(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6314
Perini Corporation
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-1717070
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
73 MT. WAYTE AVENUE, FRAMINGHAM, MASSACHUSETTS 01701-9160
(Address of principal executive offices)
(Zip code)
(508) 628-2000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ___ No X
The number of shares of Common Stock, $1.00 par value per share, of registrant outstanding at November 3, 2004 was 24,519,501.
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, 2004 and December 31, 2003
Consolidated Condensed Statements of Income - 4
Three Months and Nine Months ended September 30, 2004 and 2003
Consolidated Condensed Statement of Stockholders' Equity - 5
Nine Months ended September 30, 2004
Consolidated Condensed Statements of Cash Flows - 6
Nine Months ended September 30, 2004 and 2003
Notes to Consolidated Condensed Financial Statements 7 - 16
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 17 - 25
Item 3. Quantitative and Qualitative Disclosures About Market Risk 26
Item 4. Controls and Procedures 26
Part II. - Other Information:
Item 1. Legal Proceedings 27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27
Item 3. Defaults Upon Senior Securities 27 - 28
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 5. Other Information 28
Item 6. Exhibits 28
Signatures 29
2
Item 1. Financial Statements (Unaudited)
PERINI CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 2004 (UNAUDITED) AND DECEMBER 31, 2003
(In Thousands)
ASSETS SEPT. 30, DEC. 31,
2004 2003
------------- --------------
Cash and Cash Equivalents (Note 4) $ 102,112 $ 67,823
Accounts Receivable, including retainage 401,444 328,025
Unbilled Work 95,034 116,572
Deferred Tax Asset 9,154 10,844
Other Current Assets 3,731 2,479
------------- --------------
Total Current Assets $ 611,475 $ 525,743
------------- --------------
Property and Equipment, less Accumulated Depreciation of $21,104 in 2004 and
$22,125 in 2003 $ 18,119 $ 16,598
------------- --------------
Goodwill $ 12,678 $ 14,007
------------- --------------
Other Assets $ 11,945 $ 9,095
------------- --------------
$ 654,217 $ 565,443
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Maturities of Long-term Debt (Note 6) $ 1,272 $ 490
Accounts Payable, including retainage 345,935 318,448
Deferred Contract Revenue 59,455 48,431
Accrued Expenses 37,910 32,977
------------- --------------
Total Current Liabilities $ 444,572 $ 400,346
------------- --------------
Long-term Debt, less current maturities included above (Note 6) $ 8,819 $ 8,522
------------- --------------
Other Long-term Liabilities (Note 9) $ 38,367 $ 36,015
------------- --------------
Contingencies and Commitments (Note 5)
Stockholders' Equity:
Preferred Stock $ 56 $ 56
Series A Junior Participating Preferred Stock - -
Stock Purchase Warrants 965 2,233
Common Stock 24,489 22,946
Paid-In Surplus 102,888 90,296
Retained Earnings 58,943 30,007
Less - Treasury Stock (Note 12) - (965)
------------- --------------
$ 187,341 $ 144,573
Accumulated Other Comprehensive Loss (24,882) (24,013)
------------- --------------
Total Stockholders' Equity $ 162,459 $ 120,560
------------- --------------
$ 654,217 $ 565,443
============= ==============
The accompanying notes are an integral part of these financial statements.
3
PERINI CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands, Except Share and Per Share Data)
THREE MONTHS NINE MONTHS
ENDED SEPT. 30, ENDED SEPT. 30,
------------------------------- ------------------------------
2004 2003 2004 2003
-------------- -------------- -------------- -------------
Revenues (Note 10) $ 467,743 $ 295,855 $ 1,443,855 $ 873,451
Cost of Operations 444,110 280,067 1,372,963 829,590
-------------- -------------- -------------- -------------
Gross Profit $ 23,633 $ 15,788 $ 70,892 $ 43,861
General and Administrative Expenses 12,912 9,037 31,720 27,709
-------------- -------------- -------------- -------------
INCOME FROM CONSTRUCTION OPERATIONS (Note 10) $ 10,721 $ 6,751 $ 39,172 $ 16,152
Other Expense, Net (688) (146) (3,939) (428)
Interest Expense (198) (244) (506) (701)
-------------- -------------- -------------- -------------
Income before Income Taxes $ 9,835 $ 6,361 $ 34,727 $ 15,023
(Provision) Credit for Income Taxes (Note 7) (3,405) 35 (4,900) 6,410
-------------- -------------- -------------- -------------
NET INCOME $ 6,430 $ 6,396 $ 29,827 $ 21,433
============== ============== ============== =============
Less: Accrued Dividends on $21.25 Preferred Stock (Note 9) (297) (308) (891) (1,356)
Plus: Reversal of Accrued Dividends on $21.25 Preferred Stock
based on results of 2003 tender offer (Note 9) - 596 - 7,254
-------------- -------------- -------------- -------------
NET INCOME AVAILABLE FOR COMMON STOCKHOLDERS $ 6,133 $ 6,684 $ 28,936 $ 27,331
============== ============== ============== =============
BASIC EARNINGS PER COMMON SHARE (Note 8) $ 0.26 $ 0.29 $ 1.24 $ 1.20
============== ============== ============== =============
DILUTED EARNINGS PER COMMON SHARE (Note 8) $ 0.25 $ 0.28 $ 1.16 $ 1.17
============== ============== ============== =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note 8):
BASIC 23,905,884 22,805,224 23,375,987 22,726,132
-------------- -------------- -------------- -------------
DILUTED 24,911,687 23,986,105 24,926,435 23,398,696
-------------- -------------- -------------- -------------
The accompanying notes are an integral part of these financial statements.
4
PERINI CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
(In Thousands, Except Share Data )
Accumulated
Stock Other
Preferred Purchase Common Paid-In Retained Treasury Comprehensive
Stock Warrants Stock Surplus Earnings Stock Loss Total
----------- ------------ ----------- ----------- -------- ---------- ------------------- -----------
Balance - December 31, 2003 $ 56 $ 2,233 $22,946 $ 90,296 $ 30,007 $ (965) $ (24,013) $ 120,560
Net income --- --- --- --- 29,827 --- --- 29,827
Other comprehensive income (loss):
Minimum pension liability adjustment (Note 11) --- --- --- --- --- --- (869) (869)
-----------
Total comprehensive income 28,958
-----------
Preferred stock dividends accrued --- --- --- --- (891) --- --- (891)
($15.938 per share*)
Common stock options and stock purchase
warrants exercised --- (1,268) 1,604 7,294 --- --- --- 7,630
Income tax savings attributable to nonqualified
stock options exercised --- --- --- 5,211 --- --- --- 5,211
Reclassification of treasury stock (Note 12) --- --- (61) (904) --- 965 --- -
Reversal of estimated cost of secondary
stock offering --- --- --- 991 --- --- --- 991
--------------------------------------------------------------------------------------------------------------
Balance - September 30, 2004 $ 56 $ 965 $24,489 $ 102,888 $ 58,943 $ --- $ (24,882) $ 162,459
==============================================================================================================
*Equivalent to $1.5938 per Depositary Share
The accompanying notes are an integral part of these financial statements.
5
PERINI CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(In Thousands)
NINE MONTHS
ENDED SEPT. 30,
----------------------------
2004 2003
------------ -------------
Cash Flows from Operating Activities:
Net income $ 29,827 $ 21,433
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 3,981 2,524
Cash used by changes in components of working capital other
than cash, current maturities of long-term debt and deferred tax asset (8,682) (12,592)
Net deferred tax asset 4,334 (7,270)
Other long-term liabilities 59 975
Gain on sale of fixed assets (718) (444)
------------ -------------
NET CASH PROVIDED FROM OPERATING ACTIVITIES $ 28,801 $ 4,626
------------ -------------
Cash Flows from Investing Activities:
Acquisition of James A. Cummings, Inc., net of cash balance acquired $ - $ (8,613)
Acquisition of property and equipment (3,941) (4,406)
Proceeds from sale of property and equipment 1,017 767
Proceeds from land held for sale, net 879 2,125
Proceeds from sale of marketable securities - 380
Proceeds from other investing activities 5 78
------------ -------------
NET CASH USED BY INVESTING ACTIVITIES $ (2,040) $ (9,669)
------------ -------------
Cash Flows from Financing Activities:
Proceeds from long-term debt $ 1,428 $ 14,192
Reduction of long-term debt (349) (334)
Purchase of Preferred Stock pursuant to Tender Offer (Note 9) - (11,261)
Proceeds from exercise of common stock options and stock purchase warrants 7,630 791
Expenditure for stock registration (1,181) -
------------ -------------
NET CASH PROVIDED FROM FINANCING ACTIVITIES $ 7,528 $ 3,388
------------ -------------
Net Increase (Decrease) in Cash $ 34,289 $ (1,655)
Cash at Beginning of Year 67,823 47,031
------------ -------------
Cash at End of Period $ 102,112 $ 45,376
============ =============
Supplemental Disclosure of Cash Paid During the Period For:
Interest $ 506 $ 745
============ =============
Income taxes $ 1,587 $ 1,078
============ =============
The accompanying notes are an integral part of these financial statements.
6
(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 of America. 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, 2003. In the
opinion of management, the accompanying unaudited consolidated 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, 2004 and December 31, 2003, results of operations
for the three month and nine month periods ended September 30, 2004 and 2003,
and cash flows for the nine month periods ended September 30, 2004 and 2003. The
results of operations for the nine month period ended September 30, 2004 may not
be indicative of the results that may be expected for the year ending December
31, 2004 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
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 the Company’s Annual Report on Form
10-K for the year ended December 31, 2003. The Company has made no significant
changes to these policies during 2004 except as discussed in Note (3).
(3)
Stock-Based Compensation
Prior
to September 30, 2004, the Company accounted for stock-based compensation under
the recognition and measurement provisions of Accounting Principles Board
Opinion No. 25 “Accounting for Stock Issued to Employees” (“APB
No. 25”) and related Interpretations in accounting for its stock-based
compensation costs. In addition, the Company followed the disclosure
requirements contained in Statement of Financial Accounting Standards
(“SFAS”) No. 123 “Accounting for Stock-Based Compensation”
(“SFAS No. 123”), as amended by SFAS No. 148 “Accounting for
Stock-Based Compensation – Transition and Disclosure” (“SFAS No.
148”). On September 30, 2004, the Company adopted the fair value
recognition provisions of SFAS No. 123 for stock-based employee and director
compensation costs, effective January 1, 2004, utilizing the modified
prospective transition method as described in SFAS No. 148. Since there were no
unvested awards as of January 1, 2004 and since there were no new awards in the
six months ended June 30, 2004, no adjustments to previously issued financial
statements were required upon adoption of this accounting principle. Had the
Company applied the fair value recognition provisions of SFAS No. 123 to
stock-based employee and director compensation prior to January 1, 2004, there
would have been no effect on the reported net income or earnings per share for
either the three month or nine month periods ended September 30, 2003 since
previous stock awards were fully vested prior to January 1, 2003. The Company
believes this change in accounting principle is to a preferable method.
(4) Cash and
Cash Equivalents
Cash equivalents include short-term, highly liquid investments with original maturities of three months or less.
7
(4) Cash and
Cash Equivalents (continued)
Cash
and cash equivalents as reported in the accompanying Consolidated Condensed
Balance Sheets consist of amounts held by the Company that are available for
general corporate purposes and the Company’s proportionate share of amounts
held by construction joint ventures that are available only for joint
venture-related uses. Cash held by construction joint ventures is distributed
from time to time to the Company and to the other joint venture participants in
accordance with their percentage interest after the joint venture partners
determine that a cash distribution is prudent. Cash distributions received by
the Company from its construction joint ventures are then available for general
corporate purposes. At September 30, 2004 and December 31, 2003, cash and cash
equivalents consisted of the following (in thousands):
Sept. 30, Dec. 31,
2004 2003
---------------- --------------
Corporate cash and cash equivalents (available
for general corporate purposes) $ 65,099 $ 33,426
Company's share of joint venture cash and
cash equivalents (available only for joint venture
purposes, including future distributions) 37,013 34,397
---------------- --------------
$102,112 $ 67,823
================ ==============
(5)
Contingencies and Commitments
(a) Mergentime - Perini Joint Ventures vs. WMATA Matter
On
May 11, 1990, contracts with two joint ventures in which Perini held a 40%
interest were terminated by the Washington Metropolitan Area Transit Authority,
or WMATA, on two subway construction projects in the District of Columbia. The
contracts were awarded to the joint ventures in 1985 and 1986. However, Perini
and Mergentime Corporation, or 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 had a dispute regarding progress on the projects. After both
construction contracts were terminated, 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, 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, and on February 16, 1999, the Court of Appeals vacated the District Court’s final judgment and ordered the District Court to review its prior findings 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.
8
(5)
Contingencies and Commitments (continued)
(a) Mergentime - Perini Joint Ventures vs. WMATA Matter (continued)
On
February 28, 2001, a successor District Court Judge informed the parties that he
could not certify adequate familiarity with the record to complete the remaining
proceedings; therefore, he granted the joint ventures’ motion for a new
trial. The joint ventures are seeking $28.9 million, plus interest, from WMATA,
and WMATA is seeking $29.3 million from the joint ventures. A new trial was
completed in January 2002 and a decision is still pending. The ultimate
financial impact of the Judge’s pending decision is not yet determinable;
therefore, no provision for loss, if any, has been recorded in the financial
statements.
(b) Tutor-Saliba-Perini Joint Venture vs. Los Angeles MTA Matter
During
1995, a joint venture, Tutor-Saliba-Perini, or TSP, in which Perini is the 40%
minority partner and Tutor-Saliba Corporation of Sylmar, California 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, or the MTA, seeking to recover costs for
extra work required by the MTA in connection with the construction of certain
tunnel and station projects. In February 1999 the MTA countered with civil
claims under the California False Claims Act against TSP, Tutor-Saliba and
Perini jointly and severally. Ronald N. Tutor, the Chairman and Chief Executive
Officer of Perini since March 2000, is also the chief executive officer and the
sole stockholder of Tutor-Saliba Corporation.
Claims concerning the construction of the MTA projects 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, Tutor-Saliba and Perini for the alleged non-compliance by dismissing TSP’s claims and by ruling, without a jury finding, that TSP was liable to the MTA for damages on the MTA’s counterclaims. 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 the counterclaim have appealed the Judge’s discovery sanction, the subsequent jury award and the amended award. Oral arguments on the appeal are scheduled for December 3, 2004. 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.
(c) City of San Francisco vs. Tutor-Saliba, Perini & Buckley Joint Venture Matter
In
November 2002, the San Francisco City Attorney, on behalf of the City and County
of San Francisco and the citizens of California, filed a civil action with a
demand for a jury trial against Perini, Tutor-Saliba Corporation, or TSC, the
Tutor-Saliba, Perini & Buckley Joint Venture, Buckley & Company, Inc.
and their bonding companies in the United States District Court in San Francisco
relating to seven projects for work on the expansion of the San Francisco
International Airport. A second amended complaint was filed in July 2003 which,
among other things, added Ronald N. Tutor as a defendant. The joint venture was
established by TSC, Perini and Buckley through two joint venture agreements
dated October 28, 1996 and February 11, 1997. The joint
9
(5)
Contingencies and Commitments (continued)
(c) City of San Francisco vs. Tutor-Saliba, Perini & Buckley Joint Venture Matter (continued)
venture had agreements with the Owner to perform work ("Contracts") on only two of the above projects
("Projects") and, as part of those Contracts, the joint venture provided performance and payment bonds to
the Owner "Bonds").
On or about May 24, 2004, the Court granted substantial portions of the defendants’ motion to dismiss the plaintiffs’ second amended complaint with leave to amend certain causes of action. On June 21, 2004, the plaintiffs filed their third amended complaint. In the third amended complaint, the plaintiffs allege, among other things, various overcharges, bidding violations, violations of minority contracting regulations, civil fraud, violation of the California False Claims and Unfair Competition Acts and breach of contract. In addition, the plaintiffs allege that the defendants have violated the United States Racketeer Influenced Corrupt Organizations Act. The plaintiffs have asserted approximately $45 million in actual damages against the joint venture and each of its partners as well as substantial liquidated damages, treble damages, punitive and exemplary damages, various civil penalties and a declaration that TSC and the joint venture are irresponsible bidders. The defendants filed a Motion to Dismiss the Third Amended Complaint. in August, 2004. A decision thereon is pending.
TSC is the managing partner of the joint venture and, in December 1997, Perini sold its entire 20% interest in the joint venture to TSC. As part of that sale agreement, TSC agreed to indemnify Perini from any liability that Perini is required to pay by reason of or arising out of any event or occurrence subsequent to the date of the sale of Perini’s interest in the joint venture in any way connected with the joint venture agreements, the Contracts, the Projects and the Bonds. It is unclear based on the plaintiff’s current complaint whether the claims against the joint venture arise out of events that occurred subsequent to the date of the sale of Perini’s interest. The ultimate financial impact of this action is not yet determinable.
(d) Redondo/Perini Joint Venture vs. Siemens Transportation Matter
This
is a binding arbitration proceeding arising out of a contract between the
Redondo/Perini Joint Venture, or RPJV, a joint venture in which Perini and
Redondo Construction Corp., or Redondo, each have a 50% interest and the Siemens
Transportation Partnership, S.E., Puerto Rico, or STP. STP is constructing a
public metropolitan passenger rail transportation project for the Commonwealth
of Puerto Rico and RPJV is responsible for the design and construction of a
portion of the project.
On March 19, 2002, Redondo filed a petition for reorganization under 11 U.S.C. Chapter 11 in U.S. Bankruptcy Court for the District of Puerto Rico.
On December 23, 2002, RPJV filed an arbitration demand against STP seeking the recovery of approximately $38 million of additional costs related to design changes and the late completion of the design. On January 31, 2003, STP filed a counter-demand against RPJV seeking the recovery of damages allegedly related to defects in design and construction and the late completion of RPJV’s work in the amount of approximately $17.9 million along with the repayment of approximately $22.6 million for alleged advances previously paid to RPJV.
The parties have each revised their statement of damages. RPJV’s total claim is approximately $74 million. STP’s revised claim is now approximately $54.5 million, including its claim for alleged advances already paid.
10
(5)
Contingencies and Commitments (continued)
(d) Redondo/Perini Joint Venture vs. Siemens Transportation Matter (continued)
Arbitration
evidentiary hearings have commenced. On October 7, 2004, STP filed suit against
Perini in New York state court seeking enforcement against Perini of a Guaranty
Agreement that allegedly guarantees the performance and payment obligations of
the subject RPJV/Siemens Contract in an amount to be determined at trial, but not less than $27 million. Management has made an estimate of the
anticipated total cost recovery on this project and it is included in revenue
recorded to date. To the extent new facts become known or the final cost
recovery included in the claim settlement varies from this estimate, the impact
of the change will be reflected in the financial statements at that time.
(e) Perini/Kiewit/Cashman Joint Venture-Central Artery/Tunnel Project Matter
Perini/Kiewit/Cashman
Joint Venture, or PKC, a joint venture in which Perini 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,
or MHD, for work performed by PKC on a portion of the Central Artery/Tunnel
project in Boston, Massachusetts. 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.
Certain of PKC’s claims have been presented to a Disputes Review Board, or the 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. On March 20, 2002, the Superior Court of the Commonwealth of Massachusetts approved PKC’s request to confirm the DRB’s $17.4 million award. 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 awards totaling $17.1 million for impacts and inefficiencies caused by MHD to certain of PKC’s work. PKC has filed applications in these actions in the Massachusetts Superior Court seeking to confirm the awards and MHD has filed applications 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 DRB through the completion of any then pending claims. The MHD removed the “Second DRB” members under this provision, although those members will complete hearings on all claims that were pending when it was terminated. Replacement (“Third”) DRB members have been agreed upon. Proceedings before the Second and Third DRBs were postponed pending completion of the negotiation and mediation discussed below.
The pending claims yet to be decided by the Second DRB on a binding basis have an anticipated value of $49.4 million. The remaining claims to be decided by the Third DRB on a binding basis have an anticipated value of $72.6 million.
In December 2002, PKC and MHD entered into an agreement to attempt to resolve by negotiation and mediation all of the outstanding claims on the project. As part of the agreement, the MHD recommended for approval by the Massachusetts Turnpike Authority a contract
11
(5)
Contingencies and Commitments (continued)
(e) Perini/Kiewit/Cashman Joint Venture-Central Artery/Tunnel Project Matter (continued)
modification
that provides for provisional payments to PKC totaling $25 million against
PKC’s outstanding claims. To date, PKC has received $23.75 million of those
provisional payments. The parties also agreed to stay the pending litigation and
DRB proceedings during the negotiations. The parties began mediation on all
claims in September 2003. The mediation continued until October 2004. One claim
was resolved; the remaining claims could not be settled. The mediation agreement
has been terminated, and the hearings before the Second DRB, Third DRB, and the
courts will resume.
Management has made an estimate of the total anticipated cost recovery on this project and it is included in revenue recorded to date. To the extent new facts become known or the final cost recovery included in the claim settlement varies from this estimate, the impact of the change will be reflected in the financial statements at that time.
On August 14, 2002, the Massachusetts Attorney General’s office, pursuant to its authority under the Massachusetts False Claims Act, served a Civil Investigative Demand (“CID”) on Perini and the other joint venture partners. The CID sought the production of certain construction claims documentation in connection with the Central Artery/Tunnel Contract No. C11A1. In September 2004, the Attorney General’s office presented a list of items that it believed constitute false claims. PKC vigorously denies that it submitted any false claims and is cooperating with the Attorney General’s office in the ongoing investigation.
(f) $21.25 Preferred Shareholders Class Action Lawsuit
On
October 15, 2002, Frederick Doppelt, Arthur I. Caplan and Leland D. Zulch filed
a lawsuit individually, and as representatives of a class of holders of the
$21.25 Depositary Convertible Exchangeable Preferred Shares, representing 1/10
Share of $21.25 Convertible Exchangeable Preferred Stock (“Depositary
Shares”) against certain current and former directors of Perini. This
lawsuit is captioned Doppelt, et al. v. Tutor, et al., United States District
Court for the District of Massachusetts. Mr. Doppelt is a current director of
Perini and Mr. Caplan is a former director of Perini. Specifically, the original
complaint alleged that the defendants breached their fiduciary duties owed to
the holders of the Depositary Shares and to Perini. The plaintiffs principally
allege that the defendants improperly authorized the exchange of Series B
Preferred Stock for common stock while simultaneously refusing to pay accrued
dividends due on the Depositary Shares.
In July 2003, the plaintiffs filed an amended Complaint. The amended complaint added an allegation that the defendants have further breached their fiduciary duties by authorizing a tender offer for the purchase of up to 90% of the Depositary Shares and an allegation that the collective actions of the defendants constitute unfair and deceptive business practices under the provisions of the Massachusetts Consumer Protection Act. The amended complaint withdrew the allegation of a breach of fiduciary duty owed to Perini, but retained the allegation with respect to a breach of those duties owed to the holders of the Depositary Shares.
On April 12, 2004, pursuant to Defendants Motions to Dismiss, the Court dismissed the claim under the Massachusetts Consumer Protection Act. The Court did not dismiss the claim for breach of fiduciary duty, except as such claim relates to the tender offer for the purchase of the Company’s Depositary Shares. Pursuant to the Court’s April 12, 2004 Order, in May 2004 the plaintiffs filed a third amended complaint and thereafter filed a motion for class certification.
12
(5)
Contingencies and Commitments (continued)
(f) $21.25 Preferred Shareholders Class Action Lawsuit (continued)
The
plaintiffs seek damages of at least $10M, plus interest and attorneys’
fees. The parties are engaged in discovery concerning class certification.
Defendant’s opposition to Plaintiffs’ motion for class certification
is due on November 22, 2004.
In 2001, a similar lawsuit was field by some of the same plaintiffs in the United States District Court for the Southern District of New York, which claimed that the Company breached its contract with the holders of Depositary Shares. In 2002, the case was dismissed and upon appeal by the plaintiffs to the Untitled States Court of Appeals for the Second Circuit, the Court of Appeals affirmed the dismissal.
(6) Long-term Debt
In
August 2004, the terms of the Company’s $50 million credit facility (the
“Credit Facility”) were amended to extend the term of the Credit
Facility from June 2005 to June 2007 and to adjust certain financial covenants.
(7)
(Provision) Credit For Income Taxes
The
lower-than-normal tax rate reflected in the (provision) credit for income taxes
for the third quarter of 2003 and for the nine month periods ended September 30,
2004 and 2003 is due in part to the realization of a portion of the federal tax
benefit not recognized in prior years due to certain accounting limitations. The
credit for income taxes for the nine months ended September 30, 2003 also
includes the recognition of a $7.0 million federal tax benefit in accordance
with SFAS No. 109, “Accounting for Income Taxes” based on the expected
utilization of net operating loss carryforwards.
(8) Per Share
Data
Basic
earnings per common share was computed by dividing net income less dividends
accrued on the $21.25 Preferred Stock during all periods presented plus the
reversal in both the second and third quarters of 2003 of dividends on the
$21.25 Preferred Stock previously accrued but no longer required based on the
results of the tender offer completed in 2003 (see Note 9) 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 and warrants outstanding on the weighted average number of common
shares outstanding.
Options to purchase 380,000 shares of Common Stock at prices ranging from $6.85 to $8.66 per share were outstanding at September 30, 2003 but were not included in the computation of diluted earnings per share 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 Stock Purchase Warrants was antidilutive for the three month and nine month periods ended September 30, 2003, and the effect of the assumed conversion of the Company’s outstanding $21.25 Preferred Stock into Common Stock was antidilutive for all periods presented.
(9) 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.
13
(9) Dividends (continued)
(b) $21.25 Preferred Stock
The
covenants of the Company’s prior credit agreements required the Company to
suspend the payment of quarterly dividends on its $21.25 Preferred Stock until
certain financial criteria were met. While quarterly dividends on the $21.25
Preferred Stock have not been paid since 1995, they have been fully accrued due
to the “cumulative” feature of the $21.25 Preferred Stock. In 2003,
the Company completed a tender offer on its $21.25 Preferred Stock whereby the
Company purchased 440,627 Depositary Shares. As a result of this transaction,
approximately $7.3 million of previously accrued and unpaid dividends was
reversed and restored to “Paid-In Surplus” in the Consolidated
Condensed Balance Sheets. Accordingly, the aggregate amount of dividends in
arrears at September 30, 2004 is approximately $10.7 million, which represents
approximately $191.25 per share of $21.25 Preferred Stock or approximately
$19.13 per Depositary Share and is included in “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 seven annual meetings of
stockholders.
(10) 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, 2004 and 2003 (in thousands):
Nine months ended September 30, 2004
Reportable Segments
------------------------------------------------------------
Management Consolidated
Building Civil Services Totals Corporate Total
-------------- ------------- ------------- ------------- ---------------- ----------------
Revenues $ 1,008,112 $ 110,470 $ 325,273 $ 1,443,855 $ - $ 1,443,855
Income from Construction Operations $ 21,670 $ 2,081 $ 22,720 $ 46,471 $ (7,299) * $ 39,172
Assets $ 291,547 $ 228,139 $ 47,160 $ 566,846 $ 87,371 ** $ 654,217
Nine months ended September 30, 2003
Reportable Segments
------------------------------------------------------------
Management Consolidated
Building Civil Services Totals Corporate Total
-------------- ------------- ------------- ------------- ---------------- ----------------
Revenues $ 629,305 $ 134,507 $ 109,639 $ 873,451 $ - $ 873,451
Income from Construction Operations $ 9,228 $ 1,684 $ 11,389 $ 22,301 $ (6,149) * $ 16,152
Assets $ 163,055 $ 245,573 $ 23,618 $ 432,246 $ 32,166 ** $ 464,412
14
(10) Business Segments (continued)
Three months ended September 30, 2004
Reportable Segments
------------------------------------------------------------
Management Consolidated
Building Civil Services Totals Corporate Total
-------------- ------------- ------------- ------------- ---------------- ----------------
Revenues $ 346,602 $ 46,665 $ 74,476 $ 467,743 $ - $ 467,743
Income from Construction Operations $ 6,988 $ 852 $ 5,653 $ 13,493 $ (2,772) * $ 10,721
Three months ended September 30, 2003
Reportable Segments
------------------------------------------------------------
Management Consolidated
Building Civil Services Totals Corporate Total
-------------- ------------- ------------- ------------- ---------------- ----------------
Revenues $ 214,292 $ 43,249 $ 38,314 $ 295,855 $ - $ 295,855
Income from Construction Operations $ 4,746 $ (174) $ 4,014 $ 8,586 $ (1,835) * $ 6,751
* In all periods, consists of corporate general and administrative expenses.
** In all periods, corporate assets consist principally of cash and cash equivalents, net deferred tax asset, land held for sale and other investments available for general corporate purposes.
(11) Employee
Pension Plans
The
Company has a defined benefit pension plan that covers its executive,
professional, administrative and clerical employees, subject to certain
specified service requirements. The Company also has an unfunded supplemental
retirement plan for certain employees whose benefits under the defined benefit
plan are reduced because of compensation limitations under federal tax laws. In
accordance with SFAS No. 132R, “Employers’ Disclosures About Pensions
and Other Post-Retirement Benefits”, the pension disclosure presented below
includes aggregated amounts for both of the Company’s plans. The following
table sets forth the net pension cost by component for the three month and nine
month periods ended September 30, 2004 and 2003 (in thousands):
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------- --------------------------
2004 2003 2004 2003
---------- ------------ ---------- ------------
Service cost - benefits earned during the period $ 174 $ 457 $ 1,245 $ 1,371
Interest cost on projected benefit obligation 1,012 1,169 3,404 3,506
Expected return on plan assets (1,032) (1,136) (2,967) (3,409)
Amortization of prior service costs (7) 8 11 26
Recognized actuarial loss 10 166 935 499
---------- ------------ ---------- ------------
Net periodic pension cost $ 157 $ 664 $ 2,628 $ 1,993
Effect of curtailment - - 247 -
---------- ------------ ---------- ------------
Total Pension Cost $ 157 $ 664 $ 2,875 $ 1,993
========== ============ ========== ============
15
(11) Employee Pension Plans (continued)
As
previously disclosed in its financial statements for the year ended December 31,
2003, the Company expected to contribute $4.0 million to the pension plan in
2004. On April 1, 2004, the Company made the $4.0 million cash contribution and
does not plan to make any further contributions to the pension plan in 2004.
Effective June 1, 2004, all benefit accruals under the Company’s pension plan were frozen; however, current vested benefits will be preserved. The Company has evaluated the financial impact of this decision on its 2004 pension expense and results of operations and believes that the financial impact will not be material.
In accordance with SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits”, a one-time charge of $0.2 million was recorded in the second quarter of 2004. In addition, based upon a re-evaluation of the funded status of the Company’s pension plans as of June 1, 2004, the Company recorded a $0.9 million increase, net of tax, in accumulated other comprehensive loss attributable to the change in the additional minimum pension liability recognized pursuant to SFAS No. 87, “Employers’ Accounting for Pensions”.
(12) Treasury
Stock
Effective
July 1, 2004, a new corporation statute enacted by the Commonwealth of
Massachusetts made the concept of treasury shares obsolete. Under the new
statute, shares previously issued by the Company that are subsequently acquired
by the Company become authorized but unissued shares. Accordingly, in the third
quarter of 2004 the Company reclassified 60,529 shares previously shown as
treasury shares against common stock issued. The $965,000 cost related to these
treasury shares was reclassified against common stock and paid-in surplus.
16
Perini Corporation is a construction services company offering diversified general contracting, construction management and design-build services to private clients and public agencies throughout the world. We have provided construction services since 1894 and have established a strong reputation within our markets by executing large, complex projects on time and within budget while adhering to strict quality control measures. We offer general contracting, preconstruction planning and comprehensive project management services, including the planning and scheduling of the manpower, equipment, materials and subcontractors required for a project. We also offer self-performed construction services including site work, concrete forming and placement and steel erection.
Our business is conducted through three primary segments: building, civil, and management services. Our building segment focuses on large, complex projects in the hospitality and gaming, sports and entertainment, educational, transportation and healthcare markets. Our civil segment is involved in public works construction primarily in the northeastern United States, including the repair, replacement and reconstruction of the United States public infrastructure such as highways, bridges and mass transit systems. Our management services segment provides diversified construction, design-build and maintenance services to the U.S. military and government agencies as well as power producers, surety companies and multi-national corporations.
Significant Accounting Policies
Our significant accounting policies are described in Note 1 of Notes to Consolidated Financial Statements included in Item 15 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2003. Our critical accounting policies are also identified and discussed in Item 7 of said Annual Report on Form 10-K. We have made no significant change in these policies during 2004 except as discussed below.
Prior to September 30, 2004, we accounted for stock-based compensation under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees” (“APB No. 25”) and related Interpretations in accounting for our stock-based compensation costs. In addition, we followed the disclosure requirements contained in Statement of Financial Accounting Standards (“SFAS”) No. 123 “Accounting for Stock-Based Compensation” (“SFAS No. 123”), as amended by SFAS No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure” (“SFAS No. 148”). On September 30, 2004, we adopted the fair value recognition provisions of SFAS No. 123 for stock-based employee and director compensation costs, effective January 1, 2004, utilizing the modified prospective transition method as described in SFAS No. 148. Since there were no unvested awards as of January 1, 2004 and since there were no new awards in the six months ended June 30, 2004, no adjustments to previously issued financial statements were required upon adoption of this accounting principle. Had we applied the fair value recognition provisions of SFAS No. 123 to stock-based employee and director compensation prior to January 1, 2004, there would have been no effect on the reported net income or earnings per share for either the three month or nine month periods ended September 30, 2003 since previous stock awards were fully vested prior to January 1, 2003. We believe this change in accounting principle is to a preferable method.
Recent Developments
Resale Registration Statement
On July 13, 2004, we filed a shelf registration statement with the Securities and Exchange Commission to register the resale of approximately 11.4 million shares of our common stock held by certain existing stockholders. The selling stockholders consist of Tutor-Saliba Corporation, National Union Fire Insurance Company of Pittsburgh, Pa., a member of American International Group, Inc., O&G Industries, Inc., Blum
17
Capital Partners, L.P., PB Capital Partners, L.P., and the Union Labor Life Insurance Company acting on behalf of its Separate Account P. We will not receive any proceeds from the sales of these securities by the selling stockholders. In September 2004, Tutor-Saliba Corporation sold 862,500 shares of our common stock, including the exercise of the underwriters’ over-allotment option, at $13.75 per share in an underwritten public offering under the shelf registration statement.
Amendment to Credit Facility
In August 2004, the terms of our $50 million credit facility (the “Credit Facility”) were amended to extend the term of the Credit Facility from June 2005 to June 2007 and to adjust certain financial covenants. Other terms of the Credit Facility remain the same, including the provision that we can choose from interest rate alternatives including a prime-based rate as well as options based on LIBOR (London inter-bank offered rate).
Pending Acquisition of Cherry Hill Construction, Inc.
On September 3, 2004, we announced that we had signed a letter of intent to acquire Cherry Hill Construction, Inc. (“CHC”), a privately held construction company, for $20 million in cash, subject to terms and conditions including lender approval. Based in Jessup, Maryland, CHC is an established civil construction company in the Mid-Atlantic and Southeast regions with 2003 revenues and pretax earnings of $119.0 million and $3.6 million, respectively. CHC specializes in excavation, foundations, paving and construction of civil infrastructure. Assuming the successful completion of due diligence, we anticipate that the acquisition transaction will close in 2004.
Backlog Analysis for 2004
The following table provides an analysis of our backlog by business segment for the nine month period ended September 30, 2004.
Backlog at New Business Revenue Backlog at
Dec. 31, 2003 Awarded Recognized Sept. 30, 2004
------------- ------------------- ----------------- -------------------
(In thousands)
Building $ 896,799 $ 687,834 $ (1,008,112) $ 576,521
Civil 305,698 37,102 (110,470) 232,330
Management Services 463,967 294,204 (325,273) 432,898
------------------ ------------------- ----------------- -------------------
Total $ 1,666,464 $ 1,019,140 $ (1,443,855) $ 1,241,749
================== =================== ================= ===================
Net income of $6.4 million for the third quarter of 2004 was comparable to net income for the third quarter of 2003 as higher income from construction operations, due primarily to the increase in revenues discussed below, was offset by an increase in the provision for income taxes. The provision for income taxes in 2003 reflects a lower-than-normal tax rate due to the realization of a portion of the federal tax benefit not recognized in prior years due to certain accounting limitations.
18
Revenues for the
Three Months Ended Sept. 30,
-------------------------------------- Increase %
2004 2003 (Decrease) Change
-------------- ---------------- ------------- -----------
(In millions)
Building $ 346.6 $ 214.3 $ 132.3 61.7%
Civil 46.7 43.3 3.4 7.9%
Management Services 74.5 38.3 36.2 94.5%
-------------- ---------------- -------------
Total $ 467.8 $ 295.9 $ 171.9 58.1%
============== ================ =============
Overall revenues increased by $171.9 million (or 58.1%), from $295.9 million in 2003 to $467.8 million in 2004. This increase was due primarily to an increase in building revenues of $132.3 million (or 61.7%), from $214.3 million in 2003 to $346.6 million in 2004, and an increase in management services revenues of $36.2 million (or 94.5%), from $38.3 million in 2003 to $74.5 million in 2004. The increase in building construction revenues was due primarily to the timing of the start up of new projects in the hospitality and gaming market, particularly in California and Nevada, and reflects the significantly higher building segment backlog entering 2004 compared to 2003. The increase in management services revenues is due primarily to the new contracts we were awarded in late 2003 relating to the rebuilding of Iraq and Afghanistan. Civil construction revenues increased by $3.4 million (or 7.9%), from $43.3 million in 2003 to $46.7 million in 2004.
Income from Construction
Operations for the
Three Months Ended Sept. 30,
-------------------------------------- Increase %
2004 2003 (Decrease) Change
----------------- ----------------- --------------- -------------
(In millions)
Building $ 7.0 $ 4.7 $ 2.3 48.9%
Civil 0.9 (0.1) 1.0 n.a.
Management Services 5.6 4.0 1.6 40.0%
----------------- ----------------- ---------------
Subtotal $13.5 $ 8.6 $ 4.9 57.0%
Less: Corporate (2.8) (1.9) 0.9 (47.4)%
----------------- ----------------- ---------------
Total $10.7 $ 6.7 $ 4.0 59.7%
================= ================= ===============
Income from construction operations (excluding corporate) increased by $4.9 million (or 57.0%), from $8.6 million in 2003 to $13.5 million in 2004. Building construction income from operations increased by $2.3 million (or 48.9%), from $4.7 million in 2003 to $7.0 million in 2004, due primarily to the increase in revenues discussed above. Partly offsetting this increase was a $2.0 million increase in building construction-related general and administrative expenses due primarily to a $1.7 million increase in incentive compensation due primarily to a timing variance. Management services income from operations increased by $1.6 million (or 40.0%), from $4.0 million in 2003 to $5.6 million in 2004, due primarily to the increase in revenues discussed above partly offset by lower gross profit margins in 2004 on projects currently in process. In addition, management services income from operations was negatively impacted by a $1.2 million increase in management services-related general and administrative expenses due primarily to a $1.0 million increase in incentive compensation due primarily to a timing variance. Civil construction income from operations increased by $1.0 million, from a loss of $0.1 million in 2003 to a profit of $0.9 million in 2004, due primarily to recognition of a claim settlement on a completed infrastructure project which was largely offset by a profit reversal on another project due to the settlement of outstanding issues with the owner. Income from operations was negatively impacted by a $0.9 million increase in corporate general and administrative expenses, from $1.9 million in 2003 to $2.8 million in
19
2004, due primarily to a $0.9 million increase in corporate incentive compensation due primarily to a timing variance.
Other expense increased by $0.6 million, from an expense of $0.1 million in 2003 to an expense of $0.7 million in 2004, due primarily to a $0.2 million increase in expenses related to the secondary stock offering completed in September 2004, as well as a $0.2 million increase in the amortization of the intangible asset established in conjunction with the accounting for the acquisition of Cummings in January 2003.
The (provision) credit for income taxes reflects a lower-than-normal tax rate in 2003 due primarily to the realization of a portion of the federal tax benefit not recognized in prior years due to certain accounting limitations.
As discussed above, our reported net income was $6.4 million for both the three months ended September 30, 2004 and the three months ended September 30, 2003. Our reported basic earnings per common share were $0.26 and $0.29 for the three months ended September 30, 2004 and 2003, respectively. Our reported diluted earnings per common share were $0.25 and $0.28 for the three months ended September 30, 2004 and 2003, respectively. Assuming an effective income tax rate of 38% and also assuming that we completed our 2003 tender offer for our $21.25 Preferred Stock prior to January 1, 2003, pro forma net income for the three months ended September 30, 2004 would have been $6.1 million, as compared to pro forma net income of $3.9 million for the three months ended September 30, 2003. Similarly, pro forma basic earnings per common share for the three months ended September 30, 2003 would have been $0.24, as compared to pro forma basic earnings per common share of $0.16 for the three months ended September 30, 2003. Pro forma diluted earnings per common share for the three months ended September 30, 2004 would have been $0.23, as compared to pro forma diluted earnings per common share of $0.15 for the three months ended September 30, 2003. The reconciliation of reported net income to pro forma net income for the three months ended September 30, 2004 and 2003 is set forth below under “Reconciliation of Reported Net Income to Pro Forma Net Income for the Three Month and Nine Month Periods Ended September 30, 2004 and 2003.”
Income before taxes increased by $19.7 million, from $15.0 million in 2003 to a year-to-date record of $34.7 million in 2004, due primarily to an overall increase in revenues. However, net income increased by only $8.4 million, from $21.4 million in 2003 to $29.8 million in 2004, due primarily to the recognition of a $7.0 million federal tax benefit in 2003 based on expected utilization of net operating loss carryforwards. In addition, both 2004 and 2003 reflect a lower-than-normal tax rate due to the realization of a portion of the federal tax benefit not recognized in prior years due to certain accounting limitations.
Revenues for the
Nine Months Ended Sept. 30,
-------------------------------------- Increase %
2004 2003 (Decrease) Change
----------------- ------------------ -------------- -------------
(In millions)
Building $ 1,008.1 $ 629.3 $ 378.8 60.2%
Civil 110.5 134.5 (24.0) (17.8)%
Management Services 325.3 109.6 215.7 196.8%
----------------- ------------------ --------------
Total $ 1,443.9 $ 873.4 $ 570.5 65.3%
================= ================== ==============
Overall revenues increased by $570.5 million (or 65.3%), from $873.4 million in 2003 to $1,443.9 million in 2004. This increase was due primarily to an increase in building revenues of $378.8 million (or 60.2%), from $629.3 million in 2003 to $1,008.1 million in 2004, and an increase in management services
20
revenues of $215.7 million (or 196.8%), from $109.6 million in 2003 to $325.3 million in 2004. The increase in building construction revenues was due primarily to the timing of the start up of new projects in the hospitality and gaming market, particularly in California and Nevada, and reflects the significantly higher building segment backlog entering 2004 compared to 2003. The increase in management services revenues is due primarily to the new contracts we were awarded in late 2003 related to the rebuilding of Iraq and Afghanistan. These increases were partly offset by a decrease in civil construction revenues of $24.0 million (or 17.8%), from $134.5 million in 2003 to $110.5 million in 2004. The decrease in revenues from civil construction operations primarily reflects a decreasing backlog of civil construction work as we continue to focus on returning this segment to its historical level of performance. In addition, certain new work opportunities have been delayed pending finalization of funding.
Income from Construction
Operations for the
Nine Months Ended Sept. 30,
----------------------------------- Increase %
2004 2003 (Decrease) Change
-------------- --------------- -------------- -------------
(In millions)
Building $ 21.7 $ 9.2 $ 12.5 135.9%
Civil 2.1 1.7 0.4 (23.5)%
Management Services 22.7 11.4 11.3 99.1%
-------------- --------------- --------------
Subtotal $ 46.5 $ 22.3 $ 24.2 108.5%
Less: Corporate (7.3) (6.2) 1.1 (17.7)%
-------------- --------------- --------------
Total $ 39.2 $ 16.1 $ 23.1 143.5%
============== =============== ==============
Income from construction operations (excluding corporate) increased by $24.2 million (or 108.5%), from $22.3 million in 2003 to $46.5 million in 2004. Building construction income from operations increased by $12.5 million, from $9.2 million in 2003 to $21.7 million in 2004, due primarily to the increase in revenues discussed above. Building construction income from operations was negatively impacted by a $0.5 million increase in building construction-related general and administrative expenses as the benefits realized by one business unit from the impact of certain cost reduction measures instituted during 2003, as well as a greater ability to utilize personnel on projects as a result of the increased number of projects in process, were more than offset by a $1.7 million increase in incentive compensation due primarily to a timing variance. Management services income from operations increased by $11.3 million (or 99.1%), from $11.4 million in 2003 to $22.7 million in 2004, due primarily to the increase in revenues discussed above partly offset by a lower gross profit margin in 2004 since 2003 included a profit increase based on favorable cost experience on two fixed price overseas projects. Despite the decrease in revenues discussed above, civil construction income from operations increased by $0.4 million, from $1.7 million in 2003 to $2.1 million in 2004, due primarily to a $0.3 decrease in civil construction-related general and administrative expenses. In addition, civil construction income from operations benefited from a $0.5 million increase in gains realized from the sale of equipment. Income from operations was negatively impacted by a $1.1 million increase in corporate general and administrative expenses, from $6.2 million in 2003 to $7.3 million in 2004, due primarily to a $1.0 million increase in corporate incentive compensation due primarily to a timing variance.
Other expense increased by $3.6 million, from an expense of $0.4 million in 2003 to an expense of $4.0 million in 2004, due primarily to a $1.7 million increase in expenses related to the secondary stock offerings completed in 2004, as well as a $1.2 million increase in the amortization of the intangible asset established in conjunction with the accounting for the acquisition of Cummings in January 2003. Also, in accordance with SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits”, we recorded a one-time charge of $0.2 million in 2004 due to the decision to freeze all benefit accruals under our defined benefit pension plan effective June 1, 2004.
21
The (provision) credit for income taxes reflects a lower-than-normal tax rate in both 2004 and 2003 due in part to the realization of a portion of the federal tax benefit not recognized in prior years due to certain accounting limitations. The credit for income taxes in 2003 also includes the recognition of a $7.0 million federal tax benefit in accordance with SFAS No. 109, “Accounting for Income Taxes” based on the expected utilization of net operating loss carryforwards.
Reconciliation of Reported Net Income to Pro Forma Net Income for the Three Month and Nine Month Periods Ended September 30, 2004 and 2003
As discussed above, our reported net income was $29.8 million and $21.4 million for the nine months ended September 30, 2004 and 2003, respectively. Our reported basic earnings per common share were $1.24 and $1.20 for the nine months ended September 30, 2004 and 2003, respectively. Our reported diluted earnings per common share were $1.16 and $1.17 for the nine months ended September 30, 2004 and 2003, respectively. Assuming an effective income tax rate of 38% and also assuming that we completed our 2003 tender offer for our $21.25 Preferred Stock prior to January 1, 2003, pro forma net income for the nine months ended September 30, 2004 would have been $21.5 million, as compared to pro forma net income of $9.3 million for the nine months ended September 30, 2003. Similarly, pro forma basic earnings per common share for the nine months ended September 30, 2004 would have been $0.88, as compared to pro forma basic earnings per common share of $0.37 for the nine months ended September 30, 2003. Pro forma diluted earnings per common share for the nine months ended September 30, 2004 would have been $0.83, as compared to pro forma diluted earnings per common share of $0.36 for the nine months ended September 30, 2003. The reconciliation of reported net income to pro forma net income for the nine month and three month periods ended September 30, 2004 and 2003 is set forth below:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
----------------------------- -----------------------------
2004 2003 2004 2003
------------ ------------ ------------ -------------
(In thousands, except per share data)
Reported net income $ 6,430 $ 6,396 $ 29,827 $ 21,433
Plus: Provision (credit) for income taxes 3,405 (35) 4,900 (6,410)
------------ ------------ ------------ -------------
Income before income taxes 9,835 6,361 34,727 15,023
Provision for income taxes assuming 38% effective rate 3,737 2,417 13,196 5,709
------------ ------------ ------------ -------------
Pro forma net income $ 6,098 $ 3,944 $ 21,531 $ 9,314
Less: Dividends accrued on Preferred Stock
assuming the tender offer took place prior to
January 1, 2003 (297) (297) (891) (891)
------------ ------------ ------------ -------------
Pro forma total available for common stockholders $ 5,801 $ 3,647 $ 20,640 $ 8,423
============ ============ ============ =============
Pro forma basic earnings per common share $ 0.24 $ 0.16 $ 0.88 $ 0.37
============ ============ ============ =============
Pro forma diluted earnings per common share $ 0.23 $ 0.15 $ 0.83 $ 0.36
============ ============ ============ =============
Weighted average common shares outstanding:
Basic 23,906 22,805 23,376 22,726
Effect of dilutive stock options and warrants outstanding 1,006 1,181 1,550 673
------------ ------------ ------------ -------------
Diluted 24,912 23,986 24,926 23,399
------------ ------------ ------------ -------------
22
To supplement our unaudited consolidated financial statements presented on a generally accepted accounting principles (GAAP) basis, we sometimes use non-GAAP measures of net income, earnings per share and other measures that we believe are appropriate to enhance an overall understanding of our historical financial performance and future prospects. The non-GAAP results, which are adjusted to exclude certain costs, expenses, gains and losses from the comparable GAAP measures, are an indication of our baseline performance before gains, losses or other charges that are considered by management to be outside of our core operating results. These non-GAAP results are among the indicators management uses as a basis for evaluating our financial performance as well as for forecasting future periods. For these reasons, management believes these non-GAAP measures can be useful to investors, potential investors and others. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income or earnings per share prepared in accordance with GAAP.
Cash and Working Capital
We have a $50 million
revolving credit facility (the “Credit Facility”) which will mature in
June 2007. Management believes that the Credit Facility provides us with the
flexibility to provide the funds needed to support the anticipated growth of our
construction activities. At September 30, 2004, we had $47.2 million available
to borrow under the Credit Facility.
The Credit Facility requires, among other things, maintaining minimum tangible net worth, fixed charge coverage and operating profit levels as well as a minimum working capital ratio. The Credit Facility also includes operational covenants customary for facilities of this type, including restrictions on incurring additional indebtedness without the consent of our lenders, other than financing for our corporate headquarters, insurance premiums and construction equipment, as well as limitations on liens, investments and the purchase and sale of assets outside of the normal course of business. Our obligations under our Credit Facility are guaranteed by substantially all of our current and future subsidiaries, and secured by substantially all of our and our subsidiaries’ assets, including a pledge of all of the capital stock of our subsidiaries.
Cash and cash equivalents as reported in the accompanying consolidated condensed financial statements consist of amounts held by us as well as our proportionate share of amounts held by construction joint ventures. Cash held by us is available for general corporate purposes while cash held by construction joint ventures is available only for joint venture-related uses. Cash held by construction joint ventures is distributed from time to time to us and to the other joint venture participants in accordance with their percentage interest after the joint venture partners determine that a cash distribution is prudent. Cash distributions received by us from our construction joint ventures are then available for general corporate purposes. At September 30, 2004 and December 31, 2003, cash held by us and available for general corporate purposes was $65.1 million and $33.4 million, respectively, and our proportionate share of cash held by joint ventures and available only for joint venture-related uses was $37.0 million and $34.4 million, respectively.
A summary of cash flows for each of the nine month periods ended September 30, 2004 and 2003 is set forth below:
23
Nine Months
Ended Sept. 30,
----------------------------
2004 2003
------------ ------------
(In millions)
Cash flows from:
Operating activities $ 28.8 $ 4.6
Investing activities (2.0) (9.6)
Financing activities 7.5 3.4
------------ ------------
Net increase (decrease) in cash $ 34.3 $ (1.6)
Cash at beginning of year 67.8 47.0
------------ ------------
Cash at end of period $ 102.1 $ 45.4
============ ============
During the first nine months of 2004, we generated $28.8 million in cash flow from operating activities and $7.5 million in cash flow from financing activities, primarily from $7.6 million received from the exercise of common stock options and stock purchase warrants, to fund $2.0 million in cash flow used by investing activities, primarily to acquire construction equipment and to increase our balance of cash on hand. As a result, our consolidated cash balance increased by $34.3 million, from $67.8 million at December 31, 2003 to $102.1 million at September 30, 2004.
Working capital increased from $125.4 million at the end of 2003 to $166.9 million at September 30, 2004. The current ratio increased from 1.31x to 1.38x during the same period.
The amount of unbilled work decreased by $21.6 million, from $116.6 million at December 31, 2003 to $95.0 million at September 30, 2004, due primarily to the timing of certain contract billings.
Long-term Debt
Long-term debt increased
slightly from $8.5 million at December 31, 2003 to $8.8 million at September 30,
2004. The long-term debt to equity ratio was .05x at September 30, 2004,
compared to .07x at December 31, 2003.
Dividends
There were no cash
dividends declared or paid on our outstanding Common Stock during the periods
presented herein.
The covenants in our prior credit agreements required us to suspend the payment of quarterly dividends on our $21.25 Preferred Stock until certain financial criteria were met. While quarterly dividends on the $21.25 Preferred Stock have not been paid since 1995, 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 $10.7 million as of September 30, 2004.
Our Board of Directors has not decided that our working capital and other conditions warrant the resumption of payment of the regular dividend or any of the dividends in arrears on the $21.25 Preferred Stock. We do not have any plans or target date for resuming the dividend, given the following circumstances:
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The statements contained in this Management’s Discussion and Analysis of the Consolidated Condensed Financial Statements 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 our management’s expectations, hopes, beliefs, intentions or strategies regarding the future. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) 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 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; the availability of borrowed funds on terms acceptable to us; the ability to retain certain members of management; the ability to obtain surety bonds to secure our performance under certain construction contracts; possible labor disputes or work stoppages within the construction industry; changes in federal and state appropriations for infrastructure projects; possible changes or developments in worldwide or domestic political, social, economic, business, industry, market and regulatory conditions or circumstances; and actions taken or not taken by third parties including our customers, suppliers, business partners, and competitors and legislative, regulatory, judicial and other governmental authorities and officials; and other risks and uncertainties discussed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission on March 11, 2004. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
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There has been no material change in the Company’s exposure to market risk as described in the Company’s annual report on Form 10-K, Item 7A., since December 31, 2003.
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as of the end of the period covered by this report, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. The effectiveness of our disclosure controls and procedures is necessarily limited by the staff and other resources available to us and, although we have designed our disclosure controls and procedures to address the geographic diversity of our operations, this diversity inherently may limit the effectiveness of those controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
There was no change in our internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. In connection with these rules, we will continue to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.
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Item 1. Legal Proceedings
As disclosed in Part I, Item 3, "Legal Proceedings" of our Annual Report on Form 10-K for the year ended
December 31, 2003, and in Note 5 of Notes to Consolidated Condensed Financial Statements in this Quarterly
Report, we are involved in the litigation described as the Tutor-Saliba-Perini Joint Venture vs. Los Angeles MTA
Matter. With respect to this matter, oral arguments on the appeal of the Judge's discovery sanction, the
subsequent jury award and the amended jury award are scheduled for December 3, 2004.
As disclosed in Part I, Item 3, "Legal Proceedings" of our Annual Report on Form 10-K for the year ended
December 31, 2003, and in Note 5 of Notes to Consolidated Condensed Financial Statements in this Quarterly
Report, we are involved in the litigation described as the Redondo/Perini Joint Venture vs. Siemens Transportation
Matter. With respect to this matter, on October 7, 2004, Siemens Transportation Partnership, S. E., Puerto
Rico filed suit against us in New York state court seeking enforcement against us of a guaranty agreement that
allegedly guarantees the performance and payment obligations of the subject Redondo/Perini Joint
Venture/Siemens contract in an amount to be determined at trial, but not less than $27 million.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) On July 14, 2004, a member of our former bank group purchased 188,160 shares of our common stock, par value
$1.00 per share, pursuant to a stock purchase warrant, by cashless exercise at an exercise price of $8.30
per share. As a result of this cashless exercise, we issued 49,216 shares of our common stock to the
warrant holder and we retained 138,944 shares of common stock, valued at approximately $11.24 per share
(based on the closing price of our common stock on July 13, 2004), in payment of the exercise price.
On August 13, 2004, we sold 225,000 share of our common stock, par value $1.00 per share, in conjunction
with the exercise of stock options by our chief executive officer. The exercise prices of such stock
options ranged from $5.125 to $8.375. We received aggregate proceeds in the amount of $1,647,960 in
connection with the option exercises.
The securities issued in the foregoing transaction were offered and sold in reliance on exemptions
from registration set forth in Section 4(2) of the Securities Act or regulations promulgated thereunder,
relating to sales by an issuer not involving any public offering.
(b) Not applicable
(c) Not applicable
Item 3. Defaults Upon Senior Securities
(a) None
(b) In accordance with the covenants of certain prior credit agreements, 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. Although the financial criteria
were satisfied as of December 31, 2000, the Company has not paid dividends on the $21.25
Preferred Stock since 1995. While the Company's most recent Credit Facility does not currently
restrict such dividends, 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 "Liquidity and
Capital Resources" on pages 24 and 25 of this Quarterly Report. As of September 30, 2004, the
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aggregate amount of dividends in arrears is approximately $10.7 million, which represents
approximately $191.25 per share of $21.25 Preferred Stock or approximately $19.13 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
(a) None
(b) None
Item 6. Exhibits
Exhibit 10.1 Fourth Amendment and Waiver dated August 25, 2004 to Credit Agreement among Perini
Corporation, Fleet National Bank, as Administrative Agent, and the Lenders - filed herewith.
Exhibit 10.2 Amendment No. 7 dated as of September 15, 2004 to the Management Agreement by and
among the Company, Ronald N. Tutor and Tutor-Saliba Corporation - filed herewith.
Exhibit 31.1 Certification of Principal Executive Officer Pursuant to Section 302 of Sarbanes-Oxley
Act of 2002 - filed herewith.
Exhibit 31.2 Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 - filed herewith.
Exhibit 32.1 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.
Exhibit 32.2 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.
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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 5, 2004 /s/ Michael E. Ciskey
Michael E. Ciskey
Vice President and Chief Financial Officer
Duly Authorized Officer and Principal Accounting Officer
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