FORM 10-K
Securities and Exchange Commission Commission File No. 1-6314
Washington, DC 20549
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Act of
1934.
For the fiscal year ended December 31, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from __________ to ____________
Perini Corporation (Exact name of registrant as specified in its charter)
Massachusetts 04-1717070
(State of Incorporation) (IRS Employer Identification No.)
73 Mt. Wayte Avenue, Framingham, Massachusetts 01701
(Address of principal executive offices) (Zip Code)
(508) 628-2000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
Common Stock, $1.00 par value The American Stock Exchange
$2.125 Depositary Convertible Exchangeable The American Stock Exchange
Preferred Shares, each representing 1/10th
Share of $21.25 Convertible Exchangeable
Preferred Stock, $1.00 par value
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate market value of voting Common Stock held by nonaffiliates of the
registrant is $19,938,000 as of February 28, 2000. The Company does not have any
non-voting Common Stock.
The number of shares of Common Stock, $1.00 par value per share, outstanding at
February 28, 2000 is 5,682,287.
Documents Incorporated by Reference
Portions of the annual proxy statement for the year ended December 31, 1999 are
incorporated by reference into Part III.
<PAGE>
<TABLE>
<CAPTION>
PERINI CORPORATION
INDEX TO ANNUAL REPORT
ON FORM 10-K
PAGE
----
<S> <C>
PART I
- ------
Item 1: Business 2 - 9
Item 2: Properties 9
Item 3: Legal Proceedings 10
Item 4: Submission of Matters to a Vote of Security Holders 10
PART II
- -------
Item 5: Market for the Registrant's Common Stock and Related Stockholder Matters 11
Item 6: Selected Financial Data 12
Item 7: Management's Discussion and Analysis of Financial Condition and Result of
Operations 13 - 19
Item 7A: Quantative and Qualitative Disclosure About Market Risk 19
Item 8: Financial Statements and Supplementary Data 20
Item 9: Disagreements on Accounting and Financial Disclosure 20
PART III
- --------
Item 10: Directors and Executive Officers of the Registrant 21
Item 11: Executive Compensation 22
Item 12: Security Ownership of Certain Beneficial Owners and Management 22
Item 13: Certain Relationships and Related Transactions 22
PART IV
- -------
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K 23
Signatures 24
</TABLE>
1
<PAGE>
PART I.
ITEM 1. BUSINESS
- ------------------
General
- -------
Perini Corporation and its subsidiaries (the "Company" unless the
context indicates otherwise) is engaged in the construction business. The
Company was incorporated in 1918 as a successor to businesses which had been
engaged in providing construction services since 1894. The Company currently
provides general contracting, construction management and design-build services
to private clients and public agencies throughout the United States and selected
overseas locations. The Company's construction business involves two basic
segments: building and civil.
The Company was also engaged in the real estate development business
which was conducted by Perini Land & Development Company, a wholly-owned
subsidiary. As discussed in Note 2 of Notes to Consolidated Financial
Statements, effective June 30, 1999 the Company adopted a plan to withdraw
completely from the real estate development business and to wind down the
operations of the Company's real estate development subsidiary.
Because the Company's results consist, in part, of a limited number of
large transactions, results in any given fiscal quarter can vary depending on
the timing of transactions and the profitability of the projects being reported.
As a consequence, quarterly results may reflect such variations.
Information on lines of business and foreign business is included under
the following captions of this Annual Report on Form 10-K for the year ended
December 31, 1999.
<TABLE>
Annual Report On
Form 10-K
Caption Page Number
------- -----------
<S> <C>
Selected Consolidated Financial Information Page 12
Management's Discussion and Analysis Pages 13 - 19
Note 13 of Notes to the Consolidated Financial Statements, entitled Business Segments Pages 49 - 50
</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, 1999, additional information (business
segment) required by Statement of Financial Accounting Standards No. 131,
"Disclosures About Segements of an Enterprise and Related Information", for the
three years ended December 31, 1999 is included in Note 13 to the Consolidated
Financial Statements.
A summary of revenues by business segment for the three years ended
December 31, 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
Revenues For Year Ended December 31,
------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Construction:
Building $ 696,407 $ 679,296 $ 888,809
Civil 323,077 332,026 387,224
------------ ------------ -------------
Total Construction Revenues $ 1,019,484 $ 1,011,322 $ 1,276,033
============ ============ =============
</TABLE>
2
<PAGE>
Construction
- ------------
The general building and civil contracting services provided by the
Company consist of planning and scheduling the manpower, equipment, materials
and subcontractors required for the timely completion of a project in accordance
with the terms and specifications contained in a construction contract. The
Company provides these services using the traditional general contracting method
as well as under construction management or design-build contracting
arrangements. The Company was engaged in over 100 construction projects in the
United States and overseas during 1999.
The building operation provides its services through regional offices
located in several metropolitan areas: Boston and Atlantic City, serving New
England and the Mid-Atlantic area; Phoenix and Las Vegas, serving Arizona,
Nevada and California; and Detroit, serving the Midwest area. The Company's
building contracting services are provided by Perini Building Company, Inc., a
wholly-owned subsidiary. This company combines substantial resources and
expertise to better serve clients within the building construction market and
enhances Perini's name recognition in this market. The Company undertakes a
broad range of building construction projects including hotels, casinos, health
care facilities, correctional facilities, sports complexes, residential,
commercial, civic, cultural and educational facilities.
The civil operation undertakes large public civil projects in the East,
with current emphasis on major metropolitan areas such as Boston and New York
City and selectively, in other geographic locations. The civil operation
performs construction and rehabilitation of highways, bridges subways, tunnels,
dams, airports, marine projects and waste water treatment facilities. The
Company has been active in civil operations since 1894 and believes that it has
particular expertise in large and complex projects. The Company believes that
infrastructure rehabilitation is, and will continue to be, a significant market
in 2000 and beyond.
Perini Management Services, Inc. (formerly Perini International
Corporation), a wholly-owned subsidiary, provides a broad range of both civil
and building construction services to U.S. government agencies in the U.S. and
selected overseas locations, funded primarily in U.S. dollars. In selected
situations, it pursues other work internationally.
Construction Strategy
---------------------
The Company's current strategy is to concentrate on the civil
construction market in the East and specialized niche building construction
markets throughout the United States, with the goal in both markets to continue
to improve profit margins. The Company believes the best opportunities for
growth in the coming years for its civil construction business are in the urban
infrastructure market, particularly in Boston and metropolitan New York and
other major cities where it has a significant presence, and in other large,
complex projects. The Company's strategy in building construction is to take
advantage of certain market niches, and to expand into new markets compatible
with its expertise. Internally, the Company plans to continue to improve
efficiency through strict attention to the control of overhead expenses.
Finally, the Company continues to expand its expertise to assist public owners
to develop necessary facilities through creative alternative project delivery
methods, including public/private ventures, design-build and
design-build-operate-maintain ("DBOM") arrangements.
During 1996, the Company also adopted a plan to enhance the
profitability of its construction operations by emphasizing gross margin and
bottom line improvement ahead of top line revenue growth. This plan called for
the Company to focus its financial and human resources on construction
operations which are consistently profitable and to de-emphasize marginal
business units. During 1997, the Company closed or downsized and refocused four
business units and combined its two remaining civil construction entities (U.S.
Heavy and Metropolitan New York divisions) under a consolidated management
structure named "Perini Civil". During 1998 and 1999, the Company has continued
to implement these plans.
3
<PAGE>
Backlog
-------
The Company includes a construction project in its backlog at such times
as a contract is awarded or a firm letter of commitment is obtained. As a
result, the backlog figures are firm, subject only to the cancellation
provisions contained in the various contracts.
As of December 31, 1999, the Company has a record construction backlog
of $1.66 billion compared to backlogs of $1.23 billion and $1.31 billion as of
December 31, 1998 and 1997, respectively. The backlog is summarized below by
geographic area and also by business segment:
<TABLE>
<CAPTION>
Backlog (in thousands) as of December 31,
-----------------------------------------------------------------------------------
1999 1998 1997
------------------------- ----------------------- -------------------------
<S> <C> <C> <C>
Northeast $ 1,089,234 66% $ 682,774 55% $ 574,779 44%
Mid-Atlantic 45,084 3 45,417 4 97,212 7
Southeast 210,395 12 35,801 3 46,629 4
Midwest 144,895 9 92,928 8 26,130 2
Southwest 44,994 3 294,931 24 481,068 37
West 1,264 - 26,843 2 28,707 2
Foreign 122,211 7 53,562 4 54,929 4
------------ -------- ------------ ------- -------------- -------
Total $ 1,658,077 100% $ 1,232,256 100% $ 1,309,454 100%
============ ======== ============ ======= ============== =======
</TABLE>
Backlog in the Northeast region of the United States increased
substantially during 1999 due to the addition of the construction management
services contract for the $650 million Mohegan Sun Phase II Expansion project
("Mohegan Sun Project") and otherwise remains strong because of the Company's
ability to meet the needs of the growing infrastructure construction and
rehabilitation market in this region, particularly in the metropolitan Boston
and New York City areas. The decrease in backlog in the Southwest region is due
to the timing in signing new contracts that are being negotiated and the
redeployment of some of its resources from that region to the Southeast and
Northeast regions, rather than a longer term trend. Other fluctuations in
backlog are viewed by management as transitory.
<TABLE>
<CAPTION>
Backlog (in thousands) as of December 31,
-----------------------------------------------------------------------------------
1999 1998 1997
------------------------- ----------------------- -------------------------
<S> <C> <C> <C>
Building $ 1,114,366 67% $ 581,776 47% $ 726,734 55%
Civil 543,711 33 650,480 53 582,720 45
------------ -------- ------------ ------- -------------- -------
Total $ 1,658,077 100% $ 1,232,256 100% $ 1,309,454 100%
============ ======== ============ ======= ============== =======
</TABLE>
The historical relationship between Building and Civil is somewhat
distorted in 1999 due to the impact of the Mohegan Sun Project. If that project
was excluded from the backlog at the end of 1999, the remaining backlog would be
divided equally between the Company's Building and Civil construction segments.
The Company estimates that approximately $865 million of its backlog
will not be completed in 2000.
Types of Contracts
------------------
The four general types of contracts in current use in the construction industry
are:
o Fixed price contracts ("FP"), which include fixed unit price contracts,
usually transfer more risk to the contractor but offer the opportunity,
under favorable circumstances, for greater profits. With the Company's
4
<PAGE>
concentration in publicly bid civil construction projects, fixed price
contracts continue to represent a significant portion of the backlog.
o Cost plus award fee contracts ("CPAF") which provide greater safety for
the contractor from a financial standpoint, but limit profits.
o Guaranteed maximum price contracts ("GMP") which provide for a
cost plus fee arrangement up to a maximum agreed price. These contracts
place risks on the contractor, but may permit an opportunity for greater
profits than cost plus award fee contracts through sharing agreements
with the client on any cost savings.
o Construction management contracts ("CM") under which a contractor agrees
to manage a project for the owner for an agreed-upon fee which may be
fixed or may vary based upon negotiated factors. The contractor
generally provides services to supervise and coordinate the construction
work on a project, but does not directly purchase contract materials,
provide construction labor and equipment or enter into agreements with
subcontractors.
Historically, a high percentage of company contracts have been of the
fixed price and GMP type contracts and during 1999, the percentage of
construction management contracts increased significantly due to the addition of
the Mohegan Sun Project referred to above. Cost plus award fee contracts remain
a relatively small percentage of company contracts. A summary of revenues and
backlog by type of contract for the most recent three years follows:
<TABLE>
<CAPTION>
Revenues - Year Ended
December 31, Backlog as of December 31,
- --------------------------------------- ---------------------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
46% 50% 58% Fixed Price 38% 68% 53%
54 50 42 CPAF, GMP or CM 62 32 47
---- ---- ---- ---- ---- ----
100% 100% 100% 100% 100% 100%
==== ==== ==== ==== ==== ====
</TABLE>
Clients
-------
During 1999, the Company was active in the building, civil and to a
lesser extent, the international construction markets. The Company performed
work for over 50 federal, state and local governmental agencies or authorities
and private customers during 1999. Due to the Company's trend toward fewer, but
larger contracts, a material part of the Company's business has been dependent
on a single or limited number of private customers and/or public agencies in
recent years (see Note 13 of Notes to the Consolidated Financial Statements),
the loss of any one of which could have a materially adverse effect on the
Company. During the period 1997-1999, the portion of construction revenues
derived from contracts with various governmental agencies was 40% in 1999, 43%
in 1998 and 51% in 1997.
<TABLE>
<CAPTION>
Revenues by Client Source
-------------------------
Year Ended December 31,
----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Private Owners 60% 57% 49%
Federal Governmental Agencies 3 2 5
State, Local and Foreign Governments 37 41 46
---- ---- ----
100% 100% 100%
==== ==== ====
</TABLE>
General
-------
The construction business is highly competitive. Competition is based
primarily on price, reputation for on time completion, quality, reliability and
financial strength of the contractor. While the Company experiences a great deal
of competition from other large general contractors, some of which may be larger
with greater financial resources than the Company, as well as from a number of
smaller local contractors, it believes it has sufficient technical, managerial
and
5
<PAGE>
financial resources combined with a positive reputation of performance to be
competitive in each of its major market areas.
The Company will endeavor to spread the financial and/or operational
risk, as it has from time to time in the past, by participating in construction
joint ventures, both in a majority and in a minority position, for the purpose
of bidding and if awarded, performing on projects. These joint ventures are
generally based on a standard joint venture agreement whereby each of the joint
venture participants is usually committed to supply a predetermined percentage
of capital, as required, and to share in the same predetermined percentage of
income or loss of the project on a joint and several basis. Although joint
ventures tend to spread the risk of loss, the Company's initial obligations to
the venture may increase if one of the other participants is financially unable
to bear its portion of cost and expenses. For further information regarding
certain joint ventures, see Note 3 of Notes to Consolidated Financial
Statements.
While the Company's construction business may experience some adverse
consequences if shortages develop or if prices for materials, labor or equipment
increase excessively, provisions in certain types of contracts often shift all
or a major portion of any adverse impact to the customer. On fixed price type
contracts, the Company attempts to insulate itself from the unfavorable effects
of inflation by incorporating escalating wage and price assumptions, where
appropriate, into its construction bids. Construction and other materials used
in the Company's construction activities are generally available locally from
multiple sources and have been in adequate supply during recent years.
Construction work in selected overseas areas primarily employs expatriate and
local labor which can usually be obtained as required. The Company does not
anticipate any significant impact in 2000 from material and/or labor shortages
or price increases.
Economic and demographic trends tend not to have a material impact on
the Company's civil construction operation. Instead, the Company's civil
construction markets are dependent on the amount of heavy civil infrastructure
work funded by various governmental agencies which, in turn, may depend on the
condition of the existing infrastructure or the need for new expanded
infrastructure. The building markets in which the Company participates are
dependent on economic and demographic trends, as well as governmental policy
decisions as they impact the specific geographic markets.
The Company has minimal exposure to environmental liability as a result
of the activities of Perini Environmental Services, Inc. ("Perini
Environmental"), a wholly-owned subsidiary of the Company that was phased out
during 1997. Perini Environmental provided hazardous waste engineering and
construction services to both private clients and public agencies nationwide.
Perini Environmental was responsible for compliance with applicable laws in
connection with its clean up activities and bore the risk associated with
handling such materials. In addition to strict procedural guidelines for conduct
of this work, the Company and Perini Environmental generally carried insurance
or received satisfactory indemnification from customers to cover the risks
associated with this business. The Company also owns real estate in four states
and as an owner, is subject to laws governing environmental responsibility and
liability based on ownership. The Company is not aware of any environmental
liability associated with its ownership of real estate property.
The Company has been subjected to a number of claims from former
employees of subcontractors regarding exposure to asbestos on the Company's
projects. None of the claims have been material. The Company also operates
construction machinery in its business and will, depending on the project or the
ease of access to fuel for such machinery, install fuel tanks for use on site.
Such tanks run the risk of leaking hazardous fluids into the environment. The
Company, however, is not aware of any emissions associated with such tanks or of
any other significant environmental liability associated with its construction
operations or any of its corporate activities.
Progress on projects in certain areas may be delayed by weather
conditions depending on the type of project, stage of completion and severity of
the weather. Such delays, if they occur, may result in more volatile quarterly
operating results due to less progress than anticipated being achieved on
projects.
In the normal course of business, the Company periodically evaluates its
existing construction markets and seeks to identify any growing markets where it
feels it has the expertise and management capability to successfully compete or
withdraw from markets which are no longer economically attractive, which it did
during 1997 as discussed above.
6
<PAGE>
Real Estate
- -----------
The Company's real estate development operations were conducted by
Perini Land & Development Company ("PL&D"), a wholly-owned subsidiary, which had
real estate development projects in Arizona, California, Florida, Georgia and
Massachusetts at the beginning of 1999. Effective June 30, 1999, management
adopted a plan to withdraw completely from the real estate development business
and to wind down the operations of PL&D. Therefore, both historical and current
real estate results have been presented in the Company's financial statements as
discontinued operations in accordance with generally accepted accounting
principles. Based on the plan, the 1999 results include a $99.3 million non-cash
provision which represents the estimated loss on disposal of this business
segment. This non-cash charge reflects the impact of the disposition of the
Rincon Center property located in San Francisco and the reduction in projected
future cash flow from the disposition of PL&D's remaining real estate
development operations resulting from the change in strategy of holding the
properties through the necessary development and stabilization periods to a new
strategy of generating short-term liquidity through an accelerated disposition
or bulk sale.
Real Estate Properties
----------------------
The following is a description of the Company's major development
projects and properties by geographic area:
Florida
West Palm Beach and Palm Beach County - At Metrocentre, a 51-acre
commercial/office park at the intersection of Interstate 95 and 45th Street in
West Palm Beach, the last 5 acres of land were sold in 1999.
Massachusetts
Perini Land & Development or Paramount Development Associates, Inc.
("Paramount"), a wholly-owned subsidiary of PL&D, own the following projects:
Raynham Woods Commerce Center, Raynham - During the late 1980's,
Paramount acquired a 409-acre site located in Raynham, Massachusetts and
completed infrastructure work on a major portion of the site (330 acres) which
was being developed as a mixed-use corporate campus style park known as "Raynham
Woods Commerce Center". From 1989 through 1998, Paramount sold an aggregate of
75 acres to various users. During 1999, Paramount sold 10 acres which leaves
approximately 150 saleable acres to be sold.
Easton Business Center, Easton - In 1989, Paramount acquired a 40-acre
site in Easton, Massachusetts, which already had been partially developed and
completed the development. The site was sold during 1999.
Wareham - In early 1990, Paramount acquired an 18.9-acre parcel of land
at the junction of Routes 495 and 58 in Wareham, Massachusetts. The property is
being marketed to both retail and commercial/industrial users. No sales were
closed in 1999.
Georgia
The Villages at Lake Ridge, Clayton County - During 1987, PL&D (49%)
entered into a joint venture with 138 Joint Venture Partners to develop a
348-acre planned commercial and residential community in Clayton County called
"The Villages at Lake Ridge". Since its acquisition, the joint venture has put
in a substantial portion of the infrastructure, all of the recreational
amenities, and through 1998 had sold 352 single family lots to builders, along
with a 22.3-acre tract designed for 88 lots, a 16-acre parcel for use as an
elementary school and developed a 278-unit apartment complex which it later sold
to a third party buyer. In 1999 the joint venture sold the remaining lots and
commercial tracts except for a single family tract of 28 acres and a 22 acre
apartment tract, both of which are under contract to be sold in 2000.
7
<PAGE>
California
Rincon Center, San Francisco - Major construction on this mixed-use
project in downtown San Francisco was completed in 1989 for Rincon Center
Associates, a joint venture in which PL&D held a 46% interest and was the
managing general partner. The project, known as "Rincon Center" consisted of 320
residential units, approximately 423,000 square feet of office space, 63,000
square feet of retail space, and a 700-space parking garage. Following its
completion in 1988, Phase I of the project was sold and leased backed under a
master lease by the developing partnership. Loans on the project aggregating
$48.3 million matured in 1998 and were not refinanced pending certain debt
restructuring negotiations that continued into the third quarter of 1999. As
part of the Rincon Center Phase I sale and operating lease-back transaction, the
lease provided that if an additional financial commitment to replace at least
$33 million of long-term financing relating to Phase I had not been arranged by
January 1, 1998, the lessee would have been deemed to have made an offer to
purchase the property for a stipulated amount of approximately $18.8 million in
excess of the then outstanding debt. An arrangement had been made to delay this
event to allow the parties to finalize the financial restructuring referred to
above and to eventually cancel this requirement as part of the terms to the
various restructuring agreements.
The restructuring negotiations terminated during the third quarter of
1999. Subsequently, the Company and PL&D, the managing general partner in the
project, entered into a full and final non-cash settlement regarding its
interest in the property. As part of the settlement and in exchange for the
transfer of its ownership interest in the property, the Company has exchanged
mutual releases with the other general partner, the project-related lenders, the
lessor on Phase I and all other entities formally associated with the property
from any claims, lawsuits or other liabilities they might have had with respect
to each other in connection with the property.
Arizona
Perini Central Limited Partnership, Phoenix - In 1985, PL&D (75%)
entered into a joint venture with the Central United Methodist Church to master
plan and develop approximately 4.4 acres of the church's property in midtown
Phoenix. In 1990, the project was successfully rezoned to permit development of
580,000 square feet of office, 37,000 square feet of retail and 162 luxury
apartments. During 1999, the Company continued to look for a prospective buyer.
Grove at Black Canyon, Phoenix - The project consists of an office park
complex on a 30-acre site located off of Black Canyon Freeway, a major Phoenix
artery, approximately 20 minutes from downtown Phoenix. When complete, the
project could include approximately 650,000 square feet of office, hotel,
restaurant and/or retail space. In 1987, a 150,000-square foot office building
was completed within the park and substantially leased up immediately, with
approximately half of the building leased to a major area utility company. Land
sales since that time have aggregated approximately 12 acres and during 1999,
the office building was sold. At December 31, 1999, the remaining 6 acres are
under contract to be sold in 2000.
Sabino Springs Country Club, Tucson - During 1990, the Tucson Board of
Supervisors unanimously approved a plan for this 410-acre residential golf
course community close to the foothills on the east side of Tucson. In 1991,
that approval, which had been challenged, was affirmed by the Arizona Supreme
Court. When fully developed, the project will consist of 496 single-family
homes. In 1993, PL&D recorded the master plat on the project and sold a major
portion of the property to an international real estate company. An 18-hole
Robert Trent Jones, Jr. designed championship golf course and clubhouse were
completed within the project in 1995. In 1998, PL&D settled a lawsuit with the
prior purchaser of the major portion of the property which required PL&D to
complete a certain portion of the infrastructure by the end of the Year 2000.
During 1999, PL&D commenced the required infrastructure development which must
be completed before PL&D can sell the 33 estate lots it still retains.
8
<PAGE>
Insurance and Bonding
- ---------------------
All of the Company's properties and equipment, both directly owned or
owned through partnerships or joint ventures with others, are covered by
insurance, and management believes that such insurance is adequate.
In conjunction with its construction business, the Company is often
required to provide various types of surety bonds. The Company has a co-surety
arrangement with three sureties, one of which it has dealt with for over 75
years, and it has never been refused a bond. Although from time-to-time the
surety industry encounters limitations affecting the bondability of very large
projects and the Company occasionally has encountered limits imposed by its
surety, these limits have not had an adverse impact on its operations.
Employees
- ---------
The total number of personnel employed by the Company is subject to
seasonal fluctuations, the volume of construction in progress and the relative
amount of work performed by subcontractors. During 1999, the maximum number of
employees was approximately 2,750 and the minimum was approximately 1,500.
The Company operates as a union contractor. As such, it is a signatory
to numerous local and regional collective bargaining agreements, both directly
and through trade associations, throughout the country. These agreements cover
all necessary union crafts and are subject to various renewal dates. Estimated
amounts for wage escalation related to the expiration of union contracts are
included in the Company's bids on various projects and, as a result, the
expiration of any union contract in the current fiscal year is not expected to
have any material impact on the Company.
ITEM 2. PROPERTIES
- ------- ----------
Properties applicable to the Company's real estate development
activities are described in detail by geographic area in Item 1. Business on
pages 7 and 8. All other properties used in operations are summarized below:
<TABLE>
Owned or Approximate Approximate Square
Principal Offices Leased by Perini Acres Feet of Office Space
- ----------------- ---------------- ----------- --------------------
<S> <C> <C> <C>
Framingham, MA Owned 9 100,000
Phoenix, AZ Leased - 22,700
Hawthorne, NY Leased - 12,500
Atlantic City, NJ Leased - 900
Las Vegas, NV Leased - 2,900
Chicago, IL Leased - 1,600
Detroit, MI Leased - 2,800
--- -------
9 143,400
=== =======
Owned or Approximate
Principal Permanent Storage Yards Leased by Perini Acres
- --------------------------------- ---------------- -----------
Bow, NH Owned 70
Framingham, MA Owned 6
Las Vegas, NV Leased 2
---
78
===
</TABLE>
The Company's properties are well maintained, in good condition,
adequate and suitable for the Company's purpose and fully utilized.
9
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
As previously reported, the Company is a party to an action entitled
Mergentime Corporation et. al. v. Washington Metropolitan Area Transit Authority
("WMATA") v. Insurance Company of North America (Civil Action No. 89-1055) in
the U.S. District Court for the District of Columbia. The action involves
WMATA's termination of the general contractor, a joint venture in which the
Company was a minority partner, on two contracts to construct a portion of the
Washington, D.C. subway system, and certain claims by the joint venture against
WMATA for claimed delays and extra work.
On July 30, 1993, the Court upheld the termination for default, and
found both joint venturers and their surety jointly and severally liable to
WMATA for damages in the amount of $16.5 million, consisting primarily of
WMATA's excess reprocurement costs, but specifically deferred ruling on the
amount of the joint venture's claims against WMATA. Since the other joint
venture partner may be unable to meet its financial obligations under the award,
the Company could be liable for the entire amount.
At the direction of the successor judge presiding over the action,
during the third quarter of 1995, the parties submitted briefs on the issue of
WMATA's liability on the joint venture's claims for delays and for extra work.
As a result of that process, the Company established a reserve with respect to
the litigation.
In July 1997, the remaining issues were ruled on by the successor judge,
who awarded approximately $4.3 million to the joint venture, thereby reducing
the net amount payable to approximately $12.2 million. The joint venture
appealed the decision. As a result of the decision, there was no immediate
impact on the Company's Statement of Operations because of the reserve provided
in prior years.
On February 16, 1999, the U.S. Court of Appeals for the District of
Columbia vacated the April 1995 and July 1997 Orders and remanded the case back
to the successor judge with instructions for the successor judge to consider
certain post-trial motions to the same extent an original judge would have, and
to make findings and conclusions regarding the unresolved issues, giving
appropriate consideration to whether or not witnesses must be recalled. During
1999, a new successor judge was appointed. Based on the suggestions of the
successor judge, the parties have agreed to participate in non-binding
mediation. If the parties do not agree to a settlement based on the mediation
process or otherwise, a final judgment will be entered by the District Court
upon the completion of these Appeals Court-directed procedures. The actual
funding of net damages, if any, will be deferred until the litigation process is
complete.
In the ordinary course of its construction business, the Company is
engaged in other lawsuits, and arbitration and alternative dispute resolution
("ADR") proceedings. The Company believes that such other lawsuits and
proceedings are usually unavoidable in major construction operations and that
their resolution will not materially affect its results of future operations and
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
None.
10
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PART II.
--------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
- ------- ------------------------------------------------------------------------
The Company's Common Stock is traded on the American Stock Exchange
under the symbol "PCR". The quarterly market price ranges (high-low) for 1999
and 1998 are summarized below:
<TABLE>
<CAPTION>
1999 1998
-------------------- -------------------
High Low High Low
-------- ------ ------- --------
<S> <C> <C> <C> <C>
Market Price Range per Common Share:
Quarter Ended
March 31 7 1/2 - 4 3/8 9 1/8 - 7 3/8
June 30 5 7/8 - 4 1/2 11 1/4 - 7 7/8
September 30 6 3/16 - 2 5/8 8 1/2 - 6
December 31 4 3/4 - 3 1/4 7 - 4 1/4
</TABLE>
For information on dividend payments, see Selected Financial Data in
Item 6 below and "Dividends" under Management's Discussion and Analysis in Item
7 below.
As of February 28, 2000, there were approximately 1,086 record holders
of the Company's Common Stock.
11
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ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
<TABLE>
<CAPTION>
Selected Consolidated Financial Information
(In thousands, except per share data)
1999 1998 1997 1996 1995
------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING SUMMARY
CONTINUING OPERATIONS:
Revenues:
Building $ 696,407 $ 679,296 $ 888,809 $ 834,888 $ 748,412
Civil 323,077 332,026 387,224 389,540 308,261
------------- -------------- ------------- -------------- -------------
Total $1,019,484 $1,011,322 $1,276,033 $1,224,428 $1,056,673
============= ============== ============= ============== =============
Cost of Operations $ 969,015 $ 957,651 $1,225,814 $1,168,997 $1,040,805
------------- -------------- ------------- -------------- -------------
Gross Profit $ 50,469 $ 53,671 $ 50,219 $ 55,431 $ 15,868
G&A Expense 26,635 27,397 29,715 32,385 35,441
------------- -------------- ------------- -------------- -------------
Income (Loss) From Operations $ 23,834 $ 26,274 $ 20,504 $ 23,046 $ (19,573)
Other (Income) Expense, Net (72) 652 1,695 665 (697)
Interest Expense 7,128 8,473 9,910 9,397 8,159
Income (Loss) From Continuing
Operations Before Income Taxes $ 16,778 $ 17,149 $ 8,899 $ 12,984 $ (27,035)
Provision (Credit) for Income Taxes $ 421 $ 1,100 $ 950 $ 830 $ (1,351)
------------- -------------- ------------- -------------- -------------
Income (Loss) From Continuing
Operations $ 16,357 $ 16,049 $ 7,949 $ 12,154 $ (25,684)
------------- -------------- ------------- -------------- -------------
DISCONTINUED OPERATIONS:
Loss From Operations $ (694) $ (4,397) $ (2,577) $ (82,757) $ (1,901)
Estimated Loss on Disposal of
Real Estate Business Segment (99,311) - - - -
------------- -------------- ------------- -------------- -------------
Loss From Discontinued Operations $ (100,005) $ (4,397) $ (2,577) $ (82,757) $ (1,901)
------------- -------------- ------------- -------------- -------------
Net Income (Loss) $ (83,648) $ 11,652 $ 5,372 $ (70,603) $ (27,585)
============= ============== ============= ============== =============
Per Share of Common Stock:
Basic and Diluted Earnings (Loss):
Income (Loss) From Continuing
Operations $ 1.80 $ 1.91 $ 0.52 $ 2.08 $ (5.97)
Loss From Discontinued Operations (.12) (0.83) (0.51) (17.21) (0.41)
Estimated Loss on Disposal (17.72) - - - -
------------- -------------- ------------- -------------- -------------
Total $ (16.04) $ 1.08 $ 0.01 $ (15.13) $ (6.38)
============= ============== ============= ============== =============
Cash Dividends Declared $ - $ - $ - $ - $ -
------------- -------------- ------------- -------------- -------------
Book Value $ (11.31) $ 4.17 $ 2.44 $ 2.14 $ 17.06
------------- -------------- ------------- -------------- -------------
Weighted Average Common Shares
Outstanding 5,606 5,318 5,059 4,808 4,655
------------- -------------- ------------- -------------- -------------
FINANCIAL POSITION SUMMARY
Working Capital $ 48,430 $ 57,665 $ 76,752 $ 56,744 $ 36,545
------------- -------------- ------------- -------------- -------------
Current Ratio 1.23:1 1.29:1 1.34:1 1.19:1 1.13:1
------------- -------------- ------------- -------------- -------------
Long-term Debt, less current $ 41,091 $ 75,857 $ 84,576 $ 92,606 $ 80,495
maturities ------------- -------------- ------------- -------------- -------------
Stockholders' Equity (Deficit) $ (36,618) $ 50,558 $ 40,900 $ 35,558 $ 105,606
------------- -------------- ------------- -------------- -------------
Ratio of Long-term Debt to Equity n.a. 1.50:1 2.07:1 2.60:1 0.76:1
------------- -------------- ------------- -------------- -------------
Total Assets $ 275,488 $ 375,466 $ 407,288 $ 451,619 $ 525,259
------------- -------------- ------------- -------------- -------------
OTHER DATA
Backlog at Year End $1,658,077 $1,232,256 $1,309,454 $1,517,700 $1,534,522
------------- -------------- ------------- -------------- -------------
</TABLE>
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
Results of Operations -
1999 Compared to 1998
Continuing Operations
- ---------------------
The Company's continuing construction operations produced income of $16.4
million (or $1.80 per Common Share) in 1999 compared to income of $16.0 million
(or $1.91 per Common Share) in 1998. Overall, the 1999 results from continuing
operations include strong profit contributions from both the building and civil
construction segments as well as lower interest expense.
Revenues from continuing construction operations increased $8.2 million (or
0.8%) from $1,011.3 million in 1998 to $1,019.5 million in 1999. This increase
was due primarily to an increase in building construction revenues of $17.1
million (or 2.5%) from $679.3 million in 1998 to $ 696.4 million in 1999, which
more than offset a decrease in revenues from civil construction operations of
$8.9 million (or 2.7%) from $332.0 million in 1998 to $323.1 million in 1999.
The increase in revenues from building construction operations was due primarily
to the start up of several new projects in the East. The slight decrease in
revenues from civil construction operations was due primarily to the completion
of several major mass transit and infrastructure projects in late 1998 and early
1999.
Overall, gross profit decreased $3.2 million (or 6.0%) from $53.7 million in
1998 to $50.5 million in 1999, due to decreases in gross profit from both
building and civil construction operations. Despite the increase in revenues
noted above, gross profit from building construction operations decreased $1.7
million (or 5.5%) from $30.7 million in 1998 to $29.0 million in 1999 due
primarily to additional losses attributable to the phasing out of a building
construction division in the Midwest. Gross profit from civil construction
operations decreased $1.5 million (or 6.5%) from $23.0 million in 1998 to $21.5
million in 1999 due primarily to the decrease in revenues noted above.
The decrease in general, administrative and selling expenses of $0.8 million (or
2.9%) from $27.4 million in 1998 to $26.6 million in 1999, resulted primarily
from the continued phase out of two construction divisions in the Midwest and
ongoing cost reduction programs.
Other income (expense), net improved by $0.7 million from a net expense of $0.6
million in 1998 to a net income of $0.1 million in 1999. This improvement was
due to a $1.5 million increase in gain on sale of investments which was partly
offset by a $0.8 million increase in bank fees relating to the Company's
revolving credit facility.
Interest expense decreased by $1.4 million from $8.5 million in 1998 to $7.1
million in 1999, due primarily to lower average levels of borrowing during 1999.
The lower than normal tax rate for the three year period ended December 31, 1999
is due to the utilization of tax loss carryforwards from prior years. Because of
certain accounting limitations, the Company was not able to recognize a portion
of the tax benefit related to the operating losses experienced in fiscal 1996
and 1995. As a result of these losses and the loss recognized in 1999, an amount
estimated to be approximately $142 million of pretax earnings subsequent to 1999
could benefit from minimal, if any, federal tax charges. The net deferred tax
assets reflect management's estimate of the amount that will, more likely than
not, be realized (see Note 5 of Notes to Consolidated Financial Statements).
Discontinued Operations
- -----------------------
Effective June 30, 1999, management adopted a plan to withdraw completely from
the real estate development business and to wind down the operations of Perini
Land and Development Company ("PL&D"), the Company's real estate development
subsidiary. Therefore, both historical and current real estate results have been
presented as a discontinued operation in accordance with generally accepted
accounting principles. Based on the plan, the 1999 results include a $99.3
million non-cash provision which represents the estimated loss on disposal of
this business segment. This non-cash charge reflects the impact of the
disposition of the Rincon Center property located in San Francisco and the
13
<PAGE>
reduction in projected future cash flow from the disposition of PL&D's remaining
real estate development operations resulting from the change in strategy of
holding the properties through the necessary development and stabilization
periods to a new strategy of generating short-term liquidity through an
accelerated disposition or bulk sale. The estimated loss on disposal of the real
estate business segment also includes a provision for shut down costs related to
PL&D during the wind down period. No federal tax benefit was attributable to the
estimated loss on disposal of the real estate business segment due to certain
accounting limitations. During the fourth quarter of 1999, the Company and PL&D,
the managing general partner of Rincon Center Associates ("RCA"), entered into a
full and final non-cash settlement regarding its interests in the Rincon Center
property. As part of the settlement and in exchange for the transfer of its
ownership interest in the RCA property, the Company has exchanged mutual
releases with the other RCA general partner, the RCA-related lenders and all
other entities formally associated with the RCA property from any claims,
lawsuits or other liabilities they may have with respect to each other in
connection with the RCA property. This completes a major step in the Company's
plan to discontinue its real estate development operations. In addition, during
the last half of 1999, PL&D concluded the sale of two other properties at prices
approximating those originally anticipated in calculating the estimated loss on
disposal of the real estate business segment at June 30, 1999. The actual loss
from the sale of these two properties and loss on disposition of the RCA
property approximated the losses originally estimated as of June 30, 1999.
Several of the remaining real estate properties now being offered for sale are
currently under or are pending purchase and sale agreements.
Results of Operations -
1998 Compared to 1997
Continuing Operations
- ---------------------
The Company's continuing construction operations produced income of $16.0
million (or $1.91 per Common Share) in 1998 compared to income of $7.9 million
(or $.52 per Common Share) in 1997. This substantially improved performance is
attributable to higher margins on the work performed by both the Company's
building and civil operating units, primarily from the hotel/casino market in
Nevada and from civil infrastructure work in the Northeast and further
reductions in general and administrative and interest expense. These
improvements more than offset the impact of a decrease in 1998 construction
revenues.
Revenues from continuing construction operations decreased $264.7 million (or
21%) from $1,276.0 million in 1997 to $1,011.3 million in 1998. This decrease
was due primarily to a decrease in revenues from both building and civil
construction operations. Revenues from building operations decreased $209.5
million (or 24%) from $888.8 million in 1997 to $679.3 million in 1998, due
primarily to the timing of the start up of new hotel/casino projects in Las
Vegas, a decrease in revenues from airport facilities and a sports complex in
the West, and a decrease in revenues from correctional facilities projects in
the East. Revenues from civil construction operations decreased $55.2 million
(or 14%) from $387.2 million in 1997 to $332.0 million in 1998, due primarily to
the timing in the start up of new work in the Northeast. The phasing out of two
divisions in the Midwest also contributed to the decrease in revenues from both
the building and civil operations.
In spite of the overall 21% decrease in total revenues described above, total
gross profit actually increased by $3.5 million (or 7%), from $50.2 million in
1997 to $53.7 million in 1998, due primarily to improved margins on both the
building and civil construction work performed in 1998.
The decrease in general, administrative and selling expenses of $2.3 million (or
7.7%) from $29.7 million in 1997 to $27.4 million in 1998, resulted primarily
from phasing out two construction divisions in the Midwest, efficiencies
achieved by combining certain other divisions and continuation of downsizing
certain corporate departments.
Other income (expense), net improved by $1.1 million from a net expense of $1.7
million in 1997 to a net expense of $0.6 million in 1998, due to an increase in
interest income and a decrease in bank fees.
Interest expense decreased by $1.4 million from $9.9 million in 1997 to $8.5
million in 1998, due primarily to lower average levels of borrowing during 1998.
14
<PAGE>
Financial Condition
- -------------------
Cash and Working Capital
During 1999, cash generated from operating activities in the amount of $27.8
million, due primarily to changes in various elements of working capital, was
approximately equal to the amount of cash generated from operating activities in
1998 and continued to reflect improvement over recent prior years. The funds
generated were used for investing activities ($13.5 million), primarily for
funding the working capital needs of certain construction joint ventures, and
for financing activities ($2.6 million), primarily to pay down borrowings and to
increase cash on hand by $11.7 million.
During 1998, the Company generated $27.8 million in cash from operating
activities, due primarily to changes in various elements of working capital. The
funds generated were used for investing activities ($2.2 million), primarily for
funding the working capital needs of the Company's discontinued real estate
operations, and for financing activities ($10.4 million), primarily to pay down
borrowings and to increase cash on hand by $15.2 million.
During 1997, the Company generated $11.8 million from investing activities,
primarily from net cash distributions from construction joint ventures and the
sale of The Resort at Squaw Creek property, and $17.4 million from financing
activities, due to the net proceeds received on the sale of Series B Preferred
Stock less pay downs of long-term debt. These funds were used for operating
activities ($7.6 million) and to increase the cash on hand by $21.6 million.
Effective January 17, 1997, the Company's liquidity and access to future
borrowings, as required, during the next few years were significantly enhanced
by the issuance of $30 million in Redeemable Series B Cumulative Convertible
Preferred Stock (see Note 7 of Notes to Consolidated Financial Statements) and
the Amended and Restated Credit Agreement referred to in Note 4 of Notes to
Consolidated Financial Statements. The aggregate amount available under its
revolving credit agreement increased to $129.5 million at that time, although it
has subsequently been reduced and stands at $73.0 million at December 31, 1999.
In addition to internally generated funds, at December 31, 1999, the Company has
approximately $2.0 million available under its revolving credit facility. The
financial covenants to which the Company is subject include minimum levels of
working capital, tangible net worth and operating cash flow and certain
restrictions on real estate investments and future cash dividends, all as
defined in the loan documents. Although the Company would have been in violation
of certain of the covenants during 1999, it obtained waivers of such violations.
Also, during the last three years, the Company made substantial progress on a
strategy adopted at the end of 1996 that called for liquidating certain real
estate assets which were written down at that time, resolving several major
construction claims and minimizing overhead expenses.
On February 5, 2000, the Company entered into a definitive Securities Purchase
Agreement, subject to certain conditions, whereby the new investors have agreed
to purchase $40 million of the Company's Common Stock, $1.00 par value. If this
transaction is consummated, the Company's liquidity, working capital and access
to future borrowings, as required, during the next few years will be
significantly enhanced by the "New Equity" and "New Credit Agreement" referred
to in Note 15 of Notes to Consolidated Financial Statements.
The working capital current ratio was 1.23:1 at the end of 1999 compared to
1.29:1 at the end of 1998, and 1.34:1 at the end of 1997. Of the total working
capital of $48.4 million at the end of 1999, approximately $24 million may not
be converted to cash within the next 12 to 18 months.
Long-term Debt
Long-term debt was $41.1 million at the end of 1999, down from $75.9 million in
1998, $84.6 million in 1997 and $92.6 million in 1996. In addition to the $51.5
million reduction in long-term debt during the three year period ended December
31, 1999, the Company paid down all of its $8.1 million of real estate debt on
wholly-owned real estate projects, utilizing proceeds from sales of property and
general corporate funds. Similarly, real estate joint venture debt of $69.2
million has been reduced to zero during the same three year period.
15
<PAGE>
Stockholders' Equity (Deficit)
As a result of the net loss recorded in 1999, due to the $100 million loss from
discontinued real estate operations, the Company's stockholders' equity was
reduced to a negative $36.6 million. The Company's book value per Common Share
stood at a negative $(11.31) at December 31, 1999, compared to $4.17 per Common
Share and $2.44 per Common Share at the end of 1998 and 1997, respectively. The
major factors impacting stockholders' equity during the three-year period under
review were the net income recorded in 1998 and 1997, the net loss recorded in
1999 and, to a lesser extent, preferred dividends paid in-kind or accrued and
stock issued in partial payment of certain expenses.
As mentioned above under "Cash and Working Capital" and in more detail in Note
15 of Notes to Consolidated Financial Statements, the Company recently entered
into a definitive Securities Purchase Agreement, subject to certain conditions,
whereby the new investors have agreed to purchase $40 million of the Company's
common stock. A condition to the Purchase Agreement is that all of the holders
of the Company's Series B Preferred Stock, which has a current accreted face
amount of approximately $40 million, will convert their securities into Common
Stock, $1.00 par value, of the Company at $5.50 per share of common stock. The
impact on the Company's Stockholders' Equity (Deficit) will be to increase it by
approximately $75 million after estimated expenses related to the transaction
(or improving it from a Stockholders' Deficit of $36.6 million at December 31,
1999 to a positive Stockholders' Equity of $38.6 million on a pro forma basis).
If the transaction is consummated, shares of Common Stock held by the new
investors and the former holders of the Series B Preferred Stock will represent
approximately 42.0% and 32.5% of the Company's voting rights, respectively.
At December 31, 1999, there were 1,098 common stockholders of record based on
the stockholders list maintained by the Company's transfer agent.
Dividends
There were no cash dividends declared or paid on the Company's outstanding
Common Stock during the three years ended December 31, 1999.
During 1995, the Company declared and paid the regular quarterly cash dividends
of $5.3125 per share on the Company's Convertible Exchangeable Preferred Shares
for an annual total of $21.25 per share (equivalent to quarterly dividends of
$.53125 per Depositary Share for an annual total of $2.125 per Depositary
Share). In conjunction with the covenants of the Company's Revolving Credit
Agreement (see Note 4 of Notes to Consolidated Financial Statements), the
Company was required to suspend the payment of quarterly dividends on its
Preferred Stock. Therefore, the dividend that normally would have been declared
during December of 1995 and payable on March 15, 1996, as well as subsequent
quarterly dividends through 1999, have not been declared or paid (although they
have been fully accrued due to the "cumulative" feature of the Preferred Stock).
The current Credit Agreement, approved January 17, 1997, provides that the
Company may not pay cash dividends or make other restricted payments unless: (i)
the Company is not in default under the Credit Agreement; (ii) commitments under
the credit facility have been reduced to less than $75 million; (iii) restricted
payments in any quarter, when added to restricted payments made in the prior
three quarters, do not exceed fifty percent (50%) of net income from continuing
operations for the prior four quarters; and (iv) certain net worth levels (after
taking into consideration the amount of the proposed cash dividend or restricted
payment and as adjusted for non-cash charges incurred in connection with any
disposition or write-down of any real estate investment) are not exceeded and
provided that net worth must be at least $60 million.
For purposes of the current Credit Agreement, net worth shall include the net
proceeds from the sale of the Series B Preferred Stock to the Investors. In
addition, under the terms of the Series B Preferred Stock, the Company may not
pay any cash dividends on its Common Stock until after September 1, 2001, and
then only to the extent such dividends do not exceed in aggregate more than
twenty-five percent (25%) of the Company's consolidated net income available for
distribution to Common shareholders (after Preferred dividends). Prior to any
such dividends, the Company must have elected and paid cash dividends on the
Series B Preferred Stock for the preceding four quarters.
Subject to and concurrent with the closing of the new equity transaction
described in Note 15 of Notes to Consolidated Financial Statements, the
Company's Bank Group has agreed in principle to extend and restructure its
Revolving Credit
16
<PAGE>
Agreement (the "New Credit Agreement"). Covenants in the New Credit Agreement
provide that the Company may not pay cash dividends or make other restricted
payments unless: (i) the Company is not in default under the New Credit
Agreement; (ii) commitments under the New Credit Agreement have been reduced to
less than $41 million; (iii) restricted payments in any quarter, when added to
restricted payments made in the prior three quarters, do not exceed fifty
percent (50%) of net income from continuing operations for the prior four
quarters; and (iv) net worth (after taking into consideration the amount of the
proposed cash dividend or restricted payment) is at least equal to the amount
shown below:
Minimum Consolidated
As of: Adjusted Tangible Net Worth
------ ---------------------------
(In millions)
March 31, 2000 $36.3
June 30, 2000 38.8
September 30, 2000 41.8
December 31, 2000 46.6
March 31, 2001 48.2
June 30, 2001 51.1
September 30, 2001 55.3
December 31, 2001 60.0
March 31, 2002 61.6
June 30, 2002 64.7
September 30, 2002 71.1
December 31, 2002 75.1
The aggregate amount of dividends in arrears is approximately $9,030,000 at
December 31, 1999, which represents approximately $90.30 per share of Preferred
Stock or approximately $9.03 per Depositary Share and is included in "Other
Liabilities" (long-term) in the Consolidated Balance Sheet. Under the terms of
the Preferred Stock, the holders of the Depositary Shares are entitled to elect
two additional Directors when dividends have been deferred for more than six
quarters, and they did so at both the May 14, 1998 and the May 13, 1999 Annual
Meetings.
The Board of Directors intends to resume payment of dividends when the Company
satisfies the terms of the New Credit Agreement, the provisions of the Series B
Preferred Stock and the Board deems it prudent to do so.
Outlook
o Continuing Construction Operations - Looking ahead, the overall
construction backlog at the end of 1999 was $1.658 billion, up 35% from
the 1998 year end backlog of $1.232 billion. This increase primarily
reflects the addition of the construction management services contract
for the $650 million Mohegan Sun Phase II Expansion project in
Uncasville, CT. Approximately 67% of the current backlog relates to
building construction projects which generally represent lower risk,
lower margin work, and approximately 33% of the current backlog relates
to civil construction projects which generally represent higher risk,
but correspondingly potentially higher margin work. During 1996, the
Company adopted a plan to enhance the profitability of its construction
operations by emphasizing gross margin and bottom line improvement ahead
of top line revenue growth. This plan called for the Company to focus
its financial and human resources on construction operations which are
consistently profitable and to de-emphasize marginal business units.
Consistent with that Plan, the Company implemented plans to close or
downsize and refocus four business units during 1997 and during 1998 and
1999 has continued to implement these plans. The Company believes the
outlook for its building and civil construction businesses continues to
be promising.
o Discontinued Real Estate Operations - As described in detail on pages 2
and 7, and in Notes 1 and 2 of Notes to Consolidated Financial
Statements, the Company is proceeding to implement its plan to wind down
its discontinued real estate development operations. A major step in the
plan was completed during the fourth quarter of 1999 whereby the Company
entered into a settlement agreement regarding its interest in the Rincon
Center property. As
17
<PAGE>
part of the settlement and in exchange for the transfer of its ownership
interest in the RCA property, the Company has exchanged mutual releases
with the other RCA general partners, the RCA-related lenders and all
other entities formally associated with the RCA property from any
claims, lawsuits or other liabilities they may have with respect to each
other in connection with the Rincon Center property. In addition, during
the last six months of 1999, PL&D concluded the sale of two other
properties at prices approximating those originally anticipated in
calculating the estimated loss on disposal of the real estate business
segment at June 30, 1999. Several of the remaining real estate
properties now being offered for sale are currently under or are pending
a purchase and sale agreement.
o Rebuilding Equity - As a result of the net loss recorded in 1999, the
Company's stockholders' equity has been reduced to a negative $36.6
million. As described in detail in "Stockholders' Equity (Deficit)" on
page 16 and in Note 15 of Notes to Consolidated Financial Statements,
the Company and an investor group have entered into a definitive
Securities Purchase Agreement. Subject to, among other things,
shareholder approval and agreement of the holders of Series B Preferred
Stock to convert their securities into common stock at $5.50 per share
of common stock, the transaction should close in the first or second
quarter of 2000 and result in a restoration of balance sheet net worth
and improve liquidity and working capital to support the ongoing core
construction operations.
o Liquidity - With the receipt of $30 million from the sale of its
Redeemable Series B Preferred Stock and the New Credit Agreement both
becoming effective on January 17, 1997, the Company's near term
liquidity position improved substantially, enabling payments to vendors
to generally be made in accordance with normal payment terms. In order
to generate cash and reduce the Company's dependence on bank debt to
fund the working capital needs of its core construction operations as
well as to lower the Company's substantial interest expense and
strengthen the balance sheet in the longer term, the Company has
discontinued its real estate development business and is in the process
of liquidating its real estate portfolio. The Company will continue to
actively pursue the favorable conclusion of various unapproved change
orders and construction claims; to focus new construction work
acquisition efforts on various niche markets and geographic areas where
the Company has a proven history of success; to downsize or close
operations with marginal prospects for success; to continue to restrict
the payment of cash dividends on the Company's $1 par value Common Stock
and $2.125 Depositary Convertible Exchangeable Preferred Stock; and to
continue to seek ways to control overhead expenses.
o New Equity and New Credit Agreement - As described in Note 15 of Notes
to Consolidated Financial Statements, the Transaction would, if
consummated, significantly improve the Company's financial condition and
liquidity. If the Transaction is not consummated, management's intent
would be to renegotiate the terms of its credit facility and continue to
pay the in-kind dividend on the Series B Preferred Stock.
Management believes that cash generated from operations, existing credit
lines, additional borrowings and projected sale of certain real estate
assets referred to above and timely resolution and payment of various
unapproved change orders and construction claims referred to above
should be adequate to meet the Company's funding requirements for at
least the next twelve months.
o Year 2000 Readiness Disclosures - Since many computers, related software
and certain devices with embedded microchips record only the last two
digits of a year, they may not have been able to recognize that January
1, 2000 (or subsequent dates) comes after December 31, 1999. This
situation could have caused erroneous calculations or system shutdowns,
causing problems that could have ranged from merely inconvenient to
significant.
As previously reported, the Company began a project to review all of its
computer systems in 1995. One factor, among many, to consider was what
impact, if any, would the Year 2000 have on computer systems. As a
result of this project, the Company implemented new fully integrated
on-line construction specific financial systems during the first quarter
of 1998 which are Year 2000 compliant. The cost of these new systems,
including the hardware, software and implementation costs, approximated
$1.5 million which was capitalized and is being amortized over ten years
on a straight-line basis.
During 1998, the Company designated a Year 2000 Project Manager who
organized a Year 2000 Team. The Year 2000 Team prepared a Year 2000
Readiness Plan which included the following phases: (1) potential
problem identification, (2) resource commitment, (3) inventory, (4)
assessment, (5) prioritization, (6) remediation and (7)
18
<PAGE>
testing. The Company completed the problem identification, resource
commitment and prioritization phases during 1998, the inventory phase
during the first quarter of 1999, and the "assessment", "testing", and
"remediation" phases as of September 30, 1999. As a result of completing
its Year 2000 Plan, as well as the actual commencement of the Year 2000
without any significant computer-related failures or errors experienced
or reported to date, the Company believes its internal financial and
operating systems are compliant. The Company estimates that costs
related to implementation of the Year 2000 Plan, over and above the cost
of the new financial systems referred to above, were approximately $0.4
million which were expensed as incurred.
The Company, as a general contractor, generally provides its
construction services in accordance with detailed contracts and
specifications provided by its clients. In addition to addressing its
own computer applications, facilities, and construction equipment, the
Plan included communication with critical third parties. The Company had
in place and continues to maintain a Year 2000 Urgent Response Team
defined and available to respond to any Year 2000 issues raised by
clients or others, in a timely, proactive and cost effective manner. To
date, no significant Year 2000 related issues have been experienced by
or reported to the Company.
Forward-looking Statements
The statements contained in this Management's Discussion and Analysis of the
Consolidated Financial Statements, including "Outlook", and other sections of
this Annual Report that are not purely historical are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, including statements regarding the
Company's expectations, hopes, beliefs, intentions or strategies regarding the
future. Forward-looking statements involve a number of risks, uncertainties or
other factors that may cause actual results or performance to be materially
different from those expressed or implied by such forward-looking statements.
These risks and uncertainties include, but are not limited to, the continuing
validity of the underlying assumptions and estimates of total forecasted project
revenues, costs and profits and project schedules; the outcomes of pending or
future litigation, arbitration or other dispute resolution proceedings; changes
in federal and state appropriations for infrastructure projects; possible
changes or developments in worldwide or domestic, social, economic, business,
industry, market and regulatory conditions or circumstances; and actions taken
or omitted by third parties including the Company's customers, suppliers,
business partners, and competitors and legislative, regulatory, judicial and
other governmental authorities and officials. In addition, forward-looking
statements regarding the year 2000 issue carry risk factors which include,
without limitation, the availability and cost of personnel trained in these
areas; the ability to locate and correct all relevant computer codes; changes in
consulting fees and costs to remediate or replace hardware and software; changes
in non-incremental costs resulting from redeployment of internal resources;
timely responses to and corrections by third parties such as significant
customers and suppliers; and similar uncertainties.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- -------- ---------------------------------------------------------
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's revolving credit debt (see Note 4 of Notes to
Consolidated Financial Statements) and short-term investment portfolio. As of
December 31, 1999, the Company had $68.0 million borrowed under its revolving
credit agreement and $54.8 million of short-term investments classified as cash
equivalents.
The Company borrows under its bank revolving credit facility for general
corporate purposes, including working capital requirements and capital
expenditures. Borrowings under the bank credit facility bear interest at the
applicable LIBOR or base rate, as defined, and therefore, the Company is subject
to fluctuations in interest rates. If the average effective 1999 borrowing rate
of 8.1% changed by 10% (or 0.81%) during the next twelve months, the impact,
based on the Company's ending 1999 revolving debt balance, would be an increase
or decrease in net income and cash flow of $550,800.
The Company's short-term investment portfolio consists primarily of highly
liquid instruments with maturities of less than one month.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
The Reports of Independent Public Accountants, Consolidated Financial
Statements, and Supplementary Schedules, are set forth on the pages that follow
in this Report and are hereby incorporated herein.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
- ------- ----------------------------------------------------
None.
20
<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 25, 2000 (the "Proxy Statement"), which section is incorporated
herein by reference. The Proxy Statement will be filed with the Securities and
Exchange Commission not later than 120 days after December 31, 1999 pursuant to
Regulation 14A of the Securities and Exchange Act of 1934, as amended.
Listed below are the names, offices held, ages and business experience of all
executive officers of the Company.
<TABLE>
Name, Offices Held and Age Year First Elected to Present Office and Business Experience
- -------------------------- ------------------------------------------------------------
<S> <C>
Ronald N. Tutor, Director and Since May 14, 1999 he serves as a Director and Chairman. Prior to that,
Chairman - 59 he served as a Director and Vice Chairman since January 1, 1998 and as a
Director and Acting Chief Operating Officer since January 17, 1997. He
is the Chairman, President and Chief Executive Officer of Tutor-Saliba
Corporation, a California based construction contractor, since prior to
1994 and has actively managed that company since 1966.
Robert Band, Director, President and He was elected a Director, President and Chief Executive Officer
Chief Executive Officer - 52 effective May 12, 1999. He has served as Chief Financial Officer since
December 1997. Prior to that, he served as President of Perini
Management Services, Inc. since January 1996 and as Senior Vice
President, Chief Operating Officer of Perini International Corporation
since April 1995. Previously, he served as Vice President Construction
from July 1993 and in various operating and financial capacities since
1973, including Treasurer from May 1988 to January 1990.
Zohrab B. Marashlian, President, Perini He was elected to his current position in December 1997, which entails
Civil Construction - 55 overall responsibility for the Company's civil construction operations.
Prior to that, he served as President of the Company's Metropolitan New
York Division since April 1995 and as Senior Vice President, Operations
of the Company's Metropolitan New York Division since January 1994.
Previously, he served in various project management capacities with the
Company since 1985, including Project Manager and Vice President - Area
Manager. Prior to that, he served in various capacities for the Company
on projects in New York and overseas since 1971.
Craig W. Shaw, President, Perini He was elected to his current position in October 1999, which entails
Building Company - 45 overall responsibility for the Company's building construction
operations. Prior to that he served as President, Perini Building
Company, Western U.S. Division since April 1995 and Senior Vice
President, Construction for Perini Building Company's Western U.S.
Division since January 1994 and as Vice President, Construction for
Perini Building Company's Western U.S. Division since 1986. Previously,
he served in various project management capacities with the Company since
1978, including Project Manager from 1979 to 1986.
</TABLE>
The Company's officers are elected on an annual basis at the Board of
Directors Meeting immediately following the Stockholders Meeting in May, to hold
such offices until the Board of Directors' Meeting following the next Annual
Meeting of Stockholders and until their respective successors have been duly
appointed or until their tenure has been terminated by the Board of Directors,
or otherwise.
21
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
In response to Items 11-13, reference is made to the information to be
set forth in the section entitled "Election of Directors" in the Proxy
Statement, which is incorporated herein by reference.
22
<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, 1999 and 1998* 25 - 26
Consolidated Statements of Operations for each of the three years ended December 31, 1999, 27
1998* and 1997*
Consolidated Statements of Stockholders' Equity (Deficit) for each of the three years 28
ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for each of the three years ended December 31, 1999, 29 - 30
1998* and 1997*
Notes to Consolidated Financial Statements 31 - 52
Report of Independent Public Accountants 53
* As restated to report the Company's real estate development business as a
discontinued
operation (see Notes 1 and 2 of Notes to Consolidated Financial Statements).
(a)2. The following financial statement schedules are filed as part of this report:
Pages
-----
Report of Independent Public Accountants on Schedules 54
Schedule II - Valuation and Qualifying Accounts and Reserves 55
All other schedules are omitted because of the absence of the conditions under which they are required or
because the required information is included in the Consolidated Financial Statements or in the Notes
thereto.
(a)3. Exhibits
The exhibits which are filed with this report or which are incorporated herein by reference are set forth
in the Exhibit Index which appears on pages 56 through 60. The Company will furnish a copy of any
exhibit not included herewith to any holder of the Company's Common and Preferred Stock upon request.
(b) During the quarter ended December 31, 1999, the Registrant made the following filings on
Form 8-K:
A Form 8-K was filed on October 15, 1999 and reported on "Perini Completes a Major
Step in Previously Announced Real Estate Wind Down Plan" under "Item 5. Other
Events" in said Form 8-K.
A Form 8-K was filed on November 30, 1999 and reported on "Perini Announces Letter
of Intent With Investor Group" under "Item 5. Other Events" in said Form 8-K.
</TABLE>
23
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, hereunto duly authorized.
Perini Corporation
(Registrant)
Dated: March 15, 2000 /s/Robert Band
----------------------
Robert Band
President and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
<TABLE>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
(i) Principal Executive Officer
Robert Band President and Chief Executive March 15, 2000
Officer
/s/Robert Band
- --------------------
Robert Band
(ii) Principal Financial Officer
Robert Band President and Chief Executive March 15, 2000
Officer
/s/Robert Band
- --------------------
Robert Band
(iii) Principal Accounting Officer
Michael E. Ciskey Vice President and March 15, 2000
Controller
/s/Michael E. Ciskey
- --------------------
Michael E. Ciskey
</TABLE>
(iv) Directors
Ronald N. Tutor )
Robert Band )
Richard J. Boushka )
Arthur I. Caplan )
Marshall M. Criser )/s/Robert Band
Frederick Doppelt )--------------------
Arthur J. Fox, Jr. )Attorney in Fact
Nancy Hawthorne )Dated: March 15, 2000
Michael R. Klein )
Douglas J. McCarron )
Jane E. Newman )
David B. Perini )
24
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
December 31, 1999 and 1998 (Restated)
(In thousands, except share data)
Assets
1999 1998
------------- ------------
<S> <C> <C>
CURENT ASSETS:
Cash, including cash equivalents of $54,759 and $38,175 (Note 1) $ 58,193 $ 46,507
Accounts and notes receivable, including retainage of $20,458 and $30,450 93,785 113,052
Unbilled work (Note 1) 14,283 19,585
Construction joint ventures (Notes 1 and 3) 82,493 67,100
Net current assets of discontinued operations (Note 2) 12,695 8,068
Deferred tax asset (Notes 1 and 5) - 1,076
Other current assets 647 2,469
------------- ------------
Total current assets $262,096 $257,857
------------- ------------
NET LONG-TERM ASSETS OF DISCONTINUED OPERATIONS (Note 2) $ - $104,017
------------- ------------
PROPERTY AND EQUIPMENT, at cost (Note 1):
Land $ 536 $ 536
Buildings and improvements 11,551 11,286
Construction equipment 8,185 7,600
Other equipment 6,983 6,814
------------- ------------
$ 27,255 $ 26,236
Less - Accumulated depreciation 17,438 16,378
------------- ------------
Total property and equipment, net $ 9,817 $ 9,858
------------- ------------
OTHER ASSETS:
Other investments $ 2,433 $ 2,469
Goodwill (Note 1) 1,142 1,265
------------- ------------
Total other assets $ 3,575 $ 3,734
------------- ------------
$275,488 $375,466
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity (Deficit)
1999 1998
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 4) $ 32,158 $ 2,036
Accounts payable, including retainage of $24,501 and $31,859 83,578 127,349
Advances from construction joint ventures (Note 3) 14,104 17,300
Deferred contract revenue (Note 1) 45,088 14,350
Accrued expenses 38,738 39,157
------------- -------------
Total current liabilities $213,666 $200,192
------------- -------------
DEFERRED INCOME TAXES AND OTHER LIABILITIES (Notes 1, 5 & 6) $ 19,664 $ 15,319
------------- -------------
LONG-TERM DEBT, less current maturities included above (Note 4) $ 41,091 $ 75,857
------------- -------------
CONTINGENCIES AND COMMITMENTS (Note 11)
REDEEMABLE SERIES B CUMULATIVE CONVERTIBLE PREFERRED
STOCK (Note 7):
Authorized - 500,000 shares
Issued and outstanding - 200,184 shares and 181,357 shares
(aggregate liquidation preferences of $40,037 and $36,271) $ 37,685 $ 33,540
------------- -------------
STOCKHOLDERS' EQUITY (DEFICIT) (Notes 1, 4, 7, 8, 9, 10 and 15):
Preferred Stock, $1 par value -
Authorized - 500,000 shares
Designated, issued and outstanding - 99,990 shares of $21.25 Convertible
Exchangeable Preferred Stock ($24,998 aggregate liquidation preference) $ 100 $ 100
Series A junior participating Preferred Stock, $1 par value -
Designated - 200,000
Issued - none - -
Stock Purchase Warrants 2,233 2,233
Common Stock, $1 par value -
Authorized - 15,000,000 shares
Issued - 5,742,816 shares and 5,506,341 shares 5,743 5,506
Paid-in surplus 43,561 49,219
Retained earnings (deficit) (87,290) (3,642)
ESOT related obligations - (1,381)
------------- -------------
$(35,653) $ 52,035
Less - Common Stock in treasury, at cost - 60,529 shares and 92,694 shares 965 1,477
------------- -------------
Total stockholders' equity (deficit) $(36,618) $ 50,558
------------- -------------
$275,488 $375,466
============= =============
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Operations
For the Years Ended December 31, 1999, 1998 (Restated) & 1997 (Restated)
(In thousands, except per share data)
1999 1998 1997
------------ ------------- ------------
<S> <C> <C> <C>
CONTINUING OPERATIONS:
Revenues (Notes 3 and 13) $ 1,019,484 $ 1,011,322 $ 1,276,033
------------ ------------- ------------
Cost and Expenses (Notes 3 and 10):
Cost of Operations $ 969,015 $ 957,651 $ 1,225,814
General, Administrative and Selling Expenses 26,635 27,397 29,715
------------ ------------- ------------
$ 995,650 $ 985,048 $ 1,255,529
------------ ------------- ------------
INCOME FROM OPERATIONS (Note 13) $ 23,834 $ 26,274 $ 20,504
Other (Income) Expense, Net (Note 6) (72) 652 1,695
Interest Expense (Note 4) 7,128 8,473 9,910
------------ ------------- ------------
Income from Continuing Operations before Income Taxes $ 16,778 $ 17,149 $ 8,899
Provision for Income Taxes (Notes 1 and 5) 421 1,100 950
------------ ------------- ------------
INCOME FROM CONTINUING OPERATIONS $ 16,357 $ 16,049 $ 7,949
DISCONTINUED OPERATIONS (Notes 2 and 5):
Loss from Operations $ (694) $ (4,397) $ (2,577)
Estimated Loss on Disposal of Real Estate Business Segment (99,311) - -
------------ ------------- ------------
LOSS FROM DISCONTINUED OPERATIONS $ (100,005) $ (4,397) $ (2,577)
------------ ------------- ------------
NET INCOME (LOSS) $ (83,648) $ 11,652 $ 5,372
============ ============= ============
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE (Note 1):
Income from Continuing Operations $ 1.80 $ 1.91 $ .52
Loss from Discontinued Operations (.12) (.83) (.51)
Estimated Loss on Disposal (17.72) - -
------------ ------------- ------------
Total $ (16.04) $ 1.08 $ .01
============ ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity (Deficit)
For the Years Ended December 31, 1999, 1998 & 1997
(In thousands, except per share data)
Stock Retained ESOT
Preferred Purchase Common Paid-In Earnings Related Treasury
Stock Warrants Stock Surplus (Deficit) Obligations Stock Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1996 $ 100 $ - $ 5,032 $57,080 $(20,666) $ (3,856) $ (2,132) $ 35,558
- ----------------------------------------------------------------------------------------------------------------------------
Net Income - - - - 5,372 - - 5,372
Value of Stock Purchase
Warrants issued (Note 4) - 2,233 - - - - - 2,233
Preferred Stock dividends accrued
($21.25 per share*) - - - (2,125) - - - (2,125)
Series B Preferred Stock dividends
in kind issued (Note 7) - - - (2,830) - - - (2,830)
Accretion related to Series B
Preferred Stock (Note 7) - - - (368) - - - (368)
Common Stock issued in partial
payment of incentive compensation - - 235 1,466 - - - 1,701
Payment of director fees - - - (211) - - 377 166
Payments related to ESOT notes - - - - - 1,193 - 1,193
- ----------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1997 $ 100 $ 2,233 $ 5,267 $53,012 $(15,294) $ (2,663) $ (1,755) $ 40,900
- ----------------------------------------------------------------------------------------------------------------------------
Net Income - - - - 11,652 - - 11,652
Preferred Stock dividends accrued
($21,25 per share*) - - - (2,125) - - - (2,125)
Series B Preferred Stock dividends
in kind issued (Note 7) - - - (3,411) - - - (3,411)
Accretion related to Series B
Preferred Stock (Note 7) - - - (373) - - - (373)
Common Stock issued in partial
payment of incentive compensation - - 239 2,243 - - - 2,482
Payment of director fees - - - (127) - - 278 151
Payments related to ESOT notes - - - - - 1,282 - 1,282
- ----------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1998 $ 100 $ 2,233 $ 5,506 $ 49,219 $ (3,642) $ (1,381) $ (1,477) $ 50,558
- ----------------------------------------------------------------------------------------------------------------------------
Net Loss - - - - (83,648) - - (83,648)
Preferred Stock dividends accrued
($21.25 per share*) - - - (2,125) - - - (2,125)
Series B Preferred Stock dividends
in kind issued (Note 7) - - - (3,765) - - - (3,765)
Accretion related to Series B
Preferred Stock (Note 7) - - - (379) - - - (379)
Common Stock issued in partial
payment of incentive compensation - - 237 960 - - - 1,197
Payment of director fees - - - (349) - - 512 163
Payments related to ESOT notes - - - - - 1,381 - 1,381
- ----------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1999 $ 100 $ 2,233 $ 5,743 $ 43,561 $(87,290) $ - $ (965) $ (36,618)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Equivalent to $2.125 per Depositary Share (see Note 8).
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 (Restated) & 1997 (Restated)
(In thousands)
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (83,648) $ 11,652 $ 5,372
Adjustments to reconcile net income (loss) to net cash from operating
activities -
Loss from discontinued operations 100,005 4,397 2,577
Depreciation 1,585 1,463 1,709
Amortization of deferred debt expense, Stock Purchase Warrants and other 1,757 1,596 2,011
(Gain) loss on sale of investment (1,406) 118 68
Distributions greater (less) than earnings of joint ventures and (1,571) 1,367 (2,404)
affiliates
Cash provided from (used by) changes in components of working capital
other than cash, notes payable, and current maturities of long-term
debt:
(Increase) decrease in accounts receivable 19,267 25,345 48,338
(Increase) decrease in unbilled work 5,302 16,989 (974)
(Increase) decrease in construction joint ventures (307) (1,509) 820
(Increase) decrease in deferred tax asset 1,076 (9) 2,446
(Increase) decrease in other current assets 1,822 354 23
Increase (decrease) in accounts payable (43,771) (17,585) (38,109)
Increase (decrease) in advances from construction joint ventures (3,196) (12,501) (17,743)
Increase (decrease) in deferred contract revenue 30,738 (2,767) (6,724)
Increase (decrease) in accrued expenses (1,244) 12,190 (688)
Non-current deferred taxes and other liabilities 1,033 (13,169) (4,540)
Other non-cash items, net 363 (153) 177
------------ ------------ ------------
NET CASH PROVIDED FROM (USED BY) OPERATING ACTIVITIES $ 27,805 $ 27,778 $ (7,641)
------------ ------------ ------------
Cash Flows from Investing Activities:
Proceeds from sale of property and equipment $ 585 $ 608 $ 383
Cash distributions of capital from unconsolidated joint ventures 1,475 5,625 14,747
Acquisition of property and equipment (1,599) (1,418) (1,696)
Capital contributions to unconsolidated joint ventures (14,990) (1,527) (5,986)
Investment in discontinued operations (615) (5,288) 4,866
Proceeds from sale of investment 4,000 200 -
Investment in other activities (2,328) (390) (468)
------------ ------------ ------------
NET CASH PROVIDED FROM (USED BY) INVESTING ACTIVITIES $ (13,472) $ (2,190) $ 11,846
------------ ------------ ------------
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows (Continued)
For the Years Ended December 31, 1999, 1998 (Restated) & 1997 (Restated)
(In thousands)
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Financing Activities:
Proceeds from issuance of Redeemable Series B Preferred Stock, net $ - $ - $ 26,558
Proceeds from long-term debt 656 113 5,035
Repayment of long-term debt (4,663) (13,132) (16,105)
Common stock issued 1,197 2,482 1,701
Treasury stock issued 163 151 166
------------ ------------ ------------
NET CASH PROVIDED FROM (USED BY) FINANCING ACTIVITIES $ (2,647) $ (10,386) $ 17,355
------------ ------------ ------------
Net Increase in Cash $ 11,686 $ 15,202 $ 21,560
Cash and Cash Equivalents at Beginning of Year 46,507 31,305 9,745
------------ ------------ ------------
Cash and Cash Equivalents at End of Year $ 58,193 $ 46,507 $ 31,305
============ ============ ============
Supplemental Disclosures of Cash Paid During the Year For:
Interest $ 7,369 $ 8,137 $ 10,133
============ ============ ============
Income tax payments $ 101 $ 160 $ 330
============ ============ ============
Supplemental Disclosure of Noncash Transactions:
Dividends paid in shares of Series B Preferred Stock (Note 7) $ 3,765 $ 3,411 $ 2,830
============ ============ ============
Value assigned to Stock Purchase Warrants (Note 4) $ - $ - $ 2,233
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 & 1997
[1] Summary of Significant Accounting Policies
[a] Principles of Consolidation
The consolidated financial statements include the accounts of Perini
Corporation, its subsidiaries and certain majority-owned real estate joint
ventures (the "Company"). All subsidiaries are currently wholly-owned. All
significant intercompany transactions and balances have been eliminated in
consolidation. Non-consolidated joint venture interests are accounted for on the
equity method with the Company's share of revenues and costs in these interests
included in "Revenues" and "Cost of Operations," respectively, in the
accompanying consolidated statements of operations. All significant intercompany
profits between the Company and its joint ventures have been eliminated in
consolidation. Taxes are provided on joint venture results in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes".
[b] Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. The
most significant estimates with regard to these financial statements relate to
the estimating of final construction contract profits in accordance with
accounting for long-term contracts (see Note 1(c) below), estimating future cash
flows from real estate dispositions (see Note 1(d) below and Note 2) and
estimating potential liabilities in conjunction with certain contingencies and
commitments, as discussed in Note 11 below. Actual results could differ from
these estimates.
[c] Method of Accounting for Contracts
Profits from construction contracts and construction joint ventures are
generally recognized by applying percentages of completion for each year to the
total estimated profits for the respective contracts. The percentages of
completion are determined by relating the actual cost of the work performed to
date to the current estimated total cost of the respective contracts. When the
estimate on a contract indicates a loss, the Company's policy is to record the
entire loss. The cumulative effect of revisions in estimates of total cost or
revenue during the course of the work is reflected in the accounting period in
which the facts that caused the revision become known. An amount equal to the
costs attributable to unapproved change orders and claims is included in the
total estimated revenue when realization is probable. Profit from unapproved
change orders and claims is recorded in the year such amounts are resolved.
In accordance with normal practice in the construction industry, the Company
includes in current assets and current liabilities amounts related to
construction contracts realizable and payable over a period in excess of one
year. Unbilled work represents the excess of contract costs and profits
recognized to date on the percentage of completion accounting method over
billings to date on certain contracts. Deferred contract revenue represents the
excess of billings to date over the amount of contract costs and profits
recognized to date on the percentage of completion accounting method on the
remaining contracts.
[d] Methods of Accounting for Real Estate Operations
Effective June 30, 1999, the Company adopted a plan to withdraw completely from
its real estate development business segment, which is presented as a
discontinued operation in accordance with Accounting Principles Board ("APB")
Opinion No. 30, Reporting the Results of Operations (see Note 2). Accordingly,
the historical amounts for 1998 and 1997 have been restated to conform to the
requirements of APB No. 30.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 & 1997 (continued)
[1] Summary of Significant Accounting Policies (continued)
[d] Methods of Accounting for Real Estate Operations (continued)
Real estate investments are stated at the lower of the carrying amounts, which
includes applicable interest and real estate taxes during the development and
construction phases, or fair value less cost to sell in accordance with SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of ". SFAS No. 121 requires that assets to be held and
used be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. An
impairment has occurred when the carrying amount of the assets exceeds the
related undiscounted future cash flows of a development. SFAS No. 121 also
provides that when management has committed to a plan to dispose of specific
real estate assets, the assets should be reported at the lower of the carrying
amount or fair value less cost to sell. Estimating future cash flows of a
development involves estimating the current sales value of the development less
the estimated costs of completion (to the stage of completion assumed in
determining the selling price), holding and disposal. Estimated sales values are
forecast based on comparable local sales (where applicable), trends as foreseen
by knowledgeable local commercial real estate brokers or others active in the
business and/or project specific experience such as offers made directly to the
Company relating to the property. If the estimated undiscounted future cash
flows of a development are less than the carrying amount of a development, SFAS
No. 121 requires a provision to be made to reduce the carrying amount of the
development to fair value less cost to sell.
[e] Depreciable Property and Equipment
Land, buildings and improvements, construction and computer-related equipment
and other equipment are recorded at cost. Depreciation is provided primarily
using accelerated methods for construction and computer-related equipment and
the straight-line method for the remaining depreciable property.
[f] Goodwill
Goodwill represents the excess of the costs of subsidiaries acquired over the
fair value of their net assets as of the dates of acquisition. These amounts are
being amortized on a straight-line basis over 40 years.
[g] Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," (see Note 5). Deferred income tax assets and
liabilities are recognized for the effects of temporary differences between the
financial statement carrying amounts and the income tax basis of assets and
liabilities using enacted tax rates. In addition, future tax benefits, such as
net operating loss carryforwards, are recognized currently to the extent such
benefits are more likely than not to be realized as an economic benefit in the
form of a reduction of income taxes in future years.
[h] Earnings (Loss) Per Common Share
Earnings (loss) per common share amounts were calculated in accordance with SFAS
No. 128, "Earnings Per Share". Basic earnings (loss) per common share ("EPS")
was computed by dividing net income (loss) less dividends and other requirements
related to Preferred Stock by the weighted average number of common shares
outstanding. Diluted earnings (loss) per common share was computed by giving
effect to all dilutive potential common shares outstanding. The weighted average
shares used in the diluted earnings (loss) per common share computations were
essentially the same as those used in the basic earnings (loss) per common share
computations (see below). Basic EPS equals diluted EPS for all periods presented
due to the immaterial effect of stock options and the antidilutive effect of
conversion of the Company's Depositary Convertible Exchangeable Preferred
Shares, Series B Preferred Shares and Stock Purchase Warrants.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 & 1997 (continued)
[1] Summary of Significant Accounting Policies (continued)
[h] Earnings (Loss) Per Common Share (continued)
Basic and diluted earnings (loss) per common share for the three years ended
December 31, 1999 are calculated as follows (in thousands except per share
amounts):
<TABLE>
1999 1998 1997
------------ -------------- ------------
<S> <C> <C> <C>
Income from continuing operations $ 16,357 $ 16,049 $ 7,949
------------ -------------- ------------
Less:
Accrued dividends on $21.25 Senior Preferred Stock (Note 8) $ (2,125) $ (2,125) $ (2,125)
Dividends declared on Series B Preferred Stock (Note 7) (3,765) (3,411) (2,830)
Accretion deduction required to reinstate mandatory
redemption value of Series B Preferred Stock over a period of
8-10 years (Note 7) (379) (373) (368)
------------ -------------- ------------
$ (6,269) $ (5,909) $ (5,323)
------------ -------------- ------------
Earnings from continuing operations $ 10,088 $ 10,140 $ 2,626
Loss from discontinued operations (100,005) (4,397) (2,577)
------------ -------------- ------------
Total available for common stockholders $(89,917) $ 5,743 $ 49
============ ============== ============
Weighted average shares outstanding 5,606 5,318 5,059
------------ -------------- ------------
Basic and diluted earnings (loss) per Common Share from -
Continuing operations $ 1.80 $ 1.91 $ .52
Discontinued operations (17.84) (.83) (.51)
------------ -------------- ------------
Total $ (16.04) $ 1.08 $ .01
============ ============== ============
</TABLE>
[i] Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with original
maturities of three months or less.
[j] Reclassifications
Certain prior year amounts have been reclassified to be consistent with the
current year classifications, including reclassifications of prior year
financial statements and footnotes to reflect the discontinued operations
referred to in Note 2.
[k] Impact of Recently Issued Accounting Standards
During 1998, SFAS No. 133, "Accounting for Derivative Financial Instruments and
Hedging Activities" was issued. The Company will implement the provisions of the
Statement (as amended by SFAS No. 137) in the quarter ending March 31, 2001. The
Statement establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 & 1997 (continued)
[1] Summary of Significant Accounting Policies (continued)
[k] Impact of Recently Issued Accounting Standards (continued)
either an asset or liability measured at its fair value. The Statement requires
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement and requires that the Company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. The Company does not currently hold any
significant derivative instruments or engage in significant hedging activities
and, therefore, the impact of adopting Statement No. 133 is expected to be
immaterial.
[2] Discontinued Operations
Effective June 30, 1999, management adopted a plan to withdraw completely from
the real estate development business and to wind down the operations of Perini
Land and Development Company ("PL&D"), the Company's wholly-owned real estate
development subsidiary. Therefore, both historical and current real estate
results have been presented as a discontinued operation in accordance with
generally accepted accounting principles. Based on the plan, the 1999 results
include a $99,311,000 non-cash provision which represents the estimated loss on
disposal of this business segment. This non-cash charge reflects the impact of
the disposition of the Rincon Center property located in San Francisco and the
reduction in projected future cash flow from the disposition of PL&D's remaining
real estate development operations resulting from the change in strategy of
holding the properties through the necessary development and stabilization
periods to a new strategy of generating short-term liquidity through an
accelerated disposition or bulk sale. The estimated loss on disposal of the real
estate business segment also includes a provision for shut down costs related to
PL&D during the wind down period. No Federal tax benefit was attributable to
Losses from Discontinued Operations due to certain accounting limitations.
Several of the remaining real estate properties now being offered for sale are
currently under or are pending purchase and sale agreements. Real estate
revenues were $18,073,000 in 1999, $24,578,000 in 1998, and $48,458,000 in 1997.
Net current and long-term assets of discontinued operations at December 31, 1999
and 1998 consisted of the following (in thousands):
<TABLE>
1999 1998
-------------- ---------------
<S> <C> <C>
Current assets $ 14,566 $ 9,735
Current liabilities (413) (1,667)
Minority interest (1,458) -
-------------- ---------------
Net current assets of discontinued operations $ 12,695 $ 8,068
============== ===============
Real estate development investment $ - $ 105,475
Minority interest - (1,458)
-------------- ---------------
Net long-term assets of discontinued operations $ - $ 104,017
============== ===============
</TABLE>
During the six month period ended December 31, 1999, PL&D concluded the sale of
two properties. The net proceeds of $14.6 million realized from the sale of
these two properties was equal to the net proceeds originally anticipated in
calculating the estimated loss on disposal of the real estate business segment
at June 30, 1999. The actual loss from the sale of these two properties was
approximately equal to the loss originally anticipated in calculating the
estimated loss on disposal of the real estate business segment at June 30, 1999.
In addition, the Company completed a major step in its plan to discontinue its
real estate development operations by concluding the disposition of the Rincon
Center property. The Company and PL&D, the managing partner of Rincon Center
Associates ("RCA"), entered into a full and final non-cash settlement regarding
its interest in Rincon Center. As part of the settlement and in exchange for the
transfer of its
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 & 1997 (continued)
[2] Discontinued Operations (continued)
ownership interest in the RCA property, the Company exchanged mutual releases
with the other RCA general partner, the RCA-related lenders and all other
entities formally associated with the RCA property from any claims, lawsuits or
other liabilities they may have with respect to each other in connection with
the Rincon Center property. The loss realized upon disposition of this property
approximated the estimated loss originally calculated at June 30, 1999.
[3] Joint Ventures
The Company, in the normal conduct of its business, has entered into partnership
arrangements, referred to as "joint ventures," for certain construction and real
estate development projects. Each of the joint venture participants is usually
committed to supply a predetermined percentage of capital, as required, and to
share in a predetermined percentage of the income or loss of the project.
Summary financial information (in thousands) for construction and real estate
joint ventures accounted for on the equity method for the three years ended
December 31, 1999 follows:
<TABLE>
<CAPTION>
Construction Joint Ventures
Financial position at December 31, 1999 1998 1997
--------------- --------------- --------------
<S> <C> <C> <C>
Current assets $ 509,859 $ 398,061 $ 403,058
Property and equipment, net 7,800 7,358 11,482
Current liabilities (349,328) (285,197) (292,184)
--------------- --------------- --------------
Net assets $ 168,331 $ 120,222 $ 122,356
=============== =============== ==============
Equity $ 82,493 $ 67,100 $ 71,056
=============== =============== ==============
Operations for the year ended December 31, 1999 1998 1997
--------------- --------------- --------------
Revenue $1,131,350 $ 891,026 $1,030,347
Cost of operations 1,075,460 844,688 974,571
--------------- --------------- --------------
Pretax income $ 55,890 $ 46,338 $ 55,776
=============== =============== ==============
Company's share of joint ventures
Revenue $ 400,670 $ 368,733 $ 555,363
Cost of operations 375,591 343,753 518,576
--------------- --------------- --------------
Pretax income $ 25,079 $ 24,980 $ 36,787
=============== =============== ==============
</TABLE>
The Company has a centralized cash management arrangement with two construction
joint ventures in which it is the sponsor. Under this arrangement, excess cash
is controlled by the Company; cash is made available to meet the individual
joint venture requirements, as needed; and interest income is credited to the
ventures at competitive market rates. In addition, certain joint ventures
sponsored by other contractors, in which the Company participates, distribute
cash at the end of each quarter to the participants who will then return these
funds at the beginning of the next quarter. Of the total cash advanced at the
end of 1999 ($14.1 million) and 1998 ($17.3 million), approximately $12.4
million in 1999 and $13.2 million in 1998 was deemed to be temporary.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 & 1997 (continued)
[3] Joint Ventures (continued)
<TABLE>
<CAPTION>
Real Estate Joint Ventures
Financial position at December 31, 1999 1998 1997
---------------- --------------- --------------
<S> <C> <C> <C>
Property held for sale or development $ 8,398 $ 11,128 $ 11,544
Investment properties, net - 122,474 125,234
Other assets 56 22,902 20,645
Long-term debt - (57,572) (61,712)
Other liabilities* (8,866) (243,228) (222,131)
---------------- --------------- --------------
Net assets (liabilities) $ (412) $ (144,296) $ (126,420)
================ =============== ==============
Equity ** $ 773 $ (67,088) $ (58,434)
Advances 6,957 158,668 146,332
---------------- --------------- --------------
Total Equity and Advances $ 7,730 $ 91,580 $ 87,898
================ =============== ==============
Total Equity and Advances, Long-term*** $ - $ 89,499 $ 86,598
Total Equity and Advances, Short-term*** 7,730 2,081 1,300
---------------- --------------- --------------
$ 7,730 $ 91,580 $ 87,898
================ =============== ==============
Operations for the year ended December 31, 1999 1998 1997
---------------- --------------- --------------
Revenue $ 31,513 $ 20,897 $ 24,486
---------------- --------------- --------------
Cost of operations -
Depreciation $ 2,286 $ 3,071 $ 3,662
Other 97,338 37,672 63,225
---------------- --------------- --------------
$ 99,624 $ 40,743 $ 66,887
---------------- --------------- --------------
Pretax income (loss) $ (68,111) $ (19,846) $ (42,401)
================ =============== ==============
Company's share of joint ventures
Revenue $ 15,111 $ 9,567 $ 13,252
---------------- --------------- --------------
Cost of operations -
Depreciation $ 1,056 $ 1,420 $ 1,709
Other**** 44,057 10,423 12,132
---------------- --------------- --------------
$ 45,113 $ 11,843 $ 13,841
---------------- --------------- --------------
Pretax income (loss)***** $ (30,002) $ (2,276) $ (589)
================ =============== ==============
</TABLE>
* Included in "Other liabilities" are advances from joint venture partners
in the amount of $8.8 million in 1999, $226.5 million in 1998 and $208.9
million in 1997. Of the total advances from joint venture partners, $7.0
million in 1999, $158.7 million in 1998 and $146.3 million in 1997
represented advances from the Company.
** When the Company's equity in a real estate joint venture is combined
with advances by the Company to that joint venture, each joint venture
has a positive investment balance at December 31, 1999.
*** Included in net current or long-term assets of discontinued operations,
as indicated.
**** Other costs are reduced by the amount of interest income recorded by the
Company on its advances to the respective joint ventures.
***** Included in loss from discontinued operations.
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 & 1997 (continued)
[4] Long-term Debt
Long-term debt of the Company at December 31, 1999 and 1998 consists of the
following (in thousands):
<TABLE>
1999 1998
-------------- -------------
<S> <C> <C>
Revolving credit loans at an average rate of 8.1% in 1999 and 8.0 % in 1998 $68,000 $72,000
Less - unamortized deferred value attributable to the Stock Purchase Warrants
(see below) - (744)
-------------- -------------
$68,000 $71,256
Industrial revenue bonds at various rates - 4,000
ESOT Notes at 8.24%, payable in semi-annual installments (Note 8) - 1,260
Mortgages on real estate 4,005 446
Other indebtedness 1,244 931
-------------- --- -------------
Total $73,249 $77,893
Less - current maturities 32,158 2,036
-------------- -------------
Net long-term debt $41,091 $75,857
============== =============
</TABLE>
Payments required under these obligations amount to approximately $32,158 in
2000, $41,077 in 2001 and $14 in 2002.
Effective January 17, 1997, and amended at various dates through January 2000,
the Company is party to an Amended and Restated Credit Agreement with a group of
major U.S. banks. This Credit Agreement with original commitments totaling
$129.5 million has been reduced to commitments of $73.0 million as of December
31, 1999 as a result of scheduled amortization payments and proceeds from sales
of real estate. The expiration of the Credit Agreement is January 2, 2001.
The Credit Agreement provides that the Company can choose from three interest
rate alternatives including a prime-based rate, as well as other interest rate
options based on LIBOR (London Inter-Bank Offered Rate) or participating bank
certificate of deposit rates.
The Agreement provides for, among other things, maintaining specified working
capital and tangible net worth levels, minimum operating cash flow levels, as
defined, limitations on indebtedness and certain limitations on investment in
real estate development projects and future cash dividends. The Agreement also
provides that collateral shall consist of all available assets not included as
collateral in other agreements and for the continuation of the suspension of
payment of the 53 1/8 cent per share quarterly dividend on the Company's
Depositary Convertible Exchangeable Preferred Shares (see Note 8) until certain
financial criteria are met.
In addition to a fee, the Bank Group received Stock Purchase Warrants as partial
compensation for the credit facility enabling the participating banks to
purchase up to 420,000 shares of the Company's Common Stock, $1.00 par value, at
$8.30 per share, the average fair market value of the stock for the five
business days prior to the January 17, 1997 closing, at any time during the ten
year period ended January 17, 2007. The grant date present value of the Stock
Purchase Warrants ($2,233,000) was calculated using the Black-Scholes option
pricing model and was accounted for by an increase in Stockholders' Equity, with
the offset being a valuation account netted against the related Revolving Credit
Loans. The valuation account was amortized over the approximate three-year term
of the Credit Agreement on the straight-line method, with the offsetting charge
being to Other Income (Expense), Net. The balance was fully amortized at
December 31, 1999.
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 & 1997 (continued)
[4] Long-term Debt (continued)
Subsequent to December 31, 1999, the Company has reached an agreement in
principle with its Bank Group to extend and restructure the Revolving Credit
Agreement into a revolving credit facility and a $35 million term loan ("New
Credit Agreement"). Amortization of the term loan will total $15 million in
2000, and $10 million annually in 2001 and 2002. The revolving credit facility
may be as high as $35 million at closing but must be reduced to $21 million by
April 20, 2000. The revolving credit facility will be reduced by the net
proceeds from certain real estate sales, with the remaining balance due January
21, 2003. Up to $12 million of the unborrowed revolving commitment will be
available for letters of credit. The New Credit Agreement otherwise has
generally similar terms to that of the existing facility. The New Credit
Agreement will close simultaneously with the new equity transaction (see Note
15). Amortization under the current Credit Agreement has been amended to conform
to that of the New Credit Agreement.
[5] Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109. This
standard determines deferred income taxes based on the estimated future tax
effects of differences between the financial statement and tax bases of assets
and liabilities, given the provisions of enacted tax laws.
Total income tax expense for the three years ended December 31, was allocated as
follows (in thousands):
1999 1998 1997
----------- ------------- -----------
Continuing Operations $ (421) $ (1,100) $ (950)
Discontinued Operations - - -
----------- ------------- -----------
Total Tax Expense $ (421) $ (1,100) $ (950)
=========== ============= ===========
The (provision) credit for income taxes expense attributable to income from
continuing operations is comprised of the following (in thousands):
Federal State Foreign Total
---------- ---------- ---------- ----------
1999
Current $ - $ (590) $ 169 $ (421)
Deferred - - - -
---------- ---------- ---------- ----------
$ - $ (590) $ 169 $ (421)
========== ========== ========== = ==========
1998
Current $ - $ (480) $ (620) $ (1,100)
Deferred - - - -
---------- ---------- ---------- ----------
$ - $ (480) $ (620) $ (1,100)
========== ========== ========== ==========
1997
Current $ - $ (569) $ (381) $ (950)
Deferred - - - -
---------- ---------- ---------- ----------
$ - $ (569) $ (381) $ (950)
========== ========== ========== ==========
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 & 1997 (continued)
[5] Income Taxes (continued)
The table below reconciles the difference between the statutory federal income
tax rate and the effective rate provided for income from continuing operations
in the statements of operations.
1999 1998 1997
-------- -------- -------
Statutory federal income tax rate 34% 34% 34%
State income taxes, net of federal tax benefit 2 2 6
Foreign taxes (1) 5 6
Change in valuation allowance (33) (33) (33)
Goodwill and other 1 1 2
-------- -------- -------
Effective tax rate 3% 9% 15%
======== ======== =======
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of December 31, 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
----------------------------- ------------------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Provision for estimated losses $ 9,859 $ - $ 9,562 $ -
Contract losses 3,079 - 119 -
Joint ventures - construction - 10,628 - 9,271
Joint ventures - real estate - 662 - 8,770
Timing of expense recognition 1,020 - 468 -
Capitalized carrying charges - 1,491 - 1,587
Net operating loss and capital loss carryforwards 45,821 - 27,994 -
Alternative minimum tax credit carryforwards 2,442 - 2,442 -
General business tax credit carryforwards 3,532 - 3,532 -
Foreign tax credit carryforwards - - 26 -
Other, net 892 - 1,025 -
----------- ------------ -------------- ------------
$66,645 $ 12,781 $ 45,168 $ 19,628
Valuation allowance for deferred tax assets (53,864) - (25,540) -
------------- ------------ -------------- ------------
Total $12,781 $ 12,781 $ 19,628 $ 19,628
============= ============ ============== ============
</TABLE>
The overall increase in the valuation allowance for deferred tax assets is
attributable to the excess of loss from discontinued operations versus income
from continuing operations.
The net of the above is deferred taxes in the amount of $ -0- in 1999 and 1998,
which is classified in the respective Consolidated Balance Sheets as follows:
<TABLE>
1999 1998
-------------- -----------
<S> <C> <C>
Long-term deferred tax liabilities (included in "Deferred Income Taxes and Other
Liabilities") $ - $ 1,076
Short-term deferred tax asset - 1,076
-------------- -----------
$ - $ -
============== ===========
</TABLE>
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 & 1997 (continued)
[5] Income Taxes (continued)
A valuation allowance is provided to reduce the deferred tax assets to a level
which, more likely than not, will be realized. The ultimate realization of
deferred tax assets is dependent on the generation of future taxable income
during the periods in which those temporary differences become deductible. The
net deferred tax assets reflect management's estimate of the amount which will
be realized from future taxable income which can be predicted with reasonable
certainty.
As a result of not providing any federal income tax benefit in 1996 and only a
partial benefit in 1995, earnings benefited in 1998 and 1997 by approximately
$4.3 million and $2.1 million, respectively, by not having to provide for any
federal income tax. Approximately $142 million of future pretax earnings could
benefit from minimal, if any, federal tax provisions.
At December 31, 1999, the Company has unused tax credits and net operating loss
carryforwards for income tax reporting purposes which expire as follows (in
thousands):
Unused Capital Net Operating
Investment Loss Loss
Tax Credits Carryforward Carryforwards
------------- --------------- ----------------
2001 - 2006 $ 3,532 $ 4,049 $ 1,404
2007 - 2019 -- -- 129,315
------------- --------------- ----------------
$ 3,532 $ 4,049 $ 130,719
============= =============== ================
Net operating loss carryforwards and unused tax credits may be limited in the
event of certain changes in ownership interests of significant stockholders. As
explained in Note 15, the additional equity generated from the new equity
transaction is not expected to give rise to such a limitation. In addition,
approximately $1.4 million of the net operating loss carryforwards can only be
used against the taxable income of the corporation in which the loss was
recorded for tax and financial reporting purposes.
[6] Deferred Income Taxes and Other Liabilities and Other (Income) Expense, Net
Deferred Income Taxes and Other Liabilities
Deferred income taxes and other liabilities at December 31, 1999 and 1998
consist of the following (in thousands):
1999 1998
-------------- ---------------
Deferred income taxes $ - $ 1,076
Insurance related liabilities 7,062 5,625
Employee benefit related liabilities 2,375 1,400
Accrued dividends on $21.25
Preferred Stock (Note 8) 9,030 6,906
Other 1,197 312
-------------- ---------------
$ 19,664 $ 15,319
============== ===============
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 & 1997 (continued)
[6] Deferred Income Taxes and Other Liabilities and Other (Income) Expense,
Net (continued)
Other (Income) Expense, Net
Other (income) expense items for the three years ended December 31, 1999 consist
of the following (in thousands):
1999 1998 1997
---------- ---------- -----------
Interest and dividend income $ (1,432) $ (1,140) $ (1,022)
Bank fees 2,585 1,833 2,172
(Gain) loss on sale of investments (1,406) 118 68
Miscellaneous (income) expense, net 181 (159) 477
---------- ---------- -----------
$ (72) $ 652 $ 1,695
========== ========== ===========
[7] Redeemable Series B Cumulative Convertible Preferred Stock
At a special stockholders' meeting on January 17, 1997, the Company's
stockholders approved two proposals that allowed the Company to close a new
equity transaction with a private investor group led by Richard C. Blum &
Associates, L.P. The transaction included, among other things, classification by
the Board of Directors of 500,000 shares of Preferred Stock of the Company as
Redeemable Series B Cumulative Convertible Preferred Stock, par value $1.00 per
share, (the "Series B Preferred Stock"), issuance of 150,150 shares of Series B
Preferred Stock at $200 per share (or $30 million) to the investor group, (with
the remainder of the shares set aside for possible future payment-in-kind
dividends to the holders of the Series B Preferred Stock), amendments to the
Company's By-Laws that redefined the Executive Committee and added certain
powers (generally financial in nature), including the power to give overall
direction to the Company's Chief Executive Officer, appointment of three new
members, recommended by the investor group, to the Board of Directors, and
appointment of these same new directors to constitute a majority of the
Executive Committee referred to above. Tutor-Saliba Corporation, a corporation
controlled by the Chairman of the Board of Directors of the Company, who is also
a member of the Executive Committee, is a participant in certain construction
joint ventures with the Company (see Note 14 "Related Party Transactions").
Dividends on the Series B Preferred Stock are generally payable at an annual
rate of 7% when paid in cash and 10% of the liquidation preference of $200.00
per share when paid in-kind with Series B Preferred Stock compounded on a
quarterly basis. According to the terms of the Series B Preferred Stock, it (i)
ranks junior in cash dividend and liquidation preference to the $21.25
Convertible Exchangeable Preferred Stock and senior to Common Stock, (ii)
provides that no cash dividends will be paid on any shares of Common Stock
except for certain limited dividends beginning in 2001, (iii) is convertible
into shares of Common Stock at an initial conversion price of approximately
$9.68 per share (equivalent to 3,101,571 shares on January 17, 1997), (iv) has
the same voting rights as shareholders of Common Stock immediately equal to the
number of shares of Common Stock into which the Series B Preferred Stock can be
converted, (v) generally has a liquidation preference of $200 per share of
Series B Preferred Stock, (vi) is optionally redeemable by the Company after
three years at a redemption price equal to the liquidating value per share and
higher amounts if a Special Default, as defined, has occurred, (vii) is
mandatorily redeemable by the Company if a Special Default has occurred and a
holder of the Series B Preferred Stock requests such a redemption, (viii) is
mandatorily redeemable by the Company for approximately one-third of the shares
still outstanding on January 17, 2005 and one-third of the remaining shares in
each of the next two years.
The initial proceeds ($30,030,000) received upon the issuance of 150,150 Series
B Preferred Shares were reduced by related expenses of approximately $3.5
million. Due to the redeemable feature of the Series B Preferred Stock, this
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 & 1997 (continued)
[7] Redeemable Series B Cumulative Convertible Preferred Stock (continued)
reduction has to be added back (or accreted) to reinstate its mandatory
redemption value over a period of 8-10 years, with an offsetting charge to
paid-in surplus.
An analysis of Series B Preferred Stock transactions for the three years ended
December 31, 1999 follows:
Number of
Shares Amount
------------- --------------
(in thousands)
Initial issuance on January 17, 1997 150,150 $ 30,030
Less - related expenses - (3,472)
------------- --------------
150,150 $ 26,558
10% in-kind dividends issued 14,150 2,830
Accretion - 368
------------- --------------
Balance at December 31, 1997 164,300 $ 29,756
10% in-kind dividends issued 17,057 3,411
Accretion - 373
------------- --------------
Balance at December 31, 1998 181,357 $ 33,540
10% in-kind dividends issued 18,827 3,766
Accretion - 379
------------- --------------
Balance at December 31, 1999 200,184 $ 37,685
============= ==============
Subject to and concurrent with the closing of the new equity transaction
described in Note 15, the holders of the Series B Preferred Stock, which has a
current accreted face amount of approximately $40 million as of December 15,
1999, have agreed to convert their shares into shares of common stock, $1.00 par
value, of the Company at $5.50 per share of common stock.
[8] Capitalization
(a) $21.25 Convertible Exchangeable Preferred Stock ("$21.25 Preferred
Stock")
In June 1987, net proceeds of approximately $23,631,000 were received
from the sale of 1,000,000 Depositary Convertible Exchangeable Preferred
Shares (each Depositary Share representing ownership of 1/10 of a share
of $21.25 Convertible Exchangeable Preferred Stock, $1 par value) at a
price of $25 per Depositary Share. Annual dividends are $2.125 per
Depositary Share and are cumulative. Generally, the liquidation
preference value is $25 per Depositary Share plus any accumulated and
unpaid dividends. The Preferred Stock of the Company, as evidenced by
ownership of Depositary Shares, is convertible at the option of the
holder, at any time, into Common Stock of the Company at a conversion
price of $37.75 per share of Common Stock. The Preferred Stock is
redeemable at the option of the Company at any time at $25 per share
plus any unpaid dividends. The Preferred Stock is also exchangeable at
the option of the Company, in whole but not in part, on any dividend
payment date into 8 1/2% convertible subordinated debentures due in 2012
at a rate equivalent to $25 principal amount of debentures for each
Depositary Share. In conjunction with the covenants of the Company's
Amended Revolving Credit Agreement (see Note 4), the Company was
required to suspend the payment of quarterly dividends on its $21.25
Preferred Stock (equivalent to $2.125 per Depositary Share) until
certain financial criteria are met. Therefore, the dividends on the
$21.25 Preferred Stock have not been declared since 1995 (although they
have been fully accrued due to the "cumulative" feature of the Preferred
Stock). The aggregate amount of dividends in arrears is approximately
$9,030,000 at December 31, 1999, which represents approximately $90.30
per share of Preferred Stock or approximately $9.03 per Depositary Share
and is included in "Other Liabilities" (long-term) in the accompanying
Consolidated Balance Sheet. Under the terms of the Preferred Stock, the
holders of the Depositary Shares were entitled to elect two additional
Directors since dividends had been deferred for more than six quarters
and they did so at both the May 14, 1998 and the May 13, 1999 Annual
Meetings.
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 & 1997 (continued)
[8] Capitalization (continued)
(b) Series A Junior Participating Preferred Stock
Under the terms of the Company's Shareholder Rights Plan, as amended,
the Board of Directors of the Company declared a distribution on
September 23, 1988 of one Preferred Stock purchase right (a "Right") for
each outstanding share of Common Stock. Under certain circumstances,
each Right will entitle the holder thereof to purchase from the Company
one one-hundredth of a share (a "Unit") of Series A Junior Participating
Cumulative Preferred Stock, $1 par value (the "Preferred Stock"), at an
exercise price of $100 per Unit, subject to adjustment. The Rights will
not be exercisable or transferable apart from the Common Stock until the
earlier to occur of (i) 10 days following a public announcement that a
person or group (an "Acquiring Person") has acquired 20% or more of the
Company's outstanding Common Stock (the "Stock Acquisition Date"), (ii)
10 business days following the announcement by a person or group of an
intention to make an offer that would result in such persons or group
becoming an Acquiring Person or (iii) the declaration by the Board of
Directors that any person is an "Adverse Person", as defined under the
Plan. The Rights will not have any voting rights or be entitled to
dividends.
Upon the occurrence of a triggering event as described above, each Right
will be entitled to that number of Units of Preferred Stock of the
Company having a market value of two times the exercise price of the
Right. If the Company is acquired in a merger or 50% or more of its
assets or earning power is sold, each Right will be entitled to receive
Common Stock of the acquiring company having a market value of two times
the exercise price of the Right. Rights held by such a person or group
causing a triggering event may be null and void. The Rights are
redeemable at $.02 per Right by the Board of Directors at any time prior
to the occurrence of a triggering event.
On January 17, 1997, the Board of Directors amended the Company's
Shareholder Rights Plan to (i) permit the acquisition of the Series B
Preferred Stock by certain investors (see Note 7 above), any additional
Preferred Stock issued as a dividend thereon, any Common Stock issued
upon conversion of the Series B Preferred Stock and certain other events
without triggering the distribution of the Rights; (ii) lower the
threshold for the occurrence of a Stock Acquisition Date from 20% to
10%; and (iii) extend the expiration date of the Plan from September 23,
1998 to January 21, 2007.
Subject to and concurrent with the closing of the new equity transaction
described in Note 15, the Board of Directors has voted to amend the
Company's Shareholder Rights Plan to permit the sale of 9,411,765 shares
of the Company's common stock, $1.00 par value, to the new investors at
$4.25 per share (or $40 million) and certain other events without
triggering the distribution of the Rights.
(c) ESOT Related Obligations
In July 1989, the Company sold 262,774 shares of its $1 par value Common
Stock, previously held in treasury, to its Employee Stock Ownership
Trust ("ESOT") for $9,000,000. The ESOT borrowed the funds via a
placement of 8.24% Senior Unsecured Notes ("Notes") guaranteed by the
Company. The Notes were payable in 20 equal semi-annual installments of
principal and interest commencing in January 1990. The Company's annual
contribution to the ESOT, plus any dividends accumulated on the
Company's Common Stock held by the ESOT, were used to repay the Notes.
Since the Notes were guaranteed by the Company, they were included in
"Long-Term Debt" with an offsetting reduction in "Stockholders' Equity"
in the Consolidated Balance Sheets. The amount included in "Long-Term
Debt" was reduced and "Stockholders' Equity" reinstated as the Notes
were paid by the ESOT (see Note 4). The final repayment of the Notes was
made in 1999 and, accordingly, such amount is classified in "Current
maturities of long-term debt" as of December 31, 1998.
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 & 1997 (continued)
[9] Stock Options
At December 31, 1999 and 1998, 481,610 shares of the Company's authorized but
unissued Common Stock were reserved for issuance to employees under its 1982
Stock Option Plan. Options are granted at fair market value on the date of
grant, as defined, and generally become exercisable in two equal annual
installments on the second and third anniversary of the date of grant and expire
eight years from the date of grant. Options for 184,000 shares of Common Stock
granted in 1992 become exercisable on March 31, 2001 if the Company achieves a
certain profit target in the year 2000; may become exercisable earlier if
certain interim profit targets are achieved; and to the extent not exercised,
expire 10 years from the date of grant. A summary of stock option activity
related to the Company's 1982 Stock Option Plan is as follows:
<TABLE>
<CAPTION>
Option Price Per Share
----------------------------- Shares
Number Weighted Available
of Shares Range Average to Grant
---------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1997 348,350 $ 8.00-$24.00 $15.41 133,260
Granted 117,500 $ 5.29 $ 5.29
Canceled (100,550) $10.44-$24.00 $16.39
Outstanding at December 31, 1998 365,300 $ 5.29-$16.44 $11.88 116,310
Granted -- -- --
Canceled (103,800) $ 5.29-$11.06 $ 7.99
Outstanding at December 31, 1999 261,500 $ 5.29-$16.44 $13.43 220,110
</TABLE>
In addition, the Company has authorized but unissued Common Stock reserved for
certain other options granted as follows:
<TABLE>
Grant Options Exercise
Grantee Date Outstanding Price
------------------------------------------- ---------- ------------ -----------
<S> <C> <C> <C>
Members of Board Executive Committee,
as Redefined (see Note 7) 01/17/97 225,000 $8.38
Certain Executive Officers 01/19/98 135,000 $8.66
Member of Board Executive Committee 12/10/98 45,000 $5.29
01/04/99 30,000 $5.13
</TABLE>
The terms of these options are generally similar to options granted under the
1982 Plan, including the exercise price being equal to fair market value, as
defined, at date of grant, and timing of installment exercise dates, except for
the timing of the exercisability of the January 1997 options, which is May 17,
2000.
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 & 1997 (continued)
[9] Stock Options (continued)
Options outstanding at December 31, 1999 and related weighted average price and
life information follows:
Remaining Grant Options Options Exercise
Life (Years) Date Outstanding Exercisable Price
------------ ---- ----------- ----------- -----
3 12/21/92 184,000 69,000 $16.44
3 03/22/94 10,000 10,000 $13.00
6 01/17/97 225,000 -- $ 8.38
7 01/19/98 135,000 -- $ 8.66
7 12/10/98 112,500 -- $ 5.29
8 01/04/99 30,000 -- $ 5.13
When options are exercised, the proceeds are credited to stockholders' equity.
In addition, the income tax savings attributable to nonqualified options
exercised are credited to paid-in surplus. The Company elected the optional pro
forma disclosures under SFAS No. 123 as if the Company adopted the cost
recognition requirements in 1995. The Company has no options outstanding
relating to either 1995 or 1996. The estimated values shown below are based on
the Black-Scholes option pricing model for options granted in 1997 through 1999.
<TABLE>
<CAPTION>
Assumptions
---------------------------------------------------------------
Expected Risk-free
Grant Date Fair Value Dividend Yield Volatility Interest Rate Expected Life
- --------------- ----------- -------------- --------- ------------- --------------
<S> <C> <C> <C> <C> <C>
01/17/97 $1,070,127 0% 39% 6.50% 8
07/08/97 $ 44,086 0% 38% 6.31% 8
01/19/98 $1,027,758 0% 37% 5.57% 8
12/10/98 $ 399,485 0% 39% 4.63% 8
01/04/99 $ 75,600 0% 37% 4.82% 8
</TABLE>
If SFAS No. 123 had been fully implemented, stock based compensation costs would
have increased net loss in 1999 by $692,170 (or $.12 per Common Share),
decreased net income in 1998 by $811,481 (or $0.15 per Common Share) and
decreased net income in 1997 by $335,733 (or $0.07 per Common Share). The effect
of applying SFAS No. 123 in this pro forma disclosure may not be indicative of
future amounts.
[10] Employee Benefit Plans
The Company and its U.S. subsidiaries have a defined benefit plan that covers
its executive, professional, administrative and clerical employees, subject to
certain specified service requirements. The plan is noncontributory and benefits
are based on an employee's years of service and "final average earnings", as
defined. The plan provides reduced benefits for early retirement and takes into
account offsets for social security benefits. All employees are vested after 5
years of service. Pension and other benefit plan disclosure as presented below
was determined in accordance with SFAS No. 132, "Employers' Disclosures About
Pension and Other Post-Retirement Benefits".
Net pension cost for 1999, 1998 and 1997 follows (in thousands):
<TABLE>
1999 1998 1997
---------- --------- -----------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 1,207 $ 1,251 $ 1,072
Interest cost on projected benefit obligation 3,848 3,601 3,298
Expected return on plan assets (4,227) (3,341) (2,991)
Amortization of transition obligation 6 6 6
Amortization of prior service costs (78) (78) (78)
Amortization of net loss 521 198 -
---------- --------- -----------
Net pension cost $ 1,277 $ 1,637 $ 1,307
========== ========= ===========
Actuarial assumptions used:
Discount rate 7 3/4 %* 6 1/2%** 7 %***
Rate of increase in compensation 6% 6%** 4%
Long-term rate of return on assets 9% 8% 8%
</TABLE>
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 & 1997 (continued)
[10] Employee Benefit Plans (continued)
* The increase in the discount rate and increase in long-term rate of
return on assets were changed effective December 31, 1999. The increase
in the discount rate resulted in a decrease in the projected benefit
obligation referred to below of $9.1 million and the increase in the
long-term rate of return on assets had no impact on the projected
benefit obligation referred to below.
** The decrease in the discount rate and the increase in the rate of
increase in compensation were changed effective December 31, 1998, and
resulted in increases in the projected benefit obligation referred to
below of $3.5 million and $1.8 million, respectively.
*** Rate was changed effective December 31, 1997 and resulted in a $2.8
million increase in the projected benefit obligation.
The Company's plan has assets in excess of its accumulated benefit obligations.
Plan assets generally include equity and fixed income funds. The following
tables provide a reconciliation of the changes of the fair value of assets in
the plan and plan benefit obligations during the two-year period ended December
31, 1999, and a statement of the funded status as of December 31, 1999 and 1998
(in thousands):
<TABLE>
<CAPTION>
Reconciliation of Fair Value of Plan Assets
1999 1998
-------------- --------------
<S> <C> <C>
Balance at beginning of year $ 52,912 $ 46,774
Actual return on plan assets 7,999 5,912
Employer contribution 1,406 3,096
Benefit payments (3,135) (2,870)
-------------- --------------
Balance at end of year $ 59,182 $ 52,912
============== ==============
Reconciliation of Benefit Obligation
1999 1998
-------------- --------------
Balance at beginning of year $ 58,492 $ 50,167
Service cost 1,207 1,251
Interest cost 3,848 3,601
Actuarial (gain) loss (6,534) 6,343
Benefit payments (3,135) (2,870)
-------------- --------------
Balance at end of year $ 53,878 $ 58,492
============== ==============
Funded Status
1999 1998
-------------- --------------
Funded status at December 31, $ 5,304 $ (5,580)
Unrecognized transition obligation 6 12
Unrecognized prior service cost (147) (226)
Unrecognized (gain) loss (7,612) 3,216
-------------- --------------
Net amount recognized, before additional minimum liability $ (2,449) $ (2,578)
============== ==============
</TABLE>
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 & 1997 (continued)
[10] Employee Benefit Plans (continued)
The Company also has an unfunded supplemental retirement plan for certain
employees whose benefits under the defined benefit plan described above are
reduced because of compensation limitations under federal tax laws. Pension
expense for this plan was $0.3 million in 1999 and $0.2 million in both 1998 and
1997. At December 31, 1999, the projected benefit obligation was $2.0 million. A
corresponding accumulated benefit obligation of $1.4 million at December 31,
1999 and $1.3 million at December 31, 1998, which approximate the amount of
vested benefits, have been recognized as a liability in the consolidated balance
sheets.
The Company also has a contributory Section 401(k) plan and a noncontributory
Employee Stock Ownership Plan ("ESOP") which cover its executive, professional,
administrative and clerical employees, subject to certain specified service
requirements. Under the terms of the Section 401(k) plan, the provision, which
averaged $0.2 million for each of the three years ended December 31, 1999, is
based on a specified percentage of profits, subject to certain limitations.
Contributions to the related ESOT, which averaged $1.3 million for each of the
three years ended December 31, 1999, are determined by the Board of Directors
and may be paid in cash or shares of the Company's Common Stock. In accordance
with the provisions of the ESOP and effective as of December 31, 1999, the Board
of Directors of the Company approved the termination of the ESOP and the
distribution of all remaining shares of common stock of the Company held by the
ESOT to the ESOP participants in 2000.
In addition, the Company has an incentive compensation plan for key employees
which is generally based on achieving certain levels of profit within their
respective business units.
The Company also contributes to various multi-employer union retirement plans
under collective bargaining agreements which provide retirement benefits for
substantially all of its union employees. The aggregate amounts provided in
accordance with the requirements of these plans were $5.4 million in 1999, $4.9
million in 1998 and $4.4 million in 1997. The Multi-employer Pension Plan
Amendments Act of 1980 defines certain employer obligations under multi-employer
plans. Information regarding union retirement plans is not available from plan
administrators to enable the Company to determine its share of unfunded vested
liabilities.
[11] Contingencies and Commitments
All contingencies and commitments previously related to Rincon Center, a real
estate development joint venture in which the Company's wholly-owned real estate
subsidiary was the managing general partner, were satisfactorily resolved in
connection with the disposition of this property during 1999 (see Note 2).
During 1997, a construction joint venture, in which the Company is a 50%
participant, entered into a $5 million line of credit, secured by the joint
venture's accounts receivable. The line of credit is available for the duration
of the joint venture and is guaranteed by the Company on a joint and several
basis. As of December 31, 1999, $3.1 million was outstanding under the line.
On July 30, 1993, the U.S. District Court (D.C.), in a preliminary opinion,
upheld terminations for default on two adjacent contracts for subway
construction between Mergentime-Perini, under two joint ventures, and the
Washington Metropolitan Area Transit Authority ("WMATA") and found the
Mergentime Corporation, Perini Corporation and the Insurance Company of North
America, the surety, jointly and severally liable to WMATA for damages in the
amount of $16.5 million, consisting primarily of excess reprocurement costs to
complete the projects. Many issues were left partially or completely unresolved
by the opinion, including substantial joint venture claims against WMATA. As a
result of developments in the case during the third quarter of 1995, the Company
established a reserve with respect to the litigation.
In July 1997, the remaining issues were ruled on by a successor judge, who
awarded approximately $4.3 million to the joint venture, thereby reducing the
net amount payable to approximately $12.2 million. The joint venture appealed
the decision. As a result of the decision, there was no additional impact on the
Company's Statement of Operations because of the reserve provided in prior
years.
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 & 1997 (continued)
[11] Contingencies and Commitments (continued)
On February 16, 1999, the U.S. Court of Appeals for the District of Columbia
vacated the April 1995 and July 1997 Orders and remanded the case back to the
successor judge with instructions for the successor judge to consider certain
post-trial motions to the same extent an original judge would have, and to make
findings and conclusions regarding the unresolved issues, giving appropriate
consideration to whether or not witnesses must be recalled. During 1999 a new
successor judge was appointed. Based on the suggestion of the successor judge,
the parties have agreed to participate in non-binding mediation. If the parties
do not agree to a settlement based on the mediation process or otherwise, a
final judgement will be entered by the District Court upon the completion of
these Appeals Court-directed procedures. The actual funding of net damages, if
any, will be deferred until the litigation process is complete.
Contingent liabilities also include liability of contractors for performance and
completion of both company and joint venture construction contracts. In
addition, the Company is a defendant in various lawsuits, arbitration and
alternative dispute resolution ("ADR") proceedings. In the opinion of
management, the resolution of these proceedings will not have a material effect
on the results of operation or financial condition as reported in the
accompanying consolidated financial statements.
[12] Unaudited Quarterly Financial Data
The following table sets forth unaudited quarterly financial data for the years
ended December 31, 1999 and 1998 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1999 by Quarter
----------------------------------------------------------
1st* 2nd 3rd 4th
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 251,819 $ 279,527 $ 244,887 $ 243,251
----------- ------------- ----------- -----------
Income from continuing operations $ 2,805 $ 4,321 $ 4,601 $ 4,630
Loss from discontinued operations (381) (99,624)** -- --
----------- ------------- ----------- -----------
Net income (loss) $ 2,424 $ (95,303) $ 4,601 $ 4,630
----------- ------------- ----------- -----------
Basic and diluted earnings (loss) per
common share:
Continuing operations $ .23 $ .49 $ .53 $ .53
Discontinued operations (.07) (17.72) -- --
----------- ------------- ----------- -----------
Total $ .16 $ (17.23) $ .53 $ .53
----------- ------------- ----------- -----------
1998 by Quarter*
----------------------------------------------------------
1st 2nd 3rd 4th
----------- ------------- ----------- -----------
Revenues $ 219,202 $ 273,761 $ 247,730 $ 270,629
----------- ------------- ----------- -----------
Income from continuing operations $ 2,594 $ 3,550 $ 4,352 $ 5,553
Loss from discontinued operations (375) (436) (615) (2,971)
----------- ------------- ----------- -----------
Net income $ 2,219 $ 3,114 $ 3,737 $ 2,582
----------- ------------- ----------- -----------
Basic and diluted earnings (loss) per
common share:
Continuing operations $ .22 $ .39 $ .53 $ .75
Discontinued operations (.07) (.08) (.11) (.55)
----------- ------------- ----------- -----------
Total $ .15 $ .31 $ .42 $ .20
----------- ------------- ----------- -----------
</TABLE>
* Restated to reflect the treatment of discontinued real estate
development operations in accordance with APB No. 30.
** Includes a $99.3 million change based on a plan adopted by the Company
effective June 30, 1999, to withdraw completely from the real estate
development business (see Note 2).
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 & 1997 (continued)
[13] Business Segments
Business segment information presented below was determined in accordance with
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information".
The Company is currently engaged in the construction business. As discussed in
Note 2, effective June 30, 1999 the Company adopted a plan to withdraw
completely from the real estate development business and to wind down the
operations of the Company's real estate development subsidiary. The Company
provides general contracting, construction management and design-build services
to private clients and public agencies throughout the United States and selected
overseas locations. The Company's construction business involves two basic
segments: building and civil. The building operation services both private
clients and public agencies from regional offices located in Boston, Phoenix,
Las Vegas, Detroit and Atlantic City and includes a broad range of building
construction projects, such as hotels, casinos, health care, correctional
facilities, sports complexes, residential, commercial, civic, cultural and
educational facilities. The civil operation is focused on public civil work in
the East and selectively in other geographic locations and includes large,
ongoing urban infrastructure repair and replacement projects such as highway and
bridge rehabilitation, mass transit projects and waste water treatment
facilities. During 1998 and 1999, the Company's chief operating decision making
group consisted of the Chairman, the President & Chief Executive Officer, the
President of Perini Building Company and the President of Perini Civil
Construction which decided how to allocate resources and assess performance of
the business segments. Generally, the Company evaluates performance of its
operating segments on the basis of pre-tax profit and cash flow. The accounting
policies applied by each of the segments are the same as those described in the
Summary of Significant Accounting Policies (see Note 1). The following tables
set forth certain business and geographic segment information relating to the
Company's operations for the three years ended December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
1999: Reportable Segments
-----------------------------------------------
Consolidated
Building Civil Totals Corporate Total
------------- ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues $ 696,407 $ 323,077 $ 1,019,484 $ - $ 1,019,484
Income from Operations $ 16,716 $ 14,644 $ 31,360 $ (7,526)* $ 23,834
Assets $ 95,915 $ 106,252 $ 202,167 $ 73,321** $ 275,488
Capital Expenditures $ 596 $ 1,003 $ 1,599 $ - $ 1,599
1998 (Restated): Reportable Segments
-----------------------------------------------
Consolidated
Building Civil Totals Corporate Total
------------- ------------ ------------- ------------- --------------
Revenues $ 679,296 $ 332,026 $ 1,011,322 $ - $ 1,011,322
Income from Operations $ 18,213 $ 15,495 $ 33,708 $ (7,434)* $ 26,274
Assets $ 113,919 $ 100,486 $ 214,405 $ 161,061** $ 375,466
Capital Expenditures $ 504 $ 914 $ 1,418 $ - $ 1,418
1997 (Restated): Reportable Segments
-----------------------------------------------
Consolidated
Building Civil Totals Corporate Total
------------- ------------ ------------- ------------- --------------
Revenues $ 888,809 $ 387,224 $ 1,276,033 $ - $ 1,276,033
Income from Operations $ 14,637 $ 13,849 $ 28,486 $ (7,982)* $ 20,504
Assets $ 146,384 $ 115,336 $ 261,720 $ 1 45,568** $ 407,288
Capital Expenditures $ 632 $ 1,064 $ 1,696 $ - $ 1,696
</TABLE>
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 & 1997 (continued)
[13] Business Segments (continued)
* In all years, consists of corporate general and administrative expenses.
** In all years, corporate assets consist principally of cash, cash
equivalents, marketable securities, other investments available for
general corporate purposes, and net assets from discontinued operations.
In 1999, revenues from one customer of the building segment totaled
approximately $148 million of consolidated revenues. Also in 1999, revenues from
various agencies of both the Commonwealth of Massachusetts and the City of New
York in the civil segment totaled approximately $167 million and $118 million,
respectively, of consolidated revenues. In 1998, revenues from one customer of
the building segment totaled approximately $330 million of consolidated
revenues. Also in 1998, revenues from various agencies of both the Commonwealth
of Massachusetts and the City of New York in the civil segment totaled
approximately $153 million and $115 million, respectively, of consolidated
revenues. In 1997, revenues from one customer of the building segment totaled
approximately $276 million of consolidated revenues. Also in 1997, revenues from
various agencies of both the Commonwealth of Massachusetts and the City of New
York in the civil segment totaled approximately $141 million and $165 million,
respectively, of consolidated revenues.
Information concerning principal geographic areas was as follows:
Revenues
-----------------------------------------------------
1999 1998 1997
(Restated) (Restated)
--------------- --------------- --------------
United States $ 968,825 $ 982,471 $ 1,257,007
Foreign 50,659 28,851 19,026
--------------- --------------- --------------
Total $ 1,019,484 $ 1,011,322 $ 1,276,033
=============== =============== ==============
Income (Loss) from Operations
-----------------------------------------------------
1999 1998 1997
(Restated) (Restated)
--------------- --------------- --------------
United States $ 30,508 $ 31,516 $ 26,561
Foreign 852 2,192 1,925
Corporate (7,526) (7,434) (7,982)
--------------- --------------- --------------
Total $ 23,834 $ 26,274 $ 20,504
=============== =============== ==============
Because a substantial portion of the Company's international revenues is derived
mainly from construction management services, long-lived assets outside the
United States are immaterial and therefore not presented here.
There have been no differences from the last annual report in the basis of
measuring segment profit or loss. There have been no material changes in the
amount of assets since the last annual report, except for the breakout between
segments and the negative impact on total assets in 1999 caused by the estimated
loss on disposal of the real estate business segment.
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 & 1997 (continued)
[14] Related Party Transactions
Effective with the issuance of the Series B Preferred Stock described in Note 7
above, the Company entered into an agreement with Tutor-Saliba Corporation
("TSC"), a California corporation engaged in the construction industry, and
Ronald N. Tutor, Chief Executive Officer and sole stockholder of TSC, to provide
certain management services, as defined. At January 17, 1997, TSC held and still
holds 351,318 shares of the Company's $1.00 par value Common Stock which
currently represents an approximate 6.2% interest, and participates in joint
ventures with the Company, the Company's share of which contributed $8.6
million, $40.4 million and $113.6 million to the Company's consolidated revenues
in 1999, 1998 and 1997, respectively. Mr. Tutor was appointed as one of the
three new directors in accordance with the terms of the Series B Preferred Stock
transaction, a member of the Executive Committee of the Board and, during 1997,
acting Chief Operating Officer of the Company. Effective January 1, 1998, Mr.
Tutor was elected Vice Chairman of the Board of Directors and effective May 13,
1999 was elected Chairman of the Board of Directors. Compensation for the
management services consists of a monthly payment of $12,500 to TSC and options
granted to Mr. Tutor to purchase 150,000 shares of the Company's $1.00 par value
Common Stock at fair market value (which are included as part of the 225,000
options granted in 1997 as described in Note 9) and additional options granted
to Mr. Tutor to purchase 75,000 shares of the Company's $1.00 par value Common
Stock at fair market value, of which options to acquire 45,000 shares were
granted in December 1998 and the remaining options to acquire 30,000 shares were
granted effective in early 1999 (see Note 9).
During 1997, the Company, with the approval of its Board of Directors,
consummated a transaction whereby it sold its 20% interest in two joint ventures
to TSC, the sponsoring partner, for a negotiated price of $4.5 million,
representing the Company's share of the total forecasted profit less a discount
of approximately 7%. Since one project was approximately 24% complete and the
other project was 57% complete as of December 31, 1997, the impact of this
transaction was to accelerate approximately $3.2 million of contract profits and
receipt of the related cash into 1997.
The new investors that are planning to invest $40 million of new equity in the
Company as described in Note 15 consist of Tutor-Saliba Corporation (see above),
O&G Industries, Inc. ("O&G"), a participant in certain construction joint
ventures with the Company, and National Union Fire Insurance Company of
Pittsburgh, Pa., a wholly-owned subsidiary of American International Group, Inc.
("AIG"), a provider of insurance and insurance related services to the Company.
Each of the new investors will be entitled to appoint a member to the Company's
Board of Directors. O&G currently holds 150,000 shares of the Company's common
stock, $1.00 par value, and participates in joint ventures with the Company, the
Company's share of which contributed $4.2 million, $39.4 million and $121.3
million to the Company's consolidated revenues in 1999, 1998 and 1997,
respectively. Payments to AIG for insurance and insurance related services
approximated $5.2 million in 1999, $4.8 million in 1998 and $5.9 million in
1997.
[15] Subsequent Events
New Equity
On February 5, 2000, the Company entered into a definitive Securities Purchase
Agreement ("Purchase Agreement") with Tutor-Saliba Corporation, a company
controlled by Ronald N. Tutor, Chairman of the Board of Directors of the
Company, O&G Industries, Inc., and National Union Fire Insurance Company of
Pittsburgh, Pa., a wholly-owned subsidiary of American International Group,
Inc., (collectively, the "New Investors"), whereby the New Investors have agreed
to purchase 9,411,765 shares of common stock at $4.25 per share for an aggregate
amount of $40 million ("the Transaction"). These funds would be used to mitigate
the continuing effects of the Company's negative net worth on its business and
financial condition and to provide additional working capital and liquidity for
its ongoing core construction operations. The Company's net worth became
negative as of June 30, 1999 due to the $99.3 million non-cash provision for
estimated loss on the disposal of the Company's real estate development business
segment as described in more detail under "Discontinued Operations" in Note 2.
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 & 1997 (continued)
[15] Subsequent Events (continued)
The Transaction is subject to, among other things, the following events or
approvals:
(i) Approval by a majority of the shareholders entitled to vote and
not affiliated or associated with the New Investors of (a) the
Transaction as described in the Purchase Agreement and (b) an
increase in the number of authorized shares of the Company's
Common Stock to at least as many shares as are required to
consummate the Transaction;
(ii) Agreement by all of the holders of the Company's Series B
Preferred Stock, which has a current accreted face amount of
approximately $40 million as of December 15, 1999, (see Note 7),
to convert their securities into shares of $1.00 par value
common stock of the Company at $5.50 per share of common stock;
and
(iii) Certain other conditions, including the completion of due
diligence.
If the Transaction is consummated, the shares of common stock held by the New
Investors and the former holders of the Series B Preferred Stock will
approximate 42.0% and 32.5% of the Company's voting rights, respectively.
If this Transaction had been closed on December 31, 1999, the pro forma impact
on the December 31, 1999 balance sheet would have been as follows (in millions):
As Reported Pro Forma
------------ ------------
Working Capital $ 48.4 $ 75.4
Long-term Debt $ 41.1 $ 30.6
Series B Preferred Stock $ 37.7 $ -
Stockholders' Equity (Deficit) $ (36.6) $ 38.6
Total Assets $ 275.5 $ 275.5
The Company's Common Stock, $1.00 par value, issued in connection with the above
Transactions will initially be restricted in that it may not be sold or
otherwise disposed of except pursuant to the terms of a shareholders' agreement
between and among the New Investors, the former owners of the Series B Preferred
Stock and the Company for a period of time, generally six years from the date of
the Transaction being consummated.
If the Transaction is not consummated, management's intent would be to
renegotiate the terms of its credit facility and continue to pay the in-kind
dividend on the Series B Preferred Stock.
New Credit Agreement
Subject to and concurrent with the closing of the new equity transaction
referred to above, the Company's Bank Group has agreed in principle to extend
and restructure its Revolving Credit Agreement (see Note 4).
52
<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,
1999 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Perini Corporation
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 11, 2000
53
<PAGE>
Report of Independent Public Accountants on Schedules
To the Stockholders of Perini Corporation:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in this Form 10-K, and have issued
our report thereon dated February 11, 2000. Our audits were made for the purpose
of forming an opinion on the consolidated financial statements taken as a whole.
The supplemental schedule listed in the accompanying index is the responsibility
of the Company's management and is presented for the purpose of complying with
the Securities and Exchange Commission's rules and is not part of the
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the consolidated financial
statements and, in our opinion, fairly states, in all material respects, the
financial data required to be set forth therein in relation to the consolidated
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 11, 2000
54
<PAGE>
Schedule II
Perini Corporation and Subsidiaries
Valuation and Qualifying Accounts and Reserves
for the Years Ended December 31, 1999, 1998 and 1997
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Additions
-----------------------------
Balance at Charged to Charged to Deductions Balance
Beginning Costs & Other from at End
Description of Year Expenses Accounts Reserves of Year
- ----------- ------------- ------------ ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999
Reserve for real estate investments $ 21,724 $ 99,311 $ -- $ 97,413 (1) $ 23,622
============= ============ ============= ============ ==========
Year Ended December 31, 1998
Reserve for doubtful accounts $ 40 $ -- $ -- $ 40 (2) $ --
============= ============ ============= ============ ==========
Reserve for real estate investments $ 23,171 $ 400 $ -- $ 1,847 (1) $ 21,724
============= ============ ============= ============ ==========
Year Ended December 31, 1997
Reserve for doubtful accounts $ 160 $ -- $ -- $ 120 (3) $ 40
============= ============ ============= ============ ==========
Reserve for depreciation on real
estate properties used in operations $ -- $ 226 $ -- $ 226 (4) $ --
============= ============ ============= ============ ==========
Reserve for real estate investments $ 84,083 $ 508 $ -- $ 61,420 (1) $ 23,171
============= ============ ============= ============ ==========
</TABLE>
(1) Represents sales or other dispositions of real estate properties.
(2) Represents reserve no longer required.
(3) Represents write-off of a bad debt.
(4) Represents reserves reclassified with related asset to "Real estate
inventory".
55
<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 January 17, 1997 - Exhibit 3.1 to 1996
Form 10-K as filed.
3.2 By-laws - As amended and restated as of January
17, 1997 - Exhibit 3.2 to Form 8-K filed on
February 14, 1997.
Exhibit 4. Instruments Defining the Rights of Security Holders,
Including Indentures
Incorporated herein by reference:
4.1 Certificate of Vote of Directors Establishing a
Series of a Class of Stock determining the
relative rights and preferences of the $21.25
Convertible Exchangeable Preferred Stock -
Exhibit 4(a) to Amendment No. 1 to Form S-2
Registration Statement filed June 19, 1987; SEC
Registration Statement No. 33-14434.
4.2 Form of Deposit Agreement, including form of
Depositary Receipt - Exhibit 4(b) to Amendment
No. 1 to Form S-2 Registration Statement filed
June 19, 1987; SEC Registration Statement No.
33-14434.
4.3 Form of Indenture with respect to the 8 1/2%
Convertible Subordinated Debentures Due June 15,
2012, including form of Debenture - Exhibit 4(c)
to Amendment No. 1 to Form S-2 Registration
Statement filed June 19, 1987; SEC Registration
Statement No. 33-14434.
4.4 Shareholder Rights Agreement dated as of
September 23, 1988, as amended and restated as
of May 17, 1990, as amended and restated as of
January 17, 1997, between Perini Corporation and
State Street Bank and Trust Company, as Rights
Agent - Exhibit 4.4 to Amendment No. 1 to
Registration Statement on Form 8-A/A filed on
January 29, 1997.
4.5 Stock Purchase and Sale Agreement dated as of
July 24, 1996 by and among the Company, PB
Capital and RCBA, as amended - Exhibit 4.5 to
the Company's Quarterly Report on Form 10-Q/A
for the fiscal quarter ended September 30, 1996
filed on December 11, 1996.
4.8 Certificate of Vote of Directors Establishing a
Series of Preferred Stock, dated January 16,
1997 - Exhibit 4.8 to Form 8-K filed on February
14, 1997.
4.9 Stock Assignment and Assumption Agreement dated
as of December 13, 1996 by
56
<PAGE>
Exhibit Index
(Continued)
and among the Company, PB Capital and ULLICO
(filed as Exhibit 4.1 to the Schedule 13D filed
by ULLICO on December 16, 1996 and incorporated
herein by reference).
4.10 Stock Assignment and Assumption Agreement dated
as of January 17, 1997 by and among the Company,
RCBA and The Common Fund - Exhibit 4.10 to Form
8-K filed on February 14, 1997.
4.11 Voting Agreement dated as of January 17, 1997 by
and among PB Capital, David B. Perini, Perini
Memorial Foundation, David B. Perini
Testamentary Trust, Ronald N. Tutor, and
Tutor-Saliba Corporation - Exhibit 4.11 to Form
8-K filed on February 14, 1997.
4.12 Registration Rights Agreement dated as of
January 17, 1997 by and among the Company, PB
Capital and ULLICO - Exhibit 4.12 to Form 8-K
filed on February 14, 1997.
Exhibit 10. Material Contracts
Incorporated herein by reference:
10.1 1982 Stock Option and Long Term Performance
Incentive Plan - Exhibit A to Registrant's Proxy
Statement for Annual Meeting of Stockholders
dated April 15, 1992.
10.2 Perini Corporation Amended and Restated General
Incentive Compensation Plan (1997) - Exhibit
10.2 to 1997 Form 10-K, as filed.
10.3 Perini Corporation Amended and Restated
Construction Business Unit Incentive
Compensation Plan - Exhibit 10.3 to 1997 Form
10-K, as filed.
10.4 $125 million Credit Agreement dated as of
December 6, 1994 among Perini Corporation, the
Banks listed herein, Morgan Guaranty Trust
Company of New York, as Agent, and Shawmut Bank,
N.A., Co-Agent - Exhibit 10.4 to 1994 Form 10-K,
as filed.
10.5 Amendment No. 1 as of February 26, 1996 to the
Credit Agreement dated as of December 6, 1994
among Perini Corporation, the Banks listed
herein, Morgan Guaranty Trust Company of New
York, as Agent, and Fleet National Bank of
Massachusetts (f/k/a Shawmut Bank, N.A.), as
Co-Agent - Exhibit 10.5 to 1995 Form 10-K, as
filed.
10.6 Bridge Credit Agreement dated as of February 26,
1996 among Perini Corporation, the Bridge Banks
listed herein, Morgan Guaranty Trust Company of
New York, as Agent, and Fleet National Bank of
Massachusetts (f/k/a Shawmut Bank, N.A.) as
Co-Agent - Exhibit 10.6 to 1995 Form 10-K, as
filed.
57
<PAGE>
Exhibit Index
(Continued)
10.7 Amendment No. 2 as of July 30, 1996 to the
Credit Agreement dated as of December 6, 1994
and Amendment No. 1 as of July 30, 1996 to the
Bridge Credit Agreement dated February 26, 1996
among Perini Corporation, the Banks listed
herein, Morgan Guaranty Trust Company of New
York, as Agent, and Fleet National Bank of
Massachusetts, as Co-Agent - Exhibit 10.7 to
Perini Corporation's Form 10-Q/A for the fiscal
quarter ended September 30, 1996 filed on
December 11, 1996.
10.8 Amendment No. 2 as of September 30, 1996 to the
Bridge Credit Agreement dated as of February 26,
1996 among Perini Corporation, the Banks listed
herein, Morgan Guaranty Trust Company of New
York, as Agent, and Fleet National Bank of
Massachusetts, as Co-Agent - Exhibit 10.8 to
Perini Corporation's Form 10-Q/A for the fiscal
quarter ended September 30, 1996 filed on
December 11, 1996.
10.9 Amendment No. 3 as of October 2, 1996 to the
Bridge Credit Agreement dated as of February 26,
1996 among Perini Corporation, the Banks listed
herein, Morgan Guaranty Trust Company of New
York, as Agent, and Fleet National Bank of
Massachusetts, as Co-Agent - Exhibit 10.9 to
Perini Corporation's Form 10-Q/A for the fiscal
quarter ended September 30, 1996 filed on
December 11, 1996.
10.10 Amendment No. 4 as of October 15, 1996 to the
Bridge Credit Agreement dated as of February 26,
1996 among Perini Corporation, the Banks listed
herein, Morgan Guaranty Trust Company of New
York, as Agent, and Fleet National Bank of
Massachusetts, as Co-Agent - Exhibit 10.10 to
Perini Corporation's Form 10-Q/A for the fiscal
quarter ended September 30, 1996 filed on
December 11, 1996.
10.11 Amendment No. 5 as of October 21, 1996 to the
Bridge Credit Agreement dated as of February 26,
1996 among Perini Corporation, the Banks listed
herein, Morgan Guaranty Trust Company of New
York, as Agent, and Fleet National Bank of
Massachusetts, as Co-Agent - Exhibit 10.11 to
Perini Corporation's Form 10-Q/A for the fiscal
quarter ended September 30, 1996 filed on
December 11, 1996.
10.12 Amendment No. 6 as of October 24, 1996 to the
Bridge Credit Agreement dated as of February 26,
1996 among Perini Corporation, the Banks listed
herein, Morgan Guaranty Trust Company of New
York, as Agent, and Fleet National Bank of
Massachusetts, as Co-Agent - Exhibit 10.12 to
Perini Corporation's Form 10-Q/A for the fiscal
quarter ended September 30, 1996 filed on
December 11, 1996.
10.13 Amendment No. 7 as of November 1, 1996 to the
Bridge Credit Agreement dated as of February 26,
1996 among Perini Corporation, the Banks listed
herein, Morgan Guaranty Trust Company of New
York, as Agent, and Fleet National Bank of
Massachusetts, as Co-Agent - Exhibit 10.13 to
Perini Corporation's Form 10-Q/A for the fiscal
quarter ended September 30, 1996 filed on
December 11, 1996.
10.14 Amendment No. 8 as of November 4, 1996 to the
Bridge Credit Agreement dated as of February 26,
1996 and Amendment No. 3 as of November 4, 1996
to the Credit Agreement dated December 6, 1994
among Perini Corporation, the Banks listed
58
<PAGE>
Exhibit Index
(Continued)
herein, Morgan Guaranty Trust Company of New
York, as Agent, and Fleet National Bank of
Massachusetts, as Co-Agent - Exhibit 10.14 to
Perini Corporation's Form 10-Q/A for the fiscal
quarter ended September 30, 1996 filed on
December 11, 1996.
10.15 Amendment No. 9 as of November 12, 1996 to the
Bridge Credit Agreement dated as of February 26,
1996 and Amendment No. 4 as of November 12, 1996
to the Credit Agreement dated December 6, 1994
among Perini Corporation, the Banks listed
herein, Morgan Guaranty Trust Company of New
York, as Agent, and Fleet National Bank of
Massachusetts, as Co-Agent - Exhibit 10.15 to
Perini Corporation's Form 10-Q/A for the fiscal
quarter ended September 30, 1996 filed on
December 11, 1996.
10.16 Management Agreement dated as of January 17,
1997 by and among the Company, Ronald N. Tutor
and Tutor-Saliba Corporation - Exhibit 10.16 to
Form 8-K filed on February 14, 1997.
10.17 Amended and Restated Credit Agreement dated as
of January 17, 1997 among Perini Corporation,
the Banks listed herein and Morgan Guaranty
Trust Company of New York, as Agent, and Fleet
National Bank, as Co-Agent - Exhibit 10.17 to
1996 Form 10-K - as filed.
10.18 Amendment No. 1 as of November 10, 1997 to the
Amended and Reinstated Credit Agreement dated as
of January 17, 1997 among Perini Corporation,
the Banks listed herein and Morgan Guaranty
Trust Company of New York, as Agent, and Fleet
National Bank, as Co-Agent - Exhibit 10.18 to
1998 Form 10-K as filed.
10.19 Amendment No. 2 as of August 31, 1998 to the
Amended and Reinstated Credit Agreement dated as
of January 17, 1997 among Perini Corporation,
the Banks listed herein and Morgan Guaranty
Trust Company of New York, as Agent, and Fleet
National Bank, as Co-Agent - Exhibit 10.19 to
1998 Form 10-K as filed.
10.20 Amendment No. 3 as of September 9, 1998 to the
Amended and Reinstated Credit Agreement dated as
of January 17, 1997 among Perini Corporation,
the Banks listed herein and Morgan Guaranty
Trust Company of New York, as Agent, and Fleet
National Bank, as Co-Agent - Exhibit 10.20 to
1998 Form 10-K as filed.
10.21 Amendment No. 4 as of September 30, 1998 to the
Amended and Reinstated Credit Agreement dated as
of January 17, 1997 among Perini Corporation,
the Banks listed herein and Morgan Guaranty
Trust Company of New York, as Agent, and Fleet
National Bank, as Co-Agent - Exhibit 10.21 to
1998 Form 10-K as filed.
10.22 Amendment No. 5 as of November 16, 1998 to the
Amended and Reinstated Credit Agreement dated as
of January 17, 1997 among Perini Corporation,
the Banks listed herein and Morgan Guaranty
Trust Company of New York, as Agent, and Fleet
National Bank, as Co-Agent - Exhibit 10.22 to
1998 Form 10-K as filed.
59
<PAGE>
Exhibit Index
(Continued)
10.23 Amendment No. 6 as of December 1, 1998 to the
Amended and Reinstated Credit Agreement dated as
of January 17, 1997 among Perini Corporation,
the Banks listed herein and Morgan Guaranty
Trust Company of New York, as Agent, and Fleet
National Bank, as Co-Agent - Exhibit 10.23 to
1998 Form 10-K as filed.
10.24 Amendment No. 7 as of March 23, 1999 to the
Amended and Restated Credit Agreement dated as
of January 17, 1997 among Perini Corporation,
the Banks listed herein and Morgan Guaranty
Trust Company of New York, as Agent, and Fleet
National Bank, as Co-Agent - Exhibit 10.24 to
Perini Corporation's Form 10-Q for the fiscal
quarter ended March 31, 1999 filed on May 14,
1999.
10.25 Amendment No. 8 as of July 19, 1999 to the
Amended and Restated Credit Agreement dated as
of January 17, 1997 among Perini Corporation,
the Banks listed herein and Morgan Guaranty
Trust Company of New York, as Agent, and Fleet
National Bank, as Co-Agent - Exhibit 10.25 to
Perini Corporation's Form 10-Q for the fiscal
quarter ended June 30, 1999 filed on August 13,
1999.
10.26 Amendment No. 9 as of October 1, 1999 to the
Amended and Restated Credit Agreement dated as
of January 17, 1997 among Perini Corporation,
the Banks listed herein and Morgan Guaranty
Trust Company of New York, as Agent, and Fleet
National Bank, as Co-Agent - Exhibit 10.26 to
Perini Corporation's Form 10-Q for the fiscal
quarter ended September 30, 1999 filed on
November 12, 1999.
10.27 Amendment No. 10 as of October 19, 1999 to the
Amended and Restated Credit Agreement dated as
of January 17, 1997 among Perini Corporation,
the Banks listed herein and Morgan Guaranty
Trust Company of New York, as Agent, and Fleet
National Bank, as Co-Agent - Exhibit 10.27 to
Perini Corporation's Form 10-Q for the fiscal
quarter ended September 30, 1999 filed on
November 12, 1999.
10.28 Amendment No. 11 as of January 21, 2000 to the
Amended and Restated Credit Agreement dated
January 17, 1997 among Perini Corporation, the
Banks listed herein and Morgan Guaranty Trust
Company of New York, as Agent, and Fleet
National Bank, as Co-Agent - filed herewith.
Exhibit 21. Subsidiaries of Perini Corporation - filed herewith.
Exhibit 23. Consent of Independent Public Accountants - filed herewith.
Exhibit 24. Power of Attorney - filed herewith.
Exhibit 27. Financial Data Schedule - filed herewith.
Exhibit 99. Additional Exhibits
99.1 Combined Financial Statements of Significant
Construction Joint Ventures - filed herewith.
60
<PAGE>
Exhibit 21
<TABLE>
<CAPTION>
Perini Corporation
Subsidiaries of the Registrant
Percentage
of Interest
or Voting
Place of Securities
Name Organization Owned
- ----------------------------------------------------------------- ---------------------------- --------------
<S> <C> <C>
Perini Corporation Massachusetts
Perini Building Company, Inc. Arizona 100%
Perini Environmental Services, Inc. Delaware 100%
International Construction Management Services, Inc. Delaware 100%
Percon Constructors, Inc. Delaware 100%
Perini Management Services, Inc. (f/k/a Perini
International Corporation) Massachusetts 100%
Bow Leasing Company, Inc. New Hampshire 100%
Perini Land & Development Company, Inc. Massachusetts 100%
Paramount Development Associates, Inc. Massachusetts 100%
Perini Resorts, Inc. California 100%
Perini Central Limited Partnership AZ Limited Partnership 75%
Perini Eagle Limited Partnership AZ Limited Partnership 50%
Perini/138 Joint Venture GA General Partnership 49%
Perini/RSEA Partnership GA General Partnership 50%
</TABLE>
61
<PAGE>
Exhibit 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our reports,
dated February 11, 2000, included in Perini Corporation's Annual Report on this
Form 10-K for the year ended December 31, 1999, and into the Company's
previously filed Registration Statements Nos. 2-82117, 33-24646, 33-46961,
33-53190, 33-53192, 33-60654, 33-70206, 33-52967, 33-58519, 333-03417,
333-26423, 333-51911 and 333-75905.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 14, 2000
62
<PAGE>
Exhibit 24
Power of Attorney
We, the undersigned, Directors of Perini Corporation, hereby severally
constitute Robert Band and Dennis M. Ryan, and each of them singly, our true and
lawful attorneys, with full power to them and to each of them to sign for us,
and in our names in the capacities indicated below, any Annual Report on Form
10-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 to
be filed with the Securities and Exchange Commission and any and all amendments
to said Annual Report on Form 10-K, hereby ratifying and confirming our
signatures as they may be signed by our said Attorneys to said Annual Report on
Form 10-K and to any and all amendments thereto and generally to do all such
things in our names and behalf and in our said capacities as will enable Perini
Corporation to comply with the provisions of the Securities Exchange Act of
1934, as amended, and all requirements of the Securities and Exchange
Commission.
WITNESS our hands and common seal on the date set forth below.
/s/Robert Band Director March 10, 2000
- --------------------- --------- ---------------------
Robert Band Date
/s/Richard J. Boushka Director March 10, 2000
- --------------------- --------- ---------------------
Richard J. Boushka Date
/s/Arthur I. Caplan Director March 10, 2000
- --------------------- --------- ---------------------
Arthur I. Caplan Date
/s/Marshall M. Criser Director March 10, 2000
- --------------------- --------- ---------------------
Marshall M. Criser Date
/s/Frederick Doppelt Director March 10, 2000
- --------------------- --------- ---------------------
Frederick Doppelt Date
/s/Arthur J. Fox, Jr. Director March 10, 2000
- --------------------- --------- ---------------------
Arthur J. Fox, Jr. Date
/s/Nancy Hawthorne Director March 10, 2000
- --------------------- --------- ---------------------
Nancy Hawthorne Date
/s/Michael R. Klein Director March 10, 2000
- --------------------- --------- ---------------------
Michael R. Klein Date
/s/Douglas J. McCarron Director March 10, 2000
- --------------------- --------- ---------------------
Douglas J. McCarron Date
/s/Jane E. Newman Director March 10, 2000
- --------------------- --------- ---------------------
Jane E. Newman Date
/s/ David B. Perini Director March 10, 2000
- --------------------- --------- ---------------------
David B. Perini Date
/s/Ronald N. Tutor Director March 10, 2000
- --------------------- --------- ---------------------
Ronald N. Tutor Date
63
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Consolidated
Balance Sheets as of December 31, 1999 and the Consolidated Statements of
Operations for the twelve months ended December 31, 1999 as qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 58,193
<SECURITIES> 0
<RECEIVABLES> 93,785
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 262,096 <F1>
<PP&E> 27,255
<DEPRECIATION> 17,438
<TOTAL-ASSETS> 275,488 <F2>
<CURRENT-LIABILITIES> 213,666
<BONDS> 41,091
0
100
<COMMON> 5,743
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 275,488 <F3>
<SALES> 0
<TOTAL-REVENUES> 1,019,484
<CGS> 0
<TOTAL-COSTS> (969,015)
<OTHER-EXPENSES> 72
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (7,128)
<INCOME-PRETAX> 16,778 <F4>
<INCOME-TAX> (421)
<INCOME-CONTINUING> 16,357
<DISCONTINUED> (100,005)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (83,648)
<EPS-BASIC> (16.04)
<EPS-DILUTED> (16.04)
<FN>
<F1> Includes Equity in Construction Joint Ventures of $82,493, Unbilled Work
of $14,283, Net Current Assets of Discontinued Operations of $12,695 and
Other Short-Term Assets of $647, not currently reflected in this tag
list.
<F2> Includes Other Long-Term Assets of $3,575, not currently reflected in
this tag list.
<F3> Includes Deferred Income Taxes and Other Liabilities of $19,664,
Redeemable Series B Preferred Stock $37,685, Stock Purchase Warrants
$2,233, Paid-In Surplus of $43,561, Retained Deficit of $(87,290), and
Treasury Stock of $(965).
<F4> Includes General, Administrative and Selling Expenses of $26,635 not
currently refelected on this tag list.
</FN>
</TABLE>
Exhibit 10.28
AMENDMENT NO. 11 TO CREDIT AGREEMENT AND WAIVER
AMENDMENT and WAIVER dated as of January 21, 2000 among PERINI
CORPORATION (the "Borrower"), the banks listed on the signature pages hereof
(collectively, the "Banks"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as
Agent (the "Agent").
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks and the Agent are parties to an Amended
and Restated Credit Agreement dated as of January 17, 1997 (as heretofore
amended, the "Credit Agreement");
WHEREAS, Section 6.01(p) of the Credit Agreement provides that an Event
of Default shall occur if the $3,000,000 Letter of Credit issued in favor of
Perini/Suitt (the "Perini/Suitt LC") shall not have expired or been terminated
on or before January 21, 2000 or the Capital Restructuring shall not have become
effective on or before January 21, 2000;
WHEREAS, the Borrower has informed the Banks that the Peirni/Suitt LC
will not expire or terminate on or before January 21, 2000 and the Capital
Restructuring will not become effective on or before January 21, 2000;
WHEREAS, the Borrower has failed to reimburse Harris Trust and Savings
Bank ("Harris Bank") for the amount of a drawing under a letter of credit issued
by Harris Bank, as described in the Forbearance Agreement dated as of September
23, 1999 among Harris Bank, the Borrower and Perini Building Corporation (as
amended, the "Forbearance Agreement");
WHEREAS, the Borrower's failure to reimburse Harris Bank when due for
the amount of such drawing (the "Harris Default") constitutes an Event of
Default under the Credit Agreement, and the Borrower has requested an extension
of the previous waiver granted with respect to the Harris Default;
WHEREAS, the Borrower and the Banks wish to record certain
understandings in connection with the letter dated December 8, 1999 among the
Banks, the Borrower and Ronald N. Tutor (the "Term Sheet Cover Letter") and the
Term Sheet attached thereto (as modified by changed pages distributed subsequent
to the initial distribution of execution pages, the "Term Sheet");
WHEREAS, the parties have agreed to amend the Credit Agreement as
provided herein, and at the request of the Borrower the Banks have agreed to
grant the waiver provided herein;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Definitions. Unless otherwise specifically defined herein,
each term used herein which is defined in the Credit Agreement shall have the
meaning assigned to such term in the Credit Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Credit Agreement shall from and after the date hereof refer to
the Credit Agreement as amended hereby.
Section 2. Amendment to Perini/Suitt LC and Capital Restructuring Event
of Default. Section 6.01(p) of the Credit Agreement is amended by deleting each
of the references to "January 21, 2000" therein and inserting "March 15, 2000"
in lieu thereof.
1
<PAGE>
Section 3. Waiver With Respect to the Harris Default. Solely for the
period from January 27, 1999 through and including the "Harris Waiver
Termination Date" (as defined below), the Banks hereby waive the Default
existing under the Credit Agreement due solely to the Harris Default. As used
herein, "Harris Waiver Termination Date" means the earlier of March 15, 2000 and
the first date, if any, when any of the following events shall occur:
(a) A "Standstill Termination" (as defined in the Forbearance
Agreement) shall occur; or
(b) Harris Bank shall exercise any rights or remedies available to
it in connection with the Harris Default.
Section 4. Amendment and Waiver Fee. (a) In consideration for this
Amendment and Waiver, the Borrower agrees to pay to the Agent a fee for the
account of the Banks in the aggregate amount of $100,000 (to be shared in
proportion to their aggregate Commitments).
(b) In addition, if by February 20, 2000 the Borrower or any Subsidiary
have not received at least $14,000,000 of Net Proceeds from the completion of
the specified real estate sales and headquarters refinancing referred to in the
Term Sheet, the Borrower shall pay to the Agent an additional fee for the
account of the Banks in the aggregate amount of $33,333 (to be shared in
proportion to their aggregate Commitments).
Section 5. Certain Understandings in Connection with the Term Sheet. For
purposes of recording certain further understandings between the parties
concerning, and in certain respects modifying, the Term Sheet, the Banks and the
Borrower note (subject to the reservations in the Term Sheet Cover Letter) the
following:
(a) the Banks will credit the fee paid by the Borrower in accordance
with Section 4(a) of this Amendment and Waiver against the $200,000
restructuring fee contemplated by the Term Sheet to be paid at the closing of
the proposed new credit agreement between the Borrower and the Banks (the "New
Credit Agreement"); and
(b) regardless of the actual closing date of the New Credit Agreement,
(i) the maturity date for final repayment of the term loans contemplated by the
Term Sheet will be the last business day of December, 2002 (and the schedule of
required amortization will be based on this date, beginning with the last
business day of March, 2000), (ii) the termination date for the revolving
commitments under the New Credit Agreement will be January 21, 2003, (iii) the
outside date by which the revolving commitments must be reduced to no more than
$21 million will be April 20, 2000 and (iv) the determination of the Borrower's
obligation to pay the three installments of supplemental restructuring fees will
be measured by a number of days (30, 60 and 90) from January 21, 2000 (but in
the case of the first such installment, if the deadline falls before the actual
closing date, such installment will not apply, having been paid pursuant to
Section 4(b)).
Section 6. Representations and Warranties Correct; No Default. The
Borrower represents and warrants that on and as of the date hereof, after giving
effect to this Amendment and Waiver, (a) the representations and warranties of
each Obligor contained in each Financing Document, as amended, to which it is a
party are true and (b) no Default under the Credit Agreement exists.
Section 7. Effect of Amendments and Waiver. Except as expressly set
forth herein, this Amendment and Waiver shall not constitute an amendment or
waiver of any term or condition of the Credit Agreement or any other Financing
Document, and all such terms and conditions shall remain in full force and
effect and are hereby ratified and confirmed in all respects.
2
<PAGE>
Section 8. Governing Law. This Amendment and Waiver shall be governed by
and construed in accordance with the laws of the State of New York.
Section 9. Counterparts. This Amendment and Waiver may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
Section 10. Consent by Subsidiary Guarantors. By signing this Amendment
and Waiver below, each Subsidiary Guarantor affirms its obligations under the
Subsidiary Guarantee Agreement and acknowledges that this Amendment and Waiver
shall not alter, release, discharge or otherwise affect any of such obligations,
all of which shall remain in full force and effect and are hereby ratified and
confirmed in all respects.
Section 11. Effectiveness. This Amendment and Waiver shall become
effective as of the date hereof when the Agent shall have received:
(a) duly executed counterparts hereof signed by the Borrower, each Bank
and each Subsidiary Guarantor (or, in the case of any party as to which an
executed counterpart shall not have been received, the Agent shall have received
telegraphic, telex or other written confirmation from such party of execution of
a counterpart hereof by such party); and
(b) the fee payable under Section 4 of this Amendment and Waiver.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and
Waiver to be duly executed by their respective authorized officers as of the
date first above written.
3
Exhibit 99.1
Report of Independent Public Accountants
To the Stockholders of Perini Corporation:
We have audited the accompanying combined balance sheets of the joint ventures
identified in Note 1 as of December 31, 1999 and 1998, and the related combined
statements of income, venturers' equity and cash flows for each of the two years
in the period ended December 31, 1999. These financial statements are the
responsibility of the joint ventures' management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the joint ventures identified
in Note 1 as of December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the two years in the period ended December 31,
1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 11, 2000
1
<PAGE>
Exhibit 99.1
<TABLE>
<CAPTION>
Perini Corporation
Combined Balance Sheet of Significant Construction Joint Ventures
December 31, 1999 and 1998
(In thousands)
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents (Notes 2 and 3) $ 8,160 $ 5,244
Accounts Receivable, including Retainage
of $7,736 and $14,733, respectively (Note 2) 41,052 42,081
Advances to Venturers (Note 5) 16,200 13,000
Unbilled Work (Note 2) 47,594 33,982
Other Current Assets 4 4
-------- --------
TOTAL ASSETS $113,019 $ 94,311
======== ========
LIABILITIES
Current Liabilities:
Cash Overdraft (Note 3) $ 4,477 $ 4,318
Accounts Payable, including Retainage
of $8,005 and $10,586, respectively (Note 2) 29,577 43,779
Deferred Contract Revenue (Note 2) 36,100 22,313
Other Current Liabilities 4,772 3,979
-------- --------
Total Current Liabilities 74,926 74,389
-------- --------
Contingencies and Commitments (Note 4)
VENTURERS' EQUITY
Perini Corporation 22,505 12,877
Other Venturers 15,588 7,045
-------- --------
Total Venturers' Equity 38,093 19,922
-------- --------
TOTAL LIABILITIES AND VENTURERS' EQUITY $113,019 $ 94,311
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
Exhibit 99.1
Perini Corporation
Combined Statement of Income of Significant Construction Joint Ventures
For the Years Ended December 31, 1999 and 1998
(In thousands)
1999 1998
-------------- -------------
Contract Revenues (Note 2) $ 188,070 $ 211,895
Cost of Operations:
Materials, Supplies and Subcontracts 118,212 141,710
Salaries and Wages 55,687 46,536
-------------- -------------
Total Contract Costs 173,899 188,246
-------------- -------------
Net Income $ 14,171 $ 23,649
============== =============
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Exhibit 99.1
<TABLE>
<CAPTION>
Perini Corporation
Combined Statement of Venturers' Equity of Significant Construction Joint Ventures
For the Years Ended December 31, 1999 and 1998
(In thousands)
Perini Other
Corporation Venturers Total
------------------ ----------------- ----------------
<S> <C> <C> <C>
Balance, December 31, 1997 $ 12,055 $ 5,218 $ 17,273
Net Income 13,722 9,927 23,649
Distributions (12,900) (8,100) (21,000)
------------------ ----------------- ----------------
Balance, December 31, 1998 $ 12,877 $ 7,045 $ 19,922
Capital Contributions 10,080 7,920 18,000
Net Income 7,748 6,423 14,171
Distributions (8,200) (5,800) (14,000)
------------------ ----------------- ----------------
Balance, December 31, 1999 $ 22,505 $ 15,588 $ 38,093
================== ================= ================
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
Exhibit 99.1
<TABLE>
<CAPTION>
Perini Corporation
Combined Statement of Cash Flows of Significant Construction Joint Ventures
For the Years Ended December 31, 1999 and 1998
(In thousands)
1999 1998
--------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 14,171 $ 23,649
Adjustments to Reconcile Net Income to Net Cash
Provided from Operating Activities: -
Depreciation 2
Changes in Operating Assets and Liabilities: 1,029
Decrease in Accounts Receivable (13,612) 3,965
Increase in Unbilled Work - (8,778)
Decrease in Other Current Assets 159 126
Increase (Decrease) in Cash Overdraft (14,202) (5,719)
Decrease in Accounts Payable 13,787 (2,723)
Increase (Decrease) in Deferred Contract Revenue 793 (1,772)
Increase in Other Current Liabilities 2,098
--------------- ----------------
Net Cash Provided from Operating Activities $ 2,125 $ 10,848
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Fixed Assets $ - $ 37
--------------- ----------------
Net Cash Provided from Investing Activities $ - $ 37
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital Contributions from Venturers $ 18,000 $ -
Distributions to Venturers (14,000) (21,000)
(Increase) Decrease in Advances to Venturers (3,200) 2,000
--------------- ----------------
Net Cash Provided from (Used by) Financing Activities $ 800 $ (19,000)
--------------- ----------------
Net Increase (Decrease) in Cash and Cash Equivalents $ 2,925 $ (8,115)
Cash and Cash Equivalents, Beginning of Period 5,244 13,359
--------------- ----------------
Cash and Cash Equivalents, End of Period $ 8,169 $ 5,244
=============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
Exhibit 99.1
Perini Corporation
Notes to Combined Financial Statements of Significant
Construction Joint Ventures
For the Years Ended December 31, 1999 and 1998
[1] Basis of Combination
Perini Corporation (the "Company"), in the normal conduct of its business, has
entered into partnership arrangements, referred to as "joint ventures", for
certain construction projects in order to share risk, working capital, bonding
and other financial requirements and, in some instances, to obtain more
extensive knowledge of a new local construction market or certain unique
construction expertise required. Each of the joint venture participants is
usually committed to supply a predetermined percentage of capital, as required,
and to share in a predetermined percentage of the income or loss of the project.
These joint ventures are temporary in nature, generally from three to five
years, since they are formed to bid on a specific project, execute the work if
awarded the contract, and are liquidated at the end of the project. While
control over the actual construction work performed is normally delegated to the
designated joint venture sponsor, usually the partner with a 50% or higher
percentage interest in the project, the overall management of the joint venture
resides with a Management Committee that requires unanimous approval of certain
key operational and financial matters such as the amount of the original bid,
ability to borrow funds, incur debt, guarantees and lease commitments and
investment policy regarding venture funds. In addition, the Management Committee
requires unanimous approval over terms of sale of venture assets, settlement
guidelines related to contract claims and any transaction between the joint
venture and any of its partners.
In accordance with Rule 3-09 of Regulation S-X, the Company has presented
combined financial statements of construction joint ventures rather than
separate financial statements for each joint venture, because the Company
believes that reporting the financial results of any one construction joint
venture by itself would not be significant to users and could be detrimental to
the Company when negotiating unapproved contract change orders and claims with
the owner of the project or could unfairly assist competitors when bidding
against the Company on similar contracts in the future. The following
construction joint ventures have been combined in the accompanying financial
statements:
<TABLE>
Joint Venture Name Type of Work
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
Perini/O&G, A Joint Venture Rehabilitation work on the Williamsburg Bridge in New
York City for the New York City Department of Traffic.
Perini/Kiewit/Cashman, A Joint Venture Tunnel and road work in Boston, MA for the
Massachusetts Highway Department.
Perini/Slattery, A Joint Venture Hudson-Bergen Light Rail Transit project in New Jersey
for the New Jersey Transit Corporation.
</TABLE>
[2] Significant Accounting Policies
[a] Long-Term Contracts
Profits from construction joint venture contracts are generally recognized by
applying the percentages of completion for each year to the total estimated
profits for the contracts. The percentages of completion are determined by
relating the actual cost of the work performed to date to the current estimated
total cost of the respective contracts. When the estimate on a contract
indicates a loss, the ventures' policy is to record the entire loss. The
cumulative effect of revisions in estimates of total cost or revenue during the
course of the work is reflected in the accounting period in which the facts that
caused the revision become known. An amount equal to the costs attributable to
unapproved change orders and
6
<PAGE>
Exhibit 99.1
Perini Corporation
Notes to Combined Financial Statements of Significant Construction Joint
Ventures
For the Years Ended December 31, 1999 and 1998
(Continued)
[2] Significant Accounting Policies (continued)
[a] Long-Term Contracts (continued)
claims is included in the total estimated revenue when realization is probable.
Profit from unapproved change orders and claims is recorded in the year such
amounts are resolved.
In accordance with normal practice in the construction industry, the joint
ventures include in current assets and current liabilities amounts related to
construction contracts realizable and payable over a period in excess of one
year. Unbilled work represents the excess of contract costs and profits
recognized to date on the percentage of completion accounting method over
billings to date on certain contracts. Deferred contract revenue represents the
excess of billings to date over the amount of contract costs and profits
recognized to date on the percentage of completion accounting method on the
remaining contracts.
[b] Income Taxes
The joint ventures have not recorded any provision for income taxes in the
accompanying combined financial statements as such liabilities are the
responsibility of the joint venture partners.
[c] Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. The
most significant estimates with regard to the accompanying combined financial
statements relate to the estimating of final construction contract profit in
accordance with accounting for long-term contracts (see Note 2[a]) and
estimating potential liabilities in conjunction with certain commitments and
contingencies, as discussed in Note 4. Actual results could differ from
management's estimates and assumptions.
[d] Fair Value of Financial Instruments
The joint ventures' financial instruments consist primarily of cash and cash
equivalents, contract accounts receivable and accounts payable. The carrying
amount of these financial instruments approximates fair value due to their
short-term nature.
[e] Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with original
maturities of three months or less.
[3] Cash Management
The joint ventures regularly invest excess cash in highly liquid, interest
bearing investments. These temporary investments are converted to cash on an "as
needed" basis to fund obligations as they become due. The amount of cash
overdraft represents the amount of checks outstanding which have not been
presented for payment as of December 31, 1999 and 1998.
7
<PAGE>
Exhibit 99.1
Perini Corporation
Notes to Combined Financial Statements of Significant
Construction Joint Ventures
For the Years Ended December 31, 1999 and 1998
(Continued)
[4] Contingencies and Commitments
The joint ventures have noncancellable office and equipment leases with varying
expiration dates through July 31, 2005. The following is a schedule, by year, of
future minimum rental payments required under all operating leases that have
remaining noncancellable lease terms as of December 31, 1999:
Year Lease Commitments
------------ -----------------
2000 $ 1,314,315
2001 489,913
2002 361,092
2003 208,092
2004 208,092
2005 121,387
-----------------
$ 2,702,891
=================
For the years ended December 31, 1999 and 1998, rent expense relating to
noncancellable operating leases amounted to $1,764,182 and $1,261,350,
respectively, which is included in contract costs.
Contingent liabilities include liability of contractors for performance and
completion of the joint venture construction contracts. In addition, the joint
ventures are involved in arbitration and alternative dispute resolution ("ADR")
proceedings. In the opinion of management of the various joint ventures, the
resolution of these proceedings will not have a material effect on the results
of operations or financial condition as reported in the accompanying combined
financial statements.
[5] Related Party Transactions
Certain joint ventures periodically make temporary cash advances to the joint
venture participants. At December 31, 1999, the amount of such temporary cash
advances to Perini Corporation and other joint venture participants totalled
$8,760,000 and $7,440,000, respectively. At December 31, 1998, the amount of
such temporary cash advances to Perini Corporation and other joint venture
participants totalled $8,000,000 and $5,000,000, respectively.
[a] Perini Corporation
Significant billings from the Company to the joint ventures, included in the
accompanying combined financial statements, for various services for the years
ended December 31, 1999 and 1998 were as follows:
<TABLE>
1999 1998
--------------- --------------
<S> <C> <C>
Equipment Rental $2,948,330 $1,658,258
Labor, Job Materials and Administrative Costs, including management fees 9,647,313 7,172,284
--------------- --------------
$12,595,643 $8,830,542
=============== ==============
</TABLE>
The above amounts include contract costs and profit paid to the Company as a
subcontractor to a certain joint venture. At December 31, 1999, the subcontract
was complete and had a final price of $33,871,625.
8
<PAGE>
Exhibit 99.1
Perini Corporation
Notes to Combined Financial Statements of Significant
Construction Joint Ventures
For the Years Ended December 31, 1999 and 1998
(Continued)
[5] Related Party Transactions (continued)
[b] Other Joint Venturers
Included in the combined joint ventures' cost of operations are charges for
labor and certain other job material costs that were incurred with the various
related parties.
[6] Employee Benefit Plans
The combined construction joint ventures contribute to various multi-employer
union retirement plans under collective bargaining agreements, which provide
retirement benefits for substantially all of its union employees. The
Multi-employer Pension Plan Amendments Act of 1980 defines certain employer
obligations under multi-employer plans. Information regarding union retirement
plans are not available from plan administrators to enable the Company to
determine its share of unfunded vested liabilities.
Supervisory personnel are generally covered under the sponsoring joint
venturer's plan.
9
