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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, 1998 [ ]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 $24,346,000 as of February 22, 1999. 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 22, 1999 is 5,444,010.
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Documents Incorporated by Reference
Portions of the annual proxy statement for the year ended December 31, 1998 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 - 11
Item 2: Properties 11
Item 3: Legal Proceedings 12
Item 4: Submission of Matters to a Vote of Security Holders 12
PART II
Item 5: Market for the Registrant's Common Stock and Related 12
Stockholder Matters
Item 6: Selected Financial Data 13
Item 7: Management's Discussion and Analysis of Financial 14 - 20
Condition and Results of Operations
Item 7A: Quantitative and Qualitative Disclosure About Market Risk 20
Item 8: Financial Statements and Supplementary Data 20
Item 9: Disagreements on Accounting and Financial Disclosure 20
PART III
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
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 currently in 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, 1998.
Annual Report
On Form 10-K
Caption Page Number
------- -----------
Selected Consolidated Financial Information Page 13
Management's Discussion and Analysis Pages 14 - 20
Note 13 to the Consolidated Financial Statements, entitled Business Segments Pages 48 - 50
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, 1998, additional information (business segment)
required by Statement of Financial Accounting Standards No. 131, "Disclosures
About Segements of an Enterprise and Related Information", for the three years
ended December 31, 1998 is included in Note 13 to the Consolidated Financial
Statements.
A summary of revenues by business segment for the three years ended December 31,
1998 is as follows:
Revenues (in thousands)
Year Ended December 31,
----------------------------------------
1998 1997 1996
---- ---- ----
Construction:
Building $ 679,296 $ 888,809 $ 834,888
Civil 332,026 387,224 389,540
------------ ---------- ------------
Total Construction Revenues $ 1,011,322 $1,276,033 $ 1,224,428
Real Estate 24,578 48,458 45,856
------------ ---------- ------------
Total Revenues $ 1,035,900 $1,324,491 $ 1,270,284
============ ========== ============
2
Construction
The general contracting 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 provides these
services using the traditional contracting method as well as under construction
management or design-build contracting arrangements. The Company was engaged in
over 130 construction projects in the United States and overseas during 1998.
The Company has two principal construction operations: building and civil.
The building operation provides its services through regional offices located in
several metropolitan areas: Boston, serving New England and the Mid-Atlantic
area; and Phoenix and Las Vegas, serving Arizona, Nevada and California. In
1992, the Company combined its building operations into a wholly-owned
subsidiary, Perini Building Company, Inc. This 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.
The civil operation undertakes large public civil projects in the East, with
current emphasis on major metropolitan areas such as Boston and New York City
and selectively, in other geographic locations. 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 1999 and beyond.
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.
Construction Strategy
The Company's current strategy is to concentrate on the civil construction
market in the East and specialized niche building construction markets
throughout the United States, with the goal in both markets to improve profit
margins. The Company believes the best opportunities for growth in the coming
years for its civil construction business are in the urban infrastructure
market, particularly in Boston and metropolitan New York 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 take advantage of certain
market niches, and to expand into new markets compatible with its expertise.
Internally, the Company plans to continue 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 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. 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".
During 1998, the Company continued its plan to enhance profitability and to
implement certain other decisions made in 1997 by closing down two marginal
business units in the Midwest.
3
Backlog
As of December 31, 1998, the Company's construction backlog was $1.23 billion
compared to backlogs of $1.31 billion and $1.52 billion as of December 31, 1997
and 1996, respectively.
Backlog (in thousands) as of December 31,
-----------------------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
Northeast $ 682,774 55% $ 574,779 44% $ 643,114 42%
Mid-Atlantic 45,417 4 97,212 7 113,289 8
Southeast 35,801 3 46,629 4 56,925 4
Midwest 92,928 8 26,130 2 97,954 6
Southwest 294,931 24 481,068 37 425,901 28
West 26,843 2 28,707 2 139,079 9
Foreign 53,562 4 54,929 4 41,438 3
Total $1,232,256 100% $1,309,454 100% $1,517,700 100%
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 $500 million
of its backlog will not be completed in 1999.
The Company's backlog in the Northeast region of the United States continues to
remain 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 decrease
in backlog in the Southwest region is due to the timing in signing new contracts
that are being negotiated rather than a longer term trend. Other fluctuations in
backlog are viewed by management as transitory.
Types of Contracts
The four general types of contracts in current use in the construction industry
are:
O Fixed price contracts ("FP"), which include fixed unit price contracts,
usually transfer more risk to the contractor but offer the opportunity,
under favorable circumstances, for greater profits. With the Company's
concentration in publicly bid civil construction projects, 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 agreements with
subcontractors.
4
Historically, a high percentage of company contracts have been of the fixed
price and GMP type contracts. 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,
- ----------------------------------- -------------------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
50% 58% 59% Fixed Price 68% 53% 62%
50 42 41 CPFF, GMP or CM 32 47 38
---- ---- ---- ---- ---- ----
100% 100% 100% 100% 100% 100%
Clients
During 1998, the Company was active in the building, civil and international
construction markets. The Company performed work for over 100 federal, state and
local governmental agencies or authorities and private customers during 1998.
Due to the Company's trend toward fewer, but larger contracts, a material part
of the Company's business has been dependent on a single or limited number of
private customers and/or public agencies in recent years (see Note 13 to Notes
to the Consolidated Financial Statements), the loss of any one of which could
have a materially adverse effect on the Company. During the period 1996-1998,
the portion of construction revenues derived from contracts with various
governmental agencies was 43% in 1998, 51% in 1997 and 52% in 1996.
Revenues by Client Source
Year Ended December 31,
-----------------------------------
1998 1997 1996
---- ---- ----
Private Owners 57% 49% 48%
Federal Governmental Agencies 2 5 5
State, Local and Foreign Governments 41 46 47
---- ---- ----
100% 100% 100%
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 and if awarded, performing 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 an example of this situation, see "Legal Proceedings" on page 12.
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
5
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 1999 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 carried insurance or received 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 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 most recently
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
6
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).
Since January 1, 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
nonbinding agreement on the restructure of the existing financing and other
obligations on the project, subject to final documentation and final approval of
several parties. The agreement provides, among other things, that the joint
venture give up all of its economic interest in Phase I of Rincon Center. Once
the refinancing agreement is completed, all guarantees provided by RCA, its
partners and the Company, under the existing master lease covering Rincon I,
would be released at that time in connection with the termination of the master
lease. 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 was $7.8 million, which was charged against
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 phase of the property
identified as Rincon II.
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 1996, 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.
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 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.
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 1998. The park consists of 17 parcels, of
which 5 acres currently remain unsold.
7
Massachusetts
Perini Land & 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 1997, Paramount sold an aggregate of 58
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. The park is planned to eventually
contain 2.5 million square feet of office, R&D, light industrial and mixed
commercial space. Two land sales totalling 8 acres were closed in 1998, along
with the sale of the two commercial buildings mentioned above, leaving
approximately 160 saleable acres to be sold.
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 1998.
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
1998.
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 1997 had sold 312 single family lots to
builders, along with a 22.3-acre tract designed for 88 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 1998 the joint venture sold an
additional 24 lots and a 5.6-acre tract designed for 16 lots to builders.
California
Rincon Center, San Francisco - Major construction on this mixed-use project in
downtown San Francisco was completed in 1989 for Rincon Center Associates, a
joint venture in which PL&D holds a 46% interest and is the managing general
partner. 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 backed under a master lease
by the developing partnership. The first phase, referred to as Rincon I,
consists of about 223,000 square feet of office space and 42,000 square feet of
retail space. The Rincon 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 100% leased. Phase II of the project, referred to
as Rincon II, 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, 95%
of the office space, 100% of the retail space and 97% of the 320 residential
units are leased. The major tenant in the office space in Rincon II is a large
national insurance company which occupies 164,000 square feet. 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.
8
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,
which currently aggregate $48.3 million, matured in 1998 and were not refinanced
pending the debt restructure referred to below. 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 II commercial loan. RCA, the lessor, and the lender have
reached a nonbinding agreement on the restructure of the Rincon financing. The
agreement is subject to final documentation and final approvals of several
parties including the lessor and the Company's revolving credit facility banks.
The portion of the agreement relating to Rincon I provides, among other things,
that the joint venture give up all of its economic interest in the commercial
and retail segments of that portion of the property identified as Rincon I, and
that the joint venture make a one-time payment of $7.5 million to the lessor of
Rincon I (which includes a final loan payment of $6.5 million to the lenders of
Rincon I). The 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 under certain conditions. The portion of the agreement
relating to Rincon II provides for, among other things, a $1.5 million interest
payment, a $2.8 million principal payment, amortization of the commercial loan
of $20,000 per month, a new letter of credit in the amount of $2.0 million
issued to secure the remaining borrowings at Rincon II and the elimination of
further Company or joint venture guarantees.
Total restructure payments related to Rincon I and II are estimated to be $12.7
million through 1999, of which $5.3 million will be funded by the Company and
$7.4 million will be funded by the other co-general partner of the joint
venture.
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 (refers to one of the loans mentioned
above) 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 finalize
the financial restructuring as described above and to eventually cancel this
requirement as part of the terms to the various restructuring agreements.
In addition to the project financing and guarantees mentioned above and
described in more detail in Note 11 to Notes to Consolidated Financial
Statements, the Company has advanced approximately $92.5 million to the
partnership through December 31, 1998, of which approximately $3.3 million was
advanced during 1998, 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 1993-1998, PL&D advanced $6.2 million under this
agreement, primarily to meet the principal payment obligations of the loan
extensions described above. These funds, advanced as loans to PGP, are in
addition to the advances described above.
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
1997, 76 sales were closed. During 1998, another 54 sales were closed, leaving a
balance of 21 lots remaining.
9
Arizona
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 a preliminary agreement to sell the
property which was terminated late in 1998. Negotiations for the sale of the
property to another prospective buyer are currently in process.
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 75% leased with approximately half of the building leased to a
major area utility company. 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 are completed and operating.
During the latter part of 1998, a judgment was rendered against the joint
venture which required payment of a portion of a note, related interest and
expenses which could aggregate between $1 and 2 million. The joint venture and
its counsel are in the process of reviewing the possibility of appealing the
decision.
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 Trent Jones, Jr. designed championship golf course and clubhouse were
completed within the project in 1995. In 1998, PL&D settled a lawsuit with the
prior purchaser of the major portion of the property which required PL&D to
complete a certain portion of the infrastructure by the end of the Year 2000.
Although it will require some additional 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
10
gross profits from real estate sales will be minimal, which has been the case
during the three year period ended December 31, 1998.
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.
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 1998, the maximum number of employees
employed was approximately 2,700 and the minimum was approximately 1,600.
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 6 through
10. 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
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
Detroit, MI Leased - 2,800
----- -------
9 143,600
Owned or Leased Approximate
Principal Permanent Storage Yards by Perini Acres
- --------------------------------- --------- -----
Bow, NH Owned 70
Framingham, MA Owned 6
Las Vegas, NV Leased 2
-----
78
=====
11
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 sucessor judge 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 sucessor Judge, who
awarded approximately $4.3 million to the joint venture, thereby reducing the
net amount payable to approximately $12.2 million. The joint venture appealed
the decision. As a result of the decision, there was 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
litigation process is complete.
On February 16, 1999, the U.S. Court of Appeals for the District of Columbia
vacated the April 1995 and July 1997 Orders and remanded the case back to the
successor judge with instructions for the successor judge to consider certain
post-trial motions to the same extent an original judge would have, and to make
findings and conclusions regarding the unresolved issues, giving appropriate
consideration to whether or not witnesses must be recalled. A final judgment
will be entered by the District Court upon the completion of these Appeals
Court-directed procedures.
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 1998 and 1997 are
summarized below:
1998 1997
---- ----
Market Price Range per Common Share: High Low High Low
- ------------------------------------ ---- --- ---- ---
Quarter Ended
March 31 9 1/8 - 7 3/8 9 1/2 - 6 7/8
June 30 11 1/4 - 7 7/8 7 3/4 - 6 1/4
September 30 8 1/2 - 6 8 3/8 - 7
December 31 7 - 4 1/4 9 3/8 - 7 13/16
12
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 22, 1999, there were approximately 1,144 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 1998 1997 1996 1995 1994
------------- ------------ ------------ ------------ -------------
Revenues:
Construction Operations -
Building $ 679,296 $ 888,809 $ 834,888 $ 748,412 $ 626,391
Civil 332,026 387,224 389,540 308,261 324,493
------------- ------------ ------------ ------------ -------------
$ 1,011,322 $ 1,276,033 $ 1,224,428 $ 1,056,673 $ 950,884
Real Estate Operations 24,578 48,458 45,856 44,395 61,161
------------- ------------ ------------ ------------ -------------
Total Revenues $ 1,035,900 $ 1,324,491 $ 1,270,284 $ 1,101,068 $ 1,012,045
------------- ------------ ------------ ------------ -------------
Costs:
Cost of Operations $ 984,871 $ 1,275,614 $ 1,215,806 $ 1,086,213 $ 960,248
Write down of Certain Real Estate
Assets (Note 4) - - 79,900 - -
------------- ------------ ------------ ------------ -------------
$ 984,871 $ 1,275,614 $ 1,295,706 $ 1,086,213 $ 960,248
------------- ------------ ------------ ------------ -------------
Gross Profit (Loss) $ 51,029 $ 48,877 $ (25,422) $ 14,855 $ 51,797
General, Administrative & Selling
Expenses 28,780 30,556 33,988 37,283 42,985
------------- ------------ ------------ ------------ -------------
Income (Loss) From Operations $ 22,249 $ 18,321 $ (59,410) $ (22,428) $ 8,812
Other Income (Expense), Net (812) (1,665) (492) 814 (856)
Interest Expense (8,685) (10,334) (9,871) (8,582) (7,473)
------------- ------------ ------------ ------------ -------------
Income (Loss) Before Income Taxes $ 12,752 $ 6,322 $ (69,773) $ (30,196) $ 483
(Provision) Credit for Income Taxes (1,100) (950) (830) 2,611 (180)
------------- ------------ ------------ ------------ -------------
Net Income (Loss) $ 11,652 $ 5,372 $ (70,603) $ (27,585) $ 303
------------- ------------ ------------ ------------ -------------
Per Share of Common Stock:
Basic and diluted earnings (loss) $ 1.08 $ 0.01 $ (15.13) $ (6.38) $ (0.42)
------------- ------------ ------------ ------------ -------------
Cash dividends declared $ - $ - $ - $ - $ -
------------- ------------ ------------ ------------ -------------
Book value $ 4.17 $ 2.44 $ 2.14 $ 17.06 $ 23.79
------------- ------------ ------------- ------------ -------------
Weighted Average Number of
Common Shares Outstanding 5,318 5,059 4,808 4,655 4,380
------------- ------------ ------------ ------------ -------------
FINANCIAL POSITION SUMMARY
Working Capital $ 57,665 $ 76,752 $ 56,744 $ 36,545 $ 29,948
------------- ------------ ------------ ------------ -------------
Current Ratio 1.29:1 1.33:1 1.19:1 1.12:1 1.13:1
------------- ------------ ------------ ------------ -------------
Long-term Debt, less current
maturities $ 75,857 $ 84,898 $ 96,893 $ 84,155 $ 76,986
------------- ------------ ------------ ------------ -------------
Stockholders' Equity $ 50,558 $ 40,900 $ 35,558 $ 105,606 $ 132,029
------------- ------------ ------------ ------------ -------------
Ratio of Long-term Debt to Equity 1.50:1 2.08:1 2.72:1 .80:1 .58:1
------------- ------------ ------------ ------------ -------------
Total Assets $ 378,591 $ 414,924 $ 464,292 $ 539,251 $ 482,500
------------- ------------ ------------ ------------ -------------
OTHER DATA
Backlog at Year End $ 1,232,256 $ 1,309,454 $ 1,517,700 $ 1,534,522 $ 1,538,779
------------- ------------ ------------ ------------ -------------
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
Results of Operations -
1998 Compared to 1997
The Company's total operations produced net income of $11.7 million (or $1.08
per Common Share) in 1998 compared to net income of $5.4 million (or $.01 per
Common Share) in 1997. This substantially improved performance is attributable
to higher margins on the work performed by both the Company's building and civil
operating units, primarily from the hotel/casino market in Nevada and from civil
infrastructure work in the Northeast and further reductions in general and
administrative and interest expense. These improvements more than offset a
decrease in 1998 construction revenues and continued losses from real estate
operations.
Revenues decreased $288.6 million (or 22%) from $1,324.5 million in 1997 to
$1,035.9 million in 1998. This decrease resulted from a decrease in construction
revenues of $264.7 million (or 21%) from $1,276.0 million in 1997 to $1,011.3
million in 1998, due primarily from a decrease in revenues from both building
and civil construction operations. Revenues from building operations decreased
$209.5 million (or 24%) from $888.8 million in 1997 to $679.3 million in 1998,
due primarily to the timing of the start up of new hotel/casino projects in Las
Vegas, a decrease in revenues from airport facilities and a sports complex in
the West, and a decrease in revenues from correctional facilities projects in
the East. Revenues from civil construction operations decreased $55.2 million
(or 14%) from $387.2 million in 1997 to $332.0 million in 1998, due primarily to
the timing in the start up of new work in the Northeast. The phasing out of two
divisions in the Midwest also contributed to the decrease in revenues from both
the building and civil operations. The decline in real estate revenues of $23.9
million (or 49%) is primarily due to the non-recurring revenues related to the
1997 sale of the Company's interest in the Resort at Squaw Creek.
In spite of the overall 22% decrease in total revenues described above, total
gross profit actually increased by $2.1 million (or 4%), from $48.9 million in
1997 to $51.0 million in 1998, due primarily to improved margins on both the
building and civil construction work performed in 1998. Real estate operations
contributed a gross loss of $2.7 million, a $1.4 million increase over 1997
which was caused primarily by adverse operating results in Arizona.
The decrease in general, administrative and selling expenses of $1.8 million (or
5.9%) from $30.6 million in 1997 to $28.8 million in 1998, resulted primarily
from phasing out of two construction divisions in the Midwest, efficiencies
achieved by combining certain other divisions and continuation of downsizing
certain corporate departments.
Other income (expense), net improved by $0.9 million from a net expense of $1.7
million in 1997 to a net expense of $0.8 million in 1998, due to an increase in
interest income and a decrease in bank fees.
Interest expense decreased by $1.6 million from $10.3 million in 1997 to $8.7
million in 1998, due primarily to lower average levels of borrowing during 1998.
The lower than normal tax rate for the three year period ended December 31, 1998
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 $59.0 million of
pretax earnings subsequent to 1998 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, be realized (see Note 5 to Notes to
Consolidated Financial Statements).
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
14
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 in 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.
Financial Condition
Cash and Working Capital
During 1998, cash generated from operating activities in the amount of $29.7
million, due primarily to changes in various elements of working capital,
continued to reflect improvement over recent years. In addition, net cash
provided from investing activities amounted to $0.3 million which was generated
by net cash distributions to the Company from joint ventures. The funds
generated were used for financing activities ($14.8 million) to pay down
borrowings and to increase cash on hand by $15.2 million.
During 1997, the Company generated $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 pay downs 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 $23.4 million in cash for operating activities,
primarily for changes in working capital, and $22.0 million for investment
activities, primarily to fund construction and real estate joint ventures. These
uses of
15
cash were provided by $26.1 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.
Since 1990, the Company has paid down $50.0 million of real estate debt on
wholly-owned real estate projects (from $50.9 million to $0.9 million),
utilizing proceeds from sales of property and general corporate funds.
Similarly, real estate joint venture debt has been reduced by $171.0 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 (Rincon Center) referred to
in Note 11 to Notes to Consolidated Financial Statements, this trend should
continue over the next few 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.
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. The aggregate amount available under its revolving credit
agreement increased to $129.5 million at that time, although it has subsequently
been reduced and stands at $96.6 million at December 31, 1998. In addition to
internally generated funds, at December 31, 1998, the Company has $21.6 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 1998, it
obtained waivers of such violations. Also, during 1997 and 1998, 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 was 1.29:1 at the end of 1998 compared to
1.33:1 at the end of 1997, and 1.19:1 at the end of 1996. Of the total working
capital of $57.7 million at the end of 1998, approximately $17.6 million may not
be converted to cash within the next 12 to 18 months.
Long-term Debt
Long-term debt was $75.9 million at the end of 1998 and continued to decrease
during the period under review, $9.0 million during 1998 and $12.0 million
during 1997. The ratio of long-term debt to equity improved substantially during
this same period to 1.50:1 at the end of 1998 from 2.08:1 and 2.72:1 at the end
of 1997 and 1996, respectively. The improvement in the debt to equity ratio is
due primarily to a combination of the Company continuing to pay down its
long-term debt and to earnings recorded in both 1998 and 1997.
Stockholders' Equity
The Company's book value per Common Share stood at $4.17 at December 31, 1998,
compared to $2.44 per Common Share and $2.14 per Common Share at the end of 1997
and 1996, respectively. The major factors impacting
16
stockholders' equity during the three-year period under review were the net
income recorded in 1998 and 1997, the net loss recorded in 1996 and, to a lesser
extent, Preferred dividends paid in-kind or accrued and stock issued in partial
payment of certain expenses.
At December 31, 1998, there were 1,146 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, 1998.
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, 1997 and 1998, 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 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 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). Prior to any
such dividends, the Company must have elected and paid cash dividends on the
Series B Preferred Stock for the preceding four quarters.
The aggregate amount of dividends in arrears is approximately $6,906,000 at
December 31, 1998, which represents approximately $69.06 per share of Preferred
Stock or approximately $6.91 per Depositary Share and is included in "Other
Liabilities" (long-term) in the 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 had been deferred for more than six
quarters and they did so at the May 14, 1998 Annual Meeting.
The Board of Directors intends to resume payment of dividends when 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.
17
Outlook
O Construction - Looking ahead, the overall construction backlog at the
end of 1998 was $1.232 billion, down 6% from the 1997 year end backlog
of $1.309 billion. This decrease primarily reflects a timing lag in
signing up new work under negotiation at December 31, 1998 and
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 47%
of the current backlog relates to building construction projects which
generally represent lower risk, lower margin work, and approximately 53%
of the current backlog relates to civil 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 implemented plans to close or downsize and refocus four business
units during 1997 and during 1998 it continued to implement these plans.
The Company believes the outlook for its building and civil construction
businesses continues to be promising.
O Real Estate - 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, 1998. A major objective for 1999 is
to finalize the renegotiation and extension of debt at Rincon Center
(see Note 11 to Notes to Consolidated Financial Statements).
O Liquidity - 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 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 unapproved change orders and 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 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.
Subsequent to December 31, 1998, the Company reached an agreement in
principle with its Bank Group to extend its Revolving Credit Facility
for an additional year from the beginning of the Year 2000 to the
beginning of 2001 (see Note 3 to Notes to the Consolidated Financial
Statements).
Management believes that cash generated from operations, existing credit
lines, additional borrowings and projected sale of certain real estate
assets referred to above and timely resolution and payment of various
unapproved change orders and construction claims referred to above
should be adequate to meet the Company's funding requirements for at
least the next twelve months.
O Year 2000 Disclosure - Since many computers, related software and
certain devices with embedded microchips record only the last two digits
of a year, they may not be able to recognize that January 1, 2000 (or
subsequent dates) comes after December 31, 1999. This situation could
cause erroneous calculations or system shutdowns, causing problems that
could range from merely inconvenient to significant.
18
As previously reported, the Company began a project to review all of its
computer systems in 1995. One factor, among many to consider, was what
impact, if any, Year 2000 would have on computer systems. As a result of
this project, the Company implemented new, fully integrated, online,
construction specific financial systems during the first quarter of 1998
which are Year 2000 compliant. The cost of these new systems, including
the hardware which is also Year 2000 compliant, software and
implementation costs, approximated $1.5 million which was capitalized
and is being amortized over ten years on a straight-line basis.
The Company recognized that the Year 2000 issue could be an overall
business problem, not just a technical problem. Therefore, it
established a Year 2000 Committee early in 1998 to identify all of the
other potential Year 2000 issues that could impact the Company,
including readiness issues for its computer applications and business
processes, non-information technology systems such as those of its
facilities and equipment, along with relationships with third parties,
such as its customers, vendors, subcontractors, joint venture, and other
business partners; develop plans to evaluate the significance of the
potential problem; develop plans to remedy or minimize the potential
problem; assign appropriate resources; and monitor the implementation of
the plans. During the third quarter of 1998, the Committee, which
included both the Company's Chairman and CEO, designated the Year 2000
Project Manager. The Project Manager has organized a Year 2000 Team,
consisting of specific individuals assigned from each operating unit and
each corporate department. In addition, the Company developed, published
and commenced implementation of its Year 2000 Readiness Plan which has
as its overall objective "to eliminate or minimize the potential
internal and external impact of the Year 2000 issue on the normal
business operations of the Company, its subsidiaries, and joint ventures
in a timely and cost effective manner". In addition to addressing its
own computer applications, facilities, and construction equipment, the
Plan includes communication with critical third parties as stated above.
The Year 2000 Plan includes the following phases: (1) potential problem
identification, (2) resource commitment, (3) inventory, (4) assessment,
(5) prioritization, (6) remediation, and (7) testing. While the Company
completed the problem identification and resource commitment phases
during the third quarter, and prioritization phase during the fourth
quarter of 1998, it is in various stages of "inventory", "assessment",
"testing", and "remediation" phases as of December 31, 1998. As part of
the Plan, the Company is evaluating alternative solutions and developing
contingency plans for handling certain critical areas in the event
remediation is unsuccessful. Completion of the Year 2000 Plan, including
final testing and development of final contingency plans, is currently
on schedule and should be completed by its October 1999 targeted
completion date. The Company currently estimates that costs related to
the Year 2000 Plan over and above the cost of the new financial systems
referred to above will approximate $0.3 million which are being expensed
currently.
The Company, as a general contractor, generally provides its
construction services in accordance with detailed contracts and
specifications provided by its clients. Also, the Company recently
installed all new mission critical financial system software on new
hardware, all of which are Year 2000 compliant. In light of the above,
the Company has defined its most reasonable likely worse case scenario
at this stage of implementing its Year 2000 Plan to include last minute
inquiries and requests for assistance in determining Year 2000
compliance by some limited number of clients who have not properly
prepared for this event. In addition, the possible filing of frivolous
lawsuits against the Company, among others, by a party or parties that
claim they were adversely impacted by a Year 2000 issue related to one
of the many projects with which the Company was associated is also a
concern. The Company currently plans to have a Year 2000 Urgent Response
Team defined and available to respond to last minute Year 2000 issues
raised by clients or others in a timely, proactive and cost effective
manner. In addition, the Company currently plans to develop prepackaged
legal defenses in advance assuming various types of complaints.
Forward-looking Statements
This Management's Discussion and Analysis of Financial Condition and Results of
Operations, including "Outlook",
19
"Year 2000 Disclosure" 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- -------------------------------------------------------------------
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's revolving credit debt (see Note 3 to Notes to the
Consolidated Financial Statements) and short-term investment portfolio. As of
December 31, 1998, the Company had $72.0 million borrowed under its revolving
credit agreement that is classified in long-term debt and $38.2 million of
short-term investments classified as cash equivalents.
The Company borrows under its bank revolving credit facility for general
corporate purposes, including working capital requirements and capital
expenditures. Borrowings under the bank credit facility bear interest at the
applicable LIBOR or base rate, as defined, and therefore, the Company is subject
to fluctuations in interest rates. If the average effective 1998 borrowing rate
of 8.0% changed by 10% (or 0.8%) during the next twelve months, the impact,
based on the Company's ending 1998 revolving debt balance, would be an increase
or decrease in net income and cash flow of $576,000.
The Company's short-term investment portfolio consists primarily of highly
liquid instruments with maturities of less than one month.
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 13, 1999 (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, 1998 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 - 61* 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.
Ronald N. Tutor, Director and Vice Since January 1, 1998 he serves as a
Chairman - 58* Director and Vice Chairman. Prior to
that,he served as a Director and
Acting Chief Operating Officer since
January 17, 1997. He is the Chairman,
President and Chief Executive Officer
of Tutor-Saliba Corporation, a
California based construction
contractor since prior to 1994 and
has actively managed that company
since 1966.
Roger J. Ludlam, Director, President He was elected President and Chief
and Chief Executive Officer - 56* Executive Officer effective January
1, 1998 and has served as a Director
since May 1998. Prior to 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 President, He was elected to his current
Chief Financial Officer - 51 position in December 1997. Prior to
that, he served as 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.
*Effective January 31, 1999, Mr. Ludlam resigned as President and Chief
Executive Officer of the Company. Since January 31, 1999, David B. Perini and
Ronald N. Tutor have shared the responsibilities of President and Chief
Executive Officer of the Company pending the appointment of a new Chief
Executive Officer.
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.
21
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, 1998 and 1997 25 - 26
Consolidated Statements of Operations for each of the three years ended December 31, 1998, 1997 27
and 1996
Consolidated Statements of Stockholders' Equity for each of the three years ended December 31, 28
1998, 1997 and 1996
Consolidated Statements of Cash Flows for each of the three years ended December 31, 1998, 1997 29 - 30
and 1996
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 65. 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, 1998, 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 15, 1999 /s/David B. Perini
David B. Perini
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
(i) Principal Executive Officer
David B. Perini Chairman March 15, 1999
/s/David B. Perini
------------------
David B. Perini
(ii) Principal Financial Officer
Robert Band Executive Vice President,
Chief Financial Officer March 15, 1999
/s/Robert Band
--------------
Robert Band
(iii) Principal Accounting Officer
Barry R. Blake Vice President and
Controller March 15, 1999
/s/Barry R. Blake
-----------------
Barry R. Blake
(iv) Directors
David B. Perini )
Richard J. Boushka )
Arthur I. Caplan )
Marshall M. Criser )
Frederick Doppelt )/s/ David B. Perini
Albert A. Dorman ) David B. Perini
Arthur J. Fox, Jr. )
Nancy Hawthorne )Attorney in Fact
Michael R. Klein )Dated: March 15, 1999
Douglas J. McCarron )
John J. McHale )
Jane E. Newman )
Ronald N. Tutor )
24
Consolidated Balance Sheets
December 31, 1998 and 1997
(In thousands except share data)
Assets
1998 1997
------------- -------------
CURRENT ASSETS:
Cash, including cash equivalents of $38,175 and $23,585 (Note 1) $ 46,507 $ 31,305
Accounts and notes receivable, including retainage of $30,450 and $54,234 113,855 139,221
Unbilled work (Note 1) 19,585 36,574
Construction joint ventures (Notes 1 and 2) 67,100 71,056
Real estate inventory, at the lower of cost or market (Notes 1 and 4) 10,069 25,145
Deferred tax asset (Notes 1 and 5) 1,076 1,067
Other current assets 1,332 1,808
------------- -------------
Total current assets $ 259,524 $ 306,176
------------- -------------
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 $ 15,541 $ 7,093
Investments in and advances to real estate joint ventures
(Notes 2 and 11) 89,499 86,598
------------- -------------
Total real estate development investments $ 105,040 $ 93,691
------------- -------------
PROPERTY AND EQUIPMENT, at cost (Note 1):
Land $ 536 $ 826
Buildings and improvements 11,286 13,026
Construction equipment 7,600 7,580
Other equipment 6,814 8,450
------------- -------------
$ 26,236 $ 29,882
Less - Accumulated depreciation 16,378 19,406
------------- -------------
Total property and equipment, net $ 9,858 $ 10,476
------------- -------------
OTHER ASSETS:
Other investments $ 2,719 $ 3,069
Goodwill (Note 1) 1,450 1,512
------------- -------------
Total other assets $ 4,169 $ 4,581
------------- -------------
$ 378,591 $ 414,924
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
25
Liabilities and Stockholders' Equity
1998 1997
--------------- --------------
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 3) $ 2,956 $ 11,873
Accounts payable, including retainage of $31,859 and $49,884 127,774 145,118
Advances from construction joint ventures (Note 2) 17,300 29,801
Deferred contract revenue (Note 1) 14,350 17,117
Accrued expenses 39,479 25,515
--------------- --------------
Total current liabilities $ 201,859 $ 229,424
--------------- --------------
DEFERRED INCOME TAXES AND OTHER LIABILITIES (Notes 1, 5 & 6) $ 15,713 $ 28,882
--------------- --------------
LONG-TERM DEBT, less current maturities included above (Note 3) $ 75,857 $ 84,898
--------------- --------------
MINORITY INTEREST (Note 1) $ 1,064 $ 1,064
--------------- --------------
CONTINGENCIES AND COMMITMENTS (Note 11)
REDEEMABLE SERIES B CUMULATIVE CONVERTIBLE PREFERRED
STOCK (Note 7):
Authorized - 500,000 shares
Issued and outstanding - 181,357 shares and 164,300 shares
(aggregate liquidation preferences of $36,271 and $32,860) $ 33,540 $ 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 2,233
Common Stock, $1 par value -
Authorized - 15,000,000 shares
Issued - 5,506,341 shares and 5,267,130 shares 5,506 5,267
Paid-in surplus 49,219 53,012
Retained earnings (deficit) (3,642) (15,294)
ESOT related obligations (1,381) (2,663)
--------------- --------------
$ 52,035 $ 42,655
Less - Common Stock in treasury, at cost - 92,694 shares and 110,084 shares 1,477 1,755
--------------- --------------
Total stockholders' equity $ 50,558 $ 40,900
--------------- --------------
$ 378,591 $ 414,924
=============== ==============
26
Consolidated Statements of Operations
For the Years Ended December 31, 1998, 1997 & 1996
(In thousands, except per share data)
1998 1997 1996
---------------- --------------- ----------------
REVENUES (Notes 2 and 13) $ 1,035,900 $ 1,324,491 $ 1,270,284
---------------- --------------- ----------------
COSTS AND EXPENSES (Notes 2 and 10):
Cost of operations $ 984,871 $ 1,275,614 $ 1,215,806
Write down of certain real estate assets (Note 4) - - 79,900
General, administrative and selling expenses 28,780 30,556 33,988
---------------- --------------- ----------------
$ 1,013,651 $ 1,306,170 $ 1,329,694
---------------- --------------- ----------------
INCOME (LOSS) FROM OPERATIONS (Note 13) $ 22,249 $ 18,321 $ (59,410)
---------------- --------------- ----------------
Other income (expense), net (Note 6) (812) (1,665) (492)
Interest expense (Note 3) (8,685) (10,334) (9,871)
---------------- --------------- ----------------
INCOME (LOSS) BEFORE INCOME TAXES $ 12,752 $ 6,322 $ (69,773)
Provision for income taxes (Notes 1 and 5) (1,100) (950) (830)
---------------- --------------- ----------------
NET INCOME (LOSS) $ 11,652 $ 5,372 $ (70,603)
================ =============== ================
BASIC & DILUTED EARNINGS (LOSS) PER
COMMON SHARE (Note 1) $ 1.08 $ 0.01 $ (15.13)
================ =============== ================
The accompanying notes are an integral part of these consolidated financial
statements.
27
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1998, 1997 & 1996
(In thousands, except per share data)
Stock Retained ESOT
Preferred Purchase Common Paid-In Earnings Related Treasury
Stock Warrants Stock Surplus (Deficit) Obligations Stock Total
- ---------------------------------------------------------------------------------------------------------------------
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 - - 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
- ----------------------------------------------------------------------------------------------------------------------
Net Income - - - - 11,652 - - 11,652
Preferred Stock dividends accrued
($21.25 per share*) - - - (2,125) - - - (2,125)
Series B Preferred Stock dividends
in kind issued (Note 7) - - - (3,411) - - - (3,411)
Accretion related to Series B
Preferred Stock (Note 7) - - - (373) - - - (373)
Common Stock issued in
partial payment of incentive
compensation - - 239 2,243 - - - 2,482
Payment of director fees - - - (127) - - 278 151
Payments related to ESOT notes - - - - - 1,282 - 1,282
- ----------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1998 $ 100 $ 2,233 $ 5,506 $ 49,219 $ (3,642) $ (1,381) $ (1,477) $ 50,558
- ----------------------------------------------------------------------------------------------------------------------
*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, 1998, 1997 & 1996
(In thousands)
Cash Flows from Operating Activities: 1998 1997 1996
------------ ------------ ------------
Net income (loss) $ 11,652 $ 5,372 $ (70,603)
Adjustments to reconcile net income (loss) to net cash from operating
activities -
Depreciation 1,463 1,936 2,527
Amortization of deferred debt expense, Stock Purchase Warrants and other 1,596 2,011 895
Distributions less than earnings of joint ventures and affiliates (134) (1,859) (4,586)
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 25,366 48,899 (7,142)
(Increase) decrease in unbilled work 16,989 (974) (7,296)
(Increase) decrease in construction joint ventures (1,509) 820 (380)
(Increase) decrease in deferred tax asset (9) 2,446 9,526
(Increase) decrease in other current assets 476 (153) 849
Increase (decrease) in accounts payable (17,346) (38,289) (13,645)
Increase (decrease) in advances from construction joint ventures (12,501) (17,743) 12,714
Increase (decrease) in deferred contract revenue (2,767) (6,724) 398
Increase (decrease) in accrued expenses 11,839 (1,308) (8,080)
Non-current deferred taxes and other liabilities (13,169) (4,540) (21,366)
Proceeds from sale of interests in real estate joint ventures - 20,260 -
Real estate development investments other than joint ventures 7,749 3,741 4,500
Other non-cash items, net (33) (1,200) (1,689)
------------ ------------ ------------
NET CASH PROVIDED FROM (USED BY) OPERATING ACTIVITIES $ 29,662 $ 12,695 $ (23,478)
------------ ------------ ------------
Cash Flows from Investing Activities:
Proceeds from sale of property and equipment $ 608 $ 383 $ 2,098
Cash distributions of capital from unconsolidated joint ventures 9,380 16,614 8,753
Acquisition of property and equipment (1,418) (1,663) (1,449)
Improvements to land held for sale or development (339) (666) (515)
Improvements to real estate properties used in operations - - (123)
Capital contributions to unconsolidated joint ventures (3,531) (7,063) (20,224)
Advances to real estate joint ventures, net (3,933) (13,030) (7,312)
Investments in other activities (440) (273) (3,206)
------------ ------------ ------------
NET CASH PROVIDED FROM (USED BY) INVESTING ACTIVITIES $ 327 $ (5,698) $ (21,978)
------------ ------------ ------------
29
Consolidated Statements of Cash Flows (Continued)
For the Years Ended December 31, 1998, 1997 & 1996
(In thousands)
Cash Flows from Financing Activities: 1998 1997 1996
------------ ------------ ------------
Proceeds from Issuance of Redeemable Series B Preferred Stock, net $ - $ 26,558 $ -
Proceeds from long-term debt 155 5,035 27,006
Repayment of long-term debt (17,575) (18,897) (2,435)
Common stock isued 2,482 1,701 -
Treasury Stock issued 151 166 1,171
Finance fee paid in stock - - 400
------------ ------------ ------------
NET CASH PROVIDED FROM (USED BY) FINANCING ACTIVITIES $ (14,787) $ 14,563 $ 26,142
------------ ------------ ------------
Net Increase (Decrease) in Cash $ 15,202 $ 21,560 $ (19,314)
Cash and Cash Equivalents at Beginning of Year 31,305 9,745 29,059
------------ ------------ ------------
Cash and Cash Equivalents at End of Year $ 46,507 $ 31,305 $ 9,745
============ ============ ============
Supplemental Disclosures of Cash Paid During the Year For:
Interest $ 8,137 $ 10,133 $ 9,596
============ ============ ============
Income tax payments $ 160 $ 330 $ 221
============ ============ ============
Supplemental Disclosure of Noncash Transactions:
Dividends paid in shares of Series B Preferred Stock (Note 7) $ 3,411 $ 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, 1998, 1997 & 1996
[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, 1998, 1997 & 1996 (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, Series B Preferred Shares
and Stock Purchase Warrants.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 & 1996 (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, 1998 are
calculated as follows (in thousands except per share amounts):
1998 1997 1996
------------ -------------- -------------
Net income (loss) $ 11,652 $ 5,372 $ (70,603)
------------ -------------- -------------
Less:
Accrued dividends on $21.25 Senior Preferred Stock (Note 8) $ (2,125) $ (2,125) $ (2,125)
Dividends declared on Series B Preferred Stock (Note 7) (3,411) (2,830) ---
Accretion deduction required to reinstate mandatory redemption
value of Series B Preferred Stock over a period of 8-10 years (373) (368) ---
(Note 7)
------------ -------------- -------------
$ (5,909) $ (5,323) $ (2,125)
------------ -------------- -------------
Earnings available for common stockholders $ 5,743 $ 49 $ (72,728)
============ ============== =============
Weighted average shares outstanding 5,318 5,059 4,808
------------ -------------- -------------
Basic and diluted earnings (loss) per Common Share $ 1.08 $ 0.01 $ (15.13)
============ ============== =============
[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 1998, SFAS No. 133, "Accounting for Derivative Financial Instruments and
Hedging Activities" was issued. The Company will implement the provisions of the
Statement in the quarter ended March 31, 2000. The statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The Statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in the income statement
and requires that the Company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. The Company does
not currently hold any significant derivative instruments or engage in
significant hedging activities and, therefore, the impact of adopting Statement
No. 133 is expected to be immaterial.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 & 1996 (continued)
[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, 1998 follows:
Construction Joint Ventures
Financial position at December 31, 1998 1997 1996
----------------- --------------- ---------------
Current assets $ 398,061 $ 403,058 $ 329,999
Property and equipment, net 7,358 11,482 32,145
Current liabilities (285,197) (292,184) (236,752)
----------------- --------------- ---------------
Net assets $ 120,222 $ 122,356 $ 125,392
================= =============== ===============
Equity $ 67,100 $ 71,056 $ 78,233
================= =============== ===============
Operations for the year ended December 31, 1998 1997 1996
----------------- --------------- ---------------
Revenue $ 891,026 $ 1,030,347 $ 753,214
Cost of operations 844,688 974,571 702,997
----------------- --------------- ---------------
Pretax income $ 46,338 $ 55,776 $ 50,217
================= =============== ===============
Company's share of joint ventures
Revenue $ 368,733 $ 555,363 $ 446,793
Cost of operations 343,753 518,576 413,935
----------------- --------------- ---------------
Pretax income $ 24,980 $ 36,787 $ 32,858
================= =============== ===============
The Company has a centralized cash management arrangement with two 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 1998 ($17.3 million) and 1997 ($29.8 million), approximately $13.2
million in 1998 and $20.0 million in 1997 was deemed to be temporary.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 & 1996 (continued)
[2] Joint Ventures (continued)
Real Estate Joint Ventures
Financial position at December 31, 1998 1997 1996
----------------- --------------- ---------------
Property held for sale or development $ 11,128 $ 11,544 $ 12,683
Investment properties, net 122,474 125,234 168,833
Other assets 22,902 20,645 64,530
Long-term debt (57,572) (61,712) (69,195)
Other liabilities* (243,228) (222,131) (334,087)
----------------- --------------- ---------------
Net assets (liabilities) $ (144,296) $ (126,420) $ (157,236)
================= =============== ===============
Equity ** $(67,088) $ (58,434) $ (125,877)
Advances 158,668 146,332 222,341
----------------- --------------- ---------------
Total Equity and Advances $ 91,580 $ 87,898 $ 96,464
================= =============== ===============
Total Equity and Advances, Long-term $ 89,499 $ 86,598 $ 71,253
Total Equity and Advances, Short-term *** 2,081 1,300 25,211
----------------- --------------- ---------------
$ 91,580 $ 87,898 $ 96,464
================= =============== ===============
Operations for the year ended December 31, 1998 1997 1996
----------------- --------------- ---------------
Revenue $ 20,897 $ 24,486 $ 42,921
----------------- --------------- ---------------
Cost of operations -
Depreciation $ 3,071 $ 3,662 $ 6,614
Other 37,672 63,225 64,289
----------------- --------------- ---------------
$ 40,743 $ 66,887 $ 70,903
----------------- --------------- ---------------
Pretax income (loss) $ (19,846) $ (42,401) $ (27,982)
================= =============== ===============
Company's share of joint ventures
Revenue $ 9,567 $ 13,252 $ 22,502
----------------- --------------- ---------------
Cost of operations -
Depreciation $ 1,420 $ 1,709 $ 3,441
Other **** 10,423 12,132 19,127
----------------- --------------- ---------------
$ 11,843 $ 13,841 $ 22,568
----------------- --------------- ---------------
Pretax income (loss) $ (2,276) $ (589) $ (66)
================= =============== ===============
* Included in "Other liabilities" are advances from joint venture partners
in the amount of $226.5 million in 1998, $208.9 million in 1997, and
$255.0 million in 1996. Of the total advances from joint venture
partners, $158.7 million in 1998 , $146.3 million in 1997, and $222.3
million in 1996, 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, 1998.
*** 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.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 & 1996 (continued)
[3] Long-term Debt
Long-term debt of the Company at December 31, 1998 and 1997 consists of the
following (in thousands):
1998 1997
-------------- --------------
Revolving credit loans at an average rate of 8.0% in 1998 and 8.2% in 1997 $ 72,000 $ 80,000
Less - unamortized deferred value attributable to the Stock Purchase Warrants
(see below) (744) (1,488)
-------------- --------------
$ 71,256 $ 78,512
Industrial revenue bonds at various rates, payable in 2005 4,000 4,000
ESOT Notes at 8.24%, payable in semi-annual installments (Note 8) 1,260 2,423
Mortgages on real estate, at rates ranging from 8% to 10.82%,
payable in installments or release payments 446 4,889
Other indebtedness 1,851 6,947
-------------- --------------
Total $ 78,813 $ 96,771
Less - current maturities 2,956 11,873
-------------- --------------
Net long-term debt $ 75,857 $ 84,898
============== ==============
Payments required under these obligations, prior to the extension of the
Revolving Credit Agreement discussed below, amount to approximately $2,956 in
1999, $71,857 in 2000 and $4,000 in 2005.
Effective January 17, 1997, the Company entered into an Amended and Restated
Credit Agreement with a group of major U.S. banks. Under this New Credit
Agreement, the previous Revolving Credit Agreement and Bridge Loan Facility were
combined into a single $129.5 million Credit Facility, with a $25 million
maximum of such amount also being available for letters of credit, and the
expiration dates extended from 1997 to January 3, 2000. The New Credit
Agreement, as amended, provides for scheduled mandatory reductions of the total
$129.5 million Credit Facility in the amount of $15.0 million in 1997, $17.9
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 1997 and 1998
reductions referred to above, the total Credit Facility now aggregates $96.6
million.
The New Credit Agreement provides that the Company can choose from three
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 Agreement, as well as certain other loan agreements, provide 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 investment in real estate development
projects and future cash dividends. The Agreement also provides that collateral
shall consist of all available assets not included as collateral in other
agreements and for the continuation of the 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.
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
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 & 1996 (continued)
[3] Long-term Debt (continued)
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 in 1997
and $744,000 in 1998) being to Other Income (Expense), net. The remaining
unamortized balance is approximately $744,000 at December 31, 1998.
Subsequent to December 31, 1998, the Company has reached an Agreement in
principle with its Bank Group to extend the Revolving Credit Agreement from
January 3, 2000 to January 3, 2001. Other changes to the Revolving Credit
Agreement include, among other things, a scheduled mandatory reduction of $20.0
million in 1999 and $15.0 million in 2000, with the balance in 2001, additional
permanent mandatory reductions, as defined, from the net proceeds from real
estate sales, an interest rate increase of 1/2 of 1% in 1999 and an additional
1/4 of 1% increase in 2000, and a one-time bank fee of $483,000.
[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 fair value, 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 for income taxes is comprised of the following (in thousands):
Federal State Foreign Total
------------- ------------- ------------- --------------
1998
Current $ - $ (480) $ (620) $ (1,100)
Deferred - - - -
------------- ------------- ------------- --------------
$ - $ (480) $ (620) $ (1,100)
============= ============= ============= ==============
1997
Current $ - $ (569) $ (381) $ (950)
Deferred - - - -
------------- ------------- ------------- --------------
$ - $ (569) $ (381) $ (950)
============= ============= ============= ==============
1996
Current $ - $ (736) $ - $ (736)
Deferred - (94) - (94)
------------- ------------- ------------- --------------
$ - $ (830) $ - $ (830)
============= ============= ============= ==============
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 & 1996 (continued)
[5] Income Taxes (continued)
The table below reconciles the difference between the statutory federal income
tax rate and the effective rate provided in the statements of operations.
1998 1997 1996
-------------- ------------- --------------
Statutory federal income tax rate 34% 34% (34)%
State income taxes, net of federal tax benefit 2 6 1
Foreign taxes 5 6 -
Change in valuation allowance (33) (33) 34
Goodwill and other 1 2 -
-------------- ------------- --------------
Effective tax rate 9% 15% 1 %
============== ============= ==============
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of December 31, 1998 and 1997 (in
thousands):
1998 1997
---------------------------------- --------------------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
------------- -------------- ------------- --------------
Provision for estimated losses $ 9,562 $ - $ 9,527 $ -
Contract losses 119 - 4,071 -
Joint ventures - construction - 9,271 - 8,093
Joint ventures - real estate - 8,770 - 6,243
Timing of expense recognition 468 - 1,972 -
Capitalized carrying charges - 1,587 - 1,894
Net operating loss and
capital loss carryforwards 27,994 - 23,798 -
Alternative minimum tax credit
carryforwards 2,442 - 2,442 -
General business tax credit
carryforwards 3,532 - 3,532 -
Foreign tax credit carryforwards 26 - 979 -
Other, net 1,025 - 517 -
------------- -------------- ------------- --------------
$ 45,168 $ 19,628 $ 46,838 $ 16,230
Valuation allowance for deferred
tax assets (25,540) - (30,608) -
------------- -------------- ------------- --------------
Total $ 19,628 $ 19,628 $ 16,230 $ 16,230
============= ============== ============= ==============
The net of the above is deferred taxes in the amount of $ -0- in 1998 and 1997,
which is classified in the respective Consolidated Balance Sheets as follows:
1998 1997
----------- -----------
Long-term deferred tax liabilities (included in "Deferred Income Taxes and Other
Liabilities") $ 1,076 $ 1,067
Short-term deferred tax asset 1,076 1,067
----------- -----------
$ - 0- $ - 0-
=========== ===========
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 & 1996 (continued)
[5] Income Taxes (continued)
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, earnings benefited in 1998 and 1997 by approximately
$4.3 million and $2.1 million, respectively, by not having to provide for any
Federal income tax. Approximately $59 million of future pretax earnings should
benefit from minimal, if any, federal tax provisions.
At December 31, 1998, 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 Capital Loss
Tax Credits Credits Carryforwards
---------------- --------------- -------------------
1999 $ -- $ 26 $ --
2001 - 2006 3,532 -- 1,404
2007 - 2018 -- -- 80,932
---------------- --------------- -------------------
$ 3,532 $ 26 $ 82,336
================ =============== ===================
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, 1998 and 1997 consist of the following (in
thousands):
1998 1997
------------- ---------------
Deferred Income Taxes $ 1,076 $ 1,067
Insurance related liabilities 5,625 8,173
Employee benefit related liabilities 1,400 2,470
Accrued dividends on $21.25
Preferred Stock (Note 8) 6,906 4,781
Other 706 12,391
------------- ---------------
$ 15,713 $ 28,882
============= ===============
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 & 1996 (continued)
[6] Deferred Income Taxes and Other Liabilities and Other Income (Expense), Net
(continued)
Other Income (Expense), Net Other income (expense) items for the three years
ended December 31, 1998 consist of the following (in thousands):
1998 1997 1996
------------ ----------- -----------
Interest and dividend income $ 1,140 $ 1,022 $ 1,018
Minority interest (Note 1) -- 75 416
Bank fees (1,833) (2,172) (1,906)
Miscellaneous income (expense), net (119) (590) (20)
------------ ----------- -----------
$ (812) $ (1,665) $ (492)
============ =========== ===========
[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 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, and appointment of these same new directors to
constitute a majority of the Executive Committee referred to above. Tutor-Saliba
Corporation, a corporation controlled by a Director, who is also a member of the
Executive Committee and an 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 on January 17, 1997), (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
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 & 1996 (continued)
[7] Redeemable Series B Cumulative Convertible Preferred Stock (continued)
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 surplus.
An analysis of Series B Preferred Stock transactions for the two years ended
December 31, 1998 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
---------------- ------------------
Balance at December 31, 1997 164,300 $ 29,756
10% in-kind dividends issued 17,057 3,411
Accretion --- 373
---------------- ------------------
Balance at December 31, 1998 181,357 $ 33,540
================ ==================
[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
$6,906,000 at December 31, 1998, which represents approximately $69.06
per share of Preferred Stock or approximately $6.91 per Depositary Share
and is included in "Other Liabilities" (long-term) in the accompanying
Consolidated Balance Sheet. Under the terms of the Preferred Stock, the
holders of the Depositary Shares were entitled to elect two additional
Directors since dividends had been deferred for more than six quarters
and they did so at the May 14, 1998 Annual Meeting.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 & 1996 (continued)
[8] Capitalization (continued)
(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 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). Since the final repayment of the Notes is scheduled in 1999,
the remaining amount payable is classified in "Current maturities of
long-term debt" as of December 31, 1998.
[9] Stock Options
At December 31, 1998 and 1997, 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
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 & 1996 (continued)
[9] Stock Options (continued)
anniversary of the date of grant and expire eight years from the date of grant.
Options for 184,000 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, 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
Granted 117,500 $ 5.29 $ 5.29
Canceled (100,550) $10.44-$24.00 $16.39
Outstanding at December 31, 1998 365,300 $ 5.29-$16.44 $11.88 116,310
In addition, the Company has authorized but unissued Common Stock reserved for
certain other options granted as follows:
Grant Options Exercise
Grantee Date Granted Price
- ------------------------------------ ---------- ------------ -----------
Members of Board Executive Committee,
as Redefined (see Note 7) 01/17/97 225,000 $ 8.38
Certain Executive Officers 01/19/98 225,000 $ 8.66
Member of Board Executive Committee 12/10/98 45,000 $ 5.29
The terms of these options are generally similar to options granted under the
1982 Plan, including the exercise price being equal to fair market value, as
defined, at date of grant, and timing of installment exercise dates, except for
the timing of the exercisability of the January 1997 options, which is May 17,
2000.
Options outstanding at December 31, 1998 and related weighted average price and
life information follows:
Remaining Grant Options Options Exercise
Life (Years) Date Outstanding Exercisable Price
------------ ---- ----------- ----------- -----
1 07/16/91 43,800 43,800 $11.06
4 12/21/92 184,000 69,000 $16.44
4 03/22/94 10,000 10,000 $13.00
7 01/17/97 225,000 -- $ 8.38
7 07/08/97 10,000 -- $ 8.00
8 01/19/98 225,000 -- $ 8.66
8 12/10/98 162,500 -- $ 5.29
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 Company has no options outstanding
relating to either 1995 or 1996. The estimated values shown below are based on
the Black-Scholes option pricing model for options granted in 1997 through 1998.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 & 1996 (continued)
[9] Stock Options (continued)
Assumptions
---------------------------------------------------------------------
Expected Risk-free
Grant Date Fair Value Dividend Yield Volatility Interest Rate Expected Life
---------- ---------- -------------- ---------- ------------- -------------
01/17/97 $1,070,127 0% 39% 6.50% 8
07/08/97 $ 44,086 0% 38% 6.31% 8
01/19/98 $1,027,758 0% 37% 5.57% 8
12/10/98 $ 399,485 0% 39% 4.63% 8
If SFAS No. 123 had been fully implemented, stock based compensation costs would
have decreased net income in 1998 by $811,481 (or $0.15 per Common Share) and
decreased net income in 1997 by $335,733 (or $0.07 per Common Share). 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. Pension and other benefit plan disclosure as presented below
was determined in accordance with SFAS No. 132, "Employers' Disclosures About
Pension and Other Post-Retirement Benefits".
Net pension cost for 1998, 1997 and 1996 follows (in thousands):
1998 1997 1996
--------- ----------- ------------
Service cost - benefits earned during the period $ 1,251 $ 1,072 $ 1,247
Interest cost on projected benefit obligation 3,601 3,298 3,062
Expected return on plan assets (3,341) (2,991) (2,718)
Amortization of transition obligation 6 6 6
Amortization of prior service costs (78) (78) (78)
Amortization of net loss 198 - -
--------- ----------- ------------
Net pension cost $ 1,637 $ 1,307 $ 1,519
========= =========== ============
Actuarial assumptions used:
Discount rate 6 1/2% * 7 % ** 7 1/2 %
Rate of increase in compensation 6 %* 4 % 4 %
Long-term rate of return on assets 8 % 8 % 8 %
* The decrease in the discount rate and the increase in the rate of
increase in compensation were changed effective December 31, 1998, and
resulted in increases in the projected benefit obligation referred to
below of $3.5 million and $1.8 million, respectively.
** Rate was changed effective December 31, 1997 and resulted in a $2.8
million increase in the projected benefit obligation referred to below.
The Company's plan has assets in excess of its accumulated benefit obligations.
Plan assets generally include equity and fixed income funds. The following
tables provide a reconciliation of the changes of the fair value of assets in
the Plan and Plan benefit obligations during the two-year period ended December
31, 1998, and a statement of the funded status as of December 31, 1998 and 1997
(in thousands):
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 & 1996 (continued)
[10] Employee Benefit Plans (continued)
Reconciliation of Fair Value of Plan Assets
1998 1997
------------- ---------------
Balance at beginning of year $ 46,774 $ 40,689
Actual return on Plan assets 5,912 6,901
Employer contribution 3,096 1,625
Benefit payments (2,870) (2,441)
------------- ---------------
Balance at end of year $ 52,912 $ 46,774
============= ===============
Reconciliation of Benefit Obligation
1998 1997
------------- ---------------
Balance at beginning of year $ 50,167 $ 44,224
Service cost 1,251 1,072
Interest cost 3,601 3,298
Actuarial loss 6,343 4,014
Benefit payments (2,870) (2,441)
------------- ---------------
Balance at end of year $ 58,492 $ 50,167
============= ===============
Funded Status
1998 1997
------------- ---------------
Funded status at December 31, $ (5,580) $ (3,393)
Unrecognized transition obligation 12 18
Unrecognized prior service cost (226) (304)
Unrecognized (gain) loss 3,216 (358)
------------- ---------------
Net amount recognized, before additional minimum liability (2,578) $ (4,037)
============= ===============
The Company also has an unfunded supplemental retirement plan for certain
employees whose benefits under the defined benefit plan described above are
reduced because of compensation limitations under federal tax laws. Pension
expense for this plan was $0.2 million in each of the last three years. At
December 31, 1998, the projected benefit obligation was $1.8 million. A
corresponding accumulated benefit obligation of $1.3 million, which approximates
the amount of vested benefits, has been recognized as a liability in the
consolidated balance sheet.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 & 1996 (continued)
[10] Employee Benefit Plans (continued)
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, which
averaged $0.2 million for each of the three years ended December 31, 1998, is
based on a specified percentage of profits, subject to certain limitations.
Contributions to the related ESOT, which averaged $1.3 million for each of the
three years ended December 31, 1998, are determined by the Board of Directors
and may be paid in cash or shares of the Company's Common Stock.
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 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 $9.8 million in 1998, $8.8
million in 1997 and $8.5 million in 1996. 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 $45.8 million; has guaranteed amortization payments on these
borrowings; and has guaranteed a master lease under a sale operating lease-back
transaction under which management estimates its future obligations will not
exceed $2.0 million.
As part of the sale operating lease-back transaction related to the first phase
of the project referred to as Rincon I, 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 1998 have further reduced the loan to $33.1 million. 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.
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, the lessor and the lender have reached a nonbinding agreement
on a restructure of the existing financing. The agreement is subject to final
documentation and final approvals of several parties including the lessor and
the Company's revolving credit facility banks. The agreement provides, among
other things, that the joint venture give up all of its economic interest in the
commercial and retail portion of the property identified as Rincon I, and that
the joint venture make a one-time payment of $7.5 million to the lessor of
Rincon I (which includes a final loan payment of $6.5 million to the lenders of
Rincon I). The 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.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 & 1996 (continued)
[11] Contingencies and Commitments (continued)
In 1993, the joint venture also extended $29 million of the $61 million
financing then outstanding on Rincon II through October 1, 1998. Payments
through 1998 reduced the loan to $14.3 million. At the same time that it reached
a nonbinding agreement on the proposed extension of financing under the Rincon I
sale operating lease-back transaction, the joint venture also reached a
nonbinding agreement covering the extension of this financing to December 15,
2001. The terms of this proposed extension include a $1.5 million interest
payment, a $2.8 million principal payment, amortization of the commerical loan
of $20,000 per month, a new letter of credit in the amount of $2.0 million
issued to secure the remaining borrowings at Rincon II and the elimination of
further Company or joint venture guarantees. The terms of the proposed extension
still require additional final documentation and final approvals.
Total restructure payments related to Rincon I and II are estimated to be $12.7
million through 1999, of which $5.3 million will be funded by the Company and
$7.4 million will be funded by the other co-general partner of the joint
venture.
In a separate agreement related to this same property, the 20% co-general
partner indicated in prior years that it does not 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 $0.8
million during 1998 and $6.2 million to date under this agreement. Subject to
the finalization of the restructuring agreement referred to above, the Company's
real estate subsidiary has entered into an agreement with the co-general partner
which provides, among other things, to have the co- general partner contribute
approximately $7.4 million (including application of approximately $3.7 million
previously drawn down by the lender under a letter of credit of the co-general
partner) to the restructure transactions and transfer 3.5% of the co-general
partner's general partnership interest in the joint venture to the Company's
real estate subsidiary and convert their remaining 6.5% general partnership
interest to a limited partnership interest.
During 1997, a construction joint venture, in which the Company is a 50%
participant, entered into a $5 million line of credit, secured by the joint
venture's 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, 1998, 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 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 a successor judge, who
awarded approximately $4.3 million to the joint venture, thereby reducing the
net amount payable to approximately $12.2 million. The joint venture appealed
the decision. As a result of the decision, there was 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
litigation
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 & 1996 (continued)
[11] Contingencies and Commitments (continued)
process is complete.
On February 16, 1999, the U.S. Court of Appeals for the District of Columbia
vacated the April 1995 and July 1997 Orders and remanded the case back to the
successor judge with instructions for the successor judge to consider certain
post-trial motions to the same extent an original judge would have, and to make
findings and conclusions regarding the unresolved issues, giving appropriate
consideration to whether or not witnesses must be recalled. A final judgement
will be entered by the District Court upon the completion of these Appeals
Court-directed procedures.
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, 1998 and 1997 (in thousands, except per share amounts):
1998 by Quarter
---------------------------------------------------------------
1st 2nd 3rd 4th
------------ ------------ ------------ ------------
Revenues $ 229,382 $ 278,211 $ 251,286 $ 277,021
Net income $ 2,219 $ 3,114 $ 3,737 $ 2,582
Basic and diluted earnings
per common share $ 0.15 $ 0.31 $ 0.42 $ 0.20
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 and diluted earnings (loss)
per common share $ 0.15 $ 0.19 $ 0.30 $ (0.62)
[13] Business Segments
Business segment information presented below was determined in accordance with
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information".
The Company 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 two basic segments: building and civil. The building operation
services both private clients and public agencies from regional offices located
in Boston, Phoenix, Las Vegas and Detroit and includes a broad range of building
construction projects, such as hotels, casinos, health care, correctional
facilities, sports complexes, residential, commercial, civic, cultural and
educational facilities. The civil operation is focused on public civil work in
the East and selectively, in other geographic locations and includes large,
ongoing urban infrastructure repair and replacement projects such as highway and
bridge rehabilitation, mass transit projects and waste water treatment
facilities. The Company's real estate development operations are concentrated in
Arizona, California, Georgia and Massachusetts; however, the Company has not
commenced the development of any new real estate projects since 1990. During
1998, the Company's chief operating decision making group consisted of the
President & Chief Executive Officer, Chairman, Vice Chairman and the Chief
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 & 1996 (continued)
[13] Business Segments (continued)
Financial Officer which decided how to allocate resources and assess performance
of the business segments. Generally, the Company evaluates performance of its
operating segments on the basis of pre-tax profit and cash flow. The accounting
policies applied by each of the segments are the same as those described in the
Summary of Significant Accounting Policies (see Note 1). The following tables
set forth certain business and geographic segment information relating to the
Company's operations for the three years ended December 31, 1998 (in thousands):
1998: Reportable Segments
-------------------------------------------------------------------------
Consolidated
Building Civil Real Estate Totals Corporate Total
-------------- ---------------- -------------- ------------- ------------- --------------
Revenues $ 679,296 $ 332,026 $ 24,578 $ 1,035,900 $ - $ 1,035,900
Income (Loss) from Ops. $ 18,213 $ 15,495 $ (4,025) $ 29,683 $ (7,434)* $ 22,249
Assets $ 116,582 $ 96,669 $ 116,114 $ 329,365 $ 49,226 ** $ 378,591
Capital Expenditures $ 504 $ 914 $ 6,276 $ 7,694 $ - $ 7,694
1997: Reportable Segments
-------------------------------------------------------------------------
Consolidated
Building Civil Real Estate Totals Corporate Total
-------------- ---------------- -------------- ------------- ------------- --------------
Revenues $ 888,809 $ 387,224 $ 48,458 $ 1,324,491 $ - $ 1,324,491
Income (Loss) from Ops. $ 14,638 $ 13,849 $ (2,184) $ 26,303 $ (7,982)* $ 18,321
Assets $ 145,533 $ 115,282 $ 119,735 $ 380,550 $ 34,374 ** $ 414,924
Capital Expenditures $ 632 $ 1,064 $ 14,740 $ 16,436 $ - $ 16,436
1996: Reportable Segments
-------------------------------------------------------------------------
Consolidated
Building Civil Real Estate Totals Corporate Total
-------------- ---------------- -------------- ------------- ------------- --------------
Revenues $ 834,888 $ 389,540 $ 45,856 $ 1,270,284 $ - $ 1,270,284
Income (Loss) from Ops. $ 16,275 $ 14,987 $ (82,456) $ (51,194) $ (8,216)* $ (59,410)
Assets $ 182,143 $ 136,190 $ 132,215 $ 450,548 $ 13,744 ** $ 464,292
Capital Expenditures $ 734 $ 715 $ 8,989 $ 10,438 $ - $ 10,438
* In all years, consists of corporate general and administrative expenses.
** In all years, corporate assets consist principally of cash, cash
equivalents, marketable securities and other investments available for
general corporate purposes.
In 1998, revenues to one customer of the building segment totaled approximately
$330 million of consolidated revenues. Also in 1998, revenues with various
agencies of both the Commonwealth of Massachusetts and the City of New York in
the civil segment totaled approximately $153 million and $115 million,
respectively, of consolidated revenues. In
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 & 1996 (continued)
[13] Business Segments (continued)
1997, revenues to one customer of the building segment totaled approximately
$276 million of consolidated revenues. Also in 1997, revenues with various
agencies of both the Commonwealth of Massachusetts and the City of New York in
the civil segment totaled approximately $141 million and $165 million,
respectively, of consolidated revenues. In 1996, revenues with various agencies
of the City of New York in the civil segment totaled approximately $143 million
of consolidated revenues.
Information concerning principal geographic areas was as follows:
Revenues
----------------------------------------------------------
1998 1997 1996
-------------- ---------------- ----------------
United States $ 1,007,049 $ 1,305,465 $ 1,256,323
Foreign 28,851 19,026 13,961
-------------- ---------------- ----------------
Total $ 1,035,900 $ 1,324,491 $ 1,270,284
============== ================ ================
Income (Loss) from Operations
----------------------------------------------------------
1998 1997 1996
-------------- ---------------- ----------------
United States $ 27,491 $ 24,378 $ (51,972)
Foreign 2,192 1,925 778
Corporate (7,434) (7,982) (8,216)
-------------- ---------------- ----------------
Total $ 22,249 $ 18,321 $ (59,410)
============== ================ ================
Because a substantial portion of the Company's international revenues is derived
mainly from construction management services, long-lived assets outside the
United States are immaterial, and thus, not presented here.
There have been no differences from the last annual report in the basis of
measuring segment profit or loss, except for the breakout between segments and
the method of allocating general, administrative and selling expenses ("G&A").
The current building and civil segments were consolidated in prior years as the
construction segment. In the 1997 Annual Report, an effort was made to allocate
all or part of certain corporate G&A expenses back to the business segments.
Since SFAS No. 131 encourages segment disclosure in accordance with how the
Executive Group controls and evaluates its business segments, the practice of
allocating corporate G&A expenses was discontinued for all periods presented
above and resulted in increasing corporate G&A expense by approximately $2.0
million and $3.1 million in 1997 and 1996, respectively. There have been no
material changes in the amount of assets since the last annual report, except
for the breakout between segments.
[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
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 & 1996 (continued)
[14] Related Party Transactions (continued)
defined. At January 17, 1997, TSC held and still holds 351,318 shares of the
Company's $1.00 par value Common Stock which currently represents an approximate
6.5% interest, and participates in active joint ventures with the Company with a
total contract value of approximately $750 million during 1998 and $800 million
during 1997. Mr. Tutor was appointed as one of the three new directors in
accordance with the terms of the Series B Preferred Stock 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 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) and additional options granted to Mr. Tutor to purchase
75,000 shares of the Company's $1.00 par value Common Stock at fair market
value, of which options to acquire 45,000 shares were granted in December 1998
(see Note 9) and the remaining options to acquire 30,000 shares were granted
effective in early 1999.
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 into 1997.
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,
1998 and 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 23, 1999
51
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 23, 1999. 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 23, 1999
52
Schedule I
Perini Corporation (Parent Company)
Condensed Financial Information of Registrant
Balance Sheet
(In Thousands of Dollars)
Assets
December 31,
---------------------------------
1998 1997
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 48,930 $ 24,789
Accounts and notes receivable, including retainage of $5,711
and $8,110, respectively 24,049 24,168
Unbilled work 10,783 19,699
Construction joint ventures 57,433 62,919
Deferred tax asset 1,076 1,067
Other current assets 1,105 1,183
--------- ---------
Total current assets $143,376 $133,825
-------- --------
INVESTMENTS AND OTHER ASSETS:
Investments in subsidiaries $153,891 $148,444
Other 2,469 3,069
-------- --------
Total investments and other assets $156,360 $151,513
-------- --------
PROPERTY AND EQUIPMENT, at cost
Land $ 537 $ 826
Buildings and improvements 11,175 11,868
Construction equipment 5,501 5,306
Other 3,904 5,464
--------- --------
$ 21,117 $ 23,464
Less: Accumulated depreciation 12,113 13,976
--------- --------
Total property and equipment, net $ 9,004 $ 9,488
--------- --------
$ 308,740 $294,826
========= ========
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,
---------------------------------
1998 1997
---- ----
CURRENT LIABILITIES:
Current maturities of long-term debt $ 2,036 $ 6,874
Accounts payable, including retainage of $1,661 and $3,520,
respectively 9,212 10,103
Advances from construction joint ventures 12,145 26,501
Deferred contract revenue 2,038 2,217
Accrued expenses 25,443 15,103
---------- ----------
Total current liabilities $ 50,874 $ 60,798
---------- ----------
DEFERRED INCOME TAXES AND OTHER LIABILITIES $ 13,817 $ 24,068
---------- ----------
INTERCOMPANY NOTES AND ADVANCES PAYABLE, net $ 84,094 $ 54,728
---------- ----------
LONG-TERM DEBT, less current maturities included above $ 75,857 $ 84,576
---------- ----------
REDEEMABLE SERIES B CUMULATIVE CONVERTIBLE
PREFERRED STOCK:
Authorized: 500,000 shares
Issued and Outstanding: 181,357 shares and 164,300 shares
(aggregate liquidation preference of $36,271 and $32,860) $ 33,540 $ 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 2,233
Common Stock, $1 par value:
Authorized: 15,000,000 shares
Issued: 5,506,341 shares and 5,267,130 shares 5,506 5,267
Paid-in surplus 49,219 53,012
Retained earnings (deficit) (3,642) (15,294)
ESOT related obligations (1,381) (2,663)
---------- ----------
$ 52,035 $ 42,655
Less: Common Stock in treasury, at cost - 92,694 shares and
110,084 shares 1,477 1,755
---------- ----------
Total stockholders' equity $ 50,558 $ 40,900
---------- ----------
$ 308,740 $ 294,826
========== ==========
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,
----------------------------------------------
1998 1997 1996
---- ---- ----
REVENUE:
Construction operations $ 32,573 $ 44,921 $102,786
Share of construction joint ventures 299,619 339,639 276,739
--------- --------- --------
$ 332,192 $ 384,560 $379,525
--------- --------- --------
COST OF OPERATIONS:
Construction operations $ 28,412 $ 44,577 $101,107
Share of construction joint ventures 278,880 315,508 253,210
--------- --------- --------
$ 307,292 $ 360,085 $354,317
--------- --------- --------
GROSS PROFIT FROM OPERATIONS $ 24,900 $ 24,475 $ 25,208
General, administrative and selling expenses 14,967 17,100 17,758
--------- --------- --------
INCOME FROM OPERATIONS $ 9,933 $ 7,375 $ 7,450
Other Income (Expense), net (887) (1,977) (1,391)
Interest expense including intercompany interest of $ -,
$7,183 and $1,726, respectively (8,473) (17,083) (11,123)
--------- --------- --------
INCOME (LOSS) BEFORE INCOME TAXES
AND EQUITY IN NET INCOME (LOSS) OF
SUBSIDIARIES $ 573 $ (11,685) $ (5,064)
Equity in net income (loss) of subsidiaries 12,179 18,007 (64,709)
--------- --------- --------
INCOME (LOSS) BEFORE INCOME TAXES $ 12,752 $ 6,322 $(69,773)
(Provision) Credit for income taxes (1,100) (950) (830)
--------- --------- --------
NET INCOME (LOSS) $ 11,652 $ 5,372 $(70,603)
========== ========== =========
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,
--------------------------------------------
1998 1997 1996
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 11,652 $ 5,372 $(70,603)
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Depreciation 975 1,110 1,128
Amortization of deferred debt expense, Stock Purchase
Warrants and other 1,596 2,010 895
Noncurrent deferred taxes and other liabilities (12,376) (1,026) (20,371)
Distributions less than earnings of joint
ventures (2,794) (2,092) (5,734)
Equity in net (income) loss of subsidiaries (12,179) (18,007) 64,709
Cash provided from (used by) changes in
components of working capital other than cash
and current maturities of long-term debt 4,390 (22,491) 14,418
Other non-cash items, net - (431) (732)
--------- ---------- --------
NET CASH USED BY
OPERATING ACTIVITIES $ (8,736) $ (35,555) $(16,290)
--------- ---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment $ 546 $ 906 $ 1,359
Cash distributions of capital from unconsolidated
construction joint ventures 9,305 14,447 4,642
Acquisition of property and equipment (1,037) (1,189) (745)
Capital contributions to unconsolidated
construction joint ventures (1,397) (5,013) (12,920)
Increase (decrease) in intercompany notes,
advances and equity 36,036 23,687 (23,949)
Investment in other activities (190) (463) (2,995)
--------- ---------- --------
NET CASH (USED BY) PROVIDED
FROM INVESTING ACTIVITIES $ 43,263 $ 32,375 $(34,608)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Redeemable Series B Preferred
Stock, net $ - $ 26,558 $ -
Proceeds from long-term debt 113 5,035 24,706
Repayment of long-term debt (13,132) (16,105) (1,693)
Treasury Stock issued 151 166 1,171
Finance fee paid in stock - - 400
Common Stock issued 2,482 1,701 -
--------- ---------- --------
NET CASH (USED BY) PROVIDED FROM
FINANCING ACTIVITIES $ (10,386) $ 17,355 $ 24,584
Net increase (decrease) in cash and cash equivalents $ 24,141 $ 14,175 $(26,314)
Cash and cash equivalents at beginning of year 24,789 10,614 36,928
--------- ---------- --------
Cash and cash equivalents at end of year $ 48,930 $ 24,789 $ 10,614
========= ========== ========
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,
--------------------------------------------
1998 1997 1996
---- ---- ----
Supplemental disclosures of cash paid during the year for:
Interest $ 7,797 $ 9,686 $ 9,122
========== ========== ==========
Income tax payments $ 160 $ 330 $ 221
========== ========== ==========
Supplemental disclosures of noncash transactions:
Dividends paid in shares of Series B Preferred Stock $ 3,411 $ 2,830 $ -
========== ========== ==========
Value assigned to Stock Purchase Warrants $ - $ 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
1998 presentation.
[2] Cash Dividends from Subsidiaries
Dividends of $4.7 million in 1998, $12.3 million in 1997 and $8.9 million in
1996 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):
$2,036 in 1999, $71,857 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, 1998, 1997 and 1996
(In Thousands of Dollars)
Additions
------------------------------
Balance at Charged to Charged Deductions Balance
Beginning Costs & to Other from at End
Description of Year Expenses Accounts Reserves of Year
-------------- ------------- ------------ ------------- -----------
Year Ended December 31, 1998
Reserve for doubtful accounts $ 40 $ -- $ --- $ 40 (1) $ --
============== ============= ============ ============= ===========
Reserve for real estate investments $ 23,171 $ 400 $ -- $ 1,847 (2) $ 21,7
============== ============= ============ ============= ===========
Year Ended December 31, 1997
Reserve for doubtful accounts $ 160 $ -- $ -- $ 120 (3) $ 40
============== ============= ============ ============= ===========
Reserve for depreciation on real estate
properties used in operations $ -- $ 226 $ -- $ 226 (4) $ --
============== ============= ============ ============= ===========
Reserve for real estate investments $ 84,083 $ 508 $ -- $ 61,420 (2) $ 23,171
============== ============= ============ ============= ===========
Year Ended December 31, 1996
Reserve for doubtful accounts $ 351 $ -- $ -- $ 191 (3) $ 160
============== ============= ============ ============= ===========
Reserve for depreciation on real estate
properties used in operations $ 3,444 $ 558 $ -- $ 4,002 (5) $ -
============== ============= ============ ============= ===========
Reserve for real estate investments $ 10,497 $ 79,900 $ -- $ 6,314 (2) $ 84,083
============== ============= ============ ============= ===========
(1) Represents reserve no longer required.
(2) Represents sales of real estate properties.
(3) Represents write-off of a bad debt.
(4) Represents reserves reclassified with related asset to "Real estate
inventory".
(5) Represents $265 of reserve reclassified with related asset to "Real
estate inventory", with the balance representing 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 Statement 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 Statement 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
Statement 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) - Exhibit 10.2 to 1997 Form 10-K, as
filed.
10.3 Perini Corporation Amended and Restated Construction Business
Unit Incentive Compensation Plan - Exhibit 10.3 to 1997 Form
10-K, as filed.
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.
10.18 Amendment No. 1 as of November 10, 1997 to the Amended and
Reinstated 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 - filed herewith.
10.19 Amendment No. 2 as of August 31, 1998 to the Amended and
Reinstated 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 - filed herewith.
10.20 Amendment No. 3 as of September 9, 1998 to the Amended and
Reinstated 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 - filed herewith.
10.21 Amendment No. 4 as of September 30, 1998 to the Amended and
Reinstated 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 - filed herewith.
10.22 Amendment No. 5 as of November 16, 1998 to the Amended and
Reinstated 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 - filed herewith.
64
10.23 Amendment No. 6 as of December 1, 1998 to the Amended and
Reinstated 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 - filed herewith.
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 Construction Joint
Ventures - filed herewith.
99.2 Financial Statements of Rincon Center Associates, a California
Limited Partnership - filed herewith.
65
Exhibit 21
Perini Corporation
Subsidiaries of the Registrant
Percentage
of Interest
or Voting
Securities
Place of Owned
Name Organization
- ---------------------------------------------------------------- --------------------------- --------------
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 Management Services, Inc. (f/k/a Perini International Massachusetts 100%
Corporation)
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%
66
Exhibit 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our reports,
dated February 23, 1999, included in Perini Corporation's Annual Report on this
Form 10-K for the year ended December 31, 1998, 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,
333-26423 and 333-51911.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 15, 1999
67
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 10, 1999
David B. Perini Date
Director March 10, 1999
Richard J. Boushka Date
/s/Arthur I. Caplan Director March 10, 1999
Arthur I. Caplan Date
/s/Marshall M. Criser Director March 10, 1999
Marshall M. Criser Date
/s/Frederick Doppelt Director March 10, 1999
Frederick Doppelt Date
/s/Albert A. Dorman Director March 10, 1999
Albert A. Dorman Date
/s/Arthur J. Fox, Jr. Director March 10, 1999
Arthur J. Fox, Jr. Date
/s/ Nancy Hawthorne Director March 10, 1999
Nancy Hawthorne Date
/s/ Michael R. Klein Director March 10, 1999
Michael R. Klein Date
Director March 10, 1999
Douglas J. McCarron Date
/s/John J. McHale Director March 10, 1999
John J. McHale Date
Director March 10, 1999
Jane E. Newman Date
Director March 10, 1999
Ronald N. Tutor Date
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