(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6314
Perini Corporation
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-1717070
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
73 MT. WAYTE AVENUE, FRAMINGHAM, MASSACHUSETTS 01701-9160
(Address of principal executive offices)
(Zip code)
(508) 628-2000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No ___
The number of shares of Common Stock, $1.00 par value per share, of registrant outstanding at May 2, 2005 was 25,317,928.
Page 1 of 28
PERINI CORPORATION & SUBSIDIARIES
INDEX
Page Number
Part I. - Financial Information:
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets- 3
March 31, 2005 and December 31, 2004
Consolidated Condensed Statements of Income - 4
Three Months ended March 31, 2005 and 2004
Consolidated Condensed Statements of Cash Flows - 5
Three Months ended March 31, 2005 and 2004
Notes to Consolidated Condensed Financial Statements 6 - 16
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 17 - 23
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24
Item 4. Controls and Procedures 24
Part II. - Other Information:
Item 1. Legal Proceedings 25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 27
Item 6. Exhibits 27
Signatures 28
2
Item 1. Financial Statements (Unaudited)
PERINI CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
(In Thousands)
ASSETS MARCH 31, DEC. 31,
2005 2004
------------- ---------------
Cash and Cash Equivalents (Note 3) $ 86,476 $ 136,305
Accounts Receivable, including retainage 374,998 372,909
Unbilled Work 103,104 90,280
Deferred Tax Asset 2,481 4,110
Other Current Assets 7,798 4,112
------------- ---------------
Total Current Assets $ 574,857 $ 607,716
------------- ---------------
Property and Equipment, less Accumulated Depreciation of $23,337 in 2005 and
$21,286 in 2004 $ 49,099 $ 17,486
------------- ---------------
Goodwill $ 12,678 $ 12,678
------------- ---------------
Other Assets $ 11,941 $ 16,385
------------- ---------------
$ 648,575 $ 654,265
============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Maturities of Long-term Debt $ 8,941 $ 759
Accounts Payable, including retainage 316,591 344,684
Deferred Contract Revenue 51,228 57,111
Accrued Expenses 30,282 27,133
------------- ---------------
Total Current Liabilities $ 407,042 $ 429,687
------------- ---------------
Long-term Debt, less current maturities included above $ 18,457 $ 8,608
------------- ---------------
Other Long-term Liabilities (Note 8) $ 42,259 $ 41,936
------------- ---------------
Contingencies and Commitments (Note 5)
Stockholders' Equity:
Preferred Stock $ 56 $ 56
Series A Junior Participating Preferred Stock - -
Stock Purchase Warrants 461 965
Common Stock 25,318 25,233
Additional Paid-in Capital 112,007 110,058
Retained Earnings 70,079 64,826
------------- ---------------
$ 207,921 $ 201,138
Accumulated Other Comprehensive Loss (27,104) (27,104)
------------- ---------------
Total Stockholders' Equity $ 180,817 $ 174,034
------------- ---------------
$ 648,575 $ 654,265
============= ===============
The accompanying notes are an integral part of these consolidated condensed financial statements.
3
PERINI CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(In Thousands, Except Share Data)
THREE MONTHS
ENDED MARCH 31,
------------------------------
2005 2004
------------- -------------
Revenues (Note 9) $ 371,553 $ 480,304
Cost of Operations 348,823 456,776
------------- -------------
Gross Profit $ 22,730 $ 23,528
General and Administrative Expenses 13,333 9,743
------------- -------------
INCOME FROM CONSTRUCTION OPERATIONS (Note 9) $ 9,397 $ 13,785
Other Expense, Net (143) (1,844)
Interest Expense (374) (191)
------------- -------------
Income before Income Taxes $ 8,880 $ 11,750
Provision for Income Taxes (Note 6) (3,330) (529)
------------- -------------
NET INCOME $ 5,550 $ 11,221
============= =============
Less: Accrued Dividends on $21.25 Preferred Stock (Note 8) (297) (297)
------------- -------------
NET INCOME AVAILABLE FOR COMMON STOCKHOLDERS $ 5,253 $ 10,924
============= =============
BASIC EARNINGS PER COMMON SHARE (Note 7) $ 0.21 $ 0.47
============= =============
DILUTED EARNINGS PER COMMON SHARE (Note 7) $ 0.20 $ 0.44
============= =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note 7):
BASIC 25,286,711 23,013,933
Effect of Dilutive Stock Options, Warrants and Restricted Stock Units Outstanding 750,199 1,879,391
------------- -------------
DILUTED 26,036,910 24,893,324
------------- -------------
The accompanying notes are an integral part of these consolidated condensed financial statements.
4
PERINI CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(In Thousands)
THREE MONTHS
ENDED MARCH 31,
----------------------------
2005 2004
------------ -------------
Cash Flows from Operating Activities:
Net income $ 5,550 $ 11,221
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 2,660 1,720
Restricted stock compensation expense 1,217 -
Income tax benefit from stock options exercised 160 -
Deferred income taxes 1,137 (230)
Gain on sale of equipment (271) (5)
Gain on sale of marketable securities (427) -
Unrealized loss on marketable securities 478 -
Other non-cash items, net 99 38
Cash used by changes in components of working capital other
than cash, current maturities of long-term debt and deferred tax asset (37,191) (44,093)
------------ -------------
NET CASH USED BY OPERATING ACTIVITIES $ (26,588) $ (31,349)
------------ -------------
Cash Flows from Investing Activities:
Acquisition of Cherry Hill Construction, Inc., net of cash balance acquired (Note 4) $ (19,970) $ -
Acquisition of property and equipment (1,854) (1,651)
Proceeds from sale of property and equipment 405 31
Proceeds from sale of marketable securities 3,819 -
Proceeds from (investment in) other investing activities (8) 185
------------ -------------
NET CASH USED BY INVESTING ACTIVITIES $ (17,608) $ (1,435)
------------ -------------
Cash Flows from Financing Activities:
Proceeds from long-term debt $ - $ 12,902
Reduction of long-term debt (5,751) (122)
Proceeds from exercise of common stock options and stock purchase warrants 153 1,398
Expenditure for stock registration (35) (485)
------------ -------------
NET CASH (USED BY) PROVIDED FROM FINANCING ACTIVITIES $ (5,633) $ 13,693
------------ -------------
Net Decrease in Cash $ (49,829) $ (19,091)
Cash at Beginning of Year 136,305 67,823
------------ -------------
Cash at End of Period $ 86,476 $ 48,732
============ =============
Supplemental Disclosure of Cash Paid During the Period For:
Interest $ 374 $ 190
============ =============
Income taxes $ 55 $ 399
============ =============
The accompanying notes are an integral part of these consolidated condensed financial statements.
5
PERINI
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) Basis of
Presentation
The
unaudited consolidated condensed financial statements presented herein have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the information and note disclosures required by accounting principles
generally accepted in the United States of America. These statements should be
read in conjunction with the financial statements and notes thereto included in
the Company’s Form 10-K for the year ended December 31, 2004. In the
opinion of management, the accompanying unaudited consolidated condensed
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the Company’s financial
position as of March 31, 2005 and December 31, 2004, results of operations for
the three months ended March 31, 2005 and 2004, and cash flows for the three
months ended March 31, 2005 and 2004. The results of operations for the three
months ended March 31, 2005 may not be indicative of the results that may be
expected for the year ending December 31, 2005 because the Company’s
results are primarily generated from a limited number of significant active
construction contracts. Therefore, such results can vary depending on the timing
of progress achieved and changes in estimated profitability of projects being
reported.
(2)
Significant Accounting Policies
The
significant accounting policies followed by the Company and its subsidiaries in
preparing its consolidated financial statements are set forth in Note (1) to
such financial statements included in the Company’s Annual Report on Form
10-K for the year ended December 31, 2004. The Company has made no significant
change in these policies during 2005.
(3) 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 Condensed Balance Sheets consist of amounts held by the Company that are available for general corporate purposes and the Company’s proportionate share of amounts held by construction joint ventures that are available only for joint venture-related uses. Cash held by construction joint ventures is distributed from time to time to the Company and to the other joint venture participants in accordance with their percentage interest after the joint venture partners determine that a cash distribution is prudent. Cash distributions received by the Company from its construction joint ventures are then available for general corporate purposes. At March 31, 2005 and December 31, 2004, cash and cash equivalents consisted of the following (in thousands):
March 31, Dec. 31,
2005 2004
------------- ---------------
Corporate cash and cash equivalents (available
for general corporate purposes) $ 38,506 $ 81,024
Company's share of joint venture cash and
cash equivalents (available only for joint venture
purposes, including future distributions) 47,970 55,281
------------- ---------------
$ 86,476 $ 136,305
============= ===============
6
PERINI
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
(4)
Acquisition of Cherry Hill Construction, Inc.
On
January 21, 2005, the Company completed the acquisition of 100% of the
outstanding capital stock of Cherry Hill Construction, Inc. (“Cherry
Hill”), a privately held construction company based in Jessup, Maryland,
for approximately $22 million in cash. Cherry Hill is an established civil
contractor operating in the Mid-Atlantic and Southeast regions specializing in
excavation, foundations, paving and construction of civil infrastructure. The
acquisition is effective as of January 1, 2005 and, accordingly, Cherry
Hill’s financial results are included in the Company’s consolidated
results of operations and financial position beginning in the first quarter of
2005.
The transaction was accounted for using the purchase method of accounting as required by FASB Statement No. 141, “Business Combinations”. The cost to acquire Cherry Hill, which consists of $22 million cash consideration referred to above and $400,000 of estimated other direct acquisition costs, was less than the estimated fair value of the assets acquired less the liabilities assumed. The resulting excess of the fair value of acquired net assets over cost was generally allocated as a pro rata reduction of the estimated fair value of the non-current assets acquired in accordance with SFAS No. 141. The purchase price allocation is preliminary and a determination of required purchase accounting adjustments will be made based on finalization of the analysis of the fair value of assets acquired and liabilities assumed. The following table summarizes the initial estimated fair value of the assets acquired and liabilities assumed as of January 1, 2005 after the allocation described above (in thousands):
Current assets $ 46,920
Property and equipment, net 32,400
Other long-term assets 376
Intangible assets 545
------------
Total assets acquired $ 80,241
Current liabilities (39,604)
Long-term debt (12,167)
Long-term deferred tax liabilities (6,023)
------------
Total Acquisition Costs $ 22,447
============
The amount assigned to intangible assets primarily represents the Company's estimate of the fair value of contract backlog acquired as of January 1, 2005 and was based on an independent appraisal. The intangible assets will be amortized using the straight-line method over an approximate 2.5-year period, based on the estimated durations of the contracts acquired.
Since the acquisition was effective as of January 1, 2005, the Company's actual 2005 year to date results include Cherry Hill for the total period. Therefore, the following pro forma financial information is only presented for the comparative three month period ended March 31, 2004 (in thousands, except per share data):
7
PERINI
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
(4) Acquisition of Cherry Hill Construction, Inc. (continued)
Three Months Ended
March 31, 2004
------------------------------
Actual Pro forma
------------- --------------
Revenues $ 480,304 $ 518,463
Gross profit $ 23,528 $ 27,980
Net income $ 11,221 $ 11,929
Basic earnings per common share $ 0.47 $ 0.51
Diluted earnings per common share $ 0.44 $ 0.47
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, 2004 or of future results.
(5) 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.
8
PERINI
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
(5) Contingencies and Commitments (continued)
(a) Mergentime - Perini Joint Ventures vs. WMATA Matter (continued)
On February 28, 2001, a successor District Court Judge informed the parties that he could not
certify adequate familiarity with the record to complete the remaining proceedings; therefore, he
granted the joint ventures' motion for a new trial. The joint ventures are seeking $28.9 million,
plus interest, from WMATA, and WMATA is seeking $29.3 million from the joint ventures. A new trial
was completed in January 2002 and a decision is still pending. The ultimate financial impact of the
Judge's pending decision is not yet determinable; therefore, no provision for loss, if any, has
been recorded in the financial statements.
(b) Tutor-Saliba-Perini Joint Venture vs. Los Angeles MTA Matter
During 1995, a joint venture, Tutor-Saliba-Perini, or 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
9
PERINI
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
(5) Contingencies and Commitments (continued)
(b) Tutor-Saliba-Perini Joint Venture vs. Los Angeles MTA Matter (continued)
Claim Act against TSP to the trial court for further proceedings, including a new trial. The LAMTA
thereafter petitioned the Court of Appeal for rehearing; said petition was denied. The LAMTA then
filed a petition for review by the California Supreme Court. That petition is pending.
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 ("RICO"). 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. Recently, the Court ruled on the Motion To Dismiss, granting it in part, and denying it in part. Specifically, the Court dismissed one of the two bases Plaintiffs' alleged to establish a RICO action; the breach of contract claim against Tutor-Saliba and the Joint Venture for their alleged violations of minority contracting regulations; and the request that the Court declare Tutor-Saliba and the Joint Venture to be irresponsible bidders.
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
10
PERINI
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
(5) Contingencies and Commitments (continued)
(c) City of San Francisco vs. Tutor-Saliba, Perini & Buckley Joint Venture Matter (continued)
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 RPJV's claims for general delay damages, and general conditions, its claim for damages under cardinal change theory and the claim amount of a subcontractor. RPJV'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.
11
PERINI
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
(5) Contingencies and Commitments (continued)
(e) Perini/Kiewit/Cashman Joint Venture-Central Artery/Tunnel Project Matter
Perini/Kiewit/Cashman Joint Venture, or PKC, a joint venture in which Perini holds a 56% interest
and is the managing partner, is currently pursuing a series of claims for additional contract time
and/or compensation against the Massachusetts Highway Department, or MHD, for work performed by PKC
on a portion of the Central Artery/Tunnel project in Boston, Massachusetts. During construction,
MHD ordered PKC to perform changes to the work and issued related direct cost changes with an
estimated value, excluding time delay and inefficiency costs, in excess of $100 million. In
addition, PKC encountered a number of unforeseen conditions during construction that greatly
increased PKC's cost of performance.
Certain of PKC's claims have been presented to a Disputes Review Board, or the DRB, which consists of three construction experts chosen by the parties. To date, the DRB has ruled on a binding basis that PKC is entitled to additional compensation for its contract time delay claim in the amount of $17.4 million. On March 20, 2002, the Superior Court of the Commonwealth of Massachusetts approved PKC's request to confirm the DRB's $17.4 million award. The MHD has appealed the Superior Court decision to the Appeals Court of the Commonwealth of Massachusetts.
The DRB has also ruled on a binding basis that PKC is entitled to two 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. PKC is awaiting a decision from the Court on these cross-motions, which were argued in February 2005.
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. 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 $120.9 million. The remaining claims to be decided by the Third DRB on a binding basis have an anticipated value of $18.4 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.
12
PERINI
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
(5) Contingencies and Commitments (continued)
(e) Perini/Kiewit/Cashman Joint Venture-Central Artery/Tunnel Project Matter (continued)
The mediation agreement has been terminated, and the hearings before the Second DRB, Third DRB, and
the courts have resumed. The MHD 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,
but the court ruled that the agreement did not have that effect, and ordered that proceedings
before the Second DRB are to proceed. The MHD also refuses to pay the Second DRB for its services,
and it contends that PKC may not pay MHD's share of those expenses. This issue may 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 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
13
PERINI
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
(5) Contingencies and Commitments (continued)
(f) $21.25 Preferred Shareholders Class Action Lawsuit (continued)
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 per share of $19.00 in cash and one share of Perini common stock. The named plaintiffs have agreed to support the settlement. On April 19, 2005, the District Court of Massachusetts conditionally certified a class of holders of Depositary Shares for purposes of settlement only. A hearing is scheduled for August 8, 2005 to seek Court approval of the settlement. The Court instructed that, starting on May 16, 2005, notice and a claim form should be sent to identifiable holders of Depositary Shares.
As of March 31, 2005, 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 remains 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 United States Court of Appeals for the Second Circuit, the Court of Appeals affirmed the dismissal.
(6) Provision For Income Taxes
The provision for income taxes reflects a lower-than-normal tax rate in 2004 due to the realization of a
portion of the federal tax benefit not recognized in prior years due to certain accounting limitations.
(7) Earnings per Common Share
Basic earnings per common share was computed by dividing net income less dividends accrued on the $21.25
Preferred Stock during the period (see Note 8) 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, warrants and restricted stock units outstanding on the weighted
average number of common shares outstanding.
There were no options or stock purchase warrants whose exercise price exceeded the average market price of the Common Stock at March 31, 2005 and 2004. The effect of the assumed conversion of the Company's outstanding $21.25 Preferred Stock into Common Stock was antidilutive for both periods presented.
14
PERINI
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
(8) Dividends
(a) Common Stock
There were no cash dividends declared or paid on the Company's outstanding Common Stock during the
periods presented in the consolidated condensed financial statements included herein.
(b) $21.25 Preferred Stock
The covenants of the Company's prior credit agreements required the Company to suspend the payment
of quarterly dividends on its $21.25 Preferred Stock until certain financial criteria were met.
While quarterly dividends on the $21.25 Preferred Stock have not been paid since 1995, they have
been fully accrued due to the "cumulative" feature of the $21.25 Preferred Stock. Accordingly, the
aggregate amount of dividends in arrears at March 31, 2005 is approximately $11.3 million, which
represents approximately $201.88 per share of $21.25 Preferred Stock or approximately $20.19 per
Depositary Share and is included in "Other Long-term Liabilities" in the Consolidated Condensed
Balance Sheets. Under the terms of the $21.25 Preferred Stock, the holders of Depositary Shares
are entitled to elect two additional Directors when dividends have been deferred for more than six
quarters, and they did so at each of the last seven annual meetings of stockholders.
(9) Business Segments
The following tables set forth certain business segment information relating to the Company's operations
for the three months ended March 31, 2005 and 2004 (in thousands):
Three months ended March 31, 2005
Reportable Segments
---------------------------------------------------------
Management Consolidated
Building Civil Services Totals Corporate Total
------------ ------------ ------------- ------------- --------------- ---------------
Revenues $240,972 $ 50,717 $ 79,864 $ 371,553 $ - $ 371,553
Income from Construction Operations $ 4,724 $ 1,539 $ 6,591 $ 12,854 $ (3,457) * $ 9,397
Assets $278,307 $266,230 $ 48,978 $ 593,515 $ 55,060 ** $ 648,575
Three months ended March 31, 2004
Reportable Segments
---------------------------------------------------------
Management Consolidated
Building Civil Services Totals Corporate Total
------------ ------------ ------------- ------------- --------------- ---------------
Revenues $291,438 $ 27,457 $ 161,409 $ 480,304 $ - $ 480,304
Income from Construction Operations $ 5,473 $ 197 $ 10,482 $ 16,152 $ (2,367) * $ 13,785
Assets $271,731 $203,827 $ 101,884 $ 577,442 $ 42,663 ** $ 620,105
* In all periods, consists
of corporate general and administrative expenses.
**
In all periods, corporate assets consist principally of cash and cash
equivalents, net deferred tax asset, land held for sale and other investments
available for general corporate purposes.
15
PERINI
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
(10) Employee
Pension Plans
The
Company has a defined benefit pension plan that covers its executive,
professional, administrative and clerical employees, subject to certain
specified service requirements. The Company also has an unfunded supplemental
retirement plan for certain employees whose benefits under the defined benefit
plan are reduced because of compensation limitations under federal tax laws. In
accordance with SFAS No. 132R, “Employers’ Disclosures About Pensions
and Other Post-Retirement Benefits”, the pension disclosure presented below
includes aggregated amounts for both of the Company’s plans. The following
table sets forth the net pension cost by component for the three months ended
March 31, 2005 and 2004 (in thousands):
For the Three Months
Ended March 31,
----------------------------
2005 2004
------------- ------------
Service cost - benefits earned during the period $ - $ 536
Interest cost on projected benefit obligation 1,071 1,196
Expected return on plan assets (962) (968)
Amortization of prior service costs - 9
Recognized actuarial loss 445 462
------------- ------------
Net Pension Cost $ 554 $ 1,235
============= ============
On April 1, 2005, the Company made a $9.0 million contribution to the pension plan and does not expect to make further contributions to the pension plan in 2005.
Effective June 1, 2004, all benefit accruals under the Company’s pension plan were frozen; however, the current vested benefit 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.
16
Perini Corporation is a leading construction services company, based on revenues, as ranked by Engineering News-Record, 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 for executing large, complex projects on time and within budget while adhering to strict quality control measures. We offer general contracting, preconstruction planning and comprehensive project management services, including the planning and scheduling of the manpower, equipment, materials and subcontractors required for a project. We also offer self-performed construction services including site work, concrete forming and placement and steel erection.
Our business is conducted through three primary segments: building, civil, and management services. Our building segment focuses on large, complex projects in the hospitality and gaming, sports and entertainment, educational, transportation and healthcare markets. Our civil segment is involved in public works construction primarily in the northeast and mid-Atlantic regions of the United States, including the repair, replacement and reconstruction of the United States public infrastructure such as highways, bridges and mass transit systems. Our management services segment provides diversified construction, design-build and maintenance services to the U.S. military and government agencies as well as power producers, surety companies and multi-national corporations.
Our significant accounting policies are described in Note 1 of Notes to Consolidated Financial Statements included in Item 15 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2004. Our critical accounting policies are also identified and discussed in Item 7 of said Annual Report on Form 10-K. We have made no significant change in these policies during 2005.
Acquisition of Cherry Hill Construction, Inc.
On January 21, 2005, we completed the acquisition of 100% of the outstanding capital stock of Cherry Hill Construction, Inc. (“Cherry Hill”), a privately held construction company based in Jessup, Maryland, for approximately $20 million in cash, net of cash balance acquired. Cherry Hill is an established civil contractor operating in the Mid-Atlantic and Southeast regions specializing in excavation, foundations, paving and construction of civil infrastructure. The acquisition is effective as of January 1, 2005. At January 1, 2005, Cherry Hill had a firm backlog of approximately $128 million.
Receipt of a Partial Stop Work Order for Work in Iraq
In January 2005, we received a partial stop work order relating to ten 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”). Since then, we have negotiated and received approval to proceed with the design and construction of five task orders for certain electrical distribution facilities in Iraq. The remaining five task orders have been cancelled and we have submitted a proposal to the PCO regarding costs and fees for work performed prior to the cancellation of those task orders. It is estimated that the backlog of uncompleted work under the PCO contract at March 31, 2005 is $106.9 million.
17
Backlog Analysis for 2005 First Quarter
The following table provides an analysis of our backlog by business segment for the three month period ended March 31, 2005.
Backlog at New Business Revenue Backlog at
December 31, 2004 Awarded Recognized March 31, 2005
------------------- ----------------- --------------- -------------------
(In millions)
Building $ 570.1 $ 689.3 $ (241.0) $ 1,018.4
Civil 230.7 262.0 (50.7) 442.0
Management Services 350.7 14.6 (79.9) 285.4
-------------- ----------------- --------------- -------------------
Total $ 1,151.5 $ 965.9 $ (371.6) $ 1,745.8
============== ================= =============== ===================
Comparison of the First Quarter of 2005 with the First Quarter of 2004
Income before income taxes decreased by $2.8 million (or 24%), from $11.7 million in 2004 to $8.9 million in 2005, due primarily to an overall decrease in revenues as the timing of new work awards received over the six month period ended March 31, 2005 was less than anticipated. In addition, the provision for income taxes increased by $2.8 million, from $0.5 million in 2004 to $3.3 million in 2005, due to the realization in 2004 of a portion of the federal tax benefit not recognized in prior years due to certain accounting limitations. As a result, net income decreased by $5.6 million (or 50%), from $11.2 million in 2004 to $5.6 million in 2005. Basic earnings per common share were $0.21 for the three months ended March 31, 2005 compared to $0.47 for the three months ended March 31, 2004. Diluted earnings per common share were $0.20 for the three months ended March 31, 2005 compared to $0.44 for the three months ended March 31, 2004.
Assuming an effective income tax rate of 37.5%, pro forma net income for the three months ended March 31, 2004 would have been $7.3 million, compared to actual net income of $5.6 million for the three months ended March 31, 2005. Similarly, pro forma basic earnings per share for the three months ended March 31, 2004 would have been $0.31, compared to actual basic earnings per share of $0.21 for the three months ended March 31, 2005. Pro forma diluted earnings per share for the three months ended March 31, 2004 would have been $0.28, compared to actual diluted earnings per share of $0.20 for the three months ended March 31, 2005. See the table included below under the heading “Reconciliation of Reported Net Income to Pro Forma Net Income.”
Revenues for the
Three Months Ended March 31,
-------------------------------------- Increase %
2005 2004 (Decrease) Change
---------------- ---------------- --------------- -----------
(In millions)
Building $ 241.0 $ 291.4 $ (50.4) (17.3)%
Civil 50.7 27.5 23.2 84.4 %
Management Services 79.9 161.4 (81.5) (50.5)%
---------------- ---------------- ---------------
Total $ 371.6 $ 480.3 $ (108.7) (22.6)%
================ ================ ===============
Overall revenues decreased by $108.7 million (or 22.6%), from $480.3 million in 2004 to $371.6 million in 2005. This decrease was due primarily to a decrease in management services revenues of $81.5 million (or 50.5%), from $161.4 million in 2004 to $79.9 million in 2005, due primarily to a decreased volume of work related to the rebuilding of Iraq. Building construction revenues decreased by $50.4 million (or 17.3%), from $291.4 million in 2004 to $241.0 million in 2005 due primarily to the completion in 2004 of
18
several large hospitality and gaming market projects in Las Vegas and California. These increases were partly offset by an increase in civil construction revenues of $23.2 million (or 84.4%), from $27.5 million in 2004 to $50.7 million in 2005, due primarily to the impact of the acquisition of Cherry Hill effective January 1, 2005.
Income from Construction
Operations for the
Three Months Ended March 31, Increase
-------------------------------------- (Decrease) %
2005 2004 in Income Change
------------ ------------- --------------- ------------
(In millions)
Building $ 4.7 $ 5.5 $ (0.8) (14.5)%
Civil 1.5 0.2 1.3 650.0 %
Management Services 6.6 10.5 (3.9) (37.1)%
------------ ------------- ---------------
Subtotal $ 12.8 $ 16.2 $ (3.4) (21.0)%
Less: Corporate (3.4) (2.4) (1.0) (41.7)%
------------ ------------- ---------------
Total $ 9.4 $ 13.8 $ (4.4) (31.9)%
============ ============= ===============
Income from operations (excluding corporate) decreased by $3.4 million (or 21.0%), from $16.2 million in 2004 to $12.8 million in 2005. Management services income from operations decreased by $3.9 million (or 37.1%), from $10.5 million in 2004 to $6.6 million in 2005, due primarily to the decrease in revenues discussed above. Building construction income from operations decreased by $0.8 million (or 14.5%), from $5.5 million in 2004 to $4.7 million in 2005, also due primarily to the decrease in revenues discussed above. Partly offsetting the negative impact of the decrease in building construction revenues was a higher gross profit margin, largely due to profit increases recognized upon the completion and close-out of several hospitality and gaming market projects. Civil construction income from operations increased by $1.3 million (or 650.0%), from $0.2 million in 2004 to $1.5 million in 2005, due primarily to a higher gross profit margin in 2005 because 2004 included recognition of losses and profit writedowns on several projects, including two joint venture projects sponsored by others. Partly offsetting the higher civil construction gross profit margin in 2005 was a $2.3 million increase in civil construction-related G&A, due primarily to the addition of Cherry Hill in 2005. In addition, income from operations was negatively impacted by a $1.0 million increase in corporate general and administrative expenses, from $2.4 million in 2004 to $3.4 million in 2005, due primarily to a $0.8 million increase in compensation expense recognized in conjunction with the granting of certain restricted stock awards during the latter half of 2004.
Other (income) expense decreased by $1.8 million, from an expense of $1.9 million in 2004 to an expense of $0.1 million in 2005, due primarily to a $0.9 million decrease in the amortization of the intangible asset established in conjunction with the acquisition of Cummings in January 2003 (which is now fully amortized), as well as a $0.7 million decrease in expenses related to the secondary stock offering which was completed in the second quarter of 2004. In addition, interest income increased by $0.2 million in 2005 due to a higher available cash balance to invest.
Interest expense increased by $0.2 million, from $0.2 million in 2004 to $0.4 million in 2005, due to interest expense on mortgage debt and equipment financing debt assumed in conjunction with the Cherry Hill acquisition in January 2005.
The provision for income taxes increased by $2.8 million in 2005, from $0.5 million in 2004 to $3.3 million in 2005. The first quarter of 2004 results 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.
Reconciliation of Reported Net Income to Pro Forma Net Income
As mentioned above, our reported net income was $5.6 million and $11.2 million for the three months
19
ended March 31, 2005 and 2004, respectively. Our reported basic earnings per common share were $0.21 and $0.47 for the three months ended March 31, 2005 and March 31, 2004, respectively. Our reported diluted earnings per share were $0.20 and $0.44 for the three months ended March 31, 2005 and March 31, 2004, respectively. Assuming an effective income tax rate of 37.5%, pro forma net income for the first quarter of 2004 would have been $7.3 million, as compared to actual net income of $5.6 million for the first quarter of 2005. Similarly, pro forma basic earnings per common share for the first quarter of 2004 would have been $0.31, as compared to actual basic earnings per common share of $0.21 for the first quarter of 2005. Pro forma diluted earnings per common share for the first quarter of 2004 would have been $0.28, as compared to actual diluted earnings per common share of $0.20 for the first quarter of 2005. The reconciliation of reported net income to pro forma net income for the three months ended March 31, 2004 is set forth below (in thousands, except per share data):
Three Months
Ended
March 31, 2004
-------------------
Reported net income $ 11,221
Plus: Provision for income taxes 529
-------------------
Income before income taxes 11,750
Provision for income taxes assuming a 37.5% effective rate 4,406
-------------------
Pro forma net income $ 7,344
Less: Dividends accrued on Preferred Stock (297)
-------------------
Pro forma total available for common stockholders $ 7,047
===================
Pro forma basic earnings per common share $ 0.31
===================
Pro forma diluted earnings per common share $ 0.28
===================
Weighted average common shares outstanding:
Basic 23,014
Effect of dilutive stock options and warrants outstanding 1,879
-------------------
Diluted 24,893
-------------------
No reconciliation of reported net income to pro forma net income for the three months ended March 31, 2005 is provided since the actual effective tax rate of 37.5% is equal to the pro forma tax rate; therefore, there would be no difference between actual results and pro forma results for the three months ended March 31, 2005.
To supplement our unaudited consolidated financial statements presented on a generally accepted accounting principles (GAAP) basis, we sometimes use non-GAAP measures of net income, earnings per share and other measures that we believe are appropriate to enhance an overall understanding of our historical financial performance and future prospects. The non-GAAP results, which are adjusted to exclude certain costs, expenses, gains and losses from the comparable GAAP measures, are an indication of our baseline performance before gains, losses or other charges that are considered by management to be outside of our core operating results. These non-GAAP results are among the indicators management uses as a basis for evaluating our financial performance as well as for forecasting future periods. For these reasons, management believes these non-GAAP measures can be useful to investors, potential investors and others. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income or earnings per share prepared in accordance with GAAP.
20
Cash and Working Capital
We have a $50 million
revolving credit facility (the “Credit Facility”) which is scheduled
to expire in June 2007. The terms of the 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). Management believes
that the Credit Facility provides us with the flexibility to provide the working
capital needed to support the anticipated growth of our construction activities.
At March 31, 2005, we had $47.2 million available to borrow under the Credit
Facility.
The Credit Facility requires, among other things, maintaining a minimum tangible net worth, fixed charge coverage and operating profit levels as well as a minimum working capital ratio. 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, 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.
Cash and cash equivalents as reported in the accompanying consolidated condensed financial statements consist of amounts held by us as well as our proportionate share of amounts held by construction joint ventures. Cash held by us is available for general corporate purposes while cash held by construction joint ventures is available only for joint venture-related uses. Cash held by construction joint ventures is distributed from time to time to us and to the other joint venture participants in accordance with their percentage interest after the joint venture partners determine that a cash distribution is prudent. Cash distributions received by us from our construction joint ventures are then available for general corporate purposes. At March 31, 2005 and December 31, 2004, cash held by us and available for general corporate purposes was $38.5 million and $81.0 million, respectively, and our proportionate share of cash held by joint ventures and available only for joint venture-related uses was $48.0 million and $55.3 million, respectively.
A summary of cash flows for each of the three month periods ended March 31, 2005 and 2004 is set forth below:
Three Months
Ended March 31,
-----------------------------
2005 2004
------------ ------------
(In millions)
Cash flows from:
Operating activities $ (26.6) $ (31.4)
Investing activities (17.6) (1.4)
Financing activities (5.6) 13.7
------------ ------------
Net decrease in cash $ (49.8) $ (19.1)
Cash at beginning of year 136.3 67.8
------------ ------------
Cash at end of period $ 86.5 $ 48.7
============ ============
During the first three months of 2005, we used $49.8 million of cash on hand to fund $26.6 million in cash flow used by operating activities, principally to fund working capital requirements; $17.6 million to fund cash flow used by investing activities, principally to fund the January 2005 acquisition of Cherry Hill; and $5.6 million to fund cash flow used by financing activities, which was primarily used to pay down a portion of the debt assumed in conjunction with the acquisition of Cherry Hill. As a result, our consolidated cash
21
balance decreased by $49.8 million, from $136.3 million at December 31, 2004 to $86.5 million at March 31, 2005.
Working capital decreased from $178.0 million at the end of 2004 to $167.8 million at March 31, 2005. The current ratio of 1.41x remained consistent during the same period.
As previously disclosed in our financial statements for the year ended December 31, 2004, we expected to contribute $6.0 million to the pension plan in 2005. On April 1, 2005, we actually made a $9.0 million contribution and do not expect to make further contributions to the pension plan in 2005.
The amount of unbilled work increased by $12.8 million, from $90.3 million at December 31, 2004 to $103.1 million at March 31, 2005, due primarily to the addition of Cherry Hill in 2005 and to the timing of certain contract billings.
Long-term Debt
Long-term debt at March 31, 2005 was $18.5 million, an increase of $9.9 million from December 31, 2004, due to
mortgage debt and equipment financing debt assumed in conjunction with the Cherry Hill acquisition. Accordingly,
the long-term debt to equity ratio increased from .05x at December 31, 2004 to .10x at March 31, 2005.
Dividends
There were no cash dividends declared or paid on our outstanding Common Stock during the periods presented herein.
The covenants in our prior credit agreements required us to suspend the payment of quarterly dividends on our $21.25 Preferred Stock until certain financial criteria were met. While quarterly dividends on the $21.25 Preferred Stock have not been paid since 1995, they have been fully accrued due to the "cumulative" feature of the $21.25 Preferred Stock. The aggregate amount of dividends in arrears is approximately $11.3 million as of March 31, 2005.
In November 2004, an agreement was reached to settle the class action lawsuit filed by the holders of the $21.25 Preferred Stock. (See Note 5(f) of Notes to Consolidated Condensed Financial Statements). Under the terms of the settlement, we would purchase all of the Depositary Shares submitted in the settlement for consideration per share of $19.00 in cash and one share of our common stock. As of March 31, 2005, 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:
22
Forward-looking Statements
The statements contained in this Management's Discussion and Analysis of the Consolidated Condensed Financial Statements and other sections of this Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including without limitation, statements regarding our 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 potential delay, suspension, termination or reduction in scope of a construction project; the continuing validity of the underlying assumptions and estimates of total forecasted project revenues, costs and profits and project schedules; the outcomes of pending or future litigation, arbitration or other dispute resolution proceedings; the availability of borrowed funds on terms acceptable to us; the ability to retain certain members of management; the ability to obtain surety bonds to secure our performance under certain construction contracts; possible labor disputes or work stoppages within the construction industry; changes in federal and state appropriations for infrastructure projects; possible changes or developments in worldwide or domestic political, social, economic, business, industry, market and regulatory conditions or circumstances; and actions taken or not taken by third parties including our customers, suppliers, business partners, and competitors and legislative, regulatory, judicial and other governmental authorities and officials; and other risks and uncertainties discussed under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Securities and Exchange Commission on March 4, 2005. 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.
23
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in the Company's exposure to market risk from that described in the Company's annual report on Form 10-K, Item 7A., since December 31, 2004.
Item 4. 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.
There was no change in our internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. In making its assessment of changes in internal control over financial reporting as of March 31, 2005, management has excluded Cherry Hill Construction, Inc. ("Cherry Hill") because this company was acquired in January of 2005. The assets and revenues of Cherry Hill as of and for the three months ended March 31, 2005 represent approximately 10% and 7%, respectively, of our consolidated assets and revenues as of and for the three months ended March 31, 2005. As part of our integration of Cherry Hill, we are in the process of incorporating our controls and procedures into the operations of Cherry Hill.
In connection with these rules, we will continue to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.
24
Part II. - Other Information
Item 1. Legal Proceedings
$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 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 per share of $19.00 in cash and one share of Perini common stock. The named
plaintiffs have agreed to support the settlement. On April 19, 2005, the District Court of Massachusetts
conditionally certified a class of holders of Depositary Shares for purposes of settlement only. A hearing is
scheduled for August 8, 2005 to seek Court approval of the settlement. The Court instructed that, starting on May 16, 2005, notice and a
claim form should be sent to identifiable holders of Depositary Shares.
As of March 31, 2005, 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 remains
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 United States
Court of Appeals for the Second Circuit, the Court of Appeals affirmed the dismissal.
25
Part II. - Other Information (continued)
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) On January 20, 2005, a member of our former bank group purchased 33,600 shares of our common stock, par
value $1.00 per share, pursuant to a stock purchase warrant, by cashless exercise at an exercise price of
$8.30 per share. As a result of this cashless exercise, we issued 17,507 shares of our common stock to the
warrant holder and we retained 16,093 shares of common stock, valued at approximately $17.33 per share
(based on the closing price of our common stock on January 19, 2005), in payment of the exercise price.
On February 2, 2005, a member of our former bank group purchased 61,152 shares of our common stock, par
value $1.00 per share, pursuant to a stock purchase warrant, by cashless exercise at an exercise price of
$8.30 per share. As a result of this cashless exercise, we issued 32,621 shares of our common stock to the
warrant holder and we retained 28,531 shares of common stock, valued at approximately $17.79 per share
(based on the closing price of our common stock on February 1, 2005), in payment of the exercise price.
The securities issued in the foregoing transaction were offered and sold in reliance on exemptions
from registration set forth in Section 4(2) of the Securities Act or regulations promulgated there under,
relating to sales by an issuer not involving any public offering.
(b) Not applicable
(c) Not applicable
Item 3. Defaults Upon Senior Securities
(a) None
(b) In accordance with the covenants of certain prior credit agreements, the Company was required to
suspend the payment of quarterly dividends on its $21.25 Convertible Exchangeable Preferred Stock
("$21.25 Preferred Stock") until certain financial criteria were met. Although the financial criteria
were satisfied as of December 31, 2000, the Company has not paid dividends on the $21.25
Preferred Stock since 1995. While the Company's most recent Credit Facility does not currently
restrict such dividends, the Board of Directors does not believe that it is proper or prudent to pay or
commit to pay dividends on the $21.25 Preferred Stock for the foreseeable future based on the
Company's other working capital requirements. See additional comments under "Liquidity and
Capital Resources" on pages 21 to 23 of this Quarterly Report. As of March 31, 2005, the
aggregate amount of dividends in arrears is approximately $11.3 million, which represents
approximately $201.88 per share of $21.25 Preferred Stock or approximately $20.19 per
Depositary Share. While these dividends have not been declared or paid, they have been fully
accrued in accordance with the "cumulative" feature of the $21.25 Preferred Stock.
Item 4. Submission of Matters to a Vote of Security Holders
(a) None
(b) Not applicable
(c) Not applicable
(d) Not applicable
26
Part II. - Other Information (continued)
Item 5. Other Information
(a) None
(b) None
Item 6. Exhibits
(a) Exhibits
Exhibit 31.1 Certification of Principal Executive Officer Pursuant to Section 302 of Sarbanes-Oxley
Act of 2002 - filed herewith.
Exhibit 31.2 Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 - filed herewith.
Exhibit 32.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - filed herewith.
Exhibit 32.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - filed herewith.
27
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Perini Corporation
Registrant
Date: May 6, 2005 /s/Michael E. Ciskey
Michael E. Ciskey, Vice President and Chief Financial Officer
Duly Authorized Officer and Principal Accounting Officer
28