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FORM 10-K
Securities and Exchange Commission Commission File No. 1-6314
Washington, DC 20549
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(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, 1997 [ ] Transition Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934
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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)
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
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Common Stock, $1.00 par value The American Stock Exchange
$2.125 Depositary Convertible Exchangeable The American Stock Exchange
Preferred Shares, each representing 1/10th
Share of $21.25 Convertible Exchangeable
Preferred Stock, $1.00 par value
Securities registered pursuant to Section 12(g) of the Act: None
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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
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The aggregate market value of voting Common Stock held by nonaffiliates of the
registrant is $35,463,300 as of February 27, 1998. The Company does not have any
non-voting Common Stock.
The number of shares of Common Stock, $1.00 par value per share, outstanding at
February 27, 1998 is 5,157,046.
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Documents Incorporated by Reference
Portions of the annual proxy statement for the year ended December 31, 1997 are
incorporated by reference into Part III.
PERINI CORPORATION
INDEX TO ANNUAL REPORT
ON FORM 10-K
PAGE
----
PART I
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Item 1: Business 2 - 12
Item 2: Properties 12
Item 3: Legal Proceedings 13
Item 4: Submission of Matters to a Vote of Security Holders 13
PART II
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Item 5: Market for the Registrant's Common Stock and Related 13
Stockholder Matters
Item 6: Selected Financial Data 14
Item 7: Management's Discussion and Analysis of Financial 15 - 20
Condition and Results of Operations
Item 8: Financial Statements and Supplementary Data 20
Item 9: Disagreements on Accounting and Financial Disclosure 20
PART III
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Item 10: Directors and Executive Officers of the Registrant 21 - 22
Item 11: Executive Compensation 22
Item 12: Security Ownership of Certain Beneficial Owners and 22
Management
Item 13: Certain Relationships and Related Transactions 22
PART IV
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Item 14: Exhibits, Financial Statement Schedules and Reports on 23
Form 8-K
Signatures 24
1
PART I.
ITEM 1. BUSINESS
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General
Perini Corporation and its subsidiaries (the "Company" unless the
context indicates otherwise) provides general contracting, including building
and civil construction, and construction management and design-build services to
private clients and public agencies throughout the United States and selected
overseas locations. The Company is also engaged in real estate development
operations which are conducted by Perini Land & Development Company, a
wholly-owned subsidiary with offices in Arizona, Georgia and Massachusetts. The
Company was incorporated in 1918 as a successor to businesses which had been
engaged in providing construction services since 1894.
Because the Company's results consist in part of a limited number of
large transactions in both construction and real estate, results in any given
fiscal quarter can vary depending on the timing of transactions and the
profitability of the projects being reported. As a consequence, quarterly
results may reflect such variations.
Information on lines of business and foreign business is included under
the following captions of this Annual Report on Form 10-K for the year ended
December 31, 1997.
Annual Report
On Form 10-K
Caption Page Number
------- -----------
Selected Consolidated Financial Information Page 14
Management's Discussion and Analysis Pages 15 - 20
Footnote 13 to the Consolidated Financial Statements, entitled Business Segments and Pages 48 - 50
Foreign Operations
While the "Selected Consolidated Financial Information" presents
certain lines of business information for purposes of consistency of
presentation for the five years ended December 31, 1997, additional information
(business segment and foreign operations) required by Statement of Financial
Accounting Standards No. 14 for the three years ended December 31, 1997 is
included in Note 13 to the Consolidated Financial Statements.
2
A summary of revenues by product line for the three years ended
December 31, 1997 is as follows:
Revenues (in thousands)
Year Ended December 31,
-----------------------------------------------
1997 1996 1995
---- ---- ----
Construction:
Building $ 888,809 $ 834,888 $ 748,412
Heavy 387,224 389,540 308,261
-------------- -------------- --------------
Total Construction Revenues $ 1,276,033 $ 1,224,428 $ 1,056,673
-------------- -------------- --------------
Real Estate:
Sales of Real Estate $ 22,423 $ 7,639 $ 10,738
Building Rentals 9,481 19,446 16,799
Interest Income 12,347 14,406 12,396
All Other 4,207 4,365 4,462
-------------- -------------- --------------
Total Real Estate Revenues $ 48,458 $ 45,856 $ 44,395
-------------- -------------- --------------
Total Revenues $ 1,324,491 $ 1,270,284 $ 1,101,068
============== ============== =============
Construction
The general contracting and construction management services provided
by the Company consist of planning and scheduling the manpower, equipment,
materials and subcontractors required for the timely completion of a project in
accordance with the terms and specifications contained in a construction
contract. The Company was engaged in over 160 construction projects in the
United States and overseas during 1997. The Company has two principal
construction operations: building and civil.
The civil operation undertakes large heavy construction projects
throughout the United States, with current emphasis on major metropolitan areas
such as Boston, New York City, Chicago and Los Angeles. The civil operation
performs construction and rehabilitation of highways, subways, tunnels, dams,
bridges, airports, marine projects, piers and waste water treatment facilities.
The Company has been active in civil operations since 1894, and believes that it
has particular expertise in large and complex projects. The Company believes
that infrastructure rehabilitation is, and will continue to be, a significant
market in the late 1990's and beyond.
The building operation provides its services through regional offices
located in several metropolitan areas: Boston and Philadelphia, serving New
England and the Mid-Atlantic area; Detroit, operating in Michigan and the
Midwest region; and Phoenix and Las Vegas, serving Arizona, Nevada and
California. In 1992, the Company combined its building operations into a new
wholly-owned subsidiary, Perini Building Company, Inc. This new company combines
substantial resources and expertise to better serve clients within the building
construction market, and enhances Perini's name recognition in this market. The
Company undertakes a broad range of building construction projects including
hotels, casinos, health care, correctional facilities, sports complexes,
residential, commercial, civic, cultural and educational facilities.
Perini Management Services, Inc. (formerly Perini International
Corporation), a wholly-owned subsidiary, provides a broad range of both civil
and building construction services to U.S. government agencies in the U.S. and
selected overseas locations, funded primarily in U.S. dollars. In selected
situations, it pursues other work internationally.
3
Construction Strategy
The Company plans to continue to increase the amount of civil
construction work it performs because of the relatively higher margin
opportunities available from such work. The Company believes the best
opportunities for growth in the coming years are in the urban infrastructure
market, particularly in Boston, metropolitan New York, Los Angeles and other
major cities where it has a significant presence, and in other large, complex
projects. The Company's strategy in building construction is to maximize profit
margins; to take advantage of certain market niches; and to expand into new
markets compatible with its expertise. Internally, the Company plans to continue
both to strengthen its management through management development and job
rotation programs, and to improve efficiency through strict attention to the
control of overhead expenses and implementation of improved project management
systems. Finally, the Company continues to expand its expertise to assist public
owners to develop necessary facilities through creative public/private ventures.
During 1996, the Company also adopted a plan to enhance the
profitability of its construction operations by emphasizing gross margin and
bottom line improvement ahead of top line revenue growth. This plan calls for
the Company to focus its financial and human resources on construction
operations which are consistently profitable and to de-emphasize marginal
business units. During 1997, the Company closed or downsized and refocused four
business units and combined its two remaining civil construction entities (U.S.
Heavy and Metropolitan New York divisions) under a consolidated management
structure named "Perini Civil".
Backlog
As of December 31, 1997 the Company's construction backlog was $1.31
billion compared to backlogs of $1.52 billion and $1.53 billion as of December
31, 1996 and 1995, respectively.
Backlog (in thousands) as of December 31,
-----------------------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Northeast $ 574,779 44% $ 643,114 42% $ 749,017 49%
Mid-Atlantic 97,212 7 113,289 8 179,324 12
Southeast 46,629 4 56,925 4 33,223 2
Midwest 26,130 2 97,954 6 325,055 21
Southwest 481,068 37 425,901 28 94,725 6
West 28,707 2 139,079 9 134,259 9
Foreign 54,929 4 41,438 3 18,919 1
------------- -------- ------------- -------- ------------- -----
Total $ 1,309,454 100% $ 1,517,700 100% $ 1,534,522 100%
============= ======== ============= ======== ============= =====
The Company includes a construction project in its backlog at such time
as a contract is awarded or a firm letter of commitment is obtained. As a
result, the backlog figures are firm, subject only to the cancellation
provisions contained in the various contracts. The Company estimates that
approximately $536 million of its backlog will not be completed in 1998.
The Company's backlog in the Northeast region of the United States
remains strong because of its ability to meet the needs of the growing
infrastructure construction and rehabilitation market in this region,
particularly in the metropolitan Boston and New York City areas. The continued
increase in backlog in the Southwest region is indicative of the increased
demand by the hotel-casino market in Nevada, while the decrease in backlog in
the Midwest is due, in part, to a downsizing or closing of certain unprofitable
business units. Other fluctuations in backlog are viewed by management as
transitory.
4
Types of Contracts
The four general types of contracts in current use in the construction
industry are:
o Fixed price contracts ("FP"), which include unit price contracts,
usually transfer more risk to the contractor but offer the opportunity,
under favorable circumstances, for greater profits. With the Company's
increasing move into publicly bid civil construction projects, the
percentage of fixed price contracts continue to represent the major
portion of the backlog.
o Cost-plus-fixed-fee or award fee contracts ("CPFF") which provide
greater safety for the contractor from a financial standpoint but limit
profits.
o Guaranteed maximum price contracts ("GMP") which provide for a
cost-plus-fee arrangement up to a maximum agreed price. These contracts
place risks on the contractor but may permit an opportunity for greater
profits than cost-plus-fixed-fee contracts through sharing agreements
with the client on any cost savings.
o Construction management contracts ("CM") under which a contractor
agrees to manage a project for the owner for an agreed-upon fee which
may be fixed or may vary based upon negotiated factors. The contractor
generally provides services to supervise and coordinate the
construction work on a project, but does not directly purchase contract
materials, provide construction labor and equipment or enter into
subcontracts.
Historically, a high percentage of company contracts have been of the
fixed price type. Construction management contracts remain a relatively small
percentage of company contracts. A summary of revenues and backlog by type of
contract for the most recent three years follows:
Revenues - Year Ended
December 31, Backlog As Of December 31,
- ----------------------------------- -------------------------------------
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
58% 59% 67% Fixed Price 53% 62% 74%
42 41 33 CPFF, GMP or CM 47 38 26
------- ------- ------- ------- ------- ----
100% 100% 100% 100% 100% 100%
======= ======= ======= ======= ======= ====
Clients
During 1997, the Company was active in the building, civil and
international construction markets. The Company performed work for over 120
federal, state and local governmental agencies or authorities and private
customers during 1997. No material part of the Company's business is dependent
upon a single or limited number of private customers; the loss of any one of
which would not have a materially adverse effect on the Company. As illustrated
in the following table, the Company continues to serve a significant number of
private owners. During the period 1995-1997, the portion of construction
revenues derived from contracts with various governmental agencies remains
relatively constant at 51% in 1997, 52% in 1996 and 56% in 1995.
Revenues by Client Source
Year Ended December 31,
-----------------------------------
1997 1996 1995
---- ---- ----
Private Owners 49% 48% 44%
Federal Governmental Agencies 5 5 8
State, Local and Foreign Governments 46 47 48
---- ---- ----
100% 100% 100%
==== ==== ====
5
All Federal government contracts are subject to termination provisions, but as
shown in the table above, the Company does not have a material amount of such
contracts.
General
The construction business is highly competitive. Competition is based
primarily on price, reputation for on time completion, quality, reliability and
financial strength of the contractor. While the Company experiences a great deal
of competition from other large general contractors, some of which may be larger
with greater financial resources than the Company, as well as from a number of
smaller local contractors, it believes it has sufficient technical, managerial
and financial resources to be competitive in each of its major market areas.
The Company will endeavor to spread the financial and/or operational
risk, as it has from time to time in the past, by participating in construction
joint ventures, both in a majority and in a minority position, for the purpose
of bidding on projects. These joint ventures are generally based on a standard
joint venture agreement whereby each of the joint venture participants is
usually committed to supply a predetermined percentage of capital, as required,
and to share in the same predetermined percentage of income or loss of the
project. Although joint ventures tend to spread the risk of loss, the Company's
initial obligations to the venture may increase if one of the other participants
is financially unable to bear its portion of cost and expenses. For a possible
example of this situation, see "Legal Proceedings" on page 13. For further
information regarding certain joint ventures, see Note 2 to Notes to
Consolidated Financial Statements.
While the Company's construction business may experience some adverse
consequences if shortages develop or if prices for materials, labor or equipment
increase excessively, provisions in certain types of contracts often shift all
or a major portion of any adverse impact to the customer. On fixed price type
contracts, the Company attempts to insulate itself from the unfavorable effects
of inflation by incorporating escalating wage and price assumptions, where
appropriate, into its construction bids. Gasoline, diesel fuel and other
materials used in the Company's construction activities are generally available
locally from multiple sources and have been in adequate supply during recent
years. Construction work in selected overseas areas primarily employs expatriate
and local labor which can usually be obtained as required. The Company does not
anticipate any significant impact in 1998 from material and/or labor shortages
or price increases.
Economic and demographic trends tend not to have a material impact on
the Company's civil construction operation. Instead, the Company's civil
construction markets are dependent on the amount of heavy civil infrastructure
work funded by various governmental agencies which, in turn, may depend on the
condition of the existing infrastructure or the need for new expanded
infrastructure. The building markets in which the Company participates are
dependent on economic and demographic trends, as well as governmental policy
decisions as they impact the specific geographic markets.
The Company has minimal exposure to environmental liability as a result
of the activities of Perini Environmental Services, Inc. ("Perini
Environmental"), a wholly-owned subsidiary of the Company that was phased out
during 1997. Perini Environmental provided hazardous waste engineering and
construction services to both private clients and public agencies nationwide.
Perini Environmental was responsible for compliance with applicable laws in
connection with its clean up activities and bore the risk associated with
handling such materials. In addition to strict procedural guidelines for conduct
of this work, the Company and Perini Environmental generally carry insurance or
receive satisfactory indemnification from customers to cover the risks
associated with this business. The Company also owns real estate in seven states
and as an owner, is subject to laws governing environmental responsibility and
liability based on ownership. The Company is not aware of any environmental
liability associated with its ownership of real estate property.
The Company has been subjected to a number of claims from former
employees of subcontractors regarding exposure to asbestos on the Company's
projects. None of the claims have been material. The Company also operates
construction machinery in its business and will, depending on the project or the
ease of access to fuel for
6
such machinery, install fuel tanks for use on-site. Such tanks run the risk of
leaking hazardous fluids into the environment. The Company, however, is not
aware of any emissions associated with such tanks or of any other significant
environmental liability associated with its construction operations or any of
its corporate activities.
Progress on projects in certain areas may be delayed by weather
conditions depending on the type of project, stage of completion and severity of
the weather. Such delays, if they occur, may result in more volatile quarterly
operating results due to less progress than anticipated being achieved on
projects.
In the normal course of business, the Company periodically evaluates its
existing construction markets and seeks to identify any growing markets where it
feels it has the expertise and management capability to successfully compete or
withdraw from markets which are no longer economically attractive, which it did
during 1997 with two construction divisions in the Midwest and Perini
Environmental referred to above.
Real Estate
The Company's real estate development operations are conducted by Perini
Land & Development Company ("PL&D"), a wholly owned subsidiary, which has been
involved in real estate development since the early 1950's. PL&D has
traditionally engaged in real estate development in Arizona, California,
Florida, Georgia and Massachusetts.
In late 1996, PL&D changed its strategy on certain of its properties
from maximizing value by holding them through the necessary development and
stabilization periods to a new strategy of generating short-term liquidity
through an accelerated disposition or bulk sale. This change in strategy
substantially reduced the estimated future cash flow from these properties.
Therefore, an impairment loss on those properties resulted in PL&D recording a
non-cash charge in an aggregate amount of approximately $80 million as of
December 31, 1996, in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of". An estimated allocation of the write-down,
by geographic areas, was California ($59 million), Arizona ($18 million), and
Florida ($3 million).
In early 1998, in its capacity as managing general partner of Rincon
Center Associates ("RCA"), a joint venture which owns Rincon Center, a mixed-use
property in San Francisco (see Real Estate Properties below), PL&D reached a
preliminary agreement, subject to various approvals and further negotiations,
with regard to the refinancing of the obligations on the project. If the
preliminary agreement is implemented, it is expected that RCA may lose all or
most of its beneficial interest in Rincon Center Phase I. In anticipation of the
completion of this transaction, a reserve of $17.2 million against the potential
write-off of a note receivable and other assets related to the Phase I portion
of the project was taken by RCA at December 31, 1997. PL&D's share of that
reserve is $7.8 million, which has been charged to existing reserves it carries
on the project. Based on a current net realizable value analysis, the Company's
investment in RCA will be recoverable from the full development and disposition
of the remaining segments of the property. If the preliminary refinancing
agreement is completed as currently proposed, all guarantees provided by RCA,
its partners and the Company, under the existing master lease covering Rincon
Phase I, would be released at that time in association with the termination of
the master lease.
PL&D will continue periodically to review its portfolio to assess the
desirability of accelerating its sales through price concessions or sale at an
earlier stage of development. In circumstances in which asset strategies are
changed, such as in 1997, and properties brought to market on an accelerated
basis, those assets, if necessary, are adjusted to reflect the lower of carrying
amounts or fair value less cost to sell. Similarly, if the long term outlook for
a property in development or held for future sale is adversely changed, the
Company will adjust its carrying value to reflect such an impairment in value.
To achieve full value for some of its real estate holdings, in
particular its investments in Rincon Center, PL&D may have to hold that property
several years and currently intends to do so.
7
Real Estate Strategy
Since 1990, PL&D has taken a number of steps to reduce the size of its
operations. In early 1990, all new real estate investment was suspended pending
market improvement, all but critical capital expenditures were curtailed on
on-going projects, and PL&D's work force was substantially reduced. Certain
project loans were extended, with such extensions usually requiring pay downs
and increased annual amortization of the remaining loan balance. Since that
time, PL&D has operated with a further reduced staff and has adjusted its
activity to meet the demands of the market. PL&D currently has offices in
Arizona, Georgia and Massachusetts.
PL&D's real estate development project mix includes planned community,
industrial park, commercial office, multi-unit residential, urban mixed use and
single family home developments. PL&D's emphasis is on the sale of completed
product and also developing the projects in its inventory with the highest near
term sales potential. It may also selectively seek new development opportunities
in which it serves as development manager with limited equity exposure, if any.
Real Estate Properties
The following is a description of the Company's major development
projects and properties by geographic area:
Florida
West Palm Beach and Palm Beach County - At Metrocentre, a 51-acre
commercial/office park which provides for 570,500 square feet of mixed
commercial uses at the intersection of Interstate 95 and 45th Street in West
Palm Beach, no property was sold in 1997. The park consists of 17 parcels, of
which 5 acres currently remain unsold.
Massachusetts
Perini Land and Development or Paramount Development Associates, Inc.
("Paramount"), a wholly-owned subsidiary of PL&D, own the following projects:
Raynham Woods Commerce Center, Raynham - In 1987, Paramount acquired a
409-acre site located in Raynham, Massachusetts. During 1988, Paramount
completed infrastructure work on a major portion of the site (330 acres) which
is being developed as a mixed use corporate campus style park known as "Raynham
Woods Commerce Center". From 1989 through 1995, Paramount sold an aggregate of
56 acres to various users, including the division of a major U.S. company for
use as its headquarters, to a developer who was working with a major national
retailer for a retail site, and to a major insurance company. In 1990, Paramount
built two commercial buildings in the park which are currently approximately 95%
occupied. The park is planned to eventually contain 2.5 million square feet of
office, R&D, light industrial and mixed commercial space. No sales were closed
in 1997. However, a sale of the two commercial buildings is under contract and
expected to close in early 1998.
Easton Business Center, Easton - In 1989, Paramount acquired a 40-acre
site in Easton, Massachusetts, which already had been partially developed.
Paramount completed the work and is currently marketing the site to
commercial/industrial users. No sales were closed in 1997.
Wareham - In early 1990, Paramount acquired an 18.9-acre parcel of land
at the junction of Routes 495 and 58 in Wareham, Massachusetts. The property is
being marketed to both retail and commercial/industrial users. No sales were
closed in 1997.
8
Georgia
The Villages at Lake Ridge, Clayton County - During 1987, PL&D (49%)
entered into a joint venture with 138 Joint Venture partners to develop a
348-acre planned commercial and residential community in Clayton County called
"The Villages at Lake Ridge," six miles south of Atlanta's Hartsfield
International Airport. The development plan calls for mixed residential
densities of apartments and moderate priced single-family homes totaling 1,158
dwelling units in the residential tracts, plus 220,000 square feet of retail and
220,000 square feet of office space in the commercial tracts. Since its
acquisition, the joint venture has put in a substantial portion of the
infrastructure, all of the recreational amenities, and through 1996 had sold 293
single family lots to builders , along with a 13.6 acre tract designed for 52
lots, a 16-acre parcel for use as an elementary school and developed a 278 unit
apartment complex which it later sold to a third party buyer. In 1997 the joint
venture sold an additional 19 lots to builders, an 8.7 acre tract designed for
36 lots and 2.9 acres of commercial property.
California
Rincon Center, San Francisco - Major construction on this mixed-use
project in downtown San Francisco was completed in 1989. The project,
constructed in two phases, consists of 320 residential units, approximately
423,000 square feet of office space, 63,000 square feet of retail space, and a
700-space parking garage. Following its completion in 1988, the first phase of
the project was sold and leased back by the developing partnership. The first
phase consists of about 223,000 square feet of office space and 42,000 square
feet of retail space. The Phase I office space is 100% leased with the regional
telephone directory company as the major tenant on a lease which runs to 2002.
The retail space is currently 97% leased. Phase II of the project, which began
operations in late 1989, consists of approximately 200,000 square feet of office
space, 21,000 square feet of retail space, a 14,000 square foot U.S. postal
facility, and 320 apartment units. Currently, 100% of the office space, 70% of
the retail space and 98% of the 320 residential unit are leased. The major
tenant in the office space in Phase II is a large national insurance company
which occupies 173,000 square feet. PL&D currently holds a 46% interest in, and
is managing general partner of, the partnership which developed the project. The
land related to this project is being leased from the U.S. Postal Service under
a ground lease which expires in 2050.
Two major loans on this property, in aggregate totaling over $75
million, were scheduled to mature in 1993. During 1993, both loans were extended
for five additional years. To extend these loans, PL&D provided approximately $6
million in new funds which were used to reduce the principal balances of the
loans. Between 1993 and 1998, PL&D has continued to provide funding used to
further amortize these loans. Both loans mature again in 1998. In late 1997, as
part of the agreement to extend the letter of credit which supports the tax
exempt bonds, PL&D allowed the lender to call the $3.65 million letter of credit
provided as support for the Rincon Phase II commercial loan and apply the
proceeds against the commercial loan balance. Rincon Center Associates has
reached a preliminary agreement for the restructure of the Rincon financing
which will , if completed, extend the Rincon Center Phase II loans until late
2000. As part of the restructure, Rincon Center Associates would be required to
make additional principal and interest payments early in 1998 and relinquish all
or most of its economic interest in Rincon Center Phase I, such relinquished
interests being derived from the terms of the master lease documents which would
be terminated at the closing of the transaction. Based on Company forecasts,
PL&D may be required to contribute as much as $7.2 million in 1998. However,
based on the completion of the refinancing, the cash flow expectations for the
property after 1998 are significantly improved from prior years.
In addition to the project financing and guarantees disclosed in Note 11
to Notes to Consolidated Financial Statements, the Company has advanced
approximately $89.2 million to the partnership through December 31, 1997, of
which approximately $7.1 million was advanced during 1997, primarily to pay down
some of the principal portion of project debt which was renegotiated during
1993. During 1993 PL&D agreed, if necessary, to lend Pacific Gateway Properties
(PGP), the other General Partner in the project, funds to meet its 20% share of
cash calls. In return, PL&D receives a priority return from the partnership on
those funds and penalty fees in the form of rights to certain distributions due
PGP by the partnership controlling Rincon. From 1993-1997, PL&D advanced $5.4
million under this agreement, primarily to meet the principal payment
obligations of the loan extensions
9
described above. These funds advanced as loans to PGP are in addition to the
advances described above.
The interest rates on much of the debt financing covering Rincon Center
are variable based on various rate indices. With the exception of approximately
$14 million of the financing, none of the debt has been hedged or capped and is
subject to market fluctuations. From time to time, the Company reviews the costs
and anticipated benefits from hedging Rincon Center's interest rate commitments.
Based on current costs to further hedge rate increases and market conditions,
the Company has elected not to provide any additional hedges at this time.
As part of the Rincon Center Phase I sale and operating lease-back
transaction, the lease provides that if an additional financial commitment to
replace at least $33 million of long-term financing has not been arranged by
January 1, 1998, the lessee will be deemed to have made an offer to purchase the
property for a stipulated amount of approximately $18.8 million in excess of the
then outstanding debt. An arrangement has been made to delay this event to allow
the parties to arrange for the financial restructuring as described above.
The Resort at Squaw Creek - Early in 1997, PL&D signed a letter of
intent to sell its interest in the joint venture through which the Company held
its ownership interest in the Resort. Based on the proposed transaction, the
Company took a write down on this project of approximately $57 million at the
end of 1996. The transaction closed in the second quarter of 1997.
Corte Madera, Marin County - After many years of intensive planning,
PL&D obtained approval for a 151 single-family home residential development on
its 85-acre site in Corte Madera and, in 1991, was successful in gaining water
rights for the property. In 1992, PL&D initiated development on the site which
was continued into 1993. This development is one of the last remaining in-fill
areas in southern Marin County. In 1993, when PL&D decided to scale back its
operations in California, it also decided to sell this development in a
transaction which closed in early 1994. The transaction calls for PL&D to get
the majority of its funds from the sale of residential units or upon the sixth
anniversary of the sale whichever takes place first, and, although indemnified,
to leave in place certain bonds and other assurances previously given to the
town of Corte Madera guaranteeing performance in compliance with approvals
previously obtained. Sale of the units began in August of 1995 and by the end of
1996, 39 sales were closed. During 1997, another 37 closings were recorded.
Arizona
Airport Commerce Center, Tucson - In 1982, the I-10 partnership
purchased 112 acres of industrially-zoned property near the Tucson International
Airport. During 1983, the partnership added 54 acres to that project, bringing
its total size to 166 acres. The partnership built and fully leased a 14,600
square foot office/warehouse building in 1987 on a building lot in the park,
which was sold during 1991. From 1990 through 1996, the partnership sold 73
acres within the park. In 1997 PL&D sold its remaining interest in the project
to its partner.
Perini Central Limited Partnership, Phoenix - In 1985, PL&D (75%)
entered into a joint venture with the Central United Methodist Church to master
plan and develop approximately 4.4 acres of the church's property in midtown
Phoenix. In 1990, the project was successfully rezoned to permit development of
580,000 square feet of office, 37,000 square feet of retail and 162 luxury
apartments. In early 1998, the Company entered into an agreement to sell the
property.
Grove at Black Canyon, Phoenix - The project consists of an office park
complex on a 30-acre site located off of Black Canyon Freeway, a major Phoenix
artery, approximately 20 minutes from downtown Phoenix. When complete, the
project will include approximately 650,000 square feet of office, hotel,
restaurant and/or retail space. Development, which began in 1986, is scheduled
to proceed in phases as market conditions dictate. In 1987, a 150,000 square
foot office building was completed within the park. The building leased up
immediately and maintained an average occupancy in the low 90% range until late
1997. The building is now 65% leased with approximately half of the building
leased to a major area utility company. The partnership is currently in
10
negotiations with two major tenants that, if successful, would bring the
occupancy level to 95%. During 1993, PL&D (50%) successfully restructured the
financing on the project by obtaining a seven year extension with some
amortization and a lower fixed interest rate. The annual amortization commitment
is not currently covered by operating cash flow. In the near term, it appears
approximately $700,000 per year of support to cover loan amortization will
continue to be required. In 1996, the lease covering space occupied by the major
office tenant was extended an additional seven years to the year 2004 on
competitive terms. In 1995, a day care center was completed on an 8-acre site
along the north entrance of the park. In 1997, a 1.5 acre site was sold to a
local small business for development of an owner occupied office building and a
2.7 acre site was sold to a national hotel chain for development of an
all-suites hotel. Both projects broke ground in the latter part of the year.
Sabino Springs Country Club, Tucson - During 1990, the Tucson Board of
Supervisors unanimously approved a plan for this 410-acre residential golf
course community close to the foothills on the east side of Tucson. In 1991,
that approval, which had been challenged, was affirmed by the Arizona Supreme
Court. When fully developed, the project will consist of 496 single-family
homes. In 1993, PL&D recorded the master plat on the project and sold a major
portion of the property to an international real estate company. An 18-hole
Robert Tent Jones, Jr. designed championship golf course and clubhouse were
completed within the project in 1995. Although it will require some
infrastructure development before sale, PL&D still retains 33 estate lots for
sale in future years.
General
The Company's real estate business is influenced by both economic
conditions and demographic trends. A depressed economy may result in lower real
estate values and longer absorption periods. Higher inflation rates may increase
the values of current properties, but often are accompanied by higher interest
rates which may result in a slow down in property sales because of higher
carrying costs. Important demographic trends are population and employment
growth. A significant reduction in either of these may result in lower real
estate prices and longer absorption periods.
Generally, there has been no material impact on PL&D's real estate
development operations over the past 10 years due to interest rate increases.
However, an extreme and prolonged rise in interest rates could create market
resistance for all real estate operations in general, and is always a potential
market obstacle. Historically, PL&D has, in some cases, employed hedges or caps
to protect itself against increases in interest rates on any of its variable
rate debt. The future use of such hedges or caps is somewhat restricted under
the terms of the New Credit Agreement.
Because several of the Company's real estate projects have been written
down to net realizable value, future gross profits from real estate sales will
be minimal, which has been the case during the three year period ended December
31, 1997.
Insurance and Bonding
All of the Company's properties and equipment, both directly owned or
owned through partnerships or joint ventures with others, are covered by
insurance and management believes that such insurance is adequate.
In conjunction with its construction business, the Company is often
required to provide various types of surety bonds. The Company has a co-surety
arrangement with three sureties, one of which it has dealt with for over 75
years, and it has never been refused a bond. Although from time-to-time the
surety industry encounters limitations affecting the bondability of very large
projects and the Company occasionally has encountered limits imposed by its
surety, these limits have not had an adverse impact on its operations.
Year 2000
The Company began a project to review all of its computer systems during
1995. Among the many considerations at that time was what impact, if any, would
the year 2000 have on computer systems. During 1997,
11
the Company made a commitment to purchase and install new computer systems to
meet its current and projected needs. In addition to providing new fully
integrated on line construction specific systems applications, the software
complies with the year 2000 requirement.
The process of implementing the new software package began in 1997 and was
completed early in 1998. Management believes that due to the implementation of
this new software package, the year 2000 issue will not have a material adverse
impact on the Company's operations.
Employees
The total number of personnel employed by the Company is subject to
seasonal fluctuations, the volume of construction in progress and the relative
amount of work performed by subcontractors. During 1997 the maximum number of
employees employed was approximately 2,200 and the minimum was approximately
1,900.
The Company operates as a union contractor. As such, it is a signatory
to numerous local and regional collective bargaining agreements, both directly
and through trade associations, throughout the country. These agreements cover
all necessary union crafts and are subject to various renewal dates. Estimated
amounts for wage escalation related to the expiration of union contracts are
included in the Company's bids on various projects and, as a result, the
expiration of any union contract in the current fiscal year is not expected to
have any material impact on the Company.
ITEM 2. PROPERTIES
- -------------------
Properties applicable to the Company's real estate development
activities are described in detail by geographic area in Item 1. Business on
pages 8 through 11. All other properties used in operations are summarized
below:
Owned or Leased Approximate Approximate Square
Principal Offices by Perini Acres Feet of Office Space
----------------- --------- ----- --------------------
Framingham, MA Owned 9 100,000
Phoenix, AZ Leased - 22,700
Southfield, MI Leased - 7,300
Hawthorne, NY Leased - 12,500
Atlantic City, NJ Leased - 900
Las Vegas, NV Leased - 2,900
Atlanta, GA Leased - 200
Chicago, IL Leased - 1,600
Philadelphia, PA Leased - 2,500
-------- -----------
9 150,600
======== ===========
Owned or Leased Approximate
Principal Permanent Storage Yards by Perini Acres
--------------------------------- --------- -----
Bow, NH Owned 70
Framingham, MA Owned 6
Las Vegas, NV Leased 2
Novi, MI Leased 3
-----
81
12
The Company's properties are generally well maintained, in good
condition, adequate and suitable for the Company's purpose and fully utilized.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
As previously reported, the Company is a party to an action entitled
Mergentime Corporation et. al. v. Washington Metropolitan Transit Authority v.
Insurance Company of North America (Civil Action No. 89-1055) in the U.S.
District Court for the District of Columbia. The action involves WMATA's
termination of the general contractor, a joint venture in which the Company was
a minority partner, on two contracts to construct a portion of the Washington,
D.C. subway system, and certain claims by the joint venture against WMATA for
claimed delays and extra work.
On July 30, 1993, the Court upheld the termination for default, and
found both joint venturers and their surety jointly and severally liable to
WMATA for damages in the amount of $16.5 million, consisting primarily of
WMATA's excess reprocurement costs, but specifically deferred ruling on the
amount of the joint venture's claims against WMATA. Since the other joint
venture partner may be unable to meet its financial obligations under the award,
the Company could be liable for the entire amount.
At the direction of the judge now presiding over the action, during the
third quarter of 1995, the parties submitted briefs on the issue of WMATA's
liability on the joint venture's claims for delays and for extra work. As a
result of that process, the company established a reserve with respect to the
litigation.
In July 1997, the remaining issues were ruled on by the Court, which
awarded approximately $4.3 million to the joint venture, thereby reducing the
net amount payable to approximately $12.2 million. The joint venture has
appealed the decision. As a result of the decision, there is no immediate impact
on the Company's Statement of Operations because of the reserve provided in
prior years. The actual funding of net damages, if any, will be deferred until
the appeal process is complete.
In the ordinary course of its construction business, the Company is
engaged in other lawsuits, arbitration and alternative dispute resolution
("ADR") proceedings. The Company believes that such proceedings are usually
unavoidable in major construction operations and that their resolution will not
materially affect its results of future operations and financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
- -------------------------------------------------------------------------
The Company's Common Stock is traded on the American Stock Exchange
under the symbol "PCR". The quarterly market price ranges (high-low) for 1997
and 1996 are summarized below:
1997 1996
------ ------
Market Price Range per Common Share: High Low High Low
- ----------------------------------- ---- --- ---- ---
Quarter Ended
March 31 9 1/2 - 6 7/8 9 - 7 1/2
June 30 7 3/4 - 6 1/4 12 1/8 - 7 3/4
September 30 8 3/8 - 7 12 1/4 - 8 5/8
December 31 9 3/8 - 7 13/16 9 1/4 - 7 1/2
13
For information on dividend payments, see Selected Financial Data in
Item 6 below and "Dividends" under Management's Discussion and Analysis in Item
7 below.
As of February 27, 1998, there were approximately 1,198 record holders
of the Company's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
Selected Consolidated Financial Information
(In thousands, except per share data)
OPERATING SUMMARY 1997 1996 1995 1994 1993
------------- ------------ ------------ ------------ -------------
Revenues:
Construction Operations $ 1,276,033 $ 1,224,428 $ 1,056,673 $ 950,884 $ 1,030,341
Real Estate Operations 48,458 45,856 44,395 61,161 69,775
------------- ------------ ------------ ------------ -------------
Total Revenues $ 1,324,491 $ 1,270,284 $ 1,101,068 $ 1,012,045 $ 1,100,116
------------- ------------ ------------ ------------ -------------
Costs:
Cost of Operations $ 1,275,614 $ 1,215,806 $ 1,086,213 $ 960,248 $ 1,047,330
Write down of Certain Real Estate
Assets (Note 4) - 79,900 - - -
------------- ------------ ------------ ------------ -------------
$ 1,275,614 $ 1,295,706 $ 1,086,213 $ 960,248 $ 1,047,330
------------- ------------ ------------ ------------ -------------
Gross Profit (Loss) $ 48,877 $ (25,422) $ 14,855 $ 51,797 $ 52,786
General, Administrative & Selling
Expenses 30,556 33,988 37,283 42,985 44,212
------------- ------------ ------------ ------------ -------------
Income (Loss) From Operations $ 18,321 $ (59,410) $ (22,428) $ 8,812 $ 8,574
Other Income (Expense), Net (1,665) (492) 814 (856) 5,207
Interest Expense (10,334) (9,871) (8,582) (7,473) (5,655)
------------- ------------ ------------ ------------ -------------
Income (Loss) Before Income Taxes $ 6,322 $ (69,773) $ (30,196) $ 483 $ 8,126
(Provision) Credit for Income Taxes (950) (830) 2,611 (180) (4,961)
------------- ------------ ------------ ------------ -------------
Net Income (Loss) $ 5,372 $ (70,603) $ (27,585) $ 303 $ 3,165
------------- ------------ ------------ ------------ -------------
Per Share of Common Stock:
Basic and diluted earnings (loss) $ 0.01 $ (15.13) $ (6.38) $ (0.42) $ 0.24
------------- ------------ ------------ ------------ -------------
Cash dividends declared $ - $ - $ - $ - $ -
------------- ------------ ------------ ------------ -------------
Book value $ 2.44 $ 2.14 $ 17.06 $ 23.79 $ 24.49
------------- ------------ ------------ ------------ -------------
Weighted Average Number of
Common Shares Outstanding 5,059 4,808 4,655 4,380 4,265
------------- ------------ ------------ ------------ -------------
FINANCIAL POSITION SUMMARY
Working Capital $ 71,971 $ 56,744 $ 36,545 $ 29,948 $ 36,877
------------- ------------ ------------ ------------ -------------
Current Ratio 1.31:1 1.19:1 1.12:1 1.13:1 1.17:1
------------- ------------ ------------ ------------ -------------
Long-term Debt, less current
maturities $ 84,898 $ 96,893 $ 84,155 $ 76,986 $ 82,366
------------- ------------ ------------ ------------ -------------
Stockholders' Equity $ 40,900 $ 35,558 $ 105,606 $ 132,029 $ 131,143
------------- ------------ ------------ ------------ -------------
Ratio of Long-term Debt to Equity 2.08:1 2.72:1 .80:1 .58:1 .63:1
------------- ------------ ------------ ------------ -------------
Total Assets $ 414,924 $ 464,292 $ 539,251 $ 482,500 $ 476,378
------------- ------------ ------------ ------------ -------------
OTHER DATA
Backlog at Year End $ 1,309,454 $ 1,517,700 $ 1,534,522 $ 1,538,779 $ 1,238,141
------------- ------------ ------------ ------------ -------------
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Results of Operations -
1997 Compared to 1996
The Company's total operations resulted in net income of $5.4 million (or $.01
per Common Share) in 1997 compared to a net loss of $70.6 million (or $15.13 per
Common Share) in 1996. The improvement in 1997 results compared to 1996 is
substantially due to the non-recurring non-cash write-down in 1996 related to a
change in the Company's real estate strategy for certain properties from
maximizing value by holding them through the necessary development and
stabilization periods to a new strategy of generating short-term liquidity
through an accelerated disposition or bulk sale (see Notes 1(d) and 4 to Notes
to Consolidated Financial Statements).
Revenues amounted to $1.324 billion in 1997, a record level for the third
consecutive year, an increase of $54.2 million (or 4.3%), compared to 1996
revenues of $1.270 billion. This increase resulted primarily from increased
construction revenues of $51.6 million (or $4.2%) from $1.224 billion in 1996 to
$1.276 billion in 1997, due primarily to an increase in revenues from building
construction operations of $53.9 million (or 6.5%), from $834.9 million in 1996
to $888.8 million in 1997, which more than offset a slight decrease in revenues
from civil construction operations of $2.3 million (or 0.6%), from $389.5
million in 1996 to $387.2 million 1997. These revenue fluctuations reflect the
timing in the start-up of new construction projects, in particular several fast
track hotel/casino projects in the Southwestern United States, several
prison/detention and medical facilities projects in the Northeastern United
States, and several long-term infrastructure rehabilitation projects in the
metropolitan New York, Boston and Los Angeles areas. Revenues from real estate
operations increased $2.6 million , from $45.9 million in 1996 to $48.5 million
in 1997 because of revenues related to the sale of the Company's interest in The
Resort at Squaw Creek.
Gross profit increased by $74.3 million, from a loss of $25.4 million in 1996 to
a profit of $48.9 million in 1997 due to the 1996 non-recurring $79.9 million
real estate write-down. After adjusting for the 1996 real estate write-down, the
pro forma gross profit actually decreased by $5.6 million in 1997, from $54.5
million in 1996 to $48.9 million in 1997, in spite of the increase in revenues
described above, due primarily to a $5.2 million decrease in gross profit from
construction operations, from $55.4 million in 1996 to $50.2 million in 1997
because the increased profits related to the increase in construction revenues
was more than offset by additional write-downs related to contracts from two
unprofitable Midwest construction divisions, which are being closed. The impact
of these write-downs were partially offset by an approximate $3.2 million gain
from the sale of the Company's interest in two joint ventures (see Note 14 to
Notes to the Consolidated Financial Statements). The gross loss from real estate
operations was $1.3 million in 1997 compared to an adjusted gross loss of $0.9
million in 1996.
General, administrative and selling expenses decreased by $3.4 million (or 10%),
from $34.0 million in 1996 to $30.6 million in 1997 primarily due to the closing
out of two construction divisions in the Midwest and Perini Environmental
Services, Inc., its wholly-owned hazardous waste subsidiary.
Other income (expense), net increased $1.2 million, from a net expense of $0.5
million in 1996 to a net expense of $1.7 million in 1997 due primarily to
increased amortization of deferred debt expense related to the new credit
agreement, a $0.4 million decrease in gains on sales of fixed assets, and a $0.3
million decrease in minority interest.
Interest expense increased by $0.4 million (or 4%), from $9.9 million in 1996 to
$10.3 million in 1997 due to a higher average level of borrowings during 1997.
The lower than normal tax rate for the three year period ended December 31, 1997
is due to the utilization of tax loss carryforwards from prior years. Because of
certain accounting limitations, the Company was not able to recognize a portion
of the tax benefit related to the operating losses experienced in fiscal 1996
and 1995. As a result, an amount estimated to be approximately $75.0 million of
future pretax earnings should benefit from minimal, if any, federal tax charges.
The net deferred tax assets reflect management's estimate of the amount that
will, more likely than not,
15
be realized (see Note 5 to Notes to Consolidated Financial Statements).
Results of Operations -
1996 Compared to 1995
In spite of record revenues and earnings from domestic construction operations
during 1996, the Company's total operations resulted in a net loss of $70.6
million (or $15.13 per Common Share) on revenues of $1.3 billion in 1996
compared to a net loss of $27.6 million in 1995 (or $6.38 per Common Share) on
revenues of $1.1 billion. The reason for the net loss in 1996 was a change in
the Company's real estate strategy on certain of its properties from maximizing
value by holding them through the necessary development and stabilization
periods to a new strategy of generating short-term liquidity through an
accelerated disposition or bulk sale. The change in strategy substantially
reduced the estimated future cash flows from these properties. Therefore, a
non-cash impairment loss on those properties, in the aggregate amount of $79.9
million, was provided in 1996 in accordance with SFAS No. 121 (see Notes (1)(d)
and 4 to Notes to Consolidated Financial Statements).
Revenues amounted to $1.270 billion in 1996, a record level for the second
consecutive year, an increase of $169 million (or 15%) compared to the 1995
revenues of $1.101 billion. This increase was almost entirely due to an increase
in construction revenues of $167 million (or 16%), from $1.057 billion in 1995
to $1.224 billion in 1996. This increase in construction revenues was divided
fairly equally between building and heavy (or "civil") construction operations.
Building construction revenues increased $87 million (or 12%), from $748 million
in 1995 to $835 million in 1996 while civil construction revenues increased $80
million (or 26%), from $309 million in 1995 to $389 million in 1996. These
revenue increases reflect the impact of several fast track hotel/casino projects
in the western and midwestern United States, several prison/detention and
medical facilities projects in the northeastern United States, and several
long-term infrastructure rehabilitation projects in the metropolitan New York,
Boston and Los Angeles areas.
In spite of the 15% increase in revenues, the gross profit decreased $40.3
million, from a gross profit of $14.9 million in 1995 to a gross loss of $25.4
million in 1996. The primary reason for the gross loss in 1996 was the $79.9
million real estate write down referred to above which caused the increase in
gross loss from real estate from $1.0 million in 1995 to $80.9 million in 1996.
This increase in gross loss was partially offset by a substantial increase in
gross profit from construction operations of $39.6 million, from $15.9 million
in 1995 to $55.5 million in 1996. Overall gross profit margins on both building
and civil construction operations in 1996 exceeded those experienced in 1995.
The lower than normal gross profit from construction operations recognized in
1995 included a pretax charge, which aggregated $25.6 million, to provide for a
liability related to previously disclosed litigation in Washington, D.C. (see
Note 11 to Notes to Consolidated Financial Statements), and downward revisions
in estimated probable recoveries on certain outstanding contract claims. These
pretax charges in 1995, coupled with the increased construction revenues in 1996
referred to above, including the favorable profit impact in 1996 of several
large infrastructure projects, primarily in the metropolitan New York, Boston
and Los Angeles areas, resulted in the substantial increase in gross profit from
construction operations in 1996.
General, administrative and selling expenses decreased by $3.3 million (or 9%),
from $37.3 million in 1995 to $34.0 million in 1996 due primarily to continued
emphasis on reducing overall overhead expenses in conjunction with the Company's
re-engineering efforts commenced in prior years, the sale in June of 1996 of
Pioneer Construction, a former subsidiary of the Company located in West
Virginia, and the continuation of the gradual down-sizing of the Company's real
estate and environmental remediation construction operations.
Other income (expense), net decreased $1.3 million, from income of $.8 million
in 1995 to a loss of $.5 million in 1996 primarily due to higher bank charges
experienced in 1996 in conjunction with the Company's renegotiation of certain
provisions of its Revolving Credit Agreement and Bridge Loan Agreement and, to a
lesser degree, a reduction in gains from the sale of certain underutilized
operating facilities and less interest income.
Interest expense increased by $1.3 million (or 15%), from $8.6 million in 1995
to $9.9 million in 1996 due to a higher average level of borrowings during 1996.
16
The Company recognized income tax expense for the year ending December 31, 1996
of $.8 million on a pretax loss of $69.8 million, whereas in 1995, the Company
recognized a tax benefit of $2.6 million on a pretax loss of $30.2 million. The
1996 income tax expense is primarily for state income taxes relating to certain
jurisdictions in which the Company had net taxable income. The Company did not
provide any federal tax benefit in 1996, whereas in 1995, a partial tax benefit
was provided on the Company's pretax loss, due to certain accounting
limitations.
Financial Condition
Cash and Working Capital
During 1997, the Company provided $12.7 million in cash from operating
activities, primarily from proceeds related to the sale of The Resort at Squaw
Creek, and $14.6 million in cash from financing transactions, due to the net
proceeds received on the sale of Series B Preferred Stock less paydowns of
long-term debt. These funds were used for investing activities ($5.7 million)
primarily for joint ventures and to increase the cash on hand by $21.6 million.
During 1996, the Company used $24.3 million in cash for operating activities,
primarily for changes in working capital, and $21.1 million for investment
activities, primarily to fund construction and real estate joint ventures. These
uses of cash were provided by $21.6 million from financing activities, primarily
increases in borrowings under the Company's Revolving Credit and Bridge Loan
facilities, and a $19.3 million reduction in cash on hand.
During 1995, the Company provided $24.6 million in cash from operating
activities, primarily due to an overall increase in accounts payable and
advances from joint ventures; $9.0 million from financing activities due to an
increase in borrowings under its revolving credit facility; and $23.9 million
from cash distributions from certain joint ventures. These increases in cash
were used to increase cash on hand by $21.2 million, with the balance used for
various investment activities, primarily to fund construction and real estate
joint ventures.
Since 1990, the Company has paid down $45.6 million of real estate debt on
wholly-owned real estate projects (from $50.9 million to $5.3 million),
utilizing proceeds from sales of property and general corporate funds.
Similarly, real estate joint venture debt has been reduced by $167 million over
the same period. As a result, the Company has reached a point at which revenues
from further real estate sales that, in the past, have been largely used to
retire real estate debt will be increasingly available to improve general
corporate liquidity subject to certain restrictions contained in the New Credit
Agreement referred to in Note 3 to Notes to Consolidated Financial Statements.
With the exception of a major property referred to in Note 11 to Notes to
Consolidated Financial Statements, this trend should continue over the next
several years with debt on projects often being fully repaid prior to full
project sell-out. In addition, the Company made a strategic decision in the
early 1990's to change its mix of construction work by increasing the relative
percentage of potentially higher margin civil construction projects. The working
capital required to support civil construction projects is substantially more
than the normal building construction project because of its equipment intensive
nature, progress billing terms imposed by certain public owners and, in some
instances, time required to process contract change orders. The Company has
addressed these problems by relying on corporate borrowings, extending certain
maturing real estate loans (with such extensions usually requiring pay downs and
increased annual amortization of the remaining loan balance), suspending the
acquisition of new real estate inventory, significantly reducing development
expenses on certain projects, utilizing stock in payment of certain expenses,
utilizing cash internally generated from operations and selling its interest in
certain engineering and construction business units that were not an integral
part of the Company's ongoing building and civil construction operations. The
Company also implemented company-wide cost reduction programs in the early
1990's, and which are ongoing, to improve long-term financial results and
suspended the dividend on its Common Stock during the fourth quarter of 1990 and
suspended payment of dividends on its $21.25 Convertible Exchangeable Preferred
Stock in the first quarter of 1996. Also, the Company increased the aggregate
amount available under its revolving credit agreement during the period from $70
million to $114.5 million at December 31, 1997. In addition to internally
generated funds, at December 31, 1997, the Company has $31.5 million available
under its revolving credit facility. The financial covenants to which the
Company is subject include minimum levels of working capital, debt/net worth
ratio, net worth level, interest coverage and certain restrictions on real
estate investments, all as defined in the loan documents. Although the Company
would have been in violation of certain of the covenants during 1997, it
17
obtained waivers of such violations. Effective January 17, 1997, the Company's
liquidity and access to future borrowings, as required, during the next few
years were significantly enhanced by the issuance of $30 million in Redeemable
Series B Cumulative Convertible Preferred Stock (see Note 7 to Notes to
Consolidated Financial Statements) and the New Credit Agreement referred to in
Note 3 to Notes to Consolidated Financial Statements. Also, during 1997, the
Company made substantial progress on a strategy adopted at the end of 1996 that
called for liquidating certain real estate assets which were written down at
that time, resolving several major construction claims and minimizing overhead
expenses.
The working capital current ratio increased to 1.31:1 at the end of 1997,
compared to 1.19:1 at the end of 1996 and compared to 1.12:1 at the end of 1995.
Of the total working capital of $72.0 million at the end of 1997, approximately
$14.6 million may not be converted to cash within the next 12 to 18 months.
Long-term Debt
Long-term debt was $84.9 million at the end of 1997, a decrease of $12.0 million
compared with $96.9 million at the end of 1996, which was an increase of $12.7
million compared with $84.2 million at the end of 1995. The ratio of long-term
debt to equity increased from 0.80:1 at the end of 1995 to 2.72:1 at the end of
1996 and decreased to 2.08:1 at the end of 1997 due primarily to the negative
impact on equity of the net losses experienced by the Company in 1995 and 1996
and the net income in 1997.
Stockholders' Equity
The Company's book value per Common Share stood at $2.44 at December 31, 1997,
compared to $2.14 per Common Share and $17.06 per Common Share at the end of
1996 and 1995, respectively. The major factors impacting stockholders' equity
during the three-year period under review were the net income in 1997, the net
losses recorded in 1995 and 1996 and, to a lesser extent, Preferred dividends
paid or accrued, and stock issued in partial payment of certain expenses.
At December 31, 1997, there were 1,212 Common stockholders of record based on
the stockholders list maintained by the Company's transfer agent.
Dividends
There were no cash dividends declared or paid on the Company's outstanding
Common Stock during the three years ended December 31, 1997.
During 1995, the Company declared and paid the regular quarterly cash dividends
of $5.3125 per share on the Company's Convertible Exchangeable Preferred Shares
for an annual total of $21.25 per share (equivalent to quarterly dividends of
$.53125 per Depositary Share for an annual total of $2.125 per Depositary
Share). In conjunction with the covenants of the 1995 Amended Revolving Credit
Agreement (see Note 3 to Notes to Consolidated Financial Statements), the
Company was required to suspend the payment of quarterly dividends on its
Preferred Stock. Therefore, the dividend that normally would have been declared
during December of 1995 and payable on March 15, 1996, as well as subsequent
quarterly dividends in 1996 and 1997, have not been declared or paid (although
they have been fully accrued due to the "cumulative" feature of the Preferred
Stock). A New Credit Agreement, superseding the loan agreements referred to
above, was approved January 17, 1997 and provides that the Company may not pay
cash dividends or make other restricted payments, as defined, prior to September
30, 1998 and thereafter may not pay cash dividends or make other restricted
payments unless: (i) the Company is not in default under the New Credit
Agreement; (ii) commitments under the credit facility have been reduced to less
than $90 million; (iii) restricted payments in any quarter, when added to
restricted payments made in the prior three quarters, do not exceed fifty
percent (50%) of net income from continuing operations for the prior four
quarters; and (iv) net worth (after taking into consideration the amount of the
proposed cash dividend or restricted payment) is at least equal to the amount
shown below, adjusted for non-cash charges incurred in connection with any
disposition or
18
write-down of any real estate investment, provided that net worth must be at
least $60 million:
Net Worth
---------
(In thousands)
October 1, 1998 to December 30, 1998 $161,977
December 31, 1998 to March 31, 1999 $167,303
April 1, 1999 to June 30, 1999 $170,129
July 1, 1999 to September 30, 1999 $172,955
October 1, 1999 to January 1, 2000 $175,781
For purposes of the New Credit Agreement, net worth shall include the net
proceeds from the sale of the Series B Preferred Stock to the Investors. In
addition, under the terms of the Series B Preferred Stock, the Company may not
pay any cash dividends on its Common Stock until after September 1, 2001, and
then only to the extent such dividends do not exceed in aggregate more than
twenty-five percent (25%) of the Company's consolidated net income available for
distribution to Common shareholders (after Preferred dividends); provided,
however, that the Company shall have elected and paid cash dividends on the
Series B Preferred Stock for the preceding four quarters.
The Board of Directors intends to resume payment of dividends as the Company
satisfies the terms of the New Credit Agreement, the provisions of the Series B
Preferred Stock and the Board deems it prudent to do so.
Outlook
Looking ahead, the overall construction backlog at the end of 1997 was $1.309
billion, down 14% from the 1996 year end backlog of $1.518 billion. This
decrease primarily reflects suspension of work acquisition in certain divisions
that are being closed. This backlog has a good balance between building and
civil work and a relatively high overall estimated profit margin. Approximately
56% of the current backlog relates to building construction projects which
generally represent lower risk, lower margin work, and approximately 44% of the
current backlog relates to heavy construction projects which generally represent
higher risk, but correspondingly potentially higher margin work. During 1996,
the Company also adopted a plan to enhance the profitability of its construction
operations by emphasizing gross margin and bottom line improvement ahead of top
line revenue growth. This plan called for the Company to focus its financial and
human resources on construction operations which are consistently profitable and
to de-emphasize marginal business units. Consistent with that Plan, the Company
closed or downsized and refocused four business units during 1997. The Company
believes the outlook for its building and civil construction businesses
continues to be promising.
Because several of the Company's real estate projects have been written down to
net realizable value, future gross profits from real estate sales will be
minimal, which has been the case during the three year period ended December 31,
1997. A major objective for 1998 is the renegotiation and extension of debt at
Rincon Center (see Note 11 to Notes to Consolidated Financial Statements).
With the receipt of $30 million from the sale of its Redeemable Series B
Preferred Stock and the New Credit Agreement both becoming effective on January
17, 1997, the Company's near term liquidity position has improved substantially,
enabling payments to vendors to generally be made in accordance with normal
payment terms. In order to generate cash and reduce the Company's dependence on
bank debt to fund the working capital needs of its core construction operations
as well as to lower the Company's substantial interest expense and strengthen
the balance sheet in the longer term, the Company will continue to sell certain
real estate assets as market opportunities present themselves; to actively
pursue the favorable conclusion of various construction claims; to focus new
construction work acquisition efforts on various niche markets and geographic
areas where the Company has a proven history of success; to downsize or close
operations with marginal prospects for success; to continue to restrict the
payment of cash dividends on the Company's $1 par value Common Stock and $2.125
Depositary Convertible
19
Exchangeable Preferred Stock; and to continue to seek ways to control overhead
expenses. In addition, at the end of 1996 the Company completed a review of all
of its real estate assets which resulted in a change of strategies related to
certain of those assets to a new strategy of generating short-term liquidity.
This resulted in generating cash proceeds in excess of $20 million during 1997
and up to an additional $10 million which may be generated during 1998.
Management believes that cash generated from operations, existing credit lines,
additional borrowings and projected sale of certain real estate assets referred
to above should be adequate to meet the Company's funding requirements for at
least the next twelve months.
Forward-looking Statements
This Management's Discussion and Analysis of Financial Condition and Results of
Operations, including "Outlook" and other sections of this Annual Report,
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
including statements that are based on current expectations, estimates and
projections about the industries in which the Company operates, management's
beliefs and assumptions made by management. Words such as "expects",
"anticipates", "intends", "plans", "believes", "seeks", "estimates", variations
of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions which are
difficult to predict. Therefore, actual outcomes and results may differ
materially from those in such forward-looking statements. The Company undertakes
no obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The Reports of Independent Public Accountants, Consolidated Financial
Statements, and Supplementary Schedules, are set forth on the pages that follow
in this Report and are hereby incorporated herein.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
- -------------------------------------------------------------
None.
20
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information to be set forth in the section
entitled "Election of Directors" in the definitive proxy statement involving
election of directors in connection with the Annual Meeting of Stockholders to
be held on May 14, 1998 (the "Proxy Statement"), which section is incorporated
herein by reference. The Proxy Statement will be filed with the Securities and
Exchange Commission not later than 120 days after December 31, 1997 pursuant to
Regulation 14A of the Securities and Exchange Act of 1934, as amended.
Listed below are the names, offices held, ages and business experience
of all executive officers of the Company.
Name, Offices Held and Age Year First Elected to Present Office and
Business Experience
- -------------------------- --------------------------------------------
David B. Perini, Director and Since January 1, 1998 he serves as a
Chairman - 60 Director and Chairman. Prior to that, he
served as a Director, President, Chief
Executive Officer and Acting Chairman since
1972. He became Chairman on March 17, 1978
and has worked for the Company since 1962 in
various capacities. Prior to being elected
President, he served as Vice President and
General Counsel.
Roger J. Ludlam, Director, He was elected President and Chief Executive
President and Chief Executive Officer effective January 1, 1998. Prior to
Officer - 55 that, he served as Senior Vice President,
Civil Construction since June 1997. Prior
thereto, he served as Chief Executive
Officer of Park Construction, a Minnesota
based civil construction contractor since
January 1994 and in a similar capacity for
S.J. Groves & Sons Company since 1989.
Robert Band, Executive Vice He was elected to his current position in
President, Chief Financial December 1997. Prior to that, he served as
Officer - 50 President of Perini Management Services,
Inc. since January 1996 and as Senior Vice
President, Chief Operating Officer of Perini
International Corporation since April 1995.
Previously, he served as Vice President
Construction from July 1993 and in various
operating and financial capacities since
1973, including Treasurer from May 1988 to
January 1990.
Richard J. Rizzo, Executive He was elected to his current position
Vice President, Business effective January 1, 1998. Prior to that, he
Development - 54 served as Executive Vice President, Building
Construction since January 1994, which
entailed overall responsibility for the
Company's building construction operations.
Prior thereto, he served as President of
Perini Building Company (formerly known as
Mardian Construction Co.) since 1985, and in
various other operating capacities since
1977.
John H. Schwarz, Executive Vice He has served as Executive Vice President,
President, Finance and Finance and Administration since August
Administration of the Company 1994. He also served as Chief Executive
- - 59* Officer of Perini Land and Development
Company, which entails overall
responsibility for the Company's real estate
operations since April 1992 through 1995.
Prior to that, he served as Vice President,
Finance and Controls of Perini Land and
Development Company. Previously, he served
as Treasurer from August 1984, and Director
of Corporate Planning since May 1982. He
joined the Company in 1979 as Manager of
Corporate Development.
Donald E. Unbekant, Executive He has served in this capacity since January
Vice President, Civil 1994, which entails overall responsibility
Construction - 66* for the Company's civil construction
operations. Prior thereto, he served in the
Metropolitan New York Division of the
Company as President since 1992, Vice
President and General Manager since 1990 and
Division Manager since 1984.
* Messrs. Schwarz and Unbekant retired at the end of 1997.
21
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
- ------------------------------------------------------------------------
The Company's officers are elected on an annual basis at the Board of
Directors Meeting immediately following the Shareholders Meeting in May, to hold
such offices until the Board of Directors Meeting following the next Annual
Meeting of Shareholders and until their respective successors have been duly
appointed or until their tenure has been terminated by the Board of Directors,
or otherwise.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
In response to Items 11-13, reference is made to the information to be
set forth in the section entitled "Election of Directors" in the Proxy
Statement, which is incorporated herein by reference.
22
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PERINI CORPORATION AND SUBSIDIARIES
(a)1. The following financial statements and supplementary financial
information are filed as part of this report:
Pages
-----
FINANCIAL STATEMENTS OF THE REGISTRANT
Consolidated Balance Sheets as of December 31, 1997 and 1996 25 - 26
Consolidated Statements of Operations for the three years ended December 31, 1997, 1996 and 27
1995
Consolidated Statements of Stockholders' Equity for the three years ended December 31, 1997, 28
1996 and 1995
Consolidated Statements of Cash Flows for the three years ended December 31, 1997, 1996 and 29 - 30
1995
Notes to Consolidated Financial Statements 31 - 51
Report of Independent Public Accountants 52
(a)2. The following financial statement schedules are filed as part of this report:
Pages
-----
Report of Independent Public Accountants on Schedules 53
Schedule I -- Condensed Financial Information of Registrant 54 - 59
Schedule II -- Valuation and Qualifying Accounts and Reserves 60
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 61 through 64. The Company will furnish a copy of any exhibit not
included herewith to any holder of the Company's Common and Preferred
Stock upon request.
(b) During the quarter ended December 31, 1997, the Registrant made no
filings on Form 8-K.
23
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, hereunto duly authorized.
Perini Corporation
(Registrant)
Dated: March 30, 1998
David B. Perini
Chairman
Pursuant to the requirements of the Securities and 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
David B. Perini Chairman March 30, 1998
/s/David B. Perini
------------------
David B. Perini
(ii) Principal Financial Officer
Robert Band Executive Vice President,
Chief Financial Officer March 30, 1998
/s/Robert Band
--------------
Robert Band
(iii) Principal Accounting Officer
Barry R. Blake Vice President and
Controller March 30, 1998
/s/Barry R. Blake
-----------------
Barry R. Blake
(iv) Directors
David B. Perini )
Richard J. Boushka )
Marshall M. Criser )
Albert A. Dorman ) /s/ David B. Perini
Arthur J. Fox, Jr. ) David B. Perini
Nancy Hawthorne )
Michael R. Klein ) Attorney in Fact
Roger J. Ludlam ) Dated: March 30, 1998
Douglas J. McCarron )
John H. McHale )
Jane E. Newman )
Bart W. Perini )
Ronald N. Tutor )
24
Consolidated Balance Sheets
December 31, 1997 and 1996
(In thousands except per share data)
Assets
1997 1996
------------- -------------
CURRENT ASSETS:
Cash, including cash equivalents of $ 23,585 and $9,071 (Note 1) $ 31,305 $ 9,745
Accounts and notes receivable, including retainage of $54,234 and $63,423 139,221 188,120
Unbilled work (Note 1) 36,574 35,600
Construction joint ventures (Notes 1 and 2) 71,056 78,233
Real estate inventory, at the lower of cost or market (Notes 1 and 4) 25,145 37,914
Deferred tax asset (Notes 1 and 5) 1,067 3,513
Other current assets 1,808 1,655
------------- -------------
Total current assets $ 306,176 $ 354,780
------------- -------------
REAL ESTATE DEVELOPMENT INVESTMENTS (Notes 1 and 4):
Land held for sale or development (including land development costs) at
the lower of cost or market $ 7,093 $ 21,520
Investments in and advances to real estate joint ventures
(Notes 2 and 11) 86,598 71,253
Other - 49
------------- -------------
Total real estate development investments $ 93,691 $ 92,822
------------- -------------
PROPERTY AND EQUIPMENT, at cost (Note 1):
Land $ 826 $ 793
Buildings and improvements 13,026 13,075
Construction equipment 7,580 10,535
Other equipment 8,450 9,726
------------- -------------
$ 29,882 $ 34,129
Less - Accumulated depreciation 19,406 23,013
------------- -------------
Total property and equipment, net $ 10,476 $ 11,116
------------- -------------
OTHER ASSETS:
Other investments $ 3,069 $ 3,999
Goodwill (Note 1) 1,512 1,575
------------- -------------
Total other assets $ 4,581 $ 5,574
------------- -------------
$ 414,924 $ 464,292
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
25
Liabilities and Stockholders' Equity
1997 1996
--------------- --------------
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 3) $ 11,873 $ 16,421
Accounts payable, including retainage of $49,884 and $57,131 145,118 183,407
Advances from construction joint ventures (Note 2) 29,801 47,544
Deferred contract revenue (Note 1) 17,117 23,841
Accrued expenses 30,296 26,823
--------------- --------------
Total current liabilities $ 234,205 $ 298,036
--------------- --------------
DEFERRED INCOME TAXES AND OTHER LIABILITIES (Notes 1, 5 & 6) $ 24,101 $ 31,297
--------------- --------------
LONG-TERM DEBT, less current maturities included above (Note 3):
Real estate development $ 322 $ 4,287
Other 84,576 92,606
--------------- --------------
Total long-term debt $ 84,898 $ 96,893
--------------- --------------
MINORITY INTEREST (Note 1) $ 1,064 $ 2,508
--------------- --------------
CONTINGENCIES AND COMMITMENTS (Note 11)
REDEEMABLE SERIES B CUMULATIVE CONVERTIBLE PREFERRED
STOCK (Note 7):
Authorized - 500,000 shares
Issued and outstanding - 164,300 shares ($32,860 aggregate liquidation
preference) $ 29,756 $ -
--------------- --------------
STOCKHOLDERS' EQUITY (Notes 1, 3, 7, 8, 9 and 10):
Preferred Stock, $1 par value -
Authorized - 500,000 shares
Designated, issued and outstanding - 100,000 shares of $21.25 Convertible
Exchangeable Preferred Stock ($25,000 aggregate liquidation preference) $ 100 $ 100
Series A junior participating Preferred Stock, $1 par value -
Designated - 200,000
Issued - none - -
Stock Purchase Warrants 2,233 -
Common Stock, $1 par value -
Authorized - 15,000,000 shares
Issued - 5,267,130 shares and 5,032,427 shares 5,267 5,032
Paid-in surplus 53,012 57,080
Retained earnings (deficit) (15,294) (20,666)
ESOT related obligations (2,663) ( 3,856)
--------------- --------------
$ 42,655 $ 37,690
Less - Common Stock in treasury, at cost - 110,084 shares and 133,779 shares 1,755 2,132
--------------- --------------
Total stockholders' equity $ 40,900 $ 35,558
--------------- --------------
$ 414,924 $ 464,292
=============== ==============
26
Consolidated Statements of Operations
For the Years Ended December 31, 1997, 1996 & 1995
(In thousands, except per share data)
1997 1996 1995
---------------- --------------- ----------------
REVENUES (Notes 2 and 13) $ 1,324,491 $ 1,270,284 $ 1,101,068
---------------- --------------- ----------------
COSTS AND EXPENSES (Notes 2 and 10):
Cost of operations $ 1,275,614 $ 1,215,806 $ 1,086,213
Write down of certain real estate assets (Note 4) - 79,900 -
General, administrative and selling expenses 30,556 33,988 37,283
---------------- --------------- ----------------
$ 1,306,170 $ 1,329,694 $ 1,123,496
---------------- --------------- ----------------
INCOME (LOSS) FROM OPERATIONS (Note 13) $ 18,321 $ (59,410) $ (22,428)
---------------- --------------- ----------------
Other income (expense), net (Note 6) (1,665) (492) 814
Interest expense (Note 3) (10,334) (9,871) (8,582)
---------------- --------------- ----------------
INCOME (LOSS) BEFORE INCOME TAXES $ 6,322 $ (69,773) $ (30,196)
(Provision) credit for income taxes (Notes 1 and 5) (950) (830) 2,611
---------------- --------------- ----------------
NET INCOME (LOSS) $ 5,372 $ (70,603) $ (27,585)
================ =============== ================
BASIC & DILUTED EARNINGS (LOSS) PER
COMMON SHARE (Note 1) $ 0.01 $ (15.13) $ (6.38)
================ =============== ================
The accompanying notes are an integral part of these consolidated financial
statements.
27
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1997, 1996 & 1995
(In thousands, except per share data)
Stock Retained ESOT
Preferred Purchase Common Paid-In Earnings Related Treasury
Stock Warrants Stock Surplus (Deficit) Obligation Stock Total
- ---------------------------- ---------- --------- ---------- ---------- ----------- ----------- ----------- ----------
Balance - December 31, 1994 $ 100 $ - $ 4,985 $ 59,001 $ 81,772 $ (6,009) $ (7,820) $ 132,029
- ---------------------------- ---------- --------- ---------- ---------- ----------- ----------- ----------- ----------
Net Loss - - - - (27,585) - - (27,585)
Preferred Stock-cash dividends
declared or accrued ($21.25 per
share*) - - - - (2,125) - - (2,125)
Treasury Stock issued in partial
payment of incentive
compensation - - - (1,342) - - 3,585 2,243
Payments related to ESOT notes - - - - - 1,044 - 1,044
Balance - December 31, 1995 $ 100 $ - $ 4,985 $ 57,659 $ 52,062 $ (4,965) $ (4,235) $ 105,606
- ---------------------------- ---------- --------- ---------- ---------- ----------- ----------- ----------- ----------
Net Loss - - - - (70,603) - - (70,603)
Preferred Stock dividends
accrued ($21.25 per share*) - - - - (2,125) - - (2,125)
Treasury Stock issued in
partial payment of incentive
compensation - - - (830) - - 1,867 1,037
Payment of director fees - - - (102) - - 236 134
Payment of finance fee (Note 3) - - 47 353 - - - 400
Payments related to ESOT notes - - - - - 1,109 - 1,109
Balance - December 31, 1996 $ 100 $ - $ 5,032 $ 57,080 $ (20,666) $ (3,856) $ (2,132) $ 35,558
- ---------------------------- ---------- --------- ---------- ---------- ----------- ----------- ----------- ----------
Net Income - - - - 5,372 - - 5,372
Value of Stock Purchase
Warrants issued (Note 3) - 2,233 - - - - - 2,233
Preferred Stock dividends
accrued ($21.25 per share*) - - - (2,125) - - - (2,125)
Series B Preferred Stock
dividends in kind issued
(Note 7) - - - (2,830) - - - (2,830)
Accretion related to Series B
Preferred Stock (Note 7) - - - (368) - - - (368)
Common Stock issued in
partial payment of incentive
compensation - - 235 1,466 - - - 1,701
Payment of director fees - - - (211) - - 377 166
Payments related to ESOT notes - - - - - 1,193 - 1,193
Balance - December 31, 1997 $ 100 $ 2,233 $ 5,267 $ 53,012 $ (15,294) $ (2,663) $ (1,755) $ 40,900
- ---------------------------- ---------- --------- ---------- ---------- ----------- ----------- ----------- ----------
*Equivalent to $2.125 per Depositary Share (see Note 8).
The accompanying notes are an integral part of these consolidated financial
statements.
28
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 & 1995
(In thousands)
Cash Flows from Operating Activities: 1997 1996 1995
------------ ------------ ------------
Net income (loss) $ 5,372 $ (70,603) $ (27,585)
Adjustments to reconcile net income (loss) to net cash from operating
activities -
Depreciation 1,936 2,527 2,707
Amortization of deferred debt expense, Stock Purchase Warrants and
other 2,011 895 614
Distributions greater (less) than earnings of joint ventures and
affiliates (1,859) (4,586) 12,880
Write down of certain real estate properties - 79,900 -
Cash provided from (used by) changes in components of working capital other
than cash, notes payable and current maturities of long-term debt:
(Increase) decrease in accounts receivable 48,899 (7,142) (29,358)
(Increase) decrease in unbilled work (974) (7,296) (8,095)
(Increase) decrease in construction joint ventures 820 (380) 2,643
(Increase) decrease in deferred tax asset 2,446 9,526 (6,973)
(Increase) decrease in other current assets (153) 849 2,109
Increase (decrease) in accounts payable (38,289) (13,645) 48,997
Increase (decrease) in advances from construction joint ventures (17,743) 12,714 26,020
Increase (decrease) in deferred contract revenue (6,724) 398 (15,486)
Increase (decrease) in accrued expenses 1,348 (8,080) (3,106)
Non-current deferred taxes and other liabilities (7,196) (21,366) 19,175
Proceeds from sale of interests in real estate joint ventures 20,260 - -
Real estate development investments other than joint ventures 3,741 4,500 2,757
Other non-cash items, net (1,200) (1,689) (2,174)
------------ ------------ ------------
NET CASH PROVIDED FROM (USED BY) OPERATING ACTIVITIES $ 12,695 $ (23,478) $ 25,125
------------ ------------ ------------
Cash Flows from Investing Activities:
Proceeds from sale of property and equipment $ 383 $ 2,098 $ 3,115
Cash distributions of capital from unconsolidated joint ventures 16,614 8,753 23,858
Acquisition of property and equipment (1,663) (1,449) (1,960)
Improvements to land held for sale or development (666) (515) (193)
Improvements to real estate properties used in operations - (123) (263)
Capital contributions to unconsolidated joint ventures (7,063) (20,224) (29,373)
Advances to real estate joint ventures, net (13,030) (7,312) (7,735)
Investments in other activities (273) (3,206) (362)
------------ ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES $ (5,698) $ (21,978) $ (12,913)
------------ ------------ ------------
29
Consolidated Statements of Cash Flows (Continued)
For the Years Ended December 31, 1997, 1996 & 1995
(In thousands)
Cash Flows from Financing Activities: 1997 1996 1995
------------ ------------ ------------
Proceeds from Issuance of Redeemable Series B Preferred Stock, net $ 26,558 $ - $ -
Proceeds from long-term debt 5,035 27,006 12,033
Repayment of long-term debt (18,897) (2,435) (3,145)
Cash dividends paid - - (2,125)
Common Stock issued 1,701 - -
Treasury Stock issued 166 1,171 2,243
Finance fee paid in stock - 400 -
------------ ------------ ------------
NET CASH PROVIDED FROM FINANCING ACTIVITIES $ 14,563 $ 26,142 $ 9,006
------------ ------------ ------------
Net Increase (Decrease) in Cash $ 21,560 $ (19,314) $ 21,218
Cash and Cash Equivalents at Beginning of Year 9,745 29,059 7,841
------------ ------------ ------------
Cash and Cash Equivalents at End of Year $ 31,305 $ 9,745 $ 29,059
============ ============ ============
Supplemental Disclosures of Cash Paid During the Year For:
Interest $ 10,133 $ 9,596 $ 8,715
============ ============ ============
Income tax payments $ 330 $ 221 $ 121
============ ============ ============
Supplemental Disclosure of Noncash Transactions:
Dividends paid in shares of Series B Preferred Stock (Note 7) $ 2,830 $ - $ -
============ ============ ============
Value assigned to Stock Purchase Warrants (Note 3) $ 2,233 $ - $ -
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997, 1996 & 1995
[1] Summary of Significant Accounting Policies
[a] Principles of Consolidation
The consolidated financial statements include the accounts of Perini
Corporation, its subsidiaries and certain majority-owned real estate joint
ventures (the "Company"). All subsidiaries are currently wholly-owned. All
significant intercompany transactions and balances have been eliminated in
consolidation. Non-consolidated joint venture interests are accounted for on the
equity method with the Company's share of revenues and costs in these interests
included in "Revenues" and "Cost of Operations," respectively, in the
accompanying consolidated statements of operations. All significant intercompany
profits between the Company and its joint ventures have been eliminated in
consolidation. Taxes are provided on joint venture results in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes".
[b] Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. The most significant
estimates with regard to these financial statements relate to the estimating of
final construction contract profits in accordance with accounting for long-term
contracts (see Note 1(c) below), estimating future cash flows of real estate
development projects (see Note 1(d) below) and estimating potential liabilities
in conjunction with certain contingencies and commitments, as discussed in Note
11 below. Actual results could differ from these estimates.
[c] Method of Accounting for Contracts
Profits from construction contracts and construction joint ventures are
generally recognized by applying percentages of completion for each year to the
total estimated profits for the respective contracts. The percentages of
completion are determined by relating the actual cost of the work performed to
date to the current estimated total cost of the respective contracts. When the
estimate on a contract indicates a loss, the Company's policy is to record the
entire loss. The cumulative effect of revisions in estimates of total cost or
revenue during the course of the work is reflected in the accounting period in
which the facts that caused the revision become known. An amount equal to the
costs attributable to unapproved change orders and claims is included in the
total estimated revenue when realization is probable. Profit from unapproved
change orders and claims is recorded in the year such amounts are resolved.
In accordance with normal practice in the construction industry, the Company
includes in current assets and current liabilities amounts related to
construction contracts realizable and payable over a period in excess of one
year. Unbilled work represents the excess of contract costs and profits
recognized to date on the percentage of completion accounting method over
billings to date on certain contracts. Deferred contract revenue represents the
excess of billings to date over the amount of contract costs and profits
recognized to date on the percentage of completion accounting method on the
remaining contracts.
[d] Methods of Accounting for Real Estate Operations
All real estate sales are recorded in accordance with SFAS No. 66, "Accounting
for Sales of Real Estate". Gross profit is not recognized in full unless the
collection of the sale price is reasonably assured and the Company is not
obliged to perform significant activities after the sale. Unless both conditions
exist, recognition of all or a part of gross profit is deferred.
The gross profit recognized on sales of real estate is determined by relating
the estimated total land, land development and construction costs of each
development area to the estimated total sales value of the property in the
development.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1997, 1996 & 1995 (continued)
[1] Summary of Significant Accounting Policies (continued)
[d] Methods of Accounting for Real Estate Operations (continued)
Real estate investments are stated at the lower of the carrying amounts, which
includes applicable interest and real estate taxes during the development and
construction phases, or fair value less cost to sell in accordance with SFAS No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". SFAS No. 121 requires that assets to be held and used
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment has
occurred when the carrying amount of the assets exceed the related undiscounted
future cash flows of a development. SFAS No. 121 also provides that when
management has committed to a plan to dispose of specific real estate assets,
the assets should be reported at the lower of the carrying amount or fair value
less cost to sell. Estimating future cash flows of a development involves
estimating the current sales value of the development less the estimated costs
of completion (to the stage of completion assumed in determining the selling
price), holding and disposal. Estimated sales values are forecast based on
comparable local sales (where applicable), trends as foreseen by knowledgeable
local commercial real estate brokers or others active in the business and/or
project specific experience such as offers made directly to the Company relating
to the property. If the estimated future cash flows of a development are less
than the carrying amount of a development, SFAS No. 121 requires a provision to
be made to reduce the carrying amount of the development to fair value less cost
to sell. In 1996, the Company changed its strategy with respect to certain real
estate assets which resulted in a write-down that is described in Note 4 below.
[e] Depreciable Property and Equipment
Land, buildings and improvements, construction and computer-related equipment
and other equipment are recorded at cost. Depreciation is provided primarily
using accelerated methods for construction and computer-related equipment and
the straight-line method for the remaining depreciable property.
[f] Goodwill
Goodwill represents the excess of the costs of subsidiaries acquired over the
fair value of their net assets as of the dates of acquisition. These amounts are
being amortized on a straight-line basis over 40 years.
[g] Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," (see Note 5). Deferred income tax assets and
liabilities are recognized for the effects of temporary differences between the
financial statement carrying amounts and the income tax basis of assets and
liabilities using enacted tax rates. In addition, future tax benefits, such as
net operating loss carryforwards, are recognized currently to the extent such
benefits are more likely than not to be realized as an economic benefit in the
form of a reduction of income taxes in future years.
[h] Earnings (Loss) Per Common Share
Earnings (loss) per common share amounts were calculated in accordance with SFAS
No. 128, "Earnings Per Share". Basic earnings (loss) per common share ("EPS")
was computed by dividing net income (loss) less dividend and other requirements
related to Preferred Stock by the weighted-average number of common shares
outstanding. Diluted earnings (loss) per common share was computed by giving
effect to all dilutive potential common shares outstanding. The weighted-average
shares used in the diluted earnings (loss) per common share computations were
essentially the same as those used in the basic earnings (loss) per common share
computations (see below). Basic EPS equals diluted EPS for all periods presented
due to the immaterial effect of stock options and the antidilutive effect of
conversion of the Company's Depositary Convertible Exchangeable Preferred
Shares.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1997, 1996 & 1995 (continued)
[1] Summary of Significant Accounting Policies (continued)
[h] Earnings (Loss) Per Common Share (continued)
Basic and diluted earnings (loss) per common share for the three years ended
December 31, 1997 are calculated as follows (in thousands except per share
amounts):
1997 1996 1995
------------ -------------- -------------
Net income (loss) $ 5,372 $ (70,603) $ (27,585)
------------ -------------- -------------
Less:
Declared or accrued dividends on $21.25 Senior Preferred Stock $ (2,125) $ (2,125) $ (2,125)
Dividends declared on Series B Preferred Stock (2,830) --- ---
Accretion deduction required to reinstate mandatory redemption
value of Series B Preferred Stock over a period of 8-10 years (368) --- ---
------------ -------------- -------------
$ (5,323) $ (2,125) $ (2,125)
------------ -------------- -------------
Earnings available for Common Shares $ 49 $ (72,728) $ (29,710)
============ ============== =============
Weighted average shares outstanding 5,059 4,808 4,655
------------ -------------- -------------
Basic and diluted earnings (loss) per Common Share $ 0.01 $ (15.13) $ (6.38)
============ ============== =============
[i] Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with original
maturities of three months or less.
[j] Reclassifications
Certain prior year amounts have been reclassified to be consistent with the
current year classifications.
[k] Impact of Recently Issued Accounting Standards
During 1997, SFAS No. 129 "Disclosure of Information about Capital" was issued.
The Statement continues the requirements to disclose certain information about
an enterprise's capital structure prescribed by previous accounting standards.
The Company's current disclosures are in compliance with the requirements of the
Statement.
During 1997, SFAS No. 130 "Reporting Comprehensive Income" was issued. The
Company will implement the provisions of the Statement in the quarter ending
March 31, 1998. The Statement requires an enterprise to report certain changes
in stockholders' equity that are not reported in net income, except those
resulting from investments by and distributions to stockholders, and display
these gains and losses below net income in the income statement, in a separate
statement that begins with net income or in the statement of changes in
stockholders' equity. The provisions of the Statement are limited to issues of
reporting and presentation and do not affect matters of recognition and
measurement of items of comprehensive income. Consequently, the Company does not
expect the effect of its adoption of the Statement to be material.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1997, 1996 & 1995 (continued)
[1] Summary of Significant Accounting Policies (continued)
[k] Impact of Recently Issued Accounting Standards (continued)
Also during 1997, SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information", which supersedes Statement No. 14 "Financial Reporting for
Segments of a Business Enterprise", was issued. The Company will implement the
provisions of the Statement for the year ending December 31, 1998. Generally,
financial information is required to be reported on the basis that is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. The Statement requires an enterprise to report a measure
of segment profit or loss, certain specific revenue and expense items and
segment assets. It requires reconciliations of total segment revenues, total
segment profit or loss, total segment assets, and other amounts disclosed for
segments to corresponding amounts in the enterprise's financial statements. It
requires an enterprise to report information about the revenues derived from its
products or services (or groups of similar products and services), about the
countries in which the enterprise earns revenues and holds assets, and about
major customers. The provisions of the Statement relate primarily to issues of
reporting and presentation, and the Company does not expect the effect of its
adoption of the Statement to be material.
[2] Joint Ventures
The Company, in the normal conduct of its business, has entered into partnership
arrangements, referred to as "joint ventures," for certain construction and real
estate development projects. Each of the joint venture participants is usually
committed to supply a predetermined percentage of capital, as required, and to
share in a predetermined percentage of the income or loss of the project.
Summary financial information (in thousands) for construction and real estate
joint ventures accounted for on the equity method for the three years ended
December 31, 1997 follows:
Construction Joint Ventures
Financial position at December 31, 1997 1996 1995
----------------- --------------- ---------------
Current assets $ 403,058 $ 329,999 $ 227,578
Property and equipment, net 11,482 32,145 22,491
Current liabilities (292,184) (236,752) (151,311)
----------------- --------------- ---------------
Net assets $ 122,356 $ 125,392 $ 98,758
================= =============== ===============
Equity $ 71,056 $ 78,233 $ 61,846
================= =============== ===============
Operations for the year ended December 31, 1997 1996 1995
----------------- --------------- ---------------
Revenue $ 1,030,347 $ 753,214 $ 348,730
Cost of operations 974,571 702,997 329,414
----------------- --------------- ---------------
Pretax income $ 55,776 $ 50,217 $ 19,316
================= =============== ===============
Company's share of joint ventures
Revenue $ 555,363 $ 446,793 $ 182,799
Cost of operations 518,576 413,935 177,990
----------------- --------------- ---------------
Pretax income $ 36,787 $ 32,858 $ 4,809
================= =============== ===============
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1997, 1996 & 1995 (continued)
[2] Joint Ventures (continued)
The Company has a centralized cash management arrangement with certain
construction joint ventures in which it is the sponsor. Under this arrangement,
excess cash is controlled by the Company; cash is made available to meet the
individual joint venture requirements, as needed; and interest income is
credited to the ventures at competitive market rates. In addition, certain joint
ventures sponsored by other contractors, in which the Company participates,
distribute cash at the end of each quarter to the participants who will then
return these funds at the beginning of the next quarter. Of the total cash
advanced at the end of 1997 ($29.8 million) and 1996 ($47.5 million),
approximately $20.0 million in 1997 and $25.6 million in 1996 was deemed to be
temporary.
Real Estate Joint Ventures
Financial position at December 31, 1997 1996 1995
----------------- --------------- ---------------
Property held for sale or development $ 11,544 $ 12,683 $ 18,350
Investment properties, net 125,234 168,833 173,468
Other assets 20,645 64,530 61,700
Long-term debt (61,712) (69,195) (72,603)
Other liabilities* (222,131) (334,087) (305,755)
----------------- --------------- ---------------
Net assets (liabilities) $ (126,420) $ (157,236) $ (124,840)
================= =============== ===============
Equity ** $ (58,434) $ (125,877) $ (46,640)
Advances 146,332 222,341 198,741
----------------- --------------- ---------------
Total Equity and Advances $ 87,898 $ 96,464 $ 152,101
================= =============== ===============
Total Equity and Advances, Long-term $ 86,598 $ 71,253 $ 148,225
Total Equity and Advances, Short-term *** 1,300 25,211 3,876
----------------- --------------- ---------------
$ 87,898 $ 96,464 $ 152,101
================= =============== ===============
Operations for the year ended December 31, 1997 1996 1995
----------------- --------------- ---------------
Revenue $ 24,486 $ 42,921 $ 49,560
----------------- --------------- ---------------
Cost of operations -
Depreciation $ 3,662 $ 6,614 $ 7,304
Other 63,225 64,289 73,829
----------------- --------------- ---------------
$ 66,887 $ 70,903 $ 81,133
----------------- --------------- ---------------
Pretax income (loss) $ (42,401) $ (27,982) $ (31,573)
================= =============== ===============
Company's share of joint ventures
Revenue $ 13,252 $ 22,502 $ 23,424
----------------- --------------- ---------------
Cost of operations -
Depreciation $ 1,709 $ 3,441 $ 3,275
Other **** 12,132 19,127 20,888
----------------- --------------- ---------------
$ 13,841 $ 22,568 $ 24,163
----------------- --------------- ---------------
Pretax income (loss) $ (589) $ (66) $ (739)
================= =============== ===============
* Included in "Other liabilities" are advances from joint venture
partners in the amount of $287.6 million in 1995, $255.0 million
in 1996, and $195.2 million in 1997. Of the total advances from
joint venture partners, $198.7 million in 1995, $222.3 million in
1996, and $146.3 million in 1997
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended
December 31, 1997, 1996 & 1995 (continued)
[2] Joint Ventures (continued)
represented advances from the Company.
** When the Company's equity in a real estate joint venture is
combined with advances by the Company to that joint venture, each
joint venture has a positive investment balance at December 31,
1997.
*** Included in real estate inventory classified as current.
**** Other costs are reduced by the amount of interest income recorded
by the Company on its advances to the respective joint ventures.
[3] Long-term Debt
Long-term debt of the Company at December 31, 1997 and 1996 consists of the
following (in thousands):
1997 1996
-------------- --------------
Real Estate Development:
Industrial revenue bonds, at 65% of prime, payable in semi-annual installments $ 432 $ 891
Mortgages on real estate, at rates ranging from 8% to 10.82%, payable in
installments 4,889 7,222
-------------- --------------
Total $ 5,321 $ 8,113
Less - current maturities 4,999 3,826
-------------- --------------
Net real estate development long-term debt $ 322 $ 4,287
============== ==============
Other:
Revolving credit loans at an average rate of 8.2% in 1997 and 8.1% in 1996 $ 80,000 $ 85,000
Less - unamortized deferred value attributable to the Stock Purchase Warrants
(see below) (1,488) ---
-------------- --------------
$ 78,512 $ 85,000
PB Capital bridge loan at a rate of prime plus 4% --- 10,000
ESOT Notes at 8.24%, payable in semi-annual installments (Note 8) 2,423 3,495
Industrial revenue bonds at various rates, payable in 2005 4,000 4,000
Bank loan at a rate of prime plus 1%, payable in May 1998 3,650 ---
Other indebtedness 2,865 2,706
-------------- --------------
Total $ 91,450 $ 105,201
Less - current maturities 6,874 12,595
-------------- --------------
Net other long-term debt $ 84,576 $ 92,606
============== ==============
Payments required under these obligations amount to approximately $11,873 in
1998, $1,997 in 1999, $80,389 in 2000, and $4,000 in 2005.
Effective December 12, 1994, the Company entered into a revolving credit
agreement with a group of major banks which provided, among other things, for
the Company to borrow up to an aggregate of $125 million, with a $25 million
maximum of such amount also being available for letters of credit. The Company
could choose from three
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1997, 1996 & 1995 (continued)
[3] Long-term Debt (continued)
interest rate alternatives including a prime-based rate, as well as other
interest rate options based on LIBOR (London inter-bank offered rate) or
participating bank certificate of deposit rates.
The revolving credit agreement, as well as certain other loan agreements,
provided for, among other things, maintaining specified working capital and
tangible net worth levels and, additionally, imposed limitations on indebtedness
and future investment in real estate development projects. During 1996, the
Company would have been in violation of certain of these financial covenants;
however, the Company obtained waivers of any such violations. Effective February
26, 1996, certain modifications were made to the revolving credit agreement
("Amended Revolving Credit Agreement") including, among other things, additional
collateral which consists of all available assets not included as collateral in
other agreements and suspension of payment of the 53 1/8 cent per share
quarterly dividend on the Company's Depositary Convertible Exchangeable
Preferred Shares (see Note 8) until certain financial criteria are met. Also,
effective February 26, 1996, the Company entered into a Bridge Loan Agreement
with its revolver banks to borrow up to an additional $15 million at an interest
rate of prime plus 2%. During November 1996, the Bridge Loan Facility was
temporarily increased by $10 million to allow PB Capital Partners, L.P. ("PB
Capital"), one of the investors in the Company's new Series B Cumulative
Convertible Preferred Stock ("Series B Preferred Stock") (see Note 7 for details
of this transaction), to participate 100% in the additional Bridge Loan by
temporarily loaning $10 million to the Company until such time as the issuance
of the new Series B Preferred Stock was approved by the Company's shareholders.
In connection with this transaction, the Company paid PB Capital a fee of
$400,000 payable in shares of the Company's $1.00 par value Common Stock (47,267
shares) valued at fair market value at the time of the transaction. Concurrent
with the approval of the Series B Preferred Stock by the Company's shareholders
on January 17, 1997, the Company issued its Series B Preferred Stock for
approximately $30 million, repaid the $10 million temporary Bridge Loan from PB
Capital, and entered into a new revolving credit agreement with its bank group
(the "New Credit Agreement").
Under the New Credit Agreement, the previous Revolving Credit Agreement and
Bridge Loan Facility were combined into a single $129.5 million Credit Facility
and the expiration dates extended from 1997 to January 1, 2000. The New Credit
Agreement provides for scheduled mandatory reductions of the total $129.5
million Credit Facility in the amount of $15.0 million in 1997, $15.0 million in
1998, $12.5 million in 1999 and the balance in 2000. Receipt of 50% of the net
proceeds from real estate sales in excess of $20 million and 80% of net proceeds
from the sale of certain other assets immediately reduce the total commitment
under the Credit Facility and can represent all or part of the decrease on the
scheduled mandatory reduction dates. After the $15.0 million reduction on
December 31, 1997, the total Credit Facility now aggregates $114.5 million. In
consideration of the restructuring of the Credit Facilities, the Bank Group
received fees in the amount of $444,000 and Stock Purchase Warrants enabling the
participating banks to purchase up to 420,000 shares of the Company's Common
Stock, $1.00 par value, at $8.30 per share, the average fair market value of the
stock for the five business days prior to the January 17, 1997 closing, at any
time during the ten year period ended January 17, 2007. The grant date present
value of the Stock Purchase Warrants ($2,233,000) was calculated using the
Black-Scholes option pricing model and was accounted for by an increase in
Stockholders' Equity, with the offset being a valuation account netted against
the related Revolving Credit Loans. The valuation account is being amortized
over the approximate three-year term of the New Credit Agreement, with the
offsetting charge ($745,000 during 1997) being to Other Income (Expense), net.
The remaining unamortized balance is approximately $1,488,000 at December 31,
1997.
The New Credit Agreement provides for, among other things, maintaining specified
working capital and tangible net worth levels, minimum operating cash flow
levels, as defined, limitations on indebtedness and certain limitations on
future cash dividends. In addition, the covenants of the Company's Amended
Revolving Credit Agreement as well as the New Credit Agreement, effective
January 17, 1997, required the Company to suspend the payment of quarterly
dividends on its $21.25 Preferred Stock (equivalent to $2.125 per Depositary
Share) ("$21.25 Preferred
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1997, 1996 & 1995 (continued)
[3] Long-term Debt (continued)
Stock") until certain financial criteria are met (see Note 8).
[4] Write Down of Certain Real Estate Assets
As of December 31, 1996, the Company changed its real estate strategy on certain
of its properties from maximizing value by holding them through the necessary
development and stabilization periods to a new strategy of generating short-term
liquidity through an accelerated disposition or bulk sale. This change in
strategy substantially reduced the estimated future cash flow from those
properties. Therefore, an impairment loss on those properties, in an aggregate
amount of $79.9 million, representing the excess of book value of those
properties over their estimated future cash flow, was provided in the fourth
quarter of 1996 in accordance with SFAS No. 121. An estimated allocation of the
write-down by geographic area was California ($59.9 million), Arizona ($18
million), and Florida ($2 million). Revenues and pretax loss related to these
properties included in the 1996 Statement of Operations were approximately $14.6
million and $.5 million, respectively.
[5] Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109. This
standard determines deferred income taxes based on the estimated future tax
effects of differences between the financial statement and tax bases of assets
and liabilities, given the provisions of enacted tax laws.
The (provision) credit for income taxes is comprised of the following (in
thousands):
Federal State Foreign Total
------------- ------------- ------------- --------------
1997
Current $ - $ (569) $ (381) $ (950)
Deferred - - - -
------------- ------------- ------------- --------------
$ - $ (569) $ (381) $ (950)
============= ============= ============= ==============
1996
Current $ - $ (736) $ - $ (736)
Deferred - (94) - (94)
------------- ------------- ------------- --------------
$ - $ (830) $ - $ (830)
============= ============= ============= ==============
1995
Current $ - $ (11) $ - $ (11)
Deferred 2,726 (104) - 2,622
------------- ------------- ------------- --------------
$ 2,726 $ (115) $ - $ 2,611
============= ============= ============= ==============
The table below reconciles the difference between the statutory federal income
tax rate and the effective rate provided in the statements of operations.
1997 1996 1995
-------------- ------------- --------------
Statutory federal income tax rate 34% (34)% (34)%
State income taxes, net of federal tax benefit 6 1 -
Foreign taxes 6 - -
Change in valuation allowance (33) 34 25
Goodwill and other 2 - -
-------------- ------------- --------------
Effective tax rate 15% 1 % (9)%
============== ============= ==============
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1997, 1996 & 1995 (continued)
[5] Income Taxes (continued)
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of December 31, 1997 and 1996 (in
thousands):
1997 1996
---------------------------------- --------------------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
------------- -------------- ------------- --------------
Provision for estimated losses $ 9,527 $ - $ 30,291 $ -
Contract losses 4,071 - 6,562 -
Joint ventures - construction - 8,093 - 8,176
Joint ventures - real estate - 6,243 - 21,962
Timing of expense recognition 1,972 - 4,370 -
Capitalized carrying charges - 1,894 - 1,813
Net operating loss carryforwards 23,798 - 16,157 -
Alternative minimum tax credit
carryforwards 2,442 - 2,419 -
General business tax credit
carryforwards 3,532 - 3,532 -
Foreign tax credit carryforwards 979 - 979 -
Other, net 517 - 413 321
------------- -------------- ------------- --------------
$ 46,838 $ 16,230 $ 64,723 $ 32,272
Valuation allowance for deferred
tax assets (30,608) - (32,945) -
------------- -------------- ------------- --------------
Total $ 16,230 $ 16,230 $ 31,778 $ 32,272
============= ============== ============= ==============
The net of the above is deferred taxes in the amount of $0 in 1997 and $494 in
1996, which is classified in the respective Consolidated Balance Sheets as
follows:
1997 1996
---------- -----------
Long-term deferred tax liabilities (included in "Deferred Income Taxes and
Other Liabilities") $ 1,067 $ 4,007
Short-term deferred tax asset 1,067 3,513
---------- -----------
$ 0 $ 494
========== ===========
A valuation allowance is provided to reduce the deferred tax assets to a level
which, more likely than not, will be realized. The net deferred assets reflect
management's estimate of the amount which will be realized from future taxable
income which can be predicted with reasonable certainty.
As a result of not providing any federal income tax benefit in 1996 and only a
partial benefit in 1995, 1997 earnings benefited by approximately $2.1 million
by not having to provide for any Federal income tax and approximately $75
million of future pretax earnings should benefit from minimal, if any, federal
tax provisions.
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1997, 1996 & 1995 (continued)
[5] Income Taxes (continued)
At December 31, 1997, the Company has unused tax credits and net operating loss
carryforwards for income tax reporting purposes which expire as follows (in
thousands):
Unused Foreign Net Operating
Investment Tax Loss
Tax Credits Credits Carryforwards
---------------- --------------- --------------------
1998 - 1999 $ -- $ 979 $ --
2001 - 2006 3,532 -- 1,404
2007 - 2012 -- -- 68,590
---------------- --------------- --------------------
$ 3,532 $ 979 $ 69,994
================ =============== ====================
Net operating loss carryforwards and unused tax credits may be limited in the
event of certain changes in ownership interests of significant stockholders. In
addition, approximately $1.4 million of the net operating loss carryforwards can
only be used against the taxable income of the corporation in which the loss was
recorded for tax and financial reporting purposes.
[6] Deferred Income Taxes and Other Liabilities and Other Income (Expense), Net
Deferred Income Taxes and Other Liabilities
- -------------------------------------------
Deferred income taxes and other liabilities at December 31, 1997 and 1996
consist of the following (in thousands):
1997 1996
------------- ---------------
Deferred Income Taxes $ 1,067 $ 4,007
Insurance related liabilities 8,173 9,385
Employee benefit-related liabilities 2,470 5,016
Other 12,391 12,889
------------- ---------------
$ 24,101 $ 31,297
============= ===============
Other Income (Expense), Net
- ---------------------------
Other income (expense) items for the three years ended December 31, 1997 consist
of the following (in thousands):
1997 1996 1995
------------ ----------- -----------
Interest and dividend income $ 1,022 $ 1,018 $ 1,369
Minority interest (Note 1) 75 416 10
Bank fees (2,172) (1,906) (1,099)
Miscellaneous income (expense), net (590) (20) 534
------------ ----------- -----------
$ (1,665) $ (492) $ 814
============ =========== ===========
[7] Redeemable Series B Cumulative Convertible Preferred Stock
At a special stockholders' meeting on January 17, 1997, the Company's
stockholders approved two proposals that allowed the Company to close a new
equity transaction with a private investor group led by Richard C. Blum &
Associates, L.P. immediately after the meeting. The transaction included, among
other things, classification by the Board of Directors of 500,000 shares of
Preferred Stock of the Company as Redeemable Series B Cumulative
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1997, 1996 & 1995 (continued)
[7] Redeemable Series B Cumulative Convertible Preferred Stock (continued)
Convertible Preferred Stock, par value $1.00 per share, (the "Series B Preferred
Stock"), issuance of 150,150 shares of Series B Preferred Stock at $200 per
share (or $30 million) to the investor group, (with the remainder of the shares
set aside for possible future payment-in-kind dividends to the holders of the
Series B Preferred Stock), amendments to the Company's By-Laws that redefined
the Executive Committee and added certain powers (generally financial in
nature), including the power to give overall direction to the Company's Chief
Executive Officer, appointment of three new members, recommended by the investor
group, to the Board of Directors, appointment of these same new directors to
constitute a majority of the Executive Committee referred to above and repayment
of the $10 million temporary Bridge Loan referred to in Note 3. Tutor-Saliba
Corporation, a corporation controlled by a newly appointed Director, who is also
a member of the Executive Committee and a newly appointed Officer of the
Company, is a participant in certain construction joint ventures with the
Company (see Note 14 "Related Party Transactions").
Dividends on the Series B Preferred Stock are generally payable at an annual
rate of 7% when paid in cash and 10% of the liquidation preference of $200.00
per share when paid in-kind with Series B Preferred Stock compounded on a
quarterly basis. According to the terms of the Series B Preferred Stock, it (i)
ranks junior in cash dividend and liquidation preference to the $21.25
Convertible Exchangeable Preferred Stock and senior to Common Stock, (ii)
provides that no cash dividends will be paid on any shares of Common Stock
except for certain limited dividends beginning in 2001, (iii) is convertible
into shares of Common Stock at an initial conversion price of approximately
$9.68 per share (equivalent to 3,101,571 shares), (iv) has the same voting
rights as shareholders of Common Stock immediately equal to the number of shares
of Common Stock into which the Series B Preferred Stock can be converted, (v)
generally has a liquidation preference of $200 per share of Series B Preferred
Stock, (vi) is optionally redeemable by the Company after three years at a
redemption price equal to the liquidating value per share and higher amounts if
a Special Default, as defined, has occurred, (vii) is mandatorily redeemable by
the Company if a Special Default has occurred and a holder of the Series B
Preferred Stock requests such a redemption, (viii) is mandatorily redeemable by
the Company for approximately one-third of the shares still outstanding on
January 17, 2005 and one-third of the remaining shares in each of the next two
years.
The initial proceeds ($30,030,000) received upon the issuance of 150,150 Series
B Preferred Shares were reduced by related expenses of approximately $3.5
million. Due to the redeemable feature of the Series B Preferred Stock, this
reduction has to be added back (or accreted) to reinstate its mandatory
redemption value over a period of 8-10 years, with an offsetting charge to
paid-in capital.
Subsequent to January 17, 1997, four quarterly dividends were paid-in-kind which
aggregated 14,150 shares of Series B Preferred Stock at $200.00 per share (or
$2,830,000). An analysis of Series B Preferred Stock transactions for the year
ended December 31, 1997 follows:
Number of
Shares Amount
---------------- ------------------
(in thousands)
Initial issuance on January 17, 1997 150,150 $ 30,030
Less - related expenses --- (3,472)
---------------- ------------------
150,150 $ 26,558
10% in-kind dividends issued 14,150 2,830
Accretion --- 368
---------------- ------------------
164,300 $ 29,756
================ ==================
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1997, 1996 & 1995 (continued)
[8] Capitalization
(a) $21.25 Convertible Exchangeable Preferred Stock
("$21.25 Preferred Stock")
In June 1987, net proceeds of approximately $23,631,000 were received
from the sale of 1,000,000 Depositary Convertible Exchangeable Preferred
Shares (each Depositary Share representing ownership of 1/10 of a share
of $21.25 Convertible Exchangeable Preferred Stock, $1 par value) at a
price of $25 per Depositary Share. Annual dividends are $2.125 per
Depositary Share and are cumulative. Generally, the liquidation
preference value is $25 per Depositary Share plus any accumulated and
unpaid dividends. The Preferred Stock of the Company, as evidenced by
ownership of Depositary Shares, is convertible at the option of the
holder, at any time, into Common Stock of the Company at a conversion
price of $37.75 per share of Common Stock. The Preferred Stock is
redeemable at the option of the Company at any time at $25 per share
plus any unpaid dividends. The Preferred Stock is also exchangeable at
the option of the Company, in whole but not in part, on any dividend
payment date into 8 1/2% convertible subordinated debentures due in 2012
at a rate equivalent to $25 principal amount of debentures for each
Depositary Share. In conjunction with the covenants of the Company's
Amended Revolving Credit Agreement as well as the New Credit Agreement,
effective January 17, 1997 (see Note 3), the Company was required to
suspend the payment of quarterly dividends on its $21.25 Preferred Stock
(equivalent to $2.125 per Depositary Share) until certain financial
criteria are met. Therefore, the dividends on the $21.25 Preferred Stock
have not been declared since 1995 (although they have been fully accrued
due to the "cumulative" feature of the Preferred Stock). The aggregate
amount of dividends in arrears is approximately $4,781,000 at December
31, 1997, which represents approximately $47.81 per share of Preferred
Stock or approximately $4.78 per Depositary Share and is included in
accrued expenses in the accompanying Consolidated Balance Sheet. Under
the terms of the Preferred Stock, the holders of the Depositary Shares
are entitled to elect two additional Directors since dividends have been
deferred for more than six quarters and they currently plan to do so at
the May 14, 1998 Annual Meeting.
(b) Series A Junior Participating Preferred Stock
Under the terms of the Company's Shareholder Rights Plan, as amended,
the Board of Directors of the Company declared a distribution on
September 23, 1988 of one Preferred Stock purchase right (a "Right") for
each outstanding share of Common Stock. Under certain circumstances,
each Right will entitle the holder thereof to purchase from the Company
one one-hundredth of a share (a "Unit") of Series A Junior Participating
Cumulative Preferred Stock, $1 par value (the "Preferred Stock"), at an
exercise price of $100 per Unit, subject to adjustment. The Rights will
not be exercisable or transferable apart from the Common Stock until the
earlier to occur of (i) 10 days following a public announcement that a
person or group (an "Acquiring Person") has acquired 20% or more of the
Company's outstanding Common Stock (the "Stock Acquisition Date"), (ii)
10 business days following the announcement by a person or group of an
intention to make an offer that would result in such persons or group
becoming an Acquiring Person or (iii) the declaration by the Board of
Directors that any person is an "Adverse Person", as defined under the
Plan. The Rights will not have any voting rights or be entitled to
dividends.
Upon the occurrence of a triggering event as described above, each Right
will be entitled to that number of Units of Preferred Stock of the
Company having a market value of two times the exercise price of the
Right. If the Company is acquired in a merger or 50% or more of its
assets or earning power is sold, each Right will be entitled to receive
Common Stock of the acquiring company having a market value of two times
the exercise price of the Right. Rights held by such a person or group
causing a triggering event may be null and void. The Rights are
redeemable at $.02 per Right by the Board of Directors at any time prior
to the occurrence of a triggering event.
On January 17, 1997, the Board of Directors amended the Company's
Shareholder Rights Plan to (i) permit
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1997, 1996 & 1995 (continued)
[8] Capitalization (continued)
the acquisition of the Series B Preferred Stock by certain investors
(see Note 7 above), any additional Preferred Stock issued as a dividend
thereon, any Common Stock issued upon conversion of the Series B
Preferred Stock and certain other events without triggering the
distribution of the Rights; (ii) lower the threshold for the occurrence
of a Stock Acquisition Date from 20% to 10%; and (iii) extend the
expiration date of the Plan from September 23, 1998 to January 21, 2007.
(c) ESOT Related Obligations
In July 1989, the Company sold 262,774 shares of its $1 par value Common
Stock, previously held in treasury, to its Employee Stock Ownership
Trust ("ESOT") for $9,000,000. The ESOT borrowed the funds via a
placement of 8.24% Senior Unsecured Notes ("Notes") guaranteed by the
Company. The Notes are payable in 20 equal semi-annual installments of
principal and interest commencing in January 1990. The Company's annual
contribution to the ESOT, plus any dividends accumulated on the
Company's Common Stock held by the ESOT, will be used to repay the
Notes. Since the Notes are guaranteed by the Company, they are included
in "Long-Term Debt" with an offsetting reduction in "Stockholders'
Equity" in the accompanying Consolidated Balance Sheets. The amount
included in "Long-Term Debt" will be reduced and "Stockholders' Equity"
reinstated as the Notes are paid by the ESOT (see Note 3).
[9] Stock Options
At December 31, 1997 and 1996, 481,610 shares of the Company's authorized but
unissued Common Stock were reserved for issuance to employees under its 1982
Stock Option Plan. Options are granted at fair market value on the date of
grant, as defined, and generally become exercisable in two equal annual
installments on the second and third anniversary of the date of grant and expire
eight years from the date of grant. Options for 240,000 shares of Common Stock
granted in 1992 become exercisable on March 31, 2001 if the Company achieves a
certain profit target in the year 2000; may become exercisable earlier if
certain interim profit targets are achieved; and to the extent not exercised,
expire 10 years from the date of grant. A summary of stock option activity
related to the Company's 1982 Stock Option Plan is as follows:
Option Price Per Share
----------------------
Shares
Number Weighted Available
of Shares Range Average To Grant
--------- ----- ------- --------
Outstanding at December 31, 1995 378,650 $10.44-$33.06 $16.65 102,960
Granted -- $ - $ -
Canceled (15,150) $11.06-$33.06 $20.53
Outstanding at December 31, 1996 363,500 $10.44-$33.06 $16.48 118,110
Granted 10,000 $ 8.00 $ 8.00
Canceled (25,150) $11.06-$33.06 $28.01
Outstanding at December 31, 1997 348,350 $ 8.00-$24.00 $15.41 133,260
In addition, 225,000 shares of Common Stock, $1.00 par value, were reserved for
options granted on January 17, 1997 to four members of the redefined Executive
Committee (see Note 7) at $8.38 per share, fair market value at the date of
grant. The terms of these options are generally similar to options granted under
the 1982 Plan except as to the timing of the exercisability, which is May 17,
2000. These options expire on January 16, 2005.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1997, 1996 & 1995 (continued)
[9] Stock Options (continued)
Options outstanding at December 31, 1997 and related weighted average price and
life information follows:
Remaining Grant Options Options Exercise
Life (Years) Date Outstanding Exercisable Price
- ------------ ---- ----------- ----------- -----
1 05/17/90 17,150 17,150 $24.00
2 07/16/91 51,200 51,200 $11.06
3 12/21/92 240,000 90,000 $16.44
5 03/22/94 20,000 20,000 $13.00
6 05/18/95 10,000 5,000 $10.44
8 01/17/97 225,000 -- $ 8.38
8 07/08/97 10,000 -- $ 8.00
When options are exercised, the proceeds are credited to stockholders' equity.
In addition, the income tax savings attributable to nonqualified options
exercised are credited to paid-in surplus. The Company elected the optional pro
forma disclosures under SFAS No. 123 as if the Company adopted the cost
recognition requirements in 1995. The estimated values shown below are based on
the Black-Scholes option pricing model for options granted in 1995 through 1997.
Assumptions
------------------------------------------------------------------
Expected Risk-free
Grant Date Fair Value Dividend Yield Volatility Interest Rate Expected Life
---------- ---------- -------------- ---------- ------------- -------------
05/18/95 $ 58,000 0% 37% 6.58% 8
01/17/97 $ 1,070,127 0% 39% 6.50% 8
07/08/97 $ 44,086 0% 38% 6.31% 8
If SFAS No. 123 had been fully implemented, stock based compensation costs would
have decreased net income in 1997 by $354,992 (or $0.07 per Common Share) and
increased the net loss in 1996 and 1995 by $19,000. The effect of applying SFAS
No. 123 in this pro forma disclosure may not be indicative of future amounts.
[10] Employee Benefit Plans
The Company and its U.S. subsidiaries have a defined benefit plan that covers
its executive, professional, administrative and clerical employees, subject to
certain specified service requirements. The plan is noncontributory and benefits
are based on an employee's years of service and "final average earnings", as
defined. The plan provides reduced benefits for early retirement and takes into
account offsets for social security benefits. All employees are vested after 5
years of service. Net pension cost for 1997, 1996 and 1995 follows (in
thousands):
1997 1996 1995
---------- ----------- -----------
Service cost - benefits earned during the
period $ 1,072 $ 1,247 $ 988
Interest cost on projected benefit
obligation 3,298 3,062 2,956
Return on plan assets:
Actual (6,901) (4,053) (6,971)
Deferred 3,838 1,263 4,217
---------- ----------- -----------
Net pension cost $ 1,307 $ 1,519 $ 1,190
========== =========== ===========
Actuarial assumptions used:
Discount rate 7 % * 7 1/2% ** 7 % ***
Rate of increase in compensation 4 % 4 % 4 % ***
Long-term rate of return on assets 8 % 8 % 8 %
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1997, 1996 & 1995 (continued)
[10] Employee Benefit Plans (continued)
* Rate was changed effective December 31, 1997 and resulted in a $2.8
million increase in the projected benefit obligation referred to below.
** Rate was changed effective December 31, 1996 and resulted in a $2.7
million decrease in the projected benefit obligation referred to below.
*** Rates were changed effective December 31, 1995. The decrease in the
discount rate resulted in an increase in the projected benefit
obligations of $8.1 million, while the decrease in the rate of increase
in compensation resulted in a decrease in the projected benefit
obligations of $1.3 million, resulting in a net increase of $6.8 million
in 1995 in the projected benefit obligations.
The Company's plan has assets in excess of its accumulated benefit obligations.
Plan assets generally include equity and fixed income funds. The status of the
Company's employee pension benefit plan is summarized below (in thousands):
December 31,
----------------------------
1997 1996
----------- -----------
Assets available for benefits:
Funded plan assets at fair value $ 46,774 $ 40,618
Accrued pension expense 4,037 4,355
----------- -----------
Total assets $ 50,811 $ 44,973
----------- -----------
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested benefits of $45,821 and
$40,198 $ 46,282 $ 40,596
Effect of future salary increases 3,885 3,628
----------- -----------
Projected benefit obligations $ 50,167 $ 44,224
----------- -----------
Excess of assets available over projected benefits $ 644 $ 749
=========== ===========
Consisting of:
Unamortized net liability existing at date of adopting SFAS No. 87 $ (18) $ (24)
Unrecognized net gain (loss) 358 347
Unrecognized prior service cost 304 426
----------- -----------
$ 644 $ 749
=========== ===========
The Company also has a contributory Section 401(k) plan and a noncontributory
Employee Stock Ownership Plan (ESOP) which cover its executive, professional,
administrative and clerical employees, subject to certain specified service
requirements. Under the terms of the Section 401(k) plan, the provision is based
on a specified percentage of profits, subject to certain limitations.
Contributions to the related ESOT are determined by the Board of Directors and
may be paid in cash or shares of the Company's Common Stock.
The Company's policy is generally to fund currently the costs accrued under the
pension plan, Section 401(k) plan and the ESOP.
The Company also has an unfunded supplemental retirement plan for certain
employees whose benefits under principal salaried retirement plans are reduced
because of compensation limitations under federal tax laws. Pension expense for
this plan was $.2 million in each of the last three years. At December 31, 1997,
the projected benefit obligation was $1.5 million. A corresponding accumulated
benefit obligation of $1.2 million has been recognized as a liability in the
consolidated balance sheet and is equal to the amount of the vested benefits.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1997, 1996 & 1995 (continued)
[10] Employee Benefit Plans (continued)
In addition, the Company has an incentive compensation plan for key employees
which is generally based on achieving certain levels of profit within their
respective business units.
The aggregate amounts provided under these employee benefit plans were $8.5
million in 1997, $8.5 million in 1996 and $7.6 million in 1995.
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 $8.8 million in 1997, $8.5
million in 1996 and $12.6 million in 1995. The Multi-employer Pension Plan
Amendments Act of 1980 defines certain employer obligations under multi-employer
plans. Information regarding union retirement plans is not available from plan
administrators to enable the Company to determine its share of unfunded vested
liabilities.
[11] Contingencies and Commitments
In connection with the Rincon Center real estate development joint venture, the
Company's wholly-owned real estate subsidiary currently guarantees the payment
of interest on both mortgage and bond financing covering the project with loans
totaling $49.2 million; has guaranteed amortization payments on these borrowings
which the Company estimates to be a maximum of $2.5 million; and has guaranteed
a master lease under a sale operating lease-back transaction. In calculating the
potential obligation under the master lease guarantee, the Company has an
agreement with its lenders which employs a 10% discount rate and no increases in
future rental rates beyond current lease terms. Based on these assumptions,
Management believes its additional future obligation will not exceed $1.9
million. The Company has also guaranteed the subsidiary's $2.5 million
amortization guaranty and 80% of the master lease payments through June of 1998.
During 1997, a $3.7 million secured letter of credit, which had been issued as
security for the project borrowings, was allowed by the Company's subsidiary to
be drawn and the funds applied to reduce the loan balance. This accommodation
was made in connection with an agreement with the lender to extend credit
support provided for the bond financing.
As part of the sale operating lease-back transaction, the joint venture, in
which the Company's real estate subsidiary is a 46% general partner, agreed to
obtain a financial commitment on behalf of the lessor to replace at least $43
million of long-term financing by July 1, 1993. To satisfy this obligation, the
partnership successfully extended existing financing to July 1, 1998. To
complete the extension, the partnership had to advance funds to the lessor
sufficient to reduce the financing from $46.5 million to $40.5 million.
Subsequent payments through 1997 have further reduced the loan to $33.9 million.
In addition, as part of the obligations of the extension, the partnership will
have to further amortize the debt from its current level to $33 million through
additional lease payments through June of 1998. Under the master lease, if by
January 1, 1998, a further extension or new commitment for financing on the
property for at least $33 million had not been arranged, then the joint venture
is deemed to have offered to purchase the property for approximately $18.8
million in excess of the then outstanding debt. As of that date, no new
commitment had been secured although negotiations with the current lender were
in progress. In order to allow those discussions to continue, the lessor agreed
to temporarily delay the enforcement of the purchase requirement. In addition,
the joint venture has disputed its obligation to make a $226,000 payment to
lessor, which the lessor claims was due on February 1, 1998. The lessor has
issued a notice of default in order to preserve its rights, but has agreed
temporarily to delay the exercise of any remedies in order to facilitate a
continuation of the parties' discussions. Since January 1, 1998, the joint
venture and the lender have reached a preliminary agreement on a restructure of
the existing financing. That preliminary agreement is subject to further
negotiations and approvals of several parties including the lessor and the
Company's revolving credit facility banks. If implemented, this preliminary
agreement may require the joint venture to give up all or part of its economic
interest in the commercial and retail segments of that portion of the property
identified as Rincon One. The preliminary agreement would also release the joint
venture from all future liabilities under the master lease, including the
obligation to repurchase that segment of the property. In the opinion of
management, the final resolution of any
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1997, 1996 & 1995 (continued)
[11] Contingencies and Commitments (continued)
adjustment to the terms of the master lease and extension of the existing
financing is not expected to have a material impact on the results of operations
or financial condition as reported in the accompanying financial statements.
In 1993, the joint venture also extended $29 million of the $61 million
financing, then outstanding through October 1, 1998. This extension required a
$.6 million up front paydown. Subsequent paydowns through 1997 further reduced
the loan by $10.7 million. This included the application of the $3.7 million
letter of credit funds in 1997 described above. The joint venture may be
required to amortize up to $3.3 million more of the principal in 1998, however,
under certain conditions that amortization could be as low as $2.5 million. At
the same time that it reached a preliminary agreement on the extension of
financing under the sale operating lease-back transaction, the joint venture
also reached a preliminary agreement covering the extension of this financing to
December 1, 2000. The terms of the proposed extension still require additional
approvals and final documentation. However, if implemented, the agreement
provides for the elimination of any joint venture, partner or Company guarantees
beyond the current October 1, 1998 maturity date.
Total lease payments and debt service including amortization at Rincon Center
are $11.7 million through 1998. It is expected that some but not all of these
requirements will be generated by the project's operations. The Company's real
estate subsidiary and, to a more limited extent, the Company, are obligated to
fund any of the loan amortization and/or lease payments at Rincon in the event
sufficient funds are not generated by the property or contributed to it by its
partners. Based on current Company forecasts, it is expected the maximum
exposure to service these commitments in 1998 is $8.1 million. If the current
financing agreements are approved and implemented, any requirement of the
Company and/or its wholly-owned real estate subsidiary to provide cash to the
joint venture after 1998, will be significantly reduced or eliminated.
In a separate agreement related to this same property, the 20% co-general
partner has indicated it does not currently have nor does it expect to have the
financial resources to fund its share of capital calls. Therefore, the Company's
wholly-owned real estate subsidiary agreed to lend this 20% co-general partner
on an as-needed basis, its share of any capital calls which the partner cannot
meet. In return, the Company's subsidiary receives a priority return from the
partnership on those funds it advances for its partner and penalty fees in the
form of rights to certain other distributions due the borrowing partner from the
partnership. The severity of the penalty fees increases in each succeeding year
for the next several years. The subsidiary advanced approximately $1.8 million
during 1997 and $5.3 million to date under this agreement.
Included in the current loan agreements related to the Rincon joint venture,
among other things, are provisions that, under certain circumstances, could
limit the subsidiary's ability to dividend funds to the Company. In the opinion
of management, these provisions should not affect the operations of the Company
or the subsidiary.
During 1997, a joint venture, in which the Company is a 50% participant, entered
into a $5 million line of credit, secured by the joint venture accounts
receivable. The line of credit is available for the duration of the joint
venture and is guaranteed by the Company on a joint and several basis, and as of
December 31, 1997, no amounts were outstanding under the line.
On July 30, 1993, the U.S. District Court (D.C.), in a preliminary opinion,
upheld terminations for default on two adjacent contracts for subway
construction between Mergentime-Perini, under two joint ventures, and the
Washington Metropolitan Area Transit Authority ("WMATA") and found the
Mergentime Corporation, Perini Corporation and the Insurance Company of North
America, the surety, jointly and severally liable to WMATA for damages in the
amount of $16.5 million, consisting primarily of excess reprocurement costs to
complete the projects. Many issues were left partially or completely unresolved
by the opinion, including substantial joint
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1997, 1996 & 1995 (continued)
[11] Contingencies and Commitments (continued)
venture claims against WMATA. As a result of developments in the case during the
third quarter of 1995, the Company established a reserve with respect to the
litigation.
In July 1997, the remaining issues were ruled on by the Court, which awarded
approximately $4.3 million to the joint venture, thereby reducing the net amount
payable to approximately $12.2 million. The joint venture has appealed the
decision. As a result of the decision, there is no additional impact on the
Company's Statement of Operations because of the reserve provided in prior
years. The actual funding of net damages, if any, will be deferred until the
appeal process is complete.
Contingent liabilities also include liability of contractors for performance and
completion of both company and joint venture construction contracts. In
addition, the Company is a defendant in various lawsuits, arbitration and
alternative dispute resolution ("ADR") proceedings. In the opinion of
management, the resolution of these proceedings will not have a material effect
on the results of operation or financial condition as reported in the
accompanying financial statements.
[12] Unaudited Quarterly Financial Data
The following table sets forth unaudited quarterly financial data for the years
ended December 31, 1997 and 1996 (in thousands, except per share amounts):
1997 by Quarter
---------------------------------------------------------------
1st 2nd 3rd 4th
------------ ------------ ------------ ------------
Revenues $ 327,219 $ 388,924 $ 328,169 $ 280,179
Net income (loss) $ 1,861 $ 2,333 $ 2,927 $ (1,749)
Basic & diluted earnings (loss)
per common share $ 0.15 $ 0.19 $ 0.30 $(0.62)
1996 by Quarter
---------------------------------------------------------------
1st 2nd 3rd 4th
------------ ------------ ------------ ------------
Revenues $ 270,029 $ 316,492 $ 340,670 $ 343,093
Net income (loss) $ 1,487 $ 2,024 $ 2,311 $ (76,425) *
Basic & diluted earnings (loss)
per common share $ 0.20 $ 0.31 $ 0.37 $ (15.79)
* Includes a non-cash $79.9 million write-down of certain real estate assets
(see Note 4).
[13] Business Segments and Foreign Operations
The Company is currently engaged in the construction and real estate development
businesses. The Company provides general contracting, construction management
and design-build services to private clients and public agencies throughout the
United States and selected overseas locations. The Company's construction
business involves three types of operations: civil, building and international.
The Company's real estate development operations are concentrated in Arizona,
California, Florida, Georgia and Massachusetts; however, the Company has not
commenced the development of any new real estate projects since 1990. The
following tables set forth certain business and geographic segment information
relating to the Company's operations for the three years ended
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1997, 1996 & 1995 (continued)
[13] Business Segments and Foreign Operations (continued)
December 31, 1997 (in thousands):
Business Segments
Revenues
------------------------------------------------------------
1997 1996 1995
--------------- ----------------- ----------------
Construction $ 1,276,033 $ 1,224,428 $ 1,056,673
Real Estate 48,458 45,856 44,395
--------------- ----------------- ----------------
$ 1,324,491 $ 1,270,284 $ 1,101,068
=============== ================= ================
Income (Loss) From Operations
------------------------------------------------------------
1997 1996 1995
--------------- ----------------- ----------------
Construction $ 26,464 $ 28,198 $ (15,322)
Real Estate (2,187) (82,467) (2,921)
Corporate (5,956) (5,141) (4,185)
--------------- ----------------- ----------------
$ 18,321 $ (59,410) $ (22,428)
=============== ================= ================
Assets
------------------------------------------------------------
1997 1996 1995
--------------- ----------------- ----------------
Construction $ 260,815 $ 318,333 $ 298,564
Real Estate 119,735 132,215 209,789
Corporate* 34,374 13,744 30,898
--------------- ----------------- ----------------
$ 414,924 $ 464,292 $ 539,251
=============== ================= ================
Capital Expenditures
------------------------------------------------------------
1997 1996 1995
--------------- ----------------- ----------------
Construction $ 1,696 $ 1,449 $ 1,960
Real Estate 14,740 8,989 9,555
--------------- ----------------- ----------------
$ 16,436 $ 10,438 $ 11,515
=============== ================= ================
Depreciation
------------------------------------------------------------
1997 1996 1995
--------------- ----------------- ----------------
Construction $ 1,709 $ 1,969 $ 2,307
Real Estate** 227 558 400
--------------- ----------------- ----------------
$ 1,936 $ 2,527 $ 2,707
=============== ================= ================
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1997, 1996 & 1995 (continued)
[13] Business Segments and Foreign Operations (continued)
Geographic
Segments
Revenues
------------------------------------------------------------
1997 1996 1995
--------------- ----------------- ----------------
United States $ 1,305,465 $ 1,256,323 $ 1,084,390
Foreign 19,026 13,961 16,678
--------------- ----------------- ----------------
$ 1,324,491 $ 1,270,284 $ 1,101,068
=============== ================= ================
Income (Loss) From Operations
------------------------------------------------------------
1997 1996 1995
--------------- ----------------- ----------------
United States $ 23,473 $ (55,047) $ (15,405)
Foreign 804 778 (2,838)
Corporate (5,956) (5,141) (4,185)
--------------- ----------------- ----------------
$ 18,321 $ (59,410) $ (22,428)
=============== ================= ================
Assets
------------------------------------------------------------
1997 1996 1995
--------------- ----------------- ----------------
United States $ 376,771 $ 446,408 $ 503,114
Foreign 3,779 4,140 5,239
Corporate* 34,374 13,744 30,898
--------------- ----------------- ----------------
$ 414,924 $ 464,292 $ 539,251
=============== ================= ================
* In all years, corporate assets consist principally of cash, cash
equivalents, marketable securities and other investments available for
general corporate purposes.
** Does not include approximately $2 to $3 million of depreciation that
represents its share from real estate joint ventures. (See Note 2 to
Notes to the Consolidated Financial Statements.)
Contracts with various federal, state, local and foreign governmental agencies
represented approximately 51% of construction revenues in 1997, 52% in 1996 and
56% in 1995.
[14] Related Party Transactions
Effective with the issuance of the Series B Preferred Stock described in Note 7
above, the Company entered into an agreement with Tutor-Saliba Corporation
("TSC"), a California corporation engaged in the construction industry, and
Ronald N. Tutor, Chief Executive Officer and sole stockholder of TSC, to provide
certain management services, as defined. TSC holds a 6.81% interest in the
Company's $1.00 par value Common Stock and currently participates in active
joint ventures with the Company with a total contract value of approximately
$800 million. Mr. Tutor was appointed as one of the three new directors in
accordance with the terms of the Series B transaction, a member of the Executive
Committee of the Board and, during 1997, acting Chief Operating Officer of the
Company. Effective January 1, 1998, Mr. Tutor was elected Vice Chairman of the
Board of Directors. Compensation for the management services consists of a
monthly payment of $12,500 to TSC and options granted to Mr. Tutor to
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1997, 1996 & 1995 (continued)
[14] Related Party Transactions (continued)
purchase 150,000 shares of the Company's 1.00 par value Common Stock at fair
market value (which are included as part of the 225,000 options granted in 1997
as described in Note 9).
During 1997, the Company, with the approval of its Board of Directors,
consummated a transaction whereby it sold its 20% interest in two joint ventures
to TSC, the sponsoring partner, for a negotiated price of $4.5 million,
representing the Company's share of the current total forecasted profit less a
discount of approximately 7%. Since one project was approximately 24% complete
and the other project was 57% complete as of December 31, 1997, the impact of
this transaction was to accelerate approximately $3.2 million of contract
profits and receipt of the related cash.
51
Report of Independent Public Accountants
To the Stockholders of Perini Corporation:
We have audited the accompanying consolidated balance sheets of PERINI
CORPORATION (a Massachusetts corporation) and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Perini Corporation
and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 13, 1998
52
Report of Independent Public Accountants on Schedules
To the Stockholders of Perini Corporation:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in this Form 10-K, and have issued
our report thereon dated February 13, 1998. Our audits were made for the purpose
of forming an opinion on the consolidated financial statements taken as a whole.
The supplemental schedules listed in the accompanying index are the
responsibility of the Company's management and are presented for the purpose of
complying with the Securities and Exchange Commission's rules and are not part
of the consolidated financial statements. These schedules have been subjected to
the auditing procedures applied in the audits of the consolidated financial
statements and, in our opinion, fairly state, in all material respects, the
financial data required to be set forth therein in relation to the consolidated
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 13, 1998
53
Schedule I
Perini Corporation (Parent Company)
Condensed Financial Information of Registrant
Balance Sheet
(In Thousands of Dollars)
Assets
December 31,
-----------------------------
1997 1996
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 24,789 $ 10,614
Accounts and notes receivable, including retainage of $8,110
and $11,041, respectively 24,168 31,795
Unbilled work 19,699 20,375
Construction joint ventures 62,919 71,070
Deferred tax asset 1,067 3,513
Other current assets 1,183 1,423
----------- -----------
Total current assets $ 133,825 $ 138,790
----------- -----------
INVESTMENTS AND OTHER ASSETS:
Investments in subsidiaries $ 147,177 $ 138,559
Other 4,336 3,804
----------- -----------
Total investments and other assets $ 151,513 $ 142,363
----------- -----------
PROPERTY AND EQUIPMENT, at cost
Land $ 826 $ 793
Buildings and improvements 11,868 11,931
Construction equipment 5,306 7,411
Other 5,464 5,556
----------- -----------
$ 23,464 $ 25,691
Less: Accumulated depreciation 13,976 15,807
----------- -----------
Total property and equipment, net $ 9,488 $ 9,884
----------- -----------
$ 294,826 $ 291,037
=========== ===========
The "Notes to Consolidated Financial Statements of Perini Corporation and
Subsidiaries" are an integral part of these statements. See accompanying "Notes
to Condensed Financial Information of Registrant".
54
Schedule I
Perini Corporation (Parent Company)
Condensed Financial Information of Registrant
Balance Sheet (Continued)
(In Thousands of Dollars)
Liabilities and Stockholders' Equity
December 31,
---------------------------------
1997 1996
---- ----
CURRENT LIABILITIES:
Current maturities of long-term debt $ 6,874 $ 12,595
Accounts payable, including retainage of $3,520 and $5,639,
respectively 10,103 22,350
Advances from construction joint ventures 26,501 44,478
Deferred contract revenue 2,217 2,612
Accrued expenses 19,884 16,648
----------- ----------
Total current liabilities $ 65,579 $ 98,683
----------- ----------
DEFERRED INCOME TAXES AND OTHER LIABILITIES $ 19,287 $ 25,094
----------- ----------
INTERCOMPANY NOTES AND ADVANCES PAYABLE, net $ 54,728 $ 39,096
----------- ----------
LONG-TERM DEBT, less current maturities included above $ 84,576 $ 92,606
----------- ----------
REDEEMABLE SERIES B CUMULATIVE CONVERTIBLE
PREFERRED STOCK:
Authorized: 500,000 shares
Issued and Outstanding: 164,300 shares
($32,860 aggregate liquidation preference) $ 29,756 $ ---
----------- ----------
STOCKHOLDERS' EQUITY:
Preferred Stock, $1 par value:
Authorized: 500,000 shares
Designated, issued and outstanding: 100,000 shares
($25,000 aggregate liquidation preference) $ 100 $ 100
Series A junior participating Preferred Stock, $1 par value:
Designated: 200,000 shares
Issued: None
Stock Purchase Warrants 2,233 ---
Common Stock, $1 par value:
Authorized: 15,000,000 shares
Issued: 5,267,130 shares and 5,032,427 shares 5,267 5,032
Paid-in surplus 53,012 57,080
Retained earnings (deficit) (15,294) (20,666)
ESOT related obligations (2,663) (3,856)
----------- -----------
$ 42,655 $ 37,690
Less: Common Stock in treasury, at cost - 110,084 shares and
133,779 shares 1,755 2,132
----------- -----------
Total stockholders' equity $ 40,900 $ 35,558
----------- -----------
$ 294,826 $ 291,037
=========== ===========
The "Notes to Consolidated Financial Statements of Perini Corporation and
Subsidiaries" are an integral part of these statements. See accompanying "Notes
to Condensed Financial Information of Registrant".
55
Schedule I
Perini Corporation (Parent Company)
Condensed Financial Information of Registrant
Statement of Operations
(In Thousands of Dollars)
For the years ended December 31,
----------------------------------------------
1997 1996 1995
---- ---- ----
REVENUE:
Construction operations $ 44,921 $ 102,786 $ 161,444
Share of construction joint ventures 339,639 276,739 129,987
--------- --------- ---------
$ 384,560 $ 379,525 $ 291,431
--------- --------- ---------
COST OF OPERATIONS:
Construction operations $ 44,577 $ 101,107 $ 174,239
Share of construction joint ventures 315,508 253,210 127,384
--------- --------- ---------
$ 360,085 $ 354,317 $ 301,623
--------- --------- ---------
GROSS PROFIT FROM OPERATIONS $ 24,475 $ 25,208 $ (10,192)
General, administrative and selling expenses 17,100 17,758 16,983
--------- --------- ---------
INCOME (LOSS) FROM OPERATIONS $ 7,375 $ 7,450 $ (27,175)
Other Income (Expense), net (1,977) (1,391) 306
Interest expense including intercompany interest of
$7,183, $1,726 and $4,805, respectively (17,083) (11,123) (12,933)
--------- --------- ---------
LOSS BEFORE INCOME TAXES AND
EQUITY IN NET INCOME (LOSS) OF
SUBSIDIARIES $ (11,685) $ (5,064) $ (39,802)
Equity in net income (loss) of subsidiaries 18,007 (64,709) 9,606
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES $ 6,322 $ (69,773) $ (30,196)
(Provision) Credit for income taxes (950) (830) 2,611
--------- --------- ---------
NET INCOME (LOSS) $ 5,372 $ (70,603) $ (27,585)
========= ========= =========
The "Notes to Consolidated Financial Statements of Perini Corporation and
Subsidiaries" are an integral part of these statements. See accompanying "Notes
to Condensed Financial Information of Registrant".
56
Schedule I
Perini Corporation (Parent Company)
Condensed Financial Information of Registrant
Statement of Cash Flows
(In Thousands of Dollars)
For the years ended December 31,
--------------------------------------------
1997 1996 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,372 $(70,603) $(27,585)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 1,110 1,128 1,141
Amortization of deferred debt expense, Stock Purchase
Warrants and other 2,010 895 614
Noncurrent deferred taxes and other liabilities (5,807) (20,371) 13,100
Distributions greater (less) than earnings of joint
ventures (2,092) (5,734) 12,385
Equity in net (income) loss of subsidiaries (18,007) 64,709 (9,606)
Cash provided from (used by) changes in
components of working capital other than cash
and current maturities of long-term debt (17,710) 14,418 36,898
Other non-cash items, net (431) (732) (1,455)
------------ ------------ -----------
NET CASH (USED BY) PROVIDED FROM
OPERATING ACTIVITIES $ (35,555) $ (16,290) $ 25,492
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment $ 906 $ 1,359 $ 1,069
Cash distributions of capital from unconsolidated
construction joint ventures 14,447 4,642 19,445
Acquisition of property and equipment (1,189) (745) (1,242)
Capital contributions to unconsolidated
construction joint ventures (5,013) (12,920) (27,734)
Increase (decrease) in intercompany notes,
advances and equity 23,687 (23,949) (169)
Investment in other activities (463) (2,995) (239)
------------ ------------ ------------
NET CASH PROVIDED FROM (USED BY)
INVESTING ACTIVITIES $ 32,375 $ (34,608) $ (8,870)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Redeemable Series B Preferred
Stock, net $ 26,558 $ - $ -
Proceeds from long-term debt 5,035 24,706 12,033
Repayment of long-term debt (16,105) (1,693) (1,802)
Treasury Stock issued 166 1,171 2,243
Finance fee paid in stock - 400 -
Common Stock issued 1,701 - -
Cash dividends paid - - (2,125)
------------ ------------ ------------
NET CASH PROVIDED FROM
FINANCING ACTIVITIES $ 17,355 $ 24,584 $ 10,349
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents $ 14,175 $ (26,314) $ 26,971
Cash and cash equivalents at beginning of year 10,614 36,928 9,957
------------ ------------ ------------
Cash and cash equivalents at end of year $ 24,789 $ 10,614 $ 36,928
============ ============ ============
57
Schedule I (continued)
Perini Corporation (Parent Company)
Condensed Financial Information of Registrant
Statement of Cash Flows
(In Thousands of Dollars)
For the years ended December 31,
--------------------------------------------
1997 1996 1995
---- ---- ----
Supplemental disclosures of cash paid during the year for:
Interest $ 9,686 $ 9,122 $ 8,227
=========== =========== ==========
Income tax payments $ 330 $ 221 $ 121
=========== =========== ==========
Supplemental disclosures of noncash transactions:
Dividends paid in shares of Series B Preferred Stock (Note 7) $ 2,830 $ - $ -
=========== =========== ==========
Value assigned to Stock Purchase Warrants (Note 3) $ 2,233 $ - $ -
=========== =========== ==========
The "Notes to Consolidated Financial Statements of Perini Corporation and
Subsidiaries" are an integral part of these statements. See accompanying "Notes
to Condensed Financial Information of Registrant".
58
Schedule I
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
[1] Basis of Presentation
Pursuant to the rules and regulations of the Securities and Exchange Commission,
the Condensed Financial Statements of the Registrant do not include all of the
information and notes normally included with financial statements prepared in
accordance with generally accepted accounting principles. It is, therefore,
suggested that these Condensed Financial Statements be read in conjunction with
the Consolidated Financial Statements and Notes thereto included in the
Registrant's Annual Report as referenced in Form 10-K, Part II, Item 8, page 20.
Certain financial statement amounts have been reclassified to conform to the
1997 presentation.
[2] Cash Dividends from Subsidiaries
Dividends of $12.3 million in 1997, $8.9 million in 1996 and $1.0 million in
1995 were paid to the Registrant by certain unconsolidated construction joint
ventures.
[3] Long-term Debt
Payments required by the Registrant amount to the following (in thousands):
$6,874 in 1998, $1,675 in 1999, $80,389 in 2000 and $4,000 in the year 2005.
59
Schedule II
Perini Corporation and Subsidiaries
Valuation and Qualifying Accounts and Reserves
for the Years Ended December 31, 1997, 1996 and 1995
(In Thousands of Dollars)
Additions
------------------------------
Balance at Charged Charged Deductions Balance
Beginning to Costs & to Other from at End
Description of Year Expenses Accounts Reserves of Year
-------------- ------------- ------------ ------------- -----------
Year Ended December 31, 1997
Reserve for doubtful accounts $ 160 $ -- $ -- $ 120 (1) $ 40
============== ============= ============ ============= ===========
Reserve for depreciation on real estate
properties used in operations $ -- $ 226 $ -- $ 226 (3) $ --
============== ============= ============ ============= ===========
Reserve for real estate investments $ 84,083 $ 508 $ -- $ 61,420 (4) $ 23,171
============== ============= ============ ============= ===========
Year Ended December 31, 1996
Reserve for doubtful accounts $ 351 $ -- $ -- $ 191 (1) $ 160
============== ============= ============ ============= ===========
Reserve for depreciation on real estate
properties used in operations $ 3,444 $ 558 $ -- $ 4,002 (2) $ --
============== ============= ============ ============= ===========
Reserve for real estate investments $ 10,497 $ 79,900 $ -- $ 6,314 (4) $ 84,083
============== ============= ============ ============= ===========
Year Ended December 31, 1995
Reserve for doubtful accounts $ 351 $ -- $ -- $ -- $ 351
============== ============= ============ ============= ===========
Reserve for depreciation on real estate
properties used in operations $ 3,698 $ 387 $ -- $ 641 (3) $ 3,444
============== ============= ============ ============= ===========
Reserve for real estate investments $ 11,471 $ -- $ -- $ 974 (4) $ 10,497
============== ============= ============ ============= ===========
(1) Represents write-off of a bad debt.
(2) Represents $265 of reserve reclassified with related asset to "Real
estate inventory", with the balance representing sales of real estate
properties.
(3) Represents reserves reclassified with related asset to "Real estate
inventory".
(4) Represents sales of real estate properties.
60
Exhibit Index
The following designated exhibits are, as indicated below, either filed herewith
or have heretofore been filed with the Securities and Exchange Commission under
the Securities Act of 1933 or the Securities Act of 1934 and are referred to and
incorporated herein by reference to such filings.
Exhibit 3. Articles of Incorporation and By-laws
Incorporated herein by reference:
3.1 Restated Articles of Organization - As amended through
January 17, 1997 - Exhibit 3.1 to 1996 Form 10-K as
filed.
3.2 By-laws - As amended and restated as of January 17,
1997 - Exhibit 3.2 to Form 8-K filed on February 14,
1997.
Exhibit 4. Instruments Defining the Rights of Security Holders,
Including Indentures
Incorporated herein by reference:
4.1 Certificate of Vote of Directors Establishing a Series
of a Class of Stock determining the relative rights and
preferences of the $21.25 Convertible Exchangeable
Preferred Stock - Exhibit 4(a) to Amendment No. 1 to
Form S-2 Registration Statement filed June 19, 1987;
SEC Registration No. 33-14434.
4.2 Form of Deposit Agreement, including form of Depositary
Receipt - Exhibit 4(b) to Amendment No. 1 to Form S-2
Registration Statement filed June 19, 1987; SEC
Registration No. 33-14434.
4.3 Form of Indenture with respect to the 8 1/2%
Convertible Subordinated Debentures Due June 15, 2012,
including form of Debenture - Exhibit 4(c) to Amendment
No. 1 to Form S-2 Registration Statement filed June 19,
1987; SEC Registration No. 33- 14434.
4.4 Shareholder Rights Agreement dated as of September 23,
1988, as amended and restated as of May 17, 1990, as
amended and restated as of January 17, 1997, between
Perini Corporation and State Street Bank and Trust
Company, as Rights Agent - Exhibit 4.4 to Amendment No.
1 to Registration Statement on Form 8-A/A filed on
January 29, 1997.
4.5 Stock Purchase and Sale Agreement dated as of July 24,
1996 by and among the Company, PB Capital and RCBA, as
amended - Exhibit 4.5 to the Company's Quarterly Report
on Form 10-Q/A for the fiscal quarter ended September
30, 1996 filed on December 11, 1996.
4.8 Certificate of Vote of Directors Establishing a Series
of Preferred Stock, dated January 16, 1997 - Exhibit
4.8 to Form 8-K filed on February 14, 1997.
4.9 Stock Assignment and Assumption Agreement dated as of
December 13, 1996 by
61
Exhibit Index
(Continued)
and among the Company, PB Capital and ULLICO
(filed as Exhibit 4.1 to the Schedule 13D filed
by ULLICO on December 16, 1996 and incorporated
herein by reference).
4.10 Stock Assignment and Assumption Agreement dated as of
January 17, 1997 by and among the Company, RCBA and The
Common Fund - Exhibit 4.10 to Form 8-K filed on
February 14, 1997.
4.11 Voting Agreement dated as of January 17, 1997 by and
among PB Capital, David B. Perini, Perini Memorial
Foundation, David B. Perini Testamentary Trust, Ronald
N. Tutor, and Tutor-Saliba Corporation - Exhibit 4.11
to Form 8-K filed on February 14, 1997.
4.12 Registration Rights Agreement dated as of January 17,
1997 by and among the Company, PB Capital and ULLICO -
Exhibit 4.12 to Form 8-K filed on February 14, 1997.
Exhibit 10. Material Contracts
Incorporated herein by reference:
10.1 1982 Stock Option and Long Term Performance Incentive
Plan - Exhibit A to Registrant's Proxy Statement for
Annual Meeting of Stockholders dated April 15, 1992.
10.2 Perini Corporation Amended and Restated General
Incentive Compensation Plan (1997) - filed herewith.
10.3 Perini Corporation Amended and Restated Construction
Business Unit Incentive Compensation Plan - filed
herewith.
10.4 $125 million Credit Agreement dated as of December 6,
1994 among Perini Corporation, the Banks listed herein,
Morgan Guaranty Trust Company of New York, as Agent,
and Shawmut Bank, N.A., Co-Agent - Exhibit 10.4 to 1994
Form 10-K, as filed.
10.5 Amendment No. 1 as of February 26, 1996 to the Credit
Agreement dated as of December 6, 1994 among Perini
Corporation, the Banks listed herein, Morgan Guaranty
Trust Company of New York, as Agent, and Fleet National
Bank of Massachusetts (f/k/a Shawmut Bank, N.A.), as
Co-Agent - Exhibit 10.5 to 1995 Form 10-K, as filed.
10.6 Bridge Credit Agreement dated as of February 26, 1996
among Perini Corporation, the Bridge Banks listed
herein, Morgan Guaranty Trust Company of New York, as
Agent, and Fleet National Bank of Massachusetts (f/k/a
Shawmut Bank, N.A.) as Co-Agent - Exhibit 10.6 to 1995
Form 10-K, as filed.
62
Exhibit Index
(Continued)
10.7 Amendment No. 2 as of July 30, 1996 to the Credit
Agreement dated as of December 6, 1994 and Amendment
No. 1 as of July 30, 1996 to the Bridge Credit
Agreement dated February 26, 1996 among Perini
Corporation, the Banks listed herein, Morgan Guaranty
Trust Company of New York, as Agent, and Fleet National
Bank of Massachusetts, as Co-Agent - Exhibit 10.7 to
Perini Corporation's Form 10-Q/A for the fiscal quarter
ended September 30, 1996 filed on December 11, 1996.
10.8 Amendment No. 2 as of September 30, 1996 to the Bridge
Credit Agreement dated as of February 26, 1996 among
Perini Corporation, the Banks listed herein, Morgan
Guaranty Trust Company of New York, as Agent, and Fleet
National Bank of Massachusetts, as Co-Agent - Exhibit
10.8 to Perini Corporation's Form 10-Q/A for the fiscal
quarter ended September 30, 1996 filed on December 11,
1996.
10.9 Amendment No. 3 as of October 2, 1996 to the Bridge
Credit Agreement dated as of February 26, 1996 among
Perini Corporation, the Banks listed herein, Morgan
Guaranty Trust Company of New York, as Agent, and Fleet
National Bank of Massachusetts, as Co-Agent - Exhibit
10.9 to Perini Corporation's Form 10-Q/A for the fiscal
quarter ended September 30, 1996 filed on December 11,
1996.
10.10 Amendment No. 4 as of October 15, 1996 to the Bridge
Credit Agreement dated as of February 26, 1996 among
Perini Corporation, the Banks listed herein, Morgan
Guaranty Trust Company of New York, as Agent, and Fleet
National Bank of Massachusetts, as Co-Agent - Exhibit
10.10 to Perini Corporation's Form 10-Q/A for the
fiscal quarter ended September 30, 1996 filed on
December 11, 1996.
10.11 Amendment No. 5 as of October 21, 1996 to the Bridge
Credit Agreement dated as of February 26, 1996 among
Perini Corporation, the Banks listed herein, Morgan
Guaranty Trust Company of New York, as Agent, and Fleet
National Bank of Massachusetts, as Co-Agent - Exhibit
10.11 to Perini Corporation's Form 10-Q/A for the
fiscal quarter ended September 30, 1996 filed on
December 11, 1996.
10.12 Amendment No. 6 as of October 24, 1996 to the Bridge
Credit Agreement dated as of February 26, 1996 among
Perini Corporation, the Banks listed herein, Morgan
Guaranty Trust Company of New York, as Agent, and Fleet
National Bank of Massachusetts, as Co-Agent - Exhibit
10.12 to Perini Corporation's Form 10-Q/A for the
fiscal quarter ended September 30, 1996 filed on
December 11, 1996.
10.13 Amendment No. 7 as of November 1, 1996 to the Bridge
Credit Agreement dated as of February 26, 1996 among
Perini Corporation, the Banks listed herein, Morgan
Guaranty Trust Company of New York, as Agent, and Fleet
National Bank of Massachusetts, as Co-Agent - Exhibit
10.13 to Perini Corporation's Form 10-Q/A for the
fiscal quarter ended September 30, 1996 filed on
December 11, 1996.
10.14 Amendment No. 8 as of November 4, 1996 to the Bridge
Credit Agreement dated as of February 26, 1996 and
Amendment No. 3 as of November 4, 1996 to the Credit
Agreement dated December 6, 1994 among Perini
Corporation, the Banks listed
63
Exhibit Index
(Continued)
herein, Morgan Guaranty Trust Company of New York, as ,
Agent and Fleet National Bank of Massachusetts, as
Co-Agent - Exhibit 10.14 to Perini Corporation's Form
10-Q/A for the fiscal quarter ended September 30,
1996 filed on December 11, 1996.
10.15 Amendment No. 9 as of November 12, 1996 to the Bridge
Credit Agreement dated as of February 26, 1996 and
Amendment No. 4 as of November 12, 1996 to the Credit
Agreement dated December 6, 1994 among Perini
Corporation, the Banks listed herein, Morgan Guaranty
Trust Company of New York, as Agent, and Fleet National
Bank of Massachusetts, as Co-Agent - Exhibit 10.15 to
Perini Corporation's Form 10-Q/A for the fiscal quarter
ended September 30, 1996 filed on December 11, 1996.
10.16 Management Agreement dated as of January 17, 1997 by
and among the Company, Ronald N. Tutor and Tutor-Saliba
Corporation - Exhibit 10.16 to Form 8-K filed on
February 14, 1997.
10.17 Amended and Restated Credit Agreement dated as of
January 17, 1997 among Perini Corporation, the Banks
listed herein and Morgan Guaranty Trust Company of New
York, as Agent, and Fleet National Bank, as Co-Agent -
Exhibit 10.17 to 1996 Form 10-K as filed.
Exhibit 21. Subsidiaries of Perini Corporation - filed herewith.
Exhibit 23. Consent of Independent Public Accountants - filed herewith.
Exhibit 24. Power of Attorney - filed herewith.
Exhibit 27. Financial Data Schedule - filed herewith.
Exhibit 99. Additional Exhibits
99.1 Combined Financial Statements of Significant Joint
Ventures - filed herewith.
64
Exhibit 21
Perini Corporation
Subsidiaries of the Registrant
Percentage
of Interest
or Voting
Place of Securities
Name Organization Owned
- ---------------------------------------------------------------- --------------------------- --------------
Perini Corporation Massachusetts
Perini Building Company, Inc. Arizona 100%
Perini Environmental Services, Inc. Delaware 100%
International Construction Management Services, Inc. Delaware 100%
Percon Constructors, Inc. Delaware 100%
Perini International Corporation Massachusetts 100%
Bow Leasing Company, Inc. New Hampshire 100%
Perini Land & Development Company Massachusetts 100%
Paramount Development Associates, Inc. Massachusetts 100%
Perini Resorts, Inc. California 100%
Perland Realty Associates, Inc. Florida 100%
Rincon Center Associates CA Limited Partnership 46%
Perini Central Limited Partnership AZ Limited Partnership 75%
Perini Eagle Limited Partnership AZ Limited Partnership 50%
Perini/138 Joint Venture GA General Partnership 49%
Perini/RSEA Partnership GA General Partnership 50%
65
Exhibit 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our reports,
dated February 13, 1998, included in Perini Corporation's Annual Report on this
Form 10-K for the year ended December 31, 1997, and into the Company's
previously filed Registration Statements Nos. 2-82117, 33-24646, 33-46961,
33-53190, 33-53192, 33- 60654, 33-70206, 33-52967, 33-58519, 333-03417 and
333-26423.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 25, 1998
66
Exhibit 24
Power of Attorney
We, the undersigned, Directors of Perini Corporation, hereby severally
constitute David B. Perini, Robert Band and Robert E. Higgins, and each of them
singly, our true and lawful attorneys, with full power to them and to each of
them to sign for us, and in our names in the capacities indicated below, any
Annual Report on Form 10-K pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 to be filed with the Securities and Exchange Commission and
any and all amendments to said Annual Report on Form 10-K, hereby ratifying and
confirming our signatures as they may be signed by our said Attorneys to said
Annual Report on Form 10-K and to any and all amendments thereto and generally
to do all such things in our names and behalf and in our said capacities as will
enable Perini Corporation to comply with the provisions of the Securities
Exchange Act of 1934, as amended, and all requirements of the Securities and
Exchange Commission.
WITNESS our hands and common seal on the date set forth below.
/s/David B. Perini Director March 11, 1998
- ------------------ -------- --------------
David B. Perini Date
/s/Richard J. Boushka Director March 11, 1998
- --------------------- -------- --------------
Richard J. Boushka Date
/s/Marshall M. Criser Director March 11, 1998
- --------------------- -------- --------------
Marshall M. Criser Date
/s/Albert A. Dorman Director March 11, 1998
- ------------------- -------- --------------
Albert A. Dorman Date
/s/Arthur J. Fox, Jr. Director March 11, 1998
- --------------------- -------- --------------
Arthur J. Fox, Jr. Date
/s/ Nancy Hawthorne Director March 11, 1998
- ------------------- -------- --------------
Nancy Hawthorne Date
/s/ Michael R. Klein Director March 11, 1998
- -------------------- -------- --------------
Michael R. Klein Date
/s/ Roger J. Ludlam Director March 11, 1998
- ------------------- -------- --------------
Roger J. Ludlam Date
/s/ Douglas J. McCarron Director March 11, 1998
- ----------------------- -------- --------------
Douglas J. McCarron Date
/s/John J. McHale Director March 11, 1998
- ----------------- -------- --------------
John J. McHale Date
/s/Jane E. Newman Director March 11, 1998
- ----------------- -------- --------------
Jane E. Newman Date
/s/Bart W. Perini Director March 11, 1998
- ----------------- -------- --------------
Bart W. Perini Date
/s/ Ronald N. Tutor Director March 11, 1998
- ------------------- -------- --------------
Ronald N. Tutor Date
67