Approval of
5% Stockholders, Named Executive Nature of Present Issuance of Conversion of
Title of Officers, and Directors and Named Beneficial Percentage Voting Series B Series B
Class Executive Officers as a Group Ownership(1) of Class Power Preferred(2) Preferred(2)
----- ----------------------------- ------------ -------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Common Albert A. Dorman 3,407(20) * * * *
Stock Director
Common Nancy Hawthorne 3,100(21) * * * *
Stock Director
Common Richard J. Rizzo 28,778(22) * * * *
Stock Executive Vice President,
Building Construction
Common John H. Schwarz 26,117(23) * * * *
Stock Executive Vice President,
Finance & Administration
Common Donald E. Unbekant 35,852(24) * * * *
Stock Executive Vice President,
Civil & Environmental
Construction
Common All directors and executive 519,283(25) 10.70% 10.70% 6.21% 6.21%
Stock officers as a group (13 persons)
</TABLE>
- ------------------------
* Less than one percent
(1) Unless otherwise noted in the footnotes to this table, each
individual or entity in the table above has sole or shared
voting and investment power over the shares listed.
(2) For purposes of calculating the pro forma beneficial ownership
percentages, the total shares outstanding include the
3,101,571 shares referred to in Notes (4) and (5) below and
409,774 shares applicable to the Stock Purchase Warrants (see
"Credit Facilities").
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<PAGE>
(3) Assuming issuance of Series B Preferred Stock.
(4) RCBA, 909 Montgomery Street, Suite 400, San Francisco,
California 94133 is the sole general partner of PB Capital. In
addition, RCBA is an investment adviser to The Common Fund,
which will hold approximately 25,000 shares of the Series B
Preferred Stock (see footnote 6 below). Richard C. Blum &
Associates, Inc. ("RCBA Inc."), also at 909 Montgomery Street,
Suite 400, San Francisco, California 94133, is the sole
general partner of RCBA. Richard C. Blum is the Chairman of
the Board and substantial shareholder of RCBA Inc. Mr. Blum
disclaims beneficial ownership of all securities reported in
the table except to the extent of his pecuniary interest
therein.
(5) In December, PB Capital and the Company entered into a stock
assignment and assumption agreement whereby PB Capital
assigned its right to purchase between 32,500 and 37,500
shares (21.65% to 24.98% of the class, respectively) of the
Series B Preferred Stock to Union. The Company has been
further advised that PB Capital contemplates entering into an
agreement with Union pursuant to which Union will agree to
refrain from disposing of its interest in the Company until
the earlier of five years after its acquisition or the
dissolution of PB Capital. Union will also have the right to
make earlier dispositions on a pro rata basis to the extent PB
Capital disposes of its shares.
(6) The Company has been advised that PB Capital intends to assign
its right to purchase up to 25,000 of the shares (up to 16.65%
of the class) of Series B Preferred Stock to The Common Fund.
RCBA is the investment adviser to The Common Fund for this
investment with full discretion to purchase for The Common
Fund's account the Series B Preferred Stock. The Common Fund
expressly disclaims membership in any group with RCBA, Richard
C. Blum or any other related entity and disclaims beneficial
ownership of securities owned directly or indirectly by any
other person or entity.
(7) Includes voting power equal to 3,101,571 shares of Common
Stock assuming approval of the issuance of the Series B
Preferred Stock pursuant to this Proxy solicitation. Voting
power, assuming conversion of the Series B Preferred Stock, is
also equal to 3,101,571 shares of Common Stock.
(8) Robert E. Higgins, John E. Chiaverini, and Robert J. Howard
are Trustees of the Perini Corporation ESOT and are members of
the Committee empowered to administer the Perini Corporation
Employee Stock Ownership Plan ("ESOP") under the terms
thereof.
(9) The ESOT has sole voting and investing power for 149,861
shares. In addition, there are 322,375 shares held by the
Trust that have been allocated to the accounts of participants
in the Perini Corporation Employee Stock Ownership Plan.
(10) Based on information contained in Schedule 13D of Tutor-Saliba
Corporation dated March 9, 1995 and subsequent direct
communications by the Company with the appropriate
representatives of Tutor-Saliba Corporation.
(11) Based on information contained in Schedule 13G of Quest
Advisory Corp. (a New York corporation) and Quest Management
Company (a Connecticut general partnership) dated February 15,
1996.
(12) Based on information contained in Schedule 13G of the TCW
Group, Inc. dated February 12, 1996.
(13) Includes 12,942 shares in his children's names for which he
has Power of Attorney giving him voting power. Includes 40,500
shares for which Mr. Perini holds options. Includes 596 shares
of Common Stock resulting from the assumed conversion of 900
shares of Convertible Preferred Stock (.662 shares of Common
Stock for each share of Preferred Stock). Includes 56,499
shares, held in a testamentary trust established under the
will of Louis R. Perini Sr. David B. Perini is one of four
trustees of such trust and is one of the beneficiaries of such
trust. David B. Perini disclaims beneficial ownership in
205,449 of such 375,580 shares which are held by The Perini
Memorial Foundation, Inc., a Massachusetts charitable
corporation ("The Perini Foundation"), of which David B.
Perini is one of three officers and directors.
(14) Includes 1,148 shares awarded on May 19, 1994, 366 shares
awarded on May 19, 1988 and 835 shares awarded on May 16, 1991
pursuant to the 1988 Perini Corporation Restricted Stock Plan
for Outside Directors. Also includes 1,756 shares of Common
Stock received in lieu of the 1996 first, second, third and
fourth quarterly cash payments of the director's annual
retainer due January 2, April 1, July 1 and October 1, 1996,
respectively.
(15) Includes 7,500 shares for which Mr. Perini holds options.
Includes 205,449 shares, as to which Mr. Perini disclaims any
beneficial interest, held by The Perini Foundation, of which
Bart W. Perini is one of three officers and directors.
(16) Includes 1,148 shares awarded on May 19, 1994, 366 shares
awarded on May 19, 1988 and 835 shares awarded on May 16, 1991
pursuant to the 1988 Perini Corporation Restricted Stock Plan
for Outside Directors. Also includes 1,756 shares of Common
Stock received in lieu of the 1996 first,
45
<PAGE>
second, third and fourth quarterly cash payments of the
director's annual retainer due January 2, April 1, July 1 and
October 1, 1996, respectively. Includes 200 shares which Mr.
Criser owns jointly with his wife.
(17) Includes 4,500 shares for which Mr. Dailey holds options. Also
includes 1,756 shares of Common Stock received in lieu of the
1996 first, second, third and fourth quarterly cash payments
of the director's annual retainer due January 2, April 1, July
1 and October 1, 1996, respectively, and 6,566 shares of
Common Stock received in May, 1996 in lieu of cash payment of
partial amount due in conjunction with the Company's
Construction Business Unit Incentive Compensation Plan.
(18) Includes 1,148 shares awarded on May 19, 1994, 214 shares
awarded on May 19, 1988 and 835 shares awarded on May 16, 1991
pursuant to the 1988 Perini Corporation Restricted Stock Plan
for Outside Directors. Also includes 1,756 shares of Common
Stock received in lieu of the 1996 first, second, third and
fourth quarterly cash payments of the director's annual
retainer due January 2, April 1, July 1 and October 1, 1996,
respectively.
(19) Includes 728 shares awarded on May 19, 1994 pursuant to the
1988 Perini Corporation Restricted Stock Plan for Outside
Directors. Also includes 1,756 shares of Common Stock received
in lieu of the 1996 first, second, third and fourth quarterly
cash payments of the director's annual retainer due January 2,
April 1, July 1 and October 1, 1996, respectively.
(20) Includes 1,148 shares awarded on May 19, 1994, and 303 shares
awarded on March 10, 1993 pursuant to the 1988 Perini
Corporation Restricted Stock Plan for Outside Directors. Also
includes 1,756 shares of Common Stock received in lieu of the
1996 first, second, third and fourth quarterly cash payments
of the director's annual retainer due January 2, April 1, July
1 and October 1, 1996, respectively.
(21) Includes 1,148 shares awarded on May 19, 1994, and 196 shares
awarded on December 7, 1993 pursuant to the 1988 Perini
Corporation Restricted Stock Plan for Outside Directors. Also
includes 1,756 shares of Common Stock received in lieu of the
1996 first, second, third and fourth quarterly cash payments
of the director's annual retainer due January 2, April 1, July
1 and October 1, 1996, respectively.
(22) Includes 14,000 shares for which Mr. Rizzo holds options.
(23) Includes 14,000 shares for which Mr. Schwarz holds options.
(24) Includes 14,000 shares for which Mr. Unbekant holds options.
(25) The number of shares beneficially owned by all directors and
corporate officers as a group has been adjusted to eliminate
the duplicate inclusion of 205,449 shares owned by The Perini
Foundation.
46
<PAGE>
Change in Control
If the approval of the stockholders for the issuance of the
Series B Preferred Stock is obtained pursuant to this proxy solicitation, the
Investors will upon issuance of the initial 150,150 shares of Series B Preferred
Stock have voting rights equivalent to 3,101,571 Shares of Common Stock, or
approximately 37% of the voting power, as well as conversion rights providing
equal voting power as indicated in the table above. Furthermore, as noted in
"Description of Series B Preferred Stock," holders of Series B Preferred Stock
will elect three members to the Board of Directors who will also be appointed as
members of the five member Executive Committee. As a result, the members of the
Executive Committee will have an effective veto over certain of the major
decisions of the Company and provide oversight to the Company's Chief Executive
Officer (see "Description of By-Law Amendment"). In addition, assuming the
Company elects to pay dividends in the form of additional Series B Preferred
Stock, the Investors will acquire additional shares of the Company's Common
Stock. As a result, the Transaction may constitute a "Change in Control" for the
purposes of disclosure under the Securities Exchange Act of 1934.
Independent Auditors
The accounting firm of Arthur Andersen LLP has served as the
Company's independent auditors since 1960. A representative of Arthur Andersen
LLP will be present at the Special Meeting and will be available to respond to
appropriate questions.
47
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
- ---------------------
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
Nine Months
Ended September 30,
(Unaudited) Year Ended December 31,
-------------------------- -----------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(Amounts in thousands, except per share data)
Statement of
Operations Data
Revenues:
Construction $885,398 $ 770,670 $1,056,673 $ 950,884 $1,030,341 $1,023,274 $ 919,641
Real estate development 41,793 32,354 44,395 61,161 69,775 47,578 72,267
Net income (loss) 5,822 (28,916) (27,585)(2) 303 3,165 (16,984)(1) 3,178 (1)
Earnings (loss) per
common share (4) $ 0.88 $ (6.58) $ (6.38) $ (0.42) $ 0.24 $ (4.69) $ 0.27
Proforma Adjustments (3):
In kind dividend (2,549) (2,309) (3,117)
Amortization of stock
purchase warrants (590) (590) (787)
Other (246) (243) (324)
Proforma net income (loss)
available to common
shareholders 844 (33,651) (33,938)
Proforma earnings (loss)
per common shares (3),(4) $ 0.18 $ (7.26) $ (7.29)
Weighted average number
of shares outstanding 4,785 4,636 4,655 4,380 4,265 4,079 3,918
</TABLE>
48
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
At September 30, 1996
(Amounts in thousands, except per share data)
---------------------------------------------
As Adjusted
Actual (5)
-------------- ---------------
Balance Sheet Data
Working capital $ 76,258 $ 103,258
Long-term debt, less current
maturities 114,739 112,379
Redeemable preferred stock --- 27,000
Stockholders' equity 111,963 114,323
Total assets 563,697 590,697
Backlog $ 1,745,983 $ 1,745,983
(1) Net income (loss) in 1992 and 1991 includes pretax writedowns of
$31.4 million and $2.8 million, respectively, to reduce
the carrying value of certain real estate to net realizable value.
(2) Net income (loss) for 1995 includes a pretax charge of $25.6 million to
provide reserves for previously disclosed litigation in Washington,
D.C. and downward revisions in estimated probable recoveries on certain
outstanding contract claims.
(3) Reflects impact of quarterly payment of "in-kind" dividend at an annual
rate of 10% on the new Series B Cumulative Convertible Preferred Stock,
accretion to the carrying amount of the Series B Preferred Stock
required over time to increase the carrying amount to its "Redemption
Value", and amortization of the initial carrying value attributable to
the Stock Purchase Warrants. The Stock Purchase Warrants will be
amortized over three years, the duration of the related New Credit
Agreement.
(4) Earnings (loss) per common share and proforma earnings (loss) per
common share both reflect the impact of dividends on the $21.25
Convertible Exchangeable Preferred Stock of $1,593 (or approximately
$.34 per share) and $2,125 (or approximately $.46 per share) for the
nine month and twelve month periods, respectively.
(5) Adjusted to give effect to (i) the sale of 150,150 shares of Series B
Cumulative Convertible Preferred Stock at $200 per share less related
expenses and (ii) the estimated grant date present value of Stock
Purchase Warrants of $2.36 million to purchase 409,774 shares of Common
Stock, $1.00 par value (market value is $9.025 per share as of October
1, 1996).
49
<PAGE>
UNAUDITED QUARTERLY FINANCIAL DATA
The following table sets forth unaudited quarterly financial data for the nine
months ended September 30, 1996 and for the years ended December 31, 1995 and
1994 (in thousands, except per share amounts):
<TABLE>
1996 by Quarter
--------------------------------------------------------------
1st 2nd 3rd
--- --- ---
<S> <C> <C> <C>
Revenues $270,029 $316,492 $340,670
Net income $1,487 $2,024 $2,311
Earnings per common share $.20 $.31 $.37
1995 by Quarter
--------------------------------------------------------------
1st 2nd 3rd 4th
--- --- --- ---
Revenues $263,089 $306,961 $232,974 $298,044
Net income (loss) $872 $886 $(30,674)* $ 1,331
Earnings (loss) per common share $.08 $.08 $(6.61) $.17
1994 by Quarter
--------------------------------------------------------------
1st 2nd 3rd 4th
--- --- --- ---
Revenues $174,391 $243,105 $304,776 $289,773
Net income (loss) $792 $(2,649) $984 $1,176
Earnings (loss) per common share $.06 $(.73) $.10 $.15
</TABLE>
* Includes a charge, which aggregates $25.6 million, to provide reserves for
previously disclosed litigation in Washington D.C. and downward revisions
in estimated probable recoveries on certain outstanding contract claims.
50
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company at
September 30, 1996, and as adjusted to (1) reflect the issuance of the 150,150
shares of Series B Cumulative Convertible Preferred Stock and (2) the granting
of certain warrants to the Company's banking group:
<TABLE>
(In thousands)
--------------------------------------------
Actual As Adjusted
------------------- --------------------
<S> <C> <C>
Short-term Debt - Current Maturities of Long-term Debt $ 4,482 $ 4,482
=================== ====================
Long-term Debt:
Revolving Credit Loans, net of a valuation account $ 102,557 $ 100,197
of $2,360,000
Real Estate Development 5,760 5,760
Industrial Revenue Bonds 4,000 4,000
Other 2,422 2,422
------------------- --------------------
Total Long-term Debt $ 114,739 $ 112,379
------------------- --------------------
Redeemable Preferred Stock, $1.00 par value
150,150 shares of Series B Cumulative Convertible
Preferred Stock, liquidation preference of $30,030,000 (1) $ --- $ 27,000(2)
------------------- --------------------
Stockholders' Equity:
Preferred Stock, $1.00 par value
Authorized - 1,000,000 shares
Issued - 100,000 shares of $21.25 Convertible Exchangeable$ 100 $ 100
Preferred Stock, liquidation preference of
$25,000,000
Stock Purchase Warrants --- 2,360 (3)
Common Stock, $1.00 par value
Authorized - 15,000,000 shares
Issued - 4,985,160 shares (4) 4,985 4,985
Paid-in Surplus 56,751 56,751
Retained Earnings 56,291 56,291
51
<PAGE>
ESOT Related Obligations (3,976) (3,976)
Less - Common Stock in Treasury, at cost - 137,307 shares (2,188) (2,188)
------------------- --------------------
Total Stockholders' Equity $ 111,963 $ 114,323
------------------- --------------------
Total Capitalization $ 226,702 $ 253,702
=================== ====================
</TABLE>
(1) Dividends on the Series B Preferred Stock are payable
quarterly based on an annual rate of 7% if payable in cash and
10% if payable "in-kind" with additional shares of Series B
Preferred Stock. Also, the Company is required to purchase the
Redeemable Preferred Stock under certain circumstances (see
"Description of Series B Preferred"). In addition, in
connection with the Transaction, the new credit facilities
will limit the aforementioned rights of redemption (see
"Credit Facilities").
(2) Represents proceeds of $30,030,000 less related estimated
expenses of $3,030,000.
(3) The grant date present value of the Stock Purchase Warrants to
purchase 409,774 shares of Common Stock ($2,360,000) 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.
(4) If the Series B Preferred Stock had been converted into Common
Stock, the number of shares of Common Stock issued would have
been increased by 3,101,571 shares.
CONSOLIDATED FINANCIAL INFORMATION
The financial information contained in Part II of the Company's Annual
Report on Form 10-K/A for the fiscal year ended December 31, 1995 and in Part I
of the Quarterly Report on Form 10-Q/A for the fiscal quarter ended September
30, 1996 are incorporated herein by reference and are being provided along with
this Proxy Statement to each person to whom this Proxy Statement is being
delivered by the Company.
MANAGEMENT DISCUSSION AND ANALYSIS OF THE CONSOLIDATED
FINANCIAL STATEMENTS
Management's discussion and analysis of the consolidated financial
condition and results of operations contained in Part II of the Company's Annual
Report on Form 10-K/A for the fiscal year ended December 31, 1995 and in Part I
of the Quarterly Report on Form 10-Q/A for the fiscal quarter ended September
30, 1996 are incorporated herein by reference and are being provided along with
this Proxy Statement to each person to whom this Proxy Statement is being
delivered by the Company.
52
<PAGE>
Solicitation of Proxies
The cost of solicitation of proxies in the form enclosed
herewith will be paid by the Company. In addition to the solicitation of proxies
by mail, the directors, officers and employees of the Company may also solicit
proxies personally or by telephone or facsimile without additional compensation
for such activities. Arrangements will also be made with brokerage firms and
other custodians, nominees and fiduciaries for forwarding solicitation materials
to the beneficial owners of shares held of record by such persons and the
Company will reimburse such persons for their reasonable out-of-pocket expenses
incurred in that connection. The Company has also retained D.F. King, a proxy
soliciting firm, to assist in the solicitation of proxies at a fee of $5,500,
plus reimbursement of certain out-of-pocket costs. The Company will also request
persons, firms and corporations holding shares in their names or in the names of
their nominees, which are beneficially owned by others, to send proxy materials
to and obtain proxies from such beneficial owners. The Company will reimburse
such holders for their reasonable expenses.
Stockholder Proposals for 1997 Annual Meeting
For a proposal of a stockholder (including director
nominations) to be presented to the Company's 1997 Annual Meeting of
Stockholders, a stockholder's notice must have been delivered to, or mailed and
received at, the principal executive offices of the Company on or before
December 11, 1996. Any such proposal should have been mailed to: Perini
Corporation, 73 Mt. Wayte Avenue, Framingham, Massachusetts 01701, Attn. Richard
E. Burnham. In addition, stockholder proposals and director nominations must
have complied with the requirements of the Company's By-Laws.
Forward Looking Statements
Statements contained in this Proxy Statement or in the
portions of the documents incorporated herein by reference that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding the Company's expectations, hopes, beliefs,
intentions or strategies regarding the future. All such forward-looking
statements are based on information available to the Company on the date made.
It is important to note that the Company's actual results could differ
materially from those in such forward-looking statements. Reference is made to
the contigencies discussed in the Company's reports on Form 10-K/A (especially
Item 1 of Part I "Business," and Note 11 to the Notes to Consolidated Financial
Statements regarding contingencies and commitments) for the fiscal year ended
December 31, 1995 and Form 10-Q/A (especially Item 2 of Part I "Management's
Discussion and Analysis of the Consolidated Financial Condition and Results of
Operations") for the fiscal quarter ended September 30, 1996.
Incorporation of Portions of Certain Documents by Reference
The Company hereby incorporates by reference the portions of
the documents listed in (a) and (b) below, which have previously been filed with
the Securities and Exchange Commission.
(a) Part I and Part II of the Company's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1995, filed with the Securities and Exchange
Commission (File No. 1-6314) pursuant to the Exchange Act; and
(b) Part I of the Company's Quarterly Report on Form 10-Q/A for the fiscal
quarter ended September 30, 1996.
53
<PAGE>
For the convenience of stockholders, the Company has provided
copies of the entire 10-K/A and 10-Q/A to each person to whom this Proxy
Statement is being delivered.
Inclusion of Documents which Contain Information Incorporated by Reference
Along with this Proxy Statement, the Company has provided,
without charge, to each person to whom this Proxy Statement is delivered, a copy
of the documents which contain information that has been incorporated by
reference in this Proxy Statement (not including exhibits to the information
that is incorporated by reference unless such exhibits are specifically
incorporated by reference into the information that this Proxy Statement
incorporates).
Other Matters
The Board of Directors does not know of any other matters
other than those described in this Proxy Statement which will be presented for
action at the Special Meeting. If other matters are duly presented, proxies will
be voted in accordance with the best judgment of the proxy holders.
REGARDLESS OF THE NUMBER OF SHARES YOU OWN, YOUR VOTE IS
IMPORTANT TO THE COMPANY. PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE
ENCLOSED PROXY CARD TODAY.
54
<PAGE>
ANNEX A
December 17, 1996
The Board of Directors
Perini Corporation
73 Mt. Wayte Avenue
Box 9160
Framingham, MA 01701-9160
Attention: Mr. David B. Perini
Chairman
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a
financial point of view, to Perini Corporation (the "Company") of the
consideration to be paid to the Company in connection with the proposed issuance
and sale to PB Capital Partners, L.P. (the "Buyer") of 150,150 shares of
Series B Cumulative Convertible Preferred Stock (the "Preferred Stock") of the
Company (the "Transaction"). Pursuant to the Stock Purchase and Sale Agreement,
dated as of July 24, 1996 (the "Agreement"), between the Company, Richard C.
Blum & Associates, L.P. and the Buyer, the Buyer will purchase an aggregate of
150,150 newly issued shares of the Preferred Stock, and the Company will receive
consideration equal to $30,030,000.
In arriving at our opinion, we have reviewed (i) the Agreement
and the other Transaction Documents referred to therein; (ii) the audited
financial statements of the Company for the fiscal years ended December 31, 1995
and December 31, 1994, and the unaudited financial statements of the Company for
the period ended September 30,1996; (iii) current and historical market prices
of the Company's common stock; (iv) certain publicly available information
concerning the business of the Company and of certain other companies engaged in
businesses comparable to those of the Company, and the reported market prices
for certain other companies' securities deemed comparable; (v) publicly
available terms of certain transactions involving companies comparable to the
Company and the consideration paid for such companies; (vi) certain agreements
with respect to outstanding indebtedness or obligations of the Company;
(vii) certain information regarding the Company's real estate subsidiary and
portfolio of assets provided by the Company; and (viii) certain internal
financial analyses and forecasts prepared by the Company and its management.
In addition, we have held discussions with certain members of
the management of the Company with respect to certain aspects of the
Transaction, the past and current business
55
<PAGE>
operations of the Company, the financial condition and future
prospects and operations of the Company, the effects of the Transaction on the
financial condition and future prospects of the Company, and certain other
matters we believed necessary or appropriate to our inquiry. These matters
included the overall high debt level of the Company; the need for further
liquidity to support the Company's construction operations and bonding capacity;
limited net proceeds available to the Company if it were to pursue an
accelerated disposition of its real estate assets; potential exposure to future
payments resulting from the Company's Washington Metropolitan Area Transit
Authority litigation, in which the Company was found liable for $16.5 million in
a preliminary judgment by the U.S. District Court (D.C.) in July 1993; and the
benefits of the transaction in strengthening the balance sheet of the Company.
We have visited certain representative facilities and real estate assets of the
Company, and reviewed such other financial studies and analyses and considered
such other information as we deemed appropriate for the purposes of this
opinion.
In giving our opinion, we have relied upon, without assuming
any responsibility for independent verification, the accuracy and completeness
of all information that was publicly available or was furnished to us by the
Company or otherwise reviewed by us, and we have not assumed any liability
therefor. We have not conducted any valuation or appraisal of any assets or
liabilities, nor have any such valuations or appraisals been provided to us. In
relying on financial analyses and forecasts provided to us, we have assumed that
they have been reasonably prepared based on assumptions reflecting the best
currently available estimates and judgments by management as to the expected
future results of operations and financial condition of the Company to which
such analyses or forecasts relate. We have also assumed that the Transaction
will have the tax consequences described to us in discussions with, and
materials furnished to us by, representatives of the Company, and that the other
transactions contemplated by the Agreement will be consummated as described in
such Agreement.
Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. It should be understood that subsequent developments may affect
this opinion and that we do not undertake any obligation to update, revise, or
reaffirm this opinion. We are expressing no opinion herein as to the price at
which the Company's Common Stock will trade at any future time.
We have acted as financial advisor to the Company with respect
to the proposed Transaction and have received advisory fees from the Company for
our services. We will receive a fee for delivery of this opinion and, if the
proposed Transaction is consummated, an additional success fee from the Company.
Please be advised that our affiliated bank, Morgan Guaranty Trust Company of New
York, is agent bank for the Company's current revolving credit facility which is
being restructured as part of the Transaction. In the ordinary course of their
businesses, our affiliates may actively trade the equity securities of the
Company for their own account or for the accounts of customers and, accordingly,
they may at any time hold long or
56
<PAGE>
short positions in such securities.
On the basis of and subject to the foregoing, it is our
opinion as of the date hereof that the consideration to be paid to the Company
in the proposed Transaction is fair, from a financial point of view, to the
Company.
This letter is provided for the benefit of the Board of
Directors of the Company in connection with and for the purposes of its
evaluation of the Transaction. This opinion does not constitute a recommendation
to any stockholder of the Company as to how such stockholder should vote with
respect to the Transaction. This opinion may not be disclosed, referred to, or
communicated (in whole or in part) to any third party for any purpose whatsoever
except with our prior written consent in each instance. This opinion may be
reproduced in full in any proxy or information statement mailed to stockholders
of the Company but may not otherwise be disclosed publicly in any manner without
our prior written approval and, if not so disclosed, must be treated as
confidential.
Very truly yours,
J.P. MORGAN SECURITIES INC.
/s/ Dianne F. Lob
- -----------------
By: Dianne F. Lob
Title: Managing Director
57
<PAGE>
ANNEX B
PRIVATE AND CONFIDENTIAL
December 17, 1996
The Board of Directors
Perini Corporation
73 Mt. Wayte Avenue
Box 9160
Framingham, MA 01701-9160
Attention: Mr David B. Perini
Chairman
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a
financial point of view, to Perini Corporation (the "Company") of the
consideration to be paid to the Company in connection with the issuance and sale
(the "Transaction") of 150,150 newly issued shares of Series B Cumulative
Convertible Preferred Stock (the "Preferred Stock") of the Company to PB Capital
Partners, L.P. (the "Buyer"). You have informed us that the Buyer will purchase
the Preferred Stock pursuant to the Stock Purchase and Sale Agreement, dated as
of July 24, 1996, as amended (the "Agreement"), by and among the Company, the
Buyer, and Richard C. Blum & Associates, L.P., and that the Company will receive
cash consideration before expenses in connection with such purchase of
$30,030,000.
In arriving at the opinion set forth below, we have, among
other things:
(a) reviewed the Agreement and other Transaction documents
referred to therein;
(b) reviewed the Company's draft proxy statement prepared in
connection with seeking shareholder approval for the Transaction;
(c) reviewed certain publicly available business and financial
information of the Company, including the audited financial statements of the
Company for the fiscal years ended December 31, 1995 and December 31, 1994 and
the
58
<PAGE>
Perini Corporation
December 17, 1996
Page 2
unaudited financial statements of the Company for the period ended September 30,
1996;
(d) reviewed certain publicly available business and financial
information of certain companies engaged in businesses we deemed comparable to
those of the Company;
(e) compared current and historical market prices of the
Company's common stock and reported market prices of the securities of certain
other companies that were deemed comparable;
(f) reviewed publicly available financial terms of certain
business transactions we deemed comparable to the Transaction and otherwise
relevant to our inquiry;
(g) held discussions with members of the Company's senior
management concerning certain aspects of the Transaction, the Company's past and
current business operations, the Company's financial condition, future
prospects, and operations, before and after giving effect to the Transaction, as
well as their views of the business, operational, strategic benefits, and other
implications of the Transaction, and certain other matters we believed necessary
or appropriate to our inquiry, including (i) the overall high debt level of the
Company; (ii) the need for further liquidity to support the Company's
construction operations and bonding capacity; (iii) limited net proceeds
available to the Company if it were to pursue an accelerated disposition of its
real estate assets; (iv) potential exposure to future payments resulting from
the Company's Washington Metropolitan Area Transit Authority litigation in which
the Company was found liable in a preliminary judgment by the U.S. District
Court (D.C.) in July 1993; and (v) the benefits of the Transaction in
strengthening the balance sheet of the Company;
(h) reviewed certain agreements with respect to outstanding
indebtedness or obligations of the Company, including a draft of the summary
terms and conditions of the Company's restructured bank agreement;
(i) reviewed certain information provided by the Company
regarding its real
59
<PAGE>
Perini Corporation
December 17, 1996
Page 3
estate subsidiary and portfolio of assets;
(j) reviewed certain internal non-public financial and
operating data provided to us by the Company's management concerning the
Company's business, including management forecasts and projections of future
financial results; and
(k) made such other analyses and examinations as we have
deemed necessary or appropriate.
We have relied upon, without assuming any responsibility for
independent verification, the accuracy and completeness of all of the financial
and other information provided to, discussed with, or reviewed by or for us, or
publicly available for purposes of this opinion, and we have not assumed any
liability therefor. We have neither made nor obtained any independent
evaluations or appraisals of the assets or liabilities of the Company, nor have
we conducted a physical inspection of the properties and facilities of the
Company. We have assumed that the financial forecasts and projections prepared
by the Company have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of management of the Company as to
the future financial performance of the Company. We express no views as to such
forecasts or projections or the assumptions on which they were based. We have
also assumed that the Transaction will have the tax consequences described to us
in discussions with, and materials furnished to us by, representatives of the
Company, and that the other transactions contemplated by the Agreement will be
consummated as described in the Agreement. Furthermore, we have assumed that the
documents that have been furnished to us in draft form in connection with the
Transaction will not, when executed, contain any terms and conditions that
differ materially from the terms and conditions previously disclosed to us. In
addition, you have not authorized us to solicit, and we have not solicited, any
indications of interest from any third parties with respect to the purchase of
all or part of the Company's business or assets, and, accordingly, we have
relied entirely on the results of the process conducted by representatives of
J.P. Morgan Securities Inc. in this regard.
For purposes of rendering our opinion we have assumed, in all
respects material to our analysis, that the representations and warranties of
each party contained in the Agreement are true and correct, that each party has
and will perform all of the covenants and agreements required to be performed by
it under the Agreement and that all conditions to the
60
<PAGE>
Perini Corporation
December 17, 1996
Page 4
consummation of the Transaction have and will be satisfied
without waiver thereof.
Our opinion herein is necessarily based on market, economic
and other conditions as they exist and can be evaluated on the date of this
letter. It should be understood that subsequent developments may affect this
opinion and that we do not undertake any obligation to update, revise, or
reaffirm this opinion. We are expressing no opinion herein as to the price at
which the Company's common stock will trade at any future time. Our opinion is
limited to the fairness, from a financial point of view, to the consideration to
be paid to the Company in connection with the Transaction and we express no
opinion as to the merits of the underlying decision by the Company to engage in
the Transaction. This opinion does not constitute a recommendation to any
stockholder of the Company as to how such stockholder should vote with respect
to the Transaction.
Chase Securities Inc., as part of its financial advisory
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions and valuations for
estate, corporate and other purposes. We have acted as financial advisor to the
Company in connection with the Transaction and will receive a fee for our
services that includes the rendering of this opinion. The Company has agreed to
indemnify us for certain liabilities arising out of our engagement. In the
ordinary course of business, we or our affiliates may trade in the securities of
the Company for our own accounts and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
Based upon and subject to the foregoing, we are of the
opinion, as of the date hereof, that the consideration to be paid to the Company
in connection with the Transaction is fair, from a financial point of view, to
the Company.
This opinion is for the use and benefit of the Board of
Directors of the Company in its evaluation of the Transaction and shall not be
used for any other purpose without the prior written consent of Chase Securities
Inc.
This opinion may be reproduced in full in the proxy statement
mailed to stockholders of the Company in connection with the Transaction but may
not otherwise be disclosed publicly in any manner without our prior written
approval and, if not so disclosed, must be
61
<PAGE>
Perini Corporation
December 17, 1996
Page 5
treated as confidential.
Very truly yours,
/s/ Chase Securities Inc.
-------------------------
CHASE SECURITIES INC.
62
<PAGE>
ANNEX C
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the inclusion in
this Proxy of our report dated February 26, 1996 included in Perini
Corporation's Form 10-K/A for the year ended December 31, 1995 and to all
references to our Firm included in this Proxy.
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 17, 1996
63
<PAGE>
REVOCABLE PROXY/VOTING INSTRUCTION CARD
PERINI CORPORATION
73 Mt. Wayte Avenue, Framingham, Massachusetts 01701-9160
Proxy for Special Meeting of Stockholders
to be Held on January 17, 1997 at 10:00 a.m.
This proxy is solicited by the Board of Directors.
The undersigned hereby constitutes and appoints David B. Perini, John H.
Schwarz and Richard E. Burnham, and any of them, as Proxies of the undersigned,
with full power to substitute, and authorizes each of them to represent and to
vote all shares of Common Stock of Perini Corporation (the "Company") held by
the undersigned at the close of business on November 27, 1996 at the Special
Meeting of Stockholders to be held at State Street Bank and Trust Company, The
Board Room, 33rd Floor, 225 Franklin Street, Boston, Massachusetts, on January
17, 1997 at 10:00 a.m., local time, and at any adjournments or postponements
thereof.
When properly executed this proxy will be voted in the manner
directed herein by the undersigned stockholder(s). If no direction is given,
this Proxy will be voted FOR the Proposals set forth on the reverse side hereof.
A stockholder wishing to vote in accordance with the Board of Directors'
recommendation need only sign and date this proxy and return it in the stamped
envelope provided.
Please sign name exactly as shown. Where there is more than one
holder, each should sign. When signing as an attorney, administrator,
executor, guardian or trustee, please add your title as such. If executed
by a corporation, the proxy should be signed by a duly authorized person,
stating such person's title or authority. If a partnership, please sign in
partnership name by authorized person.
(Continued, and to be signed and dated, on reverse side)
<PAGE>
The Board of Directors recommends a vote "FOR" Proposal 1 and Proposal 2
1. Proposal 1: To approve (i) the issuance of 150,150 shares of Series B
Cumulative Convertible Junior Preferred Stock, par value $1.00 per share,
of the Company (the "Series B Preferred Stock") to PB Capital Partners,
L.P., The Union Labor Life Insurance Company Separate Account P, The Common
Fund for Non-Profit Organizations for the account of its Equity Fund, and
permitted assigns (the "Investors") for an aggregate purchase price of
$30,030,000, upon the terms and conditions described in the Proxy Statement
and (ii) the issuance of any other shares of the Series B Preferred Stock
as dividends on outstanding shares of the Series B Preferred Stock upon the
terms and conditions described in the Proxy Statement.
FOR ___ AGAINST ___ ABSTAIN ___
2. Proposal 2: To approve an amendment to the By-Laws of the Company, as more
fully described in the Proxy Statement, which requires the Board of
Directors to elect an Executive Committee and sets forth its powers and
composition. This amendment, if approved, will take effect only if shares
of the Series B Preferred Stock are in fact issued to the Investors.
FOR ___ AGAINST ___ ABSTAIN ___
The undersigned hereby acknowledge(s) receipt of a copy of the Notice of
Special Meeting of Stockholders, the Proxy Statement with respect thereto and
accompanying Annexes, the Company's Annual Report on Form 10-K/A for the fiscal
year ended December 31, 1995, and the Company's Quarterly Report on Form 10-Q/A
for the fiscal quarter ended September 30, 1996, and hereby revoke(s) any proxy
or proxies heretofore given. This proxy may be revoked at any time before it is
exercised.
Date:
Signature of Stockholder
Please Date, Sign and Mail Your Proxy Card Promptly Votes must be indicated
in the Enclosed Envelope. (X) in Black or Blue ink.
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<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ___________________
Commission file number 1-6314
Perini Corporation
(Exact name of registrant as specified in its charter)
Massachusetts 04-1717070
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
73 Mt. Wayte Avenue, Framingham, Massachusetts 01701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 508-628-2000
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 The American Stock Exchange
Exchangeable 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.
The aggregate market value of voting stock held by nonaffiliates of the
registrant is $29,652,513 as of March 1, 1996.
The number of shares of Common Stock, $1.00 par value per share, outstanding at
March 1, 1996 is 4,723,754.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual proxy statement for the year ended December 31, 1995 are
incorporated by reference into Part III.
<PAGE>
<TABLE>
<CAPTION>
PERINI CORPORATION
INDEX TO ANNUAL REPORT
ON FORM 10-K/A
PAGE
----
<S> <C> <C>
PART I
Item 1: Business 2
Item 2: Properties 13
Item 3: Legal Proceedings 13 - 14
Item 4: Submission of Matters to a Vote of Security Holders 14
PART II
Item 5: Market for the Registrant's Common Stock and Related 15
Stockholder Matters
Item 6: Selected Financial Data 15
Item 7: Management's Discussion and Analysis of Financial 16
Condition and Results of Operations
Item 8: Financial Statements and Supplementary Data 19
Item 9: Disagreements on Accounting and Financial Disclosure 19
PART III
Item 10: Directors and Executive Officers of the Registrant 20
Item 11: Executive Compensation 20
Item 12: Security Ownership of Certain Beneficial Owners and 20
Management
Item 13: Certain Relationships and Related Transactions 20
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on 21
Form 8-K
Signatures 22
</TABLE>
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<PAGE>
PART I.
ITEM 1. BUSINESS
General
Perini Corporation and its subsidiaries (the "Company" unless the
context indicates otherwise) is engaged in two principal businesses:
construction and real estate development. The Company was incorporated in 1918
as a successor to businesses which had been engaged in providing construction
services since 1894.
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. Historically, the Company's
construction business involved four types of operations: civil and environmental
("heavy"), building, international and pipeline. However, the Company sold its
pipeline construction business in January, 1993.
The Company's real estate development operations are conducted by
Perini Land & Development Company, a wholly-owned subsidiary with extensive
development interests concentrated in historically attractive markets in the
United States - Arizona, California, Florida, Georgia and Massachusetts, but has
not commenced the development of any new real estate projects since 1990.
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.
In 1988, the Company, in conjunction with two other companies, formed a
new entity called Perland Environmental Technologies, Inc. ("Perland"). Perland
provides consulting, engineering and construction services primarily on a
turn-key basis for hazardous material management and clean-up to both private
clients and public agencies nationwide. The Company's investment in Perland was
increased from 47 1/2% to 100% in recent years as a result of Perland
repurchasing its stock owned by the outside investors. During 1995, Perland's
name was changed to Perini Environmental Services, Inc.
In January 1993, the Company sold its 74%-ownership in Majestic, its
Canadian pipeline construction subsidiary, for $31.7 million which resulted in
an after tax gain of approximately $1.0 million.
Although Majestic was profitable in both 1992 and 1991, it participated
in a sector of the construction business that was not directly related to the
Company's core construction operations. The sale of Majestic served to generate
liquid assets which improved the Company's financial condition without affecting
its core construction business.
Effective July 1, 1993, the Company acquired Gust K. Newberg
Construction Co.'s ("Newberg") interest in certain construction projects and
related equipment. The purchase price for the acquisition was (i) approximately
$3 million in cash for the equipment paid by a third party leasing company
which, in turn, simultaneously entered into an operating lease agreement with
the Company for the use of said equipment, (ii) $1 million in cash paid by the
Company and (iii) 50% of the aggregate net profits earned from each project from
April 1, 1993 through December 31, 1994 and, with regard to one project, through
December 31, 1995. This acquisition has been accounted for as a purchase.
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<PAGE>
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, 1995.
<TABLE>
Annual Report
On Form 10-K
Caption Page Number
------- -----------
<S> <C>
Selected Consolidated Financial Information Page 15
Management's Discussion and Analysis Page 16
Footnote 13 to the Consolidated Financial Statements, entitled Business Page 40
Segments and Foreign Operations
</TABLE>
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, 1995, additional information
(business segment and foreign operations) required by Statement of Financial
Accounting Standards No. 14 for the three years ended December 31, 1995 is
included in Note 13 to the Consolidated Financial Statements.
A summary of revenues by product line for the three years ended
December 31, 1995 is as follows:
<TABLE>
Revenues (in thousands)
Year Ended December 31,
------------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Construction:
Building $ 770,427 $ 640,721 $ 762,451
Heavy 286,246 310,163 267,890
---------- ---------- ----------
Total Construction Revenues $1,056,673 $ 950,884 $1,030,341
---------- ---------- ----------
Real Estate:
Sales of Real Estate $ 10,738 $ 33,188 $ 40,053
Building Rentals 16,799 16,388 19,313
Interest Income 12,396 7,031 6,110
All Other 4,462 4,554 4,299
---------- ---------- ----------
Total Real Estate Revenues $ 44,395 $ 61,161 $ 69,775
---------- ---------- ----------
Total Revenues $1,101,068 $1,012,045 $1,100,116
========== ========== ==========
</TABLE>
Construction
The general contracting and construction management services provided
by the Company consist of planning and scheduling the manpower, equipment,
materials and subcontractors required for the timely completion of a project in
accordance with the terms and specifications contained in a construction
contract. The Company was engaged in over 160 construction projects in the
United States and overseas during 1995. The Company has three principal
construction operations: heavy, building, and international, having sold its
Canadian pipeline construction business in January 1993. The Company also has a
subsidiary engaged in hazardous waste remediation.
The heavy operation undertakes large civil construction projects
throughout the United States, with current emphasis on major metropolitan areas
such as Boston, New York City, Chicago and Los Angeles. The heavy 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 heavy operations since 1894, and believes that it
has particular expertise in large and complex projects. The Company believes
that infrastructure
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<PAGE>
rehabilitation is and will continue to be a significant market in the 1990's.
The building operation provides its services through regional offices
located in several metropolitan areas: Boston and Philadelphia, serving New
England and the Mid-Atlantic area; Detroit and Chicago, operating in Michigan
and the Midwest region; and Phoenix, Las Vegas, Los Angeles and San Francisco,
serving Arizona, Nevada and California. In 1992, the Company combined its
building operations into a new wholly-owned subsidiary, Perini Building Company,
Inc. This new company combines substantial resources and expertise to better
serve clients within the building construction market, and enhances Perini's
name recognition in this market. The Company undertakes a broad range of
building construction projects including health care, correctional facilities,
sports complexes, hotels, casinos, residential, commercial, civic, cultural and
educational facilities.
The international operation engages in both heavy and building
construction services overseas, funded primarily in U.S. dollars by agencies of
the United States government. In selected situations, it pursues private work
internationally.
Construction Strategy
The Company plans to continue to increase the amount of heavy
construction work it performs because of the relatively higher margin
opportunities available from such work. The Company believes the best
opportunities for growth in the coming years are in the urban infrastructure
market, particularly in Boston, metropolitan New York, Chicago, Los Angeles and
other major cities where it has a significant presence, and in other large,
complex projects. The Company's acquisition during 1993 of Chicago-based Newberg
referred to above is consistent with this strategy. The Company's strategy in
building construction is to maximize profit margins; to take advantage of
certain market niches; and to expand into new markets compatible with its
expertise. Internally, the Company plans to continue both to strengthen its
management through management development and job rotation programs, and to
improve efficiency through strict attention to the control of overhead expenses
and implementation of improved project management systems. Finally, the Company
continues to expand its expertise to assist public owners to develop necessary
facilities through creative public/private ventures.
Backlog
As of December 31, 1995, the Company's construction backlog was $1.53
billion compared to backlogs of $1.54 billion and $1.24 billion as of December
31, 1994 and 1993, respectively.
<TABLE>
Backlog (in thousands) as of December 31,
-----------------------------------------------------------------------------
1995 1994 1993
--------------------- ---------------------- ---------------------
<S> <C> <C> <C>
Northeast $ 749,017 49% $ 803,967 52% $ 552,035 45%
Mid-Atlantic 179,324 12 26,408 2 34,695 3
Southeast 33,223 2 783 - 34,980 3
Midwest 325,055 21 293,168 19 143,961 12
Southwest 94,725 6 174,984 11 314,058 25
West 134,259 9 193,996 13 143,251 11
Other Foreign 18,919 1 45,473 3 15,161 1
---------- ---- ---------- ---- ---------- ----
Total $1,534,522 100% $1,538,779 100% $1,238,141 100%
========== ==== ========== ==== ========== ====
</TABLE>
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 $657 million of its backlog will not be completed in 1996.
The Company's backlog in the Northeast region of the United States
remains strong because of its ability to meet the needs of the growing
infrastructure construction and rehabilitation market in this region,
particularly in the metropolitan Boston and New York City areas. The increase in
the Midwest region primarily reflects an increase in building work in that area.
Other fluctuations in backlog are viewed by management as transitory.
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<PAGE>
Types of Contracts
The four general types of contracts in current use in the construction
industry are:
o Fixed price contracts ("FP"), which include unit price contracts,
usually transfer more risk to the contractor but offer the opportunity,
under favorable circumstances, for greater profits. With the Company's
increasing move into heavy and publicly bid building construction in
response to current opportunities, the percentage of fixed price
contracts continue to represent the major portion of the backlog.
o Cost-plus-fixed-fee contracts ("CPFF") which provide greater safety for
the contractor from a financial standpoint but limit profits.
o Guaranteed maximum price contracts ("GMP") which provide for a
cost-plus-fee arrangement up to a maximum agreed price. These contracts
place risks on the contractor but may permit an opportunity for greater
profits than cost-plus-fixed-fee contracts through sharing agreements
with the client on any cost savings.
o Construction management contracts ("CM") under which a contractor
agrees to manage a project for the owner for an agreed-upon fee which
may be fixed or may vary based upon negotiated factors. The contractor
generally provides services to supervise and coordinate the
construction work on a project, but does not directly purchase contract
materials, provide construction labor and equipment or enter into
subcontracts.
Historically, a high percentage of company contracts have been of the
fixed price type. Construction management contracts remain a relatively small
percentage of company contracts. A summary of revenues and backlog by type of
contract for the most recent three years follows:
<TABLE>
Revenues - Year Ended Backlog As Of
December 31, December 31,
- ----------------------------------- -----------------------------------
1995 1994 1993 1995 1994 1993
- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
67% 54% 56% Fixed Price 74% 68% 65%
33 46 44 CPFF, GMP or CM 26 32 35
- ---- ---- ---- ---- ---- ----
100% 100% 100% 100% 100% 100%
==== ==== ==== ==== ==== ====
</TABLE>
Clients
During 1995, the Company was active in the building, heavy and
international construction markets. The Company performed work for over 100
federal, state and local governmental agencies or authorities and private
customers during 1995. No material part of the Company's business is dependent
upon a single or limited number of private customers; the loss of any one of
which would not have a materially adverse effect on the Company. As illustrated
in the following table, the Company continues to serve a significant number of
private owners. During the period 1993-1995, the portion of construction
revenues derived from contracts with various governmental agencies remains
relatively constant at 56% in 1995 and 1994, and 54% in 1993.
<TABLE>
<CAPTION>
Revenues by Client Source
Year Ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Private Owners 44% 44% 46%
Federal Governmental Agencies 8 11 12
State, Local and Foreign Governments 48 45 42
---- ---- ----
100% 100% 100%
==== ==== ====
</TABLE>
All Federal government contracts are subject to termination provisions, but as
shown in the table above, the Company does not have a material amount of such
contracts.
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<PAGE>
General
The construction business is highly competitive. Competition is based
primarily on price, reputation for quality, reliability and financial strength
of the contractor. While the Company experiences a great deal of competition
from other large general contractors, some of which may be larger with greater
financial resources than the Company, as well as from a number of smaller local
contractors, it believes it has sufficient technical, managerial and financial
resources to be competitive in each of its major market areas.
The Company will endeavor to spread the financial and/or operational
risk, as it has from time to time in the past, by participating in construction
joint ventures, both in a majority and in a minority position, for the purpose
of bidding on projects. These joint ventures are generally based on a standard
joint venture agreement whereby each of the joint venture participants is
usually committed to supply a predetermined percentage of capital, as required,
and to share in the same predetermined percentage of income or loss of the
project. Although joint ventures tend to spread the risk of loss, the Company's
initial obligations to the venture may increase if one of the other participants
is financially unable to bear its portion of cost and expenses. For a possible
example of this situation, see "Legal Proceedings" on page 13. For further
information regarding certain joint ventures, see Note 2 to Notes to
Consolidated Financial Statements.
While the Company's construction business may experience some adverse
consequences if shortages develop or if prices for materials, labor or equipment
increase excessively, provisions in certain types of contracts often shift all
or a major portion of any adverse impact to the customer. On fixed price type
contracts, the Company attempts to insulate itself from the unfavorable effects
of inflation by incorporating escalating wage and price assumptions, where
appropriate, into its construction bids. Gasoline, diesel fuel and other
materials used in the Company's construction activities are generally available
locally from multiple sources and have been in adequate supply during recent
years. Construction work in selected overseas areas primarily employs expatriate
and local labor which can usually be obtained as required. The Company does not
anticipate any significant impact in 1996 from material and/or labor shortages
or price increases.
Economic and demographic trends tend not to have a material impact on
the Company's heavy construction operation. Instead, the Company's heavy
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. Perini Environmental
provides hazardous waste engineering and construction services to both private
clients and public agencies nationwide. Perini Environmental is responsible for
compliance with applicable law in connection with its clean up activities and
bears the risk associated with handling such materials.
In addition to strict procedural guidelines for conduct of this work,
the Company and Perini Environmental generally carry insurance or receive
satisfactory indemnification from customers to cover the risks associated with
this business.
The Company also owns real estate nationwide, most of which is
residential, 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 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
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<PAGE>
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.
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.
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 engages in real
estate development in Arizona, California, Florida, Georgia and Massachusetts.
However, in 1993, PL&D significantly reduced its staff in California and has
suspended any new land acquisition in that area. PL&D's development operations
generally involve identifying attractive parcels, planning and development,
arranging financing, obtaining needed zoning changes and permits, site
preparation, installation of roads and utilities and selling the land.
Originally, PL&D concentrated on land development. In appropriate situations,
PL&D has also constructed buildings on the developed land for rental or sale.
For the past five years PL&D has been affected by the reduced liquidity
in real estate markets brought on by the cutbacks in real estate funding by
commercial banks, insurance companies and other institutional lenders. Many
traditional buyers of PL&D properties are other developers or investors who
depend on third party sources for funding. As a result, some potential PL&D
transactions have been cancelled, altered or postponed because of financing
problems. Over this period, PL&D looked to foreign buyers not affected by U.S.
banking policies or in some cases, provided seller financing to complete
transactions. Based on a weakening in property values which has come with the
industry credit crunch and the national real estate recession, PL&D took a $31
million pre-tax net realizable value writedown against earnings in 1992. The
charge affected those properties which PL&D had decided to sell in the near
term. Currently it is management's belief that its remaining real estate
properties are not carried at amounts in excess of their net realizable values.
PL&D periodically reviews 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 and
properties brought to market on an accelerated basis, those assets, if
necessary, are adjusted to reflect the lower of cost or market value. To achieve
full value for some of its real estate holdings, in particular its investments
in Rincon Center and the Resort at Squaw Creek, the Company may have to hold
those properties several years and currently intends to do so.
Real Estate Strategy
Since 1990, PL&D has taken a number of steps to minimize the adverse
financial impact of current market conditions. 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 workforce
was cut by over 60%. Certain project loans were extended, with such extension
usually requiring paydowns and increased annual amortization of the remaining
loan balance. Going forward, PL&D will operate with a reduced staff and adjust
its activity to meet the demands of the market.
PL&D's real estate development project mix includes planned community,
industrial park, commercial office, multi-unit residential, urban mixed use,
resort and single family home developments. Given the current real estate
environment, PL&D's emphasis is on the sale of completed product and also
developing the projects in its inventory with the highest near term sales
potential. It may also selectively seek new development opportunities in which
it serves as development manager with limited equity exposure, if any.
Real Estate Properties
The following is a description of the Company's major development
projects and properties by geographic area:
Florida
West Palm Beach and Palm Beach County - In 1994, PL&D completed the sale
of all of the
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<PAGE>
original 1,428 acres located in West Palm Beach at the development known as "The
Villages of Palm Beach Lakes". PL&D's only continuing interest in the project is
its ownership in the Bear Lakes Country Club which under agreement with the
membership can be turned over to the members when membership reaches 650.
Current membership is 438. The club includes two championship golf courses
designed by Jack Nicklaus.
At Metrocentre, a 51-acre commercial/office park at the intersection of
Interstate 95 and 45th Street in West Palm Beach, one site totaling 2.78 acres
was sold in 1995. That site was sold to a national motel chain. The park
consists of 17 parcels, of which 2 1/4 (7.3 acres) currently remain unsold. The
park provides for 570,500 square feet of mixed commercial uses.
Massachusetts
Perini Land and Development or Paramount Development Associates, Inc.
("Paramount"), a wholly-owned subsidiary of PL&D, owns the following projects:
Raynham Woods Commerce Center, Raynham - In 1987, Paramount acquired a
409-acre site located in Raynham, Massachusetts, on which it had done
preliminary investigatory and zoning work under an earlier purchase option
period. During 1988, Paramount secured construction financing and 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". During 1989, Paramount completed the sale of a 24-acre site to
be used as a headquarters facility for a division of a major U.S. company.
During 1990, construction was completed on this facility. In 1990 construction
was also completed on two new commercial buildings by Paramount. During 1992, a
17-acre site was sold to a developer who was working with a major national
retailer. The site has since been developed into the first retail project in the
park. No new land sales were made in 1993, but in 1994, an 11-acre site was sold
to the same major U.S. company which had acquired land in 1989, and in 1995 a
4-acre site was sold to a major insurance company. Although the two Paramount
commercial buildings owned within the park experienced some tenant turnover in
late 1994 and into 1995, they remain 90% occupied. The park is planned to
eventually contain 2.5 million square feet of office, R&D, light industrial and
mixed commercial space.
Easton Business Center, Easton - In 1989, Paramount acquired a 40-acre
site in Easton, Massachusetts, which had already been partially developed.
Paramount completed the work in 1990 and is currently marketing the site to
commercial/industrial users. No sales were closed in 1995.
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 1995.
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 to be
called "The Villages at Lake Ridge", six miles south of Atlanta's Hartsfield
International Airport. By year end 1990, the first phase infrastructure and
recreational amenities were in place. In 1991, the joint venture completed the
infrastructure on 48 lots for phased sales of improved lots to single family
home builders and sold nine. During 1992, the joint venture sold an additional
60 lots and also sold a 16-acre parcel for use as an elementary school. During
1993, unusually wet weather in the spring delayed construction on improvements
required to deliver lots as scheduled. As a result, the sale of an additional 58
lots in 1993 were below expectation. Although 1994 started off strong, rising
interest rates created a slowdown in activity later in the year. For the year,
52 lots were sold. In 1995, the pace picked up again and a record 72 lots were
sold. Because most of the homes built within the development are to first time
buyers, demand is highly sensitive to mortgage rates and other costs of
ownership. Financing restrictions generally require the joint venture to allow
developers to take down finished lots only as homes built on previously acquired
lots are sold. As a result, any slowdown in home sales will influence joint
venture sales quickly thereafter. 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.
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<PAGE>
The Oaks at Buckhead, Atlanta - Sales commenced on this 217-unit
residential condominium project at a site in the Buckhead section of Atlanta
near the Lenox Square Mall in 1992. The project consists of 201 residences in a
30-story tower plus 16 adjacent three-story townhome residences. At year end 207
units were either sold or under contract. Sixty-nine of these units were closed
in 1995, up from 53 for 1994. PL&D (50%) is developing this project in joint
venture with a subsidiary of a major Taiwanese company.
California
Rincon Center, San Francisco - Major construction on this mixed-use
project in downtown San Francisco was completed in 1989. The project,
constructed in two phases, consists of 320 residential rental units,
approximately 423,000 square feet of office space, 63,000 square feet of retail
space, and a 700-space parking garage. Following its completion in 1988, the
first phase of the project was sold and leased back by the developing
partnership. The first phase consists of about 223,000 square feet of office
space and 42,000 square feet of retail space. The Phase I office space continues
to be close to 100% leased with the regional telephone directory company as the
major tenant on leases which run into early 1998. The retail space is currently
90% leased. Phase II of the project, which began operations in late 1989,
consists of approximately 200,000 square feet of office space, 21,000 square
feet of retail space, a 14,000 square foot U.S. postal facility, and 320
apartment units. Currently, close to 100% of the office space, 94% of the retail
space and virtually all of the 320 residential units are leased. The major
tenant in the office space in Phase II is the Ninth Circuit Federal Court of
Appeals which is leasing approximately 176,000 square feet. That lease expires
at the end of 1996. Currently, the space is being shown to potential tenants for
possible 1997 occupancy. PL&D currently holds a 46% interest in and is managing
general partner of the partnership which is developing the project. The land
related to this project is being leased from the U.S. Postal Service under a
ground lease which expires in 2050.
In addition to the project financing and guarantees disclosed in the
first, second and third paragraphs of Note 11 to Notes to Consolidated Financial
Statements, the Company has advanced approximately $78 million to the
partnership through December 31, 1995, of which approximately $5 million was
advanced during 1995, primarily to paydown some of the principal portion of
project debt which was renegotiated during 1993. In 1995, operations before
principal repayment of debt created a positive cash flow on an annual basis.
Two major loans on this property in aggregate totaling over $75 million
were scheduled to mature in 1993. During 1993 both loans were extended for five
additional years. To extend these loans, PL&D provided approximately $6 million
in new funds which were used to reduce the principal balances of the loans. In
1995 and over the next three years, additional amortization will be required,
some of which may not be covered by operating cash flow and, therefore, at least
80% of those funds not covered by operations will be provided by PL&D as
managing general partner. Lease payments and loan amortization obligations at
Rincon Center through 1997 are as follows: $7.5 million in 1996 and $7.3 million
in 1997. Based on Company forecasts, it could be required to contribute as much
as $9.4 million to cover these and possible tenant improvement requirements not
covered by project cash flow through 1997. While the budgeted shortfall includes
an estimate for tenant improvements, they may or may not be required. Although
management believes operating expenses will be covered by operating cash flow at
least through 1997, the interest rates on much of the debt financing covering
Rincon Center are variable based on various rate indices. With the exception of
approximately $20 million of the financing, none of the debt has been hedged or
capped and is subject to market fluctuations. From time to time, the Company
reviews the costs and anticipated benefits from hedging Rincon Center's interest
rate commitments. Based on current costs to further hedge rate increases and
market conditions, the Company has elected not to provide any additional hedges
at this time.
As part of the Rincon One sale and operating lease-back transaction, the
joint venture agreed to obtain an additional financial commitment on behalf of
the lessor to replace at least $33 million of long-term financing by January 1,
1998. If the joint venture has not secured a further extension or new commitment
for financing on the property for at least $33 million, the lessor will have the
right under the lease to require the joint venture to purchase the property for
a stipulated amount of approximately $18.8 million in excess of the then
outstanding debt. Management currently believes it will be able to extend the
financing or refinance the building such that this sale back to the Company will
not occur.
During 1993 PL&D agreed, if necessary, to lend Pacific Gateway
Properties (PGP), the other
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<PAGE>
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. During 1993, 1994 and 1995, PL&D advanced $1.7
million, $.3 million and $.9 million, respectively, under this agreement,
primarily to meet the principal payment obligations of the loan extensions
described above.
The Resort at Squaw Creek - During 1990, construction was completed on
the 405-unit first phase of the hotel complex of this major resort-conference
facility. In mid-December of that year, the resort was opened. In 1991, final
work was completed on landscaping the golf course, as well as the remaining
facilities to complete the first phase of the project. The first phase of the
project includes a 405-unit hotel, 36,000 square feet of conference facilities,
a Robert Trent Jones, Jr. golf course, 48 single-family lots, all but three of
which had been sold or put under contract by early 1993, three restaurants, an
ice skating rink, pool complex, fitness center and 11,500 square feet of various
retail support facilities. The second phase of the project is planned to include
an additional 409-unit hotel facility, 36 townhouses, 27,000 square feet of
conference space, 5,000 square feet of retail space and a parking structure. No
activity on the second phase will begin until stabilization is attained on phase
one and market conditions warrant additional investment.
While PL&D has an effective 18% ownership interest in this joint
venture, it has additional financial commitments as described below.
In addition to the project financing and guarantees disclosed in
paragraphs four and five of Note 11 to Notes to Consolidated Financial
Statements, the Company has advanced approximately $76 million to the joint
venture through December 31, 1995, of which approximately $3.3 million was
advanced during 1995, for the cost of operating expenses, debt amortization and
interest payments. Further, it is anticipated the project may require additional
funding by PL&D before it reaches stabilization which may take several years.
During 1992, the majority partner in the joint venture sold its interest to a
group put together by an existing limited partner. As a part of that
transaction, PL&D relinquished its managing general partnership position to the
buying group, but retained a wide range of approval rights. The result of the
transaction was to strengthen the financial support for the project and led to
an extension of the bank financing on the project to mid-1995. The $48 million
of bank financing on the project was extended again in 1995 and currently
matures in May, 1997, with an option by the borrower to extend an additional
year.
As part of Squaw Creek Associates partnership agreement, either partner
may initiate a buy/sell agreement on or after January 1, 1997. Such buy/sell
agreement, which is similar to those often found in real estate development
partnerships, provides for the recipient of the offer to have the option of
selling its share or purchasing its partners share at the proportionate amount
applicable based on the offer price and the specific priority of payout as
called for under the partnership agreement based on a sale and termination of
the partnership. The Company does not anticipate such a circumstance, because
until the end of the year 2001, the partner would lose the certainty of a $2
million annual preferred return currently guaranteed by the Company. However, an
exercise of the buy/sell agreement by its partner could force the Company to
sell its ownership at a price possibly significantly less than its full value
should the Company be unable to buy out its partner and forced to sell at the
price initiated by its partner.
The operating results of this project are weather sensitive. For
example, a large snowfall in late 1994 helped improve results during the 1994-5
ski season. As a result, through October of 1995, the resort showed marked
improvement over the previous year. Snowfall in late 1995, however, did not
match the previous year which adversely affected results in late 1995 and in
early 1996.
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 year end,
10 units were under contract or closed.
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<PAGE>
Arizona
I-10 West, Phoenix - In 1979, I-10 Industrial Park Developers ("I-10"),
an Arizona partnership between Paramount Development Associates, Inc. (80%) and
Mardian Development Company (20%), purchased approximately 160 acres of
industrially zoned land located immediately south of the Interstate 10 Freeway,
between 51st and 59th Avenues in the City of Phoenix. The project experienced
strong demand through 1988. With the downturn in the Arizona real estate
markets, subsequent to 1988, sales slowed. However, in 1995 the remaining 13.3
acres were sold and this project is sold out.
Airport Commerce Center, Tucson - In 1982, the I-10 partnership
purchased 112 acres of industrially zoned property near the Tucson International
Airport. During 1983, the partnership added 54 acres to that project, bringing
its total size to 166 acres. This project has experienced a low level of sales
activity due to an excess supply of industrial property in the marketplace.
However, the partnership built and fully leased a 14,600 square foot
office/warehouse building in 1987 on a building lot in the park, which was sold
during 1991. In 1990, the partnership sold 14 acres to a major airline for
development as a processing center and, in 1992, sold a one acre parcel adjacent
to the existing property. After experiencing no new sales in 1993, approximately
12 acres were sold in 1994 and an additional 24 acres were sold in 1995.
Currently, 87 acres remain to be sold.
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. Located adjacent to the Phoenix Art Museum and near the Heard Museum,
the project is positioned to become the mixed use core of the newly formed
Phoenix Arts District. 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. Plans for the first phase of this project, known as "The
Coronado" have been put on hold pending improved market conditions. In 1993,
PL&D obtained a three-year extension of the construction start date required
under the original zoning and for the present is continuing to hold the project
in abeyance.
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 and now is 97% 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, which caused PL&D to have to provide approximately $1.2
million in 1994 and $.7 million in 1995 to cover the shortfall. In the near term
it appears approximately $700,000 per year of support to cover loan amortization
will continue to be required. No new development within the park was begun in
1994 nor were any land sales consummated. However, 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.
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 developed, the project will consist of 496 single-family homes. An
18-hole Robert Trent Jones, Jr. designed championship golf course and clubhouse
were completed within the project in 1995. 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. Although it will require some infrastructure development
before sale, PL&D still retains 33 estate lots for sale in future years.
Capitol Plaza, Phoenix - In 1988, PL&D acquired a 1.75-acre parcel of
land located in the Governmental Mall area of Phoenix. Original plans were to
either develop a 200,000 square foot office building on the site to be available
to government and government related tenants or to sell the site. The project
has currently been placed on hold pending a change in market conditions.
- 11 -
<PAGE>
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 slowdown 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.
The well publicized real estate problems experienced by the commercial
bank and savings and loan industries in the early 90's have resulted in sharply
curtailed credit available to acquire and develop real estate; further, the
continuing national weakness in commercial office markets has significantly
slowed the pace at which PL&D has been able to proceed on certain of its
development projects and its ability to sell developed product. In some or all
cases, it has also reduced the sales proceeds realized on such sales and/or
required extended payment terms.
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. PL&D, in some cases, employs hedges or caps to protect itself
against increases in interest rates on any of its variable rate debt and,
therefore, is insulated from extreme interest rate risk on borrowed funds,
although specific projects may be impacted if the decision has been made not to
hedge or to hedge at higher than current rates.
The Company has been replacing relatively low cost debt-free land in
Florida acquired in the late 1950's with land purchased at current market
prices. In 1995 and into the future, as the mix of land sold contains
proportionately less low cost land, the gross margin on real estate revenues
will decrease.
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. However, due
to conditions in the insurance market, the Company's California properties, both
directly owned and owned in partnership with others, are not fully covered by
earthquake insurance.
In conjunction with its construction business, the Company is often
required to provide various types of surety bonds. The Company has dealt with
the same surety 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 1995, the maximum number of
employees employed was approximately 3,000 and the minimum was approximately
2,100.
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.
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<PAGE>
ITEM 2. PROPERTIES
Properties applicable to the Company's real estate development
activities are described in detail by geographic area in Item 1. Business on
pages 7 through 12. 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 9 110,000
Phoenix, AZ Leased - 22,000
Southfield, MI Leased - 13,900
San Francisco, CA Leased - 3,500
Hawthorne, NY Leased - 12,500
West Palm Beach, FL Leased - 5,000
Los Angeles, CA Leased - 2,000
Las Vegas, NV Leased - 3,000
Atlanta, GA Leased - 1,700
Chicago, IL Leased - 14,700
Philadelphia, PA Leased - 2,100
-- -------
9 190,400
== =======
Principal Permanent
Storage Yards
- -------------------
Bow, NH Owned 70
Framingham, MA Owned 6
E. Boston, MA Owned 3
Las Vegas, NV Leased 2
Novi, MI Leased 3
--
84
The Company's properties are generally well maintained, in good
condition, adequate and suitable for the Company's purpose and fully utilized.
ITEM 3. LEGAL PROCEEDINGS
As previously reported, the Company is a party to an action entitled
Mergentime Corporation et. al. v. Washington Metropolitan Transit Authority v.
Insurance Company of North America (Civil Action No. 89-1055) in the U.S.
District Court for the District of Columbia. The action involves WMATA's
termination of the general contractor, a joint venture in which the Company was
a minority partner, on two contracts to construct a portion of the Washington,
D.C. subway system, and certain claims by the joint venture against WMATA for
claimed delays and extra work.
On July 30, 1993, the Court upheld the termination for default, and
found both joint venturers and their surety jointly and severally liable to
WMATA for damages in the amount of $16.5 million, consisting primarily of
WMATA's excess reprocurement costs, but specifically deferred ruling on the
amount of the joint venture's claims against WMATA. Since the other joint
venture partner may be unable to meet its financial obligations under the award,
the Company could be liable for the entire amount.
At the direction of the judge now presiding over the action, during the
third quarter of 1995, the parties submitted briefs on the issue of WMATA's
liability on the joint venture's claims for delays and for extra work. As a
result of that process, the company established a reserve with respect to the
litigation. Management believes the reserve should be adequate to cover the
potential ultimate liability in this matter.
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<PAGE>
In the ordinary course of its construction business, the Company is
engaged in other lawsuits. The Company believes that such lawsuits 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.
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<PAGE>
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 1995
and 1994 are summarized below:
1995 1994
-------------- --------------
Market Price Range per Common Share: High Low High Low
- ----------------------------------- ------ ----- ------ -----
Quarter Ended
March 31 11 7/8 - 9 3/8 13 7/8 - 11 1/4
June 30 11 1/2 - 9 1/2 13 3/8 - 10 7/8
September 30 13 3/8 - 10 1/8 11 1/2 - 9 1/8
December 31 12 1/4 - 7 7/8 11 1/8 - 9 1/8
For information on dividend payments, see Selected Financial Data in
Item 6 below and "Dividends" under Management's Discussion and Analysis on Item
7 below.
As of March 1, 1996, there were approximately 1,327 record holders of
the Company's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(In thousands, except per share data)
OPERATING SUMMARY 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues
Construction operations $1,056,673 $ 950,884 $1,030,341 $1,023,274 $ 919,641
Real estate operations 44,395 61,161 69,775 47,578 72,267
----------- ----------- ----------- ----------- -----------
Total Revenues $1,101,068 $1,012,045 $1,100,116 $1,070,852 $ 991,908
----------- ----------- ----------- ----------- -----------
Gross Profit $ 14,855 $ 51,797 $ 52,786 $ 22,189 $ 60,854
General, Administrative & Selling
Expenses (37,283) (42,985) (44,212) (41,328) (48,530)
----------- ----------- ----------- ----------- -----------
Income (Loss) From Operations $ (22,428) $ 8,812 $ 8,574 $ (19,139) $ 12,324
Other Income (Expense), Net 814 (856) 5,207 436 1,136
Interest Expense (8,582) (7,473) (5,655) (7,651) (9,022)
----------- ----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes $ (30,196) $ 483 $ 8,126 $ (26,354) $ 4,438
(Provision) Credit for Income Taxes 2,611 (180) (4,961) 9,370 (1,260)
----------- ----------- ----------- ----------- -----------
Net Income (Loss) $ (27,585) $ 303 $ 3,165 $ (16,984) $ 3,178
----------- ----------- ----------- ----------- -----------
Per Share of Common Stock:
Earnings (loss) $ (6.38) $ (.42) $ .24 $ (4.69) $ .27
----------- ----------- ----------- ----------- -----------
Cash dividends declared $ - $ - $ - $ - $ -
----------- ----------- ----------- ----------- -----------
Book value $ 17.06 $ 23.79 $ 24.49 $ 23.29 $ 28.96
----------- ----------- ----------- ----------- -----------
Weighted Average Number
of Common Shares Outstanding 4,655 4,380 4,265 4,079 3,918
----------- ----------- ----------- ----------- -----------
FINANCIAL POSITION SUMMARY
Working Capital $ 36,545 $ 29,948 $ 36,877 $ 31,028 $ 30,724
----------- ----------- ----------- ----------- -----------
Current Ratio 1.12:1 1.13:1 1.17:1 1.14:1 1.16:1
Long-term Debt, less current
maturities $ 84,155 $ 76,986 $ 82,366 $ 85,755 $ 96,294
----------- ----------- ----------- ----------- -----------
Stockholders' Equity $ 105,606 $ 132,029 $ 131,143 $ 121,765 $ 138,644
----------- ----------- ----------- ----------- -----------
Ratio of Long-term Debt to Equity .80:1 .58:1 .63:1 .70:1 .69:1
----------- ----------- ----------- ----------- -----------
Total Assets $ 539,251 $ 482,500 $ 476,378 $ 470,696 $ 498,574
----------- ----------- ----------- ----------- -----------
OTHER DATA
Backlog at Year-end $1,534,522 $1,538,779 $1,238,141 $1,169,553 $1,233,958
----------- ----------- ----------- ----------- -----------
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS -
1995 COMPARED TO 1994
The Company's 1995 operations resulted in a net loss of $27.6 million or
$6.38 per common share on revenues of $1.1 billion compared to net income of $.3
million or a loss of $.42 per common share (after giving effect to the dividend
payments required on its preferred stock) on revenues of $1.0 billion in 1994.
The primary reasons for this decrease in earnings were a pretax charge of $25.6
million in connection with previously disclosed litigation in Washington, D.C.
and downward revisions in estimated probable recoveries on certain outstanding
contract claims, and lower than normal profit margins on certain heavy
construction contracts, including a significant reduction in the profit level on
a tunnel project in the Midwest.
Revenues reached a record level of $1.101 billion in 1995, an increase
of $89 million (or 9%) compared to the 1994 revenues of $1.012 billion. This
increase resulted primarily from an increase in construction revenues of $106
million (or 11%) from $.951 billion in 1994 to $1.057 billion in 1995. This
increase in construction revenues resulted primarily from an increase in
building construction revenues of $122 million (or 19%), from $626 million in
1994 to $748 million in 1995, primarily due to substantially increased volume in
the Midwest region resulting from a substantially higher backlog in that area
entering 1995 combined with several hotel/casino projects acquired during 1995.
This increase was partially offset by a decrease in building construction
revenues in the Eastern and Western regions, as well as in the overall heavy
construction operations, due primarily to the timing in the start-up of several
significant new projects and the completion early in 1995 of several other major
projects. Revenues from real estate operations also decreased by $16.8 million
(or 27%) from $61.2 million in 1994 to $44.4 million in 1995 due to the
non-recurring sale in 1994 of two investment properties ($8.3 million) and fewer
land sales in Massachusetts and California during 1995.
In spite of the 9% increase in revenues, the gross profit in 1995
decreased by $36.9 million, from $51.8 million in 1994 to $14.9 million in 1995,
due primarily to an overall decrease in gross profit from construction
operations of $32.1 million (or 67%), from $48.0 million in 1994 to $15.9
million in 1995. The primary reasons for this decrease were a pretax charge of
$25.6 million in connection with previously disclosed litigation in Washington,
D.C. (as more fully discussed in Note 11 to Notes to Consolidated Financial
Statements) and downward revisions in estimated probable recoveries on certain
outstanding contract claims, and lower than normal profit margins on certain
heavy construction contracts, including a significant reduction in the profit
level on a tunnel project in the Midwest. In addition, the overall gross profit
from real estate operations decreased by $4.8 million, from a profit of $3.8
million in 1994 to a loss of $1.0 million in 1995 due to the sale in 1994 of the
last parcels of high margin land in Florida and in a project in Massachusetts
which was partially offset by improved operating results in 1995 from its two
major on-going operating properties in California.
Total general, administrative and selling expenses decreased by $5.7
million (or 13%) from $43.0 million in 1994 to $37.3 million in 1995. This
decrease primarily reflects reduced bonuses, an increased allocation of various
insurance costs to projects in 1995, and a continuation during 1995 of the
Company's re-engineering efforts commenced in prior years.
The increase in other income (expense), net, of $1.7 million, from a net
expense of $.9 million in 1994 to a net income of $.8 million in 1995, is
primarily due to an increase in interest income and, to a lesser extent, a gain
realized on the sale of certain underutilized operating facilities, including a
quarry, in 1995.
The increase in interest expense of $1.1 million (or 15%), from $7.5
million in 1994 to $8.6 million in 1995, primarily results from a higher average
level of borrowings during 1995.
The Company recognized a tax benefit in 1995 equal to $2.6 million or 9%
of the pretax loss. A portion of the tax benefit related to the 1995 loss was
not recognized because of certain accounting limitations. However, an amount
estimated to be approximately $20 million of future pretax earnings should
benefit from minimal, if any, tax charges.
----------------------------------------------------------
Looking ahead, we must consider the Company's construction backlog and
remaining
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<PAGE>
inventory of real estate projects. The overall construction backlog at the end
of 1995 was $1.535 billion which approximates the 1994 record year-end backlog
of $1.539 billion. This backlog has a better balance between building and heavy
work and a higher overall estimated profit margin.
With the sale of the final 21 acres during 1994, the Company's Villages
of Palm Beach Lakes, Florida land inventory was completely sold out. Because of
its low book value, sales of this acreage have provided a major portion of the
Company's real estate profit in recent years. With the sale of this property
complete, the Company's ability to generate profit from real estate sales and
the related gross margin will be reduced as was the case in 1995. Between 1989
and 1995, property prices in general have fallen substantially due to the
reduced liquidity in real estate markets and reduced demand. Recently, the
Company has noted improvement in some property areas. This trend has had some
effect on residential property sales which were closed in 1995. However, this
trend is still neither widespread nor proven to be sustainable.
RESULTS OF OPERATIONS -
1994 COMPARED TO 1993
The Company's 1994 operations resulted in net income of $.3 million on revenues
of $1.0 billion and a loss of 42 cents per common share (after giving effect to
the dividend payments required on its preferred stock) compared to net income of
$3.2 million or 24 cents per common share on revenues of $1.1 billion in 1993.
In spite of the overall decrease in revenues during 1994, income from operations
increased slightly compared to 1993 results. An increase in interest expense in
1994 and the non-recurring $1 million net gain after tax in 1993 from the sale
by the Company of its 74%-ownership interest in Majestic Contractors Limited
("Majestic"), its Canadian pipeline subsidiary, contributed to the overall
decrease in net income.
Revenues amounted to $1.012 billion in 1994 compared to $1.100 billion in 1993,
a decrease of $88 million (or 8%). This decrease resulted primarily from a net
decrease in construction revenues of $79 million (or 8%) from $1.030 billion in
1993 to $.951 billion in 1994 due to a decrease in volume from building
operations of $126 million (or 17%), from $752 million in 1993 to $626 million
in 1994. The decrease in revenue from building operations was primarily due to
the prolonged start-up phases on certain projects. This decrease was partially
offset by an increase in revenues from civil and environmental construction
operations of $47 million (or 17%), from $278 million in 1993 to $325 million in
1994, due to an increased heavy construction backlog going into 1994. In
addition to the overall decrease in construction revenues, revenues from real
estate operations decreased $8.6 million (or 12%), from $69.8 million in 1993 to
$61.2 million in 1994, due primarily to the non-recurring sale ($23.2 million)
in 1993 of a partnership interest in certain commercial rental properties in San
Francisco and a $5.2 million decrease in land sales in Arizona. The decrease in
real estate revenues was partially offset from the sale of two investment
properties in 1994 ($8.3 million) and increased land sales in Massachusetts
($5.4 million) and California ($4.9 million).
In spite of the 8% decrease in total revenues, the gross profit in 1994
decreased only $1.0 million (or 2%), from $52.8 million in 1993 to $51.8 million
in 1994. The gross profit from construction operations decreased $1.1 million
(or 2.3%), from $49.1 million in 1993 to $48.0 million in 1994, due to the
negative profit impact from the reduction in building construction revenues
referred to above and a loss from international operations resulting from
unstable economic and political conditions in a certain overseas location where
the Company is working. These decreases were partially offset by slightly higher
margins on the construction work performed in 1994 (5.0% in 1994 compared with
4.8% in 1993) and a slight overall increase ($.1 million) in the gross profit
from real estate operations, from $3.7 million in 1993 compared to $3.8 million
in 1994.
Total general, administrative and selling expenses decreased by $1.2 million (or
3%) in 1994, from $44.2 million in 1993 to $43.0 million in 1994 due to several
factors, the more significant ones being a $2.1 million expense for severance
incurred in 1993 in connection with re-engineering some of the business units,
which was partially offset by the full year impact of expenses related to the
acquisition referred to in Note 1 to Notes to Consolidated Financial Statements.
The decrease in other income (expense), net of $6.1 million, from income of $5.2
million in 1993 to a net loss of $.9 million in 1994 is primarily due to the
pretax gain in 1993 of $4.6 million on the sale of Majestic and, to a lesser
degree, an increase in other expenses in 1994, primarily bank fees.
The increase in interest expense of $1.8 million (or 32%), from $5.7 million in
1993 to $7.5 million in 1994 primarily results from higher interest rates during
1994 and higher average level of borrowings.
- 17 -
<PAGE>
FINANCIAL CONDITION
CASH AND WORKING CAPITAL
During 1995, the Company provided $24.6 million in cash from operating
activities, primarily due to an overall increase in accounts payable and
advances from joint ventures; $9.0 million from financing activities due to an
increase in borrowings under its revolving credit facility; and $23.9 million
from cash distributions from certain joint ventures. These increases in cash
were used to increase cash on hand by $21.2 million, with the balance used for
various investment activities, primarily to fund construction and real estate
joint ventures. In addition, the Company has future financial commitments to
certain real estate joint ventures as described in Note 11 to Notes to
Consolidated Financial Statements.
During 1994, the Company used $15.6 million in cash for investment activities,
primarily to fund construction and real estate joint ventures; $7.4 million for
financing activities, primarily to pay down company debt; and $5.0 million to
fund operating activities, primarily changes in working capital.
During 1993, the Company used $39.1 million of cash for investment activities,
primarily to fund construction and real estate joint ventures; $3 million for
financing activities, primarily to pay down Company debt; and $1.6 million to
fund operating activities, primarily changes in working capital.
Since 1990, the Company has paid down $44.3 million of real estate debt on
wholly-owned real estate projects (from $50.9 million to $6.6 million),
utilizing proceeds from sales of property and general corporate funds.
Similarly, real estate joint venture debt has been reduced by $158 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. With the exception of the major properties referred to in
Note 11 to Notes to Consolidated Financial Statements, this trend should
continue over the next several years with debt on projects often being fully
repaid prior to full project sell-out. On the other hand, the softening of the
national real estate market coupled with problems in the commercial banking
industry have significantly reduced credit availability for both new real estate
development projects and the sale of completed product, sources historically
relied upon by the Company and its customers to meet liquidity needs for its
real estate development business. The Company has addressed this problem 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 treasury stock in partial payment of amounts due under
certain of its incentive compensation plans, utilizing cash internally generated
from operations and, during the first quarter of 1992, selling its interest in
Monenco. In addition, in January 1993, the Company sold its majority interest in
Majestic for approximately $31.7 million in cash. Since Majestic had been fully
consolidated, the net result to the Company was to increase working capital by
$8 million and cash by $4 million. In addition, the Company implemented a
company-wide cost reduction program in 1990, and again in 1991 and 1993 to
improve long-term financial results and suspended the dividend on its common
stock during the fourth quarter of 1990. Also, the Company increased the
aggregate amount available under its revolving credit agreement during the
period from $70 million to $114.5 million at December 31, 1995. Effective
February 26, 1996, the Company entered into a Bridge Loan Agreement for an
additional $15 million through July 31, 1996 (see Note 4 to Notes to
Consolidated Financial Statements). Management believes that cash generated from
operations, existing credit lines and additional borrowings should probably be
adequate to meet the Company's funding requirements for at least the next twelve
months. However, the withdrawal of many commercial lending sources from both the
real estate and construction markets and/or restrictions on new borrowings and
extensions on maturing loans by these very same sources cause uncertainties in
predicting liquidity. In addition to internally generated funds, the Company has
access to additional funds under its long-term revolving credit facility and
Bridge Loan Agreement. At December 31, 1995, the Company has $24.5 million
available under its revolving credit facility and, effective February 26, 1996,
an additional $15 million became available under the Bridge Loan Agreement. The
financial covenants to which the Company is subject include minimum levels of
working capital, debt/net worth ratio, net worth level and interest coverage,
all as defined in the loan documents. Although the Company was in violation of
certain of the covenants during the latter part of 1995, it obtained waivers of
such violations and, effective February 26, 1996, received modifications to the
Credit Agreement which eliminated any non-compliance.
- 18 -
<PAGE>
The working capital current ratio stood at 1.12:1 at the end of 1995, compared
to 1.13:1 at the end of 1994 and to 1.17:1 at the end of 1993. Of the total
working capital of $36.5 million at the end of 1995, approximately $6 million
may not be converted to cash within the next 12 to 18 months.
LONG-TERM DEBT
Long-term debt was $84.2 million at the end of 1995, which represented an
increase of $7.2 million compared with $77 million at the end of 1994, which was
a decrease of $5.4 million compared with $82.4 million at the end of 1993. The
ratio of long-term debt to equity increased from .58:1 at the end of 1994 to
.80:1 at the end of 1995 due to the increase in long-term debt coupled with the
negative impact on equity as a result of the net loss experienced by the Company
in 1995. The ratio of long-term debt to equity improved from .63:1 at the end of
1993 to .58:1 at the end of 1994 due to the decrease in long-term debt achieved
in 1994.
STOCKHOLDERS' EQUITY
The Company's book value per common share stood at $17.06 at December 31, 1995,
compared to $23.79 per common share and $24.49 per common share at the end of
1994 and 1993, respectively. The major factor impacting stockholders' equity
during the three-year period under review was the net loss recorded in 1995 and,
to a lesser extent, preferred dividends paid or accrued, and treasury stock
issued in partial payment of incentive compensation.
At December 31, 1995, there were 1,346 common stockholders of record based on
the stockholders list maintained by the Company's transfer agent.
DIVIDENDS
During 1993 and 1994, the Company 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). During 1995, the Board of Directors continued to declare and pay the
regular quarterly cash dividend on the Company's preferred stock through
December 15, 1995. In conjunction with the covenants of the new Amended
Revolving Credit Agreement (see Note 4 to Notes to Consolidated Financial
Statements), the Company is required to suspend the payment of quarterly
dividends on its preferred stock until the Bridge Loan commitment is no longer
outstanding, if a default exists under the terms of the Amended Revolving Credit
Agreement, or if the ratio of long-term debt to equity exceeds 50%. Therefore,
the dividend that normally would have been declared during December of 1995 and
payable on March 15, 1996 has not been declared (although it has been fully
accrued due to the "cumulative" feature of the preferred stock). The Board of
Directors intends to resume payment of the cumulative dividend on the Company's
preferred stock as the Company satisfies the terms of the new credit agreement
and the Board deems it prudent to do so. There were no cash dividends declared
during the three-year period ended December 31, 1995 on the Company's
outstanding common stock. It is Management's intent to recommend reinstating
dividends on common stock once it is prudent to do so.
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.
- 19 -
<PAGE>
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 16, 1996 (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, 1995 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.
<TABLE>
Name, Offices Held and Age Year First Elected to Present Office and Business Experience
-------------------------- ------------------------------------------------------------
<S> <C>
David B. Perini, Director, Chairman, He has served as a Director, President, Chief Executive Officer and
President and Chief Executive Acting Chairman since 1972. He became Chairman on March 17,
Officer - 58 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.
Richard J. Rizzo, Executive Vice He has served in this capacity since January, 1994, which entails
President, Building Construction - overall responsibility for the Company's building construction
52 operations. Prior thereto, he served as President of Perini Building
Company (formerly known as Mardian Construction Co.) since 1985,
and in various other operating capacities since 1977.
John H. Schwarz, Executive Vice He has served as Executive Vice President, Finance and
President, Finance and Administration since August, 1994, and as Chief Executive Officer of
Administration of the Company Perini Land and Development Company, which entails overall
and Chief Executive Officer of responsibility for the Company's real estate operations since April,
Perini Land and Development 1992. Prior to that, he served as Vice President, Finance and
Company - 57 Controls of Perini Land and Development Company. Previously, he
served as Treasurer from August, 1984, and Director of Corporate
Planning since May, 1982. He joined the Company in 1979 as Manager of
Corporate Development.
Donald E. Unbekant, Executive Vice He has served in this capacity since January, 1994, which entails
President, Civil and Environmental overall responsibility for the Company's civil and environmental
Construction - 64 construction operations. Prior thereto, he served in the Metropolitan New York
Division of the Company as President since 1992, Vice President and General
Manager since 1990 and Division Manager since 1984.
</TABLE>
The Company's officers are elected on an annual basis at the Board of
Directors Meeting immediately following the Shareholders Meeting in May, to hold
such offices until the Board of Directors Meeting following the next Annual
Meeting of Shareholders and until their respective successors have been duly
appointed or until their tenure has been terminated by the Board of Directors,
or otherwise.
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In response to Items 11-13, reference is made to the information to be
set forth in the section entitled "Election of Directors" in the Proxy
Statement, which is incorporated herein by reference.
- 20 -
<PAGE>
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:
<TABLE>
Pages
-----
<S> <C>
Financial Statements of the Registrant
Consolidated Balance Sheets as of December 31, 1995 and 1994 23 - 24
Consolidated Statements of Operations for the three years 25
ended December 31, 1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity for the 26
three years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the three years ended 27 -28
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements 29-41
Report of Independent Public Accountants 42
(a)2. The following financial statement schedules are filed as part of this report:
Report of Independent Public Accountants on Schedule 43
Schedule II -- Valuation and Qualifying Accounts and Reserves 44
</TABLE>
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.
Separate condensed financial information of the Company has been omitted
since restricted net assets of subsidiaries included in the consolidated
financial statements and its equity in the undistributed earnings of 50%
or less owned persons accounted for by the equity method do not, in the
aggregate, exceed 25% of consolidated net assets.
(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 45 and 46. 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, 1995, the Registrant made no
filings on Form 8-K.
- 21 -
<PAGE>
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: November 21, 1996 s/David B. Perini
-----------------
David B. Perini
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
<TABLE>
Signature Title Date
--------- ----- ----
<S> <C> <C>
(i) Principal Executive Officer
David B. Perini Chairman, President and
Chief Executive Officer
s/David B. Perini November 21, 1996
- -----------------------------------------------
David B. Perini
(ii) Principal Financial Officer
John H. Schwarz Executive Vice President,
Finance & Administration
s/John H. Schwarz November 21, 1996
- -----------------------------------------------
John H. Schwarz
(iii) Principal Accounting Officer
Barry R. Blake Vice President and
Controller
s/Barry R. Blake November 21, 1996
- -----------------------------------------------
Barry R. Blake
(iv) Directors
</TABLE>
David B. Perini )
Joseph R. Perini ) By
Richard J. Boushka )
Marshall M. Criser ) s/David B. Perini
------------------
Thomas E. Dailey ) David B. Perini
Albert A. Dorman )
Arthur J. Fox, Jr. ) Attorney in Fact
John J. McHale ) Dated: November 21, 1996
Jane E. Newman )
Bart W. Perini )
- 22 -
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
December 31, 1995 and 1994
(In thousands except per share data)
Assets
1995 1994
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash, including cash equivalents of $29,059 and $3,518 (Note 1) $ 29,059 $ 7,841
Accounts and notes receivable, including retainage of $69,884 and $63,344 180,978 151,620
Unbilled work (Note 1) 28,304 20,209
Construction joint ventures (Notes 1 and 2) 61,846 66,346
Real estate inventory, at the lower of cost or market (Note 1) 14,933 11,525
Deferred tax asset (Notes 1 and 5) 13,039 6,066
Other current assets 2,186 3,041
-------- --------
Total current assets $330,345 $266,648
-------- --------
REAL ESTATE DEVELOPMENT INVESTMENTS:
Land held for sale or development (including land development costs) at
the lower of cost or market (Note 1) $ 41,372 $ 43,295
Investments in and advances to real estate joint ventures
(Notes 1, 2 and 11) 148,225 148,843
Real estate properties used in operations, less accumulated depreciation
of $3,444 and $3,698 2,964 6,254
Other 302 80
-------- --------
Total real estate development investments $192,863 $198,472
-------- --------
PROPERTY AND EQUIPMENT, at cost:
Land $ 809 $ 1,134
Buildings and improvements 13,548 13,653
Construction equipment 15,597 15,249
Other equipment 9,911 12,552
-------- --------
$ 39,865 $ 42,588
Less - Accumulated depreciation (Note 1) 27,299 29,082
-------- --------
Total property and equipment, net $ 12,566 $ 13,506
-------- --------
OTHER ASSETS:
Other investments $ 1,839 $ 2,174
Goodwill (Note 1) 1,638 1,700
-------- --------
Total other assets $ 3,477 $ 3,874
-------- --------
$539,251 $482,500
======== ========
<CAPTION>
The accompanying notes are an integral part of these financial statements.
- 23 -
<PAGE>
Liabilities and Stockholders' Equity
1995 1994
---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 4) $ 5,697 $ 5,022
Accounts payable, including retainage of $58,749 and $52,224 197,052 148,055
Advances from construction joint ventures (Note 2) 34,830 8,810
Deferred contract revenue (Note 1) 23,443 38,929
Accrued expenses 32,778 35,884
--------- --------
Total current liabilities $293,800 $236,700
--------- --------
DEFERRED INCOME TAXES AND OTHER LIABILITIES (Notes 1, 5 & 6) 52,663 $ 33,488
--------- --------
LONG-TERM DEBT, less current maturities included above (Note 4):
Real estate development $ 3,660 $ 6,502
Other 80,495 70,484
--------- --------
Total long-term debt $ 84,155 $ 76,986
--------- --------
MINORITY INTEREST (Note 1) $ 3,027 $ 3,297
--------- --------
CONTINGENCIES AND COMMITMENTS (Note 11)
STOCKHOLDERS' EQUITY (Notes 1, 7, 8, 9 and 10):
Preferred stock, $1 par value -
Authorized - 1,000,000 shares
Issued and outstanding - 100,000 shares
($25,000 aggregate liquidation preference) $ 100 $ 100
Series A junior participating preferred stock, $1 par value -
Authorized - 200,000
Issued - none - -
Common stock, $1 par value -
Authorized - 15,000,000 shares
Issued - 4,985,160 shares 4,985 4,985
Paid-in surplus 57,659 59,001
Retained earnings 52,062 81,772
ESOT related obligations (4,965) (6,009)
--------- ---------
$109,841 $139,849
Less - Common stock in treasury, at cost - 265,735 shares and 490,674 4,235 7,820
--------- --------
shares
Total stockholders' equity $105,606 $132,029
--------- --------
$539,251 $482,500
======== ========
</TABLE>
- 24 -
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Operations
For the years ended December 31, 1995, 1994 & 1993
(In thousands, except per share data)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
REVENUES (Notes 2 and 13) $1,101,068 $1,012,045 $1,100,116
----------- ----------- -----------
COSTS AND EXPENSES (Notes 2 and 10):
Cost of operations $1,086,213 $ 960,248 $1,047,330
General, administrative and selling expenses 37,283 42,985 44,212
----------- ----------- -----------
$1,123,496 $1,003,233 $1,091,542
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (Note 13) $ (22,428) $ 8,812 $ 8,574
----------- ----------- -----------
Other income (expense), net (Note 6) 814 (856) 5,207
Interest expense (Notes 3 and 4) (8,582) (7,473) (5,655)
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES $ (30,196) $ 483 $ 8,126
(Provision) credit for income taxes (Notes 1 and 5) 2,611 (180) (4,961)
----------- ----------- -----------
NET INCOME (LOSS) $ (27,585) $ 303 $ 3,165
=========== =========== ===========
EARNINGS (LOSS) PER COMMON SHARE (Note 1) $ (6.38) $ (.42) $ .24
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 25 -
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1995, 1994 & 1993
(In thousands, except per share data)
Cumulative ESOT
Preferred Common Paid-In Retained Translation Related Treasury
Stock Stock Surplus Earnings Adjustment Obligation Stock
- -------------------------------- ------------- --------- ------------ ------------ ------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance-December 31, 1992 $100 $4,985 $60,019 $ 82,554 $(4,696) $(7,888) $(13,309)
- -------------------------------- ------------- --------- ------------ ------------ ------------- --------------- --------------
Net income - - - 3,165 - - -
Preferred stock-cash
dividends declared
($21.25 per share*) - - - (2,125) - - -
Treasury stock issued in
partial payment of
incentive compensation - - (143) - - - 2,872
Restricted stock awarded - - (1) - - - 8
Related to Sale of
Majestic - - - - 4,696 - -
Payments related to ESOT
notes - - - - - 906 -
- -------------------------------- ------------- --------- ------------ ------------ ------------- --------------- --------------
Balance-December 31, 1993 $100 $4,985 $59,875 $ 83,594 $ - $(6,982) $(10,429)
- -------------------------------- ------------- --------- ------------ ------------ ------------- --------------- --------------
Net Income - - - 303 - - -
Preferred stock-cash
dividends declared
($21.25 per share*) - - - (2,125) - - -
Treasury stock issued in
partial payment of
incentive compensation - - (835) - - - 2,444
Restricted stock awarded - - (39) - - - 165
Payments related to ESOT -
notes - - - - - 973
- -------------------------------- ------------- --------- ------------ ------------ ------------- --------------- --------------
Balance-December 31, 1994 $100 $4,985 $59,001 $ 81,772 $ - $(6,009) $ (7,820)
- -------------------------------- ------------- --------- ------------ ------------ ------------- --------------- --------------
Net Loss - - - (27,585) - - -
Preferred stock-cash
dividends declared or
accrued ($21.25 per
share*) - - - (2,125) - - -
Treasury stock issued in
partial payment of
incentive compensation - - (1,342) - - - 3,585
Payments related to ESOT
notes - - - - - 1,044 -
- -------------------------------- ------------- --------- ------------ ------------ ------------- --------------- --------------
Balance-December 31, 1995 $100 $4,985 $57,659 $ 52,062 $ - $(4,965) $ (4,235)
- -------------------------------- ------------- --------- ------------ ------------ ------------- --------------- --------------
</TABLE>
*Equivalent to $2.125 per depositary share (see Note 7).
The accompanying notes are an integral part of these financial statements.
- 26 -
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
For the years ended December 31, 1995, 1994 & 1993
(In thousands)
Cash Flows from Operating Activities: 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net income (loss) $(27,585) $ 303 $ 3,165
Adjustments to reconcile net income (loss) to net cash from
operating activities -
Depreciation and amortization 2,769 2,879 3,515
Non-current deferred taxes and other liabilities 19,175 (5,306) 11,239
Distributions greater (less) than earnings of joint ventures
and affiliates 12,880 2,995 (2,821)
Gain on sale of Majestic (Note 6) - - (4,631)
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 (29,358) (28,611) (7,435)
(Increase) decrease in unbilled work (8,095) (5,285) (6,046)
(Increase) decrease in construction joint ventures 2,643 (662) (10,695)
(Increase) decrease in deferred tax asset (6,973) 1,636 (7,702)
(Increase) decrease in other current assets 2,109 233 133
Increase (decrease) in accounts payable 48,997 35,024 3,986
Increase (decrease) in advances from construction joint
ventures 26,020 (14,390) (2,056)
Increase (decrease) in deferred contract revenue (15,486) 13,062 619
Increase (decrease) in accrued expenses (3,106) (15,126) 9,543
Real estate development investments other than joint ventures 2,757 11,451 10,908
Other non-cash items, net (2,174) (3,231) (3,299)
--------- --------- ---------
NET CASH PROVIDED FROM (USED BY) OPERATING ACTIVITIES $ 24,573 $ (5,028) $ (1,577)
--------- --------- ---------
Cash Flows from Investing Activities:
Proceeds from sale of property and equipment $ 3,115 $ 989 $ 1,344
Cash distributions of capital from unconsolidated joint
ventures $ 23,858 13,112 4,977
Acquisition of property and equipment (1,960) (2,493) (4,387)
Improvements to land held for sale or development (193) (334) (4,227)
Improvements to real estate properties used
in operations (263) (140) (614)
Capital contributions to unconsolidated joint ventures (29,373) (20,199) (24,579)
Advances to real estate joint ventures, net (7,735) (6,559) (16,031)
Proceeds from sale of Majestic, net of subsidiary's cash - - 4,377
Investments in other activities 190 14 -
--------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES $(12,361) $(15,610) $(39,140)
--------- --------- ---------
- 27 -
<PAGE>
<CAPTION>
Consolidated Statements of Cash Flows (Continued)
For the years ended December 31, 1995, 1994 & 1993
(In thousands)
<S> <C> <C> <C>
Cash Flows from Financing Activities:
Proceeds from long-term debt $ 12,033 $ 3,127 $ 8,014
Repayment of long-term debt (3,145) (10,129) (11,600)
Cash dividends paid (2,125) (2,125) (2,125)
Treasury stock issued 2,243 1,735 2,736
--------- --------- ---------
NET CASH PROVIDED FROM (USED BY) FINANCING ACTIVITIES $ 9,006 $ (7,392) $ (2,975)
--------- --------- ---------
Net Increase (Decrease) in Cash $ 21,218 $(28,030) $(43,692)
Cash and Cash Equivalents at Beginning of Year 7,841 35,871 79,563
--------- --------- ---------
Cash and Cash Equivalents at End of Year $ 29,059 $ 7,841 $ 35,871
========= ========= =========
Supplemental Disclosures of Cash Paid During the Year For:
Interest $ 8,715 $ 7,308 $ 5,947
========= ========= =========
Income tax payments $ 121 $ 1,176 $ 843
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 28 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995 1994 & 1993
[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".
Effective July 1, 1993, the Company acquired Gust K. Newberg Construction Co.'s
("Newberg") interest in certain construction projects and related equipment. The
purchase price for the acquisition was (i) approximately $3 million in cash for
the equipment paid by a third party leasing company, which in turn
simultaneously entered into an operating lease agreement with the Company for
the use of said equipment, (ii) $1 million in cash paid by the Company, and
(iii) 50% of the aggregate of net profits earned from each project from April 1,
1993 through December 31, 1994 and, with regard to one project, through December
31, 1995. This acquisition has been accounted for as a purchase. If this
acquisition had been consummated as of January 1, 1993, the 1993 pro forma
results would have been. Revenues of $1,134,264,000 and Net Income of $3,724,000
($.37 per common share).
[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 of net realizable value of real
estate development projects (see Note 1(d) below) and estimating potential
liability in conjunction with certain contingencies and commitments, as
discussed in Note 11. 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 became 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 claims is
recorded in the year such claims 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. 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.
- 29 -
<PAGE>
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. Real estate investments are stated at the lower of cost, which
includes applicable interest and real estate taxes during the development and
construction phases, or market. The market or net realizable value of a
development is determined by estimating the sales value of the development in
the ordinary course of business 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 net realizable value of a development is less than the cost of a
development, a provision is made to reduce the carrying value of the development
to net realizable value. At present, the Company believes its real estate
properties are carried at amounts at or below their net realizable values
considering the expected timing of their disposal.
[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 follows Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes," (see Note 5).
[h] Earnings (Loss) Per Common Share
Computations of earnings (loss) per common share amounts are based on the
weighted average number of common shares outstanding (4,655,000 shares in 1995,
4,380,000 shares in 1994 and 4,265,000 shares in 1993). During the three-year
period ended December 31, 1995, earnings (loss) per common share reflect the
effect of $2,125,000 of preferred dividends accrued during the year. Common
stock equivalents related to additional shares of common stock issuable upon
exercise of stock options (see Note 9) have not been included since their effect
would be immaterial or antidilutive. Earnings (loss) per common share on a fully
diluted basis are not presented because the effect of conversion of the
Company's depositary convertible exchangeable preferred shares into common stock
is antidilutive.
[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 1995, the Financial Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of", effective January 1, 1996, which requires
the determination of whether an impairment has occurred based on undiscounted
cash flows. If it is determined that an impairment has occurred, the impaired
asset must be written down to fair value. The Company does not expect the
adoption of SFAS No. 121 to have a material impact on its financial statements.
Also during 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-based Compensation" (SFAS 123) was issued. This statement
requires the fair value of stock options and other stock-based compensation
issued to employees to be either included as compensation expense in the income
statement, or the pro-forma effect on net income and earnings per share to be
disclosed in the footnotes to the financial statements commencing in 1996. The
Company has elected to adopt SFAS 123 on a disclosure basis, and, as such, the
effect of its implementation is not expected to have a material impact on its
financial statements.
- 30 -
<PAGE>
[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, 1995 follows:
CONSTRUCTION JOINT VENTURES
Financial position at December 31, 1995 1994 1993
--------- --------- ---------
Current assets $227,578 $232,025 $241,905
Property and equipment, net 22,491 19,386 17,228
Current liabilities (151,311) (132,326) (151,181)
--------- --------- ---------
Net assets $ 98,758 $119,085 $107,952
========= ========= =========
Operations for the year ended December 31,
1995 1994 1993
--------- --------- ---------
Revenue $348,730 $544,546 $626,327
Cost of operations 329,414 505,347 574,383
--------- --------- ---------
Pretax income $ 19,316 $ 39,199 $ 51,944
========= ========= =========
Company's share of joint ventures
Revenue $182,799 $241,784 $293,547
Cost of operations 177,990 224,039 272,137
--------- --------- ---------
Pretax income $ 4,809 $ 17,745 $ 21,410
========= ========= =========
Equity $ 61,846 $ 66,346 $ 61,156
========= ========= =========
The Company has a centralized cash management arrangement with most 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 1995 ($34.8 million) and 1994 ($8.8 million), approximately $12.1 million
in 1995 and $5.5 million in 1994 was deemed to be temporary.
REAL ESTATE JOINT VENTURES
Financial position at December 31, 1995 1994 1993
--------- --------- ---------
Property held for sale or development $ 18,350 $ 28,885 $ 35,855
Investment properties, net 173,468 177,258 191,606
Other assets 61,700 62,101 61,060
Long-term debt (72,603) (77,968) (103,090)
Other liabilities* (305,755) (277,184) (256,999)
---------- --------- ---------
Net assets (liabilities) $(124,840) $(86,908) $(71,568)
========== ========= =========
Operations for the year ended December 31, 1995 1994 1993
--------- --------- ---------
Revenue $ 49,560 $ 58,326 $ 83,710
---------- --------- ---------
Cost of operations -
Depreciation $ 7,304 $ 7,245 $ 8,660
Other 73,829 71,211 92,963
---------- --------- ---------
$ 81,133 $ 78,456 $101,623
---------- --------- ---------
Pretax income (loss) $ (31,573) $(20,130) $(17,913)
========== ========= =========
Company's share of joint ventures
Revenue $ 23,424 $ 27,059 $ 43,590
---------- --------- ---------
Cost of operations -
Depreciation $ 3,275 $ 3,323 $ 4,033
Other ** 20,888 26,682 40,716
---------- --------- ---------
$ 24,163 $ 30,005 $ 44,749
---------- --------- ---------
Pretax income (loss) $ (739) $ (2,946) $ (1,159)
========== ========= =========
Equity *** $ (49,580) $(33,091) $(27,768)
Advances 197,805 181,934 165,863
---------- --------- ---------
Total Equity and Advances $ 148,225 $148,843 $138,095
========== ========= =========
- 31 -
<PAGE>
* Included in "Other liabilities" are advances from joint venture partners
in the amount of $236.8 million in 1993, $259.3 million in 1994, and
$287.6 million in 1995. Of the total advances from joint venture
partners, $165.9 million in 1993, $181.9 million in 1994, and $198.7
million in 1995 represented advances from the Company.
** Other costs are reduced by the amount of interest income recorded by the
Company on its advances to the respective joint ventures.
*** 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, 1995.
[3] NOTES PAYABLE TO BANKS
During 1994, the Company maintained unsecured short-term lines of credit
totaling $18 million. In support of these credit lines, the Company paid fees
approximating 1/4 of 1% of the amount of the lines. These lines were canceled as
of December 12, 1994 upon the effective date of the expanded credit agreement
referred to in Note 4 below. Information relative to the Company's short-term
debt activity under such lines in 1994 follows (in thousands):
1994
----
Borrowings during the year:
Average $10,992
Maximum $18,000
At year-end $ -
Weighted average interest rates:
During the year 7.4%
At year-end -
[4] LONG-TERM DEBT
Long-term debt of the Company at December 31, 1995 and 1994 consists of the
following (in thousands):
<TABLE>
1995 1994
---- ----
<S> <C> <C>
Real Estate Development:
Industrial revenue bonds, at 65% of prime, payable in semi-annual installments $ 1,034 $ 1,310
Mortgages on real estate, at rates ranging from prime plus 1 1/2% to 10.82%,
payable in installments 5,521 6,588
------- -------
Total $ 6,555 $ 7,898
Less - current maturities 2,895 1,396
------- -------
Net real estate development long-term debt $ 3,660 $ 6,502
======= =======
Other:
Revolving credit loans at an average rate of 8.1% in 1995 and 8.6% in 1994 $73,000 $62,000
ESOT Notes at 8.24%, payable in semi-annual installments (Note 7) 4,484 5,396
Industrial revenue bonds at various rates, payable in installments to 2005 4,000 4,000
Other indebtedness 1,813 2,714
------- -------
Total $83,297 $74,110
Less - current maturities 2,802 3,626
------- -------
Net other long-term debt $80,495 $70,484
======= =======
</TABLE>
Payments required under these obligations amount to approximately $5,697 in
1996, $74,877 in 1997, $3,128 in 1998, $2,150 in 1999, $ - in 2000 and $4,000
for the years 2001 and beyond.
Effective December 12, 1994, the Company entered into a new revolving credit
agreement with a group of major banks which provided, among other things, for
the Company to borrow up to an aggregate of $125 million (aggregate limit under
previous agreements was $85 million), with a $25 million maximum of such amount
also being available for letters of credit, of which $17 million was outstanding
at December 31, 1995. The Company may 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. Borrowings and repayments may be made at any time
through December 6, 1997, at which time all outstanding loans under the
- 32 -
<PAGE>
agreement must be paid or otherwise refinanced. The Company must pay a
commitment fee of 1/2 of 1% annually on the unused portion of the commitment.
The aggregate $125 million commitment is subject to permanent partial reductions
based on certain events, as defined, such as proceeds from real estate sales
over a defined annual minimum, certain claims and future equity offerings and
was reduced accordingly during 1995 by $10.5 million.
The revolving credit agreement, as well as certain other loan agreements,
provides for, among other things, maintaining specified working capital and
tangible net worth levels and, additionally, imposes limitations on indebtedness
and future investment in real estate development projects. As a result of the
loss in the third quarter of 1995, the Company was in violation of certain of
these financial covenants; however, the Company obtained waivers of any such
violations and effective February 26, 1996, received modifications to the Credit
Agreement which eliminated any non-compliance.
Other modifications included, among other things, a requirement to reduce the
amount of this loan commitment by $2 million per month for four months
commencing the later of September 1, 1996 or the date of repayment and
cancellation of the Bridge Loan referred to below; additional collateral which
consists of all available assets not included as collateral in other agreements;
and suspension of payment of the 53 1/8 cent per share quarterly dividend on the
Company's Depositary Convertible Exchangeable Preferred Shares (see Note 7)
until certain financial criteria are met.
Also, effective February 26, 1996, the Company entered into a Bridge Loan
Agreement with its revolver banks to borrow up to an additional $15 million
through July 31, 1996 at an interest rate of prime plus 2%. The Bridge Loan
Agreement provides for, among other things, interim mandatory reductions in the
amount of the commitment equal to the net proceeds from sale of collateral not
included in the Company's 1996 budget and 50% of the net proceeds from any new
equity.
[5] INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109. This
standard determines deferred income taxes based on the estimated future tax
effects of differences between the financial statement and tax bases of assets
and liabilities, given the provisions of enacted tax laws.
The (provision) credit for income taxes is comprised of the following (in
thousands):
Federal State Total
------- ----- -----
1995
Current $ - $ (11) $ (11)
Deferred 2,726 (104) 2,622
-------- -------- --------
$ 2,726 $ (115) $ 2,611
======== ======== ========
1994
Current $ - $ (21) $ (21)
Deferred (108) (51) (159)
-------- -------- --------
$ (108) $ (72) $ (180)
======== ======== ========
1993
Current $(2,824) $ (430) $(3,254)
Deferred (1,808) 101 (1,707)
-------- -------- --------
$(4,632) $ (329) $(4,961)
======== ======== ========
The table below reconciles the difference between the statutory federal income
tax rate and the effective rate provided in the statements of operations.
1995 1994 1993
---- ---- ----
Statutory federal income tax rate (34)% 34 % 34 %
State income taxes, net of federal tax benefit - 4 2
Change in valuation allowance 25 - -
Sale of Canadian subsidiary - - 24
Goodwill and other - (1) 1
----- ----- ------
Effective tax rate (9)% 37 % 61 %
===== ===== ======
- 33 -
<PAGE>
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of December 31, 1995 and 1994 (in
thousands):
<TABLE>
1995 1994
------------------------------------ -------------------------------
Deferred Deferred Tax Deferred Deferred Tax
Tax Assets Liabilities Tax Assets Liabilities
---------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
Provision for estimated losses $ 5,646 $ - $ 6,203 $ -
Contract losses 5,642 - 887 -
Joint ventures - construction - 4,929 - 8,088
Joint ventures - real estate - 20,419 - 25,668
Timing of expense recognition 4,253 - 13,867 -
Capitalized carrying charges - 2,187 - 1,776
Net operating loss carryforwards 13,675 - 5,960 -
Alternative minimum tax credit
carryforwards 2,419 - 2,300 -
General business tax credit
carryforwards 3,532 - 3,637 -
Foreign tax credit carryforwards 978 - 978 -
Other, net 576 985 685 861
-------- -------- -------- --------
$36,721 $28,520 $34,517 $36,393
Valuation allowance for deferred
tax assets (9,342) - (1,846) -
-------- -------- -------- --------
Total $27,379 $28,520 $32,671 $36,393
======== ======== ======== ========
</TABLE>
The net of the above is deferred taxes in the amount of $1,141 in 1995 and
$3,722 in 1994 which is classified in the respective Consolidated Balance Sheets
as follows:
1995 1994
---- ----
Long-term deferred tax liabilities
(included in "Deferred Income
Taxes and Other Liabilities") $14,180 $ 9,788
Short-term Deferred Tax Asset 13,039 6,066
------- -------
$ 1,141 $ 3,722
======= =======
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.
At December 31, 1995, the Company has unused tax credits and net operating loss
carryforwards for income tax reporting purposes which expire as follows (in
thousands):
Unused Investment Foreign Net Operating Loss
Tax Credits Tax Credits Carryforwards
----------- ----------- -------------
1996-2000 $ - $ 978 $ -
2001-2004 3,532 - 968
2005-2010 - - 39,251
------ ------ -------
$3,532 $ 978 $40,219
====== ====== =======
Approximately $2.8 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.
- 34 -
<PAGE>
[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, 1995 and 1994
consist of the following (in thousands):
1995 1994
------- -------
Deferred Income Taxes $14,180 $ 9,788
Insurance related liabilities 20,484 18,000
Employee benefit-related liabilities 5,110 4,700
Other 12,889 1,000
------- -------
$52,663 $33,488
Other Income (Expense), Net
Other income (expense) items for the three years ended December 31, 1995 are as
follows (in thousands):
1995 1994 1993
------- ------- -------
Interest and dividend income $ 1,369 $ 205 $ 624
Minority interest (Note 1) 10 24 167
Gain on sale of Majestic - - 4,631
Bank fees (1,099) (1,100) (584)
Miscellaneous income (expense)
, net 534 15 369
-------- -------- -------
$ 814 $ (856) $5,207
======== ======== =======
[7] CAPITALIZATION
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.
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, in whole or in part, at declining premiums
until June 1997 and thereafter 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.
[8] 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 occurrence of certain events viewed to be an attempt by a person or group to
gain control of the Company (a "triggering
- 35 -
<PAGE>
event"). The Rights will not have any voting rights or be entitled to dividends.
Upon the occurrence of a triggering event, 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 and will expire on September
23, 1998.
[9] STOCK OPTIONS
At December 31, 1995 and 1994, 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
and generally become exercisable in two equal annual installments on the second
and third anniversary of the date of grant and expire eight years from the date
of grant. Options for 240,000 shares 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 stock option
plan is as follows:
Number of
Number of Option Price Shares
Shares Per Share Exercisable
------ --------- -----------
Outstanding at December 31, 1993 434,425 $11.06-$33.06 143,000
Granted 20,000 $13.00
Canceled (32,900) $11.06-$33.06
Outstanding at December 31, 1994 421,525 $11.06-$33.06 251,525
Granted 10,000 $10.44
Canceled (52,875) $11.06-$33.06
Outstanding at December 31, 1995 378,650 $10.44-$33.06 198,650
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.
[10] EMPLOYEE BENEFIT PLANS
The Company and its U.S. subsidiaries have a defined benefit plan which covers
its executive, professional, administrative and clerical employees, subject to
certain specified service requirements. The plan is noncontributory and benefits
are based on an employee's years of service and "final average earnings", as
defined. The plan provides reduced benefits for early retirement and takes into
account offsets for social security benefits. All employees are vested after 5
years of service. Net pension cost for 1995, 1994 and 1993 follows (in
thousands):
1995 1994 1993
------ ------ -------
Service cost - benefits earned
during the period $ 988 $ 1,178 $ 1,000
Interest cost on projected benefit
obligation 2,956 2,936 2,862
Return on plan assets:
Actual (6,971) 1,229 (4,002)
Deferred 4,217 (3,839) 1,309
Other - - 19
-------- -------- --------
Net pension cost $ 1,190 $ 1,504 $ 1,188
======== ======== ========
Actuarial assumptions used:
Discount rate 7 %* 8 3/4%** 7 1/2%
Rate of increase in compensation 4 %* 5 1/2% 5 1/2%
Long-term rate of return on assets 8 % 8 % 8 %
* Rates were changed effective December 31, 1995. The decrease in the
discount rate resulted in an increase in the projected benefit
obligations of $8.1 million, while the decrease in the rate of increase
in compensation resulted in a decrease in the projected benefit
obligations of $1.3 million, resulting in a net increase of $6.8 million
in 1995 in the projected benefit obligations referred to below.
- 36 -
<PAGE>
** Rate was changed effective December 31, 1994 and resulted in a net
decrease of $5.6 million in the projected benefit obligation referred to
below.
The Company's plan has assets in excess of accumulated benefit obligation. Plan
assets generally include equity and fixed income funds. The status of the
Company's employee pension benefit plan is summarized below (in thousands):
December 31,
1995 1994
-------- --------
Assets available for benefits:
Funded plan assets at fair value $37,542 $31,762
Accrued pension expense 4,122 3,610
-------- --------
Total assets $41,664 $35,372
-------- --------
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including
vested benefits of $39,050 and $30,179 $39,760 $30,537
Effect of future salary increases 3,831 4,546
-------- --------
Projected benefit obligations $43,591 $35,083
-------- --------
Assets available more (less) than projected benefits $(1,927) $ 289
======== ========
Consisting of:
Unamortized net liability existing at date of
adopting SFAS No. 87 $ (29) $ (36)
Unrecognized net loss (2,408) (268)
Unrecognized prior service cost 510 593
-------- --------
$(1,927) $ 289
======== ========
The Company also has a contributory Section 401(k) plan and a noncontributory
employee stock ownership plan (ESOP) which cover its executive, professional,
administrative and clerical employees, subject to certain specified service
requirements. Under the terms of the Section 401(k) plan, the provision is based
on a specified percentage of profits, subject to certain limitations.
Contributions to the related employee stock ownership trust (ESOT) are
determined by the Board of Directors and may be paid in cash or shares of
Company common stock.
The Company's policy is generally to fund currently the costs accrued under the
pension plan and the Section 401(k) plan.
The Company also has an unfunded supplemental retirement plan for certain
employees whose benefits under principal salaried retirement plans are reduced
because of compensation limitations under federal tax laws. Pension expense for
this plan was $.2 million in 1995 and 1994 and $.1 million in 1993. At December
31, 1995 the projected benefit obligation was $1.3 million. A corresponding
accumulated benefit obligation of $.8 million has been recognized as a liability
in the consolidated balance sheet and is equal to the amount of the vested
benefits.
In addition, the Company has an incentive compensation plan for key employees
which is generally based on achieving certain levels of profit within their
respective business units.
The aggregate amounts provided under these employee benefit plans were $7.6
million in 1995, $9.2 million in 1994 and $8.5 million in 1993.
The Company also contributes to various multiemployer 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 $12.6 million in 1995,
$12.4 million in 1994, and $5.2 million in 1993. The Multiemployer Pension Plan
Amendments Act of 1980 defines certain employer obligations under multiemployer
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 has guaranteed the payment of
interest on both mortgage and bond financing covering a project with loans
totaling $59 million; has issued a secured letter of credit to collateralize
$3.7 million of these borrowings; has guaranteed amortization payments on these
borrowings which the Company estimates to be a maximum of $7.2 million; and has
guaranteed a master lease under a sale operating lease-back transaction. In
calculating the potential obligation
- 37 -
<PAGE>
under the master lease guarantee, the Company has an agreement with its lenders
which employs a 10% discount rate and no increases in future rental rates beyond
current lease terms. Based on these assumptions, management believes its
additional future obligation will not exceed $2.3 million. The Company has also
guaranteed the $3.7 million letter of credit, $5.0 million of the subsidiary's
$7.2 million amortization guaranty and any obligation under the master lease
during the next three years. As part of the sale operating lease-back
transaction, the joint venture, in which the Company's real estate subsidiary is
a 46% general partner, agreed to obtain a financial commitment on behalf of the
lessor to replace at least $43 million of long-term financing by July 1, 1993.
To satisfy this obligation, the partnership successfully extended existing
financing to July 1, 1998. To complete the extension, the partnership had to
advance funds to the lessor sufficient to reduce the financing from $46.5
million to $40.5 million. Subsequent payments through 1995 have further reduced
the loan to $38.2 million. In addition, as part of the obligations of the
extension, the partnership will have to further amortize the debt from its
current level to $33 million through additional lease payments over the next
three years. If by January 1, 1998, the joint venture has not received a further
extension or new commitment for financing on the property for at least $33
million, the lessor will have the right under the lease to require the joint
venture to purchase the property for approximately $18.8 million in excess of
the then outstanding debt.
In 1993, the joint venture also extended $29 million of the $61 million
financing then outstanding through October 1, 1998. This extension required a
$.6 million up front paydown. Subsequent payments through 1995 further reduced
the loan by $2.7 million. The joint venture may be required to amortize up to
$9.1 million more of the principal, however, under certain conditions, that
amortization could be as low as $6.8 million. Total lease payments and loan
amortization obligations at Rincon Center through 1997 are as follows: $7.5
million in 1996 and $7.3 million in 1997. It is expected that some but not all
of these requirements will be generated by the project's operations. The
Company's real estate subsidiary and, to a more limited extent, the Company, is
obligated to fund any of the loan amortization and/or lease payments at Rincon
in the event sufficient funds are not generated by the property or contributed
to it by its partners. Based on current Company forecasts, it is expected the
maximum exposure to service these commitments in each of the years through 1997
is as follows: $5.4 million in 1996 and $4.0 million in 1997. Both years include
an estimate for tenant improvements which may or may not be required.
In a separate agreement related to this same property, the 20% co-general
partner has indicated it does not currently have nor does it expect to have the
financial resources to fund its share of capital calls. Therefore, the Company's
wholly-owned real estate subsidiary agreed to lend this 20% co-general partner
on an as-needed basis, its share of any capital calls which the partner cannot
meet. In return, the Company's subsidiary receives a priority return from the
partnership on those funds it advances for its partner and penalty fees in the
form of rights to certain other distributions due the borrowing partner from the
partnership. The severity of the penalty fees increases in each succeeding year
for the next several years. The subsidiary has advanced approximately $3 million
to date under this agreement.
In connection with a second real estate development joint venture known as the
Resort at Squaw Creek, the Company's wholly-owned real estate subsidiary has
guaranteed the payment of interest on mortgage financing with a total bank loan
value currently estimated at $46 million; has guaranteed $10 million of loan
principal; has posted a letter of credit for $2.0 million as its part of credit
support required to extend the maturity of the loan to May 1997; and has
guaranteed leases which aggregate $1.1 million on a present value basis as
discounted at 10%. Effective May 1, 1995, the loan was renewed for an additional
two years with an option to renew for a third year. Required principal payments
are $250,000 per quarter for the first year and $500,000 per quarter for the
second year.
The subsidiary also has an obligation through the year 2001 to cover
approximately a $2 million per year preferred return to its joint venture
partner at the Resort if the funds are not generated from hotel operations.
Although results have shown improvement since the Resort opened in late 1990, it
is not expected that hotel operations will contribute to the obligation during
1996. Under the terms of the loan extension, payment of the preferred return out
of operating profits requires lender approval.
Included in the loan agreements related to the above joint ventures, among other
things, are provisions that, under certain circumstances, could limit the
subsidiary's ability to dividend funds to the Company. In the opinion of
management, these provisions should not affect the operations of the Company or
the subsidiary.
- 38 -
<PAGE>
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. Management believes the
reserve should be adequate to cover the potential ultimate liability in this
matter.
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. In the opinion of
management, the resolution of these matters will not have a material effect on
the results of operation or financial condition as reported in the accompanying
financial statements.
- 39 -
<PAGE>
[12] UNAUDITED QUARTERLY FINANCIAL DATA
The following table sets forth unaudited quarterly financial data for the years
ended December 31, 1995 and 1994 (in thousands, except per share amounts):
1995 by Quarter
---------------
1st 2nd 3rd 4th
--- --- --- ---
Revenues $263,089 $306,961 $232,974 $298,044
Net income (loss) $ 872 $ 886 $(30,674)* $ 1,331
Earnings (loss) per
common share $ .08 $ .08 $ (6.61) $ .17
1994 by Quarter
---------------
1st 2nd 3rd 4th
--- --- --- ---
Revenues $174,391 $243,105 $304,776 $289,773
Net income (loss) $ 792 $ (2,649) $ 984 $ 1,176
Earnings (loss) per
common share $ .06 $ (.73) $ .10 $ .15
* Includes a charge, which aggregates $25.6 million, to provide for
reserves related to previously disclosed litigation discussed under
"Item 3. Legal Proceedings" in this Form 10-K/A and downward revisions
in estimated probable recoveries on certain outstanding contract claims.
[13] BUSINESS SEGMENTS AND FOREIGN OPERATIONS
The Company is currently engaged in the construction and real estate development
businesses. The Company provides general contracting, construction management
and design-build services to private clients and public agencies throughout the
United States and selected overseas locations. The Company's construction
business involves three types of operations: civil and environmental ("heavy"),
building and international. The Company's real estate development operations are
concentrated in Arizona, California, Florida, Georgia and Massachusetts;
however, the Company has not commenced the development of any new real estate
projects since 1990. The following tables set forth certain business and
geographic segment information relating to the Company's operations for the
three years ended December 31, 1995 (in thousands):
Business Segments
Revenues
1995 1994 1993
------------ ----------- ----------
Construction $1,056,673 $ 950,884 $1,030,341
Real Estate 44,395 61,161 69,775
------------ ----------- ----------
$1,101,068 $1,012,045 $1,100,116
============ =========== ==========
Income (Loss) From Operations
1995 1994 1993
------------ ----------- -----------
Construction $ (15,322) $ 13,989 $ 15,164
Real Estate (2,921) 732 240
Corporate (4,185) (5,909) (6,830)
------------ ----------- -----------
$ (22,428) $ 8,812 $ 8,574
============ =========== ===========
Assets
1995 1994 1993
------------ ------------ -----------
Construction $ 298,564 $ 262,850 $ 219,604
Real Estate 209,789 209,635 218,715
Corporate* 30,898 10,015 38,059
------------ ------------ -----------
$ 539,251 $ 482,500 $ 476,378
============ ============ ===========
- 40 -
<PAGE>
Capital Expenditures
1995 1994 1993
----------- ----------- ----------
Construction $ 1,960 $ 2,491 $ 4,387
Real Estate 9,555 10,274 23,590
----------- ----------- ----------
$ 11,515 $ 12,765 $ 27,977
=========== =========== ==========
Depreciation
1995 1994 1993
----------- ----------- ----------
Construction $ 2,369 $ 2,551 $ 2,552
Real Estate** 400 328 963
----------- ----------- ----------
$ 2,769 $ 2,879 $ 3,515
=========== =========== ==========
Geographic Segments
Revenues
1995 1994 1993
------------ ----------- ----------
United States $1,084,390 $ 996,832 $1,064,380
Foreign 16,678 15,213 35,736
----------- ----------- ----------
$1,101,068 $1,012,045 $1,100,116
=========== =========== ==========
Income (Loss) From Operations
1995 1994 1993
----------- ----------- -----------
United States $ (15,405) $ 17,275 $ 17,249
Foreign (2,838) (2,554) (1,845)
Corporate (4,185) (5,909) (6,830)
----------- ----------- -----------
$ (22,428) $ 8,812 $ 8,574
=========== =========== ===========
Assets
1995 1994 1993
----------- ----------- ----------
United States $503,114 $ 467,298 $ 433,488
Foreign 5,239 5,187 4,831
Corporate* 30,898 10,015 38,059
----------- ----------- ----------
$539,251 $ 482,500 $ 476,378
=========== =========== ==========
* In all years, corporate assets consist principally of cash, cash
equivalents, marketable securities and other investments available for
general corporate purposes.
** Does not include approximately $3 to $4 million of depreciation that
represents its share from real estate joint ventures. (See Note 2 to
Notes to the Consolidated Financial Statements.)
Contracts with various federal, state, local and foreign governmental agencies
represented approximately 56% of construction revenues in 1995 and 1994, and 54%
in 1993.
- 41 -
<PAGE>
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,
1995 and 1994, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 26, 1996
- 42 -
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
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 26, 1996. Our audits were made for
the purpose of forming an opinion on the consolidated financial statements taken
as a whole. The supplemental schedule listed in the accompanying index is the
responsibility of the Company's management and is presented for purpose of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 26, 1996
- 43 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
PERINI CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
Additions
Balance at Charged Charged to Deductions Balance
Beginning to Costs Other from at End
Description of Year & Expenses Accounts Reserves of Year
- ----------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995
- ----------------------------
Reserve for doubtful accounts $ 351 $ - $ - $ - $ 351
======= ======= ==== ====== =======
Reserve for depreciation on $ 3,698 $ 387 $ - $ 641 (1) $ 3,444
real estate properties used ======= ======= ==== ====== =======
in operations
Reserve for real estate $11,471 $ - $ - $ 974 (2) $10,497
======= ======= ==== ====== =======
investments
Year Ended December 31, 1994
- ----------------------------
Reserve for doubtful accounts $ 351 $ - $ - $ - $ 351
======= ======= ==== ====== =======
Reserve for depreciation on $ 3,637 $ 328 $ - $ 267 (2) $ 3,698
real estate properties used ======= ======= ==== ====== =======
in operations
Reserve for real estate $20,838 $ - $ - $9,367 (2) $11,471
======= ======= ==== ====== =======
investments
Year Ended December 31, 1993
- ----------------------------
Reserve for doubtful accounts $ 351 $ - $ - $ - $ 351
======= ======= ==== ====== =======
Reserve for depreciation on
real estate properties used
in operations $ 3,181 $ 920 $ - $ 464 (2) $ 3,637
======= ======= ==== ====== =======
Reserve for real estate
investments $29,968 $ - $ - $9,130 (2) $20,838
======= ======= ==== ====== =======
</TABLE>
(1) Represents reserve reclassed with related asset to "Real estate
inventory".
(2) Represents sales of real estate properties.
- 44 -
<PAGE>
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 July 7, 1994 - Exhibit 3.1 to 1994 Form
10-K, as filed.
3.2 By-laws - As amended through September 14, 1990
- Exhibit 3.2 to 1991 Form 10-K, as filed.
Exhibit 4. Instruments Defining the Rights of Security Holders,
Including Indentures
Incorporated herein by reference:
4.1 Certificate of Vote of Directors Establishing a
Series of a Class of Stock determining the
relative rights and preferences of the $21.25
Convertible Exchangeable Preferred Stock -
Exhibit 4(a) to Amendment No. 1 to Form S-2
Registration Statement filed June 19, 1987; SEC
Registration No. 33-14434.
4.2 Form of Deposit Agreement, including form of
Depositary Receipt - Exhibit 4(b) to Amendment
No. 1 to Form S-2 Registration Statement filed
June 19, 1987; SEC Registration No. 33-14434.
4.3 Form of Indenture with respect to the 8 1/2%
Convertible Subordinated Debentures Due June 15,
2012, including form of Debenture - Exhibit 4(c)
to Amendment No. 1 to Form S-2 Registration
Statement filed June 19, 1987; SEC Registration
No. 33-14434.
4.4 Shareholder Rights Agreement and Certificate of
Vote of Directors adopting a Shareholders Rights
Plan providing for the issuance of a Series A
Junior Participating Cumulative Preferred Stock
purchase rights as a dividend to all
shareholders of record on October 6, 1988, as
amended and restated as of May 17, 1990 - filed
herewith.
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 - Exhibit 10.2 to
1991 Form 10-K, as filed.
10.3 Perini Corporation Amended and Restated
Construction Business Unit Incentive
Compensation Plan - Exhibit 10.3 to 1991 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.
- 45 -
<PAGE>
EXHIBIT INDEX
(Continued)
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 - filed herewith.
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 - filed herewith.
Exhibit 22. 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.
- 46 -
<PAGE>
EXHIBIT 22
<TABLE>
<CAPTION>
PERINI CORPORATION
SUBSIDIARIES OF THE REGISTRANT
Percentage of
Interest or
Voting
Name Place of Organization Securities Owned
---- --------------------- ----------------
<S> <C> <C>
Perini Corporation Massachusetts
Perini Building Company, Inc. Arizona 100%
Pioneer Construction, Inc. West Virginia 100%
Perini Environmental Services, Inc. Delaware 100%
International Construction Management Delaware 100%
Services, Inc.
Percon Constructors, Inc. Delaware 100%
Perini International Corporation Massachusetts 100%
Bow Leasing Company, Inc. New Hampshire 100%
Perini Land & Development Company Massachusetts 100%
Paramount Development Massachusetts 100%
Associates, Inc.
I-10 Industrial Park Developers Arizona General 80%
Partnership
Perini Resorts, Inc. California 100%
Glenco-Perini - HCV Partners California Limited 45%
Partnership
Squaw Creek Associates California General 40%
Partnership
Perland Realty Associates, Inc. Florida 100%
Rincon Center Associates California Limited 46%
Partnership
Perini Central Limited Partnership Arizona Limited 75%
Partnership
Perini Eagle Limited Partnership Arizona Limited 50%
Partnership
Perini/138 Joint Venture Georgia General 49%
Partnership
Perini/RSEA Partnership Georgia General 50%
Partnership
</TABLE>
- 47 -
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports, dated February 26, 1996, included in Perini Corporation's Annual Report
on this Form 10-K/A for the year ended December 31, 1995, 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 and 33-58519.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 21, 1996
- 48 -
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
We, the undersigned, Directors of Perini Corporation, hereby severally
constitute David B. Perini, John H. Schwarz and Richard E. Burnham, 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 13, 1996
David B. Perini Date
s/Joseph R. Perini Director March 13, 1996
Joseph R. Perini Date
s/Richard J. Boushka Director March 13, 1996
Richard J. Boushka Date
s/Marshall M. Criser Director March 13, 1996
Marshall M. Criser Date
s/Thomas E. Dailey Director March 13, 1996
Thomas E. Dailey Date
s/Albert A. Dorman Director March 13, 1996
Albert A. Dorman Date
s/Arthur J. Fox, Jr. Director March 13, 1996
Arthur J. Fox, Jr. Date
- ------------------- Director March 13, 1996
Nancy Hawthorne Date
s/John J. McHale Director March 13, 1996
John J. McHale Date
s/Jane E. Newman Director March 13, 1996
Jane E. Newman Date
s/Bart W. Perini Director March 13, 1996
Bart W. Perini Date
- 49 -
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6314
Perini Corporation
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-1717070
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
73 MT. WAYTE AVENUE, FRAMINGHAM, MASSACHUSETTS 01701-9160
(Address of principal executive offices)
(Zip code)
(508)-628-2000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
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
Number of shares of common stock of registrant outstanding at November 13, 1996:
4,898,648
Page 1 of 15
<PAGE>
<TABLE>
<CAPTION>
PERINI CORPORATION & SUBSIDIARIES
INDEX
Page Number
-----------
<S> <C> <C>
Part I. - Financial Information:
Item 1. Financial Statements
Consolidated Condensed Balance Sheets - 3
September 30, 1996 and December 31, 1995
Consolidated Condensed Statements of Income - 4
Three Months and Nine Months ended September 30, 1996
and 1995
Consolidated Condensed Statements of Cash Flows - 5
Nine Months ended September 30, 1996 and 1995
Notes to Consolidated Condensed Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of the Consolidated 8 - 11
Financial Condition and Results of Operations
Part II. - Other Information:
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12 - 14
Signatures 15
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PERINI CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995 (1)
(In Thousands)
ASSETS
------
SEPT. 30, DEC. 31,
1996 1995
---------------- ----------------
<S> <C> <C>
Cash $ 14,895 $ 29,059
Accounts and Notes Receivable 185,807 180,978
Unbilled Work 39,736 28,304
Construction Joint Ventures 67,736 61,846
Real Estate Inventory, at the lower of cost or market 17,588 14,933
Deferred Tax Asset 18,984 13,039
Other Current Assets 6,481 2,186
---------------- ----------------
Total Current Assets $ 351,227 $ 330,345
---------------- ----------------
Land Held for Sale or Development $ 38,846 $ 41,372
Investments in and Advances to Real Estate Joint Ventures 156,778 148,225
Real Estate Properties Used in Operations 0 2,964
Other 189 302
---------------- ----------------
Total Real Estate Development Investments $ 195,813 $ 192,863
---------------- ----------------
Other Assets $ 5,279 $ 3,477
---------------- ----------------
Property and Equipment, less Accumulated Depreciation of $23,239 in 1996
and $27,299 in 1995 $ 11,378 $ 12,566
---------------- ----------------
$ 563,697 $ 539,251
================ ================
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Maturities of Long-Term Debt $ 4,482 $ 5,697
Accounts Payable 196,190 197,052
Advances from Construction Joint Ventures 27,771 34,830
Deferred Contract Revenue 26,584 23,443
Accrued Expenses 19,942 32,778
---------------- ----------------
Total Current Liabilities $ 274,969 $ 293,800
---------------- ----------------
Deferred Income Taxes and Other Liabilities $ 59,110 $ 52,663
---------------- ----------------
Long-Term Debt, including real estate development debt of $5,760 in 1996
and $3,660 in 1995 $ 114,739 $ 84,155
---------------- ----------------
Minority Interest $ 2,916 $ 3,027
---------------- ----------------
Stockholders' Equity:
Preferred Stock $ 100 $ 100
Series A Junior Participating Preferred Stock --- ---
Common Stock 4,985 4,985
Paid-In Surplus 56,751 57,659
Retained Earnings 56,291 52,062
ESOT Related Obligations (3,976) (4,965)
---------------- ----------------
$ 114,151 $ 109,841
Less - Treasury Stock 2,188 4,235
---------------- ----------------
Total Stockholders' Equity $ 111,963 $ 105,606
---------------- ----------------
$ 563,697 $ 539,251
================ ================
</TABLE>
(1) Derived from the audited December 31, 1995 financial statements. The
accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
PERINI CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(In Thousands, Except Per Share Data)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1996 1995 1996 1995
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
REVENUES FROM OPERATIONS:
Construction $ 319,645 $ 223,643 $ 885,398 $ 770,670
Real Estate 21,025 9,331 41,793 32,354
--------------- --------------- --------------- ----------------
TOTAL REVENUES FROM OPERATIONS $ 340,670 $ 232,974 $ 927,191 $ 803,024
--------------- --------------- --------------- ----------------
COST AND EXPENSES:
Cost of Operations (Note 2) $ 327,670 $ 255,988 $ 888,730 $ 801,447
General, Administrative and Selling Expenses 7,976 9,027 24,632 27,185
--------------- --------------- --------------- ----------------
$ 335,646 $ 265,015 $ 913,362 $ 828,632
--------------- --------------- --------------- ----------------
INCOME (LOSS) FROM OPERATIONS (Note 2) $ 5,024 $ (32,041) $ 13,829 $ (25,608)
Other Income (Expense), Net (13) (323) (382) (87)
Interest Expense (2,590) (2,178) (7,065) (6,121)
--------------- --------------- --------------- ----------------
Income (Loss) Before Income Taxes $ 2,421 $ (34,542) $ 6,382 $ (31,816)
(Provision) Benefit for Income Taxes (Note 3) (110) 3,868 (560) 2,900
--------------- --------------- --------------- ----------------
NET INCOME (LOSS) $ 2,311 $ (30,674) $ 5,822 $ (28,916)
=============== =============== =============== ================
EARNINGS (LOSS) PER COMMON SHARE (Note 4) $ 0.37 $ (6.61) $ 0.88 $ (6.58)
=============== =============== =============== ================
DIVIDENDS PER COMMON SHARE (Note 5) $ --- $ --- $ --- $ ---
=============== =============== =============== ================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note 4) 4,847,187 4,718,873 4,785,264 4,635,511
=============== =============== =============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
PERINI CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(In Thousands)
NINE MONTHS
ENDED SEPT 30,
--------------
1996 1995
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 5,822 $ (28,916)
Adjustments to reconcile net income to net cash provided from operating activities:
Depreciation and amortization 1,938 1,782
Noncurrent deferred taxes and other liabilities 6,447 11,122
Distributions greater than earnings of joint ventures and affiliates 2,820 11,690
Cash provided from (used by) changes in components of working capital other
than cash, notes payable and current maturities of long-term debt (46,894) 12,012
Real estate development investments other than joint ventures 1,286 2,099
Other non-cash items, net (1,103) (965)
-------------- --------------
NET CASH (USED BY) PROVIDED FROM OPERATING ACTIVITIES $ (29,684) $ 8,824
-------------- --------------
Cash Flows from Investing Activities:
Proceeds from sale of property and equipment $ 1,551 $ 3,130
Cash distributions of capital from unconsolidated joint ventures 6,732 16,248
Acquisition of property and equipment (1,225) (1,524)
Improvements to land held for sale or development (397) (169)
Improvements to real estate properties used in operations (120) (133)
Capital contributions to unconsolidated joint ventures (14,654) (22,232)
Advances to real estate joint ventures, net (5,706) (6,431)
Investments in other activities (2,158) 234
-------------- --------------
NET CASH USED BY INVESTING ACTIVITIES $ (15,977) $ (10,877)
-------------- --------------
Cash Flows from Financing Activities:
Proceeds of long-term debt $ 32,355 $ 3,234
Repayment of long-term debt (1,997) (3,010)
Cash dividends paid --- (1,593)
Treasury stock issued 1,139 2,242
-------------- --------------
NET CASH PROVIDED FROM FINANCING ACTIVITIES $ 31,497 $ 873
-------------- --------------
Net Decrease in Cash $ (14,164) $ (1,180)
Cash at Beginning of Year 29,059 7,841
-------------- --------------
Cash at End of Period $ 14,895 $ 6,661
============== ==============
Supplemental Disclosures of Cash paid during the period for:
Interest $ 6,717 $ 6,330
============== ==============
Income tax payments $ 201 $ 193
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) Significant Accounting Policies
The significant accounting policies followed by the Company and its
subsidiaries in preparing its consolidated financial statements are set
forth in Note (1) to such financial statements included in Form 10-K for
the year ended December 31, 1995. The Company has made no significant
change in these policies during 1996.
(2) Income (Loss) From Operations
The three and nine month periods ended September 30, 1995 include a
charge, which aggregated $25.6 million, to provide for a liability
related to previously disclosed litigation discussed under "Item 1.
Legal Proceedings" in the Company's Form 10-Q for the quarterly period
ended September 30, 1995, and downward revisions in estimated probable
recoveries on certain outstanding contract claims.
(3) Provision For Income Taxes
The lower than normal tax rate in 1996 is due to the realization of a
portion of the Federal tax benefit resulting from the operating loss
recorded in 1995. Because of certain accounting limitations, the Company
was not able to recognize a portion of the tax benefit related to the
operating loss experienced in fiscal 1995.
(4) Per Share Data
Computations of earnings per common share amounts are based on the
weighted average number of the Company's common shares outstanding
during the periods presented. Earnings per common share reflect the
effect of preferred dividends accrued during both the 1996 and 1995
three and nine month periods ended September 30, of $531,000 and
$1,593,000, respectively. Common stock equivalents related to additional
shares of common stock issuable upon exercise of stock options have not
been included since their effect would be antidilutive. Per share data
on a fully diluted basis is not presented because the effect of
conversion of the Company's depositary convertible exchangeable
preferred shares into common stock is also antidilutive.
(5) Cash Dividends
There were no cash dividends on common stock declared or paid during the
periods presented in the consolidated condensed financial statements
presented herein. As previously disclosed in the 1995 Form 10-K, in
conjunction with the covenants of the Company's Amended Revolving Credit
Agreement, the Company is required to suspend the payment of quarterly
dividends on its preferred stock until the Bridge Loan commitment is no
longer outstanding, if a default exists under the terms of the Amended
Revolving Credit Agreement, or if the ratio of long-term debt to equity
exceeds 50%. Therefore, the dividends on preferred stock that normally
would have been declared during December of 1995 and March, June and
September of 1996, and payable on March 15, June 15, September 15, and
December 15, 1996, respectively, have not been declared (although they
have been fully accrued due to the "cumulative" feature of the preferred
stock).
(6) Capitalization
In addition to its $114.5 million revolving credit agreement, effective
February 26, 1996, the Company entered into a Bridge Loan Agreement with
its revolver banks to borrow up to an additional $15 million through
July 31, 1996 at an interest rate of prime plus 2%. Subsequently, the
Bridge Loan Agreement has been increased to provide another $10 million
of borrowing capacity at an interest rate of prime plus 4% and extended
through the earlier of the closing of the below mentioned preferred
stock transaction or January 31, 1997. The Revolving Credit Agreement
has been renegotiated and will total $129.5 million subsequent to the
closing of the preferred stock transaction. Additionally, in July 1996,
the Company announced that it had entered into an agreement with an
investor group led by Richard C. Blum & Associates, L. P. of San
Francisco, California, for a $30 million investment in the form of a new
issuance of 150,150 shares of redeemable cumulative convertible junior
preferred stock in the Company. The preferred stock will
6
<PAGE>
(6) Capitalization (continued)
be convertible into shares of common stock of the Company at a
conversion price of approximately $9.68 per share. The issuance and
listing of any such common stock on the American Stock Exchange is
subject to shareholder ratification of the transaction at a Special
Meeting of Stockholders of the Company, the date of which has not been
set. The preferred shares will carry voting rights representing
approximately 37% of the outstanding common shares and will also entitle
the investor group to the appointment of three members to the Company's
Board of Directors. Subject to the ratification of the transaction by
the stockholders, the Company expects to be able to close the
transaction by year end.
(7) Management's Opinion
The unaudited consolidated condensed financial statements presented
herein have been prepared in accordance with the instructions to Form
10-Q and do not include all of the information and note disclosures
required by generally accepted accounting principles. These statements
should be read in conjunction with the financial statements and notes
thereto included in the Company's Form 10-K for the year ended December
31, 1995. In the opinion of management, the accompanying unaudited
condensed financial statements include all adjustments, consisting only
of normal recurring adjustments, necessary to present fairly the
Company's financial position as of September 30, 1996 and December 31,
1995 and results of operations and cash flows for the nine month periods
ended September 30, 1996 and 1995. The results of operations for the
nine month period ended September 30, 1996 may not be indicative of the
results that may be expected for the year ending December 31, 1996
because the Company's results generally consist of a limited number of
large transactions in both construction and real estate. Therefore, such
results can vary depending on the timing of transactions and the
profitability of projects being reported.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
RESULTS OF OPERATIONS
Comparison of the Third Quarter of 1996 with the Third Quarter of 1995
----------------------------------------------------------------------
Revenues increased $107.7 million (or 46.2%), from $233 million in 1995 to
$340.7 million in 1996. This increase resulted from increased construction
revenues of $96 million (or 42.9%), from $223.7 million in 1995 to $319.7
million in 1996, due primarily to an increase in revenues from building
operations of $70 million (or 45.2%), from $154.9 million in 1995 to $224.9
million in 1996. This increase was due primarily to the timing in the start-up
of certain fast track hotel/casino projects in the western United States as well
as several prison/detention and medical facilities projects in the northeastern
United States. Revenues from heavy operations increased by $26 million (or
37.8%), from $68.8 million in 1995 to $94.8 million in 1996 due primarily to the
favorable impact of several large infrastructure projects under way in late
1995, primarily in the metropolitan New York, Boston and Los Angeles areas. In
addition, revenues from real estate operations increased by $11.7 million, from
$9.3 million in 1995 to $21 million in 1996 due primarily to the Company's
acquisition during 1996 of an increased ownership position in The Resort at
Squaw Creek joint venture in California.
Along with the increase in revenues, the total gross profit increased
substantially, from a loss of $23 million in 1995 to a profit of $13 million in
1996, due to an overall increase in gross profit from construction operations of
$36.4 million, from a loss of $23.2 million in 1995 to a profit of $13.2 million
in 1996. The gross loss from construction operations recognized in 1995 included
a pretax charge, which aggregated $25.6 million, to provide for a liability
related to litigation involving a joint venture in which the Company was a
minority partner, and the Washington Metropolitan Transit Authority on two
subway construction projects in Washington, D.C., and downward revisions in
estimated probable recoveries on certain outstanding contract claims. In
addition, the 1995 gross profit was adversely impacted by an overall reduction
in the profit level on a tunnel project in the Midwest. The pretax charges in
1995, coupled with the increased construction revenues in 1996 referred to above
and the favorable profit impact in 1996 of several large infrastructure projects
underway in late 1995, primarily in the metropolitan New York, Boston and Los
Angeles areas, resulted in the substantial increase in gross profit from
construction operations in 1996. Real estate operations experienced a gross loss
of $.2 million in 1996 compared to a gross profit of $.2 million in 1995 due to
a lower volume of condominium sales in Georgia and land sales in Arizona during
1996.
The decrease in general, administrative and selling expenses of $1.0 million (or
11.6%), from $9 million in 1995 to $8 million in 1996, resulted primarily from
continued emphasis on reducing overall Company overhead expenses in conjunction
with the Company's re-engineering efforts commenced in prior years, the sale in
June of 1996 of Pioneer Construction, a former subsidiary of the Company located
in West Virginia which performed reclamation projects on abandoned mine lands in
that state, and the continuation of the down-sizing of the Company's
environmental remediation construction operation.
Interest expense increased by $.4 million (or 18.9%), from $2.2 million in 1995
to $2.6 million in 1996, due to a higher average level of borrowings during
1996.
The lower than normal tax rate in 1996 is due to the realization of a portion of
the Federal tax benefit resulting from the operating loss recorded in 1995.
Because of certain accounting limitations, the Company was not able to recognize
a portion of the tax benefit related to the operating loss experienced in fiscal
1995.
Comparison of the Nine Months Ended September 30, 1996 with the Nine Months
Ended September 30, 1995
------------------------
Revenues increased $124.2 million (or 15.5%), from $803 million in 1995 to
$927.2 million in 1996. This increase resulted from increased construction
revenues of $114.7 million (or 14.9%), from $770.7 million in 1995 to $885.4
million in 1996, due primarily to an increase in revenues from heavy
construction operations of $75.1 million (or 36.9%), from $203.7 million in 1995
to $278.8 million in 1996, as well as an
8
<PAGE>
increase in revenues from building construction operations of $39.6 million (or
7.0%), from $567 million in 1995 to $606.6 million in 1996. These revenue
fluctuations reflect the timing in the start-up of new construction projects, in
particular several fast track hotel/casino projects in the western and
midwestern United States, several prison/detention and medical facilities
projects in the northeastern United States, and several long-term infrastructure
rehabilitation projects in the metropolitan New York, Boston and Los Angeles
areas. Revenues from real estate operations increased $9.5 million, from $32.3
million in 1995 to $41.8 million in 1996 due primarily to the Company's
acquisition during 1996 of an increased ownership position in The Resort at
Squaw Creek joint venture in California.
Along with the increase in revenues, the total gross profit increased
substantially, from $1.6 million in 1995 to $38.5 million in 1996, due to an
overall increase in gross profit from construction operations of $37.3 million,
from $1.7 million in 1995 to $39 million in 1996. Overall gross profit margins
on both building and heavy construction operations in 1996 exceeded those
experienced in 1995. The marginal gross profit from construction operations
recognized in 1995 included a pretax charge, which aggregated $25.6 million, to
provide for a liability related to litigation involving a joint venture in which
the Company was a minority partner, and the Washington Metropolitan Transit
Authority on two subway construction projects in Washington, D.C., and downward
revisions in estimated probable recoveries on certain outstanding contract
claims as well as an overall reduction in the profit level on a tunnel project
in the Midwest. These pretax charges in 1995, coupled with the increased
construction revenues in 1996 referred to above and the favorable profit impact
in 1996 of several large infrastructure projects underway in late 1995,
primarily in the metropolitan New York, Boston and Los Angeles areas, resulted
in the substantial increase in gross profit from construction operations in
1996. Real estate operations experienced a gross loss of $.5 million in 1996
compared to a gross loss of $.1 million in 1995 due to a lower volume of land
sales in Florida, Arizona and Massachusetts.
General, administrative and selling expenses decreased by $2.6 million (or
9.4%), from $27.2 million in 1995 to $24.6 million in 1996 primarily due to
continued emphasis on reducing overall Company overhead expenses in conjunction
with the Company's re-engineering efforts commenced in prior years, the sale in
June of 1996 of Pioneer Construction, a former subsidiary of the Company located
in West Virginia which performed reclamation projects on abandoned mine lands in
that state, and the continuation of the gradual down-sizing of the Company's
real estate and environmental remediation construction operations.
Other expense increased $.3 million, from $.1 million in 1995 to $.4 million in
1996 primarily due to higher bank charges experienced in 1996 in conjunction
with the Company's renegotiation of certain provisions of its Revolving Credit
Agreement and Bridge Loan Agreement.
Interest expense increased by $.9 million (or 14.8%), from $6.1 million in 1995
to $7 million in 1996 due to a higher average level of borrowings during 1996.
The lower than normal tax rate in 1996 is due to the realization of a portion of
the Federal tax benefit resulting from the operating loss recorded in 1995.
Because of certain accounting limitations, the Company was not able to recognize
a portion of the tax benefit related to the operating loss experienced in fiscal
1995.
FINANCIAL CONDITION
Working capital increased $39.7 million, from $36.5 million at the end of 1995
to $76.2 million at September 30, 1996 primarily as a result of increased
borrowings under the Company's Revolving Credit Agreement. The current ratio
increased from 1.12:1 to 1.28:1 during this same period.
During the first nine months of 1996 the Company used $31.5 million in cash
provided from financing activities, primarily from net borrowings under its
long-term credit facilities, plus $14.2 million from cash on hand to fund its
construction and real estate operations, including $13.6 million for investments
in or advances to joint ventures.
Long-term debt at September 30, 1996 was $114.7 million, an increase of $30.5
million from December 31, 1995. The long-term debt to equity ratio at June 30,
1996 was 1.02 to 1, compared to .80 to 1 at December 31, 1995.
9
<PAGE>
The above factors reflect the Company's need to rely heavily on long-term
financing arrangements to fund the current working capital requirements of its
core construction business, primarily in its heavy/civil operations which
typically require a long start-up period and significant up-front working
capital, as well as to fund cash shortfalls experienced in its real estate
operations. In addition to internally generated funds, the Company has access to
funds under its $114.5 million long-term Credit Agreement. Effective February
26, 1996, the Company entered into a Bridge Loan Agreement for an additional $15
million through July 31, 1996. Subsequently, this Bridge Loan Agreement has been
extended through January 31, 1997. Additionally, in July 1996 the Company
announced that it had entered into an agreement with an investor group led by
Richard C. Blum & Associates, L. P. of San Francisco, California, for a $30
million investment in the form of a new issuance of 150,150 shares of cumulative
convertible junior preferred stock in the Company subject to certain closing
conditions. Initially, the Company expected to be able to close the transaction
in early October. However, certain regulations of the American Stock Exchange
require shareholder approval of the transaction in advance, therefore, the
anticipated closing date of the transaction is now expected by year end. At
September 30, 1996 there was no borrowing capacity available under the Company's
long-term credit facility and $5.8 million available under the Bridge Loan
Agreement.
OUTLOOK
The statements contained in this Outlook that are not purely historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding the Company's expectations, hopes, beliefs, intentions or
strategies regarding the future. All forward-looking statements included in this
Outlook are based on information available to the Company on the date hereof. It
is important to note that the Company's actual results could differ materially
from those in such forward-looking statements.
Looking ahead, we must consider the Company's construction backlog and remaining
portfolio of real estate projects. The overall construction backlog at September
30, 1996 was a record $1.746 billion which represented a 12% increase from the
$1.559 billion at September 30, 1995. While approximately 60% of the current
backlog relates to building construction projects which generally represent
lower risk, lower margin work, approximately 40% of the current backlog relates
to heavy construction projects which generally represent higher risk, but
correspondingly higher margin work.
With the sale of the final 21 acres during 1994, the Company's Villages of Palm
Beach Lakes, Florida land was completely sold out. Because of its low book
value, sales of this acreage have provided a major portion of the Company's real
estate profit in recent years. With the sale of this property complete, the
Company's ability to generate profit from real estate sales and the related
gross margin will be reduced as was the case in 1995. In addition, nine
projects, which aggregate approximately 11% of the Company's real estate asset
values, are projected to produce an estimated average 4% gross margin over the
period through ultimate disposition. As such, future gross margins from sales of
real estate will be impacted by the operations and/or disposition of these
properties.
As reported in the Company's Form 10-K for the year ended December 31, 1995, the
Company's primary real estate assets are located in five states: Florida,
Massachusetts, Georgia, California and Arizona. The Company accounts for those
real estate assets in accordance with the provisions of the Statement of
Financial Accounting Standards No. 121. "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS #121).
Approximately 77% of the Company's real estate assets represent properties held
and used in rental and other operations. Cash flows to be derived from those
properties are dependent on the results of those operations and from the
ultimate sale of those properties. SFAS #121 requires that assets to be held and
used be revised for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Based on
the Company's current operating strategy, the estimated net future cash flows
from these properties exceed their carrying values. As a result, no impairment
is currently required to be recognized.
In addition, approximately 23% of the Company's real estate assets represent
fully or partially developed land held for sale in the normal course of
business. Cash flows to be derived from these properties are dependent on the
proceeds from the sale of these properties based on local market conditions.
SFAS #121 provides that when management has committed to a plan to dispose of
long-lived assets that the
10
<PAGE>
assets be reported at the lower of the carrying amount or fair value less cost
to sell. Based on the Company's current operating strategy, the estimated net
future cash flows from these properties exceed their carrying values. As a
result, no impairment is currently required to be recognized.
At least until the closing of the new equity investment discussed above, the
Company's financial resources and short-term liquidity position will continue to
be tight, resulting in the payment of many vendors beyond the Company's normal
payment terms. In the near term, the Company intends to continue to manage its
cash receipts and disbursements as effectively as possible in anticipation of
closing the new equity investment and the receipt of the proceeds related
thereto. In addition, the Company has been successful in extending its $15
million Bridge Loan Agreement until at least January 31, 1997 as well as in
arranging for $20 million in additional borrowing capacity through its bank
credit facility: $10 million via certain bonding arrangements in lieu of posting
letters of credit, and $10 million via a temporary loan made available to the
Company through a participation under the existing loan agreement by a group of
investors led by Richard C. Blum & Associates, L. P. of San Francisco, the
Company's potential new equity investor. This $10 million temporary financing
will be repayable by the Company at the earlier of the completion of the
proposed $30 million equity investment referred to above or January 31, 1997.
In order to generate cash and reduce the Company's dependence on bank debt to
fund the working capital needs of its core construction operations as well as to
lower the Company's substantial interest expense and strengthen the balance
sheet in the longer term, the Company will continue to sell certain real estate
assets as market opportunities present themselves; to actively pursue the
favorable conclusion of various construction claims; to focus new work
acquisition efforts on various niche markets and geographic areas where the
Company has a proven history of success; to down-size 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 depositary convertible
exchangeable preferred stock; and to continue to seek ways to control overhead
expenses. In addition, the Company is reviewing all of the Company's real estate
assets and current strategies related to those assets with the possibility that
a plan may be developed to generate short term liquidity of up to an additional
$20 million for the Company. Currently, the Company's strategy has been to hold
its real estate assets through the necessary development and stabilization
periods to achieve full value. A strategy which includes an accelerated
disposition or bulk sale of certain of its real estate assets could
substantially reduce the estimated net future cash flows from these properties,
which would require the recognition of an impairment loss on those assets in
accordance with Statement of Financial Accounting Standards No. 121.
As the Company has not yet adopted a plan to dispose of any of its real estate
assets nor devoted a significant effort to a comprehensive disposition strategy,
it has not compiled detailed estimates, on a specific property basis, of the
potential writedown for these assets. However, as discussed above in connection
with the proposed investment by PB Capital, the Company has performed a
preliminary review of its real estate assets and estimates that a potential
writedown of $20,000,000 to $80,000,000 of the carrying values of these
properties may be required based upon various valuation methodologies including
discounted cash flows (after estimated costs to carry), comparable sales
transactions and unsolicited purchase offers received. This potential writedown
can be summarized as follows:
Location Potential Writedown
-------- -------------------
Arizona Properties $17,000,000 - $20,000,000
California Properties $53,000,000 - $57,000,000
Florida Properties $ 2,000,000 - $ 3,000,000
Management believes that cash generated from operations, existing credit lines
and additional borrowings, including the anticipated proceeds from the issuance
of cumulative convertible junior preferred stock referred to above, should
probably be adequate to meet the Company's funding requirements for at least the
next twelve months. However, the withdrawal of many commercial lending sources
from both the real estate and construction markets and/or restrictions on new
borrowings and extensions on maturing loans by these same sources cause
uncertainties in predicting liquidity.
11
<PAGE>
PART II. - OTHER INFORMATION
Item 1. - Legal Proceedings - None
Item 2. - Changes in Securities
(a) None
(b) None
Item 3. - Defaults Upon Senior Securities
(a) None
(b) Preferred Stock, $1 par value
As previously disclosed in the 1995 Form 10-K, in conjunction with the
covenants of the Company's Amended Revolving Credit Agreement, the
Company is required to suspend the payment of quarterly dividends on its
depositary convertible exchangeable preferred stock until the $15
million Bridge Loan commitment is no longer outstanding, if a default
exists under the terms of the Amended Revolving Credit Agreement, or if
the ratio of long-term debt to equity exceeds 50%. Therefore, the
dividends on the preferred stock that normally would have been declared
during December of 1995 and March, June and September of 1996, and
payable on March 15, June 15, September 15, and December 15, 1996,
respectively, have not been declared. The total amount of dividends in
arrears on the Company's preferred stock at the date of this filing is
$2,125,000.
Item 4. - Submission of Matters to a Vote of Security Holders - None
Item 5. - Other Information - None
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
- -----------------
Exhibit 4. Instruments Defining the Rights of Security Holders,
Including Indentures
4.5 Stock Purchase and Sale Agreement dated as
of July 24, 1996 by and among Richard C.
Blum & Associates, L.P., PB Capital
Partners, L.P., and Perini Corporation,
First Amendment to the Agreement dated
September 30, 1996 and October 9, 1996, and
Second Amendment to the Agreement dated
November 8, 1996 - filed herewith.
Exhibit 10. Material Contracts
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 - filed herewith.
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 - filed herewith.
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 - filed
herewith.
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 - filed herewith.
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 - filed herewith.
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 - filed herewith.
10.13 Amendment No. 7 as of November 1, 1996 to
the Bridge Credit
13
<PAGE>
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 - filed herewith.
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 herein, Morgan
Guaranty Trust Company of New York, as
Agent, and Fleet National Bank of
Massachusetts, as Co-Agent - filed herewith.
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 - filed herewith.
(b) Reports on Form 8-K - None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Perini Corporation
Registrant
Date: November 14, 1996 /s/ John H. Schwarz
-------------------
John H. Schwarz, Executive Vice President,
Finance and Administration
Date: November 14, 1996 /s/ Barry R. Blake
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Barry R. Blake, Vice President and Controller
15
