UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6314
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-1717070
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
73 MT. WAYTE AVENUE, FRAMINGHAM, MASSACHUSETTS 01701-9160
(Address of principal executive offices)
(Zip code)
(508)-628-2000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No __
Number of shares of common stock of registrant outstanding at November 8, 2002: 22,664,135
Page 1 of 29
PERINI CORPORATION & SUBSIDIARIES
INDEX
Page Number
Part I. - Financial Information:
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets- 3
September 30, 2002 and December 31, 2001
Consolidated Condensed Statements of Income - 4
Three Months and Nine Months ended September 30, 2002 and 2001
Consolidated Condensed Statements of Cash Flows - 5
Nine Months ended September 30, 2002 and 2001
Notes to Consolidated Condensed Financial Statements 6 - 14
Item 2. Management's Discussion and Analysis of the Consolidated Financial 15 - 19
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Item 4. Controls and Procedures 19
Part II. - Other Information:
Item 1. Legal Proceedings 20 - 22
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23 - 26
Signatures 27
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 28 - 29
PERINI CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
(In Thousands)
ASSETS SEPT. 30, DEC. 31,
2002 2001
------------- --------------
Cash $ 7,535 $ 28,015
Accounts and Notes Receivable 153,464 232,129
Unbilled Work 40,776 37,564
Construction Joint Ventures 89,513 91,147
Net Current Assets of Discontinued Operations 12,005 11,740
Other Current Assets 5,042 979
------------- --------------
Total Current Assets $ 308,335 $ 401,574
------------- --------------
Other Assets $ 2,875 $ 3,006
------------- --------------
Property and Equipment, less Accumulated Depreciation of $20,087 in 2002 and
$18,768 in 2001 $ 14,327 $ 12,405
------------- --------------
$ 325,537 $ 416,985
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Maturities of Long-term Debt (Note 3) $ 770 $ 10,249
Accounts Payable 119,300 218,314
Advances from Construction Joint Ventures 8,001 20,851
Deferred Contract Revenue 31,991 29,468
Accrued Expenses 17,927 29,323
------------- --------------
Total Current Liabilities $ 177,989 $ 308,205
------------- --------------
Long-term Debt, less current maturities included above (Note 3) $ 33,700 $ 7,540
------------- --------------
Other Long-term Liabilities (Note 6) $ 22,484 $ 21,832
------------- --------------
Contingencies and Commitments (Note 7)
Stockholders' Equity:
Preferred Stock $ 100 $ 100
Series A Junior Participating Preferred Stock - -
Stock Purchase Warrants 2,233 2,233
Common Stock 22,725 22,725
Paid-In Surplus 96,078 97,671
Retained Earnings (Deficit) (22,942) (36,491)
Less - Treasury Stock (965) (965)
------------- --------------
$ 97,229 $ 85,273
Accumulated Other Comprehensive Loss (5,865) (5,865)
------------- --------------
Total Stockholders' Equity $ 91,364 $ 79,408
------------- --------------
$ 325,537 $ 416,985
============= ==============
The accompanying notes are an integral part of these financial statements.
PERINI CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In Thousands, Except Share and Per Share Data)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------- ------------------------------
2002 2001 2002 2001
-------------- -------------- -------------- -------------
Revenues (Note 8) $ 232,805 $ 417,476 $ 822,482 $1,190,876
Cost of Operations 220,429 403,868 784,744 1,148,912
-------------- -------------- -------------- -------------
Gross Profit $ 12,376 $ 13,608 $ 37,738 $ 41,964
General and Administrative Expenses 8,187 7,019 21,132 19,417
-------------- -------------- -------------- -------------
INCOME FROM OPERATIONS (Note 8) $ 4,189 $ 6,589 $ 16,606 $ 22,547
Other Income (Expense), Net 42 (67) (360) (67)
Interest Expense (387) (439) (1,146) (1,608)
-------------- -------------- -------------- -------------
Income before Income Taxes $ 3,844 $ 6,083 $ 15,100 $ 20,872
Provision for Income Taxes (Note 4) 200 240 551 850
-------------- -------------- -------------- -------------
NET INCOME $ 3,644 $ 5,843 $ 14,549 $ 20,022
============== ============== ============== =============
Less: Accrued Dividends on $21.25 Preferred Stock (Note 6) (532) (532) (1,594) (1,594)
-------------- -------------- -------------- -------------
NET INCOME AVAILABLE FOR COMMON STOCKHOLDERS $ 3,112 $ 5,311 $ 12,955 $ 18,428
============== ============== ============== =============
BASIC EARNINGS PER COMMON SHARE (Note 5) $ 0.14 $ 0.23 $ 0.53 $ 0.82
============== ============== ============== =============
DILUTED EARNINGS PER COMMON SHARE (Note 5) $ 0.14 $ 0.22 $ 0.52 $ 0.79
============== ============== ============== =============
DIVIDENDS PER COMMON SHARE (Note 6) $ - $ - $ - $ -
============== ============== ============== =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note 5):
BASIC 22,664,135 22,641,342 22,664,135 22,609,961
============== ============== ============== =============
DILUTED 22,677,505 23,748,738 23,028,080 23,384,381
============== ============== ============== =============
The accompanying notes are an integral part of these financial statements.
PERINI CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(In Thousands)
NINE MONTHS
ENDED SEPTEMBER 30,
----------------------------
2002 2001
------------ -------------
Cash Flows from Operating Activities:
Net income $ 13,549 $ 20,022
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 2,309 1,905
Other long-term liabilities (941) (2,658)
Distributions greater than earnings of joint ventures 13,036 27,774
Cash used by changes in components of working capital other
than cash, net current assets of discontinued operations and current maturities of
long-term debt (51,430) (52,977)
Other non-cash items, net (32) (92)
------------ -------------
NET CASH USED BY OPERATING ACTIVITIES $ (23,509) $ (6,026)
------------ -------------
Cash Flows from Investing Activities:
Proceeds from sale of property and equipment $ 140 $ 183
Acquisition of property and equipment (3,710) (3,656)
Capital distributions from unconsolidated joint ventures 9,675 600
Capital contributions to unconsolidated joint ventures (18,994) (15,197)
Investment in discontinued operations (265) (181)
Investment in other activities (498) (58)
------------ -------------
NET CASH USED BY INVESTING ACTIVITIES $ (13,652) $ (18,309)
------------ -------------
Cash Flows from Financing Activities:
Proceeds from long-term debt $ 26,816 $ 405
Reduction of long-term debt (10,135) (7,841)
Proceeds from exercise of Common Stock options - 274
------------ -------------
NET CASH PROVIDED FROM (USED BY) FINANCING ACTIVITIES $ 16,681 $ (7,162)
------------ -------------
Net Decrease in Cash $ (20,480) $ (31,497)
Cash at Beginning of Year 28,015 59,515
------------ -------------
Cash at End of Period $ 7,535 $ 28,018
============ =============
Supplemental Disclosure of Cash Paid During the Period For:
Interest $ 2,100 $ 1,648
============ =============
Income tax payments $ 1,401 $ 1,019
============ =============
The accompanying notes are an integral part of these financial statements.
PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) Basis of Presentation
The unaudited consolidated condensed financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the information and note
disclosures required by accounting principles generally accepted in the United States. These statements
should be read in conjunction with the financial statements and notes thereto included in the Company's
Form 10-K for the year ended December 31, 2001. In the opinion of management, the accompanying unaudited
condensed financial statements include all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the Company's financial position as of September 30, 2002 and December 31,
2001 and results of operations and cash flows for the three month and nine month periods ended September
30, 2002 and 2001. The results of operations for the nine month period ended September 30, 2002 may not
be indicative of the results that may be expected for the year ending December 31, 2002 because the
Company's results are primarily generated from a limited number of significant active construction
contracts. Therefore, such results can vary depending on the timing of progress achieved and changes in
estimated profitability of projects being reported.
(2) Significant Accounting Policies and New Accounting Pronouncements
The significant accounting policies followed by the Company and its subsidiaries in preparing its
consolidated financial statements are set forth in Note (1) to such financial statements included in Form
10-K for the year ended December 31, 2001. The Company has made no significant change in these policies
during 2002.
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 142, "Goodwill and Other
Intangible Assets" which addresses the financial accounting and reporting for acquired goodwill and other
intangible assets. With the adoption of SFAS No. 142, goodwill is no longer subject to amortization over
its estimated useful life. Rather, goodwill will be subject to at least an annual assessment for
impairment by applying a fair-value-based test. The Company adopted SFAS No. 142 on January 1, 2002 and
ceased amortizing goodwill. The amount of unamortized goodwill at December 31, 2001 is approximately
$1,017,000 and is included in "Other Assets" in the accompanying Consolidated Condensed Balance Sheets.
The Company completed the transitional impairment test in 2002 and concluded that goodwill was not
impaired. Therefore, the adoption of SFAS No. 142 did not have a material impact on the Company's
consolidated financial position or results of operations for the three month or nine month periods ended
September 30, 2002.
In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-lived
Assets". SFAS No. 144 establishes a single accounting model for the impairment or disposal of long-lived
assets and new standards for reporting discontinued operations. The Company adopted SFAS No. 144 on
January 1, 2002. The adoption of SFAS No. 144 had no impact on the Company's consolidated financial
position or results of operations for the three month or nine month periods ended September 30, 2002.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities." This statement supersedes Emerging Issues Task Force (EITF) No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." Under this
statement, a liability for a cost associated with an exit or disposal activity is recognized at fair
value when the liability is incurred rather than at the date of an entity's commitment to an exit plan as
required under EITF 94-3. The provisions of SFAS No. 146 are effective for exit or disposal activities
that are initiated after December 31, 2002, with early adoption permitted. The Company is currently
evaluating the impact of SFAS No.146 on the Company's consolidated financial position and results of
operations.
PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
(3) Long-term Debt
On January 23, 2002, the Company entered into an agreement with a bank group to refinance its prior
credit facility with a new $45 million credit agreement (the "Credit Agreement"). The Credit Agreement
provides for a two year secured revolving credit facility which, if not extended or repaid after two
years, converts amounts then outstanding to a three year term loan with equal quarterly principal
payments. Because of this provision, borrowings under the Credit Agreement are classified as "Long-term
Debt" in the accompanying Consolidated Condensed Balance Sheets.
(4) Provision For Income Taxes
The provision for income taxes reflects a lower than normal tax rate in both 2002 and 2001 due primarily
to the realization of a portion of the federal tax benefit not recognized in prior years due to certain
accounting limitations. In addition, the provision for income taxes for the nine months ended September
30, 2002 includes the reversal of the federal alternative minimum tax provided in 2001 which is no longer
required based on the provisions of the Job Creation and Worker Assistance Act of 2002.
(5) Per Share Data
Basic earnings per common share was computed by dividing net income less accrued dividends on the $21.25
Preferred Stock (see Note 6) by the weighted average number of common shares outstanding. Diluted
earnings per common share was similarly computed after giving consideration to the dilutive effect of
stock options outstanding on the weighted average number of common shares outstanding.
Options to purchase 3,356,834 shares of Common Stock at prices ranging from $4.50 to $16.44 per share
were outstanding at September 30, 2002 but were not included in the computation of diluted EPS because
the options' exercise price was greater than the average market price of the Common Stock. Options to
purchase 574,000 shares of Common Stock at prices ranging from $8.10 to $16.44 per share were outstanding
at September 30, 2001 but were not included in the computation of diluted EPS because the options'
exercise price was greater than the average market price of the Common Stock. In addition, the effect of
the assumed conversion of the Company's $21.25 Preferred Stock and Stock Purchase Warrants into Common
Stock is antidilutive for all periods presented.
(6) Dividends
(a) Common Stock
There were no cash dividends declared or paid on the Company's outstanding Common Stock during the
periods presented in the consolidated condensed financial statements included herein.
(b) $21.25 Preferred Stock
In conjunction with the covenants of the Company's prior Credit Agreements, the Company was required
to suspend the payment of quarterly dividends on its $21.25 Preferred Stock until certain financial
criteria were met. Quarterly dividends on the $21.25 Preferred Stock have not been paid since 1995
(although they have been fully accrued due to the "cumulative" feature of the $21.25 Preferred
Stock). The aggregate amount of dividends in arrears is approximately $14,874,000 at September 30,
2002, which represents approximately $148.74 per share of $21.25 Preferred Stock or approximately
$14.87 per Depositary Share and is included in
PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
(6) Dividends (continued)
(b) $21.25 Preferred Stock (continued)
"Other Long-term Liabilities" in the Consolidated Condensed Balance Sheets. Under the terms of the
$21.25 Preferred Stock, the holders of Depositary Shares are entitled to elect two additional Directors
when dividends have been deferred for more than six quarters, and they did so at each of the last five
Annual Meetings of Stockholders.
The Company's most recent Credit Agreement, entered into in January 2002, does not contain restrictions
relative to the payment of dividends. However, the Board of Directors does not currently believe that
it is proper or prudent to pay or commit to pay dividends on the $21.25 Preferred Stock for the
foreseeable future based on the Company's other working capital requirements.
(7) Contingencies and Commitments
(a) Mergentime - Perini Joint Ventures vs. WMATA Matter
On May 11, 1990, two joint ventures in which Perini Corporation held a minority interest ("Joint
Ventures") were terminated by the Washington Metropolitan Area Transit Authority ("WMATA") on two
adjacent subway construction contracts in the District of Columbia. The contracts were awarded to
the Joint Ventures in 1985 and 1986. However, Perini and Mergentime Corporation ("Mergentime"), the
60% managing partner, entered into an agreement in 1987 under which Perini withdrew from the Joint
Ventures and Mergentime assumed complete control over the performance of both projects. This agreement did not relieve Perini of its
responsibilities to WMATA as a Joint Venture partner. After Perini withdrew from the Joint Ventures,
Mergentime and WMATA were embroiled in a dispute regarding progress on the projects. Each party
blamed the other for delays that were impacting both cost and progress and the parties were unable to
resolve their dispute. Ultimately, both construction contracts were terminated by WMATA and WMATA
retained Perini, acting independently, to complete both projects.
Subsequently, the Joint Ventures brought an action in the United States District Court for the District of Columbia against WMATA, seeking damages for delays, unpaid extra work and wrongful termination and WMATA brought an action against the Joint Ventures seeking damages for additional costs to complete the projects. After a bench trial before two District Court Judges (the initial Judge died before the matter could be concluded), the District Court found the Joint Ventures liable to WMATA for damages in the amount of approximately $16.5 million and WMATA liable to the Joint Ventures for damages in the amount of approximately $4.3 million.
The Joint Ventures appealed the judgment to the United States Court of Appeals for the District of Columbia ("Court of Appeals"), arguing, among other things, that the second District Court Judge had issued his final decision without fully familiarizing himself with the record of the initial District Court Judge. On February 16, 1999, the Court of Appeals vacated the District Court's final judgment and ordered the successor District Court Judge to review the findings of the initial Judge and hold further hearings in regard to the Joint Venture's affirmative claims. In addition, the Court of Appeals held that statutory interest on any of the claims will not accrue until final judgment is entered sometime in the future. Later in 1999, the case was transferred to a new successor District Court Judge.
PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
(7) Contingencies and Commitments (continued)
(a) Mergentime - Perini Joint Ventures vs. WMATA Matter (continued)
On February 28, 2001, the new successor District Court Judge informed the parties that in the absence
of a new trial, he could not certify adequate familiarity with the record to complete the remaining
proceedings; therefore, he ordered that the Joint Venture's motion for a new trial be granted.
A new trial before the new successor District Court Judge was completed in January 2002 and a decision is still pending.
(b) Tutor-Saliba-Perini Joint Venture vs. Los Angeles MTA Matter
On March 11, 1995, a joint venture, Tutor-Saliba-Perini ("TSP"), in which Perini Corporation is a 40%
minority partner and Tutor-Saliba Corporation of Sylmar, CA is the 60% managing partner, filed a
complaint in the Superior Court of the State of California for the County of Los Angeles against the
Los Angeles County Metropolitan Transportation Authority ("MTA") seeking to recover costs for extra
work required by the MTA in connection with the construction of the Wilshire/Normandie Subway
Station. TSP was seeking additional compensation from the MTA for claims related to the
construction and in February 1999 the MTA countered with civil claims under the California False
Claims Act against TSP, Tutor- Saliba Corporation, Perini Corporation and other parties. Ronald N.
Tutor, the Chairman and CEO of Perini Corporation since March of 2000, is also the CEO and the sole
stockholder of Tutor-Saliba Corporation.
Claims concerning the construction of the Wilshire/Normandie Subway Station were tried before a Jury in 2001. During trial, the Judge ruled that TSP had failed to comply with the Court's prior discovery orders and the Judge penalized TSP for its alleged non-compliance by dismissing TSP's claim and by ruling, without a Jury finding, that TSP was liable to the MTA for damages on the MTA's counterclaim. The Judge then instructed the Jury that TSP was liable to the MTA and charged the Jury with the responsibility of determining the amount of the damages based on the Judge's ruling. The Jury awarded the MTA approximately $29.6 million in damages.
On March 26, 2002, the Judge amended the award, ordering TSP to pay the MTA an additional $33.4 million in costs and attorney fees, with the aggregate $63.0 million award subject to interest at an annual rate of 10% from the date of the award.
TSP and the other plaintiffs/defendants in counterclaim have appealed the Judge's discovery sanction, the subsequent Jury award and the amended award. The ultimate financial impact of the Judge's ruling and/or the awards is not yet determinable. Therefore, no provision for loss, if any, has been recorded in the financial statements.
PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
(7) Contingencies and Commitments (continued)
(c) Perini/Kiewit/Cashman Joint Venture - Central Artery/Tunnel Project Matter
Perini/Kiewit/Cashman Joint Venture ("PKC"), a joint venture in which Perini Corporation holds a 56%
interest and is the managing partner, is currently pursuing a series of claims for additional contract
time and/or compensation against the Massachusetts Highway Department ("MHD") for work performed by PKC
on a portion of the Central Artery/Tunnel project in Boston, Massachusetts. The claims relate to the
construction of the Northbound Mainline Central Artery Tunnel from Kneeland Street to Congress Street.
During construction, MHD ordered PKC to perform changes to the work and issued related direct cost
changes with an estimated value, excluding time delay and inefficiency costs, in excess of $100
million. In addition, PKC encountered a number of unforeseen conditions during construction that
greatly increased PKC's cost of performance.
PKC's claims are currently being presented to a Disputes Review Board ("DRB") which consists of three construction experts chosen by the parties. To date, the DRB has ruled on a binding basis that PKC is entitled to additional compensation for its contract time delay claim in the amount of $17.4 million. A Judge of the Massachusetts Superior Court has issued a decision upholding the DRB's binding award to PKC. Although MHD challenged several of the DRB's decisions relative to the contract time delay award discussed above, PKC received a favorable ruling on March 20, 2002 from the Superior Court of the Commonwealth of Massachusetts that approved PKC's request to have MHD comply with the DRB's decision to award the $17.4 million for the time delay. The MHD has appealed the Superior Court decision to the Appeals Court of the Commonwealth of Massachusetts.
The DRB has also ruled on a binding basis that PKC is entitled to additional compensation for impacts and inefficiencies caused by MHD to PKC's underpinning work in the amount of $5.6 million and that PKC is entitled to additional compensation for impacts and inefficiencies caused by MHD to PKC's utility work in the amount of $11.5 million. PKC has filed applications in these actions seeking to confirm the awards and MHD has filed civil actions in Massachusetts Superior Court seeking to vacate these awards.
Under the Dispute Resolution Rules of the Contract, either party may periodically terminate the services of some or all of the DRB members provided that Members who are removed under this provision will remain on the Board through the completion of any then pending claims. The MHD has chosen to remove the current DRB Members under this provision and those Members are in the process of completing hearings on all pending claims. Replacement DRB members have been agreed upon and an initial meeting of the new Board is scheduled for December 2002.
The pending claims yet to be decided by the current/replacement DRB on a binding basis have an anticipated value of $41.3 million. The remaining claims to be decided by the replacement DRB on a non-binding basis have an anticipated value of $50.0 million. The ultimate financial impact of resolving all of the claims on this project is not yet determinable.
PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
(7) Contingencies and Commitments (continued)
(d) Perini Building Company, Inc. vs. Saginaw Chippewa Indian Tribe of Michigan Matter
In 1995, Perini Building Company, Inc. ("PBC"), a wholly owned subsidiary of Perini Corporation, was
hired by the Saginaw Chippewa Indian Tribe ("Tribe") to construct a hotel/casino resort in Mt.
Pleasant, Michigan. Since the design for the project was still in process at the time of contract, the
parties planned to proceed with construction on a fast-track basis as the design was completed by the
Tribe's architect. Although PBC completed a major portion of construction under this fast-track
arrangement, a final design was never completed by the Tribe's architect. Ultimately, a dispute arose
between the Tribe and the architect regarding the architect's failure to complete the design and the
Tribe eventually terminated all contracts on the project, including its contract with the architect and
its contract with PBC. Separate arbitration proceedings were then initiated between the Tribe and the
architect and between the Tribe and PBC.
On June 5, 2000, the American Arbitration Association found in favor of PBC against the Tribe, awarding PBC approximately $8.9 million in damages, plus costs and attorney/consultants fees in the amount of approximately $1.2 million. On October 30, 2000, PBC filed an action to enforce the award in the Tribal Court of the Saginaw Chippewa Indian Tribe. On January 31, 2002, the Tribal Court refused to confirm the award, claiming that the Tribal Court does not have jurisdiction because the Tribe is immune from suit as a sovereign nation. The contract between PBC and the Tribe provides that PBC may seek enforcement of the award in United States Federal Court if the Tribal Court finds that it does not have jurisdiction. In February 2002, PBC filed an action to enforce the arbitration award in the United States District Court for Michigan ("USDC") and in March 2002 PBC moved for Summary Judgment of its claim in that action. In addition, in February 2002, PBC filed an appeal of the Tribal Court's refusal to enforce the award in the Saginaw Chippewa Appellate Court. The Tribe has moved to dismiss the Federal Court action. On October 11, 2002, PBC's appeal to the Tribal Appellate Court was heard by a three judge panel. To date no decision has been rendered by the Tribal Appellate Court. A hearing on PBC's motion to confirm the arbitration award and the Tribe's motion to dismiss the USDC claim has been scheduled before the Federal District Court for November 25, 2002.
(e) San Francisco State University vs. Perini Matter This is an action originally brought on June 9, 1999 in San Francisco County Superior Court by San Francisco State University ("SFSU") against Perini and several subcontractors in conjunction with the design and construction of a student dormitory. SFSU alleged that the building suffers from water leakage and structural deficiencies. SFSU sought damages in excess of $85 million, including damages for leak repairs and mold abatement, damages for structural repairs, damages for economic losses, punitive damages and attorneys' fees. Perini asserted that the building was properly designed and constructed under the contractually identified building code.
Perini was defended by its insurance carriers under a reservation of rights. Perini had brought a third party action for comparative indemnity, equitable indemnity, implied contractual indemnity and declaratory relief against nine of Perini's subcontractors and lower-tier subcontractors.
PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
(7) Contingencies and Commitments (continued)
(e) San Francisco State University vs. Perini Matter (continued)
The trial began on June 25, 2002 and proceeded until August 2, 2002 when all claims, counterclaims and
crossclaims of all parties were settled and that settlement was approved by the Court. Under the terms
of the settlement, Perini has paid to SFSU economic damages in the amount of $16.7 million and will
make certain defined repairs and/or modifications to the building. Also under the terms of the
settlement, Perini's subcontractors and insurance carriers for both Perini and its subcontractors have
contributed substantially to the total amount of the settlement. As a result, management believes that
the settlement of this case will not have a material effect on the Company's results of operations or
financial condition.
(f) $21.25 Preferred Shareholders Class Action Lawsuit
On May 3, 2001 the Company, including several of its current and former directors ("Defendant
Directors"), was served with a complaint entitled Frederick Doppelt, Arthur I. Caplan and Michael Miller
v. Perini Corporation, et al, Supreme Court of the State of New York, County of New York, Civil Action
No. 602156/01. Each plaintiff was a holder of the Company's $21.25 Convertible Exchangeable Preferred
Stock ("$21.25 Preferred Stock"). One plaintiff, Mr. Doppelt, is a current Director of the Company and
one plaintiff, Mr. Caplan, is a former Director of the Company. Plaintiffs purported to bring the action
individually and on behalf of the entire class of holders of the $21.25 Preferred Stock.
The Plaintiffs asserted claims for breach of contract, breach of fiduciary duty, fraud and negligent misrepresentation. The Plaintiffs principally alleged that the Company and its Defendant Directors improperly authorized the exchange of Series B Preferred Stock for Common Stock without first paying all accrued dividends on the $21.25 Preferred Stock. More specifically, Plaintiffs alleged that the Company and its Defendant Directors violated the terms of the $21.25 Preferred Stock when, in March 2000, the Company authorized the exchange of Series B Preferred Stock for Common Stock. The Plaintiffs further alleged that the Company and its Defendant Directors issued a false and misleading prospectus in 1987 relating to the issuance of the $21.25 Preferred Stock. The Plaintiffs sought payment of accrued dividends, claiming they were owed approximately $11.7 million as of May 3, 2001, and other unspecified punitive and exemplary damages.
On May 23, 2001, the Company and the Defendant Directors removed the action from the Supreme Court of New York to the United States District Court for the Southern District of New York.
On June 26, 2001, the Plaintiffs filed an Amended Complaint whereby the Plaintiffs limited their Class Action to an action for breach of contract against the Company and an action for breach of fiduciary duty against the Defendant Directors. The Company and the Defendant Directors moved to dismiss all of the Plaintiffs' claims.
On March 12, 2002, all claims against the Company and the Defendant Directors were dismissed by the United States District Court for the Southern District of New York.
In April 2002, the Plaintiffs appealed the dismissal to the United States Court of Appeals for the Second Circuit.
PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
(7) Contingencies and Commitments (continued)
(f) $21.25 Preferred Shareholders Class Action Lawsuit (continued)
On October 15, 2002, the Plaintiffs filed a new action for breach of fiduciary duty against the
Defendant Directors in the United States District Court for the District of Massachusetts. The Company
and the Defendant Directors are preparing a motion to dismiss all of these claims.
(g) City of San Francisco suit against Tutor-Saliba Perini & Buckley Joint Venture
On November 1, 2002, the
San Francisco City Attorney, on behalf of the City and County of San Francisco
and the citizens of California (“Plaintiffs”), filed a civil action
with a demand for a jury trial against Tutor-Saliba Corporation
(“TSC”), the Tutor-Saliba, Perini & Buckley, Joint Venture
(“JV”), Perini Corporation (“Perini”), Buckley &
Company, Inc. (“Buckley”) and their bonding companies in the United
States District Court in San Francisco relating to seven contracts for work on
the expansion of the San Francisco International Airport. The Plaintiffs allege
various overcharges, bidding violations, violations of minority contracting
regulations, civil fraud, and violations of the California and San Francisco
False Claims and California Unfair Competition Acts. In addition, the Plaintiffs
allege that TSC has violated the United States Racketeer Influenced Corrupt
Organizations Act. The Plaintiffs have asserted $30 million in damages and are
seeking treble damages, various civil penalties and debarment of the JV and TSC
from doing business with the City of San Francisco. The Plaintiffs have not
allocated their claims for damages and penalties amongst the defendants or the
seven contracts at issue, only two of which involved the JV. TSC is the managing
partner of the JV, and in December 1997, Perini sold its entire 20% interest in
the JV to TSC. TSC has agreed to indemnify Perini from any liability arising out
of the joint venture, including legal fees and expenses. Management will
investigate and vigorously defend Perini in this matter. As noted above, TSC is
wholly owned by Ronald N. Tutor, who became Chairman and Chief Executive Officer
of Perini in March 2000.
(h) Other
Contingent liabilities also include liability of contractors for performance and completion of both
Company and joint venture construction contracts. In addition to the legal matters described above, the
Company is involved 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 Company's results of operations or financial condition.
PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
(8) Business Segments
The following tables set forth certain business segment information relating to the Company's operations
for the three month and nine month periods ended September 30, 2002 and 2001 (in thousands):
Nine months ended September 30, 2002
Reportable Segments
--------------------------------------------
Consolidated
Building Civil Totals Corporate Totals
------------- ------------- -------------- ------------ ----------------
Revenues $586,073 $ 236,409 $ 822,482 $ - $ 822,482
Income from Operations $ 18,432 $ 1,849 $ 20,281 $ (4,675)* $ 15,606
Assets $134,966 $ 169,173 $ 304,139 $ 21,398 ** $ 325,537
Nine months ended September 30, 2001
Reportable Segments
--------------------------------------------
Consolidated
Building Civil Totals Corporate Totals
------------- ------------- -------------- ------------ ----------------
Revenues $937,581 $ 253,295 $ 1,190,876 $ - $ 1,190,876
Income from Operations $ 25,456 $ 1,083 $ 26,539 $ (3,992)* $ 22,547
Assets $196,624 $ 154,034 $ 350,658 $ 40,937 ** $ 391,595
Three months ended September 30, 2002
Reportable Segments
--------------------------------------------
Consolidated
Building Civil Totals Corporate Totals
------------- ------------- -------------- ------------ ----------------
Revenues $154,933 $ 77,872 $ 232,805 $ - $ 232,805
Income from Operations $ 5,515 $ 493 $ 6,008 $ (1,819)* $ 4,189
Three months ended September 30, 2001
Reportable Segments
--------------------------------------------
Consolidated
Building Civil Totals Corporate Totals
------------- ------------- -------------- ------------ ----------------
Revenues $326,698 $ 90,778 $ 417,476 $ - $ 417,476
Income from Operations $ 9,790 $ (1,883) $ 7,907 $ (1,318)* $ 6,589
* In all periods, consists of corporate general and administrative expenses.
** In all periods, corporate assets consist principally of cash, cash equivalents, marketable securities
and other investments available for general corporate purposes plus the net assets of discontinued
operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
Results of Operations
Comparison of the Third Quarter of 2002 with the Third Quarter of 2001
Overall revenue from construction operations decreased by $184.7 million (or 44.2%), from $417.5 million in 2001 to $232.8 million in 2002. This decrease was due primarily to a decrease in building construction revenues of $171.8 million (or 52.6%), from $326.7 million in 2001 to $154.9 million in 2002. Civil construction revenues decreased $12.9 million (or 14.2%), from $90.8 million in 2001 to $77.9 million in 2002. The decrease in revenues from building construction operations primarily reflects the decrease in the Company's year-end backlog at December 31, 2001 compared to the record year-end backlog at December 31, 2000, including a decreased volume of work at the Mohegan Sun Expansion project in Connecticut, as well as on two large hotel/casino projects in the southwestern United States, all of which were substantially completed in early 2002.
Income from construction operations decreased by $1.9 million (or 24.1%), from $7.9 million in 2001 to $6.0 million in 2002. Building construction operating income decreased by $4.3 million, from $9.8 million in 2001 to $5.5 million in 2002, due primarily to the decrease in revenue discussed above. This decrease was partly offset by an increase in the average gross margin on building construction contracts from 4.2% in 2001 to 6.5% in 2002, due primarily to the favorable close-out of several projects in 2002 and an upward profit revision on an overseas project. In addition, building construction operating income was negatively impacted by a $.6 million increase in general and administrative expenses primarily in connection with the pursuit of new work opportunities, including the opening of a new office near Orlando, Florida. Civil construction operating income increased by $2.4 million, from a loss of $1.9 million in 2001 to a profit of $0.5 million in 2002, primarily because 2001 included a loss on a Central Artery/Tunnel "Big Dig" joint venture project in Boston, Massachusetts.
The provision for income taxes reflects a lower than normal tax rate for both 2002 and 2001 due primarily to the realization of a portion of the federal tax benefit not recognized in prior years due to certain accounting limitations.
Comparison of the Nine Months Ended September 30, 2002 with the Nine Months Ended September 30, 2001
Overall revenue from construction operations decreased by $368.4 million (or 30.9%), from $1,190.9 million in 2001 to $822.5 million in 2002. This decrease was due primarily to a decrease in building construction revenues of $351.5 million (or 37.5%), from $937.6 million in 2001 to $586.1 million in 2002. Civil construction revenues decreased $16.9 million (or 6.7%), from $253.3 million in 2001 to $236.4 million in 2002. The decrease in revenues from building construction operations primarily reflects the decrease in the Company's year-end backlog at December 31, 2001 compared to the record year-end backlog at December 31, 2000, including a decreased volume of work at the Mohegan Sun Expansion project in Connecticut, as well as on two large hotel/casino projects in the southwestern United States, all of which were substantially completed in early 2002.
Income from construction operations decreased by $6.3 million (or 23.7%), from $26.6 million in 2001 to $20.3 million in 2002. Building construction operating income decreased by $7.1 million, from $25.5 million in 2001 to $18.4 million in 2002, due primarily to the decrease in revenue discussed above. This decrease was partly offset by an increase in the average gross margin on building construction contracts from 3.9% in 2001 to 5.3% in 2002, due primarily to favorable close-out experience on several
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(continued)
hotel/casino projects in 2002 and an upward profit revision on an overseas project. In addition, building construction operating income was negatively impacted by a $1.1 million (or 9.6%) increase in building construction-related general and administrative expenses primarily in connection with the pursuit of new work opportunities, including the opening of a new office near Orlando, Florida. Despite the decrease in revenue discussed above, civil construction operating income increased by $0.8 million, from $1.1 million in 2001 to $1.9 million in 2002, due primarily to recognition of a smaller loss in 2002 compared to 2001 on a Central Artery/Tunnel "Big Dig" joint venture project in Boston, Massachusetts. In addition, civil construction operating income was negatively impacted by a $1.0 million (or 25.0%) increase in civil construction-related general and administrative expenses, due primarily to a reduced ability to allocate expenses to various projects as well as an increase in outside legal costs.
Other income (expense) decreased by $0.3 million, from a net expense of $0.1 million in 2001 to a net expense of $0.4 million in 2002, due primarily to a decrease in interest income in 2002 as a result of a decrease in the level of short-term cash investments and lower interest rates in 2002, and an increase in amortization of deferred debt expense incurred in conjunction with the new Credit Agreement in January 2002.
Interest expense decreased by $0.5 million, from $1.6 million in 2001 to $1.1 million in 2002, due primarily to lower effective interest rates under the Company's Credit Agreement in 2002.
The provision for income taxes reflects a lower than normal tax rate for both 2002 and 2001 due primarily to the realization of a portion of the federal tax benefit not recognized in prior years due to certain accounting limitations. In addition, the provision for income taxes in 2002 reflects the reversal of the federal alternative minimum tax provided in 2001 which is no longer required based on the provisions of the Job Creation and Worker Assistance Act of 2002.
Financial Condition
In January 2002, the Company entered into an agreement with a new bank group to refinance its existing credit facility with a new $45 million revolving credit facility (the "Credit Agreement"). The Credit Agreement provides for a two year secured revolving credit facility which, if not extended or repaid after two years, converts amounts then outstanding to a three year term loan with equal quarterly principal payments. The Credit Agreement will provide the Company with greater flexibility in providing the working capital needed to support the anticipated growth of the Company's construction activities. At September 30, 2002, the Company had $17.0 million available to borrow under the Credit Agreement.
During the first nine months of 2002, the Company used $20.5 million in cash and a $16.7 million net increase in debt to fund $23.5 million used by operating activities, primarily for changes in working capital, and $13.7 million used by investing activities, primarily to fund the working capital needs of certain construction joint ventures and to acquire construction and other equipment.
Working capital increased $36.9 million, from $93.4 million at the end of 2001 to $130.3 million at September 30, 2002. The current ratio increased from 1.30:1 to 1.73:1 during the same period.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(continued)
Long-term debt at September 30, 2002 was $33.7 million, an increase of $26.2 million from December 31, 2001. The long-term debt to equity ratio at June 30, 2002 was .37:1 compared to .09:1 at December 31, 2001.
The increases in working capital and long-term debt at September 30, 2002 reflect increased borrowing under the Company's credit facility. At December 31, 2001, the Company included $9.8 million in current liabilities related to its existing credit facility. After completion of the refinancing in January, 2002, the Company was able to classify all of the debt outstanding under the Credit Agreement at September 30, 2002 as long-term debt. Total debt at September 30, 2002 increased by $16.7 million compared to December 31, 2001.
Periodically, the Company receives permanent cash distributions of profit from its construction joint ventures. In addition, the Company has access to temporary cash distributions of available operating funds from certain joint ventures in which it participates. Generally, these joint ventures distribute cash at the end of each quarter to the participants who will then return these funds at the beginning of the next quarter. Temporary cash advances from joint ventures decreased by $12.9 million, from $20.9 million at December 31, 2001 to $8.0 million at September 30, 2002 due to the fact that several joint ventures made permanent cash distributions of profit to the Company during the first nine months of 2002 instead of temporary cash advances.
In conjunction with the covenants of the Company's prior Credit Agreements, the Company was required to suspend the payment of quarterly dividends on its $21.25 Preferred Stock until certain financial criteria were met. The aggregate amount of dividends in arrears is approximately $14,874,000 at September 30, 2002.
As of December 31, 2000, the financial criteria in the Company's prior Credit Agreement which restricted the payment of dividends were satisfied, thereby making the resumption of dividends possible if the Company believed that its working capital was sufficient to warrant the resumption of payment of the regular dividend or any of the dividends in arrears on the $21.25 Preferred Stock. The Company does not currently have any plans or target date for when this action may occur. This decision is based on the following circumstances:
The Board of Directors does not believe that it is, or will be, proper or prudent to pay or commit to pay dividends on the $21.25 Preferred Stock for the foreseeable future, and it is not obligated to do so under the terms of the $21.25 Preferred Stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(continued)
Outlook
The construction backlog at September 30, 2002 was $1.12 billion, a decrease from the $1.21 billion backlog at December 31, 2001. As a result of the events of September 11, 2001 and a continuation of the economic decline previously in process, certain hospitality and gaming projects in Las Vegas, Nevada, for which the Company has been selected were, and continue to be, delayed by the owners until economic conditions improve. Other pending projects at the beginning of 2002 in Atlantic City, New Jersey, Florida and California, have since been awarded and are included in backlog at September 30, 2002. The Company recently announced that it has been selected by MGM Grand Detroit Casino to manage a 60-40 joint venture to build a permanent $325 million hotel-casino complex in Detroit. The Company anticipates that its share of this pending contract award will be added to the backlog in early 2003. Based on the high level of pre-construction services currently being performed for clients, management anticipates an encouraging new work award period during 2003. The Company is also pursuing a strategy to profitably expand its construction business internally or through acquisition. Towards this goal, the Company has opened a new office near Orlando, Florida, with the objective of expanding building construction opportunities in the southeastern United States by focusing on niche markets where the Company has a proven history of success.
Other Matters
During 2002, the Company's non-union pension plan assets have been adversely impacted by stock market declines. In addition, non-union pension plan obligations have been adversely impacted by declining interest rates which increase the value of future plan obligations. As a result, in the event stock market values do not improve and interest rates do not increase, the Company will be required to record an additional minimum pension liability to the extent that its accumulated benefit obligations under its non-union pension plans exceed the fair market value of its plans assets as of the end of the year pursuant to SFAS No. 87, "Employers' Accounting for Pensions". The Company recorded a $5.9 million additional minimum pension liability and a corresponding non-cash charge to stockholders' equity at December 31, 2001. Since the amount of any such charge as of December 31, 2002 is dependent upon asset values and other economic factors as of that date, management is not able to predict at this time what the 2002 impact will be.
The Company has funded non-union pension plan contributions of approximately $2.3 million in 2002 and currently anticipates funding non-union pension plan contributions of approximately $2.2 million in 2003.
Forward-looking Statements
The statements contained in this Management's Discussion and Analysis of the Consolidated Condensed Financial Statements, including "Outlook", and other sections of this Form 10-Q 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 without limitation, statements regarding the Company's or its management's expectations, hopes, beliefs, intentions or strategies regarding the future. These forward-looking statements are based on the Company's current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those anticipated by the Company. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond the control of the Company) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by such forward-looking statements. These risks
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(continued)
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 to be taken by third parties including the Company's customers, suppliers, business partners, and competitors and legislative, regulatory, judicial and other governmental authorities and officials. Should one or more of these risks or uncertainties materialize, or should any of the Company's assumptions prove incorrect, actual results may vary in material respects from those projected in the forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the Company's exposure to market risk since December 31, 2001.
CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
The Company's principal executive officer and principal financial officer have evaluated the Company's disclosure controls and procedures (as such term is defined in paragraph (c) of the Exchange Act Rules 13a-14 and 15d-14) as of a date within 90 days of the filing date of this quarterly report on Form 10-Q. In conjuction with their evaluation, they formed a Disclosure Controls and Procedures Committee to formalize the Company's current disclosure controls and procedures and to assist in the periodic evaluation of the Company's disclosure controls and procedures. Based on their evaluation, they have concluded that the Company's disclosure controls and procedures are operating effectively.
(b) Changes in internal controls
There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.
Part II. - Other Information
Item 1. - Legal Proceedings
(a) Tutor-Saliba-Perini Joint Venture vs. Los Angeles MTA Matter
On March 11, 1995, a joint venture, Tutor-Saliba-Perini ("TSP"), in which Perini Corporation is a
40% minority partner and Tutor-Saliba Corporation of Sylmar, CA is the 60% managing partner, filed
a complaint in the Superior Court of the State of California for the County of Los Angeles against the
Los Angeles County Metropolitan Transportation Authority ("MTA") seeking to recover costs for extra
work required by the MTA in connection with the construction of the Wilshire/Normandie Subway
Station. TSP was seeking additional compensation from the MTA for claims related to the
construction and in February 1999 the MTA countered with civil claims under the California False
Claims Act against TSP, Tutor-Saliba Corporation, Perini Corporation and other parties. Ronald N.
Tutor, the Chairman and CEO of Perini Corporation since March of 2000, is also the CEO and the
sole stockholder of Tutor-Saliba Corporation.
Claims concerning the construction of the Wilshire/Normandie Subway Station were tried
before a Jury in 2001. During trial, the Judge ruled that TSP had failed to comply with the Court's
prior discovery orders and the Judge penalized TSP for its alleged non-compliance by dismissing
TSP's claim and by ruling, without a Jury finding, that TSP was liable to the MTA for damages on the
MTA's counterclaim. The Judge then instructed the Jury that TSP was liable to the MTA and
charged the Jury with the responsibility of determining the amount of the damages based on the
Judge's ruling. The Jury awarded the MTA approximately $29.6 million in damages.
On March 26, 2002, the Judge amended the award, ordering TSP to pay the MTA an additional
$33.4 million in costs and attorney fees, with the aggregate $63.0 million award subject to interest at
an annual rate of 10% from the date of the award.
TSP and the other plaintiffs/defendants in counterclaim have appealed the Judge's discovery
sanction, the subsequent Jury award and the amended award. The ultimate financial impact of the
Judge's ruling and/or the awards is not yet determinable. Therefore, no provision for loss, if any, has
been recorded in the financial statements.
(b) San Francisco State University vs. Perini Matter
This is an action originally brought on June 9, 1999 in San Francisco County Superior Court by San
Francisco State University ("SFSU") against Perini and several subcontractors in conjunction with the
design and construction of a student dormitory. SFSU alleged that the building suffers from water
leakage and structural deficiencies. SFSU sought damages in excess of $85 million, including
damages for leak repairs and mold abatement, damages for structural repairs, damages for
economic losses, punitive damages and attorneys' fees. Perini asserted that the building was
properly designed and constructed under the contractually identified building code.
Perini was defended by its insurance carriers under a reservation of rights. Perini had brought
a third party action for comparative indemnity, equitable indemnity, implied contractual indemnity and
declaratory relief against nine of Perini's subcontractors and lower-tier subcontractors.
The trial began on June 25, 2002 and proceeded until August 2, 2002 when all claims,
counterclaims and crossclaims of all parties were settled and that settlement was approved by the
Court. Under the terms of the settlement, Perini has paid to SFSU economic damages in the
amount of $16.7 million and will make certain defined repairs and/or modifications to the building.
Part II. - Other Information (continued)
Also under the terms of the settlement, Perini's subcontractors and insurance carriers for both Perini
and its subcontractors have contributed substantially to the total amount of the settlement. As a
result, management believes that the settlement of this case will not have a material effect on the
Company's results of operations or financial condition.
(c) $21.25 Preferred Shareholders Class Action Lawsuit
On May 3, 2001 the Company, including several of its current and former directors ("Defendant
Directors"), was served with a complaint entitled Frederick Doppelt, Arthur I. Caplan and Michael
Miller v. Perini Corporation, et al, Supreme Court of the State of New York, County of New York, Civil
Action No. 602156/01. Each plaintiff was a holder of the Company's $21.25 Convertible
Exchangeable Preferred Stock ("$21.25 Preferred Stock"). One plaintiff, Mr. Doppelt, is a current
Director of the Company and one plaintiff, Mr. Caplan, is a former Director of the Company. Plaintiffs
purported to bring the action individually and on behalf of the entire class of holders of the $21.25
Preferred Stock.
The Plaintiffs asserted claims for breach of contract, breach of fiduciary duty, fraud and
negligent misrepresentation. The Plaintiffs principally alleged that the Company and its Defendant
Directors improperly authorized the exchange of Series B Preferred Stock for Common Stock without
first paying all accrued dividends on the $21.25 Preferred Stock. More specifically, Plaintiffs alleged
that the Company and its Defendant Directors violated the terms of the $21.25 Preferred Stock
when, in March 2000, the Company authorized the exchange of Series B Preferred Stock for
Common Stock. The Plaintiffs further alleged that the Company and its Defendant Directors issued a
false and misleading prospectus in 1987 relating to the issuance of the $21.25 Preferred Stock. The
Plaintiffs sought payment of accrued dividends, claiming they were owed approximately $11.7 million
as of May 3, 2001, and other unspecified punitive and exemplary damages.
On May 23, 2001, the Company and the Defendant Directors removed the action from the Supreme
Court of New York to the United States District Court for the Southern District of New York.
On June 26, 2001, the Plaintiffs filed an Amended Complaint whereby the Plaintiffs limited their Class
Action to an action for breach of contract against the Company and an action for breach of fiduciary
Duty against the Defendant Directors. The Company and the Defendant Directors moved to dismiss
all of the Plaintiffs' claims.
On March 12, 2002, all claims against the Company and the Defendant Directors were dismissed by
the United States District Court for the Southern District of New York.
In April 2002, the Plaintiffs appealed the dismissal to the United States Court of Appeals for the
Second Circuit.
On October 15, 2002, the Plaintiffs filed a new action for breach of fiduciary duty against the
Defendant Directors in the United States District Court for the District of Massachusetts. The
Company and the Defendant Directors are preparing a motion to dismiss all of these claims.
(d) Perini/Kiewit/Cashman Joint Venture - Central Artery/Tunnel Project Matter
Perini/Kiewit/Cashman Joint Venture ("PKC"), a joint venture in which Perini Corporation holds a 56%
interest and is the managing partner, is currently pursuing a series of claims for additional contract
time and/or compensation against the Massachusetts Highway Department ("MHD") for work
performed by PKC on a portion of the Central Artery/Tunnel project in Boston, Massachusetts. The
claims relate to the construction of the Northbound Mainline Central Artery Tunnel from Kneeland
Street to Congress Street. During construction, MHD ordered PKC to perform changes to the work
and issued related direct cost changes with an estimated value, excluding time delay and inefficiency
costs, in excess of $100 million. In addition, PKC encountered a number of unforeseen conditions
Part II. - Other Information (continued)
during construction that greatly increased PKC's cost of performance.
PKC's claims are currently being presented to a Disputes Review Board ("DRB") which consists of
three construction experts chosen by the parties. To date, the DRB has ruled on a binding basis
that PKC is entitled to additional compensation for its contract time delay claim in the amount of
$17.4 million. A Judge of the Massachusetts Superior Court has issued a decision upholding the
DRB's binding award to PKC. Although MHD challenged several of the DRB's decisions relative to
the contract time delay award discussed above, PKC received a favorable ruling on March 20, 2002
from the Superior Court of the Commonwealth of Massachusetts that approved PKC's request to
have MHD comply with the DRB's decision to award the $17.4 million for the time delay. The MHD
has appealed the Superior Court decision to the Appeals Court of the Commonwealth of
Massachusetts.
The DRB has also ruled on a binding basis that PKC is entitled to additional compensation for
impacts and inefficiencies caused by MHD to PKC's underpinning work in the amount of $5.6 million
and that PKC is entitled to additional compensation for impacts and inefficiencies caused by MHD to
PKC's utility work in the amount of $11.5 million. PKC has filed applications in these actions seeking
to confirm the awards and MHD has filed civil actions in Massachusetts Superior Court seeking to
vacate these awards.
Under the Dispute Resolution Rules of the Contract, either party may periodically terminate the
services of some or all of the DRB members provided that Members who are removed under this
provision will remain on the Board through the completion of any then pending claims. The MHD has
chosen to remove the current DRB Members under this provision and those Members are in the
process of completing hearings on all pending claims. Replacement DRB members have been
agreed upon and an initial meeting of the new Board is scheduled for December 2002.
The pending claims yet to be decided by the current/replacement DRB on a binding basis have an
anticipated value of $41.3 million. The remaining claims to be decided by the replacement DRB on a
non-binding basis have an anticipated value of $50.0 million. The ultimate financial impact of
resolving all of the claims on this project is not yet determinable.
(e) City of San Francisco suit against Tutor-Saliba Perini & Buckley Joint Venture
On November 1, 2002, the San Francisco City Attorney, on behalf of the City and County of San
Francisco and the citizens of California (“Plaintiffs”), filed a civil action with a demand for a jury trial
against Tutor-Saliba Corporation (“TSC”), the Tutor-Saliba, Perini & Buckley, Joint Venture (“JV”),
Perini Corporation (“Perini”), Buckley &Company, Inc. (“Buckley”) and their bonding companies in
the United States District Court in San Francisco relating to seven contracts for work on the
expansion of the San Francisco International Airport. The Plaintiffs allege various overcharges,
bidding violations, violations of minority contracting regulations, civil fraud, and violations of the
California and San Francisco False Claims and California Unfair Competition Acts. In addition, the
Plaintiffs allege that TSC has violated the United States Racketeer Influenced Corrupt Organizations
Act. The Plaintiffs have asserted $30 million in damages and are seeking treble damages, various
civil penalties and debarment of the JV and TSC from doing business with the City of San Francisco.
The Plaintiffs have not allocated their claims for damages and penalties amongst the defendants or
the seven contracts at issue, only two of which involved the JV. TSC is the managing partner of the
JV, and in December 1997, Perini sold its entire 20% interest in the JV to TSC. TSC has agreed to
indemnify Perini from any liability arising out of the joint venture, including legal fees and expenses.
Management will investigate and vigorously defend Perini in this matter. As noted above, TSC is
wholly owned by Ronald N. Tutor, who became Chairman and Chief Executive Officer of Perini in
March 2000.
Part II. - Other Information (continued)
Item 2. - Changes in Securities and Use of Proceeds
(a) None
(b) None
(c) None
(d) Not applicable
Item 3. - Defaults Upon Senior Securities
(a) None
(b) In accordance with the covenants of the 1995 Amended Revolving Credit Agreement, the First
Amended and Restated Credit Agreement effective January 17, 1997 and the Second Amended
and Restated Credit Agreement effective March 29, 2000, the Company was required to suspend the
payment of quarterly dividends on its $21.25 Convertible Exchangeable Preferred Stock ("$21.25
Preferred Stock") until certain financial criteria were met, commencing with the dividend that normally
would have been declared during December 1995. Although the financial criteria were satisfied as of
December 31, 2000 and the Company's most recent Credit Agreement, entered into in January
2002, does not contain similar restrictions, the Board of Directors does not believe that it is proper or
prudent to pay or commit to pay dividends on the $21.25 Preferred Stock for the foreseeable future
based on the Company's other working capital requirements. See additional comments under
"Financial Condition" on pages 16 and 17 herein. Therefore, as of September 30, 2002, the aggregate amount
of dividends in arrears is approximately $14,874,000, which represents
approximately $148.74 per share of $21.25 Preferred Stock or approximately $14.87 per Depositary
Share. While these dividends have not been declared or paid, they have been fully accrued in
accordance with the "cumulative" feature of the $21.25 Preferred Stock.
Item 4. - Submission of Matters to a Vote of Security Holders
(a) None
(b) Not applicable
(c) Not applicable
(d) Not applicable
Item 5. - Other Information - None
Item 6. - Exhibits and Reports on Form 8-K
(a) The following designated exhibits are, as indicated below, either filed herewith or have heretofore
been filed with Securities and Exchange Commission under the Securities Act of 1933 or the
the Securities Act of 1934 and are referred to and incorporated herein by reference to such filings:
Part II. - Other Information (continued)
Exhibit 3. Articles of Incorporation and By-laws
Incorporated herein by reference:
3.1 Restated Articles of Organization - As amended through March 29, 2000 -
Exhibit 3.1 to Form 8-K filed on April 12, 2000.
3.2 By-laws - As amended and restated as of March 29, 2000 - Exhibit 3.2 to
Form 8-K filed on April 12, 2000.
Exhibit 4. Instruments Defining the Rights of Security Holders, Including Indentures
Incorporated herein by reference:
4.1 Certificate of Vote of Directors Establishing a Series of a Class of Stock
determining the relative rights and preferences of the $21.25 Convertible
Exchangeable Preferred Stock - Exhibit 4(a) to Amendment No. 1 to Form S-
2 Registration Statement filed June 19, 1987; SEC Registration No. 33-
14434.
4.2 Form of Deposit Agreement, including form of Depositary Receipt - Exhibit
4(b) to Amendment No. 1 to Form S-2 Registration Statement filed June 19,
1987; SEC Registration No. 33-14434.
4.3 Form of Indenture with respect to the 8 1/2% Convertible Subordinated
Debentures Due June 15, 2012, including form of Debenture - Exhibit 4(c) to
Amendment No. 1 to Form S-2 Registration Statement filed June 19, 1987;
SEC Registration No. 33-14434.
4.4 Shareholder Rights Agreement dated as of September 23, 1988, as
amended and restated as of May 17, 1990, as amended and restated as of
January 17, 1997, between Perini Corporation and State Street Bank and
Trust Company, as Rights Agent - Exhibit 4.4 to Amendment No. 1 to
Registration Statement on Form 8-A/A filed on January 29, 1997, and as
further amended as of March 29, 2000 - Exhibit 4.3 to Form 8-K filed on April
12, 2000.
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 and as amended by the
Termination/Amendment Agreement on March 29, 2000 - Exhibit 4.4 to Form
8-K filed on April 12, 2000.
4.8 Certificate of Vote of Directors Establishing a Series of Preferred Stock
determining the relative rights and preferences of the Series B Cumulative
Convertible Preferred Stock, dated January 16, 1997 - Exhibit 4.8 to Form 8-K
filed on February 14, 1997.
4.13 Exchange Agreement by and between Perini Corporation and The Union
Labor Life Insurance Company, acting on behalf of its Separate Account P,
dated as of February 7, 2000 - Exhibit 10.1 to Form 8-K filed on April 12, 2000.
Part II. - Other Information (continued)
4.14 Exchange Agreement by and between Perini Corporation and PB Capital
Partners, L.P., dated as of February 14, 2000 - Exhibit 10.2 to Form 8-K filed
on April 12, 2000.
4.15 Exchange Agreement by and between Perini Corporation and The Common
Fund for Non-Profit Organizations, dated as of February 14, 2000 - Exhibit
10.3 to Form 8-K filed on April 12, 2000.
4.16 Registration Rights Agreement by and among Perini Corporation, Tutor-
Saliba Corporation, Ronald N. Tutor, O&G Industries, Inc. and National Union
Fire Insurance Company of Pittsburgh, Pa., BLUM Capital Partners, L.P., PB
Capital Partners, L.P. The Common Fund for Non-Profit Organizations, and
The Union Labor Life Insurance Company, acting on behalf of its Separate
Account P, dated as of March 29, 2000 - Exhibit 4.1 to Form 8-K filed on
April 12, 2000.
4.17 Shareholders' Agreement by and among Perini Corporation, Tutor-Saliba
Corporation, Ronald N. Tutor, O&G Industries, Inc. and National Union Fire
Insurance Company of Pittsburgh, Pa., BLUM Capital Partners, L.P., PB
Capital Partners, L.P., The Common Fund for Non-Profit Organizations, and
The Union Labor Life Insurance Company, acting on behalf of its Separate
Account P, dated as of March 29, 2000 - Exhibit 4.2 to Form 8-K filed on
April 12, 2000.
Exhibit 10. Material Contracts
Incorporated herein by reference:
10.2 Perini Corporation Amended and Restated General Incentive Compensation
Plan - Exhibit 10.2 to 1997 Form 10-K filed on March 30, 1998.
10.3 Perini Corporation Amended and Restated Construction Business Unit
Incentive Compensation Plan - Exhibit 10.3 to 1997 Form 10-K filed on March
30, 1998.
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.
10.30 Second Amended and Restated Credit Agreement dated as of March 29,
2000 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 10.4 to Form 8-K filed on April 12, 2000.
10.31 Amendment No. 2 dated as of December 31, 1999 to the Management
Agreement by and among the Company, Ronald N. Tutor and Tutor-Saliba
Corporation - Exhibit 10.31 to Form 10-Q filed on May 9, 2000.
10.32 Special Equity Incentive Plan - Exhibit A to Registrant's Proxy Statement for
Annual Meeting of Stockholders dated April 19, 2000.
Part II. - Other Information (continued)
10.33 Securities Purchase Agreement by and among Perini Corporation and Tutor-
Saliba Corporation, O&G Industries, Inc. and National Union Fire Insurance
Company of Pittsburgh, PA, dated as of February 5, 2000 - Exhibit 10.1 to Form
8-K filed on February 9, 2000.
10.34 Promissory Note dated as of September 6, 2000 by and among Mt. Wayte
Realty, LLC (a wholly-owned subsidiary of Perini Corporation) and The
Manufacturers Life Insurance Company (U.S.A.) - Exhibit 10.34 to Form 10-Q
filed on November 6, 2000.
10.35 Credit Agreement dated January 23, 2002 among Perini Corporation, Fleet
National Bank, as Administrative Agent, Fleet National Bank, as Arranger, and the
Lenders Party Hereto - Exhibit 10.35 to Form 10-K filed on March 21, 2002.
Exhibit 99. Additional Exhibits
99.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - filed
herewith.
99.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - filed
herewith.
(b) Reports on Form 8-K
A Form 8-K was filed on August 14, 2002 that reported on the submission to the SEC of sworn
statements by Ronald N. Tutor, Principal Executive Officer, and Robert Band, Principal Financial
Officer, pursuant to Securities and Exchange Commission Order No. 4-460 in "Item 9. Regulation
FD Disclosure" in said Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Perini Corporation
Registrant
Date: November 14, 2002 /s/ Michael E. Ciskey
Michael E. Ciskey, Vice President and Controller
Duly Authorized Officer and Principal Accounting Officer
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Ronald N. Tutor, certify that:
Date: November 14, 2002 /s/ Ronald N. Tutor
Ronald N. Tutor, Chairman and Chief Executive Officer
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Robert Band, certify that:
Date: November 14, 2002 /s/ Robert Band
Robert Band, President, Chief Operating Officer and
Principal Financial Officer