United States Securities and Exchange Commission Commission File No. 1-6314
Washington, DC 20549
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Act of 1934.
For the fiscal year ended December 31, 2004
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to ____________
Perini Corporation
(Exact name of registrant as specified in its charter)
Massachusetts 04-1717070
(State of Incorporation) (IRS Employer Identification No.)
73 Mt. Wayte Avenue, Framingham, Massachusetts 01701
(Address of principal executive offices) (Zip Code)
(508) 628-2000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
Common Stock, $1.00 par value The New York Stock Exchange
$2.125 Depositary Convertible Exchangeable The American Stock Exchange
Preferred Shares, each representing 1/10th
Share of $21.25 Convertible Exchangeable
Preferred Stock, $1.00 par value
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X
Indicate by check mark if registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No
The aggregate market value of voting Common Stock held by nonaffiliates of the registrant is $125,018,992 as of June 30, 2004, the last business day of the registrant's most recently completed second quarter.
The number of shares of Common Stock, $1.00 par value per share, outstanding at February 23, 2005 was 25,307,928.
Portions of the definitive proxy statement relating to the registrant's annual meeting of stockholders to be held on May 19, 2005 are incorporated by reference into Part III of this report.
PERINI CORPORATION
INDEX TO ANNUAL REPORT
ON FORM 10-K
PAGE
PART I
Item 1: Business 2 - 21
Item 2: Properties 22
Item 3: Legal Proceedings 22 - 26
Item 4: Submission of Matters to a Vote of Security Holders 26 - 27
PART II
Item 5: Market for the Registrant's Common Equity and Related Stockholder Matters 28
Item 6: Selected Financial Data 29 - 30
Item 7: Management's Discussion and Analysis of Financial Condition and Results of
Operations 31 - 46
Item 7A: Quantitative and Qualitative Disclosure About Market Risk 46
Item 8: Financial Statements and Supplementary Data 46
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 46
Item 9A: Controls and Procedures 47 - 48
Item 9B: Other Information 48
PART III
Item 10: Directors and Executive Officers of the Registrant 49
Item 11: Executive Compensation 49
Item 12: Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters 49
Item 13: Certain Relationships and Related Transactions 49
Item 14: Principal Accountant Fees and Services 49
PART IV
Item 15: Exhibits and Financial Statement Schedules 50
Signatures 51
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The statements contained in this Annual Report on Form 10-K 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 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. Also see “Risk Factors” on pages 12 through 21. 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.
Perini Corporation and its subsidiaries (or “Perini,” “we,” “us,” and “our,” unless the context indicates otherwise) is a leading construction services company, based on revenues, as ranked by Engineering News-Record, or ENR, 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. During 2004, we performed work on more than 100 construction projects for over 65 federal, state and local government agencies or authorities and private customers. Our headquarters are in Framingham, Massachusetts, and we have seven other principal offices throughout the United States. Our common stock is listed on the New York Stock Exchange under the symbol “PCR”. Our $21.25 Preferred Stock is listed on the American Stock Exchange.
Our business is conducted through three primary segments: building, civil, and management services. Our building segment, comprised of Perini Building Company and James A. Cummings, Inc., or Cummings, 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. In January 2005, we expanded our civil segment through the acquisition of Cherry Hill Construction, Inc., or Cherry Hill, an established civil construction company in the mid-Atlantic and southeastern United States. 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.
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Building Segment
Our building segment has significant experience providing services to a number of high growth, specialized building markets, including the hospitality and gaming, sports and entertainment, education, transportation and healthcare markets. We believe our success within the building segment results from our proven ability to manage and perform large, complex projects with aggressive fast-track schedules, elaborate designs and advanced systems while providing accurate budgeting and strict quality control. Although price is a key competitive factor, we believe our strong reputation, long-standing customer relationships and significant level of repeat and referral business have enabled us to achieve our leading position.
We believe the hospitality and gaming market provides significant opportunities for growth. We are a recognized leader in this market, specializing in the construction of high-end destination resorts and casinos and Native American developments. We work with hotel operators, Native American tribal councils, developers and architectural firms to provide diversified construction services to meet the challenges of new construction and renovation of hotel and resort properties. We believe that our reputation for completing projects on time is a significant competitive advantage in this market, as any delay in project completion may result in significant loss of revenues for the customer. In ENR’s 2004 rankings based on revenue, we ranked as the nation’s 16th largest contractor in the general building market, 2nd largest builder in the hotel, motel and convention center market and as one of the top 25 builders in the sports and entertainment markets.
As a result of our reputation and track record, we have been involved in many marquee projects. These include hospitality and gaming projects such as the Paris Hotel and Casino in Las Vegas, NV; the Gaylord Palms Resort and Convention Center in Orlando, FL; and the Grand Resorts Hotel/Casino Expansion in Atlantic City, NJ. In the sports and entertainment market, we have been involved in projects such as the Bank One Ballpark in Phoenix, AZ and The Palace at Auburn Hills in Auburn Hills, MI. In our other end markets, we have been involved in large, complex projects such as the Airport Parking Garage and Rental Car Facility in Ft. Lauderdale, FL; the Florida International University Health & Life Sciences Building in Miami, FL; and the South Shore Hospital expansion in Weymouth, MA.
In January 2003, we acquired Cummings to expand our presence in the southeast region of the United States. Cummings specializes in the construction of schools, municipal buildings and commercial developments.
Civil Segment
Our civil segment specializes in new public works construction and the repair, replacement and reconstruction of infrastructure, principally in the metropolitan New York and Boston markets. Our civil contracting services include construction and rehabilitation of highways, bridges, light rail transit systems, subways, airports and wastewater treatment facilities. Our customers primarily award contracts through one of two methods: the traditional public “competitive bid” method, in which price is the major determining factor, or through a request for proposals where contracts are awarded based on a combination of technical capability and price. Traditionally, our customers require each contractor to pre-qualify for construction business by meeting criteria that include technical capabilities, financial strength and corporate integrity. We believe that our corporate integrity, financial strength and outstanding record of performance on challenging civil works projects enables us to pre-qualify for projects in situations where smaller, less diversified contractors are unable to meet the qualification requirements. We believe this is a competitive advantage that makes us an attractive partner on the largest infrastructure projects and prestigious DBOM (design-build-operate-maintain) contracts, which combine the nation’s top contractors with engineering firms, equipment manufacturers and project development consultants in a competitive bid selection process to execute highly sophisticated public works projects.
We have been active in civil construction since 1894 and believe we have developed a particular expertise in large, complex civil construction projects. ENR’s 2004 rankings based on revenue place us as the 49th largest builder of general transportation projects in the country and as a top 25 builder in the mass transit and rail market. We have completed or are currently working on some of the most significant civil construction projects in the northeast including a portion of Boston’s “Big Dig” project, the Williamsburg Bridge reconstruction, New Jersey Light Rail Transit, the Triborough Bridge rehabilitation, Jamaica Station and a section of the Long Island Expressway.
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In January 2005, we acquired Cherry Hill to expand our presence in the mid-Atlantic and southeast regions of the United States. Cherry Hill, which is now our wholly-owed subsidiary, specializes in excavation, foundations, paving and construction of civil infrastructure.
Management Services Segment
Our management services segment provides diversified construction, design-build and maintenance services to the U.S. military and government agencies, power suppliers, surety companies and multi-national corporations in the United States and overseas. We believe customers choose our services based on our ability to plan and execute rapid response assignments and multi-year contracts through our diversified construction and design-build abilities. In addition, we believe we have demonstrated consistently superior performance on competitively bid or negotiated multi-year, multi-trade, task order and ID/IQ (Indefinite Delivery/Indefinite Quantity) construction programs. We have been chosen by the federal government for significant projects related to defense and reconstruction projects in Iraq and Afghanistan. For example, we are currently working on the reconstruction of electric power facilities in southern Iraq. In addition, we completed two projects to construct buildings and infrastructure at Afghan National Army bases near Kabul and have begun construction of two complete 6,000-person bases in northern and eastern Afghanistan.
We believe we are well positioned to capture additional projects that involve long-term contracts and provide a recurring source of revenues as government expenditures for defense and homeland security increase in response to the global threat of terrorism. For example, we have recently concluded a multi-year contract with the U.S. Department of State, Office of Overseas Buildings Operations, to perform design-build security upgrades at U.S. embassies and consulates throughout the world including Argentina, Brazil, Czech Republic, Laos, Pakistan, the Philippines and Taiwan. We are currently completing a separate contract to consolidate facilities for increased security at the U.S. Embassy in Islamabad, Pakistan. In addition, our proven abilities with federal government projects have enabled us to win contracts from private defense contractors who are executing projects for the federal government. For example, we have been awarded design and construction contracts by Raytheon Integrated Defense Systems for upgrades to radar facilities at Beale Air Force Base in California, the Cobra Dane Facility on Shemya Island, Alaska, and at a Royal Air Force facility in Fylingdales, England to meet the requirements of a new early warning radar system.
We also provide diversified management services to power producers, surety companies and multi-national corporations. Under a five-year contract expiring at the end of 2006, we provide planning, management, maintenance and modification services at 10 nuclear power generating stations, including 17 operating units. We are also under agreement with a major North American surety company to provide rapid response, contract completion services. Upon notification from the surety of a contractor bond default, we provide management or general contracting services to fulfill the contractual and financial obligations of the surety.
Information on lines of business and foreign business is included under the following captions of this Annual Report on Form 10-K for the year ended December 31, 2004.
Annual Report
on Form 10-K
Caption Page Number
Selected Consolidated Financial Information 29 - 30
Management's Discussion and Analysis of Financial Condition and Results of Operations 31 - 46
Note 11 of Notes to Consolidated Financial Statements entitled "Business Segments" 79 - 81
While the “Selected Consolidated Financial Information” presents certain business segment information for purposes of consistency of presentation for the five years ended December 31, 2004, additional business segment information required by Statement of Financial Accounting Standards No. 131, “Disclosures About Segments of an Enterprise and Related Information”, for the three years ended December 31, 2004 is included in Note 11 of Notes to Consolidated Financial Statements.
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Our construction services are targeted toward end markets that are diversified across project types, client characteristics and geographic locations. Revenues by business segment for each of the three years in the period ended December 31, 2004 are set forth below:
Revenues by Segment
Year Ended December 31,
---------------------------------------------
2004 2003 2002
------------- ------------- -------------
(in thousands)
Building $ 1,298,771 $ 898,254 $ 631,860
Civil 138,095 176,877 312,528
Management Services 405,449 298,972 140,653
------------- ------------- -------------
Total $ 1,842,315 $1,374,103 $1,085,041
============= ============= =============
Revenues by end market for the building segment for each of the three years in the period ended December 31, 2004 are set forth below:
Building Segment Revenues by End Market
-------------------------------------------------
2004 2003 2002
------------- ------------- -------------
(in thousands)
Hospitality and Gaming $ 1,042,671 $ 541,575 $ 513,374
Sports and Entertainment 10,753 126,705 72,729
Education Facilities 111,296 98,730 1,181
Transportation Facilities 34,801 46,266 14,096
Healthcare Facilities 25,206 53,351 11,264
Other 74,044 31,627 19,216
------------- ------------- -------------
Total $ 1,298,771 $ 898,254 $ 631,860
============= ============= =============
Revenues by end market for the civil segment for each of the three years in the period ended December 31, 2004 are set forth below:
Civil Segment Revenues by End Market
-----------------------------------------------
2004 2003 2002
------------ ------------ -------------
(in thousands)
Highways $ 17,394 $ 64,322 $ 92,486
Bridges 39,868 16,519 72,312
Mass Transit 46,509 84,967 145,160
Wastewater Treatment and Other 34,324 11,069 2,570
------------ ------------ -------------
Total $ 138,095 $ 176,877 $ 312,528
============ ============ =============
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Revenues by end market for the management services segment for each of the three years in the period ended December 31, 2004 are set forth below:
Management Services Segment
Revenues by End Market
-----------------------------------------------
2004 2003 2002
------------- ------------ ------------
(in thousands)
U.S. Government Services $329,095 $218,688 $ 46,749
Power Facilities Maintenance 59,945 51,724 74,948
Other 16,409 28,560 18,956
------------- ------------ ------------
Total $405,449 $298,972 $140,653
============= ============ ============
We provide our services to a broad range of private and public customers. The allocation of our revenues by client source for each of the three years in the period ended December 31, 2004 are set forth below:
Revenues by Client Source
-------------------------
Year Ended December 31,
-------------------------------
2004 2003 2002
-------- ------- --------
Private Owners 67% 61% 65%
State and Local Governments 15 23 30
Federal Governmental Agencies 18 16 5
-------- ------- --------
100% 100% 100%
======== ======= ========
Private Owners. We derived approximately 67% of our revenues from private customers during 2004. Our private customers include major hospitality and gaming resort owners, Native American sovereign nations, private developers, healthcare and retirement companies and a leading owner and operator of power facilities. We provide services to our private customers primarily through negotiated contract arrangements, as opposed to competitive bids.
State and Local Governments. We derived approximately15% of our revenues from state and local government customers during 2004. Our state and local government customers include state transportation departments, state and local correctional departments, metropolitan authorities, cities, municipal agencies, school districts and public universities. We provide services to our state and local customers primarily pursuant to contracts awarded through competitive bidding processes. Our civil contracting services are concentrated in the northeast, principally in the metropolitan New York and Boston markets. Our building construction services for state and local government customers, which have included schools and dormitories, correctional and healthcare facilities, parking structures and municipal buildings, are in locations throughout the country. Since our acquisition of Cummings in January 2003, we have been particularly active in providing construction services for local government customers in Florida.
Federal Governmental Agencies. We derived approximately 18% of our revenues from federal governmental agencies during 2004. These agencies have included the State Department, the U.S. Navy and the U.S. Army Corps of Engineers. We provide services to federal agencies primarily pursuant to contracts for specific or multi-year assignments that involve new construction or infrastructure improvements. A substantial portion of our revenues from federal agencies is derived from projects in overseas locations. Our share of revenues derived from federal customers has increased steadily in recent years. We expect this trend to continue for the foreseeable future as a result of our expanding base of experience and relationships with federal agencies, together with favorable market and expenditure trends for defense, security and reconstruction work.
We include a construction project in our backlog at such time as a contract is awarded or a firm letter of commitment is obtained and funding is in place. As a result, the backlog figures are firm, subject only to the cancellation
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provisions contained in the various contracts. Historically, these provisions have not had a material adverse effect on us.
As of December 31, 2004, we had a construction backlog of $1.151 billion compared to $1.666 billion at December 31, 2003 and $990 million at December 31, 2002. Backlog is summarized below by business segment as of December 31, 2004 and 2003:
Backlog by Business Segment
--------------------------------------------------
December 31, December 31,
2004 2003
------------------------ -----------------------
(dollars in thousands)
Building $ 570,067 50% $ 896,799 54%
Civil 230,711 20 305,698 18
Management Services 350,697 30 463,967 28
-------------- ------- ------------- ------
Total $ 1,151,475 100% $ 1,666,464 100%
============== ======= ============= ======
We estimate that approximately $200 million, or 17%, of our backlog at December 31, 2004 will not be completed in 2005.
Backlog by end market for the building segment as of December 31, 2004 and 2003 is set forth below:
Building Segment Backlog by End Market
-------------------------------------------------------
December 31, December 31,
2004 2003
-------------------------- -------------------------
(dollars in thousands)
Hospitality and Gaming $ 406,869 71% $ 608,161 68%
Sports and Entertainment 3,260 1 9,235 1
Education Facilities 99,221 17 116,013 13
Transportation Facilities 9,806 2 45,529 5
Healthcare Facilities 4,393 1 26,048 3
Other 46,518 8 91,813 10
--------------- ------- --------------- -------
Total $ 570,067 100% $ 896,799 100%
=============== ======= =============== =======
Backlog by end market for the civil segment as of December 31, 2004 and 2003 is set forth below:
Civil Segment Backlog by End Market
------------------------------------------------------------
December 31, December 31,
2004 2003
---------------------------- ----------------------------
(dollars in thousands)
Highways $ 12,243 6% $ 24,736 8%
Bridges 76,984 33 102,155 33
Mass Transit 53,570 23 60,603 20
Wastewater Treatment and Other 87,914 38 118,204 39
------------ ------------ ------------ ------------
Total $ 230,711 100% $ 305,698 100%
============ ============ ============ ============
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Backlog by end market for the management services segment as of December 31, 2004 and 2003 is set forth below:
Management Services Segment Backlog by End Market
-------------------------------------------------------------
December 31, December 31,
2004 2003
----------------------------- ----------------------------
(dollars in thousands)
U.S. Government Services $231,145 66% $305,496 66%
Power Facilities Maintenance 113,239 32 150,308 32
Other 6,313 2 8,163 2
------------- ------------ ------------ ------------
Total $350,697 100% $463,967 100%
============= ============ ============ ============
Competition
The construction industry is highly competitive and the markets in which we compete have numerous and often larger companies that provide similar services. In certain end markets of the building segment, such as hospitality and gaming, we are one of the largest providers of construction services in the United States, but within other end markets of the building segment, and within the civil and management services segments, there are competitors with significantly greater capabilities and resources. In our building segment, we compete with a variety of national and regional contractors. In the west, our primary competitors are Marnell-Carrao, Huntcor and McCarthy. In the northeast, our primary competitors are Suffolk, Gilbane and Turner and in the southeast our primary competitors include Centex-Rooney, James B. Pirtle and Whiting-Turner. In our management services segment, we compete principally with national engineering and construction firms such as Fluor, Washington Group International and Kellogg Brown & Root. In our civil segment, we compete principally with large civil construction firms that operate in the northeast, including Slattery/Skanska, Granite Construction/Halmar, Tully and Schiavone. We believe price, experience, reputation, responsiveness, customer relationships, project completion track record and quality of work are key factors in customers awarding contracts across our end markets.
Types of Contracts and The Contract Process
Type of Contracts
The general contracting and management services we provide consist of planning and scheduling the manpower, equipment, materials and subcontractors required for the timely completion of a project in accordance with the terms, plans and specifications contained in a construction contract. We provide these services by entering into traditional general contracting arrangements, such as fixed price, guaranteed maximum price and cost plus award fee contracts and, to a lesser extent, construction management or design-build contracting arrangements. These contract types and the risks generally inherent therein are discussed below:
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Historically, a high percentage of our contracts have been of the fixed price and GMP type. A summary of revenues and backlog by type of contract for each of the three years in the period ended December 31, 2004 follows:
Backlog as of
December 31,
----------------------------
2004 2003 2002
------- ------- -------
Fixed Price 32% 30% 30%
Cost Plus, GMP or CM 68 70 70
------- ------- -------
100% 100% 100%
======= ======= =======
Revenues for the
Year Ended December 31,
----------------------------
2004 2003 2002
------- ------- -------
Fixed Price 20% 18% 35%
Cost Plus, GMP or CM 80 82 65
------- ------- -------
100% 100% 100%
======= ======= =======
The Contract Process
We identify potential projects from a variety of sources, including advertisements by federal, state and local governmental agencies, through the efforts of our business development personnel and through meetings with other participants in the construction industry such as architects and engineers. After determining which projects are available, we make a decision on which projects to pursue based on such factors as project size, duration, availability of personnel, current backlog, competitive advantages and disadvantages, prior experience, contracting agency or owner, source of project funding, geographic location and type of contract.
After deciding which contracts to pursue, we generally have to complete a prequalification process with the applicable agency or customer. The prequalification process generally limits bidders to those companies with operational experience and financial capability to effectively complete the particular project(s) in accordance with the plans, specifications and construction schedule.
The estimating process typically involves three phases. Initially, we perform a detailed review of the plans and specifications, summarize the various types of work involved and related estimated quantities, determine the project duration or schedule and highlight the unique and riskier aspects of the project. After the initial review, we decide whether or not to continue to pursue the project. If the answer is positive, we perform the second phase of the estimating process which consists of estimating the cost and availability of labor, material, equipment, subcontractors and the project team required to complete the project on time and in accordance with the plans and specifications. The final phase consists of a detailed review of the estimate by management including, among other things, assumptions regarding cost, approach, means and methods, productivity and risk. After the final review of the cost estimate, management adds an amount for
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profit to arrive at the total bid amount.
Public bids to various governmental agencies are generally awarded to the lowest bidder. Requests for proposals or negotiated contracts with public or private customers are generally awarded based on a combination of technical capability and price, taking into consideration factors such as project schedule and prior experience.
During the construction phase of a project, we monitor our progress by comparing actual costs incurred and quantities completed to date with budgeted amounts and the project schedule and periodically, at a minimum on a quarterly basis, prepare an updated estimate of total forecasted revenue, cost and profit for the project.
During the normal course of most projects, the customer and sometimes the contractor initiate modifications or changes to the original contract to reflect, among other things, changes in specifications or design, construction method or manner of performance, facilities, equipment, materials, site conditions and period for completion of the work. Generally the scope and price of these modifications are documented in a "change order" to the original contract and reviewed, approved and paid in accordance with the normal change order provisions of the contract.
Many times the contract requires us to perform extra or change order work as directed by the customer even if the customer has not agreed in advance on the scope or price of the work to be performed. This process may result in disputes over whether the work performed is beyond the scope of the work included in the original project plans and specifications or, if the customer agrees that the work performed qualifies as extra work, the price the customer is willing to pay for the extra work. Even when the customer agrees to pay for the extra work, we may be required to fund the cost of such work for a lengthy period of time until the change order is approved and funded by the customer. Also, these unapproved change orders, contract disputes or claims result in costs being incurred by us that cannot be billed currently and, therefore, are reflected as "Unbilled Work" in our balance sheet. See Note 1(d) of Notes to Consolidated Financial Statements. In addition, any delay caused by the extra work may adversely impact the timely scheduling of other project work and our ability to meet specified contract milestone dates.
The process for resolving claims vary from one contract to another but, in general, we attempt to resolve claims at the project supervisory level through the normal change order process or with higher levels of management within our organization and the customer's organization. Depending upon the terms of the contract, claim resolution may employ a variety of other resolution methods, including mediation, binding or non-binding arbitration or litigation. Regardless of the process, when a potential claim arises on a project, we typically have the contractual obligation to perform the work and must incur the related costs. We do not recoup the costs until the claim is resolved. It is not uncommon for the claim resolution process to take months or years to resolve, especially if it involves litigation.
Our contracts generally involve work durations in excess of one year. Revenue from our contracts in process is generally recorded under the percentage of completion contract accounting method. For a more detailed discussion of our policy in these areas, see Note 1(d) of Notes to Consolidated Financial Statements, entitled "Method of Accounting for Contracts".
Construction Costs
While our business may experience some adverse consequences if shortages develop or if prices for materials, labor or equipment increase excessively, provisions in certain types of contracts often shift all or a major portion of any adverse impact to the customer. On fixed price contracts, we attempt to insulate ourselves from the unfavorable effects of inflation by incorporating escalating wage and price assumptions, where appropriate, into our construction bids and by obtaining firm fixed price quotes from major subcontractors and material suppliers at the time of the bid period. Construction and other materials used in our construction activities are generally available locally from multiple sources and have been in adequate supply during recent years. Construction work in selected overseas areas primarily employs expatriate and local labor which can usually be obtained as required.
Environmental Matters
Our properties and operations are subject to federal, state and municipal laws and regulations relating to the protection of the environment, including requirements for water discharges, air emissions, the use, management and
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disposal of solid or hazardous materials or wastes and the cleanup of contamination. For example, we must apply water or chemicals to reduce dust on road construction projects and to contain contaminants in storm run-off water at construction sites. In certain circumstances, we may also be required to hire subcontractors to dispose of hazardous materials encountered on a project in accordance with a plan approved in advance by the owner. We believe that we are in substantial compliance with all applicable laws and regulations. However, future requirements or amendments to current laws or regulations imposing more stringent requirements could require us to incur additional costs to maintain or achieve compliance.
In addition, some environmental laws, such as the U.S. federal "Superfund" law and similar state statutes, can impose liability for the entire cost of cleanup of contaminated sites upon any of the current or former owners or operators or upon parties who sent wastes to these sites, regardless of who owned the site at the time of the release or the lawfulness of the original disposal activity. Contaminants have been detected at some of the sites that we own, or where we worked as a contractor in the past, and we have incurred costs for investigation or remediation of hazardous substances. We also believe that our liability for these sites will not be material, either individually or in the aggregate, and have pollution legal liability insurance available for such matters. We believe that we have minimal exposure to environmental liability as a result of the activities of Perini Environmental Services, Inc., or Perini Environmental, a wholly owned subsidiary of Perini that was phased out during 1997. Perini Environmental provided hazardous waste engineering and construction services to both private clients and public agencies nationwide. Perini Environmental was responsible for compliance with applicable laws in connection with its activities; however, Perini and Perini Environmental generally carried insurance or received indemnification from customers to cover the risks associated with the remediation business.
We own real estate in four states and as an owner, are subject to laws governing environmental responsibility and liability based on ownership. We are not aware of any significant environmental liability associated with our ownership of real estate.
Real Estate Operations
Effective June 30, 1999, management adopted a plan to withdraw completely from the real estate development business and to wind down the operations of Perini Land and Development Company, or PL&D, our wholly owned real estate development subsidiary. Accordingly, approximately 98% of the property has been liquidated since June 30, 1999. Since December 31, 2002, the only land remaining to be sold consists of certain fully developed parcels in Raynham, Massachusetts. This property is primarily included in "Other Assets" on the Consolidated Balance Sheets. (See Note 13 of Notes to Consolidated Financial Statements.)
Insurance and Bonding
All of our properties and equipment, both directly owned or owned through joint ventures with others, are covered by insurance and management believes that such insurance is adequate. In addition, we maintain general liability, excess liability and workers' compensation insurance in amounts that we believe are consistent with our risk of loss and industry practice. Due to tight conditions in the insurance market, commencing in the calendar year 2002 and continuing through 2004, we purchased workers' compensation and general liability policies at substantially higher premiums with a self-insured deductible limit of $250,000 per occurrence, with appropriate aggregate caps on losses retained.
As a normal part of the construction business, we are often required to provide various types of surety bonds as an additional level of security of our performance. We have surety arrangements with several sureties, one of which we have dealt with for over 75 years, and another of which owns approximately 10.5% of our outstanding common stock. (See Note 12 of Notes to Consolidated Financial Statements.)
Employees
The total number of personnel employed by us is subject to seasonal fluctuations, the volume of construction in progress and the relative amount of work performed by subcontractors. During 2004, our average number of employees was approximately 2,400 with a maximum of approximately 3,600 and a minimum of approximately 1,500.
We operate primarily as a union contractor. As such, we are signatory to numerous local and regional collective
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bargaining agreements, both directly and through trade associations, throughout the country. These agreements cover all necessary union crafts and are subject to various renewal dates. Estimated amounts for wage escalation related to the expiration of union contracts are included in our bids on various projects and, as a result, the expiration of any union contract in the next fiscal year is not expected to have any material impact on us. As of December 31, 2004, approximately 680 of our total of 1,520 employees were union employees. During the past several years, we have not experienced any work stoppages caused by our union employees.
Available Information
Our website address is www.perini.com. The information contained on our website is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K. We make available, free of charge on our Internet website our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") as soon as reasonably practicable after we have electronically filed such materials with, or furnished it to, the United States Securities and Exchange Commission. Also available on our website are our Code of Business Conduct and Ethics, Corporate Governance Guidelines, the charters of the Committees of our Board of Directors and reports under Section 16 of the Exchange Act of transactions in our stock by our directors and executive officers.
RISK FACTORS
We are subject to a number of risks, including those summarized below. Such risks could have a material adverse effect on our financial condition, results of operations and cash flows. See our disclosure under "Forward-looking Statements" on page 2.
Risks Relating to Our Business:
We are subject to significant legal proceedings, which, if determined adversely to us, could harm our reputation,
preclude us from bidding on future projects and/or have a material adverse effect on us.
We are involved in various lawsuits, including the legal proceedings described under Item 3 -- "Legal Proceedings." While some of these proceedings involve claims against us for significant amounts, we do not believe that these or any other pending litigation will ultimately result in a final judgment against us that would materially adversely affect us. Litigation is, however, inherently uncertain and it is not possible to predict what the final outcome will be of any legal proceeding. A final judgment against us would require us to record the related liability and fund the payment of the judgment and, if such adverse judgment is significant, it could have a material adverse effect on us.
In addition, legal proceedings resulting in judgments or findings against us may harm our reputation and prospects for future contract awards. For example, we are defendants in a civil action brought by the San Francisco City Attorney on behalf of the City and County of San Francisco and the citizens of California, in which it is alleged, among other things, that we violated various bidding practices and minority contracting regulations and committed acts of fraud. If a final judgment is determined adversely to us, it may harm our reputation among other municipalities, which could preclude us from being qualified to bid on future municipal projects.
Our contracts require us to perform extra or change order work, which can result in disputes and adversely effect our working capital, profits and cash flows.
Our contracts generally require us to perform extra or change order work as directed by the customer even if the customer has not agreed in advance on the scope or price of the work to be performed. This process may result in disputes over whether the work performed is beyond the scope of the work included in the original project plans and specifications or, if the customer agrees that the work performed qualifies as extra work, the price the customer is willing to pay for the extra work. Even when the customer agrees to pay for the extra work, we may be required to fund the cost of such work for a lengthy period of time until the change order is approved and funded by the customer.
Also, these unapproved change orders, contract disputes or claims result in costs being incurred by us that cannot be billed currently and therefore, are reflected as "unbilled work" in our balance sheet. See Note 1(d) of Notes to
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Consolidated Financial Statements. To the extent actual recoveries with respect to unapproved change orders, contract disputes or claims are lower than our estimates, the amount of any shortfall will reduce our revenues and the amount of unbilled work recorded on our balance sheet, and could have a material adverse effect on our working capital, results of operations and cash flows. In addition, any delay caused by the extra work may adversely impact the timely scheduling of other project work and our ability to meet specified contract milestone dates. For example, we are currently, along with our joint venture partners, pursuing a series of claims for additional contract time and compensation against the Massachusetts Highway Department for work performed by the joint venture on a portion of the Central Artery/Tunnel project in Boston, Massachusetts. During construction, the Massachusetts Highway Department ordered the joint venture 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, we encountered a number of unforeseen conditions during construction that greatly increased our cost of performance. See Item 3.-- "Legal Proceedings."
Economic, political and other risks associated with our international operations involve risks not faced by our domestic competitors, which could adversely affect our revenue and earnings.
Approximately 18% of our revenue for the year ended December 31, 2004 was derived from our work on projects located outside of the United States. We expect non-U.S. projects to continue to contribute to our revenue and earnings for the foreseeable future. Our international operations expose us to risks inherent in doing business outside the United States, including:
Any of these factors could harm our international operations and, consequently, our business and consolidated operating results. Specifically, failure to successfully manage international growth could result in higher operating costs than anticipated or could delay or preclude altogether our ability to generate revenues in key international markets.
A decrease in U.S. government funding or change in government plans, particularly with respect to rebuilding Iraq and Afghanistan, as well as the risks associated with undertaking projects in these countries, could adversely affect the continuation of existing projects or the number of projects available to us in the future.
We recently performed design-build security upgrades at United States embassies and consulates throughout the world, and we are currently engaged in significant building and infrastructure reconstruction activities in Iraq and Afghanistan. The United States federal government has approved various spending bills for the reconstruction and defense of Iraq and has allocated significant funds to the defense of United States interests around the world from the threat of terrorism. A decrease in government funding of these projects or a decision by the federal government to reduce or eliminate the use of outside contractors to perform this work would decrease the number of projects available to us and limit our ability to obtain new contracts in this area. For example, in January 2005, we received a partial stop work order relating to several partially funded task orders for work in Iraq under a contract with the U.S. Department of State while the applicable agency evaluates the feasibility of shifting a portion of the construction funds to Iraqi government agencies in order to accelerate that country's economic recovery.
In addition, our projects in Iraq, Afghanistan and other areas of political and economic instability carry with them specific security and operational risks. Intentional or unintentional acts in those countries could result in damage to our
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construction sites or harm to our employees and could result in our decision to withdraw our operations from the area. Also, as a result of these acts, the federal government could decide to cancel or suspend our operations in these areas.
Increased regulation of the hospitality and gaming industry could reduce the number of future hospitality and gaming projects available, which, in turn, could adversely impact our future earnings.
The hospitality and gaming industry is regulated extensively by federal and state regulatory bodies, including state gaming commissions, the National Indian Gaming Commission and state and federal taxing and law enforcement agencies. From time to time, legislation is proposed in the legislatures of some of these jurisdictions that, if enacted, could adversely affect the tax, regulatory, operational or other aspects of the hospitality and gaming industry. Legislation of this type may be enacted in the future. The federal government has also previously considered a federal tax on casino revenues and may consider such a tax in the future. In addition, companies that operate in the hospitality and gaming industry are currently subject to significant state and local taxes and fees in addition to normal federal and state corporate income taxes, and such taxes and fees are subject to increase at any time. For example, a new tax law enacted in Nevada in July, 2003 increased the taxes applicable to Nevada gaming operations. Similar legislation or new hospitality and gaming regulations could deter future hospitality and gaming construction projects in jurisdictions in which we derive significant revenue. As a result, the enactment of such legislation or regulations could adversely impact our future earnings.
A decrease in government funding of infrastructure projects could reduce revenues within our civil construction business segment.
Our civil construction markets are dependent on the amount of infrastructure work funded by various governmental agencies which, in turn, depends on the condition of the existing infrastructure, the need for new or expanded infrastructure and federal, state or local government spending levels. A decrease in government funding of infrastructure projects could decrease the number of civil construction projects available and limit our ability to obtain new contracts, which could reduce revenues within our civil construction segment.
If we are unable to accurately estimate the overall risks, revenues or costs on a contract, we may achieve a lower than anticipated profit or incur a loss on the contract.
We generally enter into four principal types of contracts with our clients: fixed price contracts, cost plus award fee contracts, guaranteed maximum price contracts, and, to a lesser extent, construction management or design-build contracts. A significant portion of our revenues and backlog are derived from fixed price contracts. For example, approximately 20% of our revenues for the year ended December 31, 2004 were derived from fixed price contracts. Fixed price contracts require us to perform the contract for a fixed price irrespective of our actual costs. As a result, we realize a profit on these contracts only if we successfully control our costs and avoid cost overruns. Cost plus award fee contracts provide for reimbursement of the costs required to complete a project, but generally have a lower base fee and an incentive fee based on cost and/or schedule performance. If our costs exceed the revenues available under such a contract or are not allowable under the provisions of the contract, we may not receive reimbursement for these costs. Guaranteed maximum price contracts provide for a cost plus fee arrangement up to a maximum agreed-upon price. These contracts also place the risk on us for cost overruns that exceed the guaranteed maximum price. Construction management and design-build contracts are those under which we agree to manage a project for the client for an agreed upon fee, which may be fixed or may vary based upon negotiated factors. Profitability on these types of contracts is driven by changes in the scope of work or design issues, which could cause cost overruns beyond our control and limit profits on these contracts.
Cost overruns, whether due to inefficiency, faulty estimates or other factors, result in lower profit or a loss on a project. A significant number of our contracts are based in part on cost estimates that are subject to a number of assumptions. If our estimates of the overall risks, revenues or costs prove inaccurate or circumstances change, then we may incur a lower profit or a loss on the contract.
The percentage-of-completion method of accounting for contract revenue may result in material adjustments, which could result in a charge against our earnings.
We recognize contract revenue using the percentage-of-completion method. Under this method, estimated
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contract revenue is recognized by applying the percentage of completion of the project for the period to the total estimated revenue for the contract. Estimated contract losses are recognized in full when determined. Total contract revenue and cost estimates are reviewed and revised at a minimum on a quarterly basis as the work progresses and as change orders are approved. Adjustments based upon the percentage of completion are reflected in contract revenue in the period when these estimates are revised. To the extent that these adjustments result in an increase, a reduction or an elimination of previously reported contract profit, we recognize a credit or a charge against current earnings, which could be material.
We are subject to a number of risks as a government contractor, which could either harm our reputation, result in fines or penalties against us and/or adversely impact our financial condition.
We are a major provider of services to government agencies and therefore are exposed to risks associated with government contracting. For example, we must comply with and are affected by laws and regulations relating to the formation, administration and performance of government contracts, such as the Federal Acquisition Regulation, the Cost Accounting Standards and Department of Defense security regulations. A violation of these laws or regulations could require us to pay fines and penalties, result in the termination of existing contracts or result in our being suspended from future government contracts. If a government agency determines that we or one of our subcontractors engaged in improper conduct, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the government, any of which could impact our future earnings or harm our reputation.
Government agencies generally can terminate or modify their contract with us at their convenience and some government contracts must be renewed annually. If a government agency terminates or fails to renew a contract, our backlog may be reduced. If a government agency terminates a contract due to our unsatisfactory performance, it could result in liability to us and harm our ability to compete for future contracts.
We have been, are and will be in the future, the subject of audits and cost reviews by contracting agencies, such as the United States Defense Contract Audit Agency, or the DCAA. These agencies review a contractor's performance and may disallow costs if the agency determines that we accounted for such costs in a manner inconsistent with Cost Accounting Standards or other regulatory and contractual requirements. Therefore, a negative audit could result in a substantial adverse adjustment to our revenues and costs, harm our reputation and result in civil and criminal penalties.
Our participation in construction joint ventures exposes us to liability and/or reputational harm for failures of our partners.
We sometimes enter into joint venture arrangements with outside partners on a joint and several basis so that we can jointly bid on and execute a particular project and reduce our financial or operational risk with respect to such projects. Success on these joint projects depends in large part on whether our joint venture partners satisfy their contractual obligations. If a joint venture partner fails to perform or is financially unable to bear its portion of required capital contributions, we could be required to make additional investments and provide additional services in order to make up for our partner's shortfall. Further, if we are unable to adequately address our partner's performance issues, the client may terminate the project, which could result in legal liability to us, harm our reputation and reduce profit on a project.
Our pension plan is underfunded and we may be required to make significant future contributions to the plan.
Our defined benefit pension plan is a non-contributory pension plan covering substantially all of our employees. As of December 31, 2004, our pension plan was underfunded by approximately $32.0 million. We are required to make cash contributions to our pension plan to the extent necessary to comply with minimum funding requirements imposed by employee benefit and tax laws. The amount of any such required contributions is determined based on an annual actuarial valuation of the plan as performed by the plan's actuaries. During 2004, we voluntarily contributed $4.0 million in cash to our defined benefit pension plan. The amount of future contributions will depend upon asset returns, then-current discount rates and a number of other factors, and, as a result, the amount we may elect or be required to contribute to our pension plan in the future may increase significantly. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Critical Accounting Policies--Defined Benefit Retirement Plan."
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The construction services industry is highly schedule driven, and our failure to meet schedule requirements of our contracts could adversely affect our reputation and/or expose us to financial liability.
Many of our contracts are subject to specific completion schedule requirements with liquidated damages charged to us in the event the construction schedules are not achieved. Failure to meet any such schedule requirements could cause us to suffer damage to our reputation within our industry and client base, as well as pay significant liquidated damages.
Procurement of new project awards is very competitive and our failure to compete effectively could reduce our market share and profits.
New project awards are often determined through either a competitive bid basis or a negotiated basis. Bids or negotiated contracts with public or private owners are generally awarded based upon price, but many times other factors, such as shorter project schedules or prior experience with the owner, result in the award of the contract. Within our industry, we compete with many national, regional and local construction firms. Some of these competitors have achieved greater market penetration than we have in the markets in which we compete, and some have greater financial and other resources than we do. As a result, we may need to accept lower contract margins or more fixed price or unit price contracts in order for us to compete against competitors that have the ability to accept awards at lower prices or have a pre-existing relationship with the owner. If we are unable to compete successfully in such markets, our relative market share and profits could be reduced.
Economic downturns could reduce the level of consumer spending within the hospitality and gaming industry which could adversely affect demand for our services.
Consumer spending in the hospitality and gaming industry is discretionary and may decline during economic downturns, when consumers have less disposable income. Even an uncertain economic outlook may adversely affect consumer spending in hospitality and gaming operations, as consumers may spend less in anticipation of a potential economic downturn. Decreased spending in the hospitality and gaming market could deter new projects within the industry and the expansion or renovation of existing hospitality and gaming facilities, which could impact our revenues and earnings.
An inability to obtain bonding could limit the number of projects we are able to pursue.
As is customary in the construction business, we often are required to provide surety bonds to secure our performance under construction contracts. Our ability to obtain surety bonds primarily depends upon our capitalization, working capital, past performance, management expertise and certain external factors, including the overall capacity of the surety market. Surety companies consider such factors in relationship to the amount of our backlog and their underwriting standards, which may change from time to time. Since 2001, the surety industry has undergone significant changes with several companies withdrawing completely from the industry or significantly reducing their bonding commitment. In addition, certain re-insurers of surety risk have limited their participation in this market. Therefore, we could be unable to obtain surety bonds, when required, which could adversely affect our future results of operations and revenues.
Conflicts of interest may arise with respect to our Chairman and Chief Executive Officer.
Ronald N. Tutor, our chief executive officer and chairman of our Board of Directors, is the sole shareholder and chief executive officer of Tutor-Saliba Corporation, or Tutor-Saliba, a California corporation that beneficially owns approximately 21.7% of our common stock. Mr. Tutor also devotes a substantial amount of time to the business activities of Tutor-Saliba. Tutor-Saliba is engaged in the construction industry, and we have participated in joint ventures with Tutor-Saliba and expect to continue to do so. Although our joint ventures with Tutor-Saliba are discussed with our Audit Committee, transactions we enter into with Tutor-Saliba could be influenced by Mr. Tutor. As in any joint venture, we could have disagreements with Tutor-Saliba over the operation of the joint ventures or the joint ventures could be involved in disputes with third parties, such as the litigation described under Item 3. - "Legal Proceedings," where we may or may not have an identity of interest with Tutor-Saliba. When such situations arise, we may feel constrained in aggressively pursuing all options available to us because of Mr. Tutor's importance to us as our Chief Executive Officer and Chairman and a significant shareholder. If we face such a situation and elect to pursue options against Tutor-Saliba, it is possible that Mr. Tutor or we could terminate his management relationship with us, which could harm our reputation
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and impact our ability to procure future projects.
We could incur significant costs as a result of liability under environmental laws.
Our operations are subject to environmental laws and regulations governing among other things, the discharge of pollutants to air and water, the handling, storage and disposal of solid or hazardous materials or wastes and the remediation of contamination, sometimes associated with leaks or releases of hazardous substances. For example, we own, lease, or have used, in our construction, real estate and environmental remediation operations property upon which solid or hazardous wastes may have been disposed of or released. Any release of such materials or wastes by us or by third parties who operated on these properties may result in liability for investigation or remediation costs. In addition, violations of these environmental laws and regulations could subject us and our management to fines, civil and criminal penalties, cleanup costs and third party property damage or personal injury claims.
Various federal, state and local environmental laws and regulations may impose liability for the entire cost of investigation and clean-up of hazardous or toxic substances. These laws may impose liability without regard to ownership at the time of the contamination or whether or not we caused the presence of contaminants.
If we are unable to attract and retain key personnel, our reputation may be harmed and our future earnings may be negatively impacted.
Our business substantially depends on the continued service of key members of our management, particularly Ronald N. Tutor, Robert Band, Craig W. Shaw, Zohrab B. Marashlian and Michael E. Ciskey, who, collectively, have an average of 30 years in the construction industry and 24 years with us. The loss of the services of any of our key senior management could have a material adverse effect on us. Our future success will also depend on our ability to attract and retain highly skilled personnel, such as engineering, project management and senior management professionals. Competition for these employees is intense, and we could experience difficulty from time to time in hiring and retaining the personnel necessary to support our business. If we do not succeed in retaining our current employees and attracting new high quality employees, our reputation may be harmed and our future earnings may be negatively impacted.
Work stoppages and other labor problems could adversely affect portions of our business, financial position, results of operations and cash flows.
We are a signatory to numerous local and regional collective bargaining agreements, both directly and through trade associations. Future agreements reached in collective bargaining could increase our operating expenses and reduce our profits as a result of increased wages and benefits. If the industry were unable to negotiate with any of the unions, it could result in strikes, work stoppages or increased operating costs as a result of higher than anticipated wages or benefits. If the unionized workers engage in a strike or other work stoppage, or other employees become unionized, we could experience a disruption of our operations and higher ongoing labor costs, which could adversely affect portions of our business, financial position, results of operations and cash flows.
We are subject to restrictive covenants under our credit facility that could limit our flexibility in managing the business.
Our credit facility imposes operating and financial restrictions on us. These restrictions include, among other things, limitations on our ability to:
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In addition, our credit facility prohibits us from incurring debt, other than debt incurred for financing our corporate headquarters, insurance premiums and construction equipment, from other sources without the consent of our lenders. The amount available to us under our credit facility at December 31, 2004 was $47.2 million.
Our credit facility contains financial covenants that require us to maintain minimum tangible net worth, fixed charge coverage and operating profit levels as well as a minimum working capital ratio. Our ability to borrow funds for any purpose will depend on our satisfying these tests.
If we are unable to meet the terms of the financial covenants or fail to comply with any of the other restrictions contained in our credit facility, an event of default could occur. An event of default, if not waived by our lenders, could result in the acceleration of any outstanding indebtedness, causing such debt to become immediately due and payable. If such an acceleration occurs, we may not be able to repay such indebtedness on a timely basis. As our credit facility is secured by substantially all of our assets, acceleration of this debt could result in foreclosure of those assets. In the event of a foreclosure, we would be unable to conduct our business and may be forced to discontinue ongoing operations.
We may have difficulty raising needed capital in the future, which could limit our available working capital and our ability to make acquisitions or future investments.
We may require additional financing in order to make future investments, make acquisitions or provide needed additional working capital. Our ability to arrange such financing in the future will depend in part upon prevailing capital market conditions, as well as conditions in our business and our operating results; such factors may impact our efforts to arrange additional financing on terms satisfactory to us. We have pledged substantially all of our assets as collateral in connection with our credit facility. As a result, we may have difficulty obtaining additional financing in the future if such financing requires us to pledge our assets as collateral. If additional financing is obtained by the issuance of additional shares of common stock, control of Perini may change and stockholders may suffer dilution. If adequate funds are not available, or are not available on acceptable terms, we may not be able to make future investments, take advantage of acquisition or other opportunities, or otherwise respond to competitive challenges.
Timing of the award and performance of a new contract would have an adverse effect on our operating results.
At any point in time, a substantial portion of our revenues is directly or indirectly derived from a limited number of large construction projects. It is generally very difficult to predict whether and when we will receive such awards as these contracts frequently involve a lengthy and complex bidding and selection process which is affected by a number of factors, such as market conditions, financing arrangements and governmental approvals. Because a significant portion of our revenue is generated from large projects, our results of operations and cash flows can fluctuate from quarter to quarter depending on the timing of our new contract awards.
In addition, timing of the revenues, earnings and cash flows from our projects can be delayed by a number of factors, including weather conditions, delays in receiving material and equipment from vendors and changes in the scope of work to be performed. Such delays, if they occur, could have an adverse effect on our operating results for a particular period.
We may not be able to fully realize the revenue value reported in our backlog.
As of December 31, 2004, our backlog was approximately $1.15 billion. We include a construction project in our backlog at such time as a contract is awarded or a firm letter of commitment is obtained and funding is in place. The revenue projected in our backlog may not be realized or, if realized, may not result in profits. For example, if a project reflected in our backlog is terminated, suspended or reduced in scope, it would result in a reduction to our backlog which would reduce, potentially to a material extent, the revenue and profit we actually receive from contracts in backlog. If a client cancels a project, we may be reimbursed for certain costs but typically have no contractual right to the total revenues reflected in our backlog. Significant cancellations or delays of projects in our backlog could have a material adverse effect on our cash flows and profits.
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We have not paid dividends on our $21.25 Preferred Stock in several years and are currently in litigation with certain of our preferred stockholders.
The outstanding shares of $21.25 Preferred Stock are represented by Depositary Shares, each of which represents a one-tenth fractional interest in the respective share of $21.25 Preferred Stock (including dividend, voting, redemption and liquidation rights and preferences). Under the terms of our $21.25 Preferred Stock, the holders of our $21.25 Preferred Stock are entitled to receive an annual cash dividend of $21.25 per share (or $2.125 per Depositary Share) when and as declared by our Board of Directors out of funds legally available for such purposes. We have not paid dividends on our $21.25 Preferred Stock (and therefore the Depositary Shares) since 1995, though they have been fully accrued due to the "cumulative" feature of the $21.25 Preferred Stock. The holders of our $21.25 Preferred Stock have the right to elect two directors to our board in the event that dividends are in arrears for at least six quarters, and the holders of our Depositary Shares have done so at each of our last seven annual meetings of stockholders.
We are currently involved in a class action lawsuit brought by holders of our Depositary Shares. In November 2004, the parties reached an agreement to settle the class action lawsuit. Under the terms of the settlement, we would purchase all of the Depositary Shares submitted in the settlement for consideration of $19.00 per share in cash and one share of our common stock. As of December 31, 2004, there were 559,273 Depositary Shares outstanding. In the event that fewer than 200,000 Depositary Shares are submitted in to the settlement, we may terminate the settlement agreement and the parties will revert to their previous positions in the litigation. Although the named plaintiffs have agreed to support the proposed settlement, it remains subject to approval by the Court.
In the event that less than all of the outstanding Depositary Shares are submitted in the settlement, dividends will continue to accrue on such Depositary Shares and the holders of such Depositary Shares will continue to have the right to elect two directors to our board. If less than 200,000 Depositary Shares are submitted and we terminate the settlement or if the Court rejects the proposed terms of the settlement, the class action lawsuit would proceed and, if such litigation results in a significant adverse judgment against us, it could have a material adverse effect on our cash flows and profits. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Dividends" and "Item 3. --Legal Proceedings--$21.25 Preferred Shareholders Class Action Lawsuit".
Our acquisition strategy involves a number of risks, the realization of which could adversely impact our future revenues and the revenues of the businesses that we acquire.
As a part of our growth strategy, we plan to pursue selective strategic acquisitions of businesses. This strategy involves risks, including diversion of management's attention, potential loss of key employees of acquired businesses and difficulties in integrating operations and systems. We cannot be certain that we will be able to locate suitable acquisitions or consummate any such transactions on terms and conditions acceptable to us or that such transactions will be successful. An inability to successfully integrate acquired businesses into our operations could result in significant losses for us.
Risks Relating to Our Common Stock:
Future sales of our common stock may depress the market price of our common stock.
As of December 31, 2004, the number of shares of our outstanding common stock freely tradeable on the New York Stock Exchange and not owned by our officers, directors, or affiliates was approximately 13.6 million. Pursuant to the registration rights agreement between us and certain of our stockholders, we have registered the resale of approximately 11.4 million shares of our common stock on a Form S-1 shelf registration statement, of which approximately 10.3 million shares remain available for resale. Registration of the resale of these shares of common stock permits their sale into the public market immediately. We cannot predict when the selling stockholders may sell their shares or in what volumes. However, the market price of our common stock could decline significantly if the selling stockholders sell a large number of shares into the public market or if the market believes that these sales may occur.
We may also issue our common stock from time to time as consideration for future acquisitions and investments. In the event any such acquisition or investment is significant, the number of shares of our common stock that we may issue could in turn be significant. In addition, we may also grant registration rights covering those shares in connection with
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any such acquisitions and investments.
Limited trading volume of our common stock may contribute to its price volatility.
Through December 31, 2004, the average daily trading volume during 2004 for our common stock was approximately 149,000 shares. Even if we achieve a wider dissemination by means of the resale of the shares under the shelf registration statement or otherwise, we are uncertain as to whether a more active trading market in our common stock will develop. As a result, relatively small trades may have a significant impact on the price of our common stock.
Our stock price has been and may continue to be volatile and may result in substantial losses for investors.
The market price of our common stock has been, and is likely to continue to be, volatile. Since January 1, 2004, the market price for our common stock has been as high as $19.99 per share and as low as $8.80 per share. Additionally, the stock market in general has been highly volatile since 2000. This volatility in stock price often has been unrelated to our operating performance.
In addition, the trading price of our common stock could be subject to wide fluctuations in response to:
Fluctuations in our stock price as a result of any of the foregoing factors may result in substantial losses for investors.
Fluctuations in our quarterly revenues and operating results may lead to reduced prices for our stock.
Because our operating results are primarily generated from a limited number of significant active construction projects, operating results in any given fiscal quarter can vary depending on the timing of progress achieved and changes in the estimated profitability of the projects being reported. Progress on projects in certain areas may also be delayed by weather conditions. Such delays, if they occur, may result in inconsistent quarterly operating results due to more or less progress than anticipated being achieved on certain projects, which may in turn lead to reduced prices for our stock.
Ownership of our common stock is concentrated among a few stockholders who could act in a way that favors their interests to the detriment of our interests and those of other stockholders.
As of December 31, 2004, the percentage of shares of our common stock owned by our executive officers, directors and 5% stockholders is approximately 46%. These stockholders have the ability to significantly influence the outcome of the election of most of our directors, and the approval of any action requiring majority approval of our common stockholders, including certain amendments to our charter. In addition, without the consent of these stockholders, we may not be able to enter into transactions that could be beneficial to us or our other stockholders.
Provisions of Massachusetts law and of our charter and bylaws may make a takeover of us more difficult, which could impede the ability of our stockholders to benefit from a change in control or to change our management and Board of Directors.
Provisions in our restated articles of organization and bylaws and in the Massachusetts corporate law may make it difficult and expensive for a third party to pursue a tender offer, change in control or takeover attempt which is opposed
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by our management and Board of Directors. Public stockholders who might desire to participate in such a transaction may not have an opportunity to do so. Our bylaws provide for a staggered Board of Directors which makes it difficult for stockholders to change the composition of the Board of Directors in any one year. Our Board of Directors has the authority to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to effect a change in control or takeover of Perini. Also, we have adopted a rights plan that limits the ability of any person to acquire more than 10% of our common stock, except in limited circumstances. These anti-takeover provisions could substantially impede the ability of public stockholders to benefit from a change in control or to change our management and Board of Directors.
ITEM 2. PROPERTIES
Properties used in our construction operations are summarized below:
Business Owned or Approximate Approximate Square
Segment(s) Leased by Perini Acres Feet of Office Space
---------------------------------------- ------------------- -------------- ---------------------
Principal Offices
- ------------------------
Framingham, MA Building, Civil and Management Services Owned 9 100,000
Phoenix, AZ Building Leased - 22,700
Peekskill, NY Civil Owned 2 21,000
Ft. Lauderdale, FL Building Leased - 17,500
Las Vegas, NV Building Leased - 7,400
Celebration, FL Building Leased - 4,800
Carlsbad, CA Building Leased - 3,900
Detroit, MI Building Leased - 2,500
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11 179,800
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Principal Permanent
Storage Yards
- ------------------------
Bow, NH Civil Owned 70
Framingham, MA Building and Civil Owned 6
Peekskill, NY Civil Owned 3
Las Vegas, NV Building Leased 2
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81
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We believe our properties are well maintained, in good condition, adequate and suitable for our purpose and fully utilized. Properties for sale applicable to our previously discontinued real estate activities are described above under “Real Estate Operations.”
On May 11, 1990, contracts with two joint ventures in which Perini Corporation, or 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
21
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.
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.
During 1995, a joint venture, Tutor-Saliba-Perini, or the Joint Venture, in which Perini Corporation, or Perini, is the 40% minority partner and Tutor-Saliba Corporation, or Tutor-Saliba, 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 LAMTA, seeking to recover costs for extra work required by the LAMTA in connection with the construction of certain tunnel and station projects. In February 1999, the LAMTA countered with civil claims under the California False Claims Act against the Joint Venture, Tutor-Saliba and Perini jointly and severally (together, TSP). 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.
Claims concerning the construction of the LAMTA projects were tried before a jury in 2001. During trial, the Judge ruled that the Joint Venture had failed to comply with the Court’s prior discovery orders and the Judge penalized TSP, for the alleged non-compliance by dismissing the Joint Venture’s claims and by ruling, without a jury finding, that TSP was liable to the LAMTA for damages on the LAMTA’s counterclaims. The Judge then instructed the jury that TSP was liable to the LAMTA and charged the jury with the responsibility of determining the amount of the damages based on the Judge’s ruling. The jury awarded the LAMTA approximately $29.6 million in damages.
On March 26, 2002, the Judge amended the award, ordering TSP to pay the LAMTA 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 appealed the Judge's discovery sanction, the subsequent judgment and the amended judgment.
On January 25, 2005, the State of California Court of Appeal issued an opinion in which it reversed the entire $63.0 million trial court’s judgment and found that the trial court judge had abused his discretion and violated TSP’s due process rights and imposed an impermissibly overbroad sanction in issuing terminating sanctions that prevented the Joint Venture from presenting its claims and severely limited TSP in defending itself against the LAMTA’s lawsuit. The Court of Appeal also directed the trial court to dismiss LAMTA’s claims that TSP had violated the Unfair Competition Law and remanded the Joint Venture's claims against LAMTA for extra work required by LAMTA and LAMTA's counterclaim under the California False Claim Act against TSP to the trial court for further proceedings, including a new trial.
Because this case is now scheduled to be retried, the ultimate financial impact of the lawsuit is not yet determinable. Therefore, no provision for loss, if any, has been recorded in the financial statements.
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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 the Tutor-Saliba, Perini & Buckley Joint Venture, or the Joint Venture, Perini Corporation, or Perini, Tutor-Saliba Corporation, or Tutor-Saliba, and Buckley & Company, Inc., or Buckley, 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 Tutor-Saliba, Perini and Buckley through two joint venture agreements dated October 28, 1996 and February 11, 1997. The Joint 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 Tutor-Saliba 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.
Tutor-Saliba is the managing partner of the Joint Venture and, in December 1997, Perini sold its entire 20% interest in the Joint Venture to Tutor-Saliba. As part of that sale agreement, Tutor-Saliba 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.
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.
Arbitration evidentiary hearings have commenced and are continuing.
On October 7, 2004, STP filed suit against Perini in New York state court seeking enforcement against Perini of
23
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.
On December 3, 2004, the Arbitrators dismissed Perini’s claims for general delay damages, and general conditions, its claim for damages under cardinal change theory and the claim amount of a subcontractor. Perini’s remaining claims are for $46.7 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.
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 have continued to hear claims that were pending when it was terminated. Replacement (“Third”) DRB members have been agreed upon (although PKC has asserted a challenge to the Chairman due to a conflict of interest, and the Chairman will likely be replaced). 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 made certain provisional payments to PKC. 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. No claims were settled.
The mediation agreement has been terminated, and the hearings before the Second DRB, Third DRB, and the courts have resumed. The MHD has since asserted that the mediation/negotiation agreement terminated all authority of the Second DRB to hear pending claims and transferred those claims to the Third DRB. The MHD refuses to pay the Second DRB for its services or participate in hearings before the Second DRB. This issue is expected to be the subject of further litigation.
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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 possible false claims. PKC made a responsive presentation to the Attorney General’s office in January 2005. PKC vigorously denies that it submitted any false claims and is cooperating with the Attorney General’s office in the ongoing investigation.
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 $2.125 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., and is pending before the 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 a motion for class certification. Defendants filed an answer denying any and all claims of wrongdoing and asserting affirmative defenses.
On November 30, 2004, Perini announced that the parties had reached an agreement for settlement of the Action. Under the terms of the settlement, Perini would purchase all of the Depositary Shares submitted in the settlement for consideration of $19.00 per share in cash and one share of Perini common stock. The named plaintiffs have agreed to support the settlement. As of December 31, 2004, there were 559,273 Depositary Shares outstanding. In the event that fewer than 200,000 Depositary Shares are submitted in the settlement, Perini may terminate the settlement agreement and the parties will revert to their previous positions in the litigation. The proposed settlement is subject to the approval of the Court. Frederick Doppelt will resign from his position as a director of Perini upon Court approval of the settlement.
In 2001, a similar lawsuit was filed 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.
None.
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Listed below are the names, offices held, ages and business experience of all our executive officers.
Name, Offices Held and Age Year First Elected to Present Office and Business Experience
Ronald N. Tutor, Director, Chairman and He has served as our Chief Executive Officer since March 2000 and as one
Chief Executive Officer - 64 of our Directors since January, 1997. He has also served as our Chairman
since July 1999, Vice Chairman from January 1998 to July 1999, and chief
operating officer from January 1997 until March 2000 when he became Chief
Executive Officer. Mr. Tutor has served as chairman, president and chief
executive officer of Tutor-Saliba Corporation, a California based
construction contractor, since prior to 1995 and has actively managed
that company since 1966.
Robert Band, Director, President and He has served as a Director since May 1999. He has also served as chief
Chief Operating Officer - 57 operating officer since March 2000 and as our president since May 1999.
Previously, he served as Chief Executive Officer from May 1999 until
March 2000, Executive Vice President and Chief Financial Officer from
December 1997 until May 1999, and President of Perini Management
Services, Inc. since January 1996. Previously, he served in various
operating and financial capacities since 1973, including Treasurer from
May 1988 to January 1990.
Michael E. Ciskey, Vice President and He has served as our Chief Financial Officer since November 2003 and as
Chief Financial Officer - 54 Vice President since May 1984. He served as Corporate Controller from
April 1999 until November 2003, Operations Controller from May 1998 until
April 1999 and as Division Controller for various Perini civil
construction business units from 1984 until 1998.
Zohrab B. Marashlian, President, Perini He was appointed to his current position in December 1997, which entails
Civil Construction - 60 overall responsibility for Perini's civil construction operations. From
April 1995 until December 1997, he served as President of Perini's
Metropolitan New York Division and from January 1994 to December 1997, he
served as Senior Vice President, Operations of Perini's Metropolitan New
York Division. Previously, he served in various project management
capacities with Perini since 1971.
Craig W. Shaw, President, Perini He was appointed to his current position in October 1999, which entails
Building Company - 50 overall responsibility for Perini's building construction operations.
From April 1995 until October 1999, he served as President, Perini
Building Company, Western U.S. Division, from January 1994 to April 1995
he served as Senior Vice President, Construction for Perini Building
Company's Western U.S. Division, and from 1986 to January 1994 he served
as Vice President, Construction for Perini Building Company's Western
U.S. Division. Previously, he served in various project management
capacities with Perini since 1978.
Our officers are elected on an annual basis at the Board of Directors’ Meeting immediately following the Annual Meeting of Stockholders in May, to hold such offices until the Board of Directors’ Meeting following the next Annual Meeting of Stockholders and until their respective successors have been duly appointed or until his earlier resignation or removal.
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Our common stock is traded on the New York Stock Exchange under the symbol “PCR”. The quarterly market high and low sales prices for our common stock in 2004 and 2003 are summarized below:
2004 2003
------------------------ -------------------------
High Low High Low
---------- --------- ----------- ----------
Market Price Range per Common Share:
- ------------------------------------
Quarter Ended
March 31 $ 19.99 $ 8.80 $ 4.70 $ 3.62
June 30 17.30 9.18 9.05 3.80
September 30 15.99 10.10 8.99 6.26
December 31 17.04 13.28 10.10 6.95
We have not paid any cash dividends on our common stock since 1990. For the foreseeable future, we intend to retain any earnings in our business and we do not anticipate paying any cash dividends. In addition, under the terms of our preferred stock, we cannot pay dividends on our common stock until all accrued dividends on our preferred stock have been paid. Whether or not to declare any dividends will be at the discretion of our Board of Directors, considering then existing conditions, including our financial condition and results of operations, capital requirements, bonding prospects, contractual restrictions, business prospects and other factors that our Board of Directors considers relevant.
At February 23, 2005, there were 968 holders of record of our common stock, including record holders on behalf of an indeterminate number of beneficial owners, based on the stockholders list maintained by our transfer agent.
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The following selected financial data has been derived from audited consolidated financial statements and should be read in conjunction with the consolidated financial statements, the related notes thereto and the independent auditors’ report thereon, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are included elsewhere in this Form 10-K and in previously filed annual reports on Form 10-K of Perini Corporation. Backlog and new business awarded are not measures defined in accounting principles generally accepted in the United States of America and have not been derived from our consolidated financial statements.
2004 2003 2002 2001 2000
--------------- --------------- --------------- -------------- ----------------
(In thousands, except per share data)
OPERATING SUMMARY
Revenues:
Building $ 1,298,771 $ 898,254 $ 631,860 $ 1,120,161 $ 740,555
Civil 138,095 176,877 312,528 353,957 279,469
Management Services 405,449 298,972 140,653 79,278 85,636
--------------- --------------- --------------- -------------- ----------------
Total $ 1,842,315 $ 1,374,103 $ 1,085,041 $ 1,553,396 $ 1,105,660
Cost of Operations 1,748,933 1,303,851 1,026,391 1,495,834 1,053,328
--------------- --------------- --------------- -------------- ----------------
Gross Profit $ 93,382 $ 70,252 $ 58,650 $ 57,562 $ 52,332
G&A Expense 43,049 39,762 32,770 28,061 24,977
--------------- --------------- --------------- -------------- ----------------
Income From Construction Operations $ 50,333 $ 30,490 $ 25,880 $ 29,501 $ 27,355
Other (Income) Expense, Net 4,703 (1,435) 520 227 (949)
Interest Expense 704 1,003 1,485 2,006 3,966
--------------- --------------- --------------- -------------- ----------------
Income Before Income Taxes $ 44,926 $ 30,922 $ 23,875 $ 27,268 $ 24,338
(Provision) Credit for Income Taxes (8,919) 13,096 (801) (850) 43
--------------- --------------- --------------- -------------- ----------------
Net Income $ 36,007 $ 44,018 $ 23,074 $ 26,418 $ 24,381
=============== =============== =============== ============== ================
Income Available for Common Stockholders (1) $ 34,819 $ 49,619 $ 20,949 $ 24,293 $ 7,299
Per Share of Common Stock:
Basic Earnings $ 1.47 $ 2.18 $ 0.92 $ 1.07 $ 0.39
=============== =============== =============== ============== ================
Diluted Earnings $ 1.39 $ 2.10 $ 0.91 $ 1.04 $ 0.39
=============== =============== =============== ============== ================
Cash Dividend Declared $ - $ - $ - $ - $ -
--------------- --------------- --------------- -------------- ----------------
Book Value $ 6.34 $ 4.65 $ 2.72 $ 2.40 $ 1.57
--------------- --------------- --------------- -------------- ----------------
Weighted Average Common Shares Outstanding:
Basic 23,724 22,763 22,664 22,623 18,521
--------------- --------------- --------------- -------------- ----------------
Diluted 25,061 23,583 22,939 23,442 18,527
--------------- --------------- --------------- -------------- ----------------
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2004 2003 2002 2001 2000
--------------- --------------- --------------- -------------- ----------------
(In thousands)
FINANCIAL POSITION SUMMARY
Working Capital $ 178,029 $ 125,397 $ 115,908 $ 93,369 $ 80,477
--------------- --------------- --------------- -------------- ----------------
Current Ratio 1.41x 1.31x 1.44x 1.24x 1.20x
--------------- --------------- --------------- -------------- ----------------
Long-term Debt, less current maturities $ 8,608 $ 8,522 $ 12,123 $ 7,540 $ 17,218
--------------- --------------- --------------- -------------- ----------------
Stockholders' Equity $ 174,034 $ 120,560 $ 86,649 $ 79,408 $ 60,622
--------------- --------------- --------------- -------------- ----------------
Ratio of Long-term Debt to Equity .05x .07x .14x .09x .28x
--------------- --------------- --------------- -------------- ----------------
Total Assets $ 654,265 $ 565,443 $ 402,389 $ 501,241 $ 487,478
-------------- -------------- -------------- ------------- ----------------
OTHER DATA
Backlog at Year End (2) $ 1,151,475 $ 1,666,464 $ 990,175 $ 1,213,535 $ 1,788,731
--------------- --------------- --------------- -------------- ----------------
New Business Awarded (3) $ 1,327,326 $ 2,050,392 $ 861,681 $ 978,200 $ 1,236,314
--------------- --------------- --------------- -------------- ----------------
(1) Income available for common stockholders includes adjustments to net income for (a) accrued and unpaid dividends on our $21.25 Preferred Stock, or $2.125 Depositary Shares, (b) the reversal of previously accrued and unpaid dividends in the amount of approximately $7.3 million applicable to 440,627 of the $2.125 Depositary Shares purchased and retired by us on June 9, 2003, (c) in-kind dividends declared and paid on Series B Preferred Stock until its exchange for shares of common stock on March 29, 2000 and (d) the $13.7 million assigned to the induced conversion of the Series B Preferred Stock into common stock on March 29, 2000.
(2) A construction project is included in our backlog at such time as a contract is awarded or a firm letter of commitment is obtained and funding is in place. Backlog is not a measure defined in accounting principles generally accepted in the United States of America, or GAAP, and our backlog may not be comparable to the backlog of other companies. Management uses backlog to assist in forecasting future results.
(3) New business awarded consists of the original contract price of projects added to our backlog in accordance with Note (2) above plus or minus subsequent changes to the estimated total contract price of existing contracts. Management uses new business awarded to assist in forecasting future results.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
We were incorporated in 1918 as a successor to businesses which had been engaged in providing construction services since 1894. We provide diversified general contracting, construction management and design-build services to private clients and public agencies throughout the world. Our construction business is conducted through three basic segments or operations: building, civil and management services. Our building segment has significant experience providing services to a number of high growth, specialized building markets, including the hospitality and gaming, sports and entertainment, education, transportation and healthcare markets. Our civil segment specializes in new public works construction and the repair, replacement and reconstruction of infrastructure, including highways, bridges, mass transit systems and wastewater treatment facilities, principally in the metropolitan New York and Boston markets. Our management services segment provides diversified construction, design-build and maintenance services to the U. S. military and government agencies, power suppliers, surety companies and multi-national corporations in the United States and overseas. We have been chosen by the federal government for significant projects related to defense and reconstruction projects in Iraq and Afghanistan.
The contracting and management services that we provide consist of general contracting, preconstruction planning and comprehensive management services, including planning and scheduling the manpower, equipment, materials and subcontractors required for the timely completion of a project in accordance with the terms and specifications contained in a construction contract. We also offer self-performed construction services including site work, concrete forming and placement and steel erection. We provide these services by using traditional general contracting arrangements, such as fixed price, guaranteed maximum price and cost plus fee contracts and, to a lesser extent, construction management or design-build contracting arrangements. In the normal conduct of our business, we enter into partnership arrangements, referred to as “joint ventures,” for certain construction projects. Each of the joint venture participants is usually committed to supply a predetermined percentage of capital, as required, and to share in a predetermined percentage of the income or loss of the project.
For the year ended December 31, 2004, we had record revenues of $1.842 billion and a record pretax profit of $44.9 million. The 2004 operating results reflect increased profit contributions from all of our business units, most notably our building segment, due to an increased volume of work in the hospitality and gaming market, and our management services segment which experienced an increased volume of work in Iraq and Afghanistan. While the backlog of uncompleted construction work at December 31, 2004 was down to $1.15 billion compared to $1.67 billion at December 31, 2003, the demand for our future services in the gaming and hospitality market, as well as for construction management services to U. S. government agencies, remains high. Our financial condition remained strong at December 31, 2004 with working capital of $178.0 million, a ratio of current assets to current liabilities of 1.41 to 1.00, and minimal long-term debt.
Move to New York Stock Exchange
Effective April 1, 2004, our common stock began trading on the New York Stock Exchange under the symbol “PCR”. Previously, our common stock was listed on the American Stock Exchange. Our $21.25 Preferred Stock remains listed on the American Stock Exchange.
Secondary Offering Completed
On April 13, 2004, we completed the pricing of a secondary offering of approximately 5.9 million shares of previously unregistered shares of our common stock at $15.00 per share. The shares were sold by a stockholder group consisting of Blum Capital Partners, L.P., PB Capital Partners, L.P., The Common Fund for Non-Profit Organizations, National Union Fire Insurance Company of Pittsburgh, Pa., a member of American International Group, and The Union
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Labor Life Insurance Company on behalf of its Separate Account P. We did not receive any proceeds from the sale of these securities by the selling stockholders.
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 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. As of December 31, 2004, approximately 10.3 million shares remain available for resale.
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).
Proposed Settlement of $21.25 Preferred Stock Lawsuit
On November 30, 2004, we announced that the parties had reached an agreement to settle the class action lawsuit filed by the holders of the $21.25 Preferred Stock. Under the terms of the settlement, we would purchase all of the Depositary Shares submitted in the settlement for consideration of $19.00 per share in cash and one share of our common stock. As of December 31, 2004, there were 559,273 Depositary Shares outstanding. In the event that fewer than 200,000 Depositary Shares are submitted in the settlement, we may terminate the settlement agreement and the parties will revert to their previous positions in the litigation. The proposed settlement is subject to approval of the Court.
Acquisition of Cherry Hill Construction, Inc.
On January 21, 2005, we completed the acquisition of Cherry Hill Construction, Inc. (“CHC”), a privately held construction company based in Jessup, Maryland, for approximately $20 million in cash. 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. The acquisition will be effective as of January 1, 2005. At January 1, 2005, CHC had a firm backlog of approximately $128 million.
Receipt of a Partial Stop Work Order for Work in Iraq
On January 23, 2005, we received a partial stop work order relating to several partially funded task orders for work in Iraq under our five-year cost-plus-award-fee contract with the U. S. Department of State’s Project Construction Office (“PCO”). The PCO is evaluating the feasibility of shifting a portion of the construction funds for certain electrical distribution facilities to Iraqi government agencies in order to accelerate that country’s economic recovery. Accordingly, we have not included in our backlog of uncompleted work at December 31, 2004 approximately $150 million relating to this contract pending clarification and resolution of the situation.
Backlog Analysis for 2004
The following table provides an analysis of our backlog by business segment for the year ended December 31, 2004.
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Backlog at New Business Revenue Backlog at
December 31, 2003 Awarded (1) Recognized December 31, 2004
-------------------- --------------- -------------- ---------------------
(in thousands)
Building $ 896,799 $ 972,039 $ (1,298,771) $ 570,067
Civil 305,698 63,108 (138,095) 230,711
Management Services 463,967 292,179 (405,449) 350,697
-------------------- --------------- -------------- ---------------------
Total $ 1,666,464 $ 1,327,326 $ (1,842,315) $ 1,151,475
==================== =============== ============== =====================
(1) New business awarded consists of the original contract price of projects added to our backlog plus or minus subsequent changes to the estimated total contract price of existing contracts.
Critical Accounting Policies
Our significant accounting policies are described in Note 1 of Notes to Consolidated Financial Statements included in Item 15 of this Form 10-K.
Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our construction business involves making significant estimates and assumptions in the normal course of business relating to our contracts and our joint venture contracts due to, among other things, the one-of-a-kind nature of most of our projects, the long-term duration of our contract cycle and the type of contract utilized. Therefore, management believes that "Method of Accounting for Contracts" is the most important and critical accounting policy. The most significant estimates with regard to these financial statements relate to the estimating of total forecasted construction contract revenues, costs and profits in accordance with accounting for long-term contracts (see Note 1(d) of Notes to Consolidated Financial Statements) and estimating potential liabilities in conjunction with certain contingencies, including the outcome of pending or future litigation, arbitration or other dispute resolution proceedings relating to contract claims (see Note 2 of Notes to Consolidated Financial Statements). Actual results could differ from these estimates and such differences could be material.
Our estimates of contract revenue and cost are highly detailed. We believe, based on our experience that our current systems of management and accounting controls allow management to produce materially reliable estimates of total contract revenue and cost during any accounting period. However, many factors can and do change during a contract performance period which can result in a change to contract profitability from one financial reporting period to another. Some of the factors that can change the estimate of total contract revenue and cost include differing site conditions (to the extent that contract remedies are unavailable), the availability of skilled contract labor, the performance of major material suppliers to deliver on time, the performance of major subcontractors, unusual weather conditions and the accuracy of the original bid estimate. Because we have many contracts in process at any given time, these changes in estimates can offset each other without impacting overall profitability. However, large changes in cost estimates on larger, more complex civil construction projects can have a material impact on our financial statements and are reflected in our results of operations when they become known.
When recording revenue on contracts relating to unapproved change orders and claims, we include in revenue an amount equal to the amount of costs incurred by us to date for contract price adjustments that we seek to collect from customers for delays, errors in specifications or designs, change orders in dispute or unapproved as to scope or price, or other unanticipated additional costs, in each case when recovery of the costs are considered probable. When determining the likelihood of eventual recovery, we consider such factors as evaluation of entitlement, settlements reached to date and our experience with the customer. The settlement of these issues often takes years depending upon whether the item can be resolved directly with the customer or involves litigation or arbitration . When new facts become known, an
32
adjustment to the estimated recovery is made and reflected in the current period results.
The amount of unapproved change order and claim revenue is included in our balance sheet as Unbilled Work. The amount of Unbilled Work relating to unapproved change orders and claims included in our balance sheet at December 31, 2004 and 2003 is summarized below:
December 31,
-----------------------------
2004 2003
------------- -------------
(in thousands)
Unapproved Change Orders $ 4,028 $ 17,936
Claims 69,171 64,515
------------- -------------
$ 73,199 $ 82,451
============= =============
Of the balance of unapproved change orders and claims included in Unbilled Work at December 31, 2004 and December 31, 2003, approximately $34.0 million and $36.0 million respectively, are amounts subject to pending litigation or dispute resolution proceedings as described in "Item 3 - Legal Proceedings" and Note 2, "Contingencies and Commitments" of Notes to Consolidated Financial Statements for the respective periods. These amounts are management's estimate of the probable recovery from the disputed claims considering such factors as evaluation of entitlement, settlements reached to date and knowledge of customer. In the event that future facts and circumstances, including the resolution of disputed claims, cause us to reduce the aggregate amount of our estimated probable recovery from the disputed claims, we will record the amount of such reduction against future earnings in the relevant period.
Method of Accounting for Contracts - Revenues and profits from our contracts and construction joint venture contracts are recognized by applying percentages of completion for the period to the total estimated profits for the respective contracts. Percentage of completion is determined by relating the actual cost of the work performed to date to the current estimated total cost of the respective contracts. When the estimate on a contract indicates a loss, our policy is to record the entire loss during the accounting period in which it is estimated. In the ordinary course of business, at a minimum on a quarterly basis, we prepare updated estimates of the total forecasted revenue, cost and profit or loss for each contract. The cumulative effect of revisions in estimates of the total forecasted revenue and costs, including unapproved change orders and claims, during the course of the work is reflected in the accounting period in which the facts that caused the revision become known. The financial impact of these revisions to any one contract is a function of both the amount of the revision and the percentage of completion of the contract. An amount equal to the costs incurred which are attributable to unapproved change orders and claims is included in the total estimated revenue when realization is probable. For a further discussion of unapproved change orders and claims, see Item 1, "Business - Types of Contracts and The Contract Process". Profit from unapproved change orders and claims is recorded in the accounting period such amounts are resolved.
Deferred contract revenue represents the excess of billings to date over the amount of contract costs and profits (or contract revenue) recognized to date on the percentage of completion accounting method on certain contracts. Unbilled work represents the excess of contract costs and profits (or contract revenue) recognized to date on the percentage of completion accounting method over billings to date on the remaining contracts. Unbilled work results when (1) the appropriate contract revenue amount has been recognized in accordance with the percentage of completion accounting method, but a portion of the revenue recorded cannot be billed currently due to the billing terms defined in the contract and/or (2) costs, recorded at estimated realizable value, related to unapproved change orders or claims are incurred. For unapproved change orders or claims that cannot be resolved in accordance with the normal change order process as defined in the contract, we may employ other dispute resolution methods, including mediation, binding and non-binding arbitration, or litigation. See Item 3 - "Legal Proceedings" and Note 2, "Contingencies and Commitments", of Notes to Consolidated Financial Statements. The prerequisite for billing unapproved change orders and claims is the final resolution and agreement between the parties. Unbilled work related to our contracts and joint venture contracts at December 31, 2004 is discussed in Note 1(d) of Notes to Consolidated Financial Statements.
33
Accounting for Income Taxes - Information relating to our (provision) credit for income taxes and the status of our deferred tax assets and liabilities is presented in Note 5, "Income Taxes", of Notes to Consolidated Financial Statements. A key assumption in the determination of our book tax (provision) credit is the amount of the valuation allowance required to reduce the related deferred tax assets. A valuation allowance reduces the deferred tax assets to a level which will, more likely than not, be realized. Whether the deferred tax assets will be realized depends on the generation of future taxable income during the periods in which the deferred tax asset become deductible. The net deferred tax assets reflect management's estimate of the amount which will, more likely than not, reduce future taxable income.
As of December 31, 2002, management believed that a valuation allowance was required to reduce the deferred tax assets, primarily relating to certain net operating loss carryforwards ("NOLs"), for the following reasons:
During the first quarter of 2003, we reduced the valuation allowance by $7.0 million and recognized a $7.0 million tax benefit based on the expectation that we would be able to utilize at least a portion of the previously unrecognized NOLs due to the impact of not having a Section 382 restriction as of the end of the three year testing period. During the fourth quarter of 2003, we further reduced the valuation allowance by $7.9 million based on the expectation that we would be able to utilize an additional amount of our NOLs in future years due to a significant increase in backlog as a result of a robust new work acquisition period experienced during the second half of 2003.
Based on a continuation of a substantial increase in pretax profit, the amount of new work acquired and the positive outlook in certain of our major markets, we substantially depleted the $8.4 million valuation allowance remaining at the end of 2003, by offsetting $7.9 million of tax provisions with further reductions in the valuation allowance during the first two quarters of 2004.
Defined Benefit Retirement Plan - The status of our defined benefit pension plan obligations, related plan assets and cost is presented in Note 7 of Notes to Consolidated Financial Statements entitled "Employee Benefit Plans". Plan obligations and annual pension expense are determined by actuaries using a number of key assumptions which include, among other things, the discount rate, the estimated future return on plan assets and the anticipated rate of future salary increases. The discount rate of 6.25% used for purposes of computing the 2004 annual pension expense was determined at the beginning of the calendar year based on high-quality corporate bond yields as of that date. We plan to lower the discount rate used for computing the 2005 annual pension expense to 5.75% due to a decline in high-quality corporate bond yields as of the end of 2004.
The estimated return on plan assets is primarily based on historical long-term returns of equity and fixed income markets according to our targeted allocation of plan assets (70% equity and 30% fixed income). While the weighted estimated return on asset rate has been approximately 8.3% in recent years, we plan to continue to use a rate of 7.5% in 2005 based on recent equity market performance compared to long-term historical averages.
34
The plans' accumulated benefit obligation exceeded the fair value of plan assets on December 31, 2004, 2003 and 2002 in amounts greater than the accrued pension liability previously recorded. Accordingly, we increased our accrual by $5.0 million in 2004, $4.4 million in 2003 and $13.7 million in 2002 with the offset to accumulated other comprehensive loss, a reduction of stockholders' equity.
Effective June 1, 2004, all benefit accruals under our pension plan were frozen; however, the current vested benefits will be preserved. As a result, notwithstanding the expected change in the discount rate assumption for 2005 noted above, we anticipate that pension expense will decrease from $3.5 million in 2004 to $2.2 million in 2005. Cash contributions are anticipated to be $6.0 million in 2005, but using our current assumptions regarding asset performance and the interest rate environment, cash contributions will likely increase significantly in the future.
Results of Operations -
2004 Compared to 2003
Net income for the year ended December 31, 2004 was $36.0 million, an $8.0 million decrease from the record $44.0 million recorded in 2003. Net income for the year ended December 31, 2003 includes the recognition of a $14.9 million tax benefit based on the expectation that we will be able to fully utilize our net operating loss (NOL) carryforwards in future years. On a pretax basis, earnings for the year ended December 31, 2004 were a record $44.9 million, a $14.0 million (or 45%) increase from the $30.9 million recorded in 2003. The record pretax income in 2004 reflects a higher volume of work put in place due primarily to a higher backlog entering 2004 compared to 2003. In particular, we experienced a higher volume of work from our building segment in the hospitality and gaming market and from our management services segment due to contracts previously awarded in Iraq and Afghanistan.
Basic earnings per common share were $1.47 for the year ended December 31, 2004 compared to $2.18 for the year ended December 31, 2003. Diluted earnings per common share were $1.39 for the year ended December 31, 2004, as compared to $2.10 for the year ended December 31, 2003. The basic and diluted earnings per common share calculations for the year ended December 31, 2003 were favorably impacted by $0.32 and $0.31 per share, respectively, due to the reversal of a pro rata portion of accumulated but unpaid dividends on our $21.25 Preferred Stock as a result of the tender offer completed in 2003. The basic and diluted earnings per common share calculations for the year ended December 31, 2003 were also favorably impacted by $0.65 and $0.63 per share, respectively, due to recognition of the $14.9 million tax benefit.
Income before taxes increased by $14.0 million, or 45%, from $30.9 million in 2003 to a record of $44.9 million in 2004, due primarily to an overall increase in revenues. However, net income decreased by $8.0 million, from a record of $44.0 million in 2003 to $36.0 million in 2004, due to the recognition of a $14.9 million federal tax benefit in 2003 based on expected utilization of NOL 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
Year Ended December 31,
---------------------------- Increase %
2004 2003 (Decrease) Change
------------ ------------ ------------ -------------
(In millions)
Building $ 1,298.8 $ 898.2 $ 400.6 44.6 %
Civil 138.1 176.9 (38.8) (21.9)%
Management Services 405.4 299.0 106.4 35.6 %
----------- ----------- -----------
Total $ 1,842.3 $ 1,374.1 $ 468.2 34.1 %
============ ============ ============
Overall revenues increased by $468.2 million (or 34.1%), from $1,374.1 million in 2003 to $1,842.3 million in
35
2004. This increase was due primarily to an increase in building revenues of $400.6 million (or 44.6%), from $898.2 million in 2003 to $1,298.8 million in 2004, and an increase in management services revenues of $106.4 million (or 35.6%), from $299.0 million in 2003 to $405.4 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 $38.8 million (or 21.9%), from $176.9 million in 2003 to $138.1 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 civil construction new work opportunities have been delayed pending finalization of funding.
Income from Construction
Operations for the
Year Ended December 31,
----------------------------- Increase %
2004 2003 (Decrease) Change
------------ ------------- ------------- ------------
(In millions)
Building $ 25.2 $ 12.4 $ 12.8 103.2 %
Civil 5.5 3.2 2.3 71.9 %
Management Services 29.9 23.7 6.2 26.2 %
------------ ------------- -------------
Subtotal $ 60.6 $ 39.3 $ 21.3 54.2 %
Less: Corporate (10.3) (8.8) 1.5 (17.0)%
------------ ------------- -------------
Total $ 50.3 $ 30.5 $ 19.8 64.9 %
============ ============= =============
Income from construction operations (excluding corporate) increased by $21.3 million (or 54.2%), from $39.3 million in 2003 to $60.6 million in 2004. Building construction income from operations increased by $12.8 million, from $12.4 million in 2003 to $25.2 million in 2004, due primarily to the increase in revenues discussed above. In addition, building construction income from operations improved due to a $0.7 million decrease in building construction-related general and administrative expenses as one business unit benefited 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. Management services income from operations increased by $6.2 million (or 26.2%), from $23.7 million in 2003 to $29.9 million in 2004, due primarily to the increase in revenues discussed above. Despite the decrease in revenues discussed above, civil construction income from operations increased by $2.3 million, from $3.2 million in 2003 to $5.5 million in 2004, due primarily to net claim settlements realized in 2004 on several completed projects. In addition, civil construction income from operations improved due to a $0.4 million decrease in civil construction-related general and administrative expenses. Income from construction operations was negatively impacted by a $1.5 million increase in corporate general and administrative expenses, from $8.8 million in 2003 to $10.3 million in 2004, due primarily to an increase of approximately $0.7 million in outside professional fees and expenses related to establishing compliance with Section 404 of the Sarbanes-Oxley Act of 2002 with respect to assessment of our system of internal controls, as well as a $0.5 million increase in corporate incentive compensation.
Other income/expense (net) increased by $6.1 million, from an income of $1.4 million in 2003 to an expense of $4.7 million in 2004, due primarily to a $2.5 million decrease in net gain recorded from land sales since fewer parcels were sold in 2004. In addition, other income/expense (net) increased due to a $1.7 million increase in expenses related to the secondary stock offerings completed in 2004, as well as a $1.3 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.
36
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. As a result of not providing federal income tax benefit applicable to losses recorded in certain prior years for financial reporting purposes, benefit from these losses was realized in 2004 and 2003 by not having to provide federal income tax of approximately $7.9 million and $11.0 million, respectively. In addition, the credit for income taxes in 2003 includes the recognition of an additional $14.9 million federal tax benefit in accordance with SFAS No. 109, “Accounting for Income Taxes” based on the expected utilization of NOL carryforwards.
As noted above, our reported net income was $36.0 million and $44.0 million for the years ended December 31, 2004 and 2003, respectively. Our reported basic earnings per common share were $1.47 and $2.18 for the years ended December 31, 2004 and 2003, respectively. Our reported diluted earnings per common share were $1.39 and $2.10 for the years ended December 31, 2004 and 2003, respectively. Assuming an effective income tax rate of 38% and that we completed our 2003 tender offer for our $21.25 Preferred Stock prior to January 1, 2003, pro forma net income for the year ended December 31, 2004 would have been $27.9 million, as compared to pro forma net income of $19.2 million for the year ended December 31, 2003. Similarly, pro forma basic earnings per common share for the year ended December 31, 2004 would have been $1.12, as compared to pro forma basic earnings per common share of $0.79 for the year ended December 31, 2003. Pro forma diluted earnings per common share for the year ended December 31, 2004 would have been $1.06, as compared to pro forma diluted earnings per common share of $0.76 for the year ended December 31, 2003. The reconciliation of reported net income to pro forma net income for the year ended December 31, 2004 and 2003 is set forth below:
Year Ended December 31,
-----------------------------
2004 2003
------------- ------------
(In thousands,
except per share data)
Reported net income $ 36,007 $ 44,018
Plus: Provision (credit) for income taxes 8,919 (13,096)
------------- ------------
Income before income taxes 44,926 30,922
Provision for income taxes assuming 38% effective rate 17,071 11,750
------------- ------------
Pro forma net income 27,855 19,172
Less: Dividends accrued on Preferred Stock
assuming the tender offer took place prior to
January 1, 2003 (1,188) (1,188)
------------- ------------
Pro forma total available for common stockholders $ 26,667 $ 17,984
============= ============
Pro forma basic earnings per common share $ 1.12 $ 0.79
============= ============
Pro forma diluted earnings per common share $ 1.06 $ 0.76
============= ============
To supplement our consolidated financial statements presented in accordance with accounting principles generally accepted in the United States of America, or GAAP, 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.
37
Results of Operations -
2003 Compared to 2002
Net income for the year ended December 31, 2003 was a record $44.0 million, a 90% increase from the $23.1 million net income recorded in 2002. The overall increase in net income of $20.9 million was due primarily to the recognition of a $14.9 million tax benefit based on the expected utilization of net operating loss (NOL) carryforwards. In addition, the record net income in 2003 reflects the impact of an increased volume of work acquired and put in place in 2003, in particular our contract awards in Iraq and Afghanistan, as well as the acquisition of Cummings in January 2003.
Basic earnings per common share were $2.18 for the year ended 2003 compared to $0.92 for the year ended 2002. Diluted earnings per common share were $2.10 for the year ended 2003 compared to $0.91 for the year ended 2002. As discussed above, as a result of the completion of our tender offer on our $21.25 Preferred Stock in June 2003, $7.3 million in previously accrued preferred stock dividends was reversed and added back to income available for common stockholders in the computation of earnings per share for the year ended December 31, 2003. Accordingly, basic and diluted earnings per common share calculations for the year ended December 31, 2003 were favorably impacted by $0.32 and $0.31 per share, respectively, due to the reversal of a pro rata portion of accumulated but unpaid dividends on our $21.25 Preferred Stock as a result of the tender offer completed in 2003.
Revenues for the
Year Ended December 31,
---------------------------- Increase %
2003 2002 (Decrease) Change
------------ ------------ ------------- ------------
(In millions)
Building $ 898.2 $ 631.9 $ 266.3 42.1 %
Civil 176.9 312.5 (135.6) (43.4)%
Management Services 299.0 140.6 158.4 112.7 %
------------ ------------ -------------
Total $ 1,374.1 $ 1,085.0 $ 289.1 26.6 %
============ ============ =============
Overall revenues increased by $289.1 million (or 26.6%), from $1,085.0 million in 2002 to $1,374.1 million in 2003. This increase was due primarily to a increase in building construction revenues of $266.3 million (or 42.1%), from $631.9 million in 2002 to $898.2 million in 2003, due primarily to the impact of the Cummings acquisition in January 2003 and improved new work acquisition results during the second and third quarters of 2003. Management services revenues increased by $158.4 million (or 112.7%), from $140.6 million in 2002 to $299.0 million in 2003, due primarily to the new contracts we were awarded in 2003 related to the rebuilding of Iraq and Afghanistan. These increases were partly offset by a decrease in civil construction revenues of $135.6 million (or 43.4%), from $312.5 million in 2002 to $176.9 million in 2003. The decrease in revenues from civil construction operations primarily reflects the decrease in the Company's year-end backlog at December 31, 2002 compared to the year-end backlog at December 31, 2001, as the pace of new contract awards slowed during 2002 and the first half of 2003 due to a temporary decrease in the number of public works projects available to bid and increased competition from other contractors when bidding on the reduced level of work available.
38
Income from Construction
Operations for the
Year Ended December 31,
---------------------------- Increase %
2003 2002 (Decrease) Change
------------ ------------ ------------- ------------
(In millions)
Building $ 12.4 $ 14.5 $ (2.1) (14.5)%
Civil 3.2 6.4 (3.2) (50.0)%
Management Services 23.7 11.7 12.0 102.6 %
------------ ------------ -------------
Subtotal $ 39.3 $ 32.6 $ 6.7 20.6 %
Less: Corporate (8.8) (6.7) 2.1 31.3 %
------------ ------------ -------------
Total $ 30.5 $ 25.9 $ 4.6 17.8 %
============ ============ =============
Income from construction operations (excluding corporate) increased by $6.7 million (or 20.6%), from $32.6 million in 2002 to $39.3 million in 2003. Management services income from operations increased by $12.0 million (or 102.6%), from $11.7 million in 2002 to $23.7 million in 2003, due primarily to the increase in revenues related to the rebuilding of Iraq and Afghanistan. Despite the favorable impact of the Cummings acquisition, building construction income from operations decreased by $2.1 million (or 14.5%), from $14.5 million in 2002 to $12.4 million in 2003. Building construction income from operations was negatively impacted by a $1.0 million increase in building construction-related general and administrative expenses (exclusive of Cummings) primarily in connection with the pursuit of new work opportunities including the opening or expansion of new regional offices in Florida and California. Civil construction income from operations decreased by $3.2 million (or 50.0%), from $6.4 million in 2002 to $3.2 million in 2003, due primarily to the decrease in revenues discussed above partly offset by a higher gross profit margin in 2003 primarily because 2002 included recognition of our share of a loss on a Central Artery "Big Dig" joint venture project in Boston, Massachusetts. Income from construction operations was negatively impacted by a $2.1 million increase in corporate general and administrative expenses, from $6.7 million in 2002 to $8.8 million in 2003, due primarily to an aggregate increase in several items including corporate incentive compensation, outside professional fees relating to the annual audit of the Company's financial statements and to the $21.25 Preferred Shareholders Class Action Lawsuit (see Note 2(f) of Notes to Consolidated Financial Statements), and certain corporate insurance premium costs.
Other (income) expense increased by $1.9 million, from an expense of $0.5 million in 2002 to income of $1.4 million in 2003, due primarily to a $2.2 million net gain recorded from the sale of certain parcels of developed land held for sale. Based on our remaining inventory of developed land held for sale and the anticipated potential selling prices for those parcels, we believe that the net gain recorded in 2003 is of a non-recurring nature and is not indicative of expected future results.
Interest expense decreased by $0.5 million, from $1.5 million in 2002 to $1.0 million in 2003, due to a lower average borrowing level in 2003 as a result of improved cash flow from operations as well as lower interest rates.
The credit for income taxes in 2003 is due primarily to the recognition of a $14.9 million tax benefit in accordance with SFAS No. 109, "Accounting for Income Taxes" based on the expected utilization of NOL carryforwards. In addition, as a result of not providing federal income tax benefit applicable to losses recorded in certain prior years for financial reporting purposes, benefit from these losses was realized in 2003 and 2002 by not having to provide federal income tax of approximately $11.0 million and $8.5 million, respectively. Also, the provision for income taxes in 2002 reflects the reversal of the federal alternative minimum tax provided in 2001 which was no longer required based on the provisions of the Job Creation and Worker Assistance Act of 2002. As a result of the recognition of the $14.9 million NOL tax benefit, basic and diluted earnings per common share calculations for the year ended December 31, 2003 were favorably impacted by $0.65 and $0.63 per share, respectively.
39
Reconciliation of Reported Net Income to Pro Forma Net Income
Assuming an effective income tax rate of 38% and that we completed our tender offer for our $21.25 Preferred Stock prior to January 1, 2002, pro forma net income for the year ended December 31, 2003 would have been $19.2 million, compared to $14.8 million for the year ended December 31, 2002. Similarly, pro forma basic earnings per share for the year ended December 31, 2003 would have been $0.79, compared to $0.60 for the year ended December 31, 2002. Pro forma diluted earnings per share for the year ended December 31, 2003 would have been $0.76 compared to $0.59 for the year ended December 31, 2002. The reconciliation of reported net income to pro forma net income for the years ended December 31, 2003 and 2002 is set forth below:
Year Ended December 31,
----------------------------
2003 2002
------------ ------------
(In thousands,
except per share data)
Reported net income $ 44,018 $ 23,074
Plus: Provision (credit) for income taxes (13,096) 801
------------ ------------
Income before income taxes 30,922 23,875
Provision for income taxes assuming 38% effective rate 11,750 9,072
------------ ------------
Pro forma net income 19,172 14,803
Less: Dividends accrued on Preferred Stock
assuming the tender offer took place prior to
January 1, 2002 (1,188) (1,188)
------------ ------------
Pro forma total available for common stockholders $ 17,984 $ 13,615
============ ============
Pro forma basic earnings per common share $ 0.79 $ 0.60
============ ============
Pro forma diluted earnings per common share $ 0.76 $ 0.59
============ ============
Liquidity and Capital Resources
Cash and Working Capital
Cash and cash equivalents as reported in the accompanying Consolidated Statements of Cash Flows 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 December 31, 2004 and 2003, cash held by us and available for general corporate purposes was $81.0 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 $55.3 million and $34.4 million, respectively.
Billing procedures in the construction industry generally are based on the specific billing terms of a contract and are often not correlated with performance. For example, billings may be based on various measures of performance, such as cubic yards excavated, architect's estimates of completion, costs incurred on cost-plus type contracts or weighted progress from a cost loaded construction time schedule. Billings are generally on a monthly basis and are reviewed and approved by the customer prior to submission. Therefore, once a bill is submitted, we are generally able to collect amounts owed to us in accordance with the payment terms of the contract. In addition, contractor's receivables usually include retentions, or amounts that are not due until contracts are completed or until specified contract conditions or guarantees are met. Retentions are governed by contract provisions and are typically a fixed percentage (for example, 5% or 10%) of each billing. We generally follow the policy of paying our vendors and subcontractors on a particular project
40
after we receive payment from our customer.
A summary of cash flows for each of the years ended December 31, 2004, 2003 and 2002 is set forth below:
Year Ended December 31,
--------------------------------
2004 2003 2002
--------- -------- ---------
(In millions)
Cash flows from:
Operating activities $ 59.8 $ 42.6 $ (3.6)
Investing activities (1.9) (7.9) (0.6)
Financing activities 10.6 (13.9) (5.3)
--------- -------- ---------
Net increase (decrease) in cash $ 68.5 $ 20.8 $ (9.5)
Cash at beginning of year 67.8 47.0 56.5
--------- -------- ---------
Cash at end of year $ 136.3 $ 67.8 $ 47.0
========= ======== =========
During 2004, we generated $59.8 million in cash flow from operating activities and $10.6 million in cash flow from financing activities, primarily from $11.6 million received from the exercise of common stock options, to fund $1.9 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 $68.5 million, from $67.8 million at December 31, 2003 to $136.3 million at December 31, 2004.
During 2003, we generated $42.6 million in cash flow from operating activities and $5.0 million in net proceeds from the sale of certain remaining parcels of developed land held for sale to fund the $11.3 million required to complete our tender offer for our Depositary Shares, to reduce debt by a net amount of $3.5 million, as well as to fund a net $12.9 million used by investing activities, primarily for the acquisition of Cummings in January and to acquire construction equipment and an office building and equipment storage facility to be used by our civil construction operations. As a result, our consolidated cash balance increased by $20.8 million, from $47.0 million at December 31, 2002 to $67.8 million at December 31, 2003. As more fully discussed in Note 2(d) of Notes to Consolidated Financial Statements, in the first quarter of 2003, we received our proportionate share of provisional payments against outstanding claims on the Big Dig Project, as a result of an agreement reached in December 2002. Our share of this payment ($13.3 million) was a significant contributor to the $42.6 million in cash flow generated from operating activities in 2003.
During 2002, we used $9.5 million of cash on hand to fund operating activities ($3.6 million), investing activities ($0.6 million), and to reduce debt by a net amount of $5.3 million. The $3.6 million in cash used by operating activities was due primarily to the need to fund working capital requirements on certain joint venture construction contracts where unapproved change orders and/or contract claims remain to be resolved. (See Note 1(d) of Notes to Consolidated Financial Statements.)
Working capital increased, from $125.4 million at the end of 2003 to $178.0 million at December 31, 2004. The current ratio increased from 1.31x compared to 1.41x during the same period. Since December 31, 2002, working capital has increased by $62.1 million (or 54%) from $115.9 million to $178.0 million at December 31, 2004. As of December 31, 2004, accounts receivable amounted to $372.9 million and comprised approximately 61% of our total current assets. This compares to accounts receivable of $328.0 million, or approximately 62% of our total current assets at December 31, 2003.
We have a $50 million revolving credit facility. In August 2004, the terms of our revolving credit facility were amended to extend the term of our credit facility from June 2005 to June 2007 and to adjust certain financial covenants. The terms of our credit facility provide 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).
The terms of our credit facility require us to meet certain financial covenants, including:
41
The terms of our credit facility also prohibit us from incurring additional indebtedness without the consent of our lenders, other than financing for our corporate headquarters, insurance premiums and construction equipment, and impose limitations on the level of capital expenditures that we may make for a period, as well as 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. At December 31, 2004, we had $47.2 million available to borrow under our credit facility and $2.8 million in outstanding letters of credit.
Long-term Debt
Long-term debt at December 31, 2004 was $8.6 million, a decrease of $3.5 million from December 31, 2002, despite the completion in 2003 of a tender offer for our Depositary Shares which required a cash outlay of approximately $11.3 million (including related expenses) and the acquisition of Cummings in 2003 which required a net cash outlay of approximately $8.6 million. The long-term debt to equity ratio was .05x at December 31, 2004, compared to .07x at December 31, 2003 and .14x at December 2002. Long-term debt was $8.5 million at the end of 2003, down from $12.1 million at the end of 2002.
Contractual Obligations
Our outstanding contractual obligations as of December 31, 2004 are summarized in the following table:
Payments Due by Period
--------------------------------------------------------------------------
(In thousands)
Less Than More Than
Total 1 Year 1-3 Years 3-5 Years 5 Years
---------- ------------- ------------ ------------ -------------
Total debt, excluding interest $ 9,367 (a) $ 759 $ 1,028 $ 2,021 $ 5,559
Operating leases, net 9,867 3,706 4,256 1,815 90
Purchase obligations 730 730 - - -
Other long-term liabilities:
Accrued dividends on
$21.25 Preferred Stock 10,993 - - - 10,993 (b)
Employee benefit related
liabilities 2,080 157 314 314 1,295
Minimum pension
liability adjustments 29,738 6,000 12,000 (c) 11,738 (c) -
Tutor-Saliba management agreement 800 800 - - -
---------- ------------- ------------ ------------ -------------
Total contractual obligations $ 63,575 $ 12,152 $ 17,598 $ 15,888 $ 17,937
========== ============= ============ ============ =============
42
(a) Includes capital leases in the amount of $944.
(b) Assumes current policy described below under "Dividends -- $21.25 Preferred Stock" does not change during the 5-year period.
(c) Assumes annual pension fund contributions equal to the contribution amount anticipated in 2005.
Management believes that cash generated from operations and existing credit lines should be adequate to meet our funding requirements for at least the next twelve months including the acquisition of Cherry Hill Construction, Inc. in January, 2005 for approximately $20.0 million in cash and the potential settlement of the class action lawsuit filed by the holders of the $21.25 Preferred Stock.
Stockholders' Equity
Our book value per common share was $6.34 at December 31, 2004, compared to $4.65 at December 31, 2003, and $2.72 at December 31, 2002. The major factors impacting stockholders' equity during the three year period were the net income recorded in all three years, the funding of our tender offer ($11.3 million) completed in June 2003, including the reversal of dividends ($7.3 million) previously accrued related to the Preferred Stock tendered, preferred stock dividends accrued, and common stock options exercised. Also, we were required to recognize an additional minimum pension liability, net of tax, of approximately $3.1 million in 2004, $4.4 million in 2003, $13.7 million in 2002 and $5.9 million in 2001 in accordance with SFAS No. 87, "Employers' Accounting for Pensions" which resulted in an aggregate $27.1 million Accumulated Other Comprehensive Loss deduction in stockholders' equity. (See Note 7 of Notes to Consolidated Financial Statements.) Adjustments to the amount of this additional minimum pension liability will be recorded in future years based upon periodic re-evaluation of the funded status of our pension plans.
Dividends
Common Stock
There were no cash dividends declared or paid on our outstanding Common Stock during the three years ended December 31, 2004.
$21.25 Preferred Stock
The covenants in our prior credit agreements required us to suspend the payment of quarterly dividends on our $21.25 Preferred Stock in 1995 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. As of December 31, 2002, the aggregate amount of dividends in arrears was approximately $15.4 million, which represented approximately $154.05 per share of $21.25 Preferred Stock or approximately $15.41 per Depositary Share and was included in other long-term liabilities in the Consolidated Balance Sheets. In June 2003, we completed a tender offer for our Depositary Shares pursuant to which we purchased 440,627 Depositary Shares for $25 per share. As a result of this transaction, approximately $7.3 million of previously accrued and unpaid dividends were reversed and restored to additional paid-in capital in the Consolidated Balance Sheets. Accordingly, the aggregate amount of dividends in arrears at December 31, 2004 is approximately $11.0 million, which represents approximately $196.56 per share of $21.25 Preferred Stock or approximately $19.66 per Depositary Share and is included in other long-term liabilities in the Consolidated Balance Sheets. Under the terms of the $21.25 Preferred Stock, the holders of Depositary Shares became entitled to elect two additional Directors once dividends were deferred for more than six quarters, and they have done so at each of the last seven annual meetings of stockholders.
In November 2004, the parties reached an agreement to settle the class action lawsuit filed by the holders of the $21.25 Preferred Stock. (See Note 2(f) of Notes to Consolidated Financial Statements). Under the terms of the settlement, we would purchase all of the Depositary Shares submitted in the settlement for consideration of $19.00 per
43
share in cash and one share of our common stock. As of December 31, 2004, there were 559,273 Depositary Shares outstanding. In the event that fewer than 200,000 Depositary Shares are submitted in the settlement, we may terminate the settlement agreement and the parties will revert to their previous positions in the litigation. The proposed settlement is subject to approval of the Court.
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:
Related Party Transactions
We are party to an agreement with Tutor-Saliba Corporation (or Tutor-Saliba), a construction company based in California, and Ronald N. Tutor, Chief Executive Officer and sole stockholder of Tutor-Saliba, to provide certain management services. Tutor-Saliba participated in joint ventures with us before the agreement and continues to participate in joint ventures with us after the agreement. Our share of revenue from these joint ventures amounted to $37.7 million, $49.0 million and $48.8 million in 2004, 2003 and 2002, respectively. Primarily as a result of Tutor-Saliba participating in a $40 million equity infusion in March 2000, Tutor-Saliba beneficially owns approximately 21.7% of our outstanding Common Stock as of December 31, 2004. Mr. Tutor has been our Chairman and Chief Executive Officer since March 2000. For details of compensation to Mr. Tutor, arrangements with Tutor-Saliba and other information on related party transactions, see Note 12 of Notes to Consolidated Financial Statements.
New Accounting Pronouncements
In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R, "Share-Based Payment" ("SFAS No. 123R"). SFAS No. 123R is a revision of SFAS No. 123 "Accounting for Stock-Based Compensation" and supersedes Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and its related implementation guidance. SFAS No. 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123R requires entities to recognize stock compensation expense for awards of equity instruments to employees based on the grant date fair value of those awards (with limited exceptions). In addition, SFAS 123R requires that the excess tax benefits related to stock compensation be reported as a financing cash inflow rather than a reduction of taxes paid in cash flow from operations. SFAS No. 123R is effective for the first interim or annual reporting period that begins after June 15, 2005. We expect to adopt SFAS No. 123R using the modified prospective application method. We adopted SFAS No. 123 effective January 1, 2004. We believe that the adoption of the provisions of SFAS No. 123R will not have a material impact on our consolidated financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily to our revolving credit debt (see Note 4 of Notes to Consolidated Financial Statements) and short-term investment portfolio. During 2004, we had an average
44
daily borrowing of approximately $380,000 under our revolving credit agreement and $127.2 million of short-term investments classified as cash equivalents as of December 31, 2004.
We borrow under our revolving credit facility for general corporate purposes, including working capital requirements and capital expenditures. Borrowings under the credit facility bear interest at the applicable LIBOR or base rate, as defined, and therefore we are subject to fluctuations in interest rates. Based on our average effective borrowing rate and our average daily revolving debt balance in 2004, a change of 1% (or 100 basis points) in our effective borrowing rate would result in an insignificant increase or decrease in net income and cash flow.
Our short-term investment portfolio consists of highly liquid instruments with maturities of three months or less, all classified as cash and cash equivalents in the accompanying Consolidated Balance Sheets.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Independent Auditors' Report, Consolidated Financial Statements, and Supplementary Schedules are set forth in Item 15 in this report and are hereby incorporated in this Item 8 by reference.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures - 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.
Changes in Internal Control - There were no significant changes in our internal control over financial reporting that occurred during the fourth quarter of fiscal year 2004 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 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.
Management's Report On Internal Control Over Financial Reporting - Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining an adequate system of internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial
45
statement preparation and presentation. Management assessed our internal control over financial reporting as of December 31, 2004. In making this assessment, management utilized the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control - Integrated Framework. Based on this assessment, management concluded that, as of December 31, 2004, our internal control over financial reporting is effective based on those criteria.
Deloitte & Touche LLP, an independent registered public accounting firm that audited our financial statements included in this Annual Report on Form 10-K, has issued an attestation report on management's assessment of our internal control over financial reporting. Such attestation, which expresses unqualified opinions on management's assessment and on the effectiveness of our internal controls over financial reporting as of December 31, 2004, is included in this Item 9A under the heading "Report of Independent Registered Public Accounting Firm".
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Perini Corporation
We have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that Perini Corporation and subsidiaries (collectively, the "Company") maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the criteria established in Internal
46
Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2004 of the Company and our report dated March 4, 2005 expressed an unqualified opinion on those financial statements.
Deloitte & Touche LLP
Boston, Massachusetts
March 4, 2005
ITEM 9B. OTHER INFORMATION
None.
47
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to our directors is set forth in the sections entitled "Election of Directors" and "Corporate Governance" in the definitive proxy statement in connection with our Annual Meeting of Stockholders to be held on May 19, 2005 (the "Proxy Statement"), which sections are incorporated herein by reference. Information relating to our executive officers is set forth in Part I of this report under the caption "Executive Officers of the Registrant" and is hereby incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under the caption "Executive Compensation" in the Proxy Statement is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information appearing under the captions "Ownership of Common Stock by Directors, Officers and Preferred Stock Nominees" and "Certain Other Beneficial Holders" in the Proxy Statement is hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under the caption "Certain Transactions" in the Proxy Statement is hereby incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information appearing under the caption "Accountant's Fees" in the Proxy Statement is hereby incorporated herein by reference.
48
PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PERINI CORPORATION AND SUBSIDIARIES
(a)1. The following consolidated financial statements and supplementary financial information are filed as part
of
this report:
Pages
Consolidated Financial Statements of the Registrant
Consolidated Balance Sheets as of December 31, 2004 and 2003 52 - 53
Consolidated Statements of Income for the years ended December 31, 2004, 2003 and 2002 54
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2004, 2003 55
and 2002
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002 56 - 57
Notes to Consolidated Financial Statements 58 - 83
Report of Independent Registered Public Accounting Firm 84
(a)2. The following consolidated financial statement schedules are filed as part of this report:
Pages
Schedule II - Valuation and Qualifying Accounts and Reserves 85
Report of Independent Registered Public Accounting Firm 86
All other schedules are omitted because of the absence of the conditions under which they are required or
because the required information is included in the Consolidated Financial Statements or in the Notes
thereto.
(a)3. Exhibits
The exhibits which are filed with this report or which are incorporated herein by reference are set forth
in
the Exhibit Index which appears on pages 87 through 92.
49
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Perini Corporation
(Registrant)
Dated: March 4, 2005 By: /s/Robert Band
Robert Band
President and Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Signature Title Date
(i) Principal Executive Officer
Ronald N. Tutor Chairman and Chief Executive Officer March 4, 2005
By: /s/Ronald N. Tutor
Ronald N. Tutor
(ii) Principal Financial Officer
Michael E. Ciskey Vice President and Chief Financial Officer March 4, 2005
By: /s/Michael E. Ciskey
Michael E. Ciskey
(iii) Principal Accounting Officer
Michael E. Ciskey Vice President and Chief Financial Officer March 4, 2005
By: /s/Michael E. Ciskey
Michael E. Ciskey
(iv) Directors
Ronald N. Tutor )
Peter Arkley )
Robert Band )
Willard W. Brittain, Jr. )
James A. Cummings ) /s/Robert Band
Frederick Doppelt ) Robert Band
Robert A. Kennedy ) Attorney in Fact
Michael R. Klein )
Robert L. Miller ) Dated: March 4, 2005
Raymond R. Oneglia )
Martin Shubik )
50
Consolidated
Balance Sheets
December 31, 2004 and 2003
(In thousands, except share data)
Assets
2004 2003
------------ ------------
CURRENT ASSETS:
Cash, including cash equivalents of $127,150 and $60,462 (Note 1) $136,305 $ 67,823
Accounts receivable, including retainage of $111,678 and $86,273 372,909 328,025
Unbilled work (Note 1) 90,280 116,572
Deferred tax asset (Note 5) 4,110 10,844
Other current assets 4,112 2,479
------------ ------------
Total current assets $607,716 $525,743
------------ ------------
PROPERTY AND EQUIPMENT, at cost (Note 1):
Land $ 1,041 $ 1,041
Buildings and improvements 16,761 16,685
Construction equipment 11,201 12,428
Other equipment 9,769 8,569
------------ ------------
$ 38,772 $ 38,723
Less - Accumulated depreciation 21,286 22,125
------------ ------------
Total property and equipment, net $ 17,486 $ 16,598
------------ ------------
OTHER ASSETS:
Goodwill (Notes 1 and 3) $ 12,678 $ 14,007
Deferred tax asset (Note 5) 12,652 4,161
Other (Note 6) 3,733 4,934
------------ ------------
Total other assets $ 29,063 $ 23,102
------------ ------------
$654,265 $565,443
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
51
Liabilities and Stockholders' Equity
2004 2003
-------------- --------------
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 4) $ 759 $ 490
Accounts payable, including retainage of $91,244 and $64,141 344,684 318,448
Deferred contract revenue (Note 1) 57,111 48,431
Accrued expenses 27,133 32,977
-------------- --------------
Total current liabilities $ 429,687 $ 400,346
-------------- --------------
LONG-TERM DEBT, less current maturities included above (Note 4) $ 8,608 $ 8,522
-------------- --------------
OTHER LONG-TERM LIABILITIES (Notes 6, 7 and 8) $ 41,936 $ 36,015
-------------- --------------
CONTINGENCIES AND COMMITMENTS (Note 2)
STOCKHOLDERS' EQUITY (Notes 1, 7, 8 and 9):
Preferred stock, $1 par value -
Authorized - 1,000,000 shares
Designated - 100,000 shares
Issued and outstanding - 55,927 shares of $21.25 convertible exchangeable
preferred stock ($13,982 aggregate liquidation preference) $ 56 $ 56
Series A junior participating preferred stock, $1 par value -
Designated - 200,000 shares
Issued - none - -
Stock purchase warrants 965 2,233
Common stock, $1 par value -
Authorized - 40,000,000 shares
Issued - 25,232,800 shares and 22,946,064 shares 25,233 22,946
Additional paid-in capital 110,058 90,296
Retained earnings 64,826 30,007
Less - common stock in treasury, at cost - 0 shares and 60,529 shares (Note 8) - (965)
-------------- --------------
$ 201,138 $ 144,573
Accumulated other comprehensive loss (27,104) (24,013)
-------------- --------------
Total stockholders' equity $ 174,034 $ 120,560
-------------- --------------
$ 654,265 $ 565,443
============== ==============
52
Consolidated Statements of Income
For the Years Ended December 31, 2004, 2003 and 2002
(In thousands, except share data)
2004 2003 2002
--------------- --------------- ---------------
Revenues (Note 11) $ 1,842,315 $ 1,374,103 $ 1,085,041
Cost of Operations 1,748,933 1,303,851 1,026,391
--------------- --------------- ---------------
Gross Profit $ 93,382 $ 70,252 $ 58,650
General and Administrative Expenses 43,049 39,762 32,770
--------------- --------------- ---------------
INCOME FROM CONSTRUCTION OPERATIONS (Note 11) $ 50,333 $ 30,490 $ 25,880
Other (Income) Expense, Net (Note 6) 4,703 (1,435) 520
Interest Expense (Note 4) 704 1,003 1,485
--------------- --------------- ---------------
Income before Income Taxes $ 44,926 $ 30,922 $ 23,875
(Provision) Credit for Income Taxes (Notes 1 and 5) (8,919) 13,096 (801)
--------------- --------------- ---------------
NET INCOME $ 36,007 $ 44,018 $ 23,074
=============== =============== ===============
Less: Accrued Dividends on $21.25 Preferred Stock (Note 8) (1,188) (1,653) (2,125)
Plus: Reversal of Accrued Dividends on $21.25 Preferred Stock based on
results of 2003 tender offer (Note 8) - 7,254 -
--------------- --------------- ---------------
NET INCOME AVAILABLE FOR COMMON STOCKHOLDERS $ 34,819 $ 49,619 $ 20,949
=============== =============== ===============
BASIC EARNINGS PER COMMON SHARE (Note 1) $ 1.47 $ 2.18 $ 0.92
=============== =============== ===============
DILUTED EARNINGS PER COMMON SHARE (Note 1) $ 1.39 $ 2.10 $ 0.91
=============== =============== ===============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note 1):
BASIC 23,724 22,763 22,664
Effect of Dilutive Stock Options, Warrants and Restricted Stock Units Outstanding 1,337 820 275
--------------- --------------- ---------------
DILUTED 25,061 23,583 22,939
--------------- --------------- ---------------
The accompanying notes are an integral part of these consolidated financial statements.
53
For the Years Ended December 31, 2004, 2003 and 2002
(In thousands)
Accumulated
Stock Additional Retained Other
Preferred Purchase Common Paid-In Earnings Treasury Comprehensive
Stock Warrants Stock Capital (Deficit) Stock Loss Total
- ------------------------------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 2001 $ 100 $ 2,233 $ 22,725 $ 97,671 $(36,491) $ (965) $ (5,865) $ 79,408
- ------------------------------------------------------------------------------------------------------------------------------------------------------
Net Income - - - - 23,074 - - 23,074
Other comprehensive income (loss):
Minimum pension liability (Note 7) - - - - - - (13,708) (13,708)
------------
Total comprehensive income 9,366
------------
Preferred Stock dividends accrued
($21.25 per share*) - - - (2,125) - - - (2,125)
------------------------------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 2002 $ 100 $ 2,233 $ 22,725 $ 95,546 $(13,417) $ (965) $ (19,573) $ 86,649
- ------------------------------------------------------------------------------------------------------------------------------------------------------
Net Income - - - - 44,018 - - 44,018
Other comprehensive income (loss):
Minimum pension liability (Note 7) - - - - - - (4,440) (4,440)
------------
Total comprehensive income 39,578
------------
Preferred Stock dividends accrued
($21.25 per share*) - - - (1,048) (605) - - (1,653)
Preferred Stock tendered (Note 8) (44) - - (11,217) - - - (11,261)
Reversal of dividends previously
accrued on Preferred Stock
tendered (Note 8) - - - 7,243 11 - - 7,254
Common Stock options exercised - - 221 763 - - - 984
Estimated cost of stock registration - - - (991) - - - (991)
------------------------------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 2003 $ 56 $ 2,233 $ 22,946 $ 90,296 $ 30,007 $ (965) $ (24,013) $ 120,560
- ------------------------------------------------------------------------------------------------------------------------------------------------------
Net Income - - - - 36,007 - - 36,007
Other comprehensive income (loss):
Minimum pension liability (Note 7) - - - - - - (3,091) (3,091)
------------
Total comprehensive income 32,916
------------
Preferred Stock dividends accrued
($21.25 per share*) - - - - (1,188) - - (1,188)
Common Stock options and
stock purchase warrants exercised - (1,268) 2,348 10,544 - - - 11,624
Income tax benefit attributable to
nonqualified stock options exercised - - - 8,275 - - - 8,275
Restricted stock compensation expense (Note 9) - - - 856 - - - 856
Reclassification of treasury stock (Note 8) - - (61) (904) - 965 - -
Reversal of estimated cost of secondary
stock offering - - - 991 - - - 991
------------------------------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 2004 $ 56 $ 965 $ 25,233 $ 110,058 $ 64,826 $ - $ (27,104) $ 174,034
- ------------------------------------------------------------------------------------------------------------------------------------------------------
*Equivalent to $2.125 per Depositary Share (see Note 8).
The accompanying notes are an integral part of these consolidated financial statements.
54
Consolidated
Statements of Cash Flows
For the Years Ended December 31, 2004, 2003 and 2002
(In thousands)
2004 2003 2002
------------ ------------ ------------
Cash Flows from Operating Activities:
Net income $ 36,007 $ 44,018 $ 23,074
Adjustments to reconcile net income to net cash provided from (used by) operating activities -
Depreciation 3,154 2,773 2,457
Amortization of deferred expenses and intangible asset 1,974 616 745
Restricted stock compensation expense 856 - -
Income tax benefit from stock options exercised 8,275 - -
Deferred income taxes 159 (15,005) -
(Gain) loss on land held for sale, net 316 (2,207) -
Gain on sale of property and equpment (833) (317) (39)
Increase (decrease) in other long-term liabilities 39 (370) (405)
Cash provided from (used by) changes in components of working capital other than
cash, current maturities of long-term debt, deferred tax asset and land held for sale, net:
(Increase) decrease in:
Accounts receivable (46,347) (88,544) 102,322
Unbilled work 26,292 (3,422) (15,138)
Other current assets (1,524) (333) (43)
Increase (decrease) in:
Accounts payable 26,236 132,507 (102,552)
Deferred contract revenue 8,680 (21,211) (6,261)
Accrued expenses (3,518) (5,929) (7,792)
------------ ------------ ------------
NET CASH PROVIDED FROM (USED BY) OPERATING ACTIVITIES $ 59,766 $ 42,576 $ (3,632)
------------ --------------------------
Cash Flows from Investing Activities:
Acquisition of James A. Cummings, Inc., net of cash balance acquired $ - $ (8,613) $ -
Acquisition of property and equipment (4,486) (5,399) (4,510)
Proceeds from sale of property and equipment 1,502 793 455
Proceeds from land held for sale, net 1,161 4,996 4,072
Proceeds from sale of marketable securities - 380 -
Investment in other activities (105) (37) (646)
------------ ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES $ (1,928) $ (7,880) $ (629)
------------ ------------ ------------
55
Consolidated Statements
of Cash Flows (Continued)
For the Years Ended December 31, 2004, 2003 and 2002
(In thousands)
2004 2003 2002
-------------- ------------- --------------
Cash Flows from Financing Activities:
Purchase of preferred stock pursuant to tender offer $ - $ (11,261) $ -
Proceeds from long-term debt 848 1,883 5,000
Reduction of long-term debt (493) (5,410) (10,250)
Proceeds from exercise of common stock options and stock purchase warrants 11,624 984 -
Expenditure for stock registration (1,335) (100) -
-------------- ------------- --------------
NET CASH PROVIDED FROM (USED BY) FINANCING ACTIVITIES $ 10,644 $ (13,904) $ (5,250)
-------------- ------------- --------------
Net Increase (Decrease) in Cash $ 68,482 $ 20,792 $ (9,511)
Cash and Cash Equivalents at Beginning of Year 67,823 47,031 56,542
-------------- ------------- --------------
Cash and Cash Equivalents at End of Year (Note 1(j)) $ 136,305 $ 67,823 $ 47,031
============== ============= ==============
Supplemental Disclosures of Cash Paid During the Year For:
Interest $ 704 $ 1,060 $ 2,441
============== ============= ==============
Income tax payments $ 1,585 $ 974 $ 1,885
============== ============= ==============
The accompanying notes are an integral part of these consolidated financial statements.
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002
[a] Nature of Business
The Company was
incorporated in 1918 as a successor to businesses which had been engaged in
providing construction services since 1894. The Company provides diversified
general contracting, construction management and design-build services to
private clients and public agencies throughout the world. The Company’s
construction business is conducted through three basic segments or operations:
building, civil and management services. The Company offers general contracting,
preconstruction planning and comprehensive project management services,
including the planning and scheduling of the manpower, equipment, materials and
subcontractors required for the timely completion of a project in accordance
with the terms and specifications contained in a construction contract. The
Company also offers self-performed construction services, including site work,
concrete forming and placement and steel erection. The Company provides these
services by using traditional general contracting arrangements, such as fixed
price, guaranteed maximum price and cost plus fee contracts and, to a lesser
extent, construction management or design-build contracting arrangements.
In an effort to limit its financial and/or operational risk on certain large or complex projects, the Company participates in construction joint ventures, often as sponsor or manager of the project, for the purpose of bidding and, if awarded, providing the agreed upon construction services. Each participant usually agrees in advance to provide a predetermined percentage of capital, as required, and to share in the same percentage of profit or loss of the project.
[b] Principles of Consolidation
The consolidated financial
statements include the accounts of Perini Corporation and its wholly owned
subsidiaries (the “Company”). The Company’s interests in
construction joint ventures are accounted for using the proportionate
consolidation method whereby the Company’s proportionate share of each
joint venture’s assets, liabilities, revenues and cost of operations are
included in the appropriate classifications in the consolidated financial
statements. All significant intercompany transactions and balances have been
eliminated in consolidation.
[c] Use of Estimates
The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. The
Company’s construction business involves making significant estimates and
assumptions in the normal course of business relating to its contracts and joint
venture contracts due to, among other things, the one-of-a-kind nature of most
of its projects, the long-term duration of its contract cycle and the type of
contract utilized. The most significant estimates with regard to these financial
statements relate to the estimating of total forecasted construction contract
revenues, costs and profits in accordance with accounting for long-term
contracts (see Note 1(d) below) and estimating potential liabilities in
conjunction with certain contingencies, including the outcome of pending or
future litigation, arbitration or other dispute resolution proceedings relating
to contract claims (see Note 2 below). Actual results could differ in the near
term from these estimates and such differences could be material.
[d] Method of Accounting for Contracts
Revenues and profits from
the Company’s contracts and construction joint venture contracts are
generally recognized by applying percentages of completion for the period to the
total estimated profits for the respective contracts. Percentage of completion
is determined by relating the actual cost of the work performed to date to the
current estimated total cost of the respective contracts. However, on
construction management contracts, profit is generally recognized in accordance
with the contract terms, usually on the as billed method, which is generally
consistent with the level of effort incurred over the contract period. When the
estimate on a contract indicates a loss, the Company’s policy is to record
the entire loss during the accounting period in which it is estimated. In the
ordinary course of business, at a minimum on a quarterly basis, the Company
prepares updated estimates of the total forecasted revenue, cost and profit or
loss for each contract. The cumulative effect of revisions in estimates of the
total forecasted revenue and costs, including unapproved change orders and
claims, during the course of the work is reflected in the accounting period in
which the facts that caused the revision become known. The
financial impact of these revisions to any one contract is a function of both
the amount of the revision and the percentage of completion of the contract. An
amount equal to the costs incurred
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
[d] Method of Accounting for Contracts (continued)
which are attributable to unapproved change orders and claims is included in the total estimated revenue when
realization is probable. Profit from unapproved change orders and claims is recorded in the period such amounts
are resolved.
In accordance with normal practice in the construction industry, the Company includes in current assets and current liabilities amounts related to construction contracts realizable and payable over a period in excess of one year. Deferred contract revenue represents the excess of billings to date over the amount of contract costs and profits (or contract revenue) recognized to date on the percentage of completion accounting method on certain contracts. Unbilled work represents the excess of contract costs and profits (or contract revenue) recognized to date on the percentage of completion accounting method over billings to date on the remaining contracts. Unbilled work results when (1) the appropriate contract revenue amount has been recognized in accordance with the percentage of completion accounting method, but a portion of the revenue recorded cannot be billed currently due to the billing terms defined in the contract and/or (2) costs, recorded at estimated realizable value, related to unapproved change orders or claims are incurred. Unbilled work related to the Company’s contracts and joint venture contracts at December 31, 2004 and 2003, consisted of the following (in thousands):
2004 2003
------------- -------------
Unbilled costs and profits incurred to date* $ 22,595 $ 34,121
Unapproved change orders 6,202 17,936
Claims 61,483 64,515
------------- -------------
$ 90,280 $116,572
============= =============
* Represents the excess of contract costs and profits recognized to date on the percentage of completion accounting method over billings to date on certain contracts.
Of the balance of "unapproved change orders" and "claims" included above in unbilled work at December 31, 2004 and December 31, 2003, approximately $34.0 million and $36.0 million, respectively, are amounts subject to pending litigation or dispute resolution proceedings as described in Item 3 - "Legal Proceedings" and Note 2, "Contingencies and Commitments". These amounts are management's estimate of the probable recovery from the disputed claims considering such factors as evaluation of entitlement, settlements reached to date and knowledge of customer. In the event that future facts and circumstances, including the resolution of disputed claims, cause us to reduce the aggregate amount of our estimated probable recovery from the disputed claims, we will record the amount of such reduction against future earnings in the relevant period.
The prerequisite for billing "Unbilled costs and profits incurred to date" is provided in the defined billing terms of each of the applicable contracts. The prerequisite for billing "Unapproved change orders" or "Claims" is the final resolution and agreement between the parties. The amount of unbilled work at December 31, 2004 estimated by management to be collected beyond one year is approximately $41.0 million.
[e] Property and Equipment
Land, buildings and improvements, construction and computer-related equipment and other equipment are recorded at
cost. Depreciation is provided primarily using accelerated methods for construction and computer-related
equipment over lives from three to seven years and the straight-line method for the remaining depreciable
property over lives from three to thirty years.
[f] Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Recoverability is evaluated by comparing the carrying value of the asset
to the undiscounted cash flows associated with the affected assets. When this comparison indicates that the
carrying value of the asset is greater than the undiscounted cash flows, a loss is recognized for the difference
between the carrying value and estimated fair value. Fair value is determined based on market quotes, if
available, or is based on valuation techniques.
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
[1] Summary of Significant Accounting Policies (continued)
[g] Goodwill
Goodwill included in the accompanying Consolidated Balance Sheets represents the excess of the costs of
subsidiaries acquired over the fair value of their net assets as of the dates of acquisition. Effective January
1, 2003, the Company acquired 100% of the outstanding stock of James A. Cummings, Inc., a privately held
construction company based in Ft. Lauderdale, FL (see Note 3). As a result of this transaction, approximately
$13.0 million of additional goodwill was recorded in 2003. In 2004, the amount of other identifiable intangible
assets associated with the Cummings acquisition was reevaluated, resulting in an increase of approximately $1.3
million in intangible assets and a corresponding decrease in the amount of goodwill recorded.
In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets", the Company assesses the amount of goodwill for impairment by applying a fair value test, at a minimum, annually as of December 31. Based on the initial and annual impairment tests completed for 2003 and 2004, the Company concluded that goodwill was not impaired.
[h] Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes".
(See Note 5). Deferred income tax assets and liabilities are recognized for the effects of temporary differences
between the financial statement carrying amounts and the income tax basis of assets and liabilities using tax
rates expected to be in effect when such differences reverse. In addition, future tax benefits, such as net
operating loss carryforwards, are recognized currently to the extent such benefits are more likely than not to be
realized as an economic benefit in the form of a reduction of income taxes in future years.
[i] Earnings Per Common Share
Earnings per common share amounts were calculated in accordance with SFAS No. 128, "Earnings per Share". Basic
earnings per common share was computed by dividing net income less dividends accrued on the $21.25 Preferred
Stock during all years presented plus the reversal in 2003 of approximately $7.3 million of previously accrued
and unpaid dividends on the $21.25 Preferred Stock no longer required based on the results of the tender offer
completed in 2003 (see Notes 8 and 10) 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.
While there were no options whose exercise price exceeded the average market price of the Common Stock at December 31, 2004, options to purchase 135,000 shares of Common Stock at a price of $8.66 per share were outstanding at December 31, 2003, but were excluded from the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the Common Stock. Options to purchase 3,172,834 shares of Common Stock at prices ranging from $4.50 to $8.66 per share were outstanding at December 31, 2002, but were excluded from 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 outstanding $21.25 Preferred Stock into Common Stock is antidilutive for all years presented and the effect of the assumed conversion of the Company's Stock Purchase Warrants is antidilutive for 2002.
[j] Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with original maturities of three months or less.
Cash and cash equivalents as reported in the accompanying Consolidated 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 December 31, 2004 and 2003, cash and cash equivalents consisted of the following (in thousands):
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
[1] Summary of Significant Accounting Policies (continued)
[j] Cash and Cash Equivalents (continued)
2004 2003
------------ -----------
Corporate cash and cash equivalents (available
for general corporate purposes) $ 81,024 $ 33,426
Company's share of joint venture cash and
cash equivalents (available only for joint venture
purposes, including future distributions) 55,281 34,397
------------ -----------
$ 136,305 $ 67,823
============ ===========
[k] Stock-Based Compensation
Prior to 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"). Effective January 1, 2004, the Company adopted the
fair value recognition provisions of SFAS No. 123 for stock-based employee and director compensation costs
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 2004, no adjustments to previously issued
financial statements were required upon adoption of this accounting principle. The Company believes this change
in accounting principle is to a preferable method. The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to
stock-based employee and director compensation in 2003 and 2002 (in thousands).
Year Ended December 31,
----------------------------
2003 2002
------------ ------------
Net income, as reported $ 44,018 $ 23,074
Plus: Total stock-based employee compensation
recognized under APB No. 25 - -
Less: Total stock-based employee compensation
expense determined under fair value based
method for all awards - (2,831)
------------ ------------
Net income, pro forma $ 44,018 $ 20,243
============ ============
Basic earnings per common share:
As reported $ 2.18 $ 0.92
Pro forma $ 2.18 $ 0.80
Diluted earnings per common share:
As reported $ 2.10 $ 0.91
Pro forma $ 2.10 $ 0.79
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
[1] Summary of Significant Accounting Policies (continued)
[l] Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents approximate fair value due to the short term nature of these
items. The carrying value of receivables, payables and other amounts arising out of normal contract activities,
including retentions, which may be settled beyond one year, is estimated to approximate fair value. See Note 4
for disclosure of the fair value of long-term debt.
[m] Reclassifications
Certain prior year amounts have been reclassified to be consistent with the current year classifications.
[n] New Accounting Pronouncements
In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R, "Shared-Based Payment"
("SFAS No. 123R"). SFAS No. 123R is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation" and
supersedes Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and its
related implementation guidance. SFAS No. 123R focuses primarily on accounting for transactions in which an
entity obtains employee services in share-based payment transactions. SFAS No. 123R requires entities to
recognize stock compensation expense for awards of equity instruments to employees based on the grant date fair
value of those awards (with limited exceptions). In addition, SFAS 123R requires that the excess tax benefits
related to stock compensation be reported as a financing cash inflow rather than a reduction of taxes paid in
cash flow from operations. SFAS No. 123R is effective for the first interim or annual reporting period that
begins after June 15, 2005. The Company expects to adopt SFAS No. 123R using the modified prospective
application method. As discussed in Note 1[k], the Company adopted SFAS No. 123, as amended by SFAS No. 148,
effective January 1, 2004. The Company believes that the adoption of the provisions of SFAS No. 123R will not
have a material impact on its consolidated financial position or results of operations.
[2] Contingencies and Commitments
(a) Mergentime - Perini Joint Ventures vs. WMATA Matter
On May 11, 1990, contracts with two joint ventures in which Perini Corporation, or 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.
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.
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
[2] Contingencies and Commitments (continued)
(b) Tutor-Saliba-Perini Joint Venture vs. Los Angeles MTA Matter
During 1995, a joint venture, Tutor-Saliba-Perini, or the Joint Venture, in which Perini Corporation, or Perini,
is the 40% minority partner and Tutor-Saliba Corporation, or Tutor-Saliba, 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 LAMTA, seeking to recover
costs for extra work required by the LAMTA in connection with the construction of certain tunnel and station
projects. In February 1999, the LAMTA countered with civil claims under the California False Claims Act against
the Joint Venture, Tutor-Saliba and Perini jointly and severally (together, TSP). 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.
Claims concerning the construction of the LAMTA projects were tried before a jury in 2001. During trial, the Judge ruled that the Joint Venture had failed to comply with the Court's prior discovery orders and the Judge penalized TSP for the alleged non-compliance by dismissing the Joint Venture's claims and by ruling, without a jury finding, that TSP was liable to the LAMTA for damages on the LAMTA's counterclaims. The Judge then instructed the jury that TSP was liable to the LAMTA and charged the jury with the responsibility of determining the amount of the damages based on the Judge's ruling. The jury awarded the LAMTA approximately $29.6 million in damages.
On March 26, 2002, the Judge amended the award, ordering TSP to pay the LAMTA 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 appealed the Judge's discovery sanction, the subsequent judgment and the amended judgment.
On January 25, 2005, the State of California Court of Appeal issued an opinion in which it reversed the entire $63.0 million trial court's judgment and found that the trial court judge had abused his discretion and violated TSP's due process rights and imposed an impermissibly overbroad sanction in issuing terminating sanctions that prevented the Joint Venture from presenting its claims and severely limited TSP in defending itself against the LAMTA's lawsuit. The Court of Appeal also directed the trial court to dismiss LAMTA's claims that TSP had violated the Unfair Competition Law and remanded the Joint Venture's claims against LAMTA for extra work required by LAMTA and LAMTA's counterclaim under the California False Claim Act against TSP to the trial court for further proceedings, including a new trial.
Because this case is now scheduled to be retried, the ultimate financial impact of the lawsuit 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 the Tutor-Saliba, Perini &
Buckley Joint Venture, or the Joint Venture, Perini Corporation, or Perini, Tutor-Saliba Corporation, or
Tutor-Saliba, Buckley & Company, Inc., or Buckley, 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 Tutor-Saliba, Perini and Buckley through two joint venture
agreements dated October 28, 1996 and February 11, 1997. The Joint 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,
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
[2] Contingencies and Commitments (continued)
(c) City of San Francisco vs. Tutor-Saliba, Perini & Buckley Joint Venture Matter (continued)
punitive and exemplary damages, various civil penalties and a declaration that Tutor-Saliba 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.
Tutor-Saliba is the managing partner of the Joint Venture and, in December 1997, Perini sold its entire 20% interest in the Joint Venture to Tutor-Saliba. As part of that sale agreement, Tutor-Saliba 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.
Arbitration evidentiary hearings have commenced and are continuing.
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.
On December 3, 2004, the Arbitrators dismissed Perini's claims for general delay damages, and general conditions, its claim for damages under cardinal change theory and the claim amount of a subcontractor. Perini's remaining claims are for $46.7 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
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
[2] Contingencies and Commitments (continued)
(e) Perini/Kiewit/Cashman Joint Venture-Central Artery/Tunnel Project Matter (continued)
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 have continued to hear claims that were pending when it was terminated. Replacement ("Third") DRB members have been agreed upon (although PKC has asserted a challenge to the Chairman due to a conflict of interest, and the Chairman will likely be replaced). 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 made certain provisional payments to PKC. 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. No claims were settled.
The mediation agreement has been terminated, and the hearings before the Second DRB, Third DRB, and the courts have resumed. The MHD has since asserted that the mediation/negotiation agreement terminated all authority of the Second DRB to hear pending claims and transferred those claims to the Third DRB. The MHD refuses to pay the Second DRB for its services or participate in hearings before the Second DRB. This issue is expected to be the subject of further litigation.
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 possible false claims. PKC made a responsive presentation to the Attorney General's office in January 2005. 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 $2.125 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., and is
pending before the 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
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
[2] Contingencies and Commitments (continued)
(f) $21.25 Preferred Shareholders Class Action Lawsuit (continued)
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 a motion for class certification. Defendants filed an answer denying any and all claims of wrongdoing and asserting affirmative defenses.
On November 30, 2004, Perini announced that the parties had reached an agreement for settlement of the Action. Under the terms of the settlement, Perini would purchase all of the Depositary Shares submitted in the settlement for consideration of $19.00 per share in cash and one share of Perini common stock. The named plaintiffs have agreed to support the settlement. As of December 31, 2004, there were 559,273 Depositary Shares outstanding. In the event that fewer than 200,000 Depositary Shares are submitted in the settlement, Perini may terminate the settlement agreement and the parties will revert to their previous positions in the litigation. The proposed settlement is subject to approval of the Court. Frederick Doppelt will resign from his position as a director of Perini upon Court approval of the settlement.
In 2001, a similar lawsuit was filed 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.
[3] Acquisition of James A. Cummings, Inc.
On January 23, 2003, the Company completed the acquisition of 100% of the outstanding common stock of James A. Cummings, Inc. ("Cummings"), a privately held construction company based in Fort Lauderdale, Florida, for $20 million in cash, financed in part through the Company's credit facility. Cummings is an established building construction and construction management company in the South Florida region specializing in the construction of schools, municipal buildings, and commercial facilities. Cummings strong regional reputation, successful management team and focus on growing niche markets should effectively extend the Company's expansion into the Southeast region of the United States. At January 1, 2003, Cummings had a firm backlog of approximately $170 million. The acquisition was effective as of January 1, 2003 and, accordingly, Cummings' financial results are included in the Company's consolidated results of operations and financial position since that date.
The transaction was accounted for using the purchase method of accounting as required by FASB Statement No. 141, "Business Combinations". Goodwill and identifiable intangible assets recorded in the acquisition were tested in 2003 and 2004 and will be tested periodically in the future for impairment as required by FASB Statement No. 142 "Goodwill and Other Intangible Assets". The allocation of acquisition costs, which consists of the $20 million cash consideration referred to above and $565,000 of other direct acquisition costs, is as follows (in thousands):
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
[3] Acquisition of James A. Cummings, Inc. (continued)
Current assets $ 34,419
Property and equipment, net 394
Other long-term assets 23
Goodwill 11,661
Other identifiable intangible assets 1,904
------------
Total assets acquired $ 48,401
Less - Liabilities assumed (27,836)
------------
Total Consideration and Acquisition Costs $ 20,565
============
Other identifiable intangible assets represent the estimated fair value of the backlog referred to above. In 2004, the amount of other identifiable intangible assets associated with the Cummings acquisition was reevaluated, resulting in an increase of approximately $1.3 million in intangible assets and a corresponding decrease in the amount of goodwill recorded. Other identifiable intangible assets have been amortized over the average two year operating cycle of the related contracts, resulting in amortization of approximately $1.6 million and $0.3 million during 2004 and 2003, respectively. The $11.7 million of "Goodwill" referred to above has been allocated to the building construction segment and will be fully deductible for tax purposes.
Since the acquisition was effective as of January 1, 2003, the Company's 2004 and 2003 results include Cummings for the full years. Therefore, the following pro forma financial information is presented for the comparative year ended December 31, 2002 (in thousands, except per share data):
Year Ended
December 31, 2002
Pro forma
(unaudited)
Revenues $ 1,182,413
Gross profit $ 65,030
Net income $ 25,030
Basic earnings per common share $ 1.01
Diluted earnings per common share $ 0.99
The pro forma results have been prepared for comparative purposes only and include certain adjustments such as increased interest expense on acquisition debt and additional amortization expenses related to intangible assets arising from the acquisition. The pro forma results are not necessarily indicative either of the results of operations that actually would have resulted had the acquisition been in effect on January 1, 2002 or of future results.
[4] Financial Commitments
Long-term Debt
Long-term debt of the Company at December 31, 2004 and 2003 consists of the following (in thousands):
2004 2003
------------ ------------
Borrowing under revolving credit facility at an average rate of 4.0% in 2004 and 3.8% in 2003 $ - $ -
Mortgage on corporate headquarters building, at a rate of 8.96%
payable in equal monthly installments over a ten year period, with a balloon
payment of approximately $5.3 million in 2010 6,802 6,999
Mortgage on office building at a rate of 5.68% payable in equal monthly installments
over a five year period, with a balloon payment of $1.4 million in 2008 1,621 1,665
Other indebtedness 944 348
------------ ------------
Total $ 9,367 $ 9,012
Less - current maturities 759 490
------------ ------------
Net long-term debt $ 8,608 $ 8,522
============ ============
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
Payments required under these obligations amount to approximately $759,000 in 2005, $723,000 in 2006, $305,000 in 2007, $1,726,000 in 2008, $295,000 in 2009, and $5,559,000 in 2010 and beyond.
On January 23, 2002, the Company entered into an agreement with two banks to refinance its former credit facility with a new credit agreement (the “Credit Agreement”). The Credit Agreement provided for a $45 million revolving credit facility through January 2004 which, if not extended or repaid, converted amounts then outstanding to a three year term loan with equal quarterly principal payments. The Credit Agreement provides that the Company can choose from interest rate alternatives including a prime-based rate, as well as options based on LIBOR (London inter-bank offered rate).
In February 2003, the terms of the Credit Agreement were amended to increase the revolving credit facility from $45 million to $50 million; to extend the term of the Credit Agreement from January 2004 to June 2005; to increase the amount of unborrowed revolving commitment available for letters of credit from $5.0 million to $7.5 million; and to adjust certain financial covenants. On August 25, 2004, the terms of the Credit Agreement were amended to extend the term of the Credit Agreement from June 2005 to June 2007 and to adjust certain financial covenants.
The Credit Agreement 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 Agreement also includes operational covenants customary for facilities of this type, including restrictions on incurring additional indebtedness without the consent of the lenders, other than financing for the Company’s 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. The Company’s obligations under the Credit Agreement are guaranteed by substantially all of the Company’s current and future subsidiaries, and secured by substantially all of the Company’s and its subsidiaries’ assets, including a pledge of all of the capital stock of the subsidiaries.
The fair value of the balance outstanding under the Credit Agreement equals the carrying value of zero. For fixed rate debt, fair value is determined based on discounted cash flows for the debt at the Company’s current incremental borrowing rate for similar types of debt. The estimated fair value of fixed rate debt at December 31, 2004 and 2003 is $10.1 million and $9.7 million, respectively, compared to the carrying amount of $9.4 million and $9.0 million, respectively.
Leases
The Company leases certain construction equipment, vehicles and office space under non-cancelable operating leases. Future minimum rent payments under non-cancelable operating leases as of December 31, 2004 are as follows (in thousands):
Amount
2005 $ 3,857
2006 2,629
2007 1,948
2008 1,332
2009 683
Thereafter 142
------------
Subtotal $ 10,591
Less - Sublease rental agreements (724)
------------
Total $ 9,867
============
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
[4] Financial Commitments (continued)
Rental expense under long-term operating leases of construction equipment, vehicles and office space was $4,398,000 in 2004, $4,625,000 in 2003 and $3,781,000 in 2002.
Although not material to the Company's consolidated financial position or results of operations, the Company also leases certain construction equipment under capital lease arrangements from time to time. Amounts relating to capital leases are included in the accompanying Consolidated Balance Sheets under "Construction Equipment" and "Long-term Debt".
[5] Income Taxes
The (provision) credit for income taxes is comprised of the following (in thousands):
Federal State Total
----------- ------------- ------------
2004
Current $ (360) $ (650) $ (1,010)
Deferred (7,654) (255) (7,909)
----------- ------------- ------------
$ (8,014) $ (905) $ (8,919)
=========== ============= ============
2003
Current $ (529) $ (1,380) $ (1,909)
Deferred 16,023 (1,018) 15,005
----------- ------------- ------------
$ 15,494 $ (2,398) $ 13,096
=========== ============= ============
2002
Current $ 249 $ (1,050) $ (801)
Deferred - - -
----------- ------------- ------------
$ 249 $ (1,050) $ (801)
=========== ============= ============
The table below reconciles the difference between the statutory federal income tax rate and the effective rate provided for income before income taxes in the consolidated statements of income.
2004 2003 2002
----------- ---------- -----------
Statutory federal income tax rate 35% 35% 35%
State income taxes, net of federal tax benefit 2 3 3
Recoginition of current year tax benefit - (35) (35)
Reversal of valuation allowance (18) (45) -
Other 1 - -
----------- ---------- -----------
Effective tax rate 20% (42)% 3%
=========== ========== ===========
The following is a summary of the significant components of the Company's deferred tax assets and liabilities as of December 31, 2004 and 2003 (in thousands):
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
[5] Income Taxes (continued)
2004 2003
------------ ------------
Deferred Tax Assets
Provision for estimated real estate losses $ 71 $ 101
Contract losses - 2,392
Timing of expense recognition 12,161 10,234
Net operating loss carryforwards 19,969 22,325
Alternative minimum tax credit carryforwards 3,777 3,619
Other, net (21) 1,068
------------ ------------
$ 35,957 $ 39,739
Valuation allowance for deferred tax assets (490) (8,400)
------------ ------------
Deferred tax assets $ 35,467 $ 31,339
------------ ------------
Deferred Tax Liabilities
Joint ventures - construction $ (18,576) $ (15,883)
Capitalized carrying charges (129) (451)
------------ ------------
Deferred tax liabilities $ (18,705) $ (16,334)
------------ ------------
Net deferred tax asset $ 16,762 $ 15,005
============ ============
The net deferred asset as of December 31, 2004 is classified in the Consolidated Balance Sheet based on when the future benefit is expected to be realized as follows (in thousands):
Short-term "Deferred tax asset" $ 4,110
Long-term "Deferred tax asset" 12,652
-------------
$ 16,762
=============
A valuation allowance is provided to reduce the deferred tax assets to a level which, more likely than not, will be realized. The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible. The net deferred tax assets reflect management's estimate of the amount which would, more likely than not, be realized from future taxable income.
As a result of not providing federal income tax benefit applicable to losses recorded in certain prior years for financial reporting purposes, benefit from these losses was realized in 2004, 2003 and 2002 by not having to provide federal income tax of approximately $7.9 million, $11.0 million and $8.5 million, respectively. In addition, during the year ended December 31, 2003, the Company recognized an additional $14.9 million tax benefit based on expected utilization of net operating loss carryforwards.
At December 31, 2004, the Company has unused net operating loss carryforwards for tax reporting purposes of approximately $57.0 million, of which $1.4 million expires during the 2005 - 2007 period and $55.6 million expires during the 2008 - 2021 period. At December 31, 2004, the Company also has unused alternative minimum tax credit carryforwards for income tax reporting purposes of approximately $3.8 million that have no expiration date.
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
[6] Other Assets, Other Long-term Liabilities and Other (Income) Expense, Net
Other Assets, Other Long-term Liabilities and Other (Income) Expense, Net consist of the following (in thousands) for the periods presented:
Other Assets
2004 2003
------------- -------------
Land held for sale (Note 13) $ 2,523 $ 2,762
Deferred expenses 1,162 1,510
Other investments 48 63
Intangible assets (Notes 3 and 7) - 599
------------- -------------
$ 3,733 $ 4,934
============= =============
Other Long-term Liabilities
2004 2003
------------- -------------
Accrued dividends on
$21.25 Preferred Stock (Note 8) $ 10,993 $ 9,805
Employee benefit related liabilities 1,923 1,885
Minimum pension liability adjustment (Note 7) 29,020 24,325
------------- -------------
$ 41,936 $ 36,015
============= =============
Other (Income) Expense, Net
2004 2003 2002
------------- ------------- ------------
Amortization of intangible asset $ 1,616 $ 287 $ -
Stock registration expense 1,687 - -
Loss (gain) from land sales, net (Note 13) 316 (2,207) -
Interest income (474) (226) (297)
Bank fees 559 483 302
Miscellaneous expense, net 999 228 515
------------- ------------- ------------
$ 4,703 $ (1,435) $ 520
============= ============= ============
The Company has a defined benefit pension plan that covers its executive, professional, administrative and clerical employees, subject to certain specified service requirements. The plan is noncontributory and benefits are based on an employee’s years of service and “final average earnings”, as defined. The plan provides reduced benefits for early retirement and takes into account offsets for social security benefits. All employees are vested after five years of service. The Company also has an unfunded supplemental retirement plan for certain employees whose benefits under the defined benefit pension plan were reduced because of compensation limitations under federal tax laws. In accordance with SFAS No. 132R, “Employers’ Disclosures About Pensions and Other Post-Retirement Benefits”, pension disclosure as presented below includes aggregated amounts for both of the Company’s plans, except where otherwise indicated.
Effective June 1, 2004, all benefit accruals under the Company’s pension plan were frozen; however, the current vested benefits will be preserved. 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 2004.
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
Net pension cost for 2004, 2003 and 2002 follows (in thousands):
2004 2003 2002
------------- ------------ ------------
Service cost - benefits earned during the period $ 1,660 $ 1,828 $ 1,459
Interest cost on projected benefit obligation 4,538 4,674 4,529
Expected return on plan assets (3,956) (4,545) (4,899)
Amortization of prior service costs 15 35 25
Recognized actuarial loss 1,246 665 56
------------- ------------ ------------
Net pension cost $ 3,503 $ 2,657 $ 1,170
============= ============ ============
Actuarial assumptions used to determine net pension cost:
Discount rate 6.25% 6.75% 7.25%
Rate of increase in compensation 6.00% 6.00% 6.00%
Long-term rate of return on assets 7.50% 8.50% 9.00%
The expected long-term rate of return on assets assumption will remain at 7.5% for 2005. The expected long-term rate of return on assets assumption was developed considering historical and future expectations for returns for each asset class.
The target asset allocation for the Company's pension plan by asset category for 2005 and the actual asset allocation at December 31, 2004 and 2003 by asset category are as follows:
Percentage of Plan Assets at December 31,
------------------------------------------------
Target
Allocation
Asset Category 2005 2004 2003
- -------------------------------- ------------ ------------- ------------
Equity securities:
Domestic 70.00% 72.87% 72.20%
International 0.00% 0.00% 0.00%
Fixed income securities 30.00% 26.31% 27.78%
Real estate 0.00% 0.00% 0.00%
Other 0.00% 0.82% 0.02%
------------ ------------- ------------
Total 100.00% 100.00% 100.00%
============ ============= ============
The target asset allocation was established to attempt to maximize returns with consideration of the long-term nature of the obligations and to reducing the level of overall market volatility through the allocation to fixed income investments. During the year, the asset allocation is reviewed for adherence to the target asset allocation and the portfolio of investments is rebalanced periodically.
Within the equity portfolio, the investments are primarily large capitalization domestic equities; however, the plan's asset manager may invest in equities with small and medium capitalizations. The equity assets are invested in a broadly diversified portfolio with approximately 125 individual securities. Currently there is no allocation to international equities. Within the fixed income portfolio, the investments are entirely investment grade U.S. fixed income securities including both U.S. Government and U.S. Credit securities.
The Company expects to contribute $6.0 million to its pension plan in 2005.
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
[7] Employee Benefit Plans (continued)
The following tables provide a reconciliation of the changes of the fair value of assets in the plan and plan benefit obligations during the two year period ended December 31, 2004, and a statement of the funded status as of December 31, 2004 and 2003 (in thousands):
Reconciliation of Fair Value of Plan Assets
2004 2003
------------ ------------
Balance at beginning of year $ 41,374 $ 38,527
Actual return on plan assets 2,929 3,403
Employer contribution 4,157 3,157
Benefit payments (3,886) (3,713)
------------ ------------
Balance at end of year $ 44,574 $ 41,374
============ ============
Reconciliation of Projected Benefit Obligation
2004 2003
------------ ------------
Balance at beginning of year $ 78,576 $ 70,803
Service cost 1,660 1,828
Interest cost 4,538 4,674
Plan amendments - -
Curtailment gain (8,533) -
Actuarial loss 4,213 4,984
Benefit payments (3,886) (3,713)
------------ ------------
Balance at end of year $ 76,568 $ 78,576
============ ============
Actuarial assumptions used to determine benefit obligations:
2004 2003
------------ ------------
Discount rate 5.75% 6.25%
Rate of increase in compensation n.a. 6.00%
Funded Status
2004 2003
------------ ------------
Funded status at December 31, $ (31,994) $ (37,202)
Unrecognized prior service cost - 263
Unrecognized loss 29,021 33,559
------------ ------------
Net liability recognized, before additional minimum liability $ (2,973) $ (3,380)
============ ============
The following table presents amounts included in the Consolidated Balance Sheets as of December 31, 2004 and 2003 (in thousands):
2004 2003
------------ ------------
Accrued benefit liability $ (31,994) $ (27,705)
Intangible asset (Note 6) - 312
Accumulated other comprehensive income 29,021 24,013
------------ ------------
Net amount recognized at year end $ (2,973) $ (3,380)
============ ============
Other comprehensive income attributable to a change in the additional minimum pension liability recognized pursuant to SFAS No. 87, "Employers' Accounting for Pensions" amounted to $5.0 million in 2004, $4.4 million in 2003, $13.7 million in 2002 and $5.9 million in 2001. The cumulative amount of $29.0 million generally represents the excess of the
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
[7] Employee Benefit Plans (continued)
accumulated benefit obligations of the Company's pension plans over the fair value of the plans' assets as of December 31, 2004 compared to the unfunded accrued pension liability previously recognized. This amount is reflected as a long-term liability as of December 31, 2004 (see Note 6) with the offset, net of tax, being a reduction in stockholders' equity. Adjustments to the amount of this additional minimum pension liability will be recorded in future years, as required, based upon periodic re-evaluation of the funded status of the Company's pension plans.
The Company's plans have benefit obligations in excess of the fair value of the plans' assets. The following table provides information relating to each of the plans' benefit obligations compared to the fair value of its assets as of December 31, 2004 and 2003 (in thousands):
2004 2003
------------------------------------- -------------------------------------
Benefit Benefit
Pension Equalization Pension Equalization
Plan Plan Total Plan Plan Total
---------- ------------- ---------- ----------- ------------- ----------
Projected benefit obligation $ 73,469 $ 3,099 $ 76,568 $ 75,232 $ 3,344 $ 78,576
Accumulated benefit obligation $ 73,469 $ 3,099 $ 76,568 $ 66,359 $ 2,720 $ 69,079
Fair value of plan assets $ 44,574 $ - $ 44,574 $ 41,374 $ - $ 41,374
Projected benefit obligation
greater than Fair value of
plan assets $ 28,895 $ 3,099 $ 31,994 $ 33,858 $ 3,344 $ 37,202
---------- ------------- ---------- ----------- ------------- ----------
Accumulated benefit obligation
greater than Fair value of
plan assets $ 28,895 $ 3,099 $ 31,994 $ 24,985 $ 2,720 $ 27,705
---------- ------------- ---------- ----------- ------------- ----------
The Company has a contributory Section 401(k) plan which covers its executive, professional, administrative and clerical employees, subject to certain specified service requirements. The 401(k) expense provision approximated $0.9 million in 2004 and $0.7 million in 2003 and 2002. The Company’s contribution is based on a non-discretionary match of employees’ contributions, as defined.
The Company has an incentive compensation plan for key employees which is generally based on the Company’s achievement of a certain level of profit.
The Company also contributes to various multi-employer union retirement plans under collective bargaining agreements which provide retirement benefits for substantially all of its union employees. The aggregate amounts provided in accordance with the requirements of these plans were approximately $4.8 million in 2004, $4.3 million in 2003 and $7.3 million in 2002. The Multi-employer Pension Plan Amendments Act of 1980 defines certain employer obligations under multi-employer plans. Information regarding union retirement plans is not available from plan administrators to enable the Company to determine its share of unfunded vested liabilities.
(a) $21.25 Convertible Exchangeable Preferred Stock ("$21.25 Preferred Stock")
In
June 1987, net proceeds of approximately $23,631,000 were received from the sale
of 1,000,000 Depositary Convertible Exchangeable Preferred Shares (each
Depositary Share representing ownership of 1/10 of a share of $21.25 Convertible
Exchangeable Preferred Stock, $1 par value) at a price of $25 per Depositary
Share. Annual dividends are $2.125 per Depositary Share and are cumulative.
Generally, the liquidation preference value is $25 per Depositary Share plus any
accumulated and unpaid dividends. The $21.25 Preferred Stock of the Company, as
evidenced by ownership of Depositary Shares, is convertible at the option of the
holder, at any time, into Common
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
(a) $21.25 Convertible Exchangeable Preferred Stock ("$21.25 Preferred Stock") (continued)
Stock of the Company at a conversion price of $37.75 per share of Common Stock. The $2.125 Depositary
Shares are redeemable at the option of the Company at any time at $25 per share plus any unpaid
dividends. The $21.25 Preferred Stock is also exchangeable at the option of the Company, in whole but not
in part, on any dividend payment date into 8 1/2% convertible subordinated debentures due in 2012 at a
rate equivalent to $25 principal amount of debentures for each Depositary Share. In conjunction with the
covenants of certain of the Company's prior Credit Agreements, the Company was required to suspend the
payment of quarterly dividends on its $21.25 Preferred Stock (equivalent to $2.125 per Depositary Share)
until certain financial criteria were met. Dividends on the $21.25 Preferred Stock have not been declared
since 1995 (although they have been fully accrued due to the "cumulative" feature of the $21.25 Preferred
Stock). The aggregate amount of dividends in arrears is approximately $10,993,000 at December 31, 2004,
which represents approximately $196.56 per share of $21.25 Preferred Stock or approximately $19.66 per
Depositary Share and is included in "Other Long-term Liabilities" in the accompanying Consolidated Balance
Sheets. Under the terms of the $21.25 Preferred Stock, the holders of the Depositary Shares were entitled
to elect two additional Directors since dividends had been deferred for more than six quarters and have
done so at each of the last seven Annual Meetings of Stockholders. (See Note 2(f) for information on a
related class action lawsuit.)
In June 2003, the Company completed its tender offer to purchase up to 900,000 shares, or approximately 90% of its outstanding $2.125 Depositary Convertible Exchangeable Preferred Shares (the “Depositary Shares”), each of which represents 1/10th of a share of the Company’s $21.25 Preferred Stock, at a purchase price of $25.00 per share, net to the seller in cash without interest. The tender offer which commenced on March 31, 2003, expired on June 9, 2003, at which time the Company purchased 440,627 Depositary Shares. The completion of the self tender offer resulted in the Company purchasing and immediately retiring 440,627 Depositary Shares, a reduction of approximately $11.3 million, including related expenses, in Stockholders’ Equity, and a reversal of approximately $7.3 million of previously accrued and unpaid dividends relating to the purchased shares that were restored to additional paid-in capital. In addition, the $7.3 million of previously accrued and unpaid dividends was added to net income to determine net income available for common stockholders for the purpose of computing earnings per common share for the year ended December 31, 2003.
(b) Series A Junior Participating Preferred Stock
Under the terms of the Company’s Shareholder Rights Agreement, as amended, the
Board of Directors of the Company declared a distribution on September 23, 1988
of one Preferred Stock purchase right (a “Right”) for each outstanding
share of Common Stock. Under certain circumstances, each Right will entitle the
holder thereof to purchase from the Company one one-hundredth of a share (a
“Unit”) of Series A Junior Participating Cumulative Preferred Stock,
$1 par value (the “Preferred Stock”), at an exercise price of $100 per
Unit, subject to adjustment. The Rights will not be exercisable or transferable
apart from the Common Stock until the earlier to occur of (i) 10 days following
a public announcement that a person or group (an “Acquiring Person”)
has acquired 20% or more of the Company’s outstanding Common Stock (the
“Stock Acquisition Date”), (ii) 10 business days following the
announcement by a person or group of an intention to make an offer that would
result in such persons or group becoming an Acquiring Person or (iii) the
declaration by the Board of Directors that any person is an “Adverse
Person”, as defined under the Agreement. The Rights will not have any
voting rights or be entitled to dividends.
Upon the occurrence of a triggering event as described above, each Right will be entitled to that number of Units of Preferred Stock of the Company having a market value of two times the exercise price of the Right. If the Company is acquired in a merger or 50% or more of its assets or earning power is sold, each Right will be entitled to receive Common Stock of the acquiring company having a market value of two times the exercise price of the Right. Rights held by such a person or group causing a triggering event may be null and void. The Rights are redeemable at $.02 per Right by the Board of Directors at any time prior to the occurrence of a triggering event.
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
(b) Series A Junior Participating Preferred Stock (continued)
In
January 1997 and March 2000, the Board of Directors amended the Company’s
Shareholder Rights Agreement to (i) permit the acquisition of the Company’s
stock by certain investors and certain other events without triggering the
distribution of the Rights; (ii) lower the threshold for the occurrence of a
Stock Acquisition Date from 20% to 10%; and (iii) extend the expiration date of
the Agreement from September 23, 1998 to January 21, 2007.
(c) Stock Purchase Warrants
In
connection with an Amended Credit Agreement effective January 17, 1997 with the
Company’s bank group at that time, the banks received Stock Purchase
Warrants to purchase up to 420,000 shares of the Company’s Common Stock,
$1.00 par value, at a purchase price of $8.30 per share, subject to certain
anti-dilution adjustments in the event of certain distributions and other
corporate events, at any time during the ten year period ending January 17,
2007. The grant date present value of the Stock Purchase Warrants ($2,233,000)
was calculated using the Black-Scholes option pricing model and was accounted
for by an increase in Stockholders’ Equity, with the offset being a
valuation account netted against the related Revolving Credit Loans. The
valuation account was amortized and charged against income over the three year
term of the Credit Agreement ended in 2000. During 2004, 238,560 warrants were
exercised resulting in a remaining balance of 181,440 warrants outstanding as of
December 31, 2004.
In conjunction with the issuance of the Stock Purchase Warrants, the Company entered into a rights agreement with the warrantholders whereby the Company granted the warrantholders the right to require it, upon request by holders of a majority of warrants and common stock received upon exercise of warrants, subject to the terms and conditions set forth in the agreement, to register the resale of shares of the common stock held by them upon exercise of their warrants. Under the agreement, the Company generally agreed to pay the fees and expenses of the selling stockholders in connection with any such registration.
(d) 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, 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 additional paid-in capital.
[9] Stock Options and Restricted Stock Awards
Effective May 13, 2004, the Company’s stockholders approved the adoption of the 2004 Stock Option and Incentive Plan which provides that up to 1,000,000 shares of the Company’s Common Stock will be available for the granting of stock-based compensation awards to key executives, employees and directors of the Company. The Plan allows these stock-based compensation awards to be granted in a variety of forms, including stock options, stock appreciation rights, restricted stock awards, unrestricted stock awards, deferred stock awards and dividend equivalent rights. During 2004, restricted stock awards were granted to two executive officers of the Company. Vesting of these restricted stock awards is dependent upon the achievement of specified performance goals and/or service requirements for 2004 to 2006. The grant date fair value of the restricted stock awards granted in 2004 is $4.7 million which is being recorded as expense over the vesting period. In 2004, $0.8 million was recorded as expense. Assuming achievement of the specified performance and service requirements, the approximate amount of expense to be recorded in 2005 and 2006 will be $3.3 million and $0.6 million, respectively.
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
A summary of stock-based compensation awards related to the Company’s 2004 Stock Option and Incentive Plan is as follows:
Weighted Average Shares
Number Grant Date Available
of Shares Fair Value to Grant
------------- --------------------- -------------
Approved May 13, 2004 - - 1,000,000
Granted 300,000 $15.62 (300,000)
------------- -------------
Outstanding at December 31, 2004 300,000 700,000
============= =============
Effective May 25, 2000, the Company's stockholders approved the adoption of the Special Equity Incentive Plan which provides that up to 3,000,000 shares of the Company's Common Stock will be available for the granting of non-qualified stock options to key executives, employees and directors of the Company. Options are granted at not less than the fair market value on the date of grant, as defined. Options generally expire 10 years from the date of grant. Options outstanding under the Special Equity Incentive Plan are generally exercisable in three equal annual installments, on the date of grant and on the first and second anniversary of the date of grant. As of December 31, 2004 and 2003, all of the options outstanding were exercisable. A summary of stock option activity related to the Company's Special Equity Incentive Plan is as follows:
Option Price Per Share
------------------------------ Shares
Number Weighted Available
of Shares Range Average to Grant
------------- --------------- ------------- -------------
Outstanding at December 31, 2002 2,733,034 $3.13 - $6.85 $4.50 187,300
Exercised (221,400) $3.13 - $4.50 $4.45 -
Terminated (8,334) $4.50 $4.50 8,334
------------- -------------
Outstanding at December 31, 2003 2,503,300 $3.13 - $6.85 $4.49 195,634
Exercised (1,808,800) $3.13 - $6.85 $5.12 -
------------- -------------
Outstanding at December 31, 2004 694,500 $3.13 - $6.85 $4.45 195,634
============= =============
Shares of the Company's authorized but unissued Common Stock have been reserved for issuance to employees under its 1982 Stock Option Plan. Options under this plan were granted at fair market value on the date of grant, as defined, and generally become exercisable in two equal annual installments on the second and third anniversary of the date of grant and expire eight to ten years from the date of grant. Although the provisions of the 1982 Stock Option Plan expired during 2002, the Company still has 5,000 shares of authorized but unissued Common Stock reserved for issuance under the Plan applicable to the remaining outstanding options. As of December 31, 2004, all of the 5,000 options outstanding were exercisable. A summary of stock option activity related to the Company's 1982 Stock Option Plan is as follows:
Option Price Per Share
---------------------------- Shares
Number Weighted Available
of Shares Range Average to Grant
------------ ------------- ------------ -------------
Outstanding at December 31, 2002 and 2003 67,500 $ 5.29 $ 5.29 -
Exercised (62,500) $ 5.29 $ 5.29 -
------------ -------------
Outstanding at December 31, 2004 5,000 $ 5.29 $ 5.29 -
============ =============
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
[9] Stock Options and Restricted Stock Awards (continued)
In addition, the Company has authorized but unissued Common Stock reserved for certain other options granted as follows:
Options
Grant Outstanding Exercise
Grantee Date and Exercisable Price
- --------------------------------------------------- ------------ ------------------- ------------
Members of former Board Executive Committee,
as Redefined 01/17/97 25,000 $8.38
Certain Executive Officers 01/19/98 10,000 $8.66
The terms of these options are generally similar to options granted under the 1982 Plan, including the exercise price being equal to fair market value, as defined, at date of grant, and timing of installment exercise dates. As of December 31, 2004, all of the 35,000 options outstanding were exercisable.
Options outstanding at December 31, 2004 and related weighted average price and life information follows:
Weighted
Average
Remaining Grant Options Options Exercise
Life (Years) Date Outstanding Exercisable Price
- -------------------- ---------- --------------- ------------- -----------
1 01/17/97 25,000 25,000 $8.38
2 01/19/98 10,000 10,000 $8.66
2 12/10/98 5,000 5,000 $5.29
6 03/29/00 556,500 556,500 $4.50
6 05/25/00 48,000 48,000 $3.70
6 09/12/00 87,500 87,500 $4.50
7 08/13/01 2,500 2,500 $6.85
--------------- -------------
Totals 734,500 734,500 $4.65
=============== =============
When options are exercised, the proceeds are credited to stockholders' equity. In addition, the income tax savings attributable to nonqualified options exercised are credited to additional paid-in capital.
[10] Unaudited Quarterly Financial Data
The following table sets forth unaudited quarterly financial data for the years ended December 31, 2004 and 2003 (in thousands, except per share amounts):
2004 by Quarter
-----------------------------------------------------------------
1st 2nd 3rd 4th
------------ ------------- ------------ ------------
Revenues $480,304 $495,808 $ 467,743 $ 398,460
------------ ------------- ------------ ------------
Gross profit $ 23,528 $ 23,731 $ 23,633 $ 22,490
------------ ------------- ------------ ------------
Net income $ 11,221 (a) $ 12,176 (a) $ 6,430 $ 6,180
------------ ------------- ------------ ------------
Basic earnings per common share $ 0.47 (a) $ 0.51 (a) $ 0.26 $ 0.24
------------ ------------- ------------ ------------
Diluted earnings per common share $ 0.44 (a) $ 0.48 (a) $ 0.25 $ 0.23
------------ ------------- ------------ ------------
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
[10] Unaudited Quarterly Financial Data (continued)
2003 by Quarter
-----------------------------------------------------------------
1st 2nd 3rd 4th
------------ ------------- ------------ ------------
Revenues $291,260 $286,336 $ 295,855 $ 500,652
------------ ------------- ------------ ------------
Gross profit $ 13,703 $ 14,370 $ 15,788 $ 26,391
------------ ------------- ------------ ------------
Net income $ 11,419 (a) $ 3,618 (a) $ 6,396 $ 22,585 (a)
------------ ------------- ------------ ------------
Basic earnings per common share $ 0.48 (a) $ 0.43 (a)(b) $ 0.29 (a)(b) $ 0.97 (a)
------------ ------------- ------------ ------------
Diluted earnings per common share $ 0.48 (a) $ 0.41 (a)(b) $ 0.28 (a)(b) $ 0.92 (a)
------------ ------------- ------------ ------------
(a) For each of the first two quarters of 2004 and each of the four quarters of 2003, the provision for income taxes 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. In addition, the first quarter of 2003 includes the recognition of a $7.0 million tax benefit in accordance with SFAS No. 109 (or approximately $0.31 per share) related to a reduction in the tax valuation allowance and the fourth quarter of 2003 includes the recognition of $7.9 million similar tax benefit (or approximately $0.34 per share).
(b) The second quarter of 2003 includes $6.7 million (or approximately $0.29 per share) and the third quarter of 2003 includes $0.6 million (or approximately $0.03 per share) added back to net income in the calculation of income available for common stockholders that represented the reversal of dividends previously accrued, but no longer required as a result of the Company's tender offer. See Note 8(a).
[11] Business Segments
Business segment information presented below was determined in accordance with SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information".
The Company provides diversified general contracting, construction management and design-build services to private clients and public agencies throughout the world. The Company’s construction business is conducted through three basic segments: building, civil and management services. The building segment is comprised of Perini Building Company and James A. Cummings, Inc., and focuses on large, complex projects in the hospitality and gaming, sports and entertainment, educational, transportation and healthcare markets. The 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. The 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.
During the years 2002 through 2004, the Company’s chief operating decision making group consisted of the Chairman and Chief Executive Officer, the President and Chief Operating Officer, the President of Perini Building Company and the President of Perini Civil Construction. This group decides how to allocate resources and assess performance of the business segments. Generally, the Company evaluates performance of its operating segments on the basis of income from operations and cash flow. The accounting policies applied by each of the segments are the same as those described in the Summary of Significant Accounting Policies (see Note 1). The following tables set forth certain business and geographic segment information relating to the Company’s operations for each of the three years in the period ended December 31, 2004 (in thousands):
78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
2004 Reportable Segments
---------------------------------------------------------
Management Consolidated
Building Civil Services Totals Corporate Total
------------- ----------- -------------- ------------- ----------- ---------------
Revenues $ 1,298,771 $ 138,095 $ 405,449 $ 1,842,315 $ - $ 1,842,315
Income from Construction Operations $ 25,194 $ 5,463 $ 29,913 $ 60,570 $ (10,237) (a) $ 50,333
Assets $ 296,017 $ 203,311 $ 52,474 $ 551,802 $ 102,463 (b) $ 654,265
Capital Expenditures $ 2,038 $ 2,193 $ 255 $ 4,486 $ - $ 4,486
2003 Reportable Segments
---------------------------------------------------------
Management Consolidated
Building Civil Services Totals Corporate Total
------------- ----------- -------------- ------------- ----------- ---------------
Revenues $ 898,254 $ 176,877 $ 298,972 $ 1,374,103 $ - $ 1,374,103
Income from Construction Operations $ 12,462 $ 3,157 $ 23,711 $ 39,330 $ (8,840) (a) $ 30,490
Assets $ 225,139 $ 204,135 $ 80,649 $ 509,923 $ 55,520 (b) $ 565,443
Capital Expenditures $ 1,520 $ 3,722 $ 157 $ 5,399 $ - $ 5,399
2002 Reportable Segments
---------------------------------------------------------
Management Consolidated
Building Civil Services Totals Corporate Total
------------- ----------- -------------- ------------- ----------- ---------------
Revenues $ 631,860 $ 312,528 $ 140,653 $ 1,085,041 $ - $ 1,085,041
Income from Construction Operations $ 14,487 $ 6,390 $ 11,738 $ 32,615 $ (6,735) (a) $ 25,880
Assets $ 130,270 $ 223,036 $ 27,971 $ 381,277 $ 21,112 (b) $ 402,389
Capital Expenditures $ 1,828 $ 2,335 $ 347 $ 4,510 $ - $ 4,510
(a) In all years, consists of corporate general and administrative expenses.
(b) In all years, 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.
Revenues from various agencies of the United States federal government in the management services segment totaled approximately $333 million (or 18% of consolidated revenues) in 2004, and approximately $225 million (or 16% of consolidated revenues) in 2003. Revenues from the San Manuel casino expansion project in California for the San Manuel Band of Mission Indians totaled approximately $203 million (or 11% of consolidated revenues) in 2004.
Revenues from the Mohegan Sun Project in the building segment totaled approximately $153 million (or 14%) in 2002. Revenues from various agencies of the City of New York in the civil segment totaled approximately $185 million (or 17%) in 2002.
79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
Information concerning principal geographic areas is as follows (in thousands):
Revenues
--------------------------------------------
2004 2003 2002
------------- -------------- -------------
United States $ 1,506,846 $ 1,120,961 $ 1,029,097
Foreign and U.S. Territories 335,469 253,142 55,944
------------- -------------- -------------
Total $ 1,842,315 $ 1,374,103 $ 1,085,041
============= ============== =============
Income (Loss) from Construction Operations
--------------------------------------------
2004 2003 2002
------------- -------------- -------------
United States $ 35,997 $ 23,009 $ 26,731
Foreign and U.S. Territories 24,573 16,321 5,884
Corporate (10,237) (8,840) (6,735)
------------- -------------- -------------
Total $ 50,333 $ 30,490 $ 25,880
============= ============== =============
Income (loss) from construction operations has been allocated geographically based on the location of the job site. Long-lived assets outside the United States are immaterial and therefore not presented here.
As a condition to a new investor group’s acquisition of shares of the Company’s Series B Preferred Stock for an aggregate of $30 million, which was approved by the stockholders in January 1997, the Company entered into an agreement with Tutor-Saliba Corporation (“Tutor-Saliba”), a California corporation engaged in the construction industry, and Ronald N. Tutor, Chief Executive Officer and sole stockholder of Tutor-Saliba, to provide certain management services, as defined. At January 17, 1997, Tutor-Saliba held 351,318 shares of the Company’s $1.00 par value Common Stock. Tutor-Saliba participates in joint ventures with the Company, the Company’s share of which contributed $37.7 million (or 2.0%), $49.0 million (or 3.6%) and $48.8 million (or 4.5%) to the Company’s consolidated revenues in 2004, 2003 and 2002, respectively. The management agreement has been renewed annually by the Company’s Compensation Committee, which consists entirely of independent directors, under the same basic terms and conditions as the initial agreement except that the amount of the fee payable thereunder to Tutor-Saliba was increased effective January 1, 2004, from $250,000 to $375,000 per year and effective September 15, 2004, from $375,000 to $800,000. Effective December 1, 2001, Mr. Tutor was included as a participant in the Company’s incentive compensation plan. Since January 17, 1997, Mr. Tutor has been a member of the Company’s Board of Directors and an officer of Perini and effective July 1, 1999 was elected Chairman of the Board of Directors and effective March 29, 2000 was elected Chairman and Chief Executive Officer. Compensation for the management services consists of payment of $250,000 per year to Tutor-Saliba for each of the two years in the period ended December 31, 2003 and $499,000 for the year ended December 31, 2004, stock options and restricted stock awards granted to Mr. Tutor, and incentive compensation awarded to Mr. Tutor of $600,000 in 2004, $250,000 in 2003 and $231,000 in 2002. The stock options were granted to Mr. Tutor in January, 1997 (150,000 shares), December, 1998 (45,000 shares), January, 1999 (30,000 shares) and March, 2000 (1,000,000 shares). All of the stock options were granted at or above the fair market value price per share on the respective dates of grant. All of the stock options were excercised during 2004.
80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
On December 15, 2004, the Company entered into an agreement with Mr. Tutor pursuant to which the Company will grant Mr. Tutor 150,000 shares of unrestricted common stock, par value $1.00 per share, of the Company under the Perini Corporation 2004 Stock Option and Incentive Plan. The Company will grant Mr. Tutor (i) 75,000 shares of Common Stock on June 30, 2005, provided that Mr. Tutor continues to serve as the Company’s Chairman and Chief Executive Officer through and including such date and (ii) 75,000 shares of Common Stock on June 30, 2006, provided that Mr. Tutor continues to serve as the Company’s Chairman and Chief Executive Officer through and including such date. The grant date fair value of the restricted stock awards is $2.5 million which will be recorded as expense over the vesting period. In 2004, $0.1 million was recorded as expense. Assuming achievement of the specified service requirements, $2.0 million and $0.4 million will be recorded as expense in 2005 and 2006, respectively.
In late 2001, the Company entered into a joint venture arrangement with Tutor-Saliba, the sponsoring partner, whereby the Company was to primarily provide certain prequalification and proposal support services to the joint venture in return for a fixed fee of $200,000 payable subsequent to the award and start-up of the project. In addition, the agreement provided that the Company would not be liable for any costs, losses, liabilities or damages that may arise from the project. The Company recorded the $200,000 fixed fee as income in 2002 when the contract was awarded to the joint venture. Payment of the fee was received from Tutor-Saliba in February, 2002.
In late 2002, the Company entered into an arrangement with Tutor-Saliba whereby Tutor-Saliba provided a financial guarantee in order for the Company to secure a performance and payment bond on a building project with an estimated contract value of approximately $135 million. As compensation for the financial guarantee, the Company paid Tutor-Saliba a fee of $1.0 million in February 2003.
The new investors that provided $40 million of new equity in the Company on March 29, 2000 consist of Tutor-Saliba (see above), O&G Industries, Inc. (“O&G”), a participant in certain construction joint ventures with the Company, and National Union Fire Insurance Company of Pittsburgh, Pa., a wholly owned subsidiary of American International Group, Inc. (“AIG”), one of the Company’s sureties and a provider of insurance and insurance related services to the Company. The cumulative holdings of each of the new investors as of December 31, 2004 were as follows:
Number of Percentage of Total
Common Shares Common Shares Outstanding
------------------- ---------------------------------
Tutor-Saliba 3,112,288 12.3%
O&G 2,502,941 9.9%
AIG 2,659,846 10.5%
Each of the new investors is entitled to appoint a member to the Company's Board of Directors. O&G participates in joint ventures with the Company, the Company's share of which contributed $34.7 million and $0.8 million to the Company's consolidated revenues in 2004 and 2003, respectively. Payments to AIG for surety, insurance and insurance related services approximated $8.8 million in 2004, $7.8 million in 2003 and $9.5 million in 2002.
[13] Land Held for Sale
As of December 31, 2004, the only land held for sale consists of approximately 60 fully developed acres in Raynham, Massachusetts. Management's plan is to continue to market the remaining land for sale in this development as a bulk sale or as individual parcels over an estimated 24 to 36 month "sell off" period.
During the year ended December 31, 2004, 4 acres were sold resulting in a net loss of approximately $0.3 million and during the year ended December 31, 2003, 61 acres were sold resulting in a net gain of approximately $2.2 million. (See Note 6.) Land costs are allocated to reduce the related sales proceeds based on both the specific cost identification method for certain parcels and average cost per acre sold method on the remaining parcels.
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2004, 2003 and 2002 (continued)
[14] Subsequent Event
On January 21, 2005, the Company completed the acquisition of Cherry Hill Construction, Inc. ("CHC"), a privately held construction company based in Jessup, Maryland, for $20 million in cash. CHC is an established civil construction company in the Mid-Atlantic and Southeast regions of the United States specializing in excavation, foundations, paving and construction of civil infrastructure. The acquisition will be effective as of January 1, 2005 and, accordingly, CHC will be included in the Company's consolidated results of operations and financial position beginning in the first quarter of 2005.
82
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Perini Corporation
We have audited the accompanying consolidated balance sheets of Perini Corporation and subsidiaries
(collectively, the "Company") as of December 31, 2004 and 2003, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2004.
These financial statements are the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial
position of Perini Corporation and subsidiaries as of December 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity
with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2004,
based on the criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 4, 2005 expressed an unqualified opinion on
management's assessment of the effectiveness of the Company's internal control over financial reporting and an
unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
Deloitte & Touche LLP
Boston, Massachusetts
March 4, 2005
83
Schedule II
Perini Corporation and Subsidiaries
Valuation and Qualifying Accounts and Reserves
for the Years Ended December 31, 2004, 2003 and 2002
(In Thousands of Dollars)
Additions
---------------------------
Balance at Charged Charged to Deductions Balance
Beginning to Costs & Other from at End
of Year Expenses Accounts Reserves of Year
------------ ------------ ------------- ------------- -------------
Description
- -----------
Year Ended December 31, 2004
Reserve for real estate investments $ - $ -- $ -- $ -- $ --
============ ============ ============= ============= =============
Year Ended December 31, 2003
Reserve for real estate investments $ 2,515 $ -- $ -- $ 2,515 (2) $ --
============ ============ ============= ============= =============
Year Ended December 31, 2002
Reserve for real estate investments $ 9,972 $ -- $ -- $ 7,457 (1) $ 2,515
============ ============ ============= ============= =============
(1) Represents sales or other disposition of real estate properties.
(2) Primarily relates to a reduction in the carrying value of the remaining "Land Held for Sale" ($2,066) and the
disposition of certain other real estate assets.
84
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Perini Corporation
We have audited the consolidated financial statements of Perini Corporation and subsidiaries (collectively, the “Company”) as of December 31, 2004 and 2003, and for each of the three years in the period ended December 31, 2004, management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, and the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, and have issued our reports thereon dated March 4, 2005; such consolidated financial statements and reports are included in this Form 10-K. Our audits also included the consolidated financial statement schedule of the Company listed in Item 15. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
Deloitte & Touche LLP
Boston, Massachusetts
March 4, 2005
86
Exhibit Index
The following designated exhibits are, as indicated below, either filed herewith or have heretofore been filed with the Securities and Exchange Commission under the Securities Act of 1933 or the Securities Act of 1934 and are referred to and incorporated herein by reference to such filings.
Exhibit 3. Articles of Incorporation and By-laws
3.1 Restated Articles of Organization (incorporated by reference to Exhibit 4 to Form
S-2 (File No. 33-28401) filed on April 28, 1989).
3.2 Articles of Amendment to the Restated Articles of Organization of the Perini
Corporation (incorporated by reference to Exhibit 3.2 to Form S-1 (File No. 333-
111338) filed on December 19, 2003).
3.3 Articles of Amendment to the Articles of Organization of Perini Corporation
(incorporated by reference to Exhibit 3.1 to Form 8-K filed on April 12, 2000).
3.4 Amended and Restated Bylaws of Perini Corporation (incorporated by reference to
Exhibit 3.2 of Form 8-K (File No. 001-06314) filed on February 14, 1997).
3.5 Amendment No. 1 to the Amended and Restated Bylaws of Perini Corporation
(incorporated by reference to Exhibit 3.2 to Form 8-K filed on April 12, 2000).
Exhibit 4. Instruments Defining the Rights of Security Holders, Including Indentures
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 (incorporated by reference to Exhibit 4(a) to the
Registration Statement on Form S-2 (File No. 33-14434) filed on June 19, 1987).
4.2 Certificate of Vote of Directors Establishing a Series of a Class of Stock
determining
the relative rights and preferences of the Series A Junior Participating Cumulative
Preferred Stock (incorporated by reference to Exhibit 4.2 to Form S-1 (File No.
333-111338) filed on December 19, 2003).
4.3 Certificate of Vote of Directors Establishing a Series of a Class of Stock
determining
the relative rights and preferences of the Series B Cumulative Convertible Preferred
Stock (incorporated by reference to Exhibit 4.8 of Form 8-K (File No. 001-06314)
Filed on February 14, 1997).
4.4 Form of Deposit Agreement, including form of Depositary Receipt (incorporated by
reference to Exhibit 4(b) to the Registration Statement on Form S-2 (File no.
33-14434) filed on June 19, 1987).
87
Exhibit Index
(Continued)
4.5 Form of Indenture with respect to the 8 1/2% Convertible Subordinated Debentures
Due June 15, 2012, including form of Debenture (incorporated by reference to
Exhibit 4(c) to the Registration Statement on Form S-2 (File No. 33-14434) filed on
June 19, 1987).
4.6 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 (incorporated by reference to Exhibit 4.4 to Amendment No. 1 to the
Registration Statement on Form 8-A/A (File No. 001-06314) filed on January 29,
1997).
4.7 Amendment dated March 29, 2000 to the Shareholder Rights Agreement
(incorporated by reference to Exhibit 4.3 to Form 8-K filed on April 12, 2000).
4.8 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 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on April 12,
2000).
4.9 Exchange Agreement by and between Perini Corporation and PB Capital Partners,
L.P., dated as of February 14, 2000 (incorporated by reference to Exhibit 10.2 to
Form 8-K filed on April 12, 2000).
4.10 Exchange Agreement by and between Perini Corporation and The Common Fund for
Non-Profit Organizations, dated as of February 14, 2000 (incorporated by reference
to Exhibit 10.3 to Form 8-K filed on April 12, 2000).
4.11 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 (incorporated by reference to Exhibit 4.1 to Form 8-K filed
on April 12, 2000).
4.12 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 (incorporated by reference to Exhibit 4.2 to
Form 8-K filed on April 12, 2000).
4.13 Form of Warrant to purchase an aggregate of 420,000 shares of common stock of
Perini Corporation dated January 17, 1997 issued to former lenders of Perini
Corporation (incorporated by reference to Exhibit 4.13 to Form S-1 (File No. 333-
111338) filed on December 19, 2003).
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Exhibit Index
(Continued)
4.14 Letter Agreement by and among Perini Corporation, BLUM Capital Partners, L.P.,
PB Capital Partners, L.P. and The Common Fund for Non-Profit Organizations,
dated as of December 1, 2003 (incorporated by reference to Exhibit 4.14 to
Form S-1 (File No. 333-111338) filed on December 19, 2003).
4.15 Warrantholders Rights Agreement by and among Perini Corporation and the former
Lenders of Perini Corporation, dated January 17, 1997 (incorporated by reference
to Exhibit 4.15 to Amendment No. 2 to Form S-1 (File No. 333-111338) filed on
March 8, 2004).
4.16 Securityholders Agreement by and among Perini Corporation, PB Capital Partners,
L.P., The Union Labor Life Insurance Company Separate Account P, The Common
Fund for Non-Profit Organizations, for the Account of its Equity Fund and the
Initial Warrantholders (as defined therein), dated as of January 17, 1997
(incorporated by reference to Exhibit 4.16 to Amendment No. 4 to Form S-1
(File No. 333-111338) filed on April 8, 2004).
4.17 Amendment No. 2 dated September 28, 2004 to the Shareholder Rights Agreement
(incorporated by reference to Exhibit 99.1 to Form 8-K filed on September 28,
2004).
Exhibit 10. Material Contracts
10.1 Perini Corporation Amended and Restated (2004) General Incentive Compensation
Plan (incorporated by reference to Exhibit 10.1 to Amendment No. 2 to Form S-1
(File No. 333-111338) filed on March 8, 2004).
10.2 Perini Corporation Amended and Restated (2004) Construction Business Unit
Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 to
Amendment No. 2 to Form S-1 (File No. 333-111338) filed on March 8, 2004).
10.3 Management Agreement dated as of January 17, 1997 by and among the Company,
Ronald N. Tutor and Tutor-Saliba Corporation (incorporated by reference to
Exhibit 10.16 to Perini Corporation's Annual Report on Form 10-K for the year
ended December 31, 2002 filed on March 31, 2003).
10.4 Amendment No. 1 dated as of December 23, 1998 to the Management Agreement
by and among the Company, Ronald N. Tutor and Tutor-Saliba Corporation
(incorporated by reference to Exhibit 10.4 to Form S-1 (File No. 333-111338)
filed on December 19, 2003).
10.5 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 (incorporated by reference to Exhibit 10.31 to Perini Corporation's.
Quarterly Report on Form 10-Q for the period ended March 31, 2000 filed
on May 9, 2000).
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Exhibit Index
(Continued)
10.6 Amendment No. 3 dated as of December 31, 2000 to the Management Agreement
by and among the Company, Ronald N. Tutor and Tutor-Saliba Corporation.
(incorporated by reference to Exhibit 10.6 to Form S-1 (File No. 333-111338) filed
on December 19, 2003).
10.7 Amendment No. 4 dated as of December 31, 2001 to the Management
Agreement by and among the Company, Ronald N. Tutor and Tutor-Saliba
Corporation (incorporated by reference to Exhibit 10.36 to Perini Corporation's.
Annual Report on Form 10-K for the year ended December 31, 2002 filed on
March 31, 2003).
10.8 Amendment No. 5 dated as of December 31, 2002 to the Management Agreement
by and among the Company, Ronald N. Tutor and Tutor-Saliba Corporation
(incorporated by reference to Exhibit 10.8 to Form S-1 (File No. 333-111338) filed
on December 19, 2003).
10.9 1982 Stock Option and Long Term Performance Incentive Plan, as amended
(incorporated by reference to Exhibit 10.9 to Form S-1 (File No. 333-111338) filed
on December 19, 2003).
10.10 Special Equity Incentive Plan (incorporated by reference to Exhibit A to Perini
Corporation's Proxy Statement for the Annual Meeting of Stockholders dated
April 19, 2000).
10.11 Perini Corporation 2004 Stock Option and Incentive Plan (incorporated by
reference to Exhibit D to Perini Corporation's Proxy Statement for the Annual
Meeting of Stockholders dated April 20, 2004).
10.12 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.) (incorporated by reference to
Exhibit 10.34 to Perini Corporation's Quarterly Report on Form 10-Q for the
period ended September 30, 2000 filed on November 6, 2000).
10.13 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 (incorporated by reference to Exhibit 10.35 to Perini Corporation's
Annual Report on Form 10-K for the year ended December 31, 2001 filed on
March 21, 2002).
10.14 Employment Agreement dated January 23, 2003 by and among the Company,
James A. Cummings, Inc. and James A. Cummings (incorporated by reference
to Exhibit 10.38 to Perini Corporation's Annual Report on Form 10-K for the
year ended December 31, 2002 filed on March 31, 2003).
90
Exhibit Index
(Continued)
10.15 First Amendment and Waiver dated February 14, 2003 to Credit Agreement among
Perini Corporation, Fleet National Bank, as Administrative Agent, and the Lenders
(incorporated by reference to Exhibit 10.39 to Perini Corporation's Annual Report
on Form 10-K for the year ended December 31, 2002 filed on March 31, 2003).
10.16 Second Amendment dated November 5, 2003 to Credit Agreement among Perini
Corporation, Fleet National Bank, as Administrative Agent, and the Lenders
(incorporated by reference to Exhibit 10.17 to Form S-1 (File No. 333-111338)
filed on December 19, 2003).
10.17 Amendment No. 6 dated as of January 1, 2004 to the Management Agreement by
and among the Company, Ronald N. Tutor and Tutor-Saliba Corporation
(incorporated by reference to Exhibit 10.18 to Amendment No. 1 to Form S-1
(File No. 333-111338) filed on February 10, 2004).
10.18 Form of Director and Officer Indemnification Agreement (incorporated by
reference to Exhibit 10.19 to Amendment No. 1 to Form S-1 (File No. 333-111338)
filed on February 10, 2004).
10.19 Third Amendment dated January 31, 2004 to Credit Agreement among Perini
Corporation, Fleet National Bank, as Administrative Agent, and the Lenders
(incorporated by reference to Exhibit 10.20 to Amendment No. 2 to Form S-1
(File No. 333-111338) filed on March 8, 2004).
10.20 Fourth Amendment and Waiver dated August 25, 2004 to Credit Agreement among
Perini Corporation, Fleet National Bank, as Administrative Agent, and the Lenders
(incorporated by reference to Exhibit 10.1 to Perini Corporation's Quarterly
Report on Form 10-Q for the period ended September 30, 2004 filed on November 5,
2004).
10.21 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
(incorporated by reference to Exhibit 10.2 to Perini Corporation's Quarterly
Report
on Form 10-Q for the period ended September 30, 2004 filed on November 5,
2004).
10.22 Amendment No. 8 dated as of December 15, 2004 to the Management Agreement
by and among the Company, Ronald N. Tutor and Tutor-Saliba Corporation
(incorporated by reference to Exhibit 10.2 to Form 8-K filed on December 16,
2004).
10.23 Retention Incentive Agreement dated as of December 15, 2004 between the
Company and Ronald N. Tutor (incorporated by reference to Exhibit 10.1 to
Form 8-K filed on December 16, 2004).
10.24 Form of Restricted Stock Unit Award Agreement under the Perini Corporation 2004
Stock Option and Incentive Plan - filed herewith.
91
Exhibit Index
(Continued)
Exhibit 21. Subsidiaries of Perini Corporation - filed herewith.
Exhibit 23. Consent of Independent Registered Public Accounting Firm - filed herewith.
Exhibit 24. Power of Attorney - filed herewith.
Exhibit 31.1 Certification of Principal Executive Officer Pursuant to Section 302 of the 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.
92