UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OF 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission file number 1-6314
Perini Corporation
(Exact name of registrant as specified in its charter)
Massachusetts 04-1717070
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State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
73 Mt. Wayte Avenue, Framingham, Massachusetts 01701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 508-628-2000
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 The American Stock Exchange
Exchangeable 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.
The aggregate market value of voting stock held by nonaffiliates of the
registrant is $29,652,513 as of March 1, 1996.
The number of shares of Common Stock, $1.00 par value per share, outstanding at
March 1, 1996 is 4,723,754.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual proxy statement for the year ended December 31, 1995 are
incorporated by reference into Part III.
PERINI CORPORATION
INDEX TO ANNUAL REPORT
ON FORM 10-K
PAGE
----
PART I
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Item 1: Business 2
Item 2: Properties 13
Item 3: Legal Proceedings 13
Item 4: Submission of Matters to a Vote of Security Holders 14
PART II
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Item 5: Market for the Registrant's Common Stock and Related 15
Stockholder Matters
Item 6: Selected Financial Data 15
Item 7: Management's Discussion and Analysis of Financial 16
Condition and Results of Operations
Item 8: Financial Statements and Supplementary Data 19
Item 9: Disagreements on Accounting and Financial Disclosure 19
PART III
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Item 10: Directors and Executive Officers of the Registrant 20
Item 11: Executive Compensation 20
Item 12: Security Ownership of Certain Beneficial Owners and 20
Management
Item 13: Certain Relationships and Related Transactions 20
PART IV
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Item 14: Exhibits, Financial Statement Schedules and Reports on 21
Form 8-K
Signatures 22
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PART I.
ITEM 1. BUSINESS
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General
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Perini Corporation and its subsidiaries (the "Company" unless the
context indicates otherwise) is engaged in two principal businesses:
construction and real estate development. The Company was incorporated in 1918
as a successor to businesses which had been engaged in providing construction
services since 1894.
The Company provides general contracting, construction management and
design-build services to private clients and public agencies throughout the
United States and selected overseas locations. Historically, the Company's
construction business involved four types of operations: civil and environmental
("heavy"), building, international and pipeline. However, the Company sold its
pipeline construction business in January, 1993.
The Company's real estate development operations are conducted by
Perini Land & Development Company, a wholly-owned subsidiary with extensive
development interests concentrated in historically attractive markets in the
United States - Arizona, California, Florida, Georgia and Massachusetts, but has
not commenced the development of any new real estate projects since 1990.
Because the Company's results consist in part of a limited number of
large transactions in both construction and real estate, results in any given
fiscal quarter can vary depending on the timing of transactions and the
profitability of the projects being reported. As a consequence, quarterly
results may reflect such variations.
In 1988, the Company, in conjunction with two other companies, formed a
new entity called Perland Environmental Technologies, Inc. ("Perland"). Perland
provides consulting, engineering and construction services primarily on a
turn-key basis for hazardous material management and clean-up to both private
clients and public agencies nationwide. The Company's investment in Perland was
increased from 47 1/2% to 100% in recent years as a result of Perland
repurchasing its stock owned by the outside investors. During 1995, Perland's
name was changed to Perini Environmental Services, Inc.
In January 1993, the Company sold its 74%-ownership in Majestic, its
Canadian pipeline construction subsidiary, for $31.7 million which resulted in
an after tax gain of approximately $1.0 million.
Although Majestic was profitable in both 1992 and 1991, it participated
in a sector of the construction business that was not directly related to the
Company's core construction operations. The sale of Majestic served to generate
liquid assets which improved the Company's financial condition without affecting
its core construction business.
Effective July 1, 1993, the Company acquired Gust K. Newberg
Construction Co.'s ("Newberg") interest in certain construction projects and
related equipment. The purchase price for the acquisition was (i) approximately
$3 million in cash for the equipment paid by a third party leasing company
which, in turn, simultaneously entered into an operating lease agreement with
the Company for the use of said equipment, (ii) $1 million in cash paid by the
Company and (iii) 50% of the aggregate net profits earned from each project from
April 1, 1993 through December 31, 1994 and, with regard to one project, through
December 31, 1995. This acquisition has been accounted for as a purchase.
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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, 1995.
Annual Report
On Form 10-K
Caption Page Number
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Selected Consolidated Financial Information Page 15
Management's Discussion and Analysis Page 16
Footnote 13 to the Consolidated Financial Statements,
entitled Business Segments and Foreign Operations Page 40
While the "Selected Consolidated Financial Information" presents
certain lines of business information for purposes of consistency of
presentation for the five years ended December 31, 1995, additional information
(business segment and foreign operations) required by Statement of Financial
Accounting Standards No. 14 for the three years ended December 31, 1995 is
included in Note 13 to the Consolidated Financial Statements.
A summary of revenues by product line for the three years ended
December 31, 1995 is as follows:
Revenues (in thousands)
Year Ended December 31,
------------------------------------------------
1995 1994 1993
---- ---- ----
Construction:
Building $ 770,427 $ 640,721 $ 762,451
Heavy 286,246 310,163 267,890
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Total Construction Revenues $1,056,673 $ 950,884 $1,030,341
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Real Estate:
Sales of Real Estate $ 10,738 $ 33,188 $ 40,053
Building Rentals 16,799 16,388 19,313
Interest Income 12,396 7,031 6,110
All Other 4,462 4,554 4,299
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Total Real Estate Revenues $ 44,395 $ 61,161 $ 69,775
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Total Revenues $1,101,068 $1,012,045 $1,100,116
========== ========== ==========
Construction
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The general contracting and construction management services provided
by the Company consist of planning and scheduling the manpower, equipment,
materials and subcontractors required for the timely completion of a project in
accordance with the terms and specifications contained in a construction
contract. The Company was engaged in over 160 construction projects in the
United States and overseas during 1995. The Company has three principal
construction operations: heavy, building, and international, having sold its
Canadian pipeline construction business in January 1993. The Company also has a
subsidiary engaged in hazardous waste remediation.
The heavy operation undertakes large civil construction projects
throughout the United States, with current emphasis on major metropolitan areas
such as Boston, New York City, Chicago and Los Angeles. The heavy operation
performs construction and rehabilitation of highways, subways, tunnels, dams,
bridges, airports, marine projects, piers and waste water treatment facilities.
The Company has been active in heavy operations since 1894, and believes that it
has particular expertise in large and complex projects. The Company believes
that infrastructure
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rehabilitation is and will continue to be a significant market in the 1990's.
The building operation provides its services through regional offices
located in several metropolitan areas: Boston and Philadelphia, serving New
England and the Mid-Atlantic area; Detroit and Chicago, operating in Michigan
and the Midwest region; and Phoenix, Las Vegas, Los Angeles and San Francisco,
serving Arizona, Nevada and California. In 1992, the Company combined its
building operations into a new wholly-owned subsidiary, Perini Building Company,
Inc. This new company combines substantial resources and expertise to better
serve clients within the building construction market, and enhances Perini's
name recognition in this market. The Company undertakes a broad range of
building construction projects including health care, correctional facilities,
sports complexes, hotels, casinos, residential, commercial, civic, cultural and
educational facilities.
The international operation engages in both heavy and building
construction services overseas, funded primarily in U.S. dollars by agencies of
the United States government. In selected situations, it pursues private work
internationally.
Construction Strategy
---------------------
The Company plans to continue to increase the amount of heavy
construction work it performs because of the relatively higher margin
opportunities available from such work. The Company believes the best
opportunities for growth in the coming years are in the urban infrastructure
market, particularly in Boston, metropolitan New York, Chicago, Los Angeles and
other major cities where it has a significant presence, and in other large,
complex projects. The Company's acquisition during 1993 of Chicago-based Newberg
referred to above is consistent with this strategy. The Company's strategy in
building construction is to maximize profit margins; to take advantage of
certain market niches; and to expand into new markets compatible with its
expertise. Internally, the Company plans to continue both to strengthen its
management through management development and job rotation programs, and to
improve efficiency through strict attention to the control of overhead expenses
and implementation of improved project management systems. Finally, the Company
continues to expand its expertise to assist public owners to develop necessary
facilities through creative public/private ventures.
Backlog
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As of December 31, 1995, the Company's construction backlog was $1.53
billion compared to backlogs of $1.54 billion and $1.24 billion as of December
31, 1994 and 1993, respectively.
Backlog (in thousands) as of December 31,
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1995 1994 1993
----------------- ----------------- -----------------
Northeast $ 749,017 49% $ 803,967 52% $ 552,035 45%
Mid-Atlantic 179,324 12 26,408 2 34,695 3
Southeast 33,223 2 783 - 34,980 3
Midwest 325,055 21 293,168 19 143,961 12
Southwest 94,725 6 174,984 11 314,058 25
West 134,259 9 193,996 13 143,251 11
Other Foreign 18,919 1 45,473 3 15,161 1
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Total $1,534,522 100% $1,538,779 100% $1,238,141 100%
========== ==== ========== ==== ========== ====
The Company includes a construction project in its backlog at such time
as a contract is awarded or a firm letter of commitment is obtained. As a
result, the backlog figures are firm, subject only to the cancellation
provisions contained in the various contracts. The Company estimates that
approximately $657 million of its backlog will not be completed in 1996.
The Company's backlog in the Northeast region of the United States
remains strong because of its ability to meet the needs of the growing
infrastructure construction and rehabilitation market in this region,
particularly in the metropolitan Boston and New York City areas. The increase in
the Midwest region primarily reflects an increase in building work in that area.
Other fluctuations in backlog are viewed by management as transitory.
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Types of Contracts
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The four general types of contracts in current use in the construction
industry are:
o Fixed price contracts ("FP"), which include unit price contracts,
usually transfer more risk to the contractor but offer the opportunity,
under favorable circumstances, for greater profits. With the Company's
increasing move into heavy and publicly bid building construction in
response to current opportunities, the percentage of fixed price
contracts continue to represent the major portion of the backlog.
o Cost-plus-fixed-fee contracts ("CPFF") which provide greater safety for
the contractor from a financial standpoint but limit profits.
o Guaranteed maximum price contracts ("GMP") which provide for a
cost-plus-fee arrangement up to a maximum agreed price. These contracts
place risks on the contractor but may permit an opportunity for greater
profits than cost-plus-fixed-fee contracts through sharing agreements
with the client on any cost savings.
o Construction management contracts ("CM") under which a contractor
agrees to manage a project for the owner for an agreed-upon fee which
may be fixed or may vary based upon negotiated factors. The contractor
generally provides services to supervise and coordinate the
construction work on a project, but does not directly purchase contract
materials, provide construction labor and equipment or enter into
subcontracts.
Historically, a high percentage of company contracts have been of the
fixed price type. Construction management contracts remain a relatively small
percentage of company contracts. A summary of revenues and backlog by type of
contract for the most recent three years follows:
Revenues - Year Ended Backlog As Of
December 31, December 31,
- --------------------- --------------------
1995 1994 1993 1995 1994 1993
- ---- ---- ---- ---- ---- ----
67% 54% 56% Fixed Price 74% 68% 65%
33 46 44 CPFF, GMP or CM 26 32 35
- ---- ---- ---- ---- ---- ---
100% 100% 100% 100% 100% 100%
==== ==== ==== ==== ==== ====
Clients
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During 1995, the Company was active in the building, heavy and
international construction markets. The Company performed work for over 100
federal, state and local governmental agencies or authorities and private
customers during 1995. No material part of the Company's business is dependent
upon a single or limited number of private customers; the loss of any one of
which would not have a materially adverse effect on the Company. As illustrated
in the following table, the Company continues to serve a significant number of
private owners. During the period 1993-1995, the portion of construction
revenues derived from contracts with various governmental agencies remains
relatively constant at 56% in 1995 and 1994, and 54% in 1993.
Revenues by Client Source
-------------------------
Year Ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
Private Owners 44% 44% 46%
Federal Governmental Agencies 8 11 12
State, Local and Foreign Governments 48 45 42
---- ---- ---
100% 100% 100%
==== ==== ====
All Federal government contracts are subject to termination provisions, but as
shown in the table above, the Company does not have a material amount of such
contracts.
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General
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The construction business is highly competitive. Competition is based
primarily on price, reputation for quality, reliability and financial strength
of the contractor. While the Company experiences a great deal of competition
from other large general contractors, some of which may be larger with greater
financial resources than the Company, as well as from a number of smaller local
contractors, it believes it has sufficient technical, managerial and financial
resources to be competitive in each of its major market areas.
The Company will endeavor to spread the financial and/or operational
risk, as it has from time to time in the past, by participating in construction
joint ventures, both in a majority and in a minority position, for the purpose
of bidding on projects. These joint ventures are generally based on a standard
joint venture agreement whereby each of the joint venture participants is
usually committed to supply a predetermined percentage of capital, as required,
and to share in the same predetermined percentage of income or loss of the
project. Although joint ventures tend to spread the risk of loss, the Company's
initial obligations to the venture may increase if one of the other participants
is financially unable to bear its portion of cost and expenses. For a possible
example of this situation, see "Legal Proceedings" on page 13. For further
information regarding certain joint ventures, see Note 2 to Notes to
Consolidated Financial Statements.
While the Company's construction business may experience some adverse
consequences if shortages develop or if prices for materials, labor or equipment
increase excessively, provisions in certain types of contracts often shift all
or a major portion of any adverse impact to the customer. On fixed price type
contracts, the Company attempts to insulate itself from the unfavorable effects
of inflation by incorporating escalating wage and price assumptions, where
appropriate, into its construction bids. Gasoline, diesel fuel and other
materials used in the Company's construction activities are generally available
locally from multiple sources and have been in adequate supply during recent
years. Construction work in selected overseas areas primarily employs expatriate
and local labor which can usually be obtained as required. The Company does not
anticipate any significant impact in 1996 from material and/or labor shortages
or price increases.
Economic and demographic trends tend not to have a material impact on
the Company's heavy construction operation. Instead, the Company's heavy
construction markets are dependent on the amount of heavy civil infrastructure
work funded by various governmental agencies which, in turn, may depend on the
condition of the existing infrastructure or the need for new expanded
infrastructure. The building markets in which the Company participates are
dependent on economic and demographic trends, as well as governmental policy
decisions as they impact the specific geographic markets.
The Company has minimal exposure to environmental liability as a result
of the activities of Perini Environmental Services, Inc. ("Perini
Environmental"), a wholly-owned subsidiary of the Company. Perini Environmental
provides hazardous waste engineering and construction services to both private
clients and public agencies nationwide. Perini Environmental is responsible for
compliance with applicable law in connection with its clean up activities and
bears the risk associated with handling such materials.
In addition to strict procedural guidelines for conduct of this work,
the Company and Perini Environmental generally carry insurance or receive
satisfactory indemnification from customers to cover the risks associated with
this business.
The Company also owns real estate nationwide, most of which is
residential, and as an owner, is subject to laws governing environmental
responsibility and liability based on ownership. The Company is not aware of any
environmental liability associated with its ownership of real estate property.
The Company has been subjected to a number of claims from former
employees of subcontractors regarding exposure to asbestos on the Company's
projects. None of the claims have been material. The Company also operates
construction machinery in its business and will, depending on the project or the
ease of access to fuel for such machinery, install fuel tanks for use on-site.
Such tanks run the risk of leaking hazardous fluids into the environment. The
Company, however, is not aware of any emissions associated with such tanks or of
any other environmental liability associated with its construction operations or
any of its corporate activities.
Progress on projects in certain areas may be delayed by weather
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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.
In the normal course of business, the Company periodically evaluates its
existing construction markets and seeks to identify any growing markets where it
feels it has the expertise and management capability to successfully compete or
withdraw from markets which are no longer economically attractive.
Real Estate
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The Company's real estate development operations are conducted by Perini
Land & Development Company ("PL&D"), a wholly-owned subsidiary, which has been
involved in real estate development since the early 1950's. PL&D engages in real
estate development in Arizona, California, Florida, Georgia and Massachusetts.
However, in 1993, PL&D significantly reduced its staff in California and has
suspended any new land acquisition in that area. PL&D's development operations
generally involve identifying attractive parcels, planning and development,
arranging financing, obtaining needed zoning changes and permits, site
preparation, installation of roads and utilities and selling the land.
Originally, PL&D concentrated on land development. In appropriate situations,
PL&D has also constructed buildings on the developed land for rental or sale.
For the past five years PL&D has been affected by the reduced liquidity
in real estate markets brought on by the cutbacks in real estate funding by
commercial banks, insurance companies and other institutional lenders. Many
traditional buyers of PL&D properties are other developers or investors who
depend on third party sources for funding. As a result, some potential PL&D
transactions have been cancelled, altered or postponed because of financing
problems. Over this period, PL&D looked to foreign buyers not affected by U.S.
banking policies or in some cases, provided seller financing to complete
transactions. Based on a weakening in property values which has come with the
industry credit crunch and the national real estate recession, PL&D took a $31
million pre-tax net realizable value writedown against earnings in 1992. The
charge affected those properties which PL&D had decided to sell in the near
term. Currently it is management's belief that its remaining real estate
properties are not carried at amounts in excess of their net realizable values.
PL&D periodically reviews its portfolio to assess the desirability of
accelerating its sales through price concessions or sale at an earlier stage of
development. In circumstances in which asset strategies are changed and
properties brought to market on an accelerated basis, those assets, if
necessary, are adjusted to reflect the lower of cost or market value. To achieve
full value for some of its real estate holdings, in particular its investments
in Rincon Center and the Resort at Squaw Creek, the Company may have to hold
those properties several years and currently intends to do so.
Real Estate Strategy
--------------------
Since 1990, PL&D has taken a number of steps to minimize the adverse
financial impact of current market conditions. In early 1990, all new real
estate investment was suspended pending market improvement, all but critical
capital expenditures were curtailed on on-going projects and PL&D's workforce
was cut by over 60%. Certain project loans were extended, with such extension
usually requiring paydowns and increased annual amortization of the remaining
loan balance. Going forward, PL&D will operate with a reduced staff and adjust
its activity to meet the demands of the market.
PL&D's real estate development project mix includes planned community,
industrial park, commercial office, multi-unit residential, urban mixed use,
resort and single family home developments. Given the current real estate
environment, PL&D's emphasis is on the sale of completed product and also
developing the projects in its inventory with the highest near term sales
potential. It may also selectively seek new development opportunities in which
it serves as development manager with limited equity exposure, if any.
Real Estate Properties
----------------------
The following is a description of the Company's major development
projects and properties by geographic area:
Florida
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West Palm Beach and Palm Beach County - In 1994, PL&D completed the sale
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of all of the original 1,428 acres located in West Palm Beach at the development
known as "The Villages of Palm Beach Lakes". PL&D's only continuing interest in
the project is its ownership in the Bear Lakes Country Club which under
agreement with the membership can be turned over to the members when membership
reaches 650. Current membership is 438. The club includes two championship golf
courses designed by Jack Nicklaus.
At Metrocentre, a 51-acre commercial/office park at the intersection of
Interstate 95 and 45th Street in West Palm Beach, one site totaling 2.78 acres
was sold in 1995. That site was sold to a national motel chain. The park
consists of 17 parcels, of which 2 1/4 (7.3 acres) currently remain unsold. The
park provides for 570,500 square feet of mixed commercial uses.
Massachusetts
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Perini Land and Development or Paramount Development Associates, Inc.
("Paramount"), a wholly-owned subsidiary of PL&D, owns the following projects:
Raynham Woods Commerce Center, Raynham - In 1987, Paramount acquired a
409-acre site located in Raynham, Massachusetts, on which it had done
preliminary investigatory and zoning work under an earlier purchase option
period. During 1988, Paramount secured construction financing and completed
infrastructure work on a major portion of the site (330 acres) which is being
developed as a mixed use corporate campus style park known as "Raynham Woods
Commerce Center". During 1989, Paramount completed the sale of a 24-acre site to
be used as a headquarters facility for a division of a major U.S. company.
During 1990, construction was completed on this facility. In 1990 construction
was also completed on two new commercial buildings by Paramount. During 1992, a
17-acre site was sold to a developer who was working with a major national
retailer. The site has since been developed into the first retail project in the
park. No new land sales were made in 1993, but in 1994, an 11-acre site was sold
to the same major U.S. company which had acquired land in 1989, and in 1995 a
4-acre site was sold to a major insurance company. Although the two Paramount
commercial buildings owned within the park experienced some tenant turnover in
late 1994 and into 1995, they remain 90% occupied. The park is planned to
eventually contain 2.5 million square feet of office, R&D, light industrial and
mixed commercial space.
Easton Business Center, Easton - In 1989, Paramount acquired a 40-acre
site in Easton, Massachusetts, which had already been partially developed.
Paramount completed the work in 1990 and is currently marketing the site to
commercial/industrial users. No sales were closed in 1995.
Wareham - In early 1990, Paramount acquired an 18.9-acre parcel of land
at the junction of Routes 495 and 58 in Wareham, Massachusetts. The property is
being marketed to both retail and commercial/industrial users. No sales were
closed in 1995.
Georgia
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The Villages at Lake Ridge, Clayton County - During 1987, PL&D (49%)
entered into a joint venture with 138 Joint Venture partners to develop a
348-acre planned commercial and residential community in Clayton County to be
called "The Villages at Lake Ridge", six miles south of Atlanta's Hartsfield
International Airport. By year end 1990, the first phase infrastructure and
recreational amenities were in place. In 1991, the joint venture completed the
infrastructure on 48 lots for phased sales of improved lots to single family
home builders and sold nine. During 1992, the joint venture sold an additional
60 lots and also sold a 16-acre parcel for use as an elementary school. During
1993, unusually wet weather in the spring delayed construction on improvements
required to deliver lots as scheduled. As a result, the sale of an additional 58
lots in 1993 were below expectation. Although 1994 started off strong, rising
interest rates created a slowdown in activity later in the year. For the year,
52 lots were sold. In 1995, the pace picked up again and a record 72 lots were
sold. Because most of the homes built within the development are to first time
buyers, demand is highly sensitive to mortgage rates and other costs of
ownership. Financing restrictions generally require the joint venture to allow
developers to take down finished lots only as homes built on previously acquired
lots are sold. As a result, any slowdown in home sales will influence joint
venture sales quickly thereafter. The development plan calls for mixed
residential densities of apartments and moderate priced single-family homes
totaling 1,158 dwelling units in the residential tracts plus 220,000 square feet
of retail and 220,000 square feet of office space in the commercial tracts.
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The Oaks at Buckhead, Atlanta - Sales commenced on this 217-unit
residential condominium project at a site in the Buckhead section of Atlanta
near the Lenox Square Mall in 1992. The project consists of 201 residences in a
30-story tower plus 16 adjacent three-story townhome residences. At year end 207
units were either sold or under contract. Sixty-nine of these units were closed
in 1995, up from 53 for 1994. PL&D (50%) is developing this project in joint
venture with a subsidiary of a major Taiwanese company.
California
----------
Rincon Center, San Francisco - Major construction on this mixed-use
project in downtown San Francisco was completed in 1989. The project,
constructed in two phases, consists of 320 residential rental units,
approximately 423,000 square feet of office space, 63,000 square feet of retail
space, and a 700-space parking garage. Following its completion in 1988, the
first phase of the project was sold and leased back by the developing
partnership. The first phase consists of about 223,000 square feet of office
space and 42,000 square feet of retail space. The Phase I office space continues
to be close to 100% leased with the regional telephone directory company as the
major tenant on leases which run into early 1998. The retail space is currently
90% leased. Phase II of the project, which began operations in late 1989,
consists of approximately 200,000 square feet of office space, 21,000 square
feet of retail space, a 14,000 square foot U.S. postal facility, and 320
apartment units. Currently, close to 100% of the office space, 94% of the retail
space and virtually all of the 320 residential units are leased. The major
tenant in the office space in Phase II is the Ninth Circuit Federal Court of
Appeals which is leasing approximately 176,000 square feet. That lease expires
at the end of 1996. Currently, the space is being shown to potential tenants for
possible 1997 occupancy. PL&D currently holds a 46% interest in and is managing
general partner of the partnership which is developing the project. The land
related to this project is being leased from the U.S. Postal Service under a
ground lease which expires in 2050.
In addition to the project financing and guarantees disclosed in the
first, second and third paragraphs of Note 11 to Notes to Consolidated Financial
Statements, the Company has advanced approximately $78 million to the
partnership through December 31, 1995, of which approximately $5 million was
advanced during 1995, primarily to paydown some of the principal portion of
project debt which was renegotiated during 1993. In 1995, operations before
principal repayment of debt created a positive cash flow on an annual basis.
Two major loans on this property in aggregate totaling over $75 million
were scheduled to mature in 1993. During 1993 both loans were extended for five
additional years. To extend these loans, PL&D provided approximately $6 million
in new funds which were used to reduce the principal balances of the loans. In
1995 and over the next three years, additional amortization will be required,
some of which may not be covered by operating cash flow and, therefore, at least
80% of those funds not covered by operations will be provided by PL&D as
managing general partner. Lease payments and loan amortization obligations at
Rincon Center through 1997 are as follows: $7.5 million in 1996 and $7.3 million
in 1997. Based on Company forecasts, it could be required to contribute as much
as $9.4 million to cover these and possible tenant improvement requirements not
covered by project cash flow through 1997. While the budgeted shortfall includes
an estimate for tenant improvements, they may or may not be required. Although
management believes operating expenses will be covered by operating cash flow at
least through 1997, the interest rates on much of the debt financing covering
Rincon Center are variable based on various rate indices. With the exception of
approximately $20 million of the financing, none of the debt has been hedged or
capped and is subject to market fluctuations. From time to time, the Company
reviews the costs and anticipated benefits from hedging Rincon Center's interest
rate commitments. Based on current costs to further hedge rate increases and
market conditions, the Company has elected not to provide any additional hedges
at this time.
As part of the Rincon One sale and operating lease-back transaction, the
joint venture agreed to obtain an additional financial commitment on behalf of
the lessor to replace at least $33 million of long-term financing by January 1,
1998. If the joint venture has not secured a further extension or new commitment
for financing on the property for at least $33 million, the lessor will have the
right under the lease to require the joint venture to purchase the property for
a stipulated amount of approximately $18.8 million in excess of the then
outstanding debt. Management currently believes it will be able to extend the
financing or refinance the building such that this sale back to the Company will
not occur.
During 1993 PL&D agreed, if necessary, to lend Pacific Gateway
- 9 -
Properties (PGP), the other General Partner in the project, funds to meet its
20% share of cash calls. In return PL&D receives a priority return from the
partnership on those funds and penalty fees in the form of rights to certain
distributions due PGP by the partnership controlling Rincon. During 1993, 1994
and 1995, PL&D advanced $1.7 million, $.3 million and $.9 million, respectively,
under this agreement, primarily to meet the principal payment obligations of the
loan extensions described above.
The Resort at Squaw Creek - During 1990, construction was completed on
the 405-unit first phase of the hotel complex of this major resort-conference
facility. In mid-December of that year, the resort was opened. In 1991, final
work was completed on landscaping the golf course, as well as the remaining
facilities to complete the first phase of the project. The first phase of the
project includes a 405-unit hotel, 36,000 square feet of conference facilities,
a Robert Trent Jones, Jr. golf course, 48 single-family lots, all but three of
which had been sold or put under contract by early 1993, three restaurants, an
ice skating rink, pool complex, fitness center and 11,500 square feet of various
retail support facilities. The second phase of the project is planned to include
an additional 409-unit hotel facility, 36 townhouses, 27,000 square feet of
conference space, 5,000 square feet of retail space and a parking structure. No
activity on the second phase will begin until stabilization is attained on phase
one and market conditions warrant additional investment.
While PL&D has an effective 18% ownership interest in this joint
venture, it has additional financial commitments as described below.
In addition to the project financing and guarantees disclosed in
paragraphs four and five of Note 11 to Notes to Consolidated Financial
Statements, the Company has advanced approximately $76 million to the joint
venture through December 31, 1995, of which approximately $3.3 million was
advanced during 1995, for the cost of operating expenses, debt amortization and
interest payments. Further, it is anticipated the project may require additional
funding by PL&D before it reaches stabilization which may take several years.
During 1992, the majority partner in the joint venture sold its interest to a
group put together by an existing limited partner. As a part of that
transaction, PL&D relinquished its managing general partnership position to the
buying group, but retained a wide range of approval rights. The result of the
transaction was to strengthen the financial support for the project and led to
an extension of the bank financing on the project to mid-1995. The $48 million
of bank financing on the project was extended again in 1995 and currently
matures in May, 1997, with an option by the borrower to extend an additional
year.
As part of Squaw Creek Associates partnership agreement, either partner
may initiate a buy/sell agreement on or after January 1, 1997. Such buy/sell
agreement, which is similar to those often found in real estate development
partnerships, provides for the recipient of the offer to have the option of
selling its share or purchasing its partners share at the proportionate amount
applicable based on the offer price and the specific priority of payout as
called for under the partnership agreement based on a sale and termination of
the partnership. The Company does not anticipate such a circumstance, because
until the end of the year 2001, the partner would lose the certainty of a $2
million annual preferred return currently guaranteed by the Company. However, an
exercise of the buy/sell agreement by its partner could force the Company to
sell its ownership at a price possibly significantly less than its full value
should the Company be unable to buy out its partner and forced to sell at the
price initiated by its partner.
The operating results of this project are weather sensitive. For
example, a large snowfall in late 1994 helped improve results during the 1994-5
ski season. As a result, through October of 1995, the resort showed marked
improvement over the previous year. Snowfall in late 1995, however, did not
match the previous year which adversely affected results in late 1995 and in
early 1996.
Corte Madera, Marin County - After many years of intensive planning,
PL&D obtained approval for a 151 single-family home residential development on
its 85-acre site in Corte Madera and, in 1991, was successful in gaining water
rights for the property. In 1992, PL&D initiated development on the site which
was continued into 1993. This development is one of the last remaining in-fill
areas in southern Marin County. In 1993, when PL&D decided to scale back its
operations in California, it also decided to sell this development in a
transaction which closed in early 1994. The transaction calls for PL&D to get
the majority of its funds from the sale of residential units or upon the sixth
anniversary of the sale whichever takes place first and, although indemnified,
to leave in place certain bonds and other assurances previously given to the
town of Corte Madera guaranteeing performance in compliance with approvals
previously obtained. Sale of the units began in August of 1995 and by year end,
10 units were under contract or closed.
- 10 -
Arizona
-------
I-10 West, Phoenix - In 1979, I-10 Industrial Park Developers ("I-10"),
an Arizona partnership between Paramount Development Associates, Inc. (80%) and
Mardian Development Company (20%), purchased approximately 160 acres of
industrially zoned land located immediately south of the Interstate 10 Freeway,
between 51st and 59th Avenues in the City of Phoenix. The project experienced
strong demand through 1988. With the downturn in the Arizona real estate
markets, subsequent to 1988, sales slowed. However, in 1995 the remaining 13.3
acres were sold and this project is sold out.
Airport Commerce Center, Tucson - In 1982, the I-10 partnership
purchased 112 acres of industrially zoned property near the Tucson International
Airport. During 1983, the partnership added 54 acres to that project, bringing
its total size to 166 acres. This project has experienced a low level of sales
activity due to an excess supply of industrial property in the marketplace.
However, the partnership built and fully leased a 14,600 square foot
office/warehouse building in 1987 on a building lot in the park, which was sold
during 1991. In 1990, the partnership sold 14 acres to a major airline for
development as a processing center and, in 1992, sold a one acre parcel adjacent
to the existing property. After experiencing no new sales in 1993, approximately
12 acres were sold in 1994 and an additional 24 acres were sold in 1995.
Currently, 87 acres remain to be sold.
Perini Central Limited Partnership, Phoenix - In 1985, PL&D (75%)
entered into a joint venture with the Central United Methodist Church to master
plan and develop approximately 4.4 acres of the church's property in midtown
Phoenix. Located adjacent to the Phoenix Art Museum and near the Heard Museum,
the project is positioned to become the mixed use core of the newly formed
Phoenix Arts District. 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. Plans for the first phase of this project, known as "The
Coronado" have been put on hold pending improved market conditions. In 1993,
PL&D obtained a three-year extension of the construction start date required
under the original zoning and for the present is continuing to hold the project
in abeyance.
Grove at Black Canyon, Phoenix - The project consists of an office park
complex on a 30-acre site located off of Black Canyon Freeway, a major Phoenix
artery, approximately 20 minutes from downtown Phoenix. When complete, the
project will include approximately 650,000 square feet of office, hotel,
restaurant and/or retail space. Development, which began in 1986, is scheduled
to proceed in phases as market conditions dictate. In 1987, a 150,000 square
foot office building was completed within the park and now is 97% leased with
approximately half of the building leased to a major area utility company.
During 1993, PL&D (50%) successfully restructured the financing on the project
by obtaining a seven year extension with some amortization and a lower fixed
interest rate. The annual amortization commitment is not currently covered by
operating cash flow, which caused PL&D to have to provide approximately $1.2
million in 1994 and $.7 million in 1995 to cover the shortfall. In the near term
it appears approximately $700,000 per year of support to cover loan amortization
will continue to be required. No new development within the park was begun in
1994 nor were any land sales consummated. However, the lease covering space
occupied by the major office tenant was extended an additional seven years to
the year 2004 on competitive terms. In 1995, a day care center was completed on
an 8-acre site along the north entrance of the park.
Sabino Springs Country Club, Tucson - During 1990, the Tucson Board of
Supervisors unanimously approved a plan for this 410-acre residential golf
course community close to the foothills on the east side of Tucson. In 1991,
that approval, which had been challenged, was affirmed by the Arizona Supreme
Court. When developed, the project will consist of 496 single-family homes. An
18-hole Robert Trent Jones, Jr. designed championship golf course and clubhouse
were completed within the project in 1995. In 1993, PL&D recorded the master
plat on the project and sold a major portion of the property to an international
real estate company. Although it will require some infrastructure development
before sale, PL&D still retains 33 estate lots for sale in future years.
Capitol Plaza, Phoenix - In 1988, PL&D acquired a 1.75-acre parcel of
land located in the Governmental Mall area of Phoenix. Original plans were to
either develop a 200,000 square foot office building on the site to be available
to government and government related tenants or to sell the site. The project
has currently been placed on hold pending a change in market conditions.
- 11 -
General
-------
The Company's real estate business is influenced by both economic
conditions and demographic trends. A depressed economy may result in lower real
estate values and longer absorption periods. Higher inflation rates may increase
the values of current properties, but often are accompanied by higher interest
rates which may result in a slowdown in property sales because of higher
carrying costs. Important demographic trends are population and employment
growth. A significant reduction in either of these may result in lower real
estate prices and longer absorption periods.
The well publicized real estate problems experienced by the commercial
bank and savings and loan industries in the early 90's have resulted in sharply
curtailed credit available to acquire and develop real estate; further, the
continuing national weakness in commercial office markets has significantly
slowed the pace at which PL&D has been able to proceed on certain of its
development projects and its ability to sell developed product. In some or all
cases, it has also reduced the sales proceeds realized on such sales and/or
required extended payment terms.
Generally, there has been no material impact on PL&D's real estate
development operations over the past 10 years due to interest rate increases.
However, an extreme and prolonged rise in interest rates could create market
resistance for all real estate operations in general, and is always a potential
market obstacle. PL&D, in some cases, employs hedges or caps to protect itself
against increases in interest rates on any of its variable rate debt and,
therefore, is insulated from extreme interest rate risk on borrowed funds,
although specific projects may be impacted if the decision has been made not to
hedge or to hedge at higher than current rates.
The Company has been replacing relatively low cost debt-free land in
Florida acquired in the late 1950's with land purchased at current market
prices. In 1995 and into the future, as the mix of land sold contains
proportionately less low cost land, the gross margin on real estate revenues
will decrease.
Insurance and Bonding
- ---------------------
All of the Company's properties and equipment, both directly owned or
owned through partnerships or joint ventures with others, are covered by
insurance and management believes that such insurance is adequate. However, due
to conditions in the insurance market, the Company's California properties, both
directly owned and owned in partnership with others, are not fully covered by
earthquake insurance.
In conjunction with its construction business, the Company is often
required to provide various types of surety bonds. The Company has dealt with
the same surety for over 75 years and it has never been refused a bond. Although
from time-to-time the surety industry encounters limitations affecting the
bondability of very large projects and the Company occasionally has encountered
limits imposed by its surety, these limits have not had an adverse impact on its
operations.
Employees
- ---------
The total number of personnel employed by the Company is subject to
seasonal fluctuations, the volume of construction in progress and the relative
amount of work performed by subcontractors. During 1995, the maximum number of
employees employed was approximately 3,000 and the minimum was approximately
2,100.
The Company operates as a union contractor. As such, it is a signatory
to numerous local and regional collective bargaining agreements, both directly
and through trade associations, throughout the country. These agreements cover
all necessary union crafts and are subject to various renewal dates. Estimated
amounts for wage escalation related to the expiration of union contracts are
included in the Company's bids on various projects and, as a result, the
expiration of any union contract in the current fiscal year is not expected to
have any material impact on the Company.
- 12 -
ITEM 2. PROPERTIES
- -------------------
Properties applicable to the Company's real estate development
activities are described in detail by geographic area in Item 1. Business on
pages 7 through 12. All other properties used in operations are summarized
below:
Owned or Leased Approximate Approximate Square
Principal Offices by Perini Acres Feet of Office Space
- ----------------- --------------- ----------- --------------------
Framingham, MA Owned 9 110,000
Phoenix, AZ Leased - 22,000
Southfield, MI Leased - 13,900
San Francisco, CA Leased - 3,500
Hawthorne, NY Leased - 12,500
West Palm Beach, FL Leased - 5,000
Los Angeles, CA Leased - 2,000
Las Vegas, NV Leased - 3,000
Atlanta, GA Leased - 1,700
Chicago, IL Leased - 14,700
Philadelphia, PA Leased - 2,100
-- -------
9 190,400
== =======
Principal Permanent Storage Yards
- ---------------------------------
Bow, NH Owned 70
Framingham, MA Owned 6
E. Boston, MA Owned 3
Las Vegas, NV Leased 2
Novi, MI Leased 3
--
84
==
The Company's properties are generally well maintained, in good
condition, adequate and suitable for the Company's purpose and fully utilized.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
As previously reported, the Company is a party to an action entitled
Mergentime Corporation et. al. v. Washington Metropolitan Transit Authority v.
Insurance Company of North America (Civil Action No. 89-1055) in the U.S.
District Court for the District of Columbia. The action involves WMATA's
termination of the general contractor, a joint venture in which the Company was
a minority partner, on two contracts to construct a portion of the Washington,
D.C. subway system, and certain claims by the joint venture against WMATA for
claimed delays and extra work.
On July 30, 1993, the Court upheld the termination for default, and
found both joint venturers and their surety jointly and severally liable to
WMATA for damages in the amount of $16.5 million, consisting primarily of
WMATA's excess reprocurement costs, but specifically deferred ruling on the
amount of the joint venture's claims against WMATA. Since the other joint
venture partner may be unable to meet its financial obligations under the award,
the Company could be liable for the entire amount.
At the direction of the judge now presiding over the action, during the
third quarter of 1995, the parties submitted briefs on the issue of WMATA's
liability on the joint venture's claims for delays and for extra work. As a
result of that process, the company established a reserve with respect to the
litigation. Management believes the reserve should be adequate to cover the
potential ultimate liability in this matter.
- 13 -
In the ordinary course of its construction business, the Company is
engaged in other lawsuits. The Company believes that such lawsuits are usually
unavoidable in major construction operations and that their resolution will not
materially affect its results of future operations and financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None.
- 14 -
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
- --------------------------------------------------------------------------------
The Company's common stock is traded on the American Stock Exchange
under the symbol "PCR". The quarterly market price ranges (high-low) for 1995
and 1994 are summarized below:
1995 1994
-------------- --------------
Market Price Range per Common Share: High Low High Low
- ----------------------------------- ------ ----- ------ -----
Quarter Ended
March 31 11 7/8 - 9 3/8 13 7/8 - 11 1/4
June 30 11 1/2 - 9 1/2 13 3/8 - 10 7/8
September 30 13 3/8 - 10 1/8 11 1/2 - 9 1/8
December 31 12 1/4 - 7 7/8 11 1/8 - 9 1/8
For information on dividend payments, see Selected Financial Data in
Item 6 below and "Dividends" under Management's Discussion and Analysis on Item
7 below.
As of March 1, 1996, there were approximately 1,327 record holders of
the Company's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
RINCON CENTER ASSOCIATES
Balance Sheet
As of March 31,SELECTED CONSOLIDATED FINANCIAL INFORMATION
(In thousands, except per share data)
OPERATING SUMMARY 1995 1994 ASSETS
3/31/94 12/31/93
CASH $ 366,825 $ 120,129
ACCOUNTS RECEIVABLE 402,363 44,399
DEFERRED RENT RECEIVABLE 7,430,165 7,882,208
NOTES RECEIVABLE 15,751,844 15,828,196
REAL ESTATE PROPERTIES USED IN OPERATIONS, Net 116,802,510 118,021,303
LEASEHOLD IMPROVEMENTS, Net 2,235,690 1,854,719
OTHER ASSETS 2,195,626 2,855,012
------------ ------------
Total Assets $145,185,023 $146,605,966
============ ============
LIABILITIES
CONSTRUCTION NOTES PAYABLE $ 62,182,500 $ 62,370,000
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 3,036,584 3,415,936
DEFERRED GROUND RENT, Net 7,197,194 7,306,810
DEFERRED LEASE EXPENSE, Net 1,609,927 3,101,814
DEFERRED INCOME 1,540,311 1,540,311
ACCRUED INTEREST DUE GENERAL PARTNERS 35,326,625 33,900,724
DUE TO PERINI LAND AND DEVELOPMENT COMPANY 69,759,693 68,499,293
DUE TO PACIFIC GATEWAY PROPERTIES, INC. 17,428,051 16,988,451
------------ ------------
Total Liabilities $198,080,885 $197,123,339
PARTNERS' DEFICIT (52,895,862) (50,517,373)
------------- -------------
Liabilities and Partners' Deficit $145,185,023 $146,605,966
============= =============
RINCON CENTER ASSOCIATES
Income Statement
For Period 1/1/93 thru 3/31/94
Current Year-To-Date Year-To-Date
Period 3/31/94 3/31/931993 1992 1991
---- ---- ---- ---- ----
REVENUE:
Rental Income
Revenues
Construction operations $1,056,673 $ 1,448,804950,884 $1,030,341 $1,023,274 $ 4,328,191 $ 4,284,069
Parking Income 112,890 316,517 341,329
Interest Income 140,897 404,456 259,104919,641
Real estate operations 44,395 61,161 69,775 47,578 72,267
----------- ----------- ----------- ----------- ----------
Total RevenueRevenues $1,101,068 $1,012,045 $1,100,116 $1,070,852 $ 1,702,591 $ 5,049,164 $ 4,884.502
OPERATIONS EXPENSE:
Operating Expense $ 794,219 $ 2,181,212 $ 2,058,734
Ground Rent Expense 233,306 754,664 850,152991,908
----------- ----------- ----------- Total Operating Expense----------- ----------
Gross Profit $ 1,027,52514,855 $ 2,935,87651,797 $ 2,908,88652,786 $ 22,189 $ 60,854
General, Administrative & Selling
Expenses (37,283) (42,985) (44,212) (41,328) (48,530)
----------- ----------- ----------- NET OPERATING INCOME----------- -----------
Income (Loss) From Operations $ 675,066(22,428) $ 2,113,2888,812 $ 1,975,616
DEBT SERVICE:
Sale Lease Back Basic Rent 442,468 1,327,405 873,3588,574 $ (19,139) $ 12,324
Other Income (Expense), Net 814 (856) 5,207 436 1,136
Interest Expense 217,945 581,225 630,971
LC Fees 44,601 133,802 215,818(8,582) (7,473) (5,655) (7,651) (9,022)
----------- ----------- ----------- Total Debt Service $ 705,014 $ 2,042,432 $ 1,720,327
INCOME OR (LOSS) B/F PARTNER EXPENSES & DEPRECIATION (29,948) 70,856 255,289
PARTNER EXPENSES:
General Partner Loan Interest Expense $ 595,982 $ 1,709,665 1,524,815
General Partner LC Fees 43,400 (285,257) 215,753
Other 94 96 1,800
----------- -----------
---------
Total Partner ExpensesIncome (Loss) Before Income Taxes $ 639,476(30,196) $ 1,424,504 1,742,368
DEPRECIATION:
Amortization483 $ 26,3948,126 $ 69,421(26,354) $ 49,265
Depreciation 324,916 955,421 946,2594,438
(Provision) Credit for Income Taxes 2,611 (180) (4,961) 9,370 (1,260)
----------- ----------- ----------- ----------- -----------
Net Income (Loss) $ (27,585) $ 303 $ 3,165 $ (16,984) $ 3,178
----------- ----------- ----------- ----------- ----------
Per Share of Common Stock:
Earnings (loss) $ (6.38) $ (.42) $ .24 $ (4.69) $ .27
----------- ----------- ----------- ----------- ----------
Cash dividends declared $ - $ - $ - $ - $ -
----------- ----------- ----------- ----------- ------
Book value $ 17.06 $ 23.79 $ 24.49 $ 23.29 $ 28.96
----------- ----------- ----------- ----------- ----------
Weighted Average Number
of Common Shares Outstanding 4,655 4,380 4,265 4,079 3,918
----------- ----------- ----------- ----------- ----------
FINANCIAL POSITION SUMMARY
Working Capital $ 36,545 $ 29,948 $ 36,877 $ 31,028 $ 30,724
----------- ----------- ----------- ----------- ----------
Current Ratio 1.12:1 1.13:1 1.17:1 1.14:1 1.16:1
Long-term Debt, less current
maturities $ 84,155 $ 76,986 $ 82,366 $ 85,755 $ 96,294
----------- ----------- ----------- ----------- ----------
Stockholders' Equity $ 105,606 $ 132,029 $ 131,143 $ 121,765 $ 138,644
----------- ----------- ----------- ----------- ----------
Ratio of Long-term Debt to Equity .80:1 .58:1 .63:1 .70:1 .69:1
----------- ----------- ----------- ----------- ----------
Total Amortization/DepreciationAssets $ 351,310539,251 $ 1,024,842482,500 $ 995,524476,378 $ 470,696 $ 498,574
----------- ----------- ----------- ----------- ----------
OTHER DATA
Backlog at Year-end $1,534,522 $1,538,779 $1,238,141 $1,169,553 $1,233,958
----------- ----------- ----------- ----------- ----------
- 15 -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS -
1995 COMPARED TO 1994
The Company's 1995 operations resulted in a net loss of $27.6 million or
$6.38 per common share on revenues of $1.1 billion compared to net income of $.3
million or a loss of $.42 per common share (after giving effect to the dividend
payments required on its preferred stock) on revenues of $1.0 billion in 1994.
The primary reasons for this decrease in earnings were a pretax charge of $25.6
million in connection with previously disclosed litigation in Washington, D.C.
and downward revisions in estimated probable recoveries on certain outstanding
contract claims, and lower than normal profit margins on certain heavy
construction contracts, including a significant reduction in the profit level on
a tunnel project in the Midwest.
Revenues reached a record level of $1.101 billion in 1995, an increase
of $89 million (or 9%) compared to the 1994 revenues of $1.012 billion. This
increase resulted primarily from an increase in construction revenues of $106
million (or 11%) from $.951 billion in 1994 to $1.057 billion in 1995. This
increase in construction revenues resulted primarily from an increase in
building construction revenues of $122 million (or 19%), from $626 million in
1994 to $748 million in 1995, primarily due to substantially increased volume in
the Midwest region resulting from a substantially higher backlog in that area
entering 1995 combined with several hotel/casino projects acquired during 1995.
This increase was partially offset by a decrease in building construction
revenues in the Eastern and Western regions, as well as in the overall heavy
construction operations, due primarily to the timing in the start-up of several
significant new projects and the completion early in 1995 of several other major
projects. Revenues from real estate operations also decreased by $16.8 million
(or 27%) from $61.2 million in 1994 to $44.4 million in 1995 due to the
non-recurring sale in 1994 of two investment properties ($8.3 million) and fewer
land sales in Massachusetts and California during 1995.
In spite of the 9% increase in revenues, the gross profit in 1995
decreased by $36.9 million, from $51.8 million in 1994 to $14.9 million in 1995,
due primarily to an overall decrease in gross profit from construction
operations of $32.1 million (or 67%), from $48.0 million in 1994 to $15.9
million in 1995. The primary reasons for this decrease were a pretax charge of
$25.6 million in connection with previously disclosed litigation in Washington,
D.C. (as more fully discussed in Note 11 to Notes to Consolidated Financial
Statements) and downward revisions in estimated probable recoveries on certain
outstanding contract claims, and lower than normal profit margins on certain
heavy construction contracts, including a significant reduction in the profit
level on a tunnel project in the Midwest. In addition, the overall gross profit
from real estate operations decreased by $4.8 million, from a profit of $3.8
million in 1994 to a loss of $1.0 million in 1995 due to the sale in 1994 of the
last parcels of high margin land in Florida and in a project in Massachusetts
which was partially offset by improved operating results in 1995 from its two
major on-going operating properties in California.
Total general, administrative and selling expenses decreased by $5.7
million (or 13%) from $43.0 million in 1994 to $37.3 million in 1995. This
decrease primarily reflects reduced bonuses, an increased allocation of various
insurance costs to projects in 1995, and a continuation during 1995 of the
Company's re-engineering efforts commenced in prior years.
The increase in other income (expense), net, of $1.7 million, from a net
expense of $.9 million in 1994 to a net income of $.8 million in 1995, is
primarily due to an increase in interest income and, to a lesser extent, a gain
realized on the sale of certain underutilized operating facilities, including a
quarry, in 1995.
The increase in interest expense of $1.1 million (or 15%), from $7.5
million in 1994 to $8.6 million in 1995, primarily results from a higher average
level of borrowings during 1995.
The Company recognized a tax benefit in 1995 equal to $2.6 million or 9%
of the pretax loss. A portion of the tax benefit related to the 1995 loss was
not recognized because of certain accounting limitations. However, an amount
estimated to be approximately $20 million of future pretax earnings should
benefit from minimal, if any, tax charges.
----------------------------------------------------------
Looking ahead, we must consider the Company's construction backlog and
- 16 -
remaining inventory of real estate projects. The overall construction backlog at
the end of 1995 was $1.535 billion which approximates the 1994 record year-end
backlog of $1.539 billion. This backlog has a better balance between building
and heavy work and a higher overall estimated profit margin.
With the sale of the final 21 acres during 1994, the Company's Villages
of Palm Beach Lakes, Florida land inventory was completely sold out. Because of
its low book value, sales of this acreage have provided a major portion of the
Company's real estate profit in recent years. With the sale of this property
complete, the Company's ability to generate profit from real estate sales and
the related gross margin will be reduced as was the case in 1995. Between 1989
and 1995, property prices in general have fallen substantially due to the
reduced liquidity in real estate markets and reduced demand. Recently, the
Company has noted improvement in some property areas. This trend has had some
effect on residential property sales which were closed in 1995. However, this
trend is still neither widespread nor proven to be sustainable.
RESULTS OF OPERATIONS -
1994 COMPARED TO 1993
The Company's 1994 operations resulted in net income of $.3 million on revenues
of $1.0 billion and a loss of 42 cents per common share (after giving effect to
the dividend payments required on its preferred stock) compared to net income of
$3.2 million or 24 cents per common share on revenues of $1.1 billion in 1993.
In spite of the overall decrease in revenues during 1994, income from operations
increased slightly compared to 1993 results. An increase in interest expense in
1994 and the non-recurring $1 million net gain after tax in 1993 from the sale
by the Company of its 74%-ownership interest in Majestic Contractors Limited
("Majestic"), its Canadian pipeline subsidiary, contributed to the overall
decrease in net income.
Revenues amounted to $1.012 billion in 1994 compared to $1.100 billion in 1993,
a decrease of $88 million (or 8%). This decrease resulted primarily from a net
decrease in construction revenues of $79 million (or 8%) from $1.030 billion in
1993 to $.951 billion in 1994 due to a decrease in volume from building
operations of $126 million (or 17%), from $752 million in 1993 to $626 million
in 1994. The decrease in revenue from building operations was primarily due to
the prolonged start-up phases on certain projects. This decrease was partially
offset by an increase in revenues from civil and environmental construction
operations of $47 million (or 17%), from $278 million in 1993 to $325 million in
1994, due to an increased heavy construction backlog going into 1994. In
addition to the overall decrease in construction revenues, revenues from real
estate operations decreased $8.6 million (or 12%), from $69.8 million in 1993 to
$61.2 million in 1994, due primarily to the non-recurring sale ($23.2 million)
in 1993 of a partnership interest in certain commercial rental properties in San
Francisco and a $5.2 million decrease in land sales in Arizona. The decrease in
real estate revenues was partially offset from the sale of two investment
properties in 1994 ($8.3 million) and increased land sales in Massachusetts
($5.4 million) and California ($4.9 million).
In spite of the 8% decrease in total revenues, the gross profit in 1994
decreased only $1.0 million (or 2%), from $52.8 million in 1993 to $51.8 million
in 1994. The gross profit from construction operations decreased $1.1 million
(or 2.3%), from $49.1 million in 1993 to $48.0 million in 1994, due to the
negative profit impact from the reduction in building construction revenues
referred to above and a loss from international operations resulting from
unstable economic and political conditions in a certain overseas location where
the Company is working. These decreases were partially offset by slightly higher
margins on the construction work performed in 1994 (5.0% in 1994 compared with
4.8% in 1993) and a slight overall increase ($.1 million) in the gross profit
from real estate operations, from $3.7 million in 1993 compared to $3.8 million
in 1994.
Total general, administrative and selling expenses decreased by $1.2 million (or
3%) in 1994, from $44.2 million in 1993 to $43.0 million in 1994 due to several
factors, the more significant ones being a $2.1 million expense for severance
incurred in 1993 in connection with re-engineering some of the business units,
which was partially offset by the full year impact of expenses related to the
acquisition referred to in Note 1 to Notes to Consolidated Financial Statements.
The decrease in other income (expense), net of $6.1 million, from income of $5.2
million in 1993 to a net loss of $.9 million in 1994 is primarily due to the
pretax gain in 1993 of $4.6 million on the sale of Majestic and, to a lesser
degree, an increase in other expenses in 1994, primarily bank fees.
The increase in interest expense of $1.8 million (or 32%), from $5.7 million in
1993 to $7.5 million in 1994 primarily results from higher interest rates during
1994 and higher average level of borrowings.
- 17 -
FINANCIAL CONDITION
CASH AND WORKING CAPITAL
During 1995, the Company provided $24.6 million in cash from operating
activities, primarily due to an overall increase in accounts payable and
advances from joint ventures; $9.0 million from financing activities due to an
increase in borrowings under its revolving credit facility; and $23.9 million
from cash distributions from certain joint ventures. These increases in cash
were used to increase cash on hand by $21.2 million, with the balance used for
various investment activities, primarily to fund construction and real estate
joint ventures. In addition, the Company has future financial commitments to
certain real estate joint ventures as described in Note 11 to Notes to
Consolidated Financial Statements.
During 1994, the Company used $15.6 million in cash for investment activities,
primarily to fund construction and real estate joint ventures; $7.4 million for
financing activities, primarily to pay down company debt; and $5.0 million to
fund operating activities, primarily changes in working capital.
During 1993, the Company used $39.1 million of cash for investment activities,
primarily to fund construction and real estate joint ventures; $3 million for
financing activities, primarily to pay down Company debt; and $1.6 million to
fund operating activities, primarily changes in working capital.
Since 1990, the Company has paid down $44.3 million of real estate debt on
wholly-owned real estate projects (from $50.9 million to $6.6 million),
utilizing proceeds from sales of property and general corporate funds.
Similarly, real estate joint venture debt has been reduced by $158 million over
the same period. As a result, the Company has reached a point at which revenues
from further real estate sales that, in the past, have been largely used to
retire real estate debt will be increasingly available to improve general
corporate liquidity. With the exception of the major properties referred to in
Note 11 to Notes to Consolidated Financial Statements, this trend should
continue over the next several years with debt on projects often being fully
repaid prior to full project sell-out. On the other hand, the softening of the
national real estate market coupled with problems in the commercial banking
industry have significantly reduced credit availability for both new real estate
development projects and the sale of completed product, sources historically
relied upon by the Company and its customers to meet liquidity needs for its
real estate development business. The Company has addressed this problem by
relying on corporate borrowings, extending certain maturing real estate loans
(with such extensions usually requiring pay downs and increased annual
amortization of the remaining loan balance), suspending the acquisition of new
real estate inventory, significantly reducing development expenses on certain
projects, utilizing treasury stock in partial payment of amounts due under
certain of its incentive compensation plans, utilizing cash internally generated
from operations and, during the first quarter of 1992, selling its interest in
Monenco. In addition, in January 1993, the Company sold its majority interest in
Majestic for approximately $31.7 million in cash. Since Majestic had been fully
consolidated, the net result to the Company was to increase working capital by
$8 million and cash by $4 million. In addition, the Company implemented a
company-wide cost reduction program in 1990, and again in 1991 and 1993 to
improve long-term financial results and suspended the dividend on its common
stock during the fourth quarter of 1990. Also, the Company increased the
aggregate amount available under its revolving credit agreement during the
period from $70 million to $114.5 million at December 31, 1995. Effective
February 26, 1996, the Company entered into a Bridge Loan Agreement for an
additional $15 million through July 31, 1996 (see Note 4 to Notes to
Consolidated Financial Statements). Management believes that cash generated from
operations, existing credit lines and additional borrowings should probably be
adequate to meet the Company's funding requirements for at least the next twelve
months. However, the withdrawal of many commercial lending sources from both the
real estate and construction markets and/or restrictions on new borrowings and
extensions on maturing loans by these very same sources cause uncertainties in
predicting liquidity. In addition to internally generated funds, the Company has
access to additional funds under its long-term revolving credit facility and
Bridge Loan Agreement. At December 31, 1995, the Company has $24.5 million
available under its revolving credit facility and, effective February 26, 1996,
an additional $15 million became available under the Bridge Loan Agreement. The
financial covenants to which the Company is subject include minimum levels of
working capital, debt/net worth ratio, net worth level and interest coverage,
all as defined in the loan documents. Although the Company was in violation of
certain of the covenants during the latter part of 1995, it obtained waivers of
such violations and, effective February 26, 1996, received modifications to the
Credit Agreement which eliminated any non-compliance.
- 18 -
The working capital current ratio stood at 1.12:1 at the end of 1995, compared
to 1.13:1 at the end of 1994 and to 1.17:1 at the end of 1993. Of the total
working capital of $36.5 million at the end of 1995, approximately $6 million
may not be converted to cash within the next 12 to 18 months.
LONG-TERM DEBT
Long-term debt was $84.2 million at the end of 1995, which represented an
increase of $7.2 million compared with $77 million at the end of 1994, which was
a decrease of $5.4 million compared with $82.4 million at the end of 1993. The
ratio of long-term debt to equity increased from .58:1 at the end of 1994 to
.80:1 at the end of 1995 due to the increase in long-term debt coupled with the
negative impact on equity as a result of the net loss experienced by the Company
in 1995. The ratio of long-term debt to equity improved from .63:1 at the end of
1993 to .58:1 at the end of 1994 due to the decrease in long-term debt achieved
in 1994.
STOCKHOLDERS' EQUITY
The Company's book value per common share stood at $17.06 at December 31, 1995,
compared to $23.79 per common share and $24.49 per common share at the end of
1994 and 1993, respectively. The major factor impacting stockholders' equity
during the three-year period under review was the net loss recorded in 1995 and,
to a lesser extent, preferred dividends paid or accrued, and treasury stock
issued in partial payment of incentive compensation.
At December 31, 1995, there were 1,346 common stockholders of record based on
the stockholders list maintained by the Company's transfer agent.
DIVIDENDS
During 1993 and 1994, the Company paid the regular quarterly cash dividends of
$5.3125 per share on the Company's convertible exchangeable preferred shares for
an annual total of $21.25 per share (equivalent to quarterly dividends of
$.53125 per depositary share for an annual total of $2.125 per depositary
share). During 1995, the Board of Directors continued to declare and pay the
regular quarterly cash dividend on the Company's preferred stock through
December 15, 1995. In conjunction with the covenants of the new Amended
Revolving Credit Agreement (see Note 4 to Notes to Consolidated Financial
Statements), the Company is required to suspend the payment of quarterly
dividends on its preferred stock until the Bridge Loan commitment is no longer
outstanding, if a default exists under the terms of the Amended Revolving Credit
Agreement, or if the ratio of long-term debt to equity exceeds 50%. Therefore,
the dividend that normally would have been declared during December of 1995 and
payable on March 15, 1996 has not been declared (although it has been fully
accrued due to the "cumulative" feature of the preferred stock). The Board of
Directors intends to resume payment of the cumulative dividend on the Company's
preferred stock as the Company satisfies the terms of the new credit agreement
and the Board deems it prudent to do so. There were no cash dividends declared
during the three-year period ended December 31, 1995 on the Company's
outstanding common stock. It is Management's intent to recommend reinstating
dividends on common stock once it is prudent to do so.
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.
- 19 -
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, 1996 (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, 1995 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 YEAR FIRST ELECTED TO PRESENT OFFICE
AND AGE AND BUSINESS EXPERIENCE
David B. Perini, He has served as a Director, President, Chief Executive
Director, Chairman, Officer and Acting Chairman since 1972. He became Chairman
President and on March 17, 1978 and has worked for the Company since 1962
Chief Executive in various capacities. Prior to being elected President, he
Officer - 58 served as Vice President and General Counsel.
Richard J. Rizzo, He has served in this capacity since January, 1994, which
Executive Vice entails overall responsibility for the Company's building
President, Building construction operations. Prior thereto, he served as
Construction - 52 President of Perini Building Company (formerly known as
Mardian Construction Co.) since 1985, and in various other
operating capacities since 1977.
John H. Schwarz, He has served as Executive Vice President, Finance and
Executive Vice Administration since August, 1994, and as Chief Executive
President, Finance Officer of Perini Land and Development Company, which
and Administration entails overall responsibility for the Company's real estate
of the Company and operations since April, 1992. Prior to that, he served as
Chief Executive Vice President, Finance and Controls of Perini Land and
Officer of Perini Development Company. Previously, he served as Treasurer from
Land and August, 1984, and Director of Corporate Planning since May,
Development 1982. He joined the Company in 1979 as Manager of Corporate
Company - 57 Development.
Donald E. Unbekant, He has served in this capacity since January, 1994, which
Executive Vice entails overall responsibility for the Company's civil and
President, Civil environmental construction operations. Prior thereto, he
and Environmental served in the Metropolitan New York Division of the Company
Construction - 64 as President since 1992, Vice President and General Manager
since 1990 and Division Manager since 1984.
The Company's officers are elected on an annual basis at the Board of
Directors Meeting immediately following the Shareholders Meeting in May, to hold
such offices until the Board of Directors Meeting following the next Annual
Meeting of Shareholders and until their respective successors have been duly
appointed or until their tenure has been terminated by the Board of Directors,
or otherwise.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
In response to Items 11-13, reference is made to the information to be
set forth in the section entitled "Election of Directors" in the Proxy
Statement, which is incorporated herein by reference.
- 20 -
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, 1995 and
1994 23 - 24
Consolidated Statements of Operations for the three
years ended December 31, 1995, 1994 and 1993 25
Consolidated Statements of Stockholders' Equity for the
three years ended December 31, 1995, 1994 and 1993 26
Consolidated Statements of Cash Flows for the three years
ended December 31, 1995, 1994 and 1993 27 - 28
Notes to Consolidated Financial Statements 29 - 41
Report of Independent Public Accountants 42
(a)2. The following financial statement schedules are filed as part of this
report:
Pages
-----
Report of Independent Public Accountants on Schedule 43
Schedule II -- Valuation and Qualifying Accounts and Reserves 44
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. Separate condensed financial information of the
Company has been omitted since restricted net assets of subsidiaries
included in the consolidated financial statements and its equity in the
undistributed earnings of 50% or less owned persons accounted for by
the equity method do not, in the aggregate, exceed 25% of consolidated
net assets.
(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 45 and 46. 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, 1995, the Registrant made no
filings on Form 8-K.
- 21 -
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 27, 1996 s/David B. Perini
-----------------
David B. Perini
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
(i) Principal Executive Officer
David B. Perini Chairman, President and
Chief Executive Officer
s/David B. Perini March 27, 1996
- ------------------
David B. Perini
(ii) Principal Financial Officer
John H. Schwarz Executive Vice President,
Finance & Administration
s/John H. Schwarz March 27, 1996
- ------------------
John H. Schwarz
(iii) Principal Accounting Officer
Barry R. Blake Vice President and
Controller
s/Barry R. Blake March 27, 1996
- ------------------
Barry R. Blake
(iv) Directors
David B. Perini )
Joseph R. Perini ) By
Richard J. Boushka )
Marshall M. Criser ) s/David B. Perini
-----------------
Thomas E. Dailey ) David B. Perini
Albert A. Dorman )
Arthur J. Fox, Jr. ) Attorney in Fact
John J. McHale ) Dated: March 27, 1996
Jane E. Newman )
Bart W. Perini )
- 22 -
Consolidated Balance Sheets
December 31, 1995 and 1994
(In thousands except per share data)
Assets
- ------
1995 1994
---- ----
CURRENT ASSETS:
Cash, including cash equivalents of $29,059 and $3,518 (Note 1) $ 29,059 $ 7,841
Accounts and notes receivable, including retainage of $69,884 and $63,344 180,978 151,620
Unbilled work (Note 1) 28,304 20,209
Construction joint ventures (Notes 1 and 2) 61,846 66,346
Real estate inventory, at the lower of cost or market (Note 1) 14,933 11,525
Deferred tax asset (Notes 1 and 5) 13,039 6,066
Other current assets 2,186 3,041
-------- --------
Total current assets $330,345 $266,648
-------- --------
REAL ESTATE DEVELOPMENT INVESTMENTS:
Land held for sale or development (including land development costs) at
the lower of cost or market (Note 1) $ 41,372 $ 43,295
Investments in and advances to real estate joint ventures
(Notes 1, 2 and 11) 148,225 148,843
Real estate properties used in operations, less accumulated depreciation
of $3,444 and $3,698 2,964 6,254
Other 302 80
-------- --------
Total real estate development investments $192,863 $198,472
-------- --------
PROPERTY AND EQUIPMENT, at cost:
Land $ 809 $ 1,134
Buildings and improvements 13,548 13,653
Construction equipment 15,597 15,249
Other equipment 9,911 12,552
-------- --------
$ 39,865 $ 42,588
Less - Accumulated depreciation (Note 1) 27,299 29,082
-------- --------
Total property and equipment, net $ 12,566 $ 13,506
-------- --------
OTHER ASSETS:
Other investments $ 1,839 $ 2,174
Goodwill (Note 1) 1,638 1,700
-------- --------
Total other assets $ 3,477 $ 3,874
-------- --------
$539,251 $482,500
The accompanying notes are an integral part of these financial statements.
- 23 -
Liabilities and Stockholders' Equity
1995 1994
---- ----
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 4) $ 5,697 $ 5,022
Accounts payable, including retainage of $58,749 and $52,224 197,052 148,055
Advances from construction joint ventures (Note 2) 34,830 8,810
Deferred contract revenue (Note 1) 23,443 38,929
Accrued expenses 32,778 35,884
--------- --------
Total current liabilities $293,800 $236,700
--------- --------
DEFERRED INCOME TAXES AND OTHER LIABILITIES (Notes 1, 5 & 6) 52,663 $ 33,488
--------- --------
LONG-TERM DEBT, less current maturities included above (Note 4):
Real estate development $ 3,660 $ 6,502
Other 80,495 70,484
--------- --------
Total long-term debt $ 84,155 $ 76,986
--------- --------
MINORITY INTEREST (Note 1) $ 3,027 $ 3,297
--------- --------
CONTINGENCIES AND COMMITMENTS (Note 11)
STOCKHOLDERS' EQUITY (Notes 1, 7, 8, 9 and 10):
Preferred stock, $1 par value -
Authorized - 1,000,000 shares
Issued and outstanding - 100,000 shares
($25,000 aggregate liquidation preference) $ 100 $ 100
Series A junior participating preferred stock, $1 par value -
Authorized - 200,000
Issued - none - -
Common stock, $1 par value -
Authorized - 15,000,000 shares
Issued - 4,985,160 shares 4,985 4,985
Paid-in surplus 57,659 59,001
Retained earnings 52,062 81,772
ESOT related obligations (4,965) (6,009)
--------- ---------
$109,841 $139,849
Less - Common stock in treasury, at cost - 265,735 shares and 490,674 shares 4,235 7,820
--------- --------
Total stockholders' equity $105,606 $132,029
--------- --------
$539,251 $482,500
- 24 -
Consolidated Statements of Operations
For the years ended December 31, 1995, 1994 & 1993
(In thousands, except per share data)
1995 1994 1993
---- ---- ----
REVENUES (Notes 2 and 13) $1,101,068 $1,012,045 $1,100,116
----------- ----------- ----------
COSTS AND EXPENSES (Notes 2 and 10):
Cost of operations $1,086,213 $ 960,248 $1,047,330
General, administrative and selling expenses 37,283 42,985 44,212
----------- ----------- ----------
$1,123,496 $1,003,233 $1,091,542
----------- ----------- ----------
INCOME (LOSS) FROM OPERATIONS (Note 13) $ (22,428) $ 8,812 $ 8,574
----------- ----------- ----------
Other income (expense), net (Note 6) 814 (856) 5,207
Interest expense (Notes 3 and 4) (8,582) (7,473) (5,655)
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES $ (30,196) $ 483 $ 8,126
(Provision) credit for income taxes (Notes 1 and 5) 2,611 (180) (4,961)
----------- ----------- -----------
NET INCOME OR (LOSS) $(1,020,734) $(2,378,490) $(2,482,603)$ (27,585) $ 303 $ 3,165
=========== =========== ==========
EARNINGS (LOSS) PER COMMON SHARE (Note 1) $ (6.38) $ (.42) $ .24
=========== =========== ==========
The accompanying notes are an integral part of these financial statements.
- 25 -
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1995, 1994 & 1993
(In thousands, except per share data)
Cumulative ESOT
Preferred Common Paid-In Retained Translation Related Treasury
Stock Stock Surplus Earnings Adjustment Obligation Stock
- -------------------------------- ------------- --------- ------------ ------------ ------------- --------------- --------------
Balance-December 31, 1992 $100 $4,985 $60,019 $ 82,554 $(4,696) $(7,888) $(13,309)
- -------------------------------- ------------- --------- ------------ ------------ ------------- --------------- --------------
Net income - - - 3,165 - - -
Preferred stock-cash
dividends declared
($21.25 per share*) - - - (2,125) - - -
Treasury stock issued in
partial payment of
incentive compensation - - (143) - - - 2,872
Restricted stock awarded - - (1) - - - 8
Related to Sale of
Majestic - - - - 4,696 - -
Payments related to ESOT
notes - - - - - 906 -
- -------------------------------- ------------- --------- ------------ ------------ ------------- --------------- --------------
Balance-December 31, 1993 $100 $4,985 $59,875 $ 83,594 $ - $(6,982) $(10,429)
- -------------------------------- ------------- --------- ------------ ------------ ------------- --------------- --------------
Net Income - - - 303 - - -
Preferred stock-cash
dividends declared
($21.25 per share*) - - - (2,125) - - -
Treasury stock issued in
partial payment of
incentive compensation - - (835) - - - 2,444
Restricted stock awarded - - (39) - - - 165
Payments related to ESOT -
notes - - - - - 973
- -------------------------------- ------------- --------- ------------ ------------ ------------- --------------- --------------
Balance-December 31, 1994 $100 $4,985 $59,001 $ 81,772 $ - $(6,009) $ (7,820)
- -------------------------------- ------------- --------- ------------ ------------ ------------- --------------- --------------
Net Loss - - - (27,585) - - -
Preferred stock-cash
dividends declared or
accrued ($21.25 per
share*) - - - (2,125) - - -
Treasury stock issued in
partial payment of
incentive compensation - - (1,342) - - - 3,585
Payments related to ESOT
notes - - - - - 1,044 -
- -------------------------------- ------------- --------- ------------ ------------ ------------- --------------- --------------
Balance-December 31, 1995 $100 $4,985 $57,659 $ 52,062 $ - $(4,965) $ (4,235)
- -------------------------------- ------------- --------- ------------ ------------ ------------- --------------- --------------
*Equivalent to $2.125 per depositary share (see Note 7).
The accompanying notes are an integral part of these financial statements.
- 26 -
Consolidated Statements of Cash Flows
For the years ended December 31, 1995, 1994 & 1993
(In thousands)
Cash Flows from Operating Activities: 1995 1994 1993
-------- -------- --------
Net income (loss) $(27,585) $ 303 $ 3,165
Adjustments to reconcile net income (loss) to net cash from
operating activities -
Depreciation and amortization 2,769 2,879 3,515
Non-current deferred taxes and other liabilities 19,175 (5,306) 11,239
Distributions greater (less) than earnings of joint ventures
and affiliates 12,880 2,995 (2,821)
Gain on sale of Majestic (Note 6) - - (4,631)
Cash provided from (used by) changes in components of working capital other
than cash, notes payable and current maturities
of long-term debt 16,571 (14,119) (19,653)
Real estate development investments other than joint ventures 2,757 11,451 10,908
Other non-cash items, net (2,174) (3,231) (3,299)
--------- --------- ---------
NET CASH PROVIDED FROM (USED BY) OPERATING ACTIVITIES $ 24,573 $ (5,028) $ (1,577)
--------- --------- ---------
Cash Flows from Investing Activities:
Proceeds from sale of property and equipment $ 3,115 $ 989 $ 1,344
Cash distributions of capital from unconsolidated joint
ventures $ 23,858 13,112 4,977
Acquisition of property and equipment (1,960) (2,493) (4,387)
Improvements to land held for sale or development (193) (334) (4,227)
Improvements to real estate properties used
in operations (263) (140) (614)
Capital contributions to unconsolidated joint ventures (29,373) (20,199) (24,579)
Advances to real estate joint ventures, net (7,735) (6,559) (16,031)
Proceeds from sale of Majestic, net of subsidiary's cash - - 4,377
Investments in other activities 190 14 -
--------- --------- ------
NET CASH USED BY INVESTING ACTIVITIES $(12,361) $(15,610) $(39,140)
--------- --------- ---------
- 27 -
Consolidated Statements of Cash Flows (Continued)
For the years ended December 31, 1995, 1994 & 1993
(In thousands)
Cash Flows from Financing Activities:
Proceeds from long-term debt $ 12,033 $ 3,127 $ 8,014
Repayment of long-term debt (3,145) (10,129) (11,600)
Cash dividends paid (2,125) (2,125) (2,125)
Treasury stock issued 2,243 1,735 2,736
--------- --------- --------
NET CASH PROVIDED FROM (USED BY) FINANCING ACTIVITIES $ 9,006 $ (7,392) $ (2,975)
--------- --------- ---------
Net Increase (Decrease) in Cash $ 21,218 $(28,030) $(43,692)
Cash and Cash Equivalents at Beginning of Year 7,841 35,871 79,563
--------- --------- --------
Cash and Cash Equivalents at End of Year $ 29,059 $ 7,841 $ 35,871
========= ========= ========
Supplemental Disclosures of Cash Paid During the Year For:
Interest $ 8,715 $ 7,308 $ 5,947
========= ========= ========
Income tax payments $ 121 $ 1,176 $ 843
========= ========= ========
The accompanying notes are an integral part of these financial statements.
- 28 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995 1994 & 1993
[1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[a] Principles of Consolidation
- -------------------------------
The consolidated financial statements include the accounts of Perini
Corporation, its subsidiaries and certain majority-owned real estate joint
ventures (the "Company"). All subsidiaries are currently wholly-owned. All
significant intercompany transactions and balances have been eliminated in
consolidation. Non-consolidated joint venture interests are accounted for on the
equity method with the Company's share of revenues and costs in these interests
included in "Revenues" and "Cost of Operations," respectively, in the
accompanying consolidated statements of operations. All significant intercompany
profits between the Company and its joint ventures have been eliminated in
consolidation. Taxes are provided on joint venture results in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes".
Effective July 1, 1993, the Company acquired Gust K. Newberg Construction Co.'s
("Newberg") interest in certain construction projects and related equipment. The
purchase price for the acquisition was (i) approximately $3 million in cash for
the equipment paid by a third party leasing company, which in turn
simultaneously entered into an operating lease agreement with the Company for
the use of said equipment, (ii) $1 million in cash paid by the Company, and
(iii) 50% of the aggregate of net profits earned from each project from April 1,
1993 through December 31, 1994 and, with regard to one project, through December
31, 1995. This acquisition has been accounted for as a purchase. If this
acquisition had been consummated as of January 1, 1993, the 1993 pro forma
results would have been. Revenues of $1,134,264,000 and Net Income of $3,724,000
($.37 per common share).
[b] Use of Estimates
- --------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. The most significant
estimates with regard to these financial statements relate to the estimating of
final construction contract profits in accordance with accounting for long term
contracts (see Note 1(c) below), estimating of net realizable value of real
estate development projects (see Note 1(d) below) and estimating potential
liability in conjunction with certain contingencies and commitments, as
discussed in Note 11. Actual results could differ from these estimates.
[c] Method of Accounting for Contracts
- --------------------------------------
Profits from construction contracts and construction joint ventures are
generally recognized by applying percentages of completion for each year to the
total estimated profits for the respective contracts. The percentages of
completion are determined by relating the actual cost of the work performed to
date to the current estimated total cost of the respective contracts. When the
estimate on a contract indicates a loss, the Company's policy is to record the
entire loss. The cumulative effect of revisions in estimates of total cost or
revenue during the course of the work is reflected in the accounting period in
which the facts that caused the revision became known. An amount equal to the
costs attributable to unapproved change orders and claims is included in the
total estimated revenue when realization is probable. Profit from claims is
recorded in the year such claims are resolved.
In accordance with normal practice in the construction industry, the Company
includes in current assets and current liabilities amounts related to
construction contracts realizable and payable over a period in excess of one
year. Unbilled work represents the excess of contract costs and profits
recognized to date on the percentage of completion accounting method over
billings to date on certain contracts. Deferred contract revenue represents the
excess of billings to date over the amount of contract costs and profits
recognized to date on the percentage of completion accounting method on the
remaining contracts.
[d] Methods of Accounting for Real Estate Operations
- ----------------------------------------------------
All real estate sales are recorded in accordance with SFAS No. 66. Gross profit
is not recognized in full unless the collection of the sale price is reasonably
assured and the Company is not obliged to perform significant activities after
the sale. Unless both conditions exist, recognition of all or a part of gross
profit is deferred.
- 29 -
The gross profit recognized on sales of real estate is determined by relating
the estimated total land, land development and construction costs of each
development area to the estimated total sales value of the property in the
development. Real estate investments are stated at the lower of cost, which
includes applicable interest and real estate taxes during the development and
construction phases, or market. The market or net realizable value of a
development is determined by estimating the sales value of the development in
the ordinary course of business less the estimated costs of completion (to the
stage of completion assumed in determining the selling price), holding and
disposal. Estimated sales values are forecast based on comparable local sales
(where applicable), trends as foreseen by knowledgeable local commercial real
estate brokers or others active in the business and/or project specific
experience such as offers made directly to the Company relating to the property.
If the net realizable value of a development is less than the cost of a
development, a provision is made to reduce the carrying value of the development
to net realizable value. At present, the Company believes its real estate
properties are carried at amounts at or below their net realizable values
considering the expected timing of their disposal.
[e] Depreciable Property and Equipment
- --------------------------------------
Land, buildings and improvements, construction and computer-related equipment
and other equipment are recorded at cost. Depreciation is provided primarily
using accelerated methods for construction and computer-related equipment and
the straight-line method for the remaining depreciable property.
[f] Goodwill
- ------------
Goodwill represents the excess of the costs of subsidiaries acquired over the
fair value of their net assets as of the dates of acquisition. These amounts are
being amortized on a straight-line basis over 40 years.
[g] Income Taxes
- ----------------
The Company follows Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes," (see Note 5).
[h] Earnings (Loss) Per Common Share
- ------------------------------------
Computations of earnings (loss) per common share amounts are based on the
weighted average number of common shares outstanding during the respective
periods. During the three-year period ended December 31, 1995, earnings (loss)
per common share reflect the effect of preferred dividends accrued during the
year. Common stock equivalents related to additional shares of common stock
issuable upon exercise of stock options (see Note 9) have not been included
since their effect would be immaterial or antidilutive. Earnings (loss) per
common share on a fully diluted basis are not presented because the effect of
conversion of the Company's depositary convertible exchangeable preferred shares
into common stock is antidilutive.
[i] Cash and Cash Equivalents
- -----------------------------
Cash equivalents include short-term, highly liquid investments with original
maturities of three months or less.
[j] Reclassifications
- ---------------------
Certain prior year amounts have been reclassified to be consistent with the
current year classifications.
- 30 -
[2] JOINT VENTURES
The Company, in the normal conduct of its business, has entered into partnership
arrangements, referred to as "joint ventures," for certain construction and real
estate development projects. Each of the joint venture participants is usually
committed to supply a predetermined percentage of capital, as required, and to
share in a predetermined percentage of the income or loss of the project.
Summary financial information (in thousands) for construction and real estate
joint ventures accounted for on the equity method for the three years ended
December 31, 1995 follows:
CONSTRUCTION JOINT VENTURES
Financial position at December 31, 1995 1994 1993
--------- --------- ---------
Current assets $227,578 $232,025 $241,905
Property and equipment, net 22,491 19,386 17,228
Current liabilities (151,311) (132,326) (151,181)
--------- --------- ---------
Net assets $ 98,758 $119,085 $107,952
========= ========= =========
Operations for the year ended December 31,
1995 1994 1993
--------- --------- ---------
Revenue $348,730 $544,546 $626,327
Cost of operations 329,414 505,347 574,383
--------- --------- ---------
Pretax income $ 19,316 $ 39,199 $ 51,944
========= ========= =========
Company's share of joint ventures
Revenue $182,799 $241,784 $293,547
Cost of operations 177,990 224,039 272,137
--------- --------- ---------
Pretax income $ 4,809 $ 17,745 $ 21,410
========= ========= =========
Equity $ 61,846 $ 66,346 $ 61,156
========= ========= =========
The Company has a centralized cash management arrangement with most construction
joint ventures in which it is the sponsor. Under this arrangement, excess cash
is controlled by the Company; cash is made available to meet the individual
joint venture requirements, as needed; and interest income is credited to the
ventures at competitive market rates. In addition, certain joint ventures
sponsored by other contractors, in which the Company participates, distribute
cash at the end of each quarter to the participants who will then return these
funds at the beginning of the next quarter. Of the total cash advanced at the
end of 1995 ($34.8 million) and 1994 ($8.8 million), approximately $12.1 million
in 1995 and $5.5 million in 1994 was deemed to be temporary.
REAL ESTATE JOINT VENTURES
Financial position at December 31, 1995 1994 1993
--------- --------- ---------
Property held for sale or development $ 18,350 $ 28,885 $ 35,855
Investment properties, net 173,468 177,258 191,606
Other assets 61,700 62,101 61,060
Long-term debt (72,603) (77,968) (103,090)
Other liabilities* (305,755) (277,184) (256,999)
---------- --------- ---------
Net assets (liabilities) $(124,840) $(86,908) $(71,568)
========== ========= =========
Operations for the year ended December 31, 1995 1994 1993
--------- --------- ---------
Revenue $ 49,560 $ 58,326 $ 83,710
---------- --------- ---------
Cost of operations -
Depreciation $ 7,304 $ 7,245 $ 8,660
Other 73,829 71,211 92,963
---------- --------- ---------
$ 81,133 $ 78,456 $101,623
---------- --------- ---------
Pretax income (loss) $ (31,573) $(20,130) $(17,913)
========== ========= =========
Company's share of joint ventures
Revenue $ 23,424 $ 27,059 $ 43,590
---------- --------- ---------
Cost of operations -
Depreciation $ 3,275 $ 3,323 $ 4,033
Other ** 20,888 26,682 40,716
---------- --------- ---------
$ 24,163 $ 30,005 $ 44,749
---------- --------- ---------
Pretax income (loss) $ (739) $ (2,946) $ (1,159)
========== ========= =========
Equity *** $ (49,580) $(33,091) $(27,768)
========== ========= =========
- 31 -
* Included in "Other liabilities" are advances from joint venture partners
in the amount of $236.8 million in 1993, $259.3 million in 1994, and
$287.6 million in 1995. Of the total advances from joint venture
partners, $165.9 million in 1993, $181.9 million in 1994, and $198.7
million in 1995 represented advances from the Company.
** Other costs are reduced by the amount of interest income recorded by the
Company on its advances to the respective joint ventures.
*** When the Company's equity in a real estate joint venture is combined
with advances by the Company to that joint venture, each joint venture
has a positive investment balance at December 31, 1995.
[3] NOTES PAYABLE TO BANKS
During 1994, the Company maintained unsecured short-term lines of credit
totaling $18 million. In support of these credit lines, the Company paid fees
approximating 1/4 of 1% of the amount of the lines. These lines were canceled as
of December 12, 1994 upon the effective date of the expanded credit agreement
referred to in Note 4 below. Information relative to the Company's short-term
debt activity under such lines in 1994 follows (in thousands):
1994
Borrowings during the year:
Average $10,992
Maximum $18,000
At year-end $ -
Weighted average interest rates:
During the year 7.4%
At year-end -
[4] LONG-TERM DEBT
Long-term debt of the Company at December 31, 1995 and 1994 consists of the
following (in thousands):
1995 1994
---- ----
Real Estate Development:
Industrial revenue bonds, at 65% of prime, payable in semi-annual installments $ 1,034 $ 1,310
Mortgages on real estate, at rates ranging from prime plus 1 1/2% to 10.82%,
payable in installments 5,521 6,588
------- -------
Total $ 6,555 $ 7,898
Less - current maturities 2,895 1,396
------- -------
Net real estate development long-term debt $ 3,660 $ 6,502
======= =======
Other:
Revolving credit loans at an average rate of 8.1% in 1995 and 8.6% in 1994 $73,000 $62,000
ESOT Notes at 8.24%, payable in semi-annual installments (Note 7) 4,484 5,396
Industrial revenue bonds at various rates, payable in installments to 2005 4,000 4,000
Other indebtedness 1,813 2,714
------- -------
Total $83,297 $74,110
Less - current maturities 2,802 3,626
------- -------
Net other long-term debt $80,495 $70,484
======= =======
Payments required under these obligations amount to approximately $5,697 in
1996, $74,877 in 1997, $3,128 in 1998, $2,150 in 1999, $ - in 2000 and $4,000
for the years 2001 and beyond.
Effective December 12, 1994, the Company entered into a new revolving credit
agreement with a group of major banks which provided, among other things, for
the Company to borrow up to an aggregate of $125 million (aggregate limit under
previous agreements was $85 million), with a $25 million maximum of such amount
also being available for letters of credit, of which $17 million was outstanding
at December 31, 1995. The Company may choose from three interest rate
alternatives including a prime-based rate, as well as other interest rate
options based on LIBOR (London inter- bank offered rate) or participating bank
certificate of deposit rates. Borrowings and repayments may be made at any time
through December 6, 1997, at which time all outstanding loans under the
agreement must be paid or otherwise refinanced. The Company must pay a
commitment fee of 1/2
- 32 -
of 1% annually on the unused portion of the commitment.
The aggregate $125 million commitment is subject to permanent partial reductions
based on certain events, as defined, such as proceeds from real estate sales
over a defined annual minimum, certain claims and future equity offerings and
was reduced accordingly during 1995 by $10.5 million.
The revolving credit agreement, as well as certain other loan agreements,
provides for, among other things, maintaining specified working capital and
tangible net worth levels and, additionally, imposes limitations on indebtedness
and future investment in real estate development projects. As a result of the
loss in the third quarter of 1995, the Company was in violation of certain of
these financial covenants; however, the Company obtained waivers of any such
violations and effective February 26, 1996, received modifications to the Credit
Agreement which eliminated any non-compliance.
Other modifications included, among other things, a requirement to reduce the
amount of this loan commitment by $2 million per month for four months
commencing the later of September 1, 1996 or the date of repayment and
cancellation of the Bridge Loan referred to below; additional collateral which
consists of all available assets not included as collateral in other agreements;
and suspension of payment of the 53 1/8 cent per share quarterly dividend on the
Company's Depositary Convertible Exchangeable Preferred Shares (see Note 7)
until certain financial criteria are met.
Also, effective February 26, 1996, the Company entered into a Bridge Loan
Agreement with its revolver banks to borrow up to an additional $15 million
through July 31, 1996 at an interest rate of prime plus 2%. The Bridge Loan
Agreement provides for, among other things, interim mandatory reductions in the
amount of the commitment equal to the net proceeds from sale of collateral not
included in the Company's 1996 budget and 50% of the net proceeds from any new
equity.
[5] INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109. This
standard determines deferred income taxes based on the estimated future tax
effects of differences between the financial statement and tax bases of assets
and liabilities, given the provisions of enacted tax laws.
The (provision) credit for income taxes is comprised of the following (in
thousands):
Federal State Total
------- ----- -----
1995
Current $ - $ (11) $ (11)
Deferred 2,726 (104) 2,622
-------- -------- --------
$ 2,726 $ (115) $ 2,611
======== ======== ========
1994
Current $ - $ (21) $ (21)
Deferred (108) (51) (159)
-------- -------- --------
$ (108) $ (72) $ (180)
======== ======== ========
1993
Current $(2,824) $ (430) $(3,254)
Deferred (1,808) 101 (1,707)
-------- -------- --------
$(4,632) $ (329) $(4,961)
======== ======== ========
The table below reconciles the difference between the statutory federal income
tax rate and the effective rate provided in the statements of operations.
1995 1994 1993
---- ---- ----
Statutory federal income tax rate (34)% 34 % 34 %
State income taxes, net of federal tax benefit - 4 2
Change in valuation allowance 25 - -
Sale of Canadian subsidiary - - 24
Goodwill and other - (1) 1
----- ----- -----
Effective tax rate (9)% 37 % 61 %
===== ===== =====
- 33 -
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of December 31, 1995 and 1994 (in
thousands):
1995 1994
---------------------------------- -------------------------------
Deferred Deferred Tax Deferred Deferred Tax
Tax Assets Liabilities Tax Assets Liabilities
---------- ----------- ---------- -----------
Provision for estimated losses $ 5,646 $ - $ 6,203 $ -
Contract losses 5,642 - 887 -
Joint ventures - construction - 4,929 - 8,088
Joint ventures - real estate - 20,419 - 25,668
Timing of expense recognition 4,253 - 13,867 -
Capitalized carrying charges - 2,187 - 1,776
Net operating loss carryforwards 13,675 - 5,960 -
Alternative minimum tax credit
carryforwards 2,419 - 2,300 -
General business tax credit
carryforwards 3,532 - 3,637 -
Foreign tax credit carryforwards 978 - 978 -
Other, net 576 985 685 861
-------- -------- -------- --------
$36,721 $28,520 $34,517 $36,393
Valuation allowance for deferred
tax assets (9,342) - (1,846) -
-------- -------- -------- --------
Total $27,379 $28,520 $32,671 $36,393
======== ======== ======== ========
The net of the above is deferred taxes in the amount of $1,141 in 1995 and
$3,722 in 1994 which is classified in the respective Consolidated Balance Sheets
as follows:
1995 1994
---- ----
Long-term deferred tax liabilities (included in "Deferred Income
Taxes and Other Liabilities") $14,180 $ 9,788
Short-term Deferred Tax Asset 13,039 6,066
------- -------
$ 1,141 $ 3,722
======= =======
A valuation allowance is provided to reduce the deferred tax assets to a level
which, more likely than not, will be realized. The net deferred assets reflect
management's estimate of the amount which will be realized from future taxable
income which can be predicted with reasonable certainty.
At December 31, 1995, the Company has unused tax credits and net operating loss
carryforwards for income tax reporting purposes which expire as follows (in
thousands):
Unused Investment Foreign Net Operating Loss
Tax Credits Tax Credits Carryforwards
----------- ----------- -------------
1996-2000 $ - $ 978 $ -
2001-2004 3,532 - 968
2005-2010 - - 39,251
------ ------ -------
$3,532 $ 978 $40,219
====== ====== =======
Approximately $2.8 million of the net operating loss carryforwards can only be
used against the taxable income of the corporation in which the loss was
recorded for tax and financial reporting purposes.
- 34 -
[6] DEFERRED INCOME TAXES AND OTHER LIABILITIES AND OTHER INCOME (EXPENSE), NET
DEFERRED INCOME TAXES AND OTHER LIABILITIES
Deferred income taxes and other liabilities at December 31, 1995 and 1994
consist of the following (in thousands):
1995 1994
------- ------
Deferred Income Taxes $14,180 $ 9,788
Insurance related liabilities 20,484 18,000
Employee benefit-related liabilities 5,110 4,700
Other 12,889 1,000
------- -------
$52,663 $33,488
======= =======
OTHER INCOME (EXPENSE), NET
Other income (expense) items for the three years ended December 31, 1995 are as
follows (in thousands):
1995 1994 1993
------- ------- -------
Interest and dividend income $ 1,369 $ 205 $ 624
Minority interest (Note 1) 10 24 167
Gain on sale of Majestic - - 4,631
Bank fees (1,099) (1,100) (584)
Miscellaneous income (expense), net 534 15 369
-------- -------- -------
$ 814 $ (856) $5,207
======== ======== =======
[7] CAPITALIZATION
In July 1989, the Company sold 262,774 shares of its $1 par value common stock,
previously held in treasury, to its Employee Stock Ownership Trust ("ESOT") for
$9,000,000. The ESOT borrowed the funds via a placement of 8.24% Senior
Unsecured Notes ("Notes") guaranteed by the Company. The Notes are payable in 20
equal semi-annual installments of principal and interest commencing in January
1990. The Company's annual contribution to the ESOT, plus any dividends
accumulated on the Company's common stock held by the ESOT, will be used to
repay the Notes. Since the Notes are guaranteed by the Company, they are
included in "Long-Term Debt" with an offsetting reduction in "Stockholders'
Equity" in the accompanying Consolidated Balance Sheets. The amount included in
"Long-Term Debt" will be reduced and "Stockholders' Equity" reinstated as the
Notes are paid by the ESOT.
In June 1987, net proceeds of approximately $23,631,000 were received from the
sale of 1,000,000 depositary convertible exchangeable preferred shares (each
depositary share representing ownership of 1/10 of a share of $21.25 convertible
exchangeable preferred stock, $1 par value) at a price of $25 per depositary
share. Annual dividends are $2.125 per depositary share and are cumulative.
Generally, the liquidation preference value is $25 per depositary share plus any
accumulated and unpaid dividends. The preferred stock of the Company, as
evidenced by ownership of depositary shares, is convertible at the option of the
holder, at any time, into common stock of the Company at a conversion price of
$37.75 per share of common stock. The preferred stock is redeemable at the
option of the Company at any time, in whole or in part, at declining premiums
until June 1997 and thereafter at $25 per share plus any unpaid dividends. The
preferred stock is also exchangeable at the option of the Company, in whole but
not in part, on any dividend payment date into 8 1/2% convertible subordinated
debentures due in 2012 at a rate equivalent to $25 principal amount of
debentures for each depositary share.
[8] SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
Under the terms of the Company's Shareholder Rights Plan, as amended, the Board
of Directors of the Company declared a distribution on September 23, 1988 of one
preferred stock purchase right (a "Right") for each outstanding share of common
stock. Under certain circumstances, each Right will entitle the holder thereof
to purchase from the Company one one-hundredth of a share (a "Unit") of Series A
Junior Participating Cumulative Preferred Stock, $1 par value (the "Preferred
Stock"), at an exercise price of $100 per Unit, subject to adjustment. The
Rights will not be exercisable or transferable apart from the common stock until
the occurrence of certain events viewed to be an attempt by a person or group to
gain control of the Company (a "triggering
- 35 -
event"). The Rights will not have any voting rights or be entitled to dividends.
Upon the occurrence of a triggering event, each Right will be entitled to that
number of Units of Preferred Stock of the Company having a market value of two
times the exercise price of the Right. If the Company is acquired in a merger or
50% or more of its assets or earning power is sold, each Right will be entitled
to receive common stock of the acquiring company having a market value of two
times the exercise price of the Right. Rights held by such a person or group
causing a triggering event may be null and void.
The Rights are redeemable at $.02 per Right by the Board of Directors at any
time prior to the occurrence of a triggering event and will expire on September
23, 1998.
[9] STOCK OPTIONS
At December 31, 1995 and 1994, 481,610 shares of the Company's authorized but
unissued common stock were reserved for issuance to employees under its 1982
Stock Option Plan. Options are granted at fair market value on the date of grant
and generally become exercisable in two equal annual installments on the second
and third anniversary of the date of grant and expire eight years from the date
of grant. Options for 240,000 shares common stock granted in 1992 become
exercisable on March 31, 2001 if the Company achieves a certain profit target in
the year 2000; may become exercisable earlier if certain interim profit targets
are achieved; and to the extent not exercised, expire 10 years from the date of
grant. A summary of stock option activity related to the Company's stock option
plan is as follows:
Number of
Number of Option Price Shares
Shares Per Share Exercisable
------ --------- -----------
Outstanding at December 31, 1993 434,425 $11.06-$33.06 143,000
Granted 20,000 $13.00
Canceled (32,900) $11.06-$33.06
Outstanding at December 31, 1994 421,525 $11.06-$33.06 251,525
Granted 10,000 $10.44
Canceled (52,875) $11.06-$33.06
Outstanding at December 31, 1995 378,650 $10.44-$33.06 198,650
When options are exercised, the proceeds are credited to stockholders' equity.
In addition, the income tax savings attributable to nonqualified options
exercised are credited to paid-in surplus.
[10] EMPLOYEE BENEFIT PLANS
The Company and its U.S. subsidiaries have a defined benefit plan which covers
its executive, professional, administrative and clerical employees, subject to
certain specified service requirements. The plan is noncontributory and benefits
are based on an employee's years of service and "final average earnings", as
defined. The plan provides reduced benefits for early retirement and takes into
account offsets for social security benefits. All employees are vested after 5
years of service. Net pension cost for 1995, 1994 and 1993 follows (in
thousands):
1995 1994 1993
------ ------ ------
Service cost - benefits earned during the period $ 988 $ 1,178 $ 1,000
Interest cost on projected benefit obligation 2,956 2,936 2,862
Return on plan assets:
Actual (6,971) 1,229 (4,002)
Deferred 4,217 (3,839) 1,309
Other - - 19
-------- -------- --------
Net pension cost $ 1,190 $ 1,504 $ 1,188
======== ======== ========
Actuarial assumptions used:
Discount rate 7 %* 8 3/4%** 7 1/2%
Rate of increase in compensation 4 %* 5 1/2% 5 1/2%
Long-term rate of return on assets 8 % 8 % 8 %
* Rates were changed effective December 31, 1995 and resulted in a net
increase of $6.8 million in the projected benefit obligation referred to
below.
** Rate was changed effective December 31, 1994 and resulted in a net
decrease of $5.6 million in the projected benefit obligation referred to
below.
- 36 -
The Company's plan has assets in excess of accumulated benefit obligation. Plan
assets generally include equity and fixed income funds. The status of the
Company's employee pension benefit plan is summarized below (in thousands):
December 31,
1995 1994
-------- --------
Assets available for benefits:
Funded plan assets at fair value $37,542 $31,762
Accrued pension expense 4,122 3,610
-------- --------
Total assets $41,664 $35,372
-------- --------
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested benefits of $39,050 and $39,760 $30,537
$30,179
Effect of future salary increases 3,831 4,546
-------- --------
Projected benefit obligations $43,591 $35,083
-------- --------
Assets available more (less) than projected benefits $(1,927) $ 289
======== ========
Consisting of:
Unamortized net liability existing at date of adopting SFAS No. 87 $ (29) $ (36)
Unrecognized net loss (2,408) (268)
Unrecognized prior service cost 510 593
-------- --------
$(1,927) $ 289
======== ========
The Company also has a contributory Section 401(k) plan and a noncontributory
employee stock ownership plan (ESOP) which cover its executive, professional,
administrative and clerical employees, subject to certain specified service
requirements. Under the terms of the Section 401(k) plan, the provision is based
on a specified percentage of profits, subject to certain limitations.
Contributions to the related employee stock ownership trust (ESOT) are
determined by the Board of Directors and may be paid in cash or shares of
Company common stock.
The Company's policy is generally to fund currently the costs accrued under the
pension plan and the Section 401(k) plan.
The Company also has an unfunded supplemental retirement plan for certain
employees whose benefits under principal salaried retirement plans are reduced
because of compensation limitations under federal tax laws. Pension expense for
this plan was $.2 million in 1995 and 1994 and $.1 million in 1993. At December
31, 1995 the projected benefit obligation was $1.3 million. A corresponding
accumulated benefit obligation of $.8 million has been recognized as a liability
in the consolidated balance sheet and is equal to the amount of the vested
benefits.
In addition, the Company has an incentive compensation plan for key employees
which is generally based on achieving certain levels of profit within their
respective business units.
The aggregate amounts provided under these employee benefit plans were $7.6
million in 1995, $9.2 million in 1994 and $8.5 million in 1993.
The Company also contributes to various multiemployer union retirement plans
under collective bargaining agreements, which provide retirement benefits for
substantially all of its union employees. The aggregate amounts provided in
accordance with the requirements of these plans were $12.6 million in 1995,
$12.4 million in 1994, and $5.2 million in 1993. The Multiemployer Pension Plan
Amendments Act of 1980 defines certain employer obligations under multiemployer
plans. Information regarding union retirement plans is not available from plan
administrators to enable the Company to determine its share of unfunded vested
liabilities.
[11] Contingencies and Commitments
In connection with the Rincon Center real estate development joint venture, the
Company's wholly-owned real estate subsidiary has guaranteed the payment of
interest on both mortgage and bond financing covering a project with loans
totaling $59 million; has issued a secured letter of credit to collateralize
$3.7 million of these borrowings; has guaranteed amortization payments on these
borrowings which the Company estimates to be a maximum of $7.2 million; and has
guaranteed a master lease under a sale operating lease-back transaction. In
calculating the potential obligation under the master lease guarantee, the
Company has an agreement with its lenders which employs a 10% discount rate and
no increases in future rental rates beyond current lease terms. Based on these
assumptions, management believes its additional future obligation will not
- 37 -
exceed $2.3 million. The Company has also guaranteed the $3.7 million letter of
credit, $5.0 million of the subsidiary's $7.2 million amortization guaranty and
any obligation under the master lease during the next three years. As part of
the sale operating lease-back transaction, the joint venture, in which the
Company's real estate subsidiary is a 46% general partner, agreed to obtain a
financial commitment on behalf of the lessor to replace at least $43 million of
long-term financing by July 1, 1993. To satisfy this obligation, the partnership
successfully extended existing financing to July 1, 1998. To complete the
extension, the partnership had to advance funds to the lessor sufficient to
reduce the financing from $46.5 million to $40.5 million. Subsequent payments
through 1995 have further reduced the loan to $38.2 million. In addition, as
part of the obligations of the extension, the partnership will have to further
amortize the debt from its current level to $33 million through additional lease
payments over the next three years. If by January 1, 1998, the joint venture has
not received a further extension or new commitment for financing on the property
for at least $33 million, the lessor will have the right under the lease to
require the joint venture to purchase the property for approximately $18.8
million in excess of the then outstanding debt.
In 1993, the joint venture also extended $29 million of the $61 million
financing then outstanding through October 1, 1998. This extension required a
$.6 million up front paydown. Subsequent payments through 1995 further reduced
the loan by $2.7 million. The joint venture may be required to amortize up to
$9.1 million more of the principal, however, under certain conditions, that
amortization could be as low as $6.8 million. Total lease payments and loan
amortization obligations at Rincon Center through 1997 are as follows: $7.5
million in 1996 and $7.3 million in 1997. It is expected that some but not all
of these requirements will be generated by the project's operations. The
Company's real estate subsidiary and, to a more limited extent, the Company, is
obligated to fund any of the loan amortization and/or lease payments at Rincon
in the event sufficient funds are not generated by the property or contributed
to it by its partners. Based on current Company forecasts, it is expected the
maximum exposure to service these commitments in each of the years through 1997
is as follows: $5.4 million in 1996 and $4.0 million in 1997. Both years include
an estimate for tenant improvements which may or may not be required.
In a separate agreement related to this same property, the 20% co-general
partner has indicated it does not currently have nor does it expect to have the
financial resources to fund its share of capital calls. Therefore, the Company's
wholly-owned real estate subsidiary agreed to lend this 20% co-general partner
on an as-needed basis, its share of any capital calls which the partner cannot
meet. In return, the Company's subsidiary receives a priority return from the
partnership on those funds it advances for its partner and penalty fees in the
form of rights to certain other distributions due the borrowing partner from the
partnership. The severity of the penalty fees increases in each succeeding year
for the next several years. The subsidiary has advanced approximately $3 million
to date under this agreement.
In connection with a second real estate development joint venture known as the
Resort at Squaw Creek, the Company's wholly-owned real estate subsidiary has
guaranteed the payment of interest on mortgage financing with a total bank loan
value currently estimated at $46 million; has guaranteed $10 million of loan
principal; has posted a letter of credit for $2.0 million as its part of credit
support required to extend the maturity of the loan to May 1997; and has
guaranteed leases which aggregate $1.1 million on a present value basis as
discounted at 10%. Effective May 1, 1995, the loan was renewed for an additional
two years with an option to renew for a third year. Required principal payments
are $250,000 per quarter for the first year and $500,000 per quarter for the
second year.
The subsidiary also has an obligation through the year 2001 to cover
approximately a $2 million per year preferred return to its joint venture
partner at the Resort if the funds are not generated from hotel operations.
Although results have shown improvement since the Resort opened in late 1990, it
is not expected that hotel operations will contribute to the obligation during
1996. Under the terms of the loan extension, payment of the preferred return out
of operating profits requires lender approval.
Included in the loan agreements related to the above joint ventures, among other
things, are provisions that, under certain circumstances, could limit the
subsidiary's ability to dividend funds to the Company. In the opinion of
management, these provisions should not affect the operations of the Company or
the subsidiary.
On July 30, 1993, the U.S. District Court (D.C.), in a preliminary opinion,
upheld terminations for default on two adjacent contracts for subway
construction between Mergentime-Perini, under two joint ventures, and the
Washington Metropolitan Area Transit Authority ("WMATA") and found the
- 38 -
Mergentime Corporation, Perini Corporation and the Insurance Company of North
America, the surety, jointly and severally liable to WMATA for damages in the
amount of $16.5 million, consisting primarily of excess reprocurement costs to
complete the projects. Many issues were left partially or completely unresolved
by the opinion, including substantial joint venture claims against WMATA. As a
result of developments in the case during the third quarter of 1995, the Company
established a reserve with respect to the litigation. Management believes the
reserve should be adequate to cover the potential ultimate liability in this
matter.
Contingent liabilities also include liability of contractors for performance and
completion of both company and joint venture construction contracts. In
addition, the Company is a defendant in various lawsuits (some of which are for
significant amounts). In the opinion of management, the resolution of these
matters will not have a material effect on the accompanying financial
statements.
- 39 -
[12] UNAUDITED QUARTERLY FINANCIAL DATA
The following table sets forth unaudited quarterly financial data for the years
ended December 31, 1995 and 1994 (in thousands, except per share amounts):
1995 by Quarter
---------------------------------------------------------
1st 2nd 3rd 4th
--- --- --- ---
Revenues $263,089 $306,961 $232,974 $298,044
Net income (loss) $ 872 $ 886 $(30,674) $ 1,331
Earnings (loss) per common share $ .08 $ .08 $ (6.61) $ .17
1994 by Quarter
---------------------------------------------------------
1st 2nd 3rd 4th
--- --- --- ---
Revenues $174,391 $243,105 $304,776 $289,773
Net income (loss) $ 792 $ (2,649) $ 984 $ 1,176
Earnings (loss) per common share $ .06 $ (.73) $ .10 $ .15
[13] BUSINESS SEGMENTS AND FOREIGN OPERATIONS
The Company is currently engaged in the construction and real estate development
businesses. The Company provides general contracting, construction management
and design-build services to private clients and public agencies throughout the
United States and selected overseas locations. The Company's construction
business involves three types of operations: civil and environmental ("heavy"),
building and international. The Company's real estate development operations are
concentrated in Arizona, California, Florida, Georgia and Massachusetts;
however, the Company has not commenced the development of any new real estate
projects since 1990. The following tables set forth certain business and
geographic segment information relating to the Company's operations for the
three years ended December 31, 1995 (in thousands):
Business Segments
Revenues
1995 1994 1993
------------ ----------- ----------
Construction $1,056,673 $ 950,884 $1,030,341
Real Estate 44,395 61,161 69,775
------------ ----------- ----------
$1,101,068 $1,012,045 $1,100,116
============ =========== ==========
Income (Loss) From Operations
1995 1994 1993
------------ ----------- ----------
Construction $ (15,322) $ 13,989 $ 15,164
Real Estate (2,921) 732 240
Corporate (4,185) (5,909) (6,830)
------------ ----------- -----------
$ (22,428) $ 8,812 $ 8,574
============ =========== ===========
Assets
1995 1994 1993
------------ ------------ ----------
Construction $ 298,564 $ 262,850 $ 219,604
Real Estate 209,789 209,635 218,715
Corporate* 30,898 10,015 38,059
------------ ------------ ----------
$ 539,251 $ 482,500 $ 476,378
============ ============
RINCON CENTER ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
AS OF DECEMBER 31,==========
Capital Expenditures
1995 1994 1993
1992 AND 1991
TOGETHER WITH AUDITORS' REPORT----------- ----------- ----------
Construction $ 1,960 $ 2,491 $ 4,387
Real Estate 9,555 10,274 23,590
----------- ----------- ----------
$ 11,515 $ 12,765 $ 27,977
=========== =========== ==========
- 40 -
Depreciation
1995 1994 1993
----------- ----------- -----------
Construction $ 2,369 $ 2,551 $ 2,552
Real Estate** 400 328 963
----------- ----------- -----------
$ 2,769 $ 2,879 $ 3,515
=========== =========== ===========
Geographic Segments
Revenues
1995 1994 1993
------------ ----------- -----------
United States $1,084,390 $ 996,832 $1,064,380
Foreign 16,678 15,213 35,736
----------- ----------- -----------
$1,101,068 $1,012,045 $1,100,116
=========== =========== ===========
Income (Loss) From Operations
1995 1994 1993
----------- ----------- -----------
United States $ (15,405) $ 17,275 $ 17,249
Foreign (2,838) (2,554) (1,845)
Corporate (4,185) (5,909) (6,830)
----------- ----------- -----------
$ (22,428) $ 8,812 $ 8,574
=========== =========== ===========
Assets
1995 1994 1993
----------- ----------- -----------
United States $503,114 $ 467,298 $ 433,488
Foreign 5,239 5,187 4,831
Corporate* 30,898 10,015 38,059
----------- ----------- -----------
$539,251 $ 482,500 $ 476,378
=========== =========== ===========
* In all years, corporate assets consist principally of cash, cash
equivalents, marketable securities and other investments available for
general corporate purposes.
** Does not include approximately $3 to $4 million of depreciation that
represents its share from real estate joint ventures. (See Note 2 to
Notes to the Consolidated Financial Statements.)
Contracts with various federal, state, local and foreign governmental agencies
represented approximately 56% of construction revenues in 1995 and 1994, and 54%
in 1993.
- 41 -
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the PartnersStockholders of Rincon Center Associates,
A California Limited Partnership:Perini Corporation:
We have audited the accompanying consolidated balance sheets of Rincon Center Associates,
A California Limited PartnershipPERINI
CORPORATION (a Massachusetts corporation) and subsidiaries as of December 31,
19931995 and 1992,1994, and the related consolidated statements of operations,
changes in partners' deficitstockholders' equity and cash flows for each of the three years in the period
ended December 31, 1993.1995. These financial statements are the responsibility of
the Partnership'sCompany's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Rincon Center Associates, A
California Limited PartnershipPerini Corporation
and subsidiaries as of December 31, 19931995 and 1992,1994, and the results of itstheir
operations and itstheir cash flows for each of the three years in the period ended
December 31, 1993,1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 11, 1994
RINCON CENTER ASSOCIATES
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS26, 1996
- DECEMBER 31, 1993 AND 1992
1993 1992
ASSETS
CASH $ 120,000 $ 272,000
ACCOUNTS RECEIVABLE, net of reserves
of $239,000 and $95,000 at
December 31, 1993 and 1992,
respectively 44,000 2,074,000
DEFERRED RENT RECEIVABLE 7,883,000 7,626,000
NOTES RECEIVABLE 15,828,000 10,140,000
REAL ESTATE USED IN OPERATIONS, net 118,021,000 121,505,000
LEASEHOLD IMPROVEMENTS, net 1,855,000 1,894,000
OTHER ASSETS, net 2,855,000 2,368,000
------------ ------------
Total assets $146,606,000 $145,879,000
============ ============42 -
LIABILITIES AND PARTNERS' DEFICIT
CONSTRUCTION NOTES PAYABLE $ 62,370,000 $ 64,224,000
ACCOUNTS PAYABLE AND ACCURED
LIABILITIES 3,416,000 3,607,000
ACCRUED GROUND RENT LIABILITY, net 7,307,000 7,636,000
ACCRUED LEASE LIABILITY, net 3,102,000 3,030,000
DEFERRED INCOME 1,540,000 1,540,000
ACCRUED INTEREST DUE GENERAL
PARTNERS 33,901,000 27,432,000
DUE TO PERINI LAND AND DEVELOPMENT
COMPANY 68,399,000 61,592,000
DUE TO PACIFIC GATEWAY PROPERTIES,
INC. 17,089,000 15,390,000
------------ ------------
Total liabilities $197,124,000 $184,451,000
COMMITMENTS (NOTE 3)
PARTNERS' DEFICIT (50,518,000) (38,572,000)
------------- ------------
Total liabilities and
partners'deficit $146,606,000 $145,879,000
============ ============
The accompanying notes are an integral part of these financial
statements.
RINCON CENTER ASSOCIATES
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1993
1993 1992 1991
REVENUE:
Rental income $ 17,083,000 $ 17,583,000 $ 16,814,000
Parking and other
income 1,260,000 1,150,000 1,195,000
------------ ------------ ------------
Total revenue 18,343,000 18,733,000 18,009,000
------------ ------------ ------------
EXPENSES:
Operating 5,132,000 5,448,000 4,824,000
Administrative and
other 1,556,000 1,313,000 1,437,000
Property taxes and
insurance 2,438,000 3,200,000 1,835,000
Leases 4,515,000 3,775,000 4,755,000
Ground rent 3,391,000 3,407,000 3,437,000
Interest and letter
of credit fees 10,582,000 10,862,000 12,802,000
Depreciation and
amortization 4,040,000 4,726,000 3,487,000
------------ ------------ ------------
Total expenses 31,654,000 32,731,000 32,577,000
INTEREST INCOME 1,365,000 1,062,000 1,023,000
------------- ------------- -------------
Net loss $(11,946,000) $(12,936,000) $(13,545,000)
============= ============= =============
The accompanying notes are an integral part of these financial
statements.
RINCON CENTER ASSOCIATES
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1993
General Limited
Partners Partners Total
BALANCE,
DECEMBER 31, 1990 $ (5,923,000) $ (6,168,000) $(12,091,000)
Net loss (6,786,000) (6,759,000) (13,545,000)
------------- ------------- -------------
BALANCE,
DECEMBER 31, 1991 (12,709,000) (12,927,000) (25,636,000)
Net loss (6,481,000) (6,455,000) (12,936,000)
------------- ------------- -------------
BALANCE,
DECEMBER 31, 1992 (19,190,000) (19,382,000) (38,572,000)
Net loss (5,985,000) (5,961,000) (11,946,000)
------------- ------------- -------------
BALANCE,
DECEMBER 31, 1993 $(25,175,000) $(25,343,000) $(50,518,000)
------------- ------------- -------------
PARTNERS' PERCENTAGE
INTEREST 50.10 49.90 100.00
====== ===== ======
The accompanying notes are an integral part of these financial
statements.
RINCON CENTER ASSOCIATES
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1993
1993 1992 1991
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(11,946,000) $(12,936,000) $(13,545,000)
Adjustments to reconcile net loss to net
cash used in operating activities -
Depreciation and amortization 4,040,000 4,726,000 3,487,000
(Increase) decrease in accounts receivable 2,030,000 (1,620,000) (102,000)
(Increase) decrease in deferred rent
receivable (257,000) (479,000) (2,170,000)
(Increase) decrease in other assets (214,000) (598,000) (467,000)
Increase (decrease) in accounts payable and
accrued liabilities (191,000) 61,000 (1,072,000)
(Decrease) in accrued ground rent
liabilities (329,000) (329,000) (329,000)
Increase (decrease) in accrued lease
liability 72,000 (500,000) (946,000)
Increase in accrued interest due general
partners 6,469,000 5,271,000 7,918,000
------------- ------------- -------------
Net cash used in operating activities (326,000) (6,404,000) (7,226,000)
CASH FLOW FROM INVESTING ACTIVITIES:
Expenditure on real estate used in
operations (642,000) (369,000) (5,133,000)
Additions to leasehold improvements (118,000) - (18,000)
Additions to fixed assets (30,000) (73,000) (10,000)
Increase in notes receivable (6,000,000) (32,000) (138,000)
Payments on notes receivable 312,000 440,000 277,000
------------- ------------- -------------
Net cash used in investing activities (6,478,000) (34,000) (5,022,000)
------------- ------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from construction notes payable - 858,000 2,787,000
Payments on notes payable (1,854,000) - -
Proceeds from advances from general 8,506,000 5,634,000 8,505,000
partners ------------- ------------- -------------
Net cash provided by financing
activities 6,652,000 6,492,000 11,292,000
------------- ------------- -------------
INCREASE (DECREASE) IN CASH (152,000) 54,000 (956,000)
CASH AT BEGINNING OF YEAR 272,000 218,000 1,174,000
------------- ------------ -------------
CASH AT END OF YEAR $ 120,000 $ 272,000 $ 218,000
============ ============ ============
The accompanying notes are an integral part of these financial statements.
RINCON CENTER ASSOCIATES
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
1. PARTNERSHIP ORGANIZATION:
Rincon Center Associates, A California Limited Partnership (the Partnership)
was formed on September 18, 1984, to lease and develop land and buildings
located in the Rincon Point-South Beach Redevelopment Project Area in the
City and County of San Francisco, California. The Rincon Center Project (the
Project) comprises commercial and retail space, 320 rental housing units and
associated off-street parking. The Project was developed in two distinct
segments: Rincon One and Rincon Two.
Profits and losses are shared by the partners in accordance with their
percentage interest as provided in the partnership agreement and as shown in
the statements of changes in partners' deficit. Cash profits, as determined
by the managing general partner, are distributed to the partners in the same
percentage interest.
Perini Land and Development Company (PL&D) is the managing general partner of
the
Partnership and has the responsibility for general management, administration
and control of the Partnership's property, business
addition, PL&D provides project and general accounting services to the
Partnership (Note 7). Pacific Gateway Properties, Inc. (PGP), formerly
Perini Investment Properties, Inc., is the other general partner.
2. SIGNIFICANT ACCOUNTING POLICIES:
The accompanying financial statements have been prepared using the accrual
basis of accounting.
Real Estate Used in Operations
Real estate used in operations includes all costs capitalized during the
development of the project. These costs include interest and financing
costs, ground rent expense during construction, property taxes, tenant
improvements and other capitalizable overhead costs.
Depreciation and Amortization
The Partnership uses the straight-line method of depreciation. The
significant asset groups and their estimated useful lives are:
Structural components of buildings 60 years
Nonstructural components of buildings 25 years
All other depreciable assets 5-30 years
Leasehold improvements are amortized using the straight-line method over the
lesser of their useful lives or the lease terms.
Income Taxes
In accordance with federal and state income tax regulations, no income taxes
are levied on the Partnership; rather, such taxes are levied on the
individual partners. Consequently, no provision or liability for federal or
state income taxes is reflected in the accompanying financial statements.
Rental Income
Certain lease agreements provide for periods of free rent or stepped
increases in rent over the lease term. In such cases, revenue is recognized
at a constant rate over the term of the lease. Amounts recognized as income
but not yet due under the terms of the leases are shown in the accompanying
balance sheets as deferred rent receivable.
Statements of Cash Flows
Cash paid for interest was $2,414,000, $3,199,000 and $4,015,000 in 1993,1992
and 1991, respectively.
Accrued Lease Liability
The Partnership is leasing Rincon One from Chrysler McNally (Chrysler) over a
25-year lease term (Note 3). In connection with this lease, the Partnership
was granted a free rent concession for one year. The intent of Chrysler's
free rent provision was to match a similar provision granted by the
Partnership to an anchor sublease tenant of Rincon One, whose lease is for 10
years. The Partnership expensed rent in the first year of the lease and is
amortizing the accrued lease liability related to Rincon One over 10 years to
match the expense with the revenue recorded on the sublease.
Three amendments to the master lease agreement were made in 1993 in
connection with the extending of Chrysler's existing financing on the
property (Note 3). The rent schedule was revised which resulted in an
increase to the accrued lease liability during 1993 in order to normalize the
rent expense over the remaining lease term.
Other Assets
Other assets include prepaid expenses, deferred lease commissions and fixed
assets. Deferred lease commissions are amortized over the life of the lease.
Fixed assets are amortized over the life of the asset, which is generally
five years.
Reclassification of Prior Year Amounts
Certain prior year amounts have been reclassified to conform with the current
year presentation.
3. OPERATING LEASE, RINCON ONE:
On June 24, 1988, the Partnership sold Rincon One to Chrysler and
subsequently leased the property back under a master lease with a basic term
of 25 years and four 5-year renewal options at the Partnership's discretion.
The transaction was accounted for as a sale and operating leaseback and the
gain on the sale of $1,540,000 has been deferred.
In connection with the sale and operating leaseback of Rincon One, Chrysler
assumed and agreed to perform the Partnership's financing obligations. The
Partnership, in accordance with the master lease and several amendments in
1993, obtained a financial commitment on behalf of Chrysler to replace at
least $43,000,000 of long-term financing by July 1, 1993. To satisfy this
obligation, the Partnership successfully extended existing financing to July
1, 1998. To complete the extension, the Partnership had to advance funds
sufficient to reduce the financing from $46,500,000 to $40,500,000. The
Partnership received a 10% secured note in the principal amount of $6,000,000
from Chrysler upon the Partnership's advance of funds to reduce the
financing. If by January 1, 1998, the Partnership has not received a further
extension or new commitment for financing on the property for at least
$33,000,000, Chrysler will have the right
under the lease to require the Partnership to purchase the property for a
stipulated amount significantly in excess of the debt. The Partnership
intends to obtain financing meeting the conditions of the lease prior to
January 1, 1998.
The master lease was amended several times in 1993 in connection with the
extending of Chrysler's existing financing on the property through July 1,
1998.
Payments under the master lease agreement may be adjusted to reflect
adjustments in the rate of interest payable by Chrysler on the Rincon One
debt. Future minimum lease payments based on scheduled payments under the
master lease agreement are as follows:
1994 $ 6,565,000
1995 6,570,000
1996 6,550,000
1997 5,952,000
1998 5,634,000
Thereafter 85,120,000
4. NOTES RECEIVABLE:
At December 31, 1993 and 1992, the Partnership had the following notes
receivable:
1993 1992
Due from Chrysler secured by second deed
on trust on Rincon One, bearing interest
at 10 percent, with monthly principal
and interest payments of $150,285 in
1993 and $92,383 in 1992; unpaid balance
due July 2013 $15,469,000 $ 9,739,000
Notes from tenants secured by tenant
improvements, bearing interest at 8
percent to 11 percent, with maturities
from 1994 to 2001, due in monthly
installments 359,000 401,000
----------- -----------
$15,828,000 $10,140,000
=========== ===========
In 1993, the Partnership received a 10% secured note in the principal amount
of $6,000,000 from Chrysler upon the Partnership's advance of funds (Note 3).
5. GROUND LEASE:
The Partnership entered into a 65-year ground lease with the United States
Postal Service for the Project property on April 19, 1985. On June 24, 1988,
this lease was bifurcated into two leases (Rincon One and Rincon Two). The
terms of the original lease did not change; the dollar amounts were simply
split between the two properties. Under the terms of the leases, the
Partnership must make monthly lease payments (Basic Rent) of $101,750 and
$173,250 for Rincon One and Rincon Two, respectively. In April, 1994 and
every six years thereafter, the monthly base payments can be increased based
on the increase in the Consumer Price Index subject to a minimum of 5 percent
per year and a maximum of 8 percent per year. In addition, the Basic Rent
can be increased based on reappraisal of the underlying property on the
occurrence of certain events if those events occur prior to the regular
reappraisal dates of April 19, 2019, and each twelfth year thereafter for the
remainder of the lease term.
The lease agreement calls for the payment of certain percentage rents based
on revenues received from the subleasing of the Rincon One building.
Percentage rents paid in 1993, 1992 and 1991 were $259,000, $267,000 and
$271,000, respectively.
This lease has been accounted for as an operating lease, with minimum future
lease payments of:
1994 $ 4,120,000
1995 4,410,000
1996 4,410,000
1997 4,410,000
1998 4,290,000
Thereafter 894,853,000
During 1993, 1992 and 1991, Basic Rent was not capitalized because the entire
project was placed in service. At December 31, 1990, ground rent of
$10,407,312 was capitalized. Under the provisions of the original lease, no
lease payments were to be made from the inception of the lease (April 19,
1985) until April 18, 1987, and one-half of the regular monthly payment was
due for the period from April 19, 1987 to April 18, 1988. However, as
allowed by the lease agreement, the Partnership deferred the payment of Basic
Rent until the initial occupancy date, February 8, 1988. At December 31,
1993 and 1992, the deferred Basic Rent
and interest for the period April 19, 1987 to April 18, 1988, amount to
$552,000 and $685,000, respectively, and are being paid in 120 monthly
installments together with interest at a rate based on the average discount
rates of 90-day U.S. Treasury bills, which was approximately 3.88 percent for
the year ended December 31, 1993. The rate will be adjusted every 90 days as
long as a balance is due on the deferred rent. The remaining deferred ground
rent related to the
free rent period amounted to $6,754,000 and $6,951,000 at December 31, 1993
and 1992, respectively, and is being amortized over the lease term.
6. CONSTRUCTION NOTES PAYABLE:
Residential
The residential portion of the Project is being financed with a $36,000,000
loan from the Redevelopment Agency of the City and County of San Francisco
(the Agency), of which $34,100,000 and $34,600,000 was outstanding at
December 31, 1993 and 1992, respectively. The Agency raised these funds
through the issuance of Variable Rate Demand Multifamily Housing Revenue
Bonds (Rincon Center Project) 1985 Issue B (the Bonds).
The interest rate on the Bonds is variable at the rate required to produce a
market value for the Bonds equal to their par value. At December 31, 1993,
1992 and 1991, the effective interest rate on the bonds was 3.00 percent,
3.13 percent and 4.20 percent, respectively. Interest payments are to be
made on the first business day of each March, June, September and December.
The Partnership has the option to convert the Bonds to a fixed interest rate
at any of the above interest payment dates. The fixed rate will be the rate
required to produce a market value for the Bonds equal to their par value.
After conversion to a fixed rate, interest payments must be made on each June
1 and December 1.
The Partnership must repay the residential loan as the Bonds become due. The
Bonds shall be redeemed in at least the minimum amounts set forth below:
1994 $ 600,000
1995 600,000
1996 600,000
1997 700,000
1998 900,000
Thereafter 30,700,000
The Bonds are due December 1, 2006. The Bonds are secured by an irrevocable
letter of credit issued by Citibank in the name of the Partnership in the
amount of approximately $36,200,000. In the event that drawings are made on
the letter of credit, the Partnership has agreed to reimburse Citibank for
such drawings pursuant to the terms of a Reimbursement Agreement. The
Partnership obligations under the Reimbursement Agreement are secured by a
deed of trust on the Project and the equity letters of credit and guarantees
described below.
Commercial
The development and construction of the commercial portion of the Project was
financed pursuant to a Construction Loan Agreement between the Partnership
and Citibank of which $28,270,000 and $28,849,000 was outstanding at December
1993 and 1992, respectively. The loan, as is the irrevocable letter of
credit supporting the residential bond, is secured by a deed of trust on the
Project and equity letters of credit currently in the aggregate amount of
$9,000,000, issued to Citibank by Bank of America, N.T. & S.A. on behalf of
the general partners. PL&D has also provided a $3.5 million corporate
guarantee to support the project financing. PGP and Perini Corporation, the
parent company of PL&D, have agreed to reimburse Bank of America for any
drawings under these letters of credit. An annual fee equal to prime plus 1
percent of the aggregate amount is due to PGP and PL&D for the use of these
letters of credit. The loan is also secured by the guarantees described in
Note 7. As of December 31, 1993 and 1992, $751,000 and $0, respectively, of
accrued letter of credit fees were included in accrued interest due general
partners in the accompanying balance sheets. The total fee in 1993, 1992 and
1991 was $751,000, $909,000 and $1,180,000, respectively.
In 1993, the Partnership extended the loan to October 1, 1998, that required
a $600,000 up front paydown and an additional fee of $105,000. The loan
requires the Partnership to amortize $13,000,000 over the next five years.
Amounts are payable as follows: $1,475,000 in 1994; $2,192,000 in 1995;
$2,708,000 in 1996; $3,150,000 in 1997 and the remainder in 1998. The
Partnership obtained a swap agreement with interest rates stepping up from
3.61% to 5.96% over the loan term. At December 31, 1993 the rate on the loan
was 3.61%.
At December 31, 1992, the Partnership has purchased an option to acquire an
interest rate hedge for principal amounts totaling $46,500,000 at 11.5% until
December 1993. The total fee paid of $51,000 is included in interest and
letter of credit fees in 1992.
Additionally, the Partnership obtained short-term financing to fund tenant
improvements. The amount outstanding at December 31, 1993 and 1992, was $0
and $775,000, respectively. The loan was paid on March 31, 1993 by the
Partnership.
7. TRANSACTIONS WITH GENERAL PARTNERS:
PL&D has guaranteed the payment of both interest on the financing of the
Project and operating deficit, if any. It has also guaranteed the master
lease under the sale and operating lease-back transaction (Note 3).
In accordance with the construction loan agreement (Note 6), the general
partners have advanced monies to the Partnership to fund project costs. At
December 31, 1993 and 1992, the general partners had advanced $85,488,000 and
$76,982,000, respectively. The advances accrue interest at a rate of prime
plus 2 percent. The related accrued interest liability of $33,901,000 and
$27,432,000 as of December 31, 1993 and 1992, respectively, is reflected in
the accompanying balance sheets. For the years ended December 31, 1993, 1992
and 1991, interest expense on partner advances was $6,469,000, $6,141,000 and
$7,048,000, respectively.
Effective January 1, 1988, PL&D retained Pacific Gateway Properties
Management Corporation (PGPMC), a wholly owned subsidiary of PGP, to provide
management and leasing services for the Project. As compensation for
managing the facilities, the Partnership paid PGPMC a base management fee of
$222,000 annually until leasing the residential portion of the Project was
completed. At such time, the compensation increased to $319,200 per year or,
if greater, the sum of 3 percent of the first $13,000,000 of the annual gross
receipts plus 2 percent of receipts
in excess of the $13,000,000. The fees incurred for the years ended December
31, 1993, 1992 and 1991 were $497,000, $485,000 and $514,000, respectively,
and were included in administrative and other expenses in the accompanying
statements of operations. At December 31, 1993 and 1992, $27,000 and
$96,000, respectively, related to this fee had not been paid and is included
in accounts payable and accrued liabilities. Additionally, the Partnership
reimburses PGPMC for certain payroll costs.
RINCON CENTER ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1992, 1991 AND 1990
TOGETHER WITH AUDITORS' REPORT
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
----------------------------------------------------
To the PartnersStockholders of Rincon Center Associates,
A California Limited Partnership:Perini Corporation:
We have audited, the accompanying balance sheets of Rincon Center Associates,
A California Limited Partnership as of December 31, 1992 and 1991, and the
related statements of operations, changes in partners' deficit and cash flows
for the three years ended December 31, 1992, 1991 and 1990. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Rincon Center Associates, A
California Limited Partnership as of December 31, 1992 and 1991, and the
results of its operations and its cash flows for the three years ended
December 31, 1992, 1991 and 1990, in conformity with generally accepted
accounting principles.
San Francisco, California,
February 2, 1993
RINCON CENTER ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS--DECEMBER 31, 1992 AND 1991
1992 1991
ASSETS
CASH $ 272,450 $ 217,525
ACCOUNTS RECEIVABLE, net of
reserves of $94,969 and $60,213
at December 31, 1992 and 1991,
respectively 2,073,326 452,754
DEFERRED RENT RECEIVABLE 7,626,401 7,147,821
NOTES RECEIVABLE 10,140,144 10,486,680
REAL ESTATE USED IN OPERATIONS,
net 121,505,397 124,827,339
LEASEHOLD IMPROVEMENTS, net 1,894,035 2,151,027
OTHER ASSETS, net 2,367,087 2,536,882
------------ ------------
Total assets $145,878,840 $147,820,028
============ ============
LIABILITIES AND PARTNERS' DEFICIT
CONSTRUCTION NOTES PAYABLE $ 64,223,609 $ 63,366,870
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 3,606,324 3,545,690
ACCRUED GROUND RENT LIABILITY,
net 7,635,657 7,964,505
ACCRUED LEASE LIABILITY, net 3,029,494 3,529,855
DEFERRED INCOME 1,540,311 1,540,311
ACCRUED INTEREST DUE GENERAL
PARTNERS 27,432,444 22,161,596
DUE TO PERINI LAND AND
DEVELOPMENT COMPANY 61,592,314 57,132,226
DUE TO PACIFIC GATEWAY
PROPERTIES, INC. 15,390,273 14,215,189
------------ ------------
Total liabilities 184,450,426 173,456,242
PARTNERS' DEFICIT (38,571,586) (25,636,214)
------------ ------------
Liabilities and partners'
deficit $145,878,840 $147,820,028
============ ============
The accompanying notes are an integral part of these statements.
RINCON CENTER ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
1992 1991 1990
REVENUE:
Rental income $ 17,583,217 $ 16,814,229 $10,657,413
Parking and other
income 1,149,377 1,194,601 1,170,619
------------ ------------ -----------
Total revenue 18,732,594 18,008,830 11,828,032
------------ ------------ -----------
EXPENSES:
Operating 5,146,334 4,315,732 3,395,729
Administrative and
other 1,614,502 1,944,545 1,334,475
Property taxes and
insurance 3,200,377 1,835,409 949,078
Leases 3,774,793 4,755,463 4,957,081
Ground rent 3,406,939 3,436,746 2,255,221
Interest and letter of
credit fees 10,861,967 12,802,374 7,210,713
Depreciation and
amortization 4,726,039 3,487,034 1,800,615
------------ ------------ ------------
Total expenses 32,730,951 32,577,303 21,902,912
------------ ------------ ------------
OTHER INCOME- Interest
income 1,062,985 1,023,517 1,062,782
------------ ------------ ------------
Net loss $(12,935,372) $(13,544,956) $(9,012,098)
============ ============ ============
The accompanying notes are an integral part of these statements.
RINCON CENTER ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
General Limited
Partners Partners Total
BALANCE, DECEMBER 31, 1989 $ (1,408,133) $ (1,671,027) $ (3,079,160)
Net loss (4,515,061) (4,497,037) (9,012,098)
------------ ------------ ------------
BALANCE, DECEMBER 31, 1990 (5,923,194) (6,168,064) (12,091,258)
Net loss (6,786,023) (6,758,933) (13,544,956)
------------ ------------ ------------
BALANCE, DECEMBER 31, 1991 (12,709,217) (12,926,997) (25,636,214)
Net loss (6,480,621) (6,454,751) (12,935,372)
------------ ------------ ------------
BALANCE, DECEMBER 31, 1992 $(19,189,838) $(19,381,748) $(38,571,586)
============ ============ ============
PARTNERS' PERCENTAGE
INTEREST 50.10% 49.90% 100.00%
===== ===== ======
The accompanying notes are an integral part of these statements.
RINCON CENTER ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
1992 1991 1990
CASH FLOW FROM OPERATING
ACTIVITIES:
Net loss $(12,935,372) $(13,544,956) $(9,012,098)
Adjustments to
reconcile net loss
to net cash used in
operating
activities-
Depreciation and
amortization 4,726,039 3,487,034 1,800,615
Increase in accounts
receivable (1,620,572) (102,469) (210,746)
Increase in deferred
rent receivable (478,580) (2,169,965) (190,527)
Increase in other
assets (597,550) (465,927) (638,700)
Decrease in other
receivable - - 1,006,810
Increase (decrease) in
accounts payable and
accrued liabilities 60,634 (1,071,547) (4,685,396)
Decrease in accrued
ground rent
liability (328,848) (328,848) (328,847)
Decrease in accrued
lease liability (500,361) (945,808) (1,716,176)
Recognition of
deferred income - (1,374) (67,996)
Increase in accrued
interest due general
partners 5,270,848 7,918,261 6,701,884
------------ ------------ ------------
Net cash used in
operating
activities (6,403,762) (7,225,599) (7,341,177)
------------ ------------ ------------
CASH FLOW FROM INVESTING
ACTIVITIES:
Expenditure on real
estate used in
operations (367,631) (5,133,601) (10,334,901)
Additions to leasehold
improvements - (17,782) (2,447,205)
Additions to fixed
assets (73,392) (10,676) (111,060)
Issuance of notes
receivable (32,206) (138,669) (346,830)
Payments on notes
receivable 440,005 277,301 221,562
------------ ------------ ------------
Net cash used in
investing
activities (33,224) (5,023,427) (13,018,434)
------------ ------------ ------------
CASH FLOW FROM FINANCING
ACTIVITIES:
Proceeds from
construction
notes payable 856,739 2,787,284 2,942,807
Proceeds from advances
from general
partners 5,635,172 8,504,998 18,012,417
------------ ------------ ------------
Net cash provided by
financing
activities 6,491,911 11,292,282 20,955,224
------------ ------------ ------------
INCREASE (DECREASE) IN
CASH 54,925 (956,744) 595,613
CASH AT BEGINNING OF
YEAR 217,525 1,174,269 578,656
------------ ------------ ------------
CASH AT END OF YEAR $ 272,450 $ 217,525 $ 1,174,269
============ ============ ============
The accompanying notes are an integral part of these statements.
RINCON CENTER ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1992
1. PARTNERSHIP ORGANIZATION:
Rincon Center Associates, A California Limited Partnership (the Partnership)
was formed on September 18, 1984, to lease and develop land and buildings
located in the Rincon Point-South Beach Redevelopment Project Area in the
City and County of San Francisco, California. The Rincon Center Project (the
Project) comprises commercial and retail space, 320 rental housing units and
associated off-street parking. The Project was developed in two distinct
segments: Rincon One and Rincon Two.
Profits and losses are shared by the partners in accordance with their
percentage interests as provided in the partnership agreement and as shown in
the statement of changes in partners' deficit. Cash profits, as determined
by the managing general partner, shall be distributed to the partners in the
same percentage interest.
Perini Land and Development Company (PL&D) is the managing general partner of
the Partnership and has the responsibility for general management,
administration and control of the Partnership's property, business and
affairs. In addition, PL&D provides project and general accounting services
to the Partnership (Note 7). Pacific Gateway Properties, Inc. (PGP),
formerly Perini Investment Properties, Inc. is the other general partner.
2. SIGNIFICANT ACCOUNTING POLICIES:
The accompanying financial statements have been prepared using the accrual
basis of accounting.
Real Estate Used in Operations
Real estate used in operations includes all costs capitalized during the
development of the project. These costs include interest and financing
costs, ground rent expense during construction, property taxes, tenant
improvements and other capitalizable overhead costs. In 1990, $5,935,541 of
interest was capitalized.
Depreciation and Amortization
The Partnership uses the straight-line method of depreciation. The
significant asset groups and their estimated useful lives are:
Structural components of buildings 60 years
Nonstructural components of 25 years
buildings
All other depreciable assets 5-30
years
Leasehold improvements are amortized on the straight-line method over the
lesser of their useful lives or the lease terms.
Income Taxes
In accordance with federal and state income tax regulations, no income taxes
are levied on the Partnership; rather, such taxes are levied on the
individual partners. Consequently, no provision or liability for federal or
state income taxes is reflected in the accompanying financial statements.
Rental Income
Certain lease agreements provide for free rent or stepped increases in rent
over the lease term. In such cases, revenue is recognized at a constant rate
over the term of the lease. Amounts recognized as income but not yet due
under the terms of the leases are shown on the balance sheets as deferred
rent receivable.
Statements of Cash Flows
Cash paid for interest was $3,198,881 and $4,015,315 in 1992 and 1991,
respectively. Cash paid for interest, net of capitalized interest and
interest income paid on funds held in escrow and invested, was $3,190,246 in
1990.
Accrued Lease Liability
The Partnership is leasing Rincon One from Chrysler McNally (Chrysler) over a
25-year lease term (Note 3). In connection with this lease, the Partnership
was granted a free rent concession for one year. The intent of Chrysler's
free rent provision was to match a similar provision granted by the
Partnership to an anchor sublease tenant of Rincon One, whose lease is for 10
years. The Partnership expensed rent in the first year of the lease and is
amortizing the accrued lease liability related to Rincon One over 10 years to
match the expense with the revenue recorded on the sublease.
Other Assets
Other assets include prepaid expenses, deferred lease commissions and fixed
assets. Deferred lease commissions are amortized over the life of the lease.
Fixed assets are amortized over the life of the asset, which is generally
five years.
Reclassification of Prior Year Amounts
Certain prior year amounts have been reclassified to conform with the current
year presentation.
3. OPERATING LEASE, RINCON ONE:
On June 24, 1988, the Partnership sold Rincon One to Chrysler and
subsequently leased the property back under a master lease with a basic term
of 25 years and four 5-year renewal options at the Partnership's discretion.
The transaction was accounted for as a sale and operating leaseback and the
gain on the sale of $1,540,311 has been deferred.
Payments under the master lease agreement may be adjusted to reflect
adjustments in the rate of interest payable by Chrysler on the Rincon One
debt. Future minimum lease payments based on scheduled payments under the
master lease agreement are as follows:
1993 $ 6,639,000
1994 5,929,000
1995 5,929,000
1996 5,891,000
1997 5,906,000
Thereafter 106,405,000
The lease also permits the lessor to put the property back to the Partnership
at stipulated prices beginning January 1, 1993, if long-term financing
meeting certain conditions is not obtained. Financing has been arranged with
the current lender which meets the conditions of the lease through April 1,
1998, subsequent to year-end.
4. NOTES RECEIVABLE:
At December 31, 1992 and 1991, the Partnership had the following notes
receivable:
1992 1991
Due from Chrysler secured by second
deed of trust on Rincon One,
bearing interest at 10 percent,
with monthly principal and interest
payments of $92,383 in 1992, 1991
and 1990; unpaid balance due July
2013 $ 9,739,079 $ 9,875,504
Notes from tenants secured by
tenant improvements, bearing
interest at 10 percent to
12 percent, with maturities from
1994 to 1998, due in monthly
installments 629,179 611,176
----------- -----------
$10,368,258 $10,486,680
=========== ===========
5. GROUND LEASE:
The Partnership entered into a 65-year ground lease with the United States
Postal Service for the Project property on April 19, 1985. On June 24, 1988,
this lease was bifurcated into two leases (Rincon One and Rincon Two). The
terms of the original lease did not change; the dollar amounts were simply
split between the two properties. Under the terms of the leases, the
Partnership must make monthly lease payments (Basic Rent) of $101,750 and
$173,250 for Rincon One and Rincon Two, respectively. In February 1995 and
every six years thereafter, the monthly base payments can be increased based
on the increase in the Consumer Price Index subject to a minimum of 5 percent
per year and a maximum of 8 percent per year. In addition, the Basic Rent
can be increased based on reappraisal of the underlying property on the
occurrence of certain events if those events occur prior to the regular
reappraisal dates of April 19, 2020, and each twelfth year thereafter for the
remainder of the lease term.
The lease agreement calls for the payment of certain percentage rents based
on revenues received from the subleasing of the Rincon One building.
Percentage rents paid in 1992, 1991 and 1990 were $267,474, $271,388 and
$221,454, respectively, and are included in ground rent expense.
This lease has been accounted for as an operating lease, with minimum future
lease payments of:
1993 $ 3,436,260
1994 3,436,260
1995 3,436,260
1996 3,436,260
1997 3,436,260
Thereafter 175,036,260
During 1990, Basic Rent relating only to those portions of Rincon Two under
construction was capitalized. During 1992 and 1991, Basic Rent was not
capitalized because the entire project was placed in service. At
December 31, 1990, ground rent of $10,407,312 was capitalized.
Under the provisions of the original lease, no lease payments were to be made
from the inception of the lease (April 19, 1985) until April 18, 1987, and
one-half of the regular monthly payment was due for the period from April 19,
1987, to April 18, 1988. However, as allowed by the lease agreement, the
Partnership deferred the payment of Basic Rent until the initial occupancy
date, February 8, 1988. At December 31, 1992 and 1991, the deferred Basic
Rent and interest for the period April 19, 1987, to April 18, 1988, amount to
$684,881 and $817,439, respectively, and are being paid in 120 monthly
installments together with interest at a rate based on the average discount
rates of 90-day U.S. Treasury bills, which was approximately 4.125 percent
for the year ended December 31, 1992. The rate will be adjusted every 90
days as long as a balance is due on the deferred rent. The remaining
deferred ground rent related to the free rent period amounted to $6,950,776
and $7,047,066 at December 31, 1992 and 1991, respectively, and is being
amortized over the lease term.
6. CONSTRUCTION NOTES PAYABLE:
Residential
The residential portion of the Project is being financed with a $36,000,000
loan from the Redevelopment Agency of the City and County of San Francisco
(the Agency), of which $34,600,000 and $35,100,000 was outstanding at
December 31, 1992 and 1991, respectively. The Agency raised these funds
through the issuance of Variable Rate Demand Multifamily Housing Revenue
Bonds (Rincon Center Project) 1985 Issue B (the Bonds).
The interest rate on the Bonds is variable at the rate required to produce a
market value for the Bonds equal to their par value. At December 31, 1992,
1991 and 1990, the effective interest rate on the Bonds was 3.13 percent,
4.2 percent and 5.5 percent, respectively. Interest payments are to be made
on the first business day of each March, June, September and December.
The Partnership has the option to convert the Bonds to a fixed interest rate
at any of the above interest payment dates. The fixed rate will be the rate
required to produce a market value for the Bonds equal to their par value.
After conversion to a fixed rate, interest payments must be made on each
June 1 and December 1.
The Partnership must repay the residential loan as the Bonds become due. The
Bonds shall be redeemed in at least the minimum amounts set forth below:
1993 $ 500,000
1994 600,000
1995 600,000
1996 600,000
1997 700,000
Thereafter 31,600,000
The Bonds are due December 1, 2006. The Bonds are secured by an irrevocable
letter of credit issued by Citibank in the name of the Partnership in the
amount of approximately $36,200,000. In the event that drawings are made on
the letter of credit, the Partnership has agreed to reimburse Citibank for
such drawings pursuant to the terms of a Reimbursement Agreement. The
Partnership obligations under the Reimbursement Agreement are secured by a
deed of trust on the Project and the equity letters of credit and guarantees
described below.
Commercial
The development and construction of the commercial portion of the Project is
being financed pursuant to a Construction Loan Agreement between the
Partnership and Citibank of which $28,849,475 and $27,990,000 was outstanding
at December 31, 1992 and 1991, respectively. The loan, as is the irrevocable
letter of credit supporting the residential bond, is secured by a deed of
trust on the Project and equity letters of credit currently in the aggregate
amount of $9,000,000, issued to Citibank by Bank of America, N.T. & S.A. on
behalf of the general partners. PL&D has also provided a $3.5 million
corporate guarantee to support the project financing. PGP and Perini
Corporation, the parent company of PL&D, have agreed to reimburse Bank of
America for any drawings under these letters of credit. An annual fee equal
to prime plus 1 percent of the aggregate amount is due to PGP and PL&D for
the use of these letters of credit. The loan is also secured by the
guarantees described in Note 7. As of December 31, 1992 and 1991, $0 and
$870,033, respectively, of accrued letter of credit fees were included in
accrued interest due general partners in the accompanying balance sheet. The
total fee in 1992, 1991 and 1990 was $908,733, $1,180,394 and $1,376,199,
respectively.
The loan matured on May 31, 1988, but was extended until May 31, 1993, for an
additional fee of .5 percent of the maximum loan amount. The lender has
indicated a willingness to renegotiate the loan at its maturity. Interest on
the loan is generally at Citibank's base rate plus 1 percent, payable
monthly. The Partnership has the option to convert the loan to a fixed rate
of interest for a set period of time based upon the London Interbank Offered
Rate (LIBOR) plus 1.5 percent at the time of the conversion. The interest
rate shall be increased by .125 percent each year after the first two years
of the extension period.
At December 31, 1992, the Partnership had purchased an option to acquire an
interest rate hedge for principal amounts totaling $46,500,000 at
11.5 percent until December 1993. The total fee paid of $51,000 is included
in interest and letter of credit fees.
Additionally, the Partnership obtained short-term financing to fund tenant
improvements. The amount outstanding at December 31, 1992, was $774,134.
This amount was due at December 31, 1992, but the bank agreed to extend the
date to March 31, 1992, while the Partnership collected from the respective
tenant.
7. RELATED PARTY TRANSACTIONS:
PL&D has guaranteed the payment of both interest on the financing of the
Project and operating deficits, if any. It has also guaranteed the master
lease under the sale and operating lease-back transaction (Note 3).
In accordance with the construction loan agreement (Note 6), the general
partners have advanced monies to the Partnership to fund project costs. At
December 31, 1992 and 1991, the general partners had advanced $76,982,587 and
$71,347,415, respectively. The advances and accrued interest accrue interest
at a rate of prime plus 2 percent. The related accrued interest liability of
$27,432,445 and $21,291,563 as of December 31, 1992 and 1991, respectively is
reflected in the accompanying balance sheet. For the years ended
December 31, 1992, 1991 and 1990, interest expensed on partner advances was
$6,140,883, $7,048,277 and $3,658,993, respectively.
Effective January 1, 1988, PL&D retained Pacific Gateway Properties
Management Corporation (PGPMC), a wholly owned subsidiary of PGP, to provide
management and leasing services for the Project. As compensation for
managing the facilities, the Partnership paid PGPMC a base management fee of
$222,000 annually until leasing the residential portion of the Project was
completed. At such time, the compensation increased to $319,200 per year or,
if greater, the sum of 3 percent of the first $13,000,000 of the annual gross
receipts plus 2 percent of receipts in excess of the $13,000,000. The fees
incurred for the years ended December 31, 1992, 1991 and 1990, were $485,306,
$513,950 and $346,241, respectively, and were included in administrative and
other expense in the accompanying statement of operations. At December 31,
1992 and 1991, $96,294 and $100,353, respectively, related to this fee had
not been paid and is included in accounts payable and accrued liabilities.
Additionally, the partnership reimburses PGPMC for certain payroll costs.
SQUAW CREEK ASSOCIATES
BALANCE SHEET
MARCH 31, 1994
ALL DEPARTMENTS CONSOLIDATED
ASSETS
CURRENT ASSETS:
CASH $ 327,581.84
ACCOUNTS RECEIVABLE 2,371,634.21
INVENTORIES 1,078,549.79
PREPAID ASSETS 886,886.38
LAND HELD FOR SALE 314,457.01
--------------
TOTAL CURRENT ASSETS 4,979,109.23
PROPERTIES AND EQUIPMENT - COST:
LAND 2,001,823.54
LAND IMPROVEMENTS 39,701,908.32
BUILDINGS AND IMPROVEMENTS 63,591,248.32
FURN., FIXT. & EQUIP. - COST 23,314,880.13
PROPERTIES UNDER CONSTRUCTION 421,160.40
--------------
TOTAL PROP. AND EQUIP. - COST 129,033.020.71
ACCUMULATED DEPRECIATION:
ACC. DEP. - LAND IMPROVEMENTS (4,440,773.62)
ACC. DEP. BUILDINGS & IMPROV. (3,764,788.21)
ACC. DEP. - F, F, & E. (7,081,718.68)
--------------
TOTAL ACCUMULATED DEPRECIATION (15,287.280.51)
OTHER ASSETS - NET:
OTHER ASSETS - GROSS 6,780,624.90
ACC. AMORT. - OTHER ASSETS (4,587,036.54)
--------------
TOTAL OTHER ASSETS - NET 2,193,588.36
---------------
TOTAL ASSETS $120,916,437.79
===============
LIABILITIES AND CAPITAL
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUALS $ 4,727,353.48
OTHER LIABILITIES - CURRENT 451,223.25
INTEREST PAYABLE - CURRENT 226,593.36
---------------
TOTAL CURRENT LIABILITIES 5,405,170.09
NON-CURRENT LIABILITIES:
N/P - BANK OF AMERICA LOAN 48,013,422.86
N/P - GPH JUNIOR LOAN 14,931,327.00
I/P - GPH JUNIOR LOAN 4,921,622.52
---------------
TOTAL NON-CURRENT LIABILITIES 67,866,372.38
---------------
TOTAL LIABILITIES 73,271,542.47
PARTNERS CAPITAL
CAPITAL ACCOUNTS:
GLENCO - PERINI - HCV 63,090,864.86
PACIFIC SQUAW CREEK, INC. 33,270,026.85
---------------
CAPITAL ACCOUNTS 96,360,891.71
RETAINED EARNINGS - PRIOR YEAR (47,613,634.12)
CURRENT YEAR P&L (1,102,362.27)
----------------
RETAINED EARNINGS (48,715,996.39)
----------------
PARTNERS CAPITAL 47,644,895.32
---------------
TOTAL LIABILITIES AND CAPITAL $120,916,437.79
===============
SQUAW CREEK ASSOCIATES
INCOME STATEMENT
ALL DEPARTMENTS CONSOLIDATED
THREE MONTHS ENDED MARCH 31, 1994
--THIS YEAR-- --LAST YEAR-- --VARIANCE--
AMOUNT AMOUNT AMOUNT
REVENUES:
RESORT OPERATIONS $8,909,303.00 $9,032,880.00 $(123,577.00)
HOMESITE SALES 0.00 175.000.00 (175,000.00)
OTHER REVENUE 445.60 848.03 (402.43)
------------- ------------- -------------
TOTAL REVENUES 8,909,748.60 9,208,728.03 (298,979.43)
------------- ------------- -------------
COSTS AND EXPENSES
RESORT OPERATIONS:
DIR. COSTS AND EXP'S - 5,326,096.34 5,563,532.80 237,436.66
HOTEL
SELLING, GENERAL & ADMIN. 1,673,116.50 1,791,269.00 118,152.50
FIXED HOTEL EXPENSES 385,470.38 21,526.00 (363,944.38)
------------- ------------- -------------
TOTAL RESORT 7,384,683.02 7,376,327.80 (8,355.22)
OPERATIONS
COST OF HOMESITES SOLD:
COST OF HOMESITES SOLD 1,095.00 107,899.52 106,804.52
------------- ------------- ------------
COST OF HOMESITES SOLD 1,095.00 107,899.52 106,804.52
OTHER GENERAL AND ADMIN.:
OTHER GENERAL AND ADMIN. 135,394.01 111,168.33 (24,225.68)
------------- ------------- -------------
OTHER GENERAL AND 135,394.01 111,168.33 (24,225.68)
ADMIN. ------------- ------------- -------------
NET OPERATING INCOME 1,388,576.57 1,613,332.38 (224,755.81)
DEPRECIATION AND
AMORTIZATION:
DEPRECIATION EXPENSE 1,065,663.33 1,065,663.30 (0.03)
AMORTIZATION EXPENSE 470,417.34 451,023.33 (19,394.01)
------------- -------------- -------------
TOTAL DEPRECIATION AND 1,536,080.67 1,516,686.63 (19,394.04)
AMORT.
INTEREST EXPENSE:
INTEREST EXPENSE - B OF A 728,353.20 721,180.80 (7,172.40)
LOAN
INTEREST EXPENSE - GPW 226,504.97 224,275.00 (2,229.97)
LOAN ------------- ------------- -------------
TOTAL INTEREST EXPENSE 954,858.17 945,455.80 (9,402.37)
------------- ------------- -------------
TOTAL COSTS AND 10,012,110.87 10,057,538.08 45,427.21
EXPENSES ------------- ------------- -------------
TOTAL INCOME/(LOSS) (1,102,362.27) (848,810.05) (253,552.22)
============== ============== =============
Squaw Creek Associates
(a California general partnership)
Financial Statements
and Additional Information
December 31, 1993 and 1992
Squaw Creek Associates
(a California general partnership)
Index to Financial Statements
December 31, 1993 and 1992
Page
Financial Statements with Standard Report
Report of Independent Accountants 1
Financial Statements 2-6
Notes to Financial Statements 7-13
Additional Information
Report of Independent Accountants on Additional Information14
Details of Cumulative Preferred Returns 15
Comparison of Resort Operations Revenues and Expenses to Annual
Operating Plan 16-19
Schedule of Cash Flows Used in Operating Activities - Excluding
Homesite Operations 20
Schedule of Changes in Partners' Capital 21
Report of Independent Accountants
February 22, 1994
To the General Partners
of Squaw Creek Associates
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in partners' capital and of cash flows present fairly,
in all material respects, the financial position of Squaw Creek Associates (a
California general partnership) at December 31, 1993 and 1992, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with generally accepted auditing
standards, which require that we planthe consolidated financial statements included in this Form 10-K, and
performhave issued our report thereon dated February 26, 1996. Our audits were made for
the purpose of forming an opinion on the consolidated financial statements taken
as a whole. The supplemental schedule listed in the accompanying index is the
responsibility of the Company's management and is presented for purpose of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits to obtain reasonable assurance about whetherof the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supportingdata required to
be set forth therein in relation to the amounts and disclosures in thebasic financial statements assessingtaken as a
whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 26, 1996
- 43 -
SCHEDULE II
PERINI CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
Additions
----------------------
Balance at Charged Charged to Deductions Balance
Beginning to Costs Other from at End
Description of Year & Expenses Accounts Reserves of Year
- ----------- ---------- ---------- ---------- ---------- -------
Year Ended December 31, 1995
- ----------------------------
Reserve for doubtful accounts $ 351 $ - $ - $ - $ 351
======= ======= ==== ====== =======
Reserve for depreciation on $ 3,698 $ 387 $ - $ 641 (1) $ 3,444
======= ======= ==== ====== =======
real estate properties used
in operations
Reserve for real estate $11,471 $ - $ - $ 974 (2) $10,497
======= ======= ==== ====== =======
investments
Year Ended December 31, 1994
- ----------------------------
Reserve for doubtful accounts $ 351 $ - $ - $ - $ 351
======= ======= ==== ====== =======
Reserve for depreciation on $ 3,637 $ 328 $ - $ 267 (2) $ 3,698
======= ======= ==== ====== =======
real estate properties used
in operations
Reserve for real estate $20,838 $ - $ - $9,367 (2) $11,471
======= ======= ==== ====== =======
investments
Year Ended December 31, 1993
- ----------------------------
Reserve for doubtful accounts $ 351 $ - $ - $ - $ 351
======= ======= ==== ====== =======
Reserve for depreciation on
real estate properties used
in operations $ 3,181 $ 920 $ - $ 464 (2) $ 3,637
======= ======= ==== ====== =======
Reserve for real estate
investments $29,968 $ - $ - $9,130 (2) $20,838
======= ======= ==== ====== =======
(1) Represents reserve reclassed with related asset to "Real estate inventory".
(2) Represents sales of real estate properties.
- 44 -
EXHIBIT INDEX
The following designated exhibits are, as indicated below, either filed herewith
or have heretofore been filed with the accounting principles usedSecurities and significant estimates madeExchange Commission under
the Securities Act of 1933 or the Securities Act of 1934 and are referred to and
incorporated herein by management,reference to such filings.
Exhibit 3. Articles of Incorporation and evaluatingBy-laws
Incorporated herein by reference:
3.1 Restated Articles of Organization - As
amended through July 7, 1994 - Exhibit 3.1
to 1994 Form 10-K, as filed.
3.2 By-laws - As amended through September 14,
1990 - Exhibit 3.2 to 1991 Form 10-K, as
filed.
Exhibit 4. Instruments Defining the overall
financial statement presentation. We believe that our audits provideRights of Security Holders,
Including Indentures
Incorporated herein by reference:
4.1 Certificate of Vote of Directors
Establishing a reasonable basisSeries of a Class of Stock
determining the relative rights and
preferences of the $21.25 Convertible
Exchangeable Preferred Stock - Exhibit 4(a)
to Amendment No. 1 to Form S-2 Registration
Statement filed June 19, 1987; SEC
Registration No. 33-14434.
4.2 Form of Deposit Agreement, including form of
Depositary Receipt - Exhibit 4(b) to
Amendment No. 1 to Form S-2 Registration
Statement filed June 19, 1987; SEC
Registration No. 33-14434.
4.3 Form of Indenture with respect to the 8 1/2%
Convertible Subordinated Debentures Due June
15, 2012, including form of Debenture -
Exhibit 4(c) to Amendment No. 1 to Form S-2
Registration Statement filed June 19, 1987;
SEC Registration No. 33-14434.
4.4 Shareholder Rights Agreement and Certificate
of Vote of Directors adopting a Shareholders
Rights Plan providing for the opinion expressed above.
The Partnership has inissuance of a
Series A Junior Participating Cumulative
Preferred Stock purchase rights as a
dividend to all shareholders of record on
October 6, 1988, as amended and restated as
of May 17, 1990 - filed herewith.
Exhibit 10. Material Contracts
Incorporated herein by reference:
10.1 1982 Stock Option and Long Term Performance
Incentive Plan - Exhibit A to Registrant's
Proxy Statement for Annual Meeting of
Stockholders dated April 15, 1992.
10.2 Perini Corporation Amended and Restated
General Incentive Compensation Plan -
Exhibit 10.2 to 1991 Form 10-K, as filed.
10.3 Perini Corporation Amended and Restated
Construction Business Unit Incentive
Compensation Plan - Exhibit 10.3 to 1991
Form 10-K, as filed.
10.4 $125 million Credit Agreement dated as of
December 6, 1994 among Perini Corporation,
the past relied upon,Banks listed herein, Morgan Guaranty
Trust Company of New York, as Agent, and
will continueShawmut Bank, N.A., Co-Agent Exhibit 10.4 to
rely upon,
cash provided by partner contributions to service operating cash shortfalls.
Squaw Creek Associates
(a California general partnership)
Balance Sheet
December 31,
1993 1992
Assets
Current assets:
Cash $ 454,395 $ 441,170
Accounts receivable1994 Form 10-K, as filed.
- trade 838,554 1,038,319
Accounts receivable45 -
other 660,821 375,649
Inventories 1,159,113 1,153,658
Prepaid expenses 652,009 486,347
Land held for sale 314,457 399,775
------------ ------------
Total current assets 4,079,349 3,894,918
Property and equipment, net 114,117,662 117,699,950
Deferred expenses, net 2,552,040 3,985,846
Deposit for land purchase 375,000 -
------------ ------------
Total assets $121,124,051 $125,580,714
Liabilities and partners' capital
Current liabilities:
Trade and other accounts payable $ 3,399,876 $ 4,078,590
Construction payables 65,974 101,547
Due to affiliates 10,818 101,813
Customer advance deposits 730,187 850,827
Current portionEXHIBIT INDEX
(Continued)
10.5 Amendment No. 1 as of obligations under
capital leases 470,970 348,452
------------ ------------
Total current liabilities 4,677,825 5,481,229
Notes payable 48,013,423 48,013,423
Partner loan 14,931,327 14,931,327
Accrued interest on partner loan 4,695,118 3,783,235
Obligations under capital leases, less current
portion 589,848 951,806
------------ ------------
Total liabilities 72,907,541 73,161,020
Commitments (Note 8)
Partners' capital 48,216,510 52,419,694
------------ ------------
Total liabities and partners' capital $121,124,051 $125,580,714
============ ============
See accompanying notes to financial statements.
Squaw Creek Associates
(a California general partnership)
Statement of Operations
For the Year Ended
December 31
1993 1992
Revenue
Resort operations $29,038,722 $ 22,126,014
Sales of homesites 177,967 3,718,690
----------- ------------
29,216,689 25,844,704
----------- ------------
Expenses
Resort operations 20,919,792 19,741,176
Resort selling, general and administrative 6,224,580 6,826,032
Partnership selling, general and
administrative 473,006 546,929
Cost of homesites sold, including selling
and other expenses 111,696 2,215,547
Legal settlement - 1,723,158
----------- ------------
27,729,074 31,052,842
----------- ------------
Income (loss) before depreciation,
amortization and interest expense 1,487,615 (5,208,138)
Depreciation and amortization 6,326,004 6,248,185
Interest expense 3,844,144 4,501,357
------------ ------------
Net loss $(8,682,533) $(15,957,680)
See accompanying notes to financial statements.
Squaw Creek Associates
(a California general partnership
Statement of Changes in Partners' Capital
Balance at December 31, 1991 $ 61,568,115
Contributions 14,657,060
Distributions (4,416,474)
Reclassification (Note 1) (3,431,327)
Net loss (15,957,680)
-------------
Balance at December 31, 1992 52,419,694
Contributions 6,630,348
Distributions (2,150,999)
Net loss (8,682,533)
-------------
Balance at December 31, 1993 $ 48,216,510
============
See accompanying notes to financial statements.
Squaw Creek Associates
(a California general partnership)
Statement of Cash Flows
For the year ended
December 31,
1993 1992
Cash flows from operating activities
Net loss $(8,682,533) $(15,957,680)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 6,326,004 6,248,185
Non-cash costs of homesites sold 85,318 1,796,487
Note receivable, homesites sold (87,500) -
Changes in operating assets and
liabilities:
Accounts receivable and prepaid
expenses (251,069) (529,593)
Inventories (5,455) 410,349
Accounts payable and other
liabilities (834,927) 1,367,535
Due to affiliates (90,995) (324,138)
Accrued interest on partner loan 911,883 1,036,956
------------ -------------
Net cash used in operating activities (2,629,274) (5,951,899)
------------ -------------
Cash flows from investing activities
Additions to property and equipment (1,132,867) (1,848,602)
Deposit for land purchase (375,000) -
Deferred expenses - (662,149)
------------ -------------
Net cash used in investing activities (1,507,867) (2,510,751)
------------ -------------
Cash flows from financing activities
Partner contributions 6,630,348 14,657,060
Partner distributions (2,063,499) (4,416,474)
Repayment of note payable and obligations
under capital leases (416,483) (1,996,238)
------------ -------------
Net cash provided by financing activities 4,150,366 8,244,348
----------- ------------
Net increase (decrease) in cash 13,225 (218,302)
Cash at beginning of year 441,170 659,472
----------- -------------
Cash at end of year $ 454,395 $ 441,170
=========== ============
Supplemental disclosure of cash flow
information
Cash paid during the year for interest $ 3,141,989 $ 3,698,599
=========== ============
Supplemental disclosure of noncash investing and financing activities
PursuantFebruary 26, 1996 to
the second amendmentCredit Agreement dated as of December 6,
1994 among Perini Corporation, the Banks
listed herein, Morgan Guaranty Trust Company
of New York, as Agent, and Fleet National
Bank of Massachusetts (f/k/a Shawmut Bank,
N.A.), as Co- Agent - filed herewith.
10.6 Bridge Credit Agreement dated as of February
26, 1996 among Perini Corporation, the
Bridge Banks listed herein, Morgan Guaranty
Trust Company of New York, as Agent, and
Fleet National Bank of Massachusetts (f/k/a
Shawmut Bank, N.A.) as Co-Agent - filed
herewith.
Exhibit 22. Subsidiaries of Perini Corporation - filed herewith.
Exhibit 23. Consent of Independent Public Accountants - filed herewith.
Exhibit 24. Power of Attorney - filed herewith.
Exhibit 27. Financial Data Schedule - filed herewith.
- 46 -
EXHIBIT 22
PERINI CORPORATION
SUBSIDIARIES OF THE REGISTRANT
Percentage of
Interest or
Voting
Name Place of Organization Securities Owned
---- --------------------- ----------------
Perini Corporation Massachusetts
Perini Building Company, Inc. Arizona 100%
Pioneer Construction, Inc. West Virginia 100%
Perini Environmental Services, Inc. Delaware 100%
International Construction Management Delaware 100%
Services, Inc.
Percon Constructors, Inc. Delaware 100%
Perini International Corporation Massachusetts 100%
Bow Leasing Company, Inc. New Hampshire 100%
Perini Land & Development Company Massachusetts 100%
Paramount Development Massachusetts 100%
Associates, Inc.
I-10 Industrial Park Developers Arizona General 80%
Partnership
Perini Resorts, Inc. California 100%
Glenco-Perini - HCV Partners California Limited 45%
Partnership
Squaw Creek Associates California General 40%
Partnership
Perland Realty Associates, Inc. Florida 100%
Rincon Center Associates California Limited 46%
Partnership
Perini Central Limited Partnership Arizona Limited 75%
Partnership
Perini Eagle Limited Partnership Arizona Limited 50%
Partnership
Perini/138 Joint Venture Georgia General 49%
Partnership
Perini/RSEA Partnership Georgia General 50%
Partnership
- 47 -
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the Partnership agreement, during the
year ended December 31, 1992, $3,431,327 was reclassified from partners'
capital to partner loan (Notes 1 and 5).
During the years ended December 31, 1993 and 1992, the Partnership executed
lease arrangements which qualify for treatment as capital leases.
Accordingly, the Partnership has recorded an asset under capital lease and
related capital lease obligationuse of $177,043 and $311,060, respectively,our
reports, dated February 26, 1996, included in Perini Corporation's Annual Report
on this Form 10-K for the year ended December 31, 19931995, and 1992.
Duringinto the year ended December 31, 1993,Company's
previously filed Registration Statements Nos. 2-82117, 33-24646, 33-46961,
33-53190, 33-53192, 33-60654, 33- 70206, 33-52967 and 33-58519.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 26, 1996
- 48 -
EXHIBIT 24
POWER OF ATTORNEY
We, the Partnership distributed a note
receivable worth $87,500undersigned, Directors of Perini Corporation, hereby severally
constitute David B. Perini, John H. Schwarz and Richard E. Burnham, and each of
them singly, our true and lawful attorneys, with full power to onethem and to each
of its partners.
1. Organization
Nature of Business
Squaw Creek Associates, a California general partnership (the Partnership),
was formed underthem to sign for us, and in our names in the provisions of a partnership agreement dated June 3, 1988
(the Agreement)capacities indicated below, any
Annual Report on Form 10-K pursuant to own, develop and manage The Resort at Squaw Creek, a 405
room resort facility located in Olympic Valley, California (the Resort). The
Resort was substantially complete on December 19, 1990 and commenced
operations on that date. In addition, the Partnership has developed for sale
48 single family homesites on land surrounding the Resort. At December 31,
1993, 3 homesites remain unsold.
Ownership
During the year ended December 31, 1992, oneSection 13 or 15(d) of the general partnership
interests was sold,Securities
Exchange Act of 1934 to be filed with the Securities and the Agreement was amended. SubsequentExchange Commission and
any and all amendments to said Annual Report on Form 10-K, hereby ratifying and
confirming our signatures as they may be signed by our said Attorneys to said
Annual Report on Form 10-K and to any and all amendments thereto and generally
to do all such things in our names and behalf and in connectionour said capacities as will
enable Perini Corporation to comply with this transaction, the Partnership successfully extended the
maturity date of its note payable (Note 4). Currently, the Partnership is
owned by Glenco-Perini-HCV (GPH), a California limited partnership (40%), and
Pacific Squaw Creek, Inc. (PSC), a California corporation (60%). PSC serves
as the managing partner and receives a management fee for services rendered
to the Partnership based upon the results of operations, as defined in the
amended Agreement.
In conjunction with the change in ownership mentioned above, and under the provisions of the Securities
Exchange Act of 1934, as amended, Agreement, certain modifications were made to the
partners' capital accounts and the partner loan. As a result, the partner
loan was increased by $3,431,327, the GPH capital account was decreased by
the same amount and certain components of equity used to determine preferred
returns were adjusted.
2. Accounting Policies
Development costs
Land acquisition costs and certain other development costs were incurred by
affiliatesall requirements of the partners prior to the formation of the Partnership. These
costs were assumed by GPH ($3,254,063)Securities and
contributed to the Partnership as
the initial capital contribution. The Partnership used the cost basis of the
previous owners to record the landExchange Commission.
WITNESS our hands and other development costs contributed.
The Agreement assigned a value of $13,500,000 to the GPH contributions
($4,000,000 in cash and $9,500,000 attributable to the land) for the purpose
of calculating certain preferred returns, as defined.
Land development costs contributed to the Partnership and the cost incurred
in connection with development of the Resort (including amenities) were
capitalized and allocated to the related project components. Real estate
taxes, insurance, general and administrative, marketing and interest expense
were capitalized during the development period. No interest costs were
capitalized during 1993 and 1992.
Depreciation
Depreciation is computed using the straight-line method over the estimated
useful lives of the respective property (25 to 60 years) and equipment (5 to
12 years). For assets under capital lease, amortization is provided over the
lesser of the estimated useful life of the asset or the lease term.
Contributions
The Agreement provides that funds required to support operation of the Resort
in excess of funds available from operations must be provided by PSC and GPH
in the form of additional capital contributions (Shortfall Contributions).
The first $2,500,000 of Shortfall Contributions was the responsibility of
GPH; all additional Shortfall Contributions require a 60% capital
contribution by PSC and a 40% capital contribution by GPH. In addition, as
defined in the Agreement, GPH is required to contribute cash necessary for
the Partnership to make certain preferred return distributions to PSC.
Allocation of profits and losses
The Agreement provides that net profits of the Partnership are allocated to
the partners in accordance with their respective percentage interests, after
special allocations are made for depreciation and certain preferred returns,
as defined. Net losses of the Partnership are allocated so as to entirely
offset previous allocations of net profits and then as follows: $13,500,000
to GPH, to the extent of GPH's additional capital contributions (excluding
Shortfall Contributions), then to GPH and PSC to the extent of their
Shortfall Contributions and, thereafter, in accordance with the partners'
respective interests.
Distribution of cash flow
Cash flow from operations and capital transactions are distributed to the
partners in accordance with the Agreement. The Agreement provides that each
of the partners are entitled to various preferred returns based upon
specifically defined capital amounts. At December 31, 1993, PSC and GPH had
cumulative preferred returns totaling $13,415,843 and $28,001,419,
respectively.
Inventories
Inventories consist of food and beverage, apparel and other consumer products
for retail sale at the Resort, and provisions (food and beverage and other
incidentals) for use in Resort operations. Inventories are accounted forcommon seal on
a first-in, first-out basis and are stated at the lower of cost or market.
Inventories also include hotel supplies such as china, glassware, silver and
other reusable items which are valued at original cost of the par stock
purchased less a provision for normal use, damage and loss. All subsequent
purchases of these items are expensed in the period purchased.
Deferred expenses
Costs incurred which relate to activities having future benefit to the
Partnership are deferred. Deferred expenses principally include costs
incurred in connection with bringing the Resort to full operational capacity.
Such amounts are being amortized over a period of 60 months beginning at the date Resort operations commenced. Also included are deferred financing fees,
which are amortized over the life of the related loan agreement.
At December 31, 1993 and 1992, accumulated amortization totals $4,228,585 and
$2,794,779, respectively.
Land held for sale
The Partnership has developed residential homesites on land adjacent to the
Resort. Revenue from parcels sold is recognized at the time title passes to
the buyer and full funding is received. Costs of parcels sold are based on
an allocation of the cost of developing the parcels, determined using the
ratio of each parcel's sales proceeds to the total expected sales proceeds
for all parcels. The cost of developing the parcels includes certain
marketing, selling, general and administrative and interest costs that were
incurred during the development period. The Agreement provides that net
proceeds from homesite sales be used to reduce the outstanding note payable
balance and for remaining development costs.
Deposit for land purchase
The Partnership has cash that is held in escrow for the purchase of land
located adjacent to the Resort (Note 8).
Income taxes
Consideration of income taxes is not necessary in the financial statements of
the Partnership because, as a partnership, it is not subject to income tax
and the tax effect of its activities accrues to the partners.
3. Property and Equipment
Property and equipment consist of the following:
1993 1992
Land $ 1,574,202 $ 1,574,202
Land improvements 39,763,047 39,658,830
Buildings and improvement 63,376,837 62,935,293
Furniture, fixtures and equipment 21,211,236 20,765,426
Furniture, fixtures and equipment
under capital lease 1,985,982 1,808,939
Construction in progress 507,546 381,075
------------ ------------
128,418,850 127,123,765
(14,301,188) (9,423,815)
------------- -------------
$114,117,662 $117,699,950
============ ============
Certain of the above assets are pledged as security for the construction loan
and the partner loan (Notes 4 and 5).
Accumulated amortization on assets under capital lease totaled $1,060,923 and
$639,286 at December 31, 1993 and 1992, respectively, and is included above.
Related amortization expense for the years ended December 31, 1993 and 1992
totaled $421,637 and $332,985, respectively.
4. Note Payable
The Partnership has outstanding a note payable relating to construction of
the Resort and development of the homesites. Depending upon the form of the
borrowing, interest is payable monthly at the applicable rate plus a margin
of 1.25% for borrowings based on prime rate; a margin of 2.5% for borrowings
based on the Eurodollar rate; or a margin of 2.625% for borrowings based upon
the CD rate. The interest rate at December 31, 1993 and 1992 was 6%. During
1992, the note agreement was modified and extended through May 1, 1995.
The note payable is secured by the Resort and remaining homesites, and by the
assignment of certain agreements related principally to operation of the
Resort. The terms of the loan agreement prohibit capital distributions from
net operating cash flows of the Partnership until it is retired.set forth below.
s/David B. Perini Land
and Development Corporation (Perini), an affiliate of GPH, has provided a
guarantee for $10,000,000 in outstanding principal and payment of unpaid
interest on this loan. In addition, the partners have provided the lender
with letters of credit totaling $4,000,000 at December 31, 1993 as guarantee
of the related debt service obligation.
5. Partner Loan
The Partnership has outstanding $14,931,327 in the form of a loan from GPH at
December 31, 1993 and 1992. Under the terms of the Agreement, during the
construction period the Partnership had the ability to borrow funds from GPH
as necessary to pay for obligations arising from construction. The loan
bears interest at the same rate of interest as due under the note payable
discussed at Note 4. The loan and any accrued interest payable, except in
certain circumstances described in the Agreement, will be repaid from
positive cash flows from operations and has priority over other Partnership
distributions of positive cash flows. The loan is secured by a second deed
of trust on the Resort. Management has classified this loan and the related
accrued interest as non-current liabilities since repayment of these amounts
will not occur in 1994.
Interest expense under the partner loan totaled $911,883 and $1,036,956 in
1993 and 1992, respectively.
6. Related Party Transactions
The Partnership paid approximately $53,256 and $439,000 toDirector March 13, 1996
- ----------------- -------- --------------
David B. Perini and its
affiliates during 1993 and 1992, respectively, for administrative services
provided.
During 1993, the Partnership incurred costs totalling $306,525 in connection
with management services provided by PSC under the terms of the Agreement and
the related amendment. In 1992, the Partnership incurred costs totaling
$130,000 and $99,962 in connection with management services provided by GPH
and PSC, respectively.
During 1992, the Partnership entered into certain subleases for equipment
withDate
s/Joseph R. Perini and its parent corporation,Director March 13, 1996
- ------------------ -------- --------------
Joseph R. Perini Corporation. Under the
sublease arrangements, the Partnership pays approximately $102,000 annually
relating to leases which expire in 1996.
7. Resort Management Agreement
The Resort is managed by Benchmark Management Company (BMC) under an
agreement that provides for fees based upon the Resort's operating results.
A total of $651,648 and $648,700 was paid to BMC for management services in
1993 and 1992, respectively. During 1992 the agreement with BMC was amended
to allow for certain reductions in the management fee based on specified
performance factors. As a result, the Partnership is owed approximately
$555,200 and $325,000 by BMC for fee reductions at December 31, 1993 and
1992, respectively.
8. Commitments
The Partnership has entered into various lease agreements for land, buildings
and equipment. The lease terms are primarily for one or two year periods
except as follows:Date
s/Richard J. Boushka Director March 13, 1996
- -------------------- -------- --------------
Richard J. Boushka Date
s/Marshall M. Criser Director March 13, 1996
- -------------------- -------- --------------
Marshall M. Criser Date
s/Thomas E. Dailey Director March 13, 1996
- At December 31, 1993 the Partnership had two separate ground lease
agreements for approximately 24 acres of land in Olympic Valley,
California. The primary use of the land is for the Resort's golf course.
These agreements include escalation clauses that will increase the
scheduled rents due beginning in 1992 based on increases in the Consumer
Price Index. Subsequent to December 31, 1993, the Partnership completed
the purchase, for $350,000, of the land subject to one of these ground
leases (Note 2). Accordingly, this lease is not included in the schedule
of future minimum lease payments below.------------------ -------- --------------
Thomas E. Dailey Date
s/Albert A. Dorman Director March 13, 1996
- ------------------ -------- --------------
Albert A. Dorman Date
s/Arthur J. Fox, Jr. Director March 13, 1996
- -------------------- -------- --------------
Arthur J. Fox, Jr. Date
Director March 13, 1996
- An operating lease through May-------------------- -------- --------------
Nancy Hawthorne Date
s/John J. McHale Director March 13, 1996
for storage facilities.
- ---------------- -------- --------------
John J. McHale Date
s/Jane E. Newman Director March 13, 1996
- ---------------- -------- --------------
Jane E. Newman Date
s/Bart W. Perini Director March 13, 1996
- Various capital and operating leases for equipment.
Rent expense for land, building and equipment was approximately $311,000
and $497,000 for 1993 and 1992, respectively. The future minimum lease
payments for all leases existing at December 31, 1993 are as follows:
Capital Operating
Leases Leases
1994 $ 601,128 $ 217,644
1995 585,478 215,311
1996 59,524 183,342
1997 2,576 158,696
1998---------------- -------- --------------
Bart W. Perini Date
- 126,546
Thereafter49 - 3,818,327
----------- ----------
1,248,706 $4,719,866
==========
Less amounts representing interest (187,888)
-----------
Present value of obligations 1,060,818
Less current portion of obligations under
capital leases (470,970)
-----------
$ 589,848
===========
9. Legal Settlement
The Partnership, together with its partners and several affiliated entities,
was a defendant in a lawsuit seeking damages for alleged malicious
prosecution in connection with a lawsuit the Partnership brought against the
Institute for Conservation Education, the Sierra Club and several individuals
alleging breach of contract, among other things, relating to agreements
between the parties. During 1992 and prior to the scheduled court date, the
Partnership agreed to a settlement of this matter. The aggregate settlement
amount was $2,250,000; legal and related costs incurred by the Partnership
relating to this matter totaled $1,075,890. Of the total costs, $1,325,890
was covered by the insurance carriers of the Partnership and its legal
counsel. The remaining amounts are the direct responsibility of the
Partnership, and have been properly recorded in the accompanying financial
statements. As of December 31, 1993, all amounts have been paid.
Audited Financial Statements
and Other Financial Information
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Years ended December 31, 1991 and 1990
with Report of Independent Auditors
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Audited Financial Statements
and Other Financial Information
Years ended December 31, 1991 and 1990
CONTENTS
Report of Independent Auditors 1
Audited Financial Statements
Balance Sheets 2
Statements of Revenue and Expenses 4
Statements of Changes in Partners' Capital 5
Statement of Cash Flows 6
Notes to Financial Statements 7
Other Financial Information
Report of Independent Auditors on Other Financial
Information 16
Details of Cumulative Preferred Return 17
Comparison of Resort Operations Revenue and Expenses to
Annual Operating Plan 18
Schedules of Cash Flows used by Operating Activities
Excluding Homesite Operations, Accrued Interest Payable -
Affiliate and Initial Purchase of Provisions Inventories 22
Schedule of Changes in Partners' Capital 23
Report of Independent Auditors
The General Partners
Squaw Creek Associates
We have audited the accompanying balance sheets of Squaw Creek Associates (a
California general partnership) (dba The Resort at Squaw Creek) as of
December 31, 1991 and 1990 and the related statements of revenue and
expenses, changes in partners' capital and cash flows for the years then
ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conduct our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Squaw Creek Associates at
December 31, 1991 and 1990, and the results of its operations and cash flows
for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that Squaw
Creek Associates will continue as a going concern. As discussed in Note 1 to
the financial statements, the Partnership has sustained operating cash flow
deficits and operating losses and has been unable to reach agreement with its
lender regarding terms of an extension of its note payable that was due on
August 1, 1991. These conditions raise substantial doubt about the
Partnership's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1 to the financial
statements. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty. In addition, recovery of
the Partnership's investment in the Resort is dependent upon the Resort's
ability to generate profits from operations and/or from disposition of the
property, the achievement of which cannot be determined at this time.
As discussed in Note 4 to the financial statements, in December 1990 the
Partnership became a defendant in a lawsuit alleging malicious prosecution,
among other claims, in connection with a lawsuit brought by the Partnership
against a third party. The Partnership denies all liability and is
vigorously defending against these claims. The ultimate outcome of this
litigation cannot be determined. Accordingly, no provision for any liability
that may result has been made in the financial statements.
February 22, 1992
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Balance Sheets
December 31
1991 1990
Assets
Current assets:
Cash $ 659,472 $ 1,244,128
Accounts receivable:
Trade 754,559 433,237
Other 202,971 177,688
------------ ------------
957,530 610,925
Inventories:
Inventories - retail 676,214 397,170
Inventories - provisions 383,543 268,023
Hotel supplies 504,250 759,000
------------ ------------
1,564,007 1,424,193
Prepaid expenses 413,192 215,205
Land held for sale 2,196,262 3,528,103
------------ ------------
Total current assets 5,790,463 7,022,554
Property and equipment, at cost:
Land 925,397 925,397
Land improvements 29,696,458 24,188,117
Buildings and improvements 66,014,868 64,541,702
Furniture, fixtures and equipment 28,877,507 27,416,383
------------ ------------
125,514,230 117,071,599
Accumulated depreciation 4,690,428 80,640
------------ ------------
120,823,802 116,990,959
Deferred expenses (net of accumulated
amortization of $1,518,154 and $0 at
December 31, 1991 and 1990, respectively) 4,649,505 80,640
------------ ------------
Total assets $131,263,770 $130,205,714
============ ============
December 31
1991 1990
Liabilities and Partners' Capital
Current Liabilities:
Accounts payable:
Construction $ 204,762 $ 10,274,938
Trade or other 3,561,882 2,220,323
Retainage payable 100,332 1,836,654
Due to affiliates 425,951 396,305
------------ ------------
4,292,927 14,728,220
Current portion of obligations under
capital leases 457,619 256,000
Note payable 49,715,159 43,766,924
------------ ------------
Total current liabilities 54,465,705 58,751,144
Obligations under capital leases, net
of current portion 983,671 1,193,497
Accrued interest payable - affiliate 2,746,279 1,653,072
Loan payable - affiliate 11,500,000 11,500,000
------------ ------------
Total liabilities 69,695,655 73,097,713
Partners' capital 61,568,115 57,108,001
------------ ------------
Total liabilities and partners' $131,263,770 $130,205,714
capital ============ ============
See accompanying notes.
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Statements of Revenue and Expenses
Year ended December 31
1991 1990
Revenue:
Resort operations $ 13,055,986 $ 787,800
Sales of homesites 2,742,833 2,305,000
------------ ----------
15,798,819 3,092,800
Costs and expenses:
Resort operations:
Direct costs and expenses 13,042,821 916,052
Selling, general and administrative
expenses 10,288,443 646,168
Fixed expenses 817,661 62,814
Cost of homesites sold, including selling 2,246,386 1,369,708
and other expenses
Depreciation and amortization 6,180,161 10,320
Interest expense 6,264,624 200,628
------------ ----------
38,840,096 3,205,690
------------ ----------
Net loss $(23,041,277) $ (112,890)
============= ===========
See accompanying notes.
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Statements of Changes in Partners' Capital
Partners' capital at December 31, 1989 $34,054,063
Additional capital contributions 23,166,828
Net loss (112,890)
------------
Partners' capital at December 31, 1990 57,108,001
Additional capital contributions 27,501,391
Net loss (23,041,277)
------------
Partners' capital at December 31, 1991 $61,568,115
===========
See accompanying notes.
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Statements of Cash Flows
Year ended December 31,
1991 1990
Operating activities
Net loss $(23,041,277) $ (112,890)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Depreciation and amortization expense 6,180,161 10,320
Cost of homesites sold related to land and
development costs 1,455,933 1,020,701
Increase in accrued interest payable to
affiliate 1,093,207 1,173,252
Changes in operating assets and
liabilities:
Accounts receivable and prepaid expenses (544,592) (826,130)
Inventories - retail (279,044) (397,170)
Inventories - provisions (115,520) (268,023)
Hotel supplies 254,750 (759,000)
Accounts payable - trade and other 1,341,559 2,220,323
Due to affiliates - current 29,646 79,272
------------ ------------
Net cash (used in) provided by operating
activities (13,625,177) 2,140,655
Investing activities
Additions to property, equipment and
deferred expenses (8,307,348) (72,496,868)
(Decrease) increase in construction accounts
and retainage payable (11,806,498) 2,706,647
------------- -----------
Net cash used in investing activities (20,113,846) (69,790,221)
Financing activities
Proceeds from loan payable - affiliate - 2,504,357
Proceeds from partners' capital
contributions 27,501,391 23,166,828
Proceeds from note payable 7,068,806 44,053,145
Repayment of note payable and obligations
under capital leases (1,415,830) (873,161)
------------- ------------
Net cash provided by financing activities 33,154,367 68,851,169
------------- -----------
Net (decrease) increase in cash (584,656) 1,201,603
Cash at beginning of year 1,244,128 42,525
------------- -----------
Cash at end of year $ 659,472 $ 1,244,128
============ ===========
Supplemental cash flow disclosures:
Cash paid for interest $ 4,862,870 $ 159,000
============ ===========
See accompanying notes.
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Notes to Financial Statements
December 31, 1991 and 1990
1. Accounting Policies
Nature of Business
Squaw Creek Associates (the Partnership) is a California general partnership
formed through the Partnership Agreement (Agreement) dated June 3, 1988 to
own, develop and manage a resort located in Placer County, California (the
Resort). The Resort was substantially complete on December 19, 1990 and
commenced operations on that date. Homesite sales activities commenced in
1990, with the first title closing occurring in September 1990. Revenue and
expenses for the year ended December 31, 1990 are presented for the period
subsequent to August 1990 for homesite sales and for the period subsequent to
December 18, 1990 for Resort operations. The Partnership is owned by Glenco-
Perini-HCV Partners (GPH), a California limited partnership, and Squaw Creek
Investors Corporation (SCIC). GPH, a partnership owned by Glenco-Squaw
Associates, Perini Resorts, Inc., and HCV Pacific Investors III, serves as a
managing partner through its general partner, Perini Resorts, Inc., a wholly
owned subsidiary of Perini Land & Development Company (Perini) which is a
wholly owned subsidiary of Perini Corporation. GPH receives a management fee
for services rendered to the Partnership based upon the results of operations
as defined in the Agreement.
The Partnership experienced operating cash flow deficits and operating losses
in 1991. Additionally, the Partnership has been unable to reach agreement
with its lender regarding terms of an extension of its note payable that was
due on August 1, 1991. The Partnership has been unable to obtain other
permanent financing and could be required to repay the outstanding loan if
called by the lender. The Partnership has implemented plans to improve
operating performance and has had ongoing discussions with its lender
regarding its capital situation. The Partnership's financial condition and
its inability to extend or to secure permanent financing raise substantial
doubt regarding the Partnership's ability to continue as a going concern.
These financial statements do not include any adjustments that might result
from the outcome of this uncertainty. In addition, recovery of the
Partnership's investment in the Resort is dependent upon its ability to
generate profits from operations and/or from disposition of the property, the
achievement of which cannot be determined at this time.
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Notes to Financial Statements (continued)
1. Accounting Policies (continued)
Development Costs
Land acquisition costs and certain other development costs were incurred by
Glenco-Squaw Associates and Perini prior to the formation of the Partnership.
These costs were assumed by GPH ($3,254,063) and contributed to the
Partnership as the initial capital contribution. The Partnership used the
cost basis of the previous owners to record the land and other development
costs contributed. The Agreement assigned to contribution value to the GPH
contributions of $13,500,000 (consisting of $4,000,000 in cash equity and
$9,500,000 in land equity) for the purpose of calculating certain preferred
returns (see Note 2 for further discussion). SCIC's initial contribution was
$8,312,981. Land development costs contributed to the Partnership and the
cost incurred by the Partnership for developing the Resort (including
amenities) are allocated to the related Project components. Real estate
taxes, insurance, general and administrative, marketing and interest expense
were capitalized during the development period. Interest cost capitalized
amounted to $3,025,994 in 1990. No interest costs were capitalized in 1991.
Contributions
The Agreement provides that funds needed to operate the Resort in excess of
funds available from the Resort's operations (cash shortfall) must be
provided by SCIC and GPH in the form of additional capital contributions.
The first $2,500,000 of cash shortfall was the responsibility of GPH with all
additional cash shortfall contributions requiring a 60% capital contribution
by SCIC and a 40% capital contribution by GPH.
Starting in November 1991, SCIC has not made its required contributions under
the cash shortfall provisions of the Agreement. Consequently, GPH has made
the necessary contributions to fund all operating cash shortfalls, including
amounts not funded by SCIC, under the default contribution provisions of the
Agreement. The Agreement provides that in the event of default, the
defaulting partner loses certain partnership rights, authorities and other
distribution priorities. SCIC disputes that its actions and failure to fund
its share of the cash shortfalls has resulted in its default.
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Notes to Financial Statements (continued)
1. Accounting Policies (continued)
Distribution of Cash Flows and Profits and Losses
Operating cash flow, as defined by the Agreement, principally consists of net
cash generated from operations of the Resort less interest and principal paid
by the Partnership for indebtedness (excluding indebtedness and interest due
to affiliate). Distributable cash flow, as defined by the Agreement,
principally consists of operating cash flow and proceeds from capital
transactions; however, if the operating cash flow after December 31, 1991 is
insufficient to permit the payment of SCIC's 9% preferred return, GPH is to
contribute the deficiency to the Partnership, thereby increasing
distributable cash flow.
The Agreement generally provides that distributable cash flows are shared by
the partners in accordance with their respective percentage interests after
repayment of: default contributions; the outstanding interest and principal
of GPH's (affiliate) loans to the Partnership; the unpaid SCIC 9% preferred
returns (see Note 2 for further discussion); and, the partners' additional
capital contributions resulting from operating cash shortfalls and after
repayment of certain other preferred returns and related contributions to
capital by the partners (see Note 2 for further discussion).
The Agreement generally provides that the net profits of the Partnership are
allocated to the partners in accordance with their respective percentage
interests after allocations are made for certain preferred returns (see Note
2 for further discussion). Net losses of the Partnership are generally
allocated so as to entirely offset previous allocations of allocated net
profits and then as follows: $13,500,000 to GPH, to the extent of GPH's
additional capital contributions (excluding operating shortfall contribution
amounts), to the extent of GPH's and SCIC's operating shortfall contribution
amounts, and thereafter, in accordance with the partners' respective
interests.
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Notes to Financial Statements (continued)
1. Accounting Policies (continued)
Capital Transactions
Capital transactions, as defined by the Agreement, principally consist of
dispositions of any of the Partnership assets other than through the ordinary
course of business of the Resort and the net proceeds from refinancing or
financing the indebtedness of the Partnership. The Agreement generally
provides that the proceeds from capital transactions are distributed as other
cash proceeds except that the distributions for the partners' unpaid
preferred returns and related capital contribution amounts are performed in a
different priority.
Inventories
Inventories consist of food and beverage, apparel and other consumer products
for retail sale or rental to the Resort's patrons and provisions (food and
beverage and other incidentals) for use in the Resort's operations. Retail,
rental and provisions inventories are stated at the lower of cost (first-in,
first-out method) or market.
Hotel supplies consist of china, glassware, silver and other reusable items
and are valued at the original cost of the par stock purchased less a
provision for normal use, damage and loss. All subsequent purchases of hotel
supplies are expensed in the period purchased.
Deferred Expenses
Costs which are incurred and which relate to activities having future benefit
to the Partnership are deferred. Deferred expenses principally include costs
associated with bringing the Resort to full operational capacity. Deferred
expenses are being amortized over 60 months beginning in January 1991, the
first full month subsequent to the date that Resort operations commenced.
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Notes to Financial Statements (continued)
1. Accounting Policies (continued)
Land Held for Sale
The Partnership has developed residential homesites in conjunction with the
development of the Resort. Revenue from the parcels sold is recognized at
the time title passes to the buyer and full funding is received. The costs
for parcels sold are based on the allocation of the costs of developing the
parcels as determined using the ratio of each parcel's sales proceeds to the
total expected sales proceeds for all parcels. The cost of developing the
parcels includes certain marketing, selling, general and administrative and
interest costs that were incurred during the development period. The
Agreement calls for the net proceeds from the homesite sales to be used to
reduce the outstanding note payable balance and the development costs.
Depreciation and amortization are computed using the straight-line method
over the estimated useful lives of the respective property (25 to 60 years)
and equipment (5 to 12 years). For leased equipment, amortization is
provided using the lesser of the estimated useful life or the lease term.
The Partnership uses the mid-month convention whereby property and equipment
placed in service on or before the fifteenth day of the month will be
depreciated for the full month with no depreciation provided for property and
equipment placed in service after the fifteenth day of the month.
Income Taxes
The Partnership is not subject to taxes on its income. Federal and state
income tax regulations provide that the items of income, gain, loss,
deduction, credit and tax preference of the Partnership are reportable by the
partners in their income tax returns. Accordingly, no provision for income
taxes has been made in these financial statements.
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Notes to Financial Statements (continued)
2. Cumulative Preferred Return
Under the terms of the Agreement, SCIC and GPH will receive cumulative
preferred returns. SCIC's return is based upon 9% and 3% (noncompounded)
returns on its adjusted contribution amount and a 12% return on its adjusted
shortfall contribution amount, as defined in the Agreement. The total
cumulative preferred return of SCIC amounted to approximately $7,950,000 for
the period July 25, 1988 through December 31, 1991. GPH's return is based
upon 12% and 9% (noncompounded) of its adjusted cash equity and adjusted
phase I and phase II land equity amounts, respectively, 12% of the first
$2,500,000 of its adjusted shortfall contribution amount and 24% of its
adjusted default contribution amount as defined in the Agreement. The total
cumulative preferred return of GPH amounted to approximately $12,104,000 for
the period July 25, 1988 through December 31, 1991. Because there has been
no net positive cash flows from operations, these amounts are unpaid at
December 31, 1991.
3. Note Payable and Loan Payable - Affiliate
The Partnership has a note payable relating to a construction loan agreement
(loan agreement) that permits the Partnership to borrow funds as necessary to
pay for project costs up to a maximum of $53,000,000. Depending upon the
form of the borrowing, interest is payable monthly at the applicable rate
plus: a margin of 1.25% for borrowings based on prime rate; a margin of 2.5%
for borrowings based on the Eurodollar rate; or a margin of 2.625% for
borrowings based upon the CD rate. The interest rate at December 31, 1991
was 7.75% (10.72% at December 31, 1990).
The loan is secured by the Project and the assignment of certain agreements
related to, among other things, the operation of the Project. Perini has
guaranteed $10,000,000 of any outstanding principal balance, payment of
unpaid interest and the lien free completion of the project.
The loan was originally payable on August 1, 1991. The loan agreement
permits the Partnership to extend the agreement through August 1, 1996.
However, the Partnership has been unable to reach agreement with the lender
as to the terms of extension. The Partnership is currently negotiating an
extension to the loan agreement, and management believes it has performed its
obligations under the loan agreement as if the loan had been extended.
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Notes to Financial Statements (continued)
3. Notes Payable and Loan Payable - Affiliate (continued)
The Partnership has an $11,500,000 loan payable to GPH, an affiliate, at
December 31, 1991 and 1990. The Partnership, under the Agreement, has the
ability to borrow funds from GPH as necessary (to the extent other funds are
not available, as discussed in Note 1) to pay for obligations arising from
construction. The loan bears interest at the same rate of interest as due
under the note payable. The loan and any accrued interest payable, except in
certain circumstances as described in the Agreement, will be repaid from
positive cash flows from operations and has priority over the Partnership
distributions of positive cash flows. Management has classified the note
payable to affiliate (and related interest) as a long-term liability, as
repayment of these amounts will not occur in 1992.
4. Commitments and Contingencies
The partnership has entered into various lease agreements for land, buildings
and equipment. The lease terms are primarily for one or two year periods
except as follows:
- - - The Partnership has two separate ground lease agreements for approximately
24 acres of land in Olympic Valley, California. The primary use of the
land is for construction of the Resort's golf course. Under these
agreements, the Partnership also leases ski lift equipment, two buildings
and also receives certain rights to conduct snow skiing activities. These
agreements contain rent escalation clauses that will increase the
scheduled rents due beginning in 1992 based on increases in the consumer
price index. An option under one of the lease agreements permits the
Partnership to acquire a ten acre parcel for $2,900,000 before May 31,
1992, with a scheduled purchase price increase thereafter.
- - - An operating lease through May 1996 for storage facilities.
- - - Various capital and operating leases for equipment. Equipment accounted
for as capital leases is recorded at the present value of future minimum
rental payments and is included in the net book value of equipment at
December 31, 1991 and 1990 in the amount of approximately $1,783,000 and
$1,496,000, respectively. During 1991 and 1990, the Company acquired
approximately $287,000 and $1,263,000, respectively, in equipment through
lease financing.
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Notes to Financial Statements (continued)
4. Commitments and Contingencies (continued
Rent expense for land, building and equipment was approximately $305,000 and
$7,000 for 1991 and 1990, respectively. The future minimum lease payments
for all leases are as follows:
Capital Operating
Leases Leases
1992 $ 504,824 $ 226,802
1993 474,283 206,833
1994 468,845 181,357
1995 442,132 177,773
1996 5,397 171,874
Thereafter - 3,295,145
----------- ----------
1,895,481 $4,259,784
==========
Amounts representing interest (454,191)
-----------
Present value of obligations under capital 1,441,290
leases
Less current portion of obligations under
capital leases (457,619)
-----------
$ 983,671
===========
The Partnership has recorded various other commitments under agreements with
both third and related parties including the following:
- - - An agreement to pay various amounts to a management company for services
received based upon the results of Resort operations (approximately
$376,000 in 1991 and $23,000 in 1990).
- - - An agreement to pay various amounts to GPH for services received based
upon the results of Resort operations and the gross sales of homesites
(approximately $227,000 in 1991 and $79,000 in 1990).
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Notes to Financial Statements (continued)
4. Commitments and Contingencies (continued
The Partnership is involved in litigation and various other legal matters
which are being defended and handled in the ordinary course of business.
Specifically, in December 1990, the Partnership, along with a number of
related entities, including the partners of the Partnership, was named as a
defendant in a lawsuit seeking damages for alleged malicious prosecution in
connection with a lawsuit it brought against the Sierra Club alleging breach
of contract, among other things, relating to certain agreements between the
parties. The Partnership denies all liability and is vigorously defending
against these claims.
5. Related Party Transactions
The Partnership incurred approximately $1,111,000 and $1,774,000 in 1991 and
1990, respectively, for administrative, occupancy and management fees related
to services provided by Perini.
Perini has guaranteed to the Partnership, and to SCIC, the obligations of
Perini Resorts, Inc., as the General Partner of GPH, including contributions
of cash, under the shortfall contributions provision of the Agreement, and
provision of certain services.