Securities and Exchange Commission Commission File No. 1-6314
Washington, DC 20549
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Act of 1934.
For the fiscal year ended December 31, 2001
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to ____________
Perini Corporation
(Exact name of registrant as specified in its charter)
Massachusetts 04-1717070
(State of Incorporation) (IRS Employer Identification No.)
73 Mt. Wayte Avenue, Framingham, Massachusetts 01701
(Address of principal executive offices) (Zip Code)
(508) 628-2000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
Common Stock, $1.00 par value The 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
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
The aggregate market value of voting Common Stock held by nonaffiliates of the registrant is $32,451,332 as of February 25, 2002. 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 25, 2002 is 22,664,135.
Portions of the annual proxy statement for the year ended December 31, 2001 are incorporated by reference in Part III.
PERINI CORPORATION
INDEX TO ANNUAL REPORT
ON FORM 10-K
PAGE
PART I
Item 1: Business 2 - 11
Item 2: Properties 11
Item 3: Legal Proceedings 12 - 14
Item 4: Submission of Matters to a Vote of Security Holders 14
PART II
Item 5: Market for the Registrant's Common Stock and Related Stockholder Matters 15
Item 6: Selected Financial Data 16 - 17
Item 7: Management's Discussion and Analysis of Financial Condition and Results of
Operations 18 - 25
Item 7A: Quantitative and Qualitative Disclosure About Market Risk 25
Item 8: Financial Statements and Supplementary Data 25
Item 9: Disagreements on Accounting and Financial Disclosure 25
PART III
Item 10: Directors and Executive Officers of the Registrant 26 - 27
Item 11: Executive Compensation 27
Item 12: Security Ownership of Certain Beneficial Owners and Management 27
Item 13: Certain Relationships and Related Transactions 27
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K 28
Signatures 29
The statements contained in this Annual Report on Form 10-K that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including without limitation, statements regarding the Company's or its management's expectations, hopes, beliefs, intentions or strategies regarding the future. These forward-looking statements are based on the Company's current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those anticipated by the Company. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond the control of the Company) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the continuing validity of the underlying assumptions and estimates of total forecasted project revenues, costs and profits and project schedules; the outcomes of pending or future litigation, arbitration or other dispute resolution proceedings; changes in federal and state appropriations for infrastructure projects; possible changes or developments in worldwide or domestic, social, economic, business, industry, market and regulatory conditions or circumstances; and actions taken or omitted to be taken by third parties including the Company's customers, suppliers, business partners, and competitors and legislative, regulatory, judicial and other governmental authorities and officials. Also see "Risk Factors" on page 9. Should one or more of these risks or uncertainties materialize, or should any of the Company's assumptions prove incorrect, actual results may vary in material respects from those projected in the forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Perini Corporation and its subsidiaries (the "Company", unless the context indicates otherwise) are engaged in the construction business. The Company was incorporated in 1918 as a successor to businesses which had been engaged in providing construction services since 1894. The Company currently 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 or operations: building and civil.
The general building and civil 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, plans and specifications contained in a construction contract. The Company provides these services by using traditional general contracting arrangements, such as fixed price, guaranteed maximum price and cost plus award fee contracts, and to a lesser extent construction management or design-build contracting arrangements. These contract types and risks generally inherent therein are discussed below:
Under certain situations which include, but are not limited to, contract type, project size, complexity or geographic location, the Company will continue to attempt to minimize its financial and/or operational risk, as it has in the past, by participating in construction joint ventures, often as the sponsor or manager of the project, for the purpose of bidding and, if awarded, performing the agreed upon construction services. These joint ventures are based on a 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 on a joint and several basis. Although joint venture arrangements tend to minimize the risk of loss, the Company's initial obligations to the joint venture may increase as a result of the joint and several nature of the arrangement if one of the other participants is financially unable to bear its portion of its required capital contributions. For further information regarding certain joint ventures, see Notes 2 and 11 of Notes to Consolidated Financial Statements.
In the normal course of the 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.
Operating Structure
The building and civil segments operate as decentralized profit centers as more fully described below and independently identify, estimate and negotiate or submit bids to obtain projects and are accountable for the successful completion of projects awarded. Each segment has Company personnel assigned to perform the following functions: executive which coordinates and has overall responsibility for the other functions performed by the segment; work acquisition which includes business development, marketing, preconstruction services and the estimating process; operations which provides overall planning and supervision of the project teams including project staffing, such as project managers, superintendents, engineers, schedulers, equipment and safety personnel, as required for each project; and financial control which includes staffing of financial control personnel assigned to projects. These segments are supported by certain centralized corporate functions, including treasury, human resources, risk management, legal, internal audit, information technology, tax and accounting functions.
The building operation provides its services through regional offices located in several metropolitan areas: Boston, serving New England, the Mid-Atlantic and Southeast areas; and Phoenix and Las Vegas, serving Arizona, Nevada and California. The building operation also maintains satellite offices in Celebration, Florida, Atlantic City, New Jersey and Detroit, Michigan. The Company's building contracting services are provided by Perini Building Company, Inc., a wholly owned subsidiary. 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 and is well known for its hospitality and gaming industry projects, and for its health care facilities, correctional facilities, sports complexes, multi-unit residential, commercial, civic, cultural and educational facilities.
The civil operation provides its services through regional offices located in the Boston and New York City metropolitan areas and undertakes large public civil projects in the East, with current emphasis on the major New York City and Boston metropolitan areas, and selectively in other geographic locations in the United States. The Company's civil contracting services are provided by "Perini Civil", which is an operating division of Perini Corporation, and include
construction and rehabilitation of highways, bridges, subways, tunnels, airports, marine projects 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 civil construction projects. The Company believes that infrastructure rehabilitation is, and will continue to be, a significant market in 2002 and beyond.
Perini Management Services, Inc. ("PMSI", formerly Perini International Corporation), a wholly owned subsidiary, provides a broad range of construction services (primarily building) to U.S. government agencies in the U.S. and selected overseas locations, funded primarily in U.S. dollars. In addition, a joint venture managed by PMSI provides maintenance/modification and support services at ten nuclear power generating plant sites in the Midwest and in the East under a multi-year contract with a private client. In selected situations, PMSI pursues other work internationally. PMSI is combined with Perini Building Company to form the Company's building segment for financial reporting purposes.
Strategy
Overall, the Company continues to focus on optimizing value for its shareholders by actively pursuing higher margin projects in markets where it has considerable expertise and developing project opportunities through its strong client relationships, as well as managing its operations to achieve on-time delivery, tight cost controls, safe working conditions and high quality standards. 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 continue to increase profit margins. In addition, the Company is continuing the process of pursuing a strategy to profitably expand its construction business internally or through acquisition. 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 metropolitan New York and Boston, and selectively in other large, complex projects throughout the United States. The Company's strategy in building construction is to take advantage of its positive reputation in certain niche markets and to expand into new markets compatible with its expertise. Internally, the Company plans to continue to improve efficiency through strict attention to project control procedures and the control of overhead expenses. Finally, the Company continues to expand its expertise to assist public owners to develop necessary facilities through creative alternative project delivery methods, including public/private ventures, design-build and design-build-operate-maintain ("DBOM") arrangements.
Revenues
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, 2001.
Annual Report
on Form 10-K
Caption Page Number
Selected Consolidated Financial Information 16 - 17
Management's Discussion and Analysis 18 - 25
Note 13 of Notes to Consolidated Financial Statements, entitled "Business Segments" 58 - 59
While the "Selected Consolidated Financial Information" presents certain business segment information for purposes of consistency of presentation for the five years ended December 31, 2001, additional business segment information required by Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information", for the three years ended December 31, 2001 is included in Note 13 of Notes to Consolidated Financial Statements.
A summary of revenues by business segment for each of the three years in the period ended December 31, 2001 is as follows (in thousands):
Revenues For Year Ended December 31,
---------------------------------------------
2001 2000 1999
---- ---- ----
Building $1,199,439 $ 826,191 $ 696,407
Civil 353,957 279,469 323,077
------------- ------------- -------------
Total $1,553,396 $ 1,105,660 $ 1,019,484
============= ============= =============
During 2001, the Company was active in the building, civil and, to a lesser extent, the international construction markets, and performed work for over 40 federal, state and local governmental agencies or authorities and private customers under approximately 85 separate contracts. A significant portion of the increase in building construction revenues during 2001 and 2000 is due to the impact of the Mohegan Sun Phase II Expansion Project ("Mohegan Sun Project") initially obtained in 1999 (see comments under "Backlog" below). Due to the Company's trend toward fewer but larger contracts, a material part of the Company's business has been dependent on a limited number of private customers and/or public agencies in recent years (see Note 13 of Notes to Consolidated Financial Statements).
Revenues by Client Source
-------------------------
Year Ended December 31,
-------------------------------
2001 2000 1999
-------- ------- --------
Private Owners 73% 68% 60%
Federal Governmental Agencies 3 4 3
State, Local and Foreign Governments 24 28 37
-------- ------- --------
100% 100% 100%
======== ======= ========
Historically, a high percentage of Company contracts have been of the fixed price and GMP type. 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,
- -------------------------------- ------------------------------
2001 2000 1999 2001 2000 1999
- ---------- --------- --------- -------- -------- --------
25% 32% 46% Fixed Price 41% 46% 38%
75 68 54 CPAF, GMP or CM 59 54 62
- ---------- --------- --------- -------- -------- --------
100% 100% 100% 100% 100% 100%
========== ========= ========= ======== ======== ========
Backlog
The Company includes a construction project in its backlog at such times as a contract is awarded or a firm letter of commitment is obtained, and funding is in place. As a result, the backlog figures are firm, subject only to the cancellation provisions contained in the various contracts. Historically, these provisions have not had a material adverse effect on the Company.
As of December 31, 2001, the Company had a year end construction backlog of $1.21 billion compared to the record year end backlog of $1.79 billion as of December 31, 2000 and $1.66 billion as of December 31, 1999. The backlog is summarized below by geographic area and also by business segment:
Backlog (in thousands) as of December 31,
--------------------------------------------------------------------------
2001 2000 1999
----------------------- ----------------------- ----------------------
Northeast $ 548,728 45% $ 1,219,166 68% $1,089,234 66%
Mid-Atlantic 30,261 3 53,334 3 45,084 3
Southeast 9,058 1 115,165 6 210,395 12
Midwest 247,648 20 110,867 6 144,895 9
Southwest 141,478 12 206,796 12 44,994 3
West 135,709 11 885 - 1,264 -
Foreign 100,653 8 82,518 5 122,211 7
------------- ------- ------------- ------- ------------- -------
Total $ 1,213,535 100% $ 1,788,731 100% $1,658,077 100%
============= ======= ============= ======= ============= =======
Backlog in the Northeast region of the United States increased substantially during 1999 due to the addition of a construction contract for the Mohegan Sun Project with an initial contract price of $650 million and otherwise remained strong through 2000 because of the Company's ability to meet the needs of the growing infrastructure construction and rehabilitation market in this region, particularly in the metropolitan New York and Boston areas. The primary reason for the decrease in backlog in the Northeast region and overall at the end of 2001 is due to the substantial completion of the Mohegan Sun Project. The fluctuation in backlog in the other regions is partly due to the timing of the signing and start-up of new contracts rather than a longer term trend.
Backlog (in thousands) as of December 31,
-----------------------------------------------------------------------------
2001 2000 1999
------------------------ ----------------------- -----------------------
Building $ 738,546 61% $ 1,051,364 59% $ 1,114,366 67%
Civil 474,989 39 737,367 41 543,711 33
-------------- ------- ------------- ------ ------------- -------
Total $ 1,213,535 100% $ 1,788,731 100% $ 1,658,077 100%
============== ======= ============= ====== ============= =======
The Company estimates that approximately $430 million of its backlog at December 31, 2001 will not be completed in 2002.
The Contract Process
The Company identifies potential projects that it might be interested in pursuing from a variety of sources, including, but not limited to, advertisements by federal, state and local governmental agencies, meetings of the Company's business development personnel with potential customers to discuss their current and future construction projects or programs, meeting with knowledgeable participants in the construction industry such as architects, engineers, bankers and sureties, and general awareness of current events and trends in business and various levels of government spending and budgets.
After ascertaining the projects available, the Company further refines the list by considering other criteria, such as project size, duration, availability of estimating and project personnel, current backlog, perceived competitive advantages and disadvantages, prior experience on similar projects, contracting agency or owner, geographic location, type of contract and other financial and operational risk factors.
After deciding which contracts to pursue, the Company usually has to complete a prequalification process with the applicable agency or owner. The prequalification process generally limits bidders to those companies with operational experience and financial capability to effectively complete the particular project(s) in accordance with the plans, specifications and construction schedule.
The estimating process generally involves three phases. Initially, the Company performs a detailed review of the plans and specifications, summarizes the various types of work involved and related estimated quantities, determines the project duration or schedule, and highlights the unique and riskier aspects of the project. After the initial review, a decision is made to continue to pursue the project or not. Assuming the answer is positive, the Company performs the second phase of the estimating process which consists of estimating the cost and availability of labor, material, equipment, subcontractors and the project team required to complete the project on time and in accordance with the plans and specifications. The final phase consists of a detailed review of the estimate by management, including, among other things, assumptions regarding cost, approach, means and methods, productivity and risk. After the final review of the cost estimate, management adds an amount for profit to arrive at the total bid amount.
Public bids to various governmental agencies are generally awarded to the lowest bidder. Bids or negotiated contracts with private owners are generally awarded to the lowest bidder, but many times other factors, such as shorter project schedules or prior experience with the owner, result in the award of the contract based upon factors other than price. Most public sector contracts provide for termination of the contract at the election of the contracting agency. In such events, the Company is generally entitled to receive reimbursement for all costs incurred on the project plus a reasonable profit. Many of the Company's contracts are subject to interim or final completion dates or milestones with liquidated damages assessed against the Company if the specified milestone dates are not achieved. Historically, such provisions have not had a material adverse effect on the Company.
During the normal course of most projects, the owner and sometimes the contractor initiate modifications or changes to the original contract to reflect, among other things, changes in specifications or design, method or manner of performance, facilities, equipment, materials, site conditions and period for completion of the work. Generally the scope and price of these modifications are documented in a "change order" to the original contract and reviewed, approved and paid in accordance with the normal change order provisions of the contract. Many times, the change orders define the scope of work and the contractor is directed to proceed, but the price of the work is subject to further negotiations after the work is performed by the contractor. Other times, an owner may direct the contractor to perform certain change order work when both scope and price are not approved in advance or are in dispute. If the owner decides the directive does not result in additional compensation to the contractor and the contractor believes the directives to be outside the scope of the original bid documents, or if the physical conditions found on the project site are different from those presented in the bid documents, or for any variety of other reasons the contractor believes the directive to perform the work creates costs that could not reasonably be anticipated from the bid documents, the contract permits the contractor to make a request for an adjustment to the contract price. Such adjustment requests are often called contract claims. The process for resolving claims may vary from one contract to another but, in general, there is a process to attempt to resolve claims at the project supervisory level through the normal change order process or with higher levels of management within the organization of the contactor and the owner. Depending upon the terms of the contract, claim resolution may employ a variety of other resolution methods including mediation, binding or non-binding arbitration, or litigation. Regardless of the process, it is typical that when a potential claim arises on a project, the contractor has the contractual obligation to perform the work and must incur the related costs. The contractor does not recoup the costs until the claim is resolved. It is not uncommon for the claim resolution process to take months or years to resolve, especially if it involves litigation.
The Company's contracts generally involve work durations in excess of one year. Revenue on contracts in process is generally recorded under the percentage of completion contract accounting method. For a more detailed discussion of the Company's policy in these areas, see Note 1(d) of Notes to Consolidated Financial Statements, entitled "Method of Accounting for Contracts".
Because the Company's results are primarily generated from a limited number of significant active construction projects, results in any given fiscal quarter can vary depending on the timing of progress achieved and changes in the estimated profitability of the projects being reported. Progress on projects in certain areas may also be delayed by weather conditions 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 more or less progress than anticipated being achieved on certain projects. Therefore, the reported results for any one fiscal quarter may not be indicative of future results.
Competition
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 and have 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, combined with a positive reputation for performance, to be competitive in each of its major market areas.
Construction Costs
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 owner. On fixed price contracts, the Company attempts to insulate itself from the unfavorable effects of inflation by incorporating escalating wage and price assumptions, where appropriate, into its construction bids. Construction 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 2002 from material and/or labor shortages or price increases.
Certain Economic Trends
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 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 or 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.
Environmental Matters
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 three states and as an owner, is subject to laws governing environmental responsibility and liability based on ownership. The Company is not aware of any significant environmental liability associated with its ownership of real estate.
The Company has been named in a number of claims from former employees of subcontractors regarding exposure to asbestos on certain Company projects. None of the claims have resulted in or are expected to result in a material settlement.
The Company is not aware of any significant environmental liability associated with its construction operations or any of its corporate activities.
Risk Factors
The Company and its business segments are subject to a number of risks, including those summarized below. Such risks could have a material adverse effect on the Company's financial condition, results of operations and cash flows. Also, see disclosure under "Forward-looking Statements" on page 2.
Discontinued Operations - Real Estate
Effective June 30, 1999, management adopted a plan to withdraw completely from the real estate development business and to wind down the operations of Perini Land and Development Company ("PL&D"), the Company's real estate development subsidiary. Therefore, both historical and current real estate results have been presented as a discontinued operation in accordance with accounting principles generally accepted in the United States.
The Company had a reasonable expectation that the plan, when adopted, could be executed within a twelve-month period. Although more than 93% of the plan was successfully executed by December 31, 2000, the plan was not entirely completed because potential buyers who had executed purchase and sale agreements with the Company withdrew from the purchase of two properties, namely the bulk sale of all of the Massachusetts properties and the sale of the Perini Central property in Phoenix, Arizona. In addition, a program to pursue the bulk sale of the Sabino Springs property in Tucson, Arizona has been unsuccessful to date. When the initially anticipated bulk sales of certain properties did not materialize, the Company adopted a dual strategy of selling individual projects or parcels while continuing to pursue a bulk sale of the remaining properties. During 2001, the Company completed the sale of a property in Wareham, Massachusetts, two parcels in Raynham, Massachusetts, and the Perini Central property in Phoenix, Arizona. Remaining properties to be sold include certain parcels in Raynham, Massachusetts and the Sabino Springs property in Tucson, Arizona. These properties are actively being marketed for sale as individual parcels or as a bulk sale. In the absence of a bulk sale, and with a potential prolonged slowdown in the United States economy, the Company currently estimates that sales of these remaining properties will be concluded sometime during the next 36 to 48 months.
PL&D or Paramount Development Associates, Inc. ("Paramount"), a wholly owned subsidiary of PL&D, owned the following real estate properties during 2001:
Massachusetts
Raynham Woods Commerce Center, Raynham - During the late 1980's, Paramount acquired a 409-acre site (equivalent to 300 net saleable acres) located in Raynham, Massachusetts and completed infrastructure work on a major portion of the site which was being developed as a mixed-use corporate park known as "Raynham Woods Commerce Center". From 1989 through 2000, Paramount sold an aggregate of 147 net acres to various users. Paramount sold 9 net acres during 2001 which leaves approximately 144 buildable acres for sale.
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 was sold in 2001.
Arizona
Perini Central Limited Partnership, Phoenix - In 1985, PL&D (75%) entered into a joint venture with the Central United Methodist Church (25%) to master plan and develop approximately 4.4 acres 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. The property was sold in 2001.
Sabino Springs Estates, 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, which approval was later affirmed by the Arizona Supreme Court. In 1993, PL&D sold a major portion of the property to an international real estate company, who completed a championship golf course and clubhouse within the project in 1995. During 2001, PL&D completed infrastructure development on the remaining property. The remaining 32 estate lots retained by PL&D are currently for sale either in bulk or as individual lots.
Insurance and Bonding
All of the Company's properties and equipment, both directly owned or owned through joint ventures with others, are covered by insurance, and management believes that such insurance is adequate. During the last three years, the Company has significantly limited its financial risk under its worker's compensation and general liability insurance coverage by purchasing traditional insurance policies in a favorable insurance market. Due to current tight conditions in the insurance market, effective for the calendar year 2002, the Company found it necessary to purchase worker's compensation and general liability policies with a Company self-insured deductible limit of $250,000 per occurrence, with appropriate aggregate caps on losses retained.
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 bonding of very large projects, these limits have not had an adverse impact on the Company's operations.
Employees
The total number of personnel employed by the Company is subject to seasonal fluctuations, the volume of construction in progress and the relative amount of work performed by subcontractors. During 2001, the average number of employees was approximately 2,300 with a maximum of approximately 3,400 and a minimum of 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 next fiscal year is not expected to have any material impact on the Company.
ITEM 2. PROPERTIES
Properties for sale applicable to the Company's previously discontinued real estate activities are described in detail in Item 1. Business on page 10. Properties used in operations are summarized below:
Business Owned or Approximate Approximate Square
Segment(s) Leased by Perini Acres Feet of Office Space
------------------ ------------------ --------------- ---------------------
Principal Offices
- ------------------------
Framingham, MA Building and Civil Owned 9 100,000
Phoenix, AZ Building Leased - 22,700
Hawthorne, NY Civil Leased - 12,500
Celebration, FL Building Leased - 4,800
Las Vegas, NV Building Leased - 2,900
Detroit, MI Building Leased - 2,800
Atlantic City, NJ Building Leased - 1,100
--------------- ---------------------
9 146,800
=============== =====================
Principal Permanent
Storage Yards
- ------------------------
Bow, NH Civil Owned 70
Framingham, MA Building and Civil Owned 6
Las Vegas, NV Building Leased 2
---------------
78
===============
The Company's properties are well maintained, in good condition, adequate and suitable for the Company's purpose and fully utilized.
ITEM 3. LEGAL PROCEEDINGS
Mergentime – Perini Joint Venture vs. WMATA Matter
On May 11, 1990, two joint ventures in which Perini Corporation held a minority interest ("Joint Ventures") were terminated by the Washington Metropolitan Area Transit Authority ("WMATA") on two adjacent subway construction contracts in the District of Columbia. The contracts were awarded to the Joint Ventures in 1985 and 1986. However, Perini and Mergentime Corporation ("Mergentime"), the 60% managing partner, entered into an agreement in 1987 under which Perini withdrew from the Joint Ventures and Mergentime assumed complete control over the performance of both projects. This agreement did not relieve Perini of its responsibilities to WMATA as a Joint Venture partner. After Perini withdrew from the Joint Ventures, Mergentime and WMATA were embroiled in a dispute regarding progress on the projects. Each party blamed the other for delays that were impacting both cost and progress and the parties were unable to resolve their dispute. Ultimately, both construction contracts were terminated by WMATA and WMATA retained Perini, acting independently, to complete both projects.
Subsequently, the Joint Ventures brought an action in the United States District Court for the District of Columbia against WMATA, seeking damages for delays, unpaid extra work and wrongful termination and WMATA brought an action against the Joint Ventures seeking damages for additional costs to complete the projects. After a bench trial before two District Court Judges (the initial Judge died before the matter could be concluded), the District Court found the Joint Ventures liable to WMATA for damages in the amount of approximately $16.5 million and WMATA liable to the Joint Ventures for damages in the amount of approximately $4.3 million.
The Joint Ventures appealed the judgment to the United States Court of Appeals for the District of Columbia ("Court of Appeals"), arguing, among other things, that the second District Court Judge had issued his final decision without fully familiarizing himself with the record of the initial District Court Judge. On February 16, 1999, the Court of Appeals vacated the District Court's final judgment and ordered the successor District Court Judge to review the findings of the initial Judge and hold further hearings in regard to the Joint Venture's affirmative claims. In addition, the Court of Appeals held that statutory interest on any of the claims will not accrue until final judgment is entered sometime in the future. Later in 1999, the case was transferred to a new successor District Court Judge.
On February 28, 2001, the new successor District Court Judge informed the parties that in the absence of a new trial, he could not certify adequate familiarity with the record to complete the remaining proceedings; therefore, he ordered that the Joint Venture's motion for a new trial be granted.
A new trial before the new successor District Court Judge was completed in January 2002. A decision is expected by June 2002.
Tutor–Saliba–Perini Joint Venture vs. Los Angeles MTA Matter
During 1995, a joint venture, Tutor-Saliba-Perini ("TSP"), in which Perini Corporation is a 40% minority partner and Tutor-Saliba Corporation of Sylmar, CA is the 60% managing partner, filed a complaint in the Superior Court of the State of California for the County of Los Angeles against the Los Angeles County Metropolitan Transportation Authority ("MTA") seeking to recover costs for extra work required by the MTA in connection with the construction of the Wilshire/Normandie Subway Station. TSP is seeking additional compensation from the MTA for claims related to the construction and in February 1999 the MTA countered with civil claims under the California False Claims Act against TSP, Tutor-Saliba Corporation, Perini Corporation and other parties. Ronald N. Tutor, the Chairman and CEO of Perini Corporation since March of 2000, is also the CEO and the sole stockholder of Tutor-Saliba Corporation (see Note 14).
Claims concerning the construction of the Wilshire/Normandie Subway Station were tried before a Jury in 2001. During trial, the Judge ruled that TSP had failed to comply with the Court's prior discovery orders and the Judge penalized TSP for its alleged non-compliance by dismissing TSP's claim and by ruling, without a Jury finding, that TSP was liable to the MTA for damages on the MTA's counterclaim. The Judge then instructed the Jury that TSP was liable to the MTA and charged the Jury with the responsibility of determining the amount of the damages based on the Judge's ruling. The Jury awarded the MTA approximately $29.6 million in damages.
TSP and the other plaintiffs/defendants in the counterclaim have appealed both the Judge's discovery sanction and the subsequent Jury award. The ultimate financial impact of the Judge's ruling and/or the Jury's award is not yet determinable.
Perini/Kiewit/Cashman Joint Venture – Central Artery/Tunnel Project Matter
Perini/Kiewit/Cashman Joint Venture ("PKC"), a joint venture in which Perini Corporation holds a 56% interest and is the managing partner, is currently pursuing a series of claims for additional contract time and/or compensation against the Massachusetts Highway Department ("MHD") for work performed by PKC on a portion of the Central Artery/Tunnel project in Boston, Massachusetts. The claims relate to the construction of the Northbound Mainline Central Artery Tunnel from Kneeland Street to Congress Street. During construction, MHD ordered PKC to perform changes to the work and issued related direct cost changes with an estimated value, excluding time delay and inefficiency costs, in excess of $100 million. In addition, PKC encountered a number of unforeseen conditions during construction that greatly increased PKC's cost of performance.
PKC's claims are currently being presented to a Disputes Review Board ("DRB") which consists of three construction experts chosen by the parties. To date, the DRB has ruled on a binding basis that PKC is entitled to additional compensation for its contract time delay claim in the amount of $17.4 million. The DRB is currently considering PKC's utility impact claim (approximate value of $30 million) with additional claims to be presented in 2002. The claims yet to be decided by the DRB, including the utility impact claim, have a stated value in excess of $93 million. The majority of the undecided claims (approximately $75 million) will be decided by the current DRB, as arbitrators, on a binding basis. The remaining claims will be decided by the DRB on a non-binding basis pursuant to the provisions of the original contract.
Although MHD challenged several of the DRB's decisions relative to the contract time delay award discussed above, PKC received a favorable ruling on March 20, 2002 from the Superior Court of the Commonwealth of Massachusetts that approved PKC's request to have MHD comply with the DRB's decision to award the $17.4 million for the time delay. The ultimate financial impact of resolving all of the claims on this project is not yet determinable.
Perini Building Company, Inc. vs. Saginaw Chippewa Indian Tribe of Michigan Matter
In 1995, Perini Building Company, Inc. ("PBC"), a wholly owned subsidiary of Perini Corporation, was hired by the Saginaw Chippewa Indian Tribe ("Tribe") to construct a hotel/casino resort in Mt. Pleasant, Michigan. Since the design for the project was still in process at the time of contract, the parties planned to proceed with construction on a fast-track basis as the design was completed by the Tribe's architect. Although PBC completed a major portion of construction under this fast-track arrangement, a final design was never completed by the Tribe's architect. Ultimately, a dispute arose between the Tribe and the architect regarding the architect's failure to complete the design and the Tribe eventually terminated all contracts on the project, including its contract with the architect and its contract with PBC. Separate arbitration proceedings were then initiated between the Tribe and the architect and between the Tribe and PBC.
On June 5, 2000, the American Arbitration Association found in favor of PBC against the Tribe, awarding PBC approximately $8.9 million in damages, plus costs and attorney/consultants fees in the amount of approximately $1.2 million. On October 30, 2000, PBC filed an action to enforce the award in the Tribal Court of the Saginaw Chippewa Indian Tribe. On January 31, 2002, the Tribal Court refused to confirm the award, claiming that the Tribal Court does not have jurisdiction because the Tribe is immune from suit as a sovereign nation. The contract between PBC and the Tribe provides that PBC may seek enforcement of the award in United States Federal Court if the Tribal Court finds that it does not have jurisdiction. PBC will pursue its rights under the contract and PBC will also appeal the refusal of the Tribal Court to enforce the award.
San Francisco State University vs. Perini Matter
This is an action originally brought in 1999 by San Francisco State University ("SFSU") against Perini and several subcontractors in conjunction with the design and construction of a student dormitory. SFSU alleges that the building suffers from water leakage and structural deficiencies (deficient earthquake bracing per the California Building Code). SFSU seeks damages in excess of $85 million, including damages for leak repairs and mold abatement, damages for structural repairs, damages for economic losses, punitive damages and attorneys' fees. Perini has asserted that the building was properly designed and constructed under the contractually identified building code.
Both Perini and its subcontractors have general liability insurance policies and Perini is an additional insured on the subcontractors' insurance policies. Management believes that these policies will cover any damage finding against Perini related to construction defects. Perini does not have errors and omissions insurance for the building design. To that extent, these policies will not cover a damage finding, if any, against Perini which is based solely upon design errors and omissions.
Perini is being defended by its insurance carriers under a reservation of rights. Perini has brought a third party action for comparative indemnity, equitable indemnity, implied contractual indemnity and declaratory relief against nine of Perini's subcontractors and lower-tier subcontractors. The action is scheduled for trial in April 2002. The ultimate financial impact of this case is not yet determinable.
$21.25 Preferred Shareholders Class Action Lawsuit
On May 3, 2001 the Company, including several of its current and former directors ("Defendant Directors"), was served with a complaint entitled Frederick Doppelt, Arthur I. Caplan and Michael Miller v. Perini Corporation, et al, Supreme Court of the State of New York, County of New York, Civil Action No. 602156/01. Each plaintiff is a holder of the Company's $21.25 Convertible Exchangeable Preferred Stock ("$21.25 Preferred Stock"). One plaintiff, Mr. Doppelt, is a current Director of the Company and one plaintiff, Mr. Caplan, is a former Director of the Company. Plaintiffs purport to bring the action individually and on behalf of the entire class of holders of the $21.25 Preferred Stock.
The Plaintiffs have asserted claims for breach of contract, breach of fiduciary duty, fraud and negligent misrepresentation. The Plaintiffs principally allege that the Company and its Defendant Directors improperly authorized the exchange of Series B Preferred Stock for Common Stock without first paying all accrued dividends on the $21.25 Preferred Stock. More specifically, Plaintiffs allege that the Company and its Defendant Directors violated the terms of the $21.25 Preferred Stock when, in March 2000, the Company authorized the exchange of Series B Preferred Stock for Common Stock. The Plaintiffs further allege that the Company and its Defendant Directors issued a false and misleading prospectus in 1987 relating to the issuance of the $21.25 Preferred Stock. The Plaintiffs seek payment of accrued dividends, claiming they are owed approximately $11.7 million as of May 3, 2001, and other unspecified punitive and exemplary damages.
On May 23, 2001, the Company and the Defendant Directors removed the action from the Supreme Court of New York to the United States District Court for the Southern District of New York.
On June 26, 2001, the Plaintiffs filed an Amended Complaint whereby the Plaintiffs limited their Class Action to an action for breach of contract against the Company and an action for breach of fiduciary duty against the Defendant Directors. The Company and the Defendant Directors have moved to dismiss all of Plaintiffs' claims.
On March 12, 2002, all claims against the Company and the Defendant Directors were dismissed by the United States District Court for the Southern District of New York.
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
Market Information
The Company's Common Stock is traded on the American Stock Exchange under the symbol "PCR". The quarterly market price ranges (high-low) for 2001 and 2000 are summarized below:
2001 2000
------------------------ -------------------------
High Low High Low
---------- --------- ----------- ----------
Market Price Range per Common Share:
- ------------------------------------
Quarter Ended
March 31 $ 7.35 - $ 2.94 $ 5.88 - $ 3.75
June 30 10.00 - 5.90 4.50 - 2.75
September 30 9.40 - 5.45 4.94 - 3.50
December 31 7.60 - 6.10 4.25 - 3.00
Dividends
For information on dividend payments, see "Dividends" under Management's Discussion and Analysis in Item 7 below.
Holders
At February 25, 2002, there were 1,197 common stockholders of record based on the stockholders list maintained by the Company's transfer agent.
ITEM 6. SELECTED FINANCIAL DATA
Selected
Consolidated Financial Information
(In thousands, except per share data)
The following selected financial data has been derived from audited financial statements and should be read in conjunction with the consolidated financial statements, the related notes thereto and the report of independent public accountants thereon, included elsewhere in this Form 10-K and in previously filed annual reports on Form 10-K of Perini Corporation.
2001 2000 1999 1998 1997
---------------- --------------- ---------------- ---------------- ----------------
OPERATING SUMMARY
CONTINUING OPERATIONS:
Revenues:
Building $ 1,199,439 $ 826,191 $ 696,407 $ 679,296 $ 888,809
Civil 353,957 279,469 323,077 332,026 387,224
---------------- --------------- ---------------- ---------------- ----------------
Total $ 1,553,396 $ 1,105,660 $ 1,019,484 $ 1,011,322 $ 1,276,033
Cost of Operations 1,495,834 1,053,328 969,015 957,651 1,225,814
---------------- --------------- ---------------- ---------------- ----------------
Gross Profit $ 57,562 $ 52,332 $ 50,469 $ 53,671 $ 50,219
G&A Expense 28,061 24,977 26,635 27,397 29,715
---------------- --------------- ---------------- ---------------- ----------------
Income From Operations $ 29,501 $ 27,355 $ 23,834 $ 26,274 $ 20,504
Other (Income) Expense, Net 227 (949) (72) 652 1,695
Interest Expense 2,006 3,966 7,128 8,473 9,910
---------------- --------------- ---------------- ---------------- ----------------
Income From Continuing
Operations Before Income Taxes $ 27,268 $ 24,338 $ 16,778 $ 17,149 $ 8,899
(Provision) Credit for Income Taxes (850) 43 (421) (1,100) (950)
---------------- --------------- ---------------- ---------------- ----------------
Income From Continuing Operations $ 26,418 $ 24,381 $ 16,357 $ 16,049 $ 7,949
---------------- --------------- ---------------- ---------------- ----------------
DISCONTINUED OPERATIONS:
Loss From Operations $ - $ - $ (694) $ (4,397) $ (2,577)
Estimated Loss on Disposal of
Real Estate Business Segment - - (99,311) - -
---------------- --------------- ---------------- ---------------- ----------------
Loss From Discontinued Operations $ - $ - $ (100,005) $ (4,397) $ (2,577)
---------------- --------------- ---------------- ---------------- ----------------
Net Income (Loss) $ 26,418 $ 24,381 $ (83,648) $ 11,652 $ 5,372
================ =============== ================ ================ ================
2001 2000 1999 1998 1997
---------------- --------------- ---------------- ---------------- ----------------
Basic Earnings (Loss) per Common Share:
Income From Continuing Operations $ 1.07 $ 1.13 $ 1.80 $ 1.91 $ 0.52
Loss From Discontinued Operations - - (0.12) (0.83) (0.51)
Estimated Loss on Disposal - - (17.72) - -
---------------- --------------- ---------------- ---------------- ----------------
Total $ 1.07 $ 1.13 $ (16.04) $ 1.08 $ 0.01
================ =============== ================ ================ ================
Diluted Earnings (Loss) per Common Share:
Income From Continuing Operations $ 1.04 $ 1.13 $ 1.80 $ 1.91 $ 0.52
Loss From Discontinued Operations - - (0.12) (0.83) (0.51)
Estimated Loss on Disposal - - (17.72) - -
---------------- --------------- ---------------- ---------------- ----------------
Total $ 1.04 $ 1.13 $ (16.04) $ 1.08 $ 0.01
================ =============== ================ ================ ================
Book Value per Common Share $ 2.40 $ 1.57 $ (11.31) $ 4.17 $ 2.44
---------------- --------------- ---------------- ---------------- ----------------
Weighted Average Common Shares Outstanding
for Basic EPS 22,623 18,521 5,606 5,318 5,059
---------------- --------------- ---------------- ---------------- ----------------
FINANCIAL POSITION SUMMARY
Working Capital $ 93,369 $ 80,477 $ 48,430 $ 57,665 $ 76,752
---------------- --------------- ---------------- ---------------- ----------------
Current Ratio 1.30:1 1.27:1 1.23:1 1.29:1 1.34:1
---------------- --------------- ---------------- ---------------- ----------------
Long-term Debt, less current maturities $ 7,540 $ 17,218 $ 41,091 $ 75,857 $ 84,576
---------------- --------------- ---------------- ---------------- ----------------
Stockholders' Equity (Deficit) $ 79,408 $ 60,622 $ (36,618) $ 50,558 $ 40,900
---------------- --------------- ---------------- ---------------- ----------------
Ratio of Long-term Debt to Equity .09:1 .28:1 n.a. 1.50:1 2.07:1
---------------- --------------- ---------------- ---------------- ----------------
Redeemable Series B Cumulative
Convertible Preferred Stock $ - $ - $ 37,685 $ 33,540 $ 29,756
---------------- --------------- ---------------- ---------------- ----------------
Total Assets $ 416,985 $ 393,452 $ 275,488 $ 375,466 $ 407,288
---------------- --------------- ---------------- ---------------- ----------------
OTHER DATA
Backlog at Year End $ 1,213,535 $ 1,788,731 $ 1,658,077 $ 1,232,256 $ 1,309,454
---------------- --------------- ---------------- ---------------- ----------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company was incorporated in 1918 as a successor to businesses which had been engaged in providing construction services since 1894. The Company currently 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 or operations: building and civil. The general building and civil 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 by using traditional general contracting arrangements, such as fixed price, guaranteed maximum price and cost plus award fee contracts and, to a lesser extent, construction management or design-build contracting arrangements.
Critical Accounting Policies
The Company's significant accounting policies are described in Note 1 of Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company's construction business involves making significant estimates and assumptions in the normal course of business relating to its Company and joint venture contracts due to, among other things, the one-of-a-kind nature of most of its projects, long-term duration of its contract cycle and type of contract utilized. Therefore, management believes that "Method of Accounting for Contracts" is the most important and critical accounting policy. The most significant estimates with regard to these financial statements relate to the estimating of total forecasted construction contract revenues, costs and profits in accordance with accounting for long-term contracts (see Note 1(d) of Notes to Consolidated Financial Statements) and estimating potential liabilities in conjunction with certain contingencies, including the outcome of pending or future litigation, arbitration or other dispute resolution proceedings relating to contract claims (see Note 11 of Notes to Consolidated Financial Statements). Actual results could differ in the near term from these estimates and such differences could result in a material adverse effect on the Company's financial condition, results of operations and cash flows.
Profits from the Company's contracts and construction joint venture contracts are recognized by applying percentages of completion for the period to the total estimated profits for the respective contracts. Percentage of completion is determined by relating the actual cost of the work performed to date to the current estimated total cost of the respective contracts. When the estimate on a contract indicates a loss, the Company's policy is to record the entire loss during the accounting period in which it is estimated. In the ordinary course of business, at a minimum on a quarterly basis, the Company prepares updated estimates of the total forecasted revenue, cost and profit or loss for each contract. The cumulative effect of revisions in estimates of the total forecasted revenue and costs, including unapproved change orders and claims, during the course of the work is reflected in the accounting period in which the facts that caused the revision become known. The financial impact of these revisions to any one contract is a function of both the amount of the revision and the percentage of completion of the contract. An amount equal to the costs incurred which are attributable to unapproved change orders and claims is included in the total estimated revenue when realization is probable. (For a further discussion of unapproved change orders and claims, see "The Contract Process" under Item 1 on pages 6 and 7 of this Form 10-K.) Profit from unapproved change orders and claims is recorded in the period such amounts are resolved.
Deferred contract revenue represents the excess of billings to date over the amount of contract costs and profits (or contract revenue) recognized to date on the percentage of completion accounting method on certain contracts.
Unbilled work represents the excess of contract costs and profits (or contract revenue) recognized to date on the percentage of completion accounting method over billings to date on the remaining contracts. Unbilled work results when (1) the appropriate contract revenue amount has been recognized in accordance with the percentage of completion accounting method, but a portion of the revenue recorded cannot be billed currently due to the billing terms defined in the contract and/or (2) costs, recorded at estimated realizable value, related to unapproved change orders or claims are incurred. For unapproved change orders or claims that can't be resolved in accordance with the normal change order process as defined in the contract, the Company may employ other dispute resolution methods, including mediation, binding and non-binding arbitration, or litigation (see Item 3, Legal Proceedings in this Form 10-K and Note 11, "Contingencies and Commitments", of Notes to Consolidated Financial Statements). The prerequisite for billing unapproved change orders and claims is the final resolution and agreement between the parties. At December 31, 2001, unbilled work related to Company contracts is discussed in Note 1(d) of Notes to Consolidated Financial Statements and the Company's proportionate share of unbilled work related to joint venture contracts is discussed in Note 2 of Notes to Consolidated Financial Statements.
Related Party Transactions
As part of a $30 million equity infusion in January, 1997, the Company entered into an agreement with Tutor-Saliba Corporation ("TSC"), a construction company based in California, and Ronald N. Tutor, Chief Executive Officer and sole stockholder of TSC, to provide certain management services. TSC participated in joint ventures with the Company before the agreement and continues to participate in joint ventures with the Company after the agreement. The Company's share of revenue from these joint ventures amounted to $17.9 million, $4.5 million and $8.6 million in 2001, 2000 and 1999, respectively. Primarily as a result of TSC participating in a $40 million equity infusion in March, 2000, TSC currently owns approximately 12% of the Company's outstanding Common Stock. Mr. Tutor has been Chairman and Chief Executive Officer of the Company since March, 2000. (For details of compensation to TSC and Mr. Tutor and other information on related party transactions, see Note 14 of Notes to Consolidated Financial Statements.)
Results of
Operations –2001
Compared to 2000
Continuing Operations
Income from continuing operations for the year ended 2001 increased 8% to a record $26.4 million, compared to income from continuing operations of $24.4 million for the year ended 2000. Basic earnings per common share were $1.07 for the year ended 2001, as compared to $1.13 for the year ended 2000. Diluted earnings per common share were $1.04 for the year ended 2001, as compared to $1.13 for the year ended 2000. Despite the increase in income from continuing operations in 2001, earnings per Common Share decreased due to the impact of the significant increase in the number of common shares outstanding as a result of the recapitalization of the Company achieved in March 2000. (See Notes 1(i) and 7 of Notes to Consolidated Financial Statements.) Overall, the improved 2001 results from continuing operations reflect a continued strong and improved profit contribution from the building construction segment and, to a lesser extent, the positive impact of lower interest expense due primarily to continued reduction in the amount of long-term debt outstanding and lower interest rates in 2001.
Revenues from continuing construction operations increased $447.7 million (or 40.5%), from $1,105.7 million in 2000 to a record $1,553.4 million in 2001. This increase was due primarily to an increase in building construction revenues of $373.2 million (or 45.2%), from $826.2 million in 2000 to $1,199.4 million in 2001. In addition, civil construction revenues increased $74.5 million (or 26.7%), from $279.5 million in 2000 to $354.0 million in 2001. The increase in revenues from building construction operations was due primarily to the Company's record year end backlog at December 31, 2000, including an increase in the volume of work completed at the Mohegan Sun Project in Connecticut, as well as the construction of three large hotel/casino projects in the southwestern United States. The increase in revenues from civil construction operations also reflected the Company's record year-end backlog at December 31, 2000, including the start-up of several infrastructure projects in the metropolitan New York area.
Income from construction operations (see Note 13 of Notes to Consolidated Financial Statements for business segment information) increased by $2.8 million (or 8.6%), from $32.7 million in 2000 to $35.5 million in 2001 due to an increase in income from building construction operations that more than offset a decrease in income from civil construction operations. Building construction operating income increased by $4.5 million (or 16.6%), from $27.1 million in 2000 to $31.6 million in 2001, due primarily to the increase in revenues discussed above which was largely offset by a decrease in the gross margin from 4.8% in 2000 to 4.0% in 2001 because 2000 included the favorable close-out of certain projects. In addition, building construction operating income was negatively impacted by a $3.6 million (or 28.3 %) increase in building construction-related general and administrative expenses primarily in connection with the pursuit of new work opportunities. Despite the increase in civil construction revenues discussed above, civil construction operating income decreased by $1.7 million (or 30.4%), from $5.6 million in 2000 to $3.9 million in 2001, due primarily to a downward profit revision on a Central Artery/Tunnel "Big Dig" project in Boston, Massachusetts.
Other income (expense) decreased by $1.1 million, from a net income of $0.9 million in 2000 to a net expense of $0.2 million in 2001, due primarily to a decrease in interest income as a result of a decrease in the level of short-term cash investments, as well as lower interest rates in 2001.
Interest expense decreased by $2.0 million, from $4.0 million in 2000 to $2.0 million in 2001, due primarily to the continued reduction in the amount of long-term debt outstanding under the Company's credit facility as described in Note 3 of Notes to Consolidated Financial Statements, as well as lower interest rates in 2001.
The lower than normal tax rate for the three year period ended December 31, 2001 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 1999, 1996 and 1995. As of December 31, 2001, an amount estimated to be approximately $99 million of future pretax earnings could benefit from minimal, if any, federal tax provisions. The net deferred tax assets reflect management's estimate of the amount that will, more likely than not, be realized (see Note 4 of Notes to Consolidated Financial Statements). In addition, the credit for income taxes applicable to Income from Continuing Operations in 2000 reflects the reversal of foreign taxes accrued in prior years that were no longer required.
Results of Operations
–2000
Compared to 1999
Continuing Operations
Income from continuing construction operations for the year ended 2000 increased 49% to a record $24.4 million (or $1.13 per common share), compared to $16.4 million (or $1.80 per common share) in 1999. Despite the significant increase in income from continuing operations in 2000, earnings per common share decreased due to the significant increase in the number of common shares outstanding as a result of the recapitalization of the Company achieved in March 2000. (See Note 7 of Notes to Consolidated Financial Statements.) Overall, the 2000 results from continuing operations reflect a continued strong profit contribution from the building construction segment as well as the positive impact of lower finance-related charges due to the recapitalization referred to above, and lower overhead expenses.
Revenues from continuing construction operations increased $86.2 million (or 8.5%) from $1,019.5 million in 1999 to $1,105.7 million in 2000. This increase was due primarily to an increase in building construction revenues of $129.8 million (or 18.6%) from $696.4 million in 1999 to $826.2 million in 2000, which more than offset a decrease in revenues from civil construction operations of $43.6 million (or 13.5%) from $323.1 million in 1999 to $279.5 million in 2000. The increase in revenues from building construction operations was due primarily to an increase in the volume of work completed at the Mohegan Sun Project in Connecticut. The decrease in revenues from civil construction operations was due primarily to the timing in the start up of new work.
Income from construction operations (see Note 13 of Notes to Consolidated Financial Statements) increased by
$1.4 million (or 4.5%), from $31.3 million in 1999 to $32.7 million in 2000 due to a significant increase in income from building construction operations that more than offset a decrease in income from civil construction operations. Building construction operating income increased by $10.4 million, from $16.7 million in 1999 to $27.1 million in 2000, due to the increase in revenues referred to above and an increase in gross margin from 4.2% in 1999 to 4.8% in 2000 due primarily to the favorable close out of certain projects. Civil construction operating income decreased by $9.0 million, from $14.6 million in 1999 to $5.6 million in 2000, due primarily to downward revisions of estimated profit on certain infrastructure projects and, to a lesser extent, the decrease in revenues referred to above. In addition, a $2.2 million decrease in corporate general and administrative expenses from $7.5 million in 1999 to $5.3 million in 2000 contributed to the overall increase in total operating income of $3.6 million, from $23.8 million in 1999 to $27.4 million in 2000. The decrease in corporate general and administrative expenses was primarily the result of a reduction in outside legal expenses.
Other income (expense) improved by $0.8 million, from a net income of $0.1 million in 1999 to a net income of $0.9 million in 2000. This improvement was due primarily to a decrease in amortization of deferred debt expense and bank financing fees relating to the Company's revolving credit agreement, partly offset by a non-recurring gain on sale of investment recorded in 1999.
Interest expense decreased by $3.1 million from $7.1 million in 1999 to $4.0 million in 2000, due primarily to the reduction in debt achieved at the end of the first quarter of 2000 as a result of the closing of the new equity transaction described in Note 7 of Notes to Consolidated Financial Statements.
Discontinued Operations
Effective June 30, 1999, management adopted a plan to withdraw completely from the real estate development business and wind down the operations of Perini Land and Development Company ("PL&D"), the Company's real estate development subsidiary. Therefore, the operating results of PL&D have been presented as a discontinued operation in accordance with accounting principles generally accepted in the United States. (See Note 5 of Notes to Consolidated Financial Statements.)
Financial Condition
Cash and Working Capital
During 2001, the Company used $31.5 million of cash on hand and $2.1 million in cash generated from operating activities to fund $24.1 million used by investing activities, primarily for funding the working capital needs of certain construction joint ventures; and $9.5 million for financing activities, primarily to reduce debt by a net amount of $9.8 million. Cash generated from operating activities decreased from $42.6 million in 2002 to $2.1 million in 2001. A substantial increase in cash distributions from construction joint ventures in 2001 was more than offset by the need to fund working capital requirements on certain Company construction contracts where unapproved change orders and/or contract claims remain to be resolved (see Note 1(d) of Notes to Consolidated Financial Statements).
During 2000, cash generated from operating activities in the amount of $42.6 million resulted primarily from higher profit distributions and temporary borrowings from certain construction joint ventures. The funds generated were used for investing activities ($33.0 million), primarily for funding the working capital needs of certain other construction joint ventures, and for financing activities ($8.3 million), primarily to continue to pay down debt and to increase cash on hand by $1.3 million. Financing activities in 2000 include net proceeds of $37.3 million received from the issuance of Common Stock in connection with the recapitalization of the Company as discussed in Note 7 of Notes to Consolidated Financial Statements, as well as net proceeds of $7.1 million received from a refinancing of the Company's corporate headquarters building. These funds were primarily used to pay down debt and to enhance working capital.
During 1999, the Company generated $27.8 million in cash from operating activities, due primarily to changes
in various elements of working capital. The funds generated were used for investing activities ($13.5 million), primarily for funding the working capital needs of certain construction joint ventures, and for financing activities ($2.6 million), primarily to reduce debt and to increase cash on hand by $11.7 million.
During 2000, the Company's liquidity was significantly enhanced by the sale of 9,411,765 shares of Common Stock for an aggregate of $40 million (before fees and expenses) (see Note 7 of Notes to Consolidated Financial Statements) and by the refinancing of the Company's corporate headquarters building for $7.5 million (before fees and expenses) (see Note 3 of Notes to Consolidated Financial Statements). These financing transactions enabled the Company to reduce its dependence on bank debt to fund the working capital needs of its core construction operations, resulting in a significant reduction in interest expense. Also, on January 23, 2002, the Company entered into an agreement with a new bank group to refinance its existing credit facility with a new $45 million revolving credit facility (see Note 3 of Notes to Consolidated Financial Statements), which will provide the Company with greater flexibility in providing the working capital needed to support the anticipated growth of the Company's construction activities. The financial covenants to which the Company is subject include, among other things, maintaining specified working capital, tangible net worth and operating profit levels, interest coverage minimums, and limitations on indebtedness, all as defined in the loan documents. Also, during the past three years, the Company has made substantial progress on its strategy for resolving several major construction claims, minimizing overhead expenses and liquidating its real estate assets.
Periodically, the Company receives permanent cash distributions of profit from its construction joint ventures. In addition, the Company has access to temporary cash distributions from certain joint ventures in which it participates. Generally, these joint ventures distribute cash at the end of each quarter to the participants who will then return these funds at the beginning of the next quarter.
The working capital current ratio was 1.30:1 at the end of 2001 compared to 1.27:1 at the end of 2000 and 1.23:1 at the end of 1999.
Long-term Debt
Long-term debt was $7.5 million at the end of 2001, down from $17.2 million in 2000, $41.1 million in 1999 and $75.9 million in 1998. In addition to the $68.4 million reduction in the Company's long-term debt during the three year period ended December 31, 2001, real estate joint venture debt of $57.6 million has been reduced to zero during the same three year period.
Stockholders' Equity
As more fully described in Note 7 of Notes to Consolidated Financial Statements, effective March 29, 2000, the Company completed a recapitalization which included the sale of 9,411,765 shares of Common Stock for an aggregate of $40 million in cash (before fees and expenses) and the exchange of 100% of its Redeemable Series B Cumulative Convertible Preferred Stock for an aggregate of 7,490,417 shares of Common Stock. The effect of the recapitalization on the Company's stockholders' equity was to increase stockholders' equity by approximately $76.2 million, from a negative net worth of approximately $36.6 million at December 31, 1999 to a positive net worth of approximately $39.6 million upon completion of the recapitalization. The negative net worth of approximately $36.6 million at December 31, 1999 was the result of the net loss recorded in 1999 due to the $100 million loss from discontinued real estate operations.
The Company's book value per common share was $2.40 at December 31, 2001, compared to $1.57 at December 31, 2000, and a negative $(11.31) per common share at December 31, 1999. The major factors impacting stockholders' equity during the three year period under review were the recapitalization completed in 2000, the net income recorded in 2001 and 2000, the net loss recorded in 1999 and, to a lesser extent, preferred dividends paid in-kind or accrued, common stock options exercised and stock issued in partial payment of certain expenses. Also, in 2001, the Company was required to recognize an additional minimum pension liability of approximately $5.9 million in accordance with SFAS
No. 87, "Employers' Accounting for Pensions" which resulted in a $5.9 million Accumulated Other Comprehensive Loss deduction in stockholders' equity. (See Note 10 of Notes to Consolidated Financial Statements.) Adjustments to the amount of this additional minimum pension liability will be recorded in future years based upon periodic re-evaluation of the funded status of the Company's pension plans.
At December 31, 2001, there were 1,208 common stockholders of record based on the stockholders list maintained by the Company's transfer agent.
Dividends
(a) Common
Stock
There were no cash dividends declared or paid on the Company's outstanding Common Stock during the three
years ended December 31, 2001.
(b) $21.25 Preferred
Stock
In
conjunction with the covenants of the Company’s prior Credit Agreements,
the Company was required to suspend the payment of quarterly dividends on its
$21.25 Preferred Stock until certain financial criteria were met. Quarterly
dividends on the $21.25 Preferred Stock have not been paid since 1995 (although
they have been fully accrued due to the “cumulative” feature of the
$21.25 Preferred Stock).
The aggregate amount of dividends in arrears is approximately $13,280,000 at December 31, 2001, which represents approximately $132.80 per share of $21.25 Preferred Stock or approximately $13.28 per Depositary Share and is included in “Other Long-term Liabilities” in the Consolidated Balance Sheets. Under the terms of the $21.25 Preferred Stock, the holders of Depositary Shares are entitled to elect two additional Directors when dividends have been deferred for more than six quarters, and they did so at each of the last four Annual Meetings.
As of December 31, 2000, the financial criteria in the Company’s Credit Agreement which restricted the payment of dividends were satisfied, thereby making the resumption of dividends possible if the Company believed that its working capital was sufficient to warrant the resumption of payment of the regular dividend or any of the dividends in arrears on the $21.25 Preferred Stock. The Company does not currently have any plans or target date for when this action may occur. This decision is based on the following circumstances:
The Board of Directors does not believe that it is, or will be, proper or prudent to pay or commit to pay dividends on the $21.25 Preferred Stock for the foreseeable future, and it is not obligated to do so under the terms of the $21.25 Preferred Stock.
(c) Series B
Preferred Stock
For
an analysis of in-kind dividends paid on the Series B Preferred Stock for the
period from December 31, 1998 to March 29, 2000, the date on which the holders
of Series B preferred Stock exchanged their shares of Series B Preferred Stock
into shares of the Company’s Common Stock, see Note 8(b) of Notes to
Consolidated Financial Statements.
Outlook
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". The FASB also issued SFAS No. 143, "Accounting for Asset Retirement Obligations" and SFAS No. 144, "Accounting for Impairment or Disposal of Long-lived Assets" in August and October 2001, respectively.
SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for using the purchase method. The Company intends to apply SFAS No. 141 to all of its future business combinations.
SFAS No. 142 addresses the financial accounting and reporting for acquired goodwill and other intangible assets. With the adoption of SFAS No. 142, goodwill is no longer subject to amortization over its estimated useful life. Rather,
goodwill will be subject to at least an annual assessment for impairment by applying a fair-value-based test. SFAS No. 142 is effective for the Company's fiscal year beginning January 1, 2002. The Company expects that the adoption of the provisions of SFAS No. 142 will not have a material impact on its consolidated financial position or results of operations.
SFAS No. 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost, and also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. SFAS No. 143 is effective for the Company's fiscal year beginning January 1, 2003. The Company expects that the adoption of the provisions of SFAS No. 143 will not have a material impact on its consolidated financial position or results of operations.
SFAS No. 144 establishes a single accounting model for the impairment or disposal of long-lived assets and new standards for reporting discontinued operations. SFAS No. 144 is effective for the Company's fiscal year beginning January 1, 2002. The Company expects that the adoption of the provisions of SFAS No. 144 will not have a material impact on its consolidated financial position or results of operations.
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 of Notes to Consolidated Financial Statements) and short-term investment portfolio. As of December 31, 2001, the Company had $9.8 million borrowed under its revolving credit agreement and $26.5 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 2001 borrowing rate of 6.8% changed by 10% (or 0.68%) during the next twelve months, the impact, based on the Company's ending 2001 revolving debt balance, would be an increase or decrease in net income and cash flow of approximately $66,000.
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.
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 16, 2002 (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, 2001 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
Ronald N. Tutor, Director, Chairman and Since March 29, 2000 he serves as a Director, Chairman and Chief
Chief Executive Officer - 61 Executive Officer. Prior to that, he served as a Director and Chairman
since July 1, 1999; a Director and Vice Chairman since January 1, 1998;
and 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 1995 and has actively managed that company since 1966.
Robert Band, Director, President and Since March 29, 2000 he serves as a Director, President and Chief
Chief Operating Officer - 54 Operating Officer. Prior to that, he served as a Director, President and
Chief Executive Officer since May 12, 1999. He has served as Chief
Financial Officer since December 1997. Prior to that, he served as
President of Perini Management Services, Inc. (formerly Perini
International Corporation) 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.
Zohrab B. Marashlian, President, Perini He was elected to his current position in December 1997, which entails
Civil Construction - 57 overall responsibility for the Company's civil construction operations.
Prior to that, he served as President of the Company's Metropolitan New
York Division since April 1995 and as Senior Vice President, Operations
of the Company's Metropolitan New York Division since January 1994.
Previously, he served in various project management capacities with the
Company since 1985, including Project Manager and Vice President - Area
Manager. Prior to that, he served in various capacities for the Company
on projects in New York and overseas since 1971.
Craig W. Shaw, President, Perini He was elected to his current position in October 1999, which entails
Building Company - 47 overall responsibility for the Company's building construction
operations. Prior to that he served as President, Perini Building
Company, Western U.S. Division since April 1995 and Senior Vice
President, Construction for Perini Building Company's Western U.S.
Division since January 1994 and as Vice President, Construction for
Perini Building Company's Western U.S. Division since 1986. Previously,
he served in various project management capacities with the Company since
1978, including Project Manager from 1979 to 1986.
The Company's officers are elected on an annual basis at the Board of Directors' Meeting immediately following the Stockholders' Meeting in May, to hold such offices until the Board of Directors' Meeting following the next Annual Meeting of Stockholders and until their respective successors have been duly appointed or until their tenure has been terminated by the Board of Directors, or otherwise.
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In response to Items 11-13, reference is made to the information to be set forth in the sections entitled "Election of Directors" and "Certain Transactions" in the Proxy Statement, which are incorporated herein by reference.
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, 2001 and 2000 30 - 31
Consolidated Statements of Operations for each of the three years ended December 31, 2001, 32
2000 and 1999
Consolidated Statements of Stockholders' Equity for each of the three years ended 33
December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for each of the three years ended December 31, 2001, 34 - 35
2000 and 1999
Notes to Consolidated Financial Statements 36 - 60
Report of Independent Public Accountants 61
(a)2. The following financial statement schedules are filed as part of this report:
Pages
Report of Independent Public Accountants on Schedule 62
Schedule II - Valuation and Qualifying Accounts and Reserves 63
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 64 through 66. 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, 2001, the Registrant made no filings on Form 8-K.
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 20, 2002 /s/Robert Band
Robert Band
President and Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Company and in the capacities and on the dates indicated.
Signature Title Date
(i) Principal Executive Officer
Robert Band President and Chief Operating Officer March 20, 2002
/s/Robert Band
- -----------------------------------------------
Robert Band
(ii) Principal Financial Officer
Robert Band President and Chief Operating Officer March 20, 2002
/s/Robert Band
- -----------------------------------------------
Robert Band
(iii) Principal Accounting Officer
Michael E. Ciskey Vice President and Controller March 20, 2002
/s/Michael E. Ciskey
- -----------------------------------------------
Michael E. Ciskey
(iv) Directors
Ronald N. Tutor )
Peter Arkley )
Robert Band ) /s/ Robert Band
Frederick Doppelt ) Robert Band
Nancy Hawthorne