================================================================================
FORM 10-K
Securities and Exchange Commission Commission File No. 1-6314
Washington, DC 20549
- --------------------------------------------------------------------------------
(MarkOne)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Act of
1934.
For the fiscal year ended December 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to ____________
- --------------------------------------------------------------------------------
Perini Corporation
(Exact name of registrant as specified in its charter)
Massachusetts 04-1717070
(State of Incorporation) (IRS Employer Identification No.)
73 Mt. Wayte Avenue, Framingham, Massachusetts 01701
(Address of principal executive offices) (Zip Code)
(508) 628-2000
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which
registered
Common Stock, $1.00 par value The American Stock Exchange
$2.125 Depositary Convertible Exchangeable The American Stock Exchange
Preferred Shares, each representing 1/10th
Share of $21.25 Convertible Exchangeable
Preferred Stock, $1.00 par value
Securities registered pursuant to Section 12(g) of the Act: None
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
- --------------------------------------------------------------------------------
The aggregate market value of voting stock held by nonaffiliates of the
registrant is $28,846,432 as of February 28, 1997.
The number of shares of Common Stock, $1.00 par value per share, outstanding at
February 28, 1997 is 4,898,648 .
- --------------------------------------------------------------------------------
Documents Incorporated by Reference
Portions of the annual proxy statement for the year ended December 31, 1996 are
incorporated by reference into Part III.
PERINI CORPORATION
INDEX TO ANNUAL REPORT
ON FORM 10-K
PAGE
----
PART I
Item 1: Business 2
Item 2: Properties 13
Item 3: Legal Proceedings 14
Item 4: Submission of Matters to a Vote of Security Holders 14
PART II
Item 5: Market for the Registrant's Common Stock and Related 14
Stockholder Matters
Item 6: Selected Financial Data 15
Item 7: Management's Discussion and Analysis of Financial 16 - 21
Condition and Results of Operations
Item 8: Financial Statements and Supplementary Data 21
Item 9: Disagreements on Accounting and Financial Disclosure 21
PART III
Item 10: Directors and Executive Officers of the Registrant 22
Item 11: Executive Compensation 23
Item 12: Security Ownership of Certain Beneficial Owners and 23
Management
Item 13: Certain Relationships and Related Transactions 23
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on 24
Form 8-K
Signatures 25
- 1 -
PART I.
ITEM 1. BUSINESS
General
Perini Corporation and its subsidiaries (the "Company" unless the
context indicates otherwise) provides general contracting, including building
and civil construction, and construction management and design-build services to
private clients and public agencies throughout the United States and selected
overseas locations. The Company is also engaged in real estate development
operations which are conducted by Perini Land & Development Company, a
wholly-owned subsidiary with offices in Arizona, Georgia and Massachusetts. The
Company was incorporated in 1918 as a successor to businesses which had been
engaged in providing construction services since 1894.
Because the Company's results consist in part of a limited number of
large transactions in both construction and real estate, results in any given
fiscal quarter can vary depending on the timing of transactions and the
profitability of the projects being reported. As a consequence, quarterly
results may reflect such variations.
Information on lines of business and foreign business is included under
the following captions of this Annual Report on Form 10-K for the year ended
December 31, 1996.
RINCON CENTER ASSOCIATES
Balance Sheet
As of MarchAnnual Report
On Form 10-K
Caption Page Number
Selected Consolidated Financial Information Page 15
Management's Discussion and Analysis Pages 16 - 21
Footnote 13 to the Consolidated Financial Statements, entitled Business Segments Pages 46 - 47
and Foreign Operations
While the "Selected Consolidated Financial Information" presents
certain lines of business information for purposes of consistency of
presentation for the five years ended December 31, 1996, additional information
(business segment and foreign operations) required by Statement of Financial
Accounting Standards No. 14 for the three years ended December 31, 1996 is
included in Note 13 to the Consolidated Financial Statements.
- 2 -
A summary of revenues by product line for the three years ended
December 31, 1996 is as follows:
Revenues (in thousands)
Year Ended December 31,
-------------------------------------------------
1996 1995 1994
ASSETS
3/31/94 12/31/93---- ---- ----
CASH
Construction:
Building $ 366,825834,888 $ 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,748,412 $ 626,391
Heavy 389,540 308,261 324,493
----------- ------------ -----------
Total Construction Revenues $1,224,428 $ 1,056,673 $ 950,884
----------- ------------ -----------
Real Estate:
Sales of Real Estate $ 7,639 $ 10,738 $ 33,188
Building Rentals 19,446 16,799 16,388
Interest Income 14,406 12,396 7,031
All Other 4,365 4,462 4,554
----------- ------------ -----------
Total Real Estate Revenues $ 45,856 $ 44,395 $ 61,161
----------- ------------ -----------
Total Revenues $1,270,284 $ 1,101,068 $ 1,012,045
=========== ============ ===========
Construction
The general contracting and construction management services provided
by the Company consist of planning and scheduling the manpower, equipment,
materials and subcontractors required for the timely completion of a project in
accordance with the terms and specifications contained in a construction
contract. The Company was engaged in over 180 construction projects in the
United States and overseas during 1996. The Company has three principal
construction operations: building, civil and international.
The civil operation undertakes large heavy construction projects
throughout the United States, with current emphasis on major metropolitan areas
such as Boston, New York City, Chicago and Los Angeles. The civil operation
performs construction and rehabilitation of highways, subways, tunnels, dams,
bridges, airports, marine projects, piers and waste water treatment facilities.
The Company has been active in civil operations since 1894, and believes that it
has particular expertise in large and complex projects. The Company believes
that infrastructure rehabilitation is, and will continue to be, a significant
market in the 1990's and beyond.
The building operation provides its services through regional offices
located in several metropolitan areas: Boston and Philadelphia, serving New
England and the Mid-Atlantic area; Detroit 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 civil 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.
- 3 -
Construction Strategy
The Company plans to continue to increase the amount of civil
construction work it performs because of the relatively higher margin
opportunities available from such work. The Company believes the best
opportunities for growth in the coming years are in the urban infrastructure
market, particularly in Boston, metropolitan New York, Chicago, Los Angeles and
other major cities where it has a significant presence, and in other large,
complex projects. The Company's strategy in building construction is to maximize
profit margins; to take advantage of certain market niches; and to expand into
new markets compatible with its expertise. Internally, the Company plans to
continue both to strengthen its management through management development and
job rotation programs, and to improve efficiency through strict attention to the
control of overhead expenses and implementation of improved project management
systems. Finally, the Company continues to expand its expertise to assist public
owners to develop necessary facilities through creative public/private ventures.
During 1996, the Company also adopted a plan to enhance the
profitability of its construction operations by emphasizing gross margin and
bottom line improvement ahead of top line revenue growth. This plan calls for
the Company to focus its financial and human resources on construction
operations which are consistently profitable and to de-emphasize marginal
business units. Consistent with that Plan, the Company currently is closing or
downsizing and refocusing four business units. The Company also sold a mine
reclamation subsidiary last year, which was not an integral part of its core
building and civil construction operations.
Backlog
As of December 31, 1996 the Company's construction backlog was $1.52
billion compared to backlogs of $1.53 billion and $1.54 billion as of December
31, 1995 and 1994, respectively.
Backlog (in thousands) as of December 31,
-----------------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Northeast $ 643,114 42% $ 749,017 49% $ 803,967 52%
Mid-Atlantic 113,289 8 179,324 12 26,408 2
Southeast 56,925 4 33,223 2 783 -
Midwest 97,954 6 325,055 21 293,168 19
Southwest 425,901 28 94,725 6 174,984 11
West 139,079 9 134,259 9 193,996 13
Other Foreign 41,438 3 18,919 1 45,473 3
------------ ---- ------------ ---- ------------ ----
Total $ 1,517,700 100% $ 1,534,522 100% $1,538,779 100%
============ ==== ============ ==== ============ ====
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 $402 million of its backlog will not be completed in 1997.
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 backlog
increase in the Southwest region is indicative of the increased demand by the
hotel-casino market in Nevada, while the decrease in backlog in the Midwest is
due, in part, to a downsizing of certain business units. Other fluctuations in
backlog are viewed by management as transitory.
- 4 -
Types of Contracts
The four general types of contracts in current use in the construction
industry are:
o Fixed price contracts ("FP"), which include unit price contracts,
usually transfer more risk to the contractor but offer the opportunity,
under favorable circumstances, for greater profits. With the Company's
increasing move into civil construction 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
December 31, Backlog As Of December 31,
- ----------------------------------- -------------------------------------
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
59% 67% 54% Fixed Price 62% 74% 68%
41 33 46 CPFF, GMP or CM 38 26 32
---- ---- ---- ---- ---- ----
100% 100% 100% 100% 100% 100%
==== ==== ==== ==== ==== ====
Clients
During 1996, the Company was active in the building, heavy and
international construction markets. The Company performed work for over 125
federal, state and local governmental agencies or authorities and private
customers during 1996. 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 1994-1996, the portion of construction
revenues derived from contracts with various governmental agencies remains
relatively constant at 52% in 1996 and 56% in 1995 and 1994.
Revenues by Client Source
Year Ended December 31,
-----------------------------------
1996 1995 1994
---- ---- ----
Private Owners 48% 44% 44%
Federal Governmental Agencies 5 8 11
State, Local and Foreign Governments 47 48 45
---- ---- ----
100% 100% 100%
==== ==== ====
- 5 -
All Federal government contracts are subject to termination provisions, but as
shown in the table above, the Company does not have a material amount of such
contracts.
General
The construction business is highly competitive. Competition is based
primarily on price, reputation for 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 14. 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 1997 from material and/or labor shortages
or price increases.
Economic and demographic trends tend not to have a material impact on
the Company's civil construction operation. Instead, the Company's civil
construction markets are dependent on the amount of heavy civil infrastructure
work funded by various governmental agencies which, in turn, may depend on the
condition of the existing infrastructure or the need for new expanded
infrastructure. The building markets in which the Company participates are
dependent on economic and demographic trends, as well as governmental policy
decisions as they impact the specific geographic markets.
The Company has minimal exposure to environmental liability as a result
of the activities of Perini Environmental Services, Inc. ("Perini
Environmental"), a wholly-owned subsidiary of the Company. 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 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.
- 6 -
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
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
The Company's real estate development operations are conducted by Perini
Land & Development Company ("PL&D"), a wholly owned subsidiary, which has been
involved in real estate development since the early 1950's. PL&D has
traditionally engaged in real estate development in Arizona, California,
Florida, Georgia and Massachusetts. In 1993, PL&D significantly reduced its
staff in California and has suspended any new land acquisition in that area. In
1996, PL&D took the same steps in Florida. PL&D's development operations
generally involve identifying attractive parcels, planning and development,
arrange 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.
Early in 1997, PL&D changed its strategy on certain of its properties
from maximizing value by holding them through the necessary development and
stabilization periods to a new strategy of generating short-term liquidity
through an accelerated disposition or bulk sale. This change in strategy
substantially reduced the estimated future cash flow from these properties.
Therefore, an impairment loss on those properties has resulted in PL&D's
recording a non-cash charge in an aggregate amount of approximately $80 million
as of December 31, 1996, in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". An estimated allocation of the write down,
by geographic areas, is California ($59 million), Arizona ($18 million), and
Florida ($3 million).
In 1992, based on a weakening in property values and a national real
estate recession, PL&D took a $30 million pre-tax net realizable value write
down against earnings. Following the charges taken in 1992 and 1996, it is
management's belief that none of its real estate properties are currently
carried at amounts in excess of their net realizable values or otherwise require
a write down in accordance with SFAS No. 121. PL&D will continue periodically to
review its portfolio to assess the desirability of accelerating its sales
through price concessions or sale at an earlier stage of development. In
circumstances in which asset strategies are changed, such as in 1997, and
properties brought to market on an accelerated basis, those assets, if
necessary, are adjusted to reflect the lower of carrying amounts or fair value
less cost to sell. Similarly, if the long term outlook for a property in
development or held for future sale is adversely changed, the Company will
adjust its carrying value to reflect such an impairment in value.
To achieve full value for some of its real estate holdings, in
particular its investments in Rincon Center, PL&D may have to hold that property
several years and currently intends to do so.
- 7 -
Real Estate Strategy
Since 1990, PL&D has taken a number of steps to reduce the size of its
operations. In early 1990, all new real estate investment was suspended pending
market improvement, all but critical capital expenditures were curtailed on
on-going projects, and PL&D's work force was cut by over 60%. Certain project
loans were extended, with such extension usually requiring pay downs and
increased annual amortization of the remaining loan balance. Since that time,
PL&D has operated with a reduced staff and has adjusted 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 and
single family home developments. PL&D's emphasis is on the sale of completed
product and also developing the projects in its inventory with the highest near
term sales potential. It may also selectively seek new development opportunities
in which it serves as development manager with limited equity exposure, if any.
Real Estate Properties
----------------------
The following is a description of the Company's major development
projects and properties by geographic area:
Florida
West Palm Beach and Palm Beach County - In 1996, PL&D sold its ownership
interest in the Bear Lakes Country Club to the club membership. The sale
represented PL&D's last investment in PL&D's development at the "Villages of
Palm Beach Lakes" which is now completely sold out.
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 acres was
sold in 1996. The park consists of 17 parcels, of which 5 acres currently remain
unsold. The park provides for 570,500 square feet of mixed commercial uses.
Massachusetts
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. During 1988, Paramount
completed infrastructure work on a major portion of the site (330 acres) which
is being developed as a mixed use corporate campus style park known as "Raynham
Woods Commerce Center". From 1989 through 1995, Paramount sold an aggregate of
56 acres to various users, including the division of a major U.S. company for
use as its headquarters, to a developer who was working with a major national
retailer for a retail site, and to a major insurance company. In 1990, Paramount
built two commercial buildings in the park which are currently approximately 90%
occupied. In 1996, 2 additional acres of land were sold to a previous tenant
from one of the Paramount-owned buildings. 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 already had been partially developed.
Paramount completed the work and is currently marketing the site to
commercial/industrial users. No sales were closed in 1996.
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 1996.
- 8 -
Georgia
The Villages at Lake Ridge, Clayton County - During 1987, PL&D (49%)
entered into a joint venture with 138 Joint Venture partners to develop a
348-acre planned commercial and residential community in Clayton County to be
called "The Villages at Lake Ridge" six miles south of Atlanta's Hartsfield
International Airport. Since its acquisition, the joint venture has put in a
substantial portion of the infrastructure, all of the recreational amenities,
and through 1995 had sold 251 single family lots to developers. An additional 42
lots were sold in 1996, along with a 13.6 acre tract designed for 52 lots. Prior
to 1996 the joint venture also sold a 16-acre parcel for use as an elementary
school and developed a 278 unit apartment complex which it later sold to a third
party buyer. 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.
The Oaks at Buckhead, Atlanta - All remaining units in this project were
sold in 1996. 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. PL&D (50%) developed 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 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, under a lease extension currently being finalized, will run into
2003. The retail space is currently 97% leased. Phase II of the project, which
began operations in late 1989, consists of approximately 200,000 square feet of
office space, 21,000 square feet of retail space, a 14,000 square foot U.S.
postal facility, and 320 apartment units. Currently, close to 98% of the office
space, 77% of the retail space and virtually all of the 320 residential unit are
leased. The major tenant in the office space in Phase II, starting in mid-1997,
will be a major national insurance company who will be moving into 155,000
square feet, replacing most of the space previously occupied by the Ninth
Circuit Court of Appeals which recently moved out. 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 $83 million to the
partnership through December 31, 1996, of which approximately $5 million was
advanced during 1996, primarily to paydown some of the principal portion of
project debt which was renegotiated during 1993. In 1996, operations before
principal repayment of debt created a positive cash flow on an annual basis.
- 9 -
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 1996, and over the next two 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 are $7.3 million in 1997. Based on
Company forecasts, it could be required to contribute as much as $8.4 million to
cover these obligations and costs associated with the tenant turnover mentioned
above, which are not covered by project cash flow in 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
Properties (PGP), the other General Partner in the project, funds to meet its
20% share of cash calls. In return PL&D receives a priority return from the
partnership on those funds and penalty fees in the form of rights to certain
distributions due PGP by the partnership controlling Rincon. From 1993-1996,
PL&D advanced $4 million under this agreement, primarily to meet the principal
payment obligations of the loan extensions described above.
The Resort at Squaw Creek - Early in 1997, PL&D signed a letter of
intent to sell its interest in the joint venture through which the Company holds
its ownership interest in the Resort. The agreed upon price is $21 million with
a closing scheduled no later than July 1, 1997 and incentives for the buyer to
close on or before May 1, 1997. During 1996, the Company acquired the interest
of another partner increasing its effective interest in the property to 34%.
Given the proposed transaction, the Company took an approximately $57 million
write down on this project at year end. If the transaction is not consummated,
the Company anticipates either acquiring controlling interest of the property or
selling its total interest through the use of the buy/sell provision of the
joint venture agreement.
As part of the Squaw Creek Associates partnership agreement, either
partner may initiate a buy/sell agreement on or after January 1, 1997. Such
buy/sell agreement is similar to those often found in real estate development
partnerships. It provides for the recipient of the offer to have the option of
selling its 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.
Currently, 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 $79 million to the joint
venture through December 1996, of which approximately $3 million was advanced
during 1996, for the cost of operating expenses, debt amortization and interest
payments.
If the proposed sale of the Company's interest is consummated, all
contingent liabilities would be
- 10 -
released or provided for through indemnification.
The project which was completed in 1991, 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 one of which have been sold, three
restaurants, an ice skating rink, pool complex, fitness center, and 11,500
square feet of various retail support facilities. In addition, a second phase is
planned to include an additional 409-unit hotel facility, 36 townhouses, 27,000
square feet of conference space, 5000 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.
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. During 1996, another 29 closings were
recorded.
Arizona
Airport Commerce Center, Tucson - In 1982, the 1-10 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. From 1990 through 1995, the partnership sold 51 acres within
the park. In 1996, another 22 acres were sold. Early in 1997, PL&D agreed to
sell its remaining interest in the project to its partner. The transaction is
expected to close by mid-year.
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. Currently, the joint venture is exploring
possible sale opportunities for all or part of the property.
Grove at Black Canyon, Phoenix - The project consists of an office park
complex on a 30-acre site located off of Black Canyon Freeway, a major Phoenix
artery, approximately 20 minutes from downtown Phoenix. When complete, the
project will include approximately 650,000 square feet of office, hotel,
restaurant and/or retail space. Development, which began in 1986, is scheduled
to proceed in phases as market conditions dictate. In 1987, a 150,000 square
foot office building was completed within the park 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. 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 1996, however, the lease covering space
occupied by the major office tenant was
- 11 -
extended an additional seven years to the year 2004 on competitive terms. In
1995, a day care center was completed on an 8-acre site along the north entrance
of the park. In 1996, no new sales were closed but 2.9 acre and 1.5 acre parcels
of land are both under contract for 1997 closings.
Sabino Springs Country Club, Tucson - During 1990, the Tucson Board of
Supervisors unanimously approved a plan for this 410-acre residential golf
course community close to the foothills on the east side of Tucson. In 1991,
that approval, which had been challenged, was affirmed by the Arizona Supreme
Court. When fully developed, the project will consist of 496 single-family
homes. In 1993, PL&D recorded the master plat on the project and sold a major
portion of the property to an international real estate company. An 18-hole
Robert Tent Jones, Jr. designed championship golf course and clubhouse were
completed within the project in 1995. Although it will require some
infrastructure development before sale, PL&D still retains 33 estate lots for
sale in future years.
Capitol Plaza, Phoenix - In 1996, PL&D sold this 1.75-acre parcel of
land located in the Governmental Mall area of Phoenix.
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.
Generally, there has been no material impact on PL&D's real estate
development operations over the past 10 years due to interest rate increases.
However, an extreme and prolonged rise in interest rates could create market
resistance for all real estate operations in general, and is always a potential
market obstacle. Historically, PL&D has, in some cases, employed hedges or caps
to protect itself against increases in interest rates on any of its variable
rate debt and, therefore, was insulated from extreme interest rate risk on
borrowed funds, although specific projects may have been impacted if the
decision had been made not to hedge or to hedge at higher than current rates.
The future use of such hedges or caps is somewhat restricted under the terms of
the New Credit Agreement.
Over the past few years, the Company has sold out its relatively low
cost debt-free land in Florida acquired in the late 1950's, and its sales mix
has begun to contain land purchased at current market prices. In 1996 and future
years, as the mix of land sold contain little or none of the lower cost land,
the gross margin on real estate revenues will decrease substantially.
Insurance and Bonding
All of the Company's properties and equipment, both directly owned or
owned through partnerships or joint ventures with others, are covered by
insurance and management believes that such insurance is adequate.
In conjunction with its construction business, the Company is often
required to provide various types of surety bonds. The Company has 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.
- 12 -
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 1996 the maximum number of
employees employed was approximately 2,700 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.
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
Hawthorne, NY Leased - 12,500
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
---- -----------
9 181,900
==== ===========
Principal Permanent Storage Yards
- ---------------------------------
Bow, NH Owned 70
Framingham, MA Owned 6
Las Vegas, NV Leased 2
Novi, MI Leased 3
----
81
====
The Company's properties are generally well maintained, in good
condition, adequate and suitable for the Company's purpose and fully utilized.
- 13 -
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.
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.
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 1996
and 1995 are summarized below:
1996 1995
---- ----
Market Price Range per Common Share: High Low High Low
- ----------------------------------- ---- --- ---- ---
Quarter Ended
March 31 9 - 7 1/2 11 7/8 - 9 3/8
June 30 12 1/8 - 7 3/4 11 1/2 - 9 1/2
September 30 12 1/4 - 8 5/8 13 3/8 - 10 1/8
December 31 9 1/4 - 7 1/2 12 1/4 - 7 7/8
For information on dividend payments, see Selected Financial Data in
Item 6 below and "Dividends" under Management's Discussion and Analysis in Item
7 below.
As of February 28, 1997, there were approximately 1,023 record holders
of the Company's Common Stock.
- 14 -
ITEM 6. SELECTED FINANCIAL DATA
Selected Consolidated Financial Information
(In thousands, except per share data)
OPERATING SUMMARY 1996 1995 1994 1993 1992
------------- ------------ ------------ ------------ ------------
Revenues
Construction Operations $ 1,224,428 $ 1,056,673 $ 950,884 $ 1,030,341 $ 1,023,274
Real Estate Operations 45,856 44,395 61,161 69,775 47,578
------------- ------------ ------------ ------------ ------------
Total Revenues $ 1,270,284 $ 1,101,068 $ 1,012,045 $ 1,100,116 $ 1,070,852
------------- ------------ ------------ ------------ ------------
Costs:
Cost of Operations $ 1,215,806 $ 1,086,213 $ 960,248 $ 1,047,330 $ 1,018,663
Write down of Certain Real Estate
Assets (Note 4) 79,900 - - - 30,000
------------- ------------ ------------ ------------ ------------
$ 1,295,706 $ 1,086,213 $ 960,248 $ 1,047,330 $ 1,048,663
------------- ------------ ------------ ------------ ------------
Gross Profit (Loss) $ (25,422) $ 14,855 $ 51,797 $ 52,786 $ 22,189
General, Administrative & Selling
Expenses 33,988 37,283 42,985 44,212 41,328
------------- ------------ ------------ ------------ ------------
Income (Loss) From Operations $ (59,410) $ (22,428) $ 8,812 $ 8,574 $ (19,139)
Other Income (Expense), Net 116,802,510 118,021,303
LEASEHOLD IMPROVEMENTS,(492) 814 (856) 5,207 436
Interest Expense (9,871) (8,582) (7,473) (5,655) (7,651)
------------- ------------ ------------ ------------ ------------
Income (Loss) Before Income Taxes $ (69,773) $ (30,196) $ 483 $ 8,126 $ (26,354)
(Provision) Credit for Income Taxes (830) 2,611 (180) (4,961) 9,370
------------- ------------ ------------ ------------ ------------
Net 2,235,690 1,854,719
OTHER ASSETS 2,195,626 2,855,012Income (Loss) $ (70,603) $ (27,585) $ 303 $ 3,165 $ (16,984)
------------- ------------ ------------ ------------ ------------
Per Share of Common Stock:
Earnings (loss) $ (15.13) $ (6.38) $ (0.42) $ 0.24 $ (4.69)
------------- ------------ ------------ ------------ ------------
Cash dividends declared $ - $ - $ - $ - $ -
------------- ------------ ------------ ------------ ------------
Book value $ 2.14 $ 17.06 $ 23.79 $ 24.49 $ 23.29
------------- ------------ ------------ ------------ ------------
Weighted Average Number of
Common Shares Outstanding 4,808 4,655 4,380 4,265 4,079
------------- ------------ ------------ ------------ ------------
FINANCIAL POSITION
SUMMARY *
Working Capital $ 56,744 $ 36,545 $ 29,948 $ 36,877 $ 31,028
------------- ------------ ------------ ------------ ------------
Current Ratio 1.19.1 1.12:1 1.13:1 1.17:1 1.14:1
------------- ------------ ------------ ------------ ------------
Long-term Debt, less current
maturities $ 96,893 $ 84,155 $ 76,986 $ 82,366 $ 85,755
------------- ------------ ------------ ------------ ------------
Stockholders' Equity $ 35,558 $ 105,606 $ 132,029 $ 131,143 $ 121,765
------------- ------------ ------------ ------------ ------------
Ratio of Long-term Debt to Equity 2.72.1 .80:1 .58:1 .63:1 .70:1
------------- ------------ ------------ ------------ ------------
Total Assets $145,185,023 $146,605,966
============ ============
LIABILITIES
CONSTRUCTION NOTES PAYABLE $ 62,182,500464,292 $ 62,370,000
ACCOUNTS PAYABLE539,251 $ 482,500 $ 476,378 $ 470,696
------------- ------------ ------------ ------------ ------------
OTHER DATA
Backlog at Year-end $ 1,517,700 $ 1,534,522 $ 1,538,779 $ 1,238,141 $ 1,169,553
------------- ------------ ------------ ------------ ------------
* See Pro Forma impact on 1996 as if the New Equity transaction had been
closed as of December 31, 1996 (see Note 14 to Notes to Consolidated
Financial Statements).
- 15-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations -
1996 Compared to 1995
In spite of record revenues and earnings from domestic construction operations
during 1996, the Company's total operations resulted in a net loss of $70.6
million (or $15.13 per common share) on revenues of $1.3 billion in 1996
compared to a net loss of $27.6 million in 1995 (or $6.38 per common share) on
revenues of $1.1 billion. The reason for the net loss in 1996 was a change in
the Company's real estate strategy on certain of its properties from maximizing
value by holding them through the necessary development and stabilization
periods to a new strategy of generating short-term liquidity through an
accelerated disposition or bulk sale. The change in strategy substantially
reduced the estimated future cash flows from these properties. Therefore, a
non-cash impairment loss on those properties, in the aggregate amount of $79.9
million, was provided in the fourth quarter of 1996 in accordance with SFAS No.
121 (see Notes (1)(d) and 4 to Notes to Consolidated Financial Statements).
Revenues amounted to $1.270 billion in 1996, a record level for the second
consecutive year, an increase of $169 million (or 15%) compared to the 1995
revenues of $1.101 billion. This increase was almost entirely due to an increase
in construction revenues of $167 million (or 16%), from $1.057 billion in 1995
to $1.224 billion in 1996. This increase in construction revenues was divided
fairly equally between building and heavy (or "civil") construction operations.
Building construction revenues increased $87 million (or 12%), from $748 million
in 1995 to $835 million in 1996 while civil construction revenues increased $80
million (or 26%), from $309 million in 1995 to $389 million in 1996. These
revenue increases reflect the impact of several fast track hotel/casino projects
in the western and midwestern United States, several prison/detention and
medical facilities projects in the northeastern United States, and several
long-term infrastructure rehabilitation projects in the metropolitan New York,
Boston and Los Angeles areas.
In spite of the 15% increase in revenues, the gross profit decreased $40.3
million, from a gross profit of $14.9 million in 1995 to a gross loss of $25.4
million in 1996. The primary reason for the gross loss in 1996 was the $79.9
million real estate write down referred to above which caused the increase in
gross loss from real estate from $1.0 million in 1995 to $80.9 million in 1996.
This increase in gross loss was partially offset by a substantial increase in
gross profit from construction operations of $39.6 million, from $15.9 million
in 1995 to $55.5 million in 1996. Overall gross profit margins on both building
and civil construction operations in 1996 exceeded those experienced in 1995.
The lower than normal gross profit from construction operations recognized in
1995 included a pretax charge, which aggregated $25.6 million, to provide for a
liability related to previously disclosed litigation in Washington, D.C. (see
Note 11 to Notes to Consolidated Financial Statements), and downward revisions
in estimated probable recoveries on certain outstanding contract claims. These
pretax charges in 1995, coupled with the increased construction revenues in 1996
referred to above, including the favorable profit impact in 1996 of several
large infrastructure projects, primarily in the metropolitan New York, Boston
and Los Angeles areas, resulted in the substantial increase in gross profit from
construction operations in 1996.
General, administrative and selling expenses decreased by $3.3 million (or 9%),
from $37.3 million in 1995 to $34.0 million in 1996 due primarily to continued
emphasis on reducing overall overhead expenses in conjunction with the Company's
re-engineering efforts commenced in prior years, the sale in June of 1996 of
Pioneer Construction, a former subsidiary of the Company located in West
Virginia, and the continuation of the gradual down-sizing of the Company's real
estate and environmental remediation construction operations.
Other income (expense), net decreased $1.3 million, from income of $.8 million
in 1995 to a loss of $.5 million in 1996 primarily due to higher bank charges
experienced in 1996 in conjunction with the Company's renegotiation of certain
provisions of its Revolving Credit Agreement and Bridge Loan Agreement and, to a
lesser degree, a reduction in gains from the sale of certain underutilized
operating
- 16-
facilities and less interest income.
Interest expense increased by $1.3 million (or 15%), from $8.6 million in 1995
to $9.9 million in 1996 due to a higher average level of borrowings during 1996.
The Company recognized income tax expense for the year ending December 31, 1996
of $.8 million on a pretax loss of $69.8 million, whereas in 1995, the Company
recognized a tax benefit of $2.6 million on a pretax loss of $30.2 million. The
1996 income tax expense is primarily for state income taxes relating to certain
jurisdictions in which the Company had net taxable income. The Company did not
provide any federal tax benefit in 1996, whereas in 1995, a partial tax benefit
was provided on the Company's pretax loss, due to certain accounting
limitations. As a result, an amount estimated to be approximately $92.0 million
of future pretax earnings should benefit from minimal, if any, federal tax
charges. The net deferred tax assets reflect management's estimate of the amount
that will, more likely than not, be realized (see Note 5 to Notes to
Consolidated Financial Statements).
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 civil
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 civil
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. and downward
revisions in estimated probable recoveries on certain outstanding contract
claims, and lower than normal profit margins on certain civil 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.
- 17-
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, federal tax charges.
Financial Condition
Cash and Working Capital
During 1996, the Company used $24.3 million in cash for operating activities,
primarily for changes in working capital, and $21.1 million for investment
activities, primarily to fund construction and real estate joint ventures. These
uses of cash were provided by $26.1 million from financing activities, primarily
increases in borrowings under the Company's Revolving Credit and Bridge Loan
facilities, and a $19.3 million reduction in cash on hand. 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 1995, the Company provided $24.6 million in cash from operating
activities, primarily due to an overall increase in accounts payable and
advances from joint ventures; $9.0 million from financing activities due to an
increase in borrowings under its revolving credit facility; and $23.9 million
from cash distributions from certain joint ventures. These increases in cash
were used to increase cash on hand by $21.2 million, with the balance used for
various investment activities, primarily to fund construction and real estate
joint ventures.
Since 1990, the Company has paid down $42.8 million of real estate debt on
wholly-owned real estate projects (from $50.9 million to $8.1 million),
utilizing proceeds from sales of property and general corporate funds.
Similarly, real estate joint venture debt has been reduced by $163 million over
the same period. As a result, the Company has reached a point at which revenues
from further real estate sales that, in the past, have been largely used to
retire real estate debt will be increasingly available to improve general
corporate liquidity subject to certain restrictions contained in the New Credit
Agreement referred to in Note 14 to Notes to Consolidated Financial Statements.
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. In addition, the Company made a strategic decision in the
early 1990's to change its mix of construction work by increasing the relative
percentage of potentially higher margin civil construction projects. The working
capital required to support civil construction projects is substantially more
than the normal building construction project because of its equipment intensive
nature, progress billing terms imposed by certain public owners and, in some
instances, time required to process contract change orders. The Company has
addressed these problems by relying on corporate borrowings, extending certain
maturing real estate loans (with such extensions usually requiring pay downs and
increased annual amortization of the remaining loan balance), suspending the
acquisition of new real estate inventory, significantly reducing
- 18 -
development expenses on certain projects, utilizing stock in payment of certain
expenses, utilizing cash internally generated from operations and selling its
interest in certain engineering and construction business units that were not an
integral part of the Company's ongoing building and civil construction
operations. The Company also implemented company-wide cost reduction programs in
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 and
suspended payment of dividends on its $21.25 Convertible Exchangeable Preferred
Stock in the first quarter of 1996. Also, the Company increased the aggregate
amount available under its revolving credit agreement during the period from $70
million to $114.5 million at December 31, 1995, plus, effective February 26,
1996, another $15 million under a Bridge Loan Agreement. In addition to
internally generated funds, at December 31, 1996, the Company has $18.3 million
available under its revolving credit facility and $15 million available under
its 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, interest coverage and certain restrictions on real estate
investments, all as defined in the loan documents. Although the Company would
have been in violation of certain of the covenants during 1996, it obtained
waivers of such violations. Effective January 17, 1997, the Company's liquidity
and access to future borrowings, as required, during the next few years were
significantly enhanced by the "New Equity" and "New Credit Agreement" referred
to in Note 14 to Notes to Consolidated Financial Statements.
The working capital current ratio stood at 1.19:1 at the end of 1996, compared
to 1.12:1 at the end of 1995 and to 1.13:1 at the end of 1994. Of the total
working capital of $56.7 million at the end of 1996, approximately $8 million
may not be converted to cash within the next 12 to 18 months.
Long-term Debt
Long-term debt was $96.9 million at the end of 1996, an increase of $12.7
million compared with $84.2 million at the end of 1995, which was an increase of
$7.2 million compared with $77.0 million at the end of 1994. 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 and 2.72:1 at the end of 1996 due to increases in long-term debt
coupled with the negative impact on
equity of the net losses experienced by the Company in 1995 and 1996.
Stockholders' Equity
The Company's book value per common share stood at $2.14 at December 31, 1996,
compared to $17.06 per common share and $23.79 per common share at the end of
1995 and 1994, respectively. The major factors impacting stockholders' equity
during the three-year period under review were the net losses recorded in 1995
and 1996 and, to a lesser extent, preferred dividends paid or accrued, and stock
issued in partial payment of certain expenses.
At December 31, 1996, there were 1,276 common stockholders of record based on
the stockholders list maintained by the Company's transfer agent.
Dividends
There were no cash dividends declared or paid on the Company's outstanding
Common Stock during the three years ended December 31, 1996.
During 1994 and 1995, the Company declared and paid the regular quarterly cash
dividends of $5.3125 per share on the Company's convertible exchangeable
preferred shares for an annual total of $21.25 per share (equivalent to
quarterly dividends of $.53125 per depositary share for an annual total of
$2.125 per depositary share). In conjunction with the covenants of the 1995
Amended Revolving Credit Agreement (see Note 3 to Notes to Consolidated
Financial Statements), the Company was required to suspend the payment of
quarterly dividends on its preferred stock until the Bridge Loan commitment was
no longer
- 19 -
outstanding, if a default exists under the terms of the Amended Revolving Credit
Agreement, or if the ratio of long-term debt to equity exceeded 50%. Therefore,
the dividend that normally would have been declared during December of 1995 and
payable on March 15, 1996, as well as subsequent quarterly dividends in 1996,
have not been declared or paid (although they have been fully accrued due to the
"cumulative" feature of the preferred stock). A New Credit Agreement,
superseding the loan agreements referred to above, was approved January 17, 1997
and provides that the Company may not pay cash dividends or make other
restricted payments, as defined, prior to September 30, 1998 and thereafter may
not pay cash dividends or make other restricted payments unless: (i) the Company
is not in default under the New Credit Agreement; (ii) commitments under the
credit facility have been reduced to less than $90 million; (iii) restricted
payments in any quarter, when added to restricted payments made in the prior
three quarters, do not exceed fifty percent (50%) of net income from continuing
operations for the prior four quarters; and (iv) net worth (after taking into
consideration the amount of the proposed cash dividend or restricted payment) is
at least equal to the amount shown below, adjusted for non-cash charges incurred
in connection with any disposition or write down of any real estate investment,
provided that unadjusted net worth must be at least $60 million:
(In thousands)
Adjusted for 1996
Real Estate
Unadjusted Write Down
October 1, 1998 to December 30, 1998 $161,977 $82,077
December 31, 1998 to March 31, 1999 $167,303 $87,403
April 1, 1999 to June 30, 1999 $170,129 $90,229
July 1, 1999 to September 30, 1999 $172,955 $93,055
October 1, 1999 to January 1, 2000 $175,781 $95,881
For purposes of the New Credit Agreement, net worth shall include the net
proceeds from the sale of the Series B Preferred Stock to the Investors. In
addition, under the terms of the Series B Preferred Stock, the Company may not
pay any cash dividends on its Common Stock until after September 1, 2001, and
then only to the extent such dividends do not exceed in aggregate more than
twenty-five percent (25%) of the Company's consolidated net income available for
distribution to Common shareholders (after preferred dividends); provided,
however, that the Company shall have elected and paid cash dividends on the
Series B Preferred Stock for the preceding four quarters.
The Board of Directors intends to resume payment of dividends as the Company
satisfies the terms of the New Credit Agreement, the provisions of the Series B
Preferred Stock and the Board deems it prudent to do so.
Outlook
Looking ahead, the overall construction backlog at the end of 1996 was $1.518
billion which approximates the 1995 year-end backlog of $1.535 billion. This
backlog has a good balance between building and civil work and a higher overall
estimated profit margin. Approximately 53% of the current backlog relates to
building construction projects which generally represent lower risk, lower
margin work and approximately 47% of the current backlog relates to heavy
construction projects which generally represent higher risk, but correspondingly
higher margin work. During 1996, the Company also adopted a plan to enhance the
profitability of its construction operations by emphasizing gross margin and
bottom line improvement ahead of top line revenue growth. This plan calls for
the Company to focus its financial and human resources on construction
operations which are consistently profitable and to de-emphasize marginal
business units. Consistent with that Plan, the Company currently is closing or
downsizing and refocusing four business units. The Company believes the outlook
for its building and civil construction businesses continues to be promising.
- 20 -
With the sale of the final 21 acres during 1994, the Company's Villages of Palm
Beach Lakes, Florida land 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 1996. In addition, five
projects, which aggregate approximately 6% of the Company's real estate asset
values, are projected to produce an estimated average 3% gross margin over the
period through ultimate disposition. As such, future gross margins from sales of
real estate will be impacted by the operations and/or disposition of these
properties.
With the closing of the new equity transaction and New Credit Agreement becoming
effective on January 17, 1997 (see Note 14 to Notes to Consolidated Financial
Statements), the Company's near term liquidity position has improved
substantially, enabling payments to vendors to generally be made in accordance
with normal payment terms. In order to generate cash and reduce the Company's
dependence on bank debt to fund the working capital needs of its core
construction operations as well as to lower the Company's substantial interest
expense and strengthen the balance sheet in the longer term, the Company will
continue to sell certain real estate assets as market opportunities present
themselves; to actively pursue the favorable conclusion of various construction
claims; to focus new construction work acquisition efforts on various niche
markets and geographic areas where the Company has a proven history of success;
to downsize or close operations with marginal prospects for success; to continue
to restrict the payment of cash dividends on the Company's $1 par value common
stock and depositary convertible exchangeable preferred stock; and to continue
to seek ways to control overhead expenses. In addition, the Company recently
completed a review of all of its real estate assets which resulted in a change
of strategies related to certain of those assets to a new strategy of generating
short-term liquidity of up to an additional $30 million for the Company.
Management believes that cash generated from operations, existing credit lines,
additional borrowings and projected sale of certain real estate assets referred
to above should be adequate to meet the Company's funding requirements for at
least the next twelve months.
Forward-looking Statements
This Management's Discussion and Analysis of Financial Condition and Results of
Operations, including "Outlook" and other sections of this Annual Report,
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
including statements that are based on current expectations, estimates and
projections about the industries in which the Company operates, management's
beliefs and assumptions made by management. Words such as "expects",
"anticipates", "intends", "plans", "believes", "seeks", "estimates", variations
of such words and similar expressions are intended to identify such forward-
looking statements. These statements are not guarantees of future performance
and involve certain risks, uncertainties and assumptions which are difficult to
predict. Therefore, actual outcomes and results may differ materially from those
in such forward-looking statements. The Company undertakes no obligation to
update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Reports of Independent Public Accountants, Consolidated Financial
Statements, and Supplementary Schedules, are set forth on the pages that follow
in this Report and are hereby incorporated herein.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
- 21 -
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 15, 1997 (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, 1996 pursuant to
Regulation 14A of the Securities and Exchange Act of 1934, as amended.
Listed below are the names, offices held, ages and business experience
of all executive officers of the Company.
Name, Offices Held and Age Year First Elected to Present Office and Business Experience
David B. Perini, Director, Chairman He has served as a Director, President, Chief Executive Officer and
and Chief Executive Officer - 59 Acting Chairman since 1972. He became Chairman on March 17, 1978
and has worked for the Company since 1962 in various capacities.
Prior to being elected President, he served as Vice President and
General Counsel.
Richard J. Rizzo, Executive Vice He has served in this capacity since January
President, Building Construction - 53 1994, which entails overall responsibility for the Company's
building construction operations. Prior thereto, he served as President
of Perini Building Company (formerly known as Mardian Construction
Co.) since 1985, and in various other operating capacities since 1977.
John H. Schwarz, Executive Vice He has served as Executive Vice President, Finance and
President, Finance and Administration since August 1994. He also served as Chief Executive
Administration of the Company - 58 Officer of Perini Land and Development Company, which entails
overall responsibility for the Company's real estate operations
since April 1992 through 1995. Prior to that, he served as Vice President,
Finance and Controls of Perini Land and Development Company. Previously,
he served as Treasurer from August 1984, and Director of Corporate
Planning since May 1982. He joined the Company in 1979 as Manager of
Corporate Development.
Donald E. Unbekant, Executive Vice He has served in this capacity since January 1994, which entails overall
President, Civil Construction - 65 responsibility for the Company's civil construction operations. Prior
thereto, he served in the Metropolitan New York Division of the
Company as President since 1992, Vice President and General Manager since
1990 and Division Manager since 1984.
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.
- 22 -
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.
- 23 -
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, 1996 and 1995 26 - 27
Consolidated Statements of Operations for the three years ended December 31, 1996, 28
1995 and 1994
Consolidated Statements of Stockholders' Equity for the three years ended December 29
31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the three years ended December 31, 1996, 30 - 31
1995 and 1994
Notes to Consolidated Financial Statements 32 - 48
Report of Independent Public Accountants 49
(a)2. The following financial statement schedules are filed as part of this
report:
Pages
Report of Independent Public Accountants on Schedules 50
Schedule I -- Condensed Financial Information of Registrant 51 - 55
Schedule II -- Valuation and Qualifying Accounts and Reserves 56
All other schedules are omitted because of the absence of the conditions
under which they are required or because the required information is
included in the Consolidated Financial Statements or in the Notes
thereto.
(a)3. Exhibits
The exhibits which are filed with this report or which are incorporated
herein by reference are set forth in the Exhibit Index which appears on
pages 57 through 60. 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, 1996, the Registrant made no
filings on Form 8-K.
- 24 -
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, 1997
David B. Perini
Chairman 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 and Chief
Executive Officer March 27, 1997
/s/David B. Perini
------------------
David B. Perini
(ii) Principal Financial Officer
John H. Schwarz Executive Vice President
Finance & Administration March 27, 1997
/s/John H. Schwarz
------------------
John H. Schwarz
(iii) Principal Accounting Officer
Barry R. Blake Vice President and
Controller March 27, 1997
/s/Barry R. Blake
-----------------
Barry R. Blake
(iv) Directors
David B. Perini )
Richard J. Boushka ) By
Marshall M. Criser )
Thomas E. Dailey ) /s/David B. Perini
------------------
Albert A. Dorman ) David B. Perini
Arthur J. Fox, Jr. )
Nancy Hawthorne ) Attorney in Fact
Michael R. Klein ) Dated: March 27, 1997
Douglas J. McCarron )
John H. McHale )
Jane E. Newman )
Bart W. Perini )
Ronald N. Tutor )
- 25 -
Consolidated Balance Sheets
December 31, 1996 and 1995
(In thousands except per share data)
Assets
- ------
1996 1995
---- ----
CURRENT ASSETS:
Cash, including cash equivalents of $9,071 and $29,059 (Note 1) $ 9,745 $ 29,059
Accounts and notes receivable, including retainage of $63,423 and $69,884 188,120 180,978
Unbilled work (Note 1) 35,600 28,304
Construction joint ventures (Notes 1 and 2) 78,233 61,846
Real estate inventory, at the lower of cost or market (Notes 1 and 4) 37,914 14,933
Deferred tax asset (Notes 1 and 5) 3,513 13,039
Other current assets 1,655 2,186
-------- --------
Total current assets $354,780 $330,345
-------- --------
REAL ESTATE DEVELOPMENT INVESTMENTS (Notes 1 and 4):
Land held for sale or development (including land development costs) at
the lower of cost or market $ 21,520 $ 41,372
Investments in and advances to real estate joint ventures
(Notes 2 and 11) 71,253 148,225
Real estate properties used in operations, less accumulated depreciation
of $3,444 in 1995 - 2,964
Other 49 302
-------- --------
Total real estate development investments $ 92,822 $192,863
-------- --------
PROPERTY 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 3,101,814EQUIPMENT, at cost (Note 1):
Land $ 793 $ 809
Buildings and improvements 13,075 13,548
Construction equipment 10,535 15,597
Other equipment 9,726 9,911
-------- --------
$ 34,129 $ 39,865
Less - Accumulated depreciation 23,013 27,299
-------- --------
Total property and equipment, net $ 11,116 $ 12,566
-------- --------
OTHER ASSETS:
Other investments $ 3,999 $ 1,839
Goodwill (Note 1) 1,575 1,638
-------- --------
Total other assets $ 5,574 $ 3,477
-------- --------
$464,292 $539,251
======== ========
The accompanying notes are an integral part of these financial statements.
- 26-
Liabilities and Stockholders' Equity
- ------------------------------------
1996 1995
---- ----
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 3) $ 16,421 $ 5,697
Accounts payable, including retainage of $57,131 and $58,749 183,407 197,052
Advances from construction joint ventures (Note 2) 47,544 34,830
Deferred contract revenue (Note 1) 23,841 23,443
Accrued expenses 26,823 32,778
--------- --------
Total current liabilities $298,036 $293,800
--------- --------
DEFERRED INCOME 1,540,311 1,540,311
ACCRUEDTAXES AND OTHER LIABILITIES (Notes 1, 5 & 6) $ 31,297 $ 52,663
--------- --------
LONG-TERM DEBT, less current maturities included above (Note 3):
Real estate development $ 4,287 $ 3,660
Other 92,606 80,495
--------- --------
Total long-term debt $ 96,893 $ 84,155
--------- --------
MINORITY INTEREST DUE GENERAL PARTNERS 35,326,625 33,900,724
DUE TO PERINI LAND(Note 1) $ 2,508 $ 3,027
--------- --------
CONTINGENCIES AND DEVELOPMENT COMPANY 69,759,693 68,499,293
DUE TO PACIFIC GATEWAY PROPERTIES, INC. 17,428,051 16,988,451
------------ ------------COMMITMENTS (Note 11)
STOCKHOLDERS' EQUITY (Notes 1, 7, 8, 9, 10 and 14):
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 - 5,032,427 shares and 4,985,160 shares 5,032 4,985
Paid-in surplus 57,080 57,659
Retained earnings (deficit) (20,666) 52,062
ESOT related obligations ( 3,856) (4,965)
--------- ---------
$ 37,690 $109,841
Less - Common stock in treasury, at cost - 133,779 shares and 265,735 2,132 4,235
--------- --------
shares
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
============= =============stockholders' equity $ 35,558 $105,606
--------- --------
$464,292 $539,251
======== ========
- 27 -
RINCON CENTER ASSOCIATES
Income Statement
Consolidated Statements of Operations
For Period 1/1/93 thru 3/31/94
Current Year-To-Date Year-To-Date
Period 3/31/94 3/31/93the years ended December 31, 1996, 1995 & 1994
(In thousands, except per share data)
1996 1995 1994
---- ---- ----
REVENUE:
Rental IncomeREVENUES (Notes 2 and 13) $1,270,284 $1,101,068 $1,012,045
----------- ----------- ----------
COSTS AND EXPENSES (Notes 2 and 10):
Cost of operations $1,215,806 $1,086,213 $ 1,448,804960,248
Write down of certain real estate assets (Note 4) 79,900 - -
General, administrative and selling expenses 33,988 37,283 42,985
----------- ----------- ----------
$1,329,694 $1,123,496 $1,003,233
----------- ----------- ----------
INCOME (LOSS) FROM OPERATIONS (Note 13) $ 4,328,191(59,410) $ 4,284,069
Parking Income 112,890 316,517 341,329(22,428) $ 8,812
----------- ----------- ----------
Other income (expense), net (Note 6) (492) 814 (856)
Interest Income 140,897 404,456 259,104expense (Note 3) (9,871) (8,582) (7,473)
----------- ----------- -----------
Total RevenueINCOME (LOSS) BEFORE INCOME TAXES $ 1,702,591(69,773) $ 5,049,164(30,196) $ 4,884.502
OPERATIONS EXPENSE:
Operating Expense $ 794,219 $ 2,181,212 $ 2,058,734
Ground Rent Expense 233,306 754,664 850,152
----------- ----------- -----------
Total Operating Expense $ 1,027,525 $ 2,935,876 $ 2,908,886
----------- ----------- -----------
NET OPERATING INCOME $ 675,066 $ 2,113,288 $ 1,975,616
DEBT SERVICE:
Sale Lease Back Basic Rent 442,468 1,327,405 873,358
Interest Expense 217,945 581,225 630,971
LC Fees 44,601 133,802 215,818
----------- ----------- -----------
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 Expenses $ 639,476 $ 1,424,504 1,742,368
DEPRECIATION:
Amortization $ 26,394 $ 69,421 $ 49,265
Depreciation 324,916 955,421 946,259
----------- ----------- -----------
Total Amortization/Depreciation $ 351,310 $ 1,024,842 $ 995,524483
(Provision) credit for income taxes (Notes 1 and 5) (830) 2,611 (180)
----------- ----------- -----------
NET INCOME OR (LOSS) $(1,020,734) $(2,378,490) $(2,482,603)
============$ (70,603) $ (27,585) $ 303
=========== =========== ==========
EARNINGS (LOSS) PER COMMON SHARE (Note 1) $ (15.13) $ (6.38) $ (.42)
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
- 28 -
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1996, 1995 & 1994
(In thousands, except per share data)
ESOT
Preferred Common Paid-In Retained Related Treasury
Stock Stock Surplus Earnings Obligation Stock Total
- -------------------------------- ------------- --------- ------------ ------------ -------------- ------------ ------------
Balance-December 31, 1993 $100 $4,985 $59,875 $ 83,594 $(6,982) $(10,429) $131,143
- -------------------------------- ------------- --------- ------------ ------------ -------------- ------------ ------------
Net Income - - - 303 - - 303
Preferred stock-cash
dividends declared
($21.25 per share*) - - - (2,125) - - (2,125)
Treasury stock issued in
partial payment of
incentive compensation - - (835) - - 2,444 1,609
Restricted stock awarded - - (39) - - 165 126
Payments related to ESOT -
notes - - - - 973 973
- -------------------------------- ------------- --------- ------------ ------------ -------------- ------------ ------------
Balance-December 31, 1994 $100 $4,985 $59,001 $ 81,772 $(6,009) $ (7,820) $132,029
- -------------------------------- ------------- --------- ------------ ------------ -------------- ------------ ------------
Net Loss - - - (27,585) - - (27,585)
Preferred stock-cash
dividends declared or
accrued ($21.25 per
share*) - - - (2,125) - - (2,125)
Treasury stock issued in
partial payment of
incentive compensation - - (1,342) - - 3,585 2,243
Payments related to ESOT
notes - - - - 1,044 - 1,044
- -------------------------------- ------------- --------- ------------ ------------ -------------- ------------ ------------
Balance-December 31, 1995 $100 $4,985 $57,659 $ 52,062 $(4,965) $ (4,235) $105,606
- -------------------------------- ------------- --------- ------------ ------------ -------------- ------------ ------------
Net Loss - - - (70,603) - - (70,603)
Preferred stock
dividends accrued ($21.25
per share*) - - - (2,125) - - (2,125)
Treasury stock issued in
partial payment of
incentive compensation - - (830) - - 1,867 1,037
Payment of director fees - - (102) - - 236 134
Payment of finance fee
(Note 3) - 47 353 - - - 400
Payments related to ESOT
notes - - - - 1,109 - 1,109
- -------------------------------- ------------- --------- ------------ ------------ -------------- ------------ ------------
Balance-December 31, 1996 $100 $5,032 $57,080 $(20,666) $(3,856) $(2,132) $ 35,558
- -------------------------------- ------------- --------- ------------ ------------ -------------- ------------ ------------
*Equivalent to $2.125 per depositary share (see Note 7).
The accompanying notes are an integral part of these financial statements.
- 29 -
Consolidated Statements of Cash Flows
For the years ended December 31, 1996, 1995 & 1994
(In thousands)
Cash Flows from Operating Activities: 1996 1995 1994
-------- -------- --------
Net income (loss) $(70,603) $(27,585) $ 303
Adjustments to reconcile net income (loss) to net cash from
operating activities -
Depreciation and amortization 2,590 2,769 2,879
Non-current deferred taxes and other liabilities (21,366) 19,175 (5,306)
Distributions greater (less) than earnings of joint ventures
and affiliates (4,586) 12,880 2,995
Write down of certain real estate properties 79,900 - -
Cash provided from (used by) changes in components of working capital other
than cash, notes payable and current maturities of long-term debt:
(Increase) decrease in accounts receivable (7,142) (29,358) (28,611)
(Increase) decrease in unbilled work (7,296) (8,095) (5,285)
(Increase) decrease in construction joint ventures (380) 2,643 (662)
(Increase) decrease in deferred tax asset 9,526 (6,973) 1,636
(Increase) decrease in other current assets 849 2,109 233
Increase (decrease) in accounts payable (13,645) 48,997 35,024
Increase (decrease) in advances from construction joint
ventures 12,714 26,020 (14,390)
Increase (decrease) in deferred contract revenue 398 (15,486) 13,062
Increase (decrease) in accrued expenses (8,080) (3,106) (15,126)
Real estate development investments other than joint ventures 4,500 2,757 11,451
Other non-cash items, net (1,689) (2,174) (3,231)
--------- --------- ---------
NET CASH PROVIDED FROM (USED BY) OPERATING ACTIVITIES $(24,310) $ 24,573 $ (5,028)
--------- --------- ---------
Cash Flows from Investing Activities:
Proceeds from sale of property and equipment $ 2,098 $ 3,115 $ 989
Cash distributions of capital from unconsolidated joint
ventures 8,753 23,858 13,112
Acquisition of property and equipment (1,449) (1,960) (2,493)
Improvements to land held for sale or development (515) (193) (334)
Improvements to real estate properties used
in operations (123) (263) (140)
Capital contributions to unconsolidated joint ventures (20,224) (29,373) (20,199)
Advances to real estate joint ventures, net (7,312) (7,735) (6,559)
Investments in other activities (2,374) 190 14
--------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES $(21,146) $(12,361) $(15,610)
--------- --------- ---------
- 29 -
Consolidated Statements of Cash Flows (Continued)
For the years ended December 31, 1996, 1995 & 1994
(In thousands)
Cash Flows from Financing Activities: 1996 1995 1994
-------- -------- --------
Proceeds from long-term debt $ 27,006 $ 12,033 $ 3,127
Repayment of long-term debt (2,435) (3,145) (10,129)
Cash dividends paid - (2,125) (2,125)
Treasury stock issued 1,171 2,243 1,735
Finance fee paid in stock 400 - -
--------- --------- ---------
NET CASH PROVIDED FROM (USED BY) FINANCING ACTIVITIES $ 26,142 $ 9,006 $ (7,392)
--------- --------- ---------
Net Increase (Decrease) in Cash $(19,314) $ 21,218 $(28,030)
Cash and Cash Equivalents at Beginning of Year 29,059 7,841 35,871
--------- --------- ---------
Cash and Cash Equivalents at End of Year $ 9,745 $ 29,059 $ 7,841
========= ========= =========
Supplemental Disclosures of Cash Paid During the Year For:
Interest $ 9,596 $ 8,715 $ 7,308
========= ========= =========
Income tax payments $ 221 $ 121 $ 1,176
========= ========= =========
The accompanying notes are an integral part of these financial statements.
- 31 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1996, 1995 & 1994
[1] Summary of Significant Accounting Policies
[a] Principles of Consolidation
The consolidated financial statements include the accounts of Perini
Corporation, its subsidiaries and certain majority-owned real estate joint
ventures (the "Company"). All subsidiaries are currently wholly-owned. All
significant intercompany transactions and balances have been eliminated in
consolidation. Non-consolidated joint venture interests are accounted for on the
equity method with the Company's share of revenues and costs in these interests
included in "Revenues" and "Cost of Operations," respectively, in the
accompanying consolidated statements of operations. All significant intercompany
profits between the Company and its joint ventures have been eliminated in
consolidation. Taxes are provided on joint venture results in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes".
[b] Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. The most significant
estimates with regard to these financial statements relate to the estimating of
final construction contract profits in accordance with accounting for long-term
contracts (see Note 1(c) below), estimating future cash flows of real estate
development projects (see Note 1(d) below) and estimating potential liabilities
in conjunction with certain contingencies and commitments, as discussed in Note
11. Actual results could differ from these estimates.
[c] Method of Accounting for Contracts
Profits from construction contracts and construction joint ventures are
generally recognized by applying percentages of completion for each year to the
total estimated profits for the respective contracts. The percentages of
completion are determined by relating the actual cost of the work performed to
date to the current estimated total cost of the respective contracts. When the
estimate on a contract indicates a loss, the Company's policy is to record the
entire loss. The cumulative effect of revisions in estimates of total cost or
revenue during the course of the work is reflected in the accounting period in
which the facts that caused the revision become known. An amount equal to the
costs attributable to unapproved change orders and claims is included in the
total estimated revenue when realization is probable. Profit from unapproved
change orders and claims is recorded in the year such amounts are resolved.
In accordance with normal practice in the construction industry, the Company
includes in current assets and current liabilities amounts related to
construction contracts realizable and payable over a period in excess of one
year. Unbilled work represents the excess of contract costs and profits
recognized to date on the percentage of completion accounting method over
billings to date on certain contracts. Deferred contract revenue represents the
excess of billings to date over the amount of contract costs and profits
recognized to date on the percentage of completion accounting method on the
remaining contracts.
[d] Methods of Accounting for Real Estate Operations
All real estate sales are recorded in accordance with SFAS No. 66. Gross profit
is not recognized in full unless the collection of the sale price is reasonably
assured and the Company is not obliged to perform significant activities after
the sale. Unless both conditions exist, recognition of all or a part of gross
profit is deferred.
The gross profit recognized on sales of real estate is determined by relating
the estimated total land, land development and construction costs of each
development area to the estimated total sales value of the property in the
development.
- 32 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1996, 1995 & 1994 (continued)
[1] Summary of Significant Accounting Policies (continued)
[d] Methods of Accounting for Real Estate Operations (continued)
Real estate investments are stated at the lower of the carrying amounts, which
includes applicable interest and real estate taxes during the development and
construction phases, or fair value less cost to sell in accordance with SFAS No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of". SFAS No. 121 requires that assets to be held and used
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment has
occurred when the carrying amount of the assets exceed the related undiscounted
future cash flows of a development. SFAS No. 121 also provides that when
management has committed to a plan to dispose of specific real estate assets,
the assets should be reported at the lower of the carrying amount or fair value
less cost to sell. Estimating future cash flows of a development involves
estimating the current sales value of the development less the estimated costs
of completion (to the stage of completion assumed in determining the selling
price), holding and disposal. Estimated sales values are forecast based on
comparable local sales (where applicable), trends as foreseen by knowledgeable
local commercial real estate brokers or others active in the business and/or
project specific experience such as offers made directly to the Company relating
to the property. If the estimated future cash flows of a development is less
than the carrying amount of a development, SFAS No. 121 requires a provision to
be made to reduce the carrying amount of the development to fair value less cost
to sell. The Company recently changed its strategy with respect to certain real
estate assets which resulted in a write down that is described in Note 4 below.
[e] Depreciable Property and Equipment
Land, buildings and improvements, construction and computer-related equipment
and other equipment are recorded at cost. Depreciation is provided primarily
using accelerated methods for construction and computer-related equipment and
the straight-line method for the remaining depreciable property.
[f] Goodwill
Goodwill represents the excess of the costs of subsidiaries acquired over the
fair value of their net assets as of the dates of acquisition. These amounts are
being amortized on a straight-line basis over 40 years.
[g] Income Taxes
The Company follows SFAS No. 109, "Accounting for Income Taxes," (see Note 5).
Deferred income tax assets and liabilities are recognized for the effects of
temporary differences between the financial statement carrying amounts and the
income tax basis of assets and liabilities using enacted tax rates. In addition,
future tax benefits, such as net operating loss carryforwards, are recognized
currently to the extent such benefits are more likely than not to be realized as
an economic benefit in the form of a reduction of income taxes in future years.
[h] Earnings (Loss) Per Common Share
Computations of earnings (loss) per common share amounts are based on the
weighted average number of common shares outstanding (4,808,000 shares in 1996,
4,655,000 shares in 1995 and 4,380,000 shares in 1994). During the three-year
period ended December 31, 1996, earnings (loss) per common share reflect the
effect of $2,125,000 of preferred dividends declared or 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.
- 33 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1996, 1995 & 1994 (continued)
[1] Summary of Significant Accounting Policies (continued)
[i] Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with original
maturities of three months or less.
[j] Reclassifications
Certain prior year amounts have been reclassified to be consistent with the
current year classifications.
[k] Impact of Recently Issued Accounting Standards
During 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of", effective January 1, 1996, which requires the determination of
whether an impairment has occurred to be based on undiscounted cash flows. If it
is determined that an impairment has occurred, the impaired asset must be
written down to fair value less cost to sell. While SFAS No. 121 specifically
applies to the Company's real estate development business (see Note (1)(d)
above), its adoption did not have a material impact on the accompanying
financial statements since the application of the Company's prior policy of
recording its real estate assets at the lower of cost or market produced similar
results.
Also during 1995, SFAS No. 123, "Accounting for Stock-based Compensation" was
issued. This statement requires the fair value of stock options and other
stock-based compensation issued to employees to be either included as
compensation expense in the income statement, or the pro-forma effect on net
income and earnings per share to be disclosed in the footnotes to the financial
statements commencing in 1996. The Company has elected to adopt SFAS No. 123 on
a disclosure basis and, as such, the effect of its implementation did not have a
material impact on the accompanying financial statements (see Note 9 below).
- 34 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1996, 1995 & 1994 (continued)
[2] Joint Ventures
The Company, in the normal conduct of its business, has entered into partnership
arrangements, referred to as "joint ventures," for certain construction and real
estate development projects. Each of the joint venture participants is usually
committed to supply a predetermined percentage of capital, as required, and to
share in a predetermined percentage of the income or loss of the project.
Summary financial information (in thousands) for construction and real estate
joint ventures accounted for on the equity method for the three years ended
December 31, 1996 follows:
Construction Joint Ventures
Financial position at December 31, 1996 1995 1994
--------- --------- ---------
Current assets $329,999 $227,578 $232,025
Property and equipment, net 32,145 22,491 19,386
Current liabilities (236,752) (151,311) (132,326)
--------- --------- ---------
Net assets $125,392 $ 98,758 $119,085
========= ========= =========
Operations for the year ended December 31, 1996 1995 1994
--------- --------- ---------
Revenue $753,214 $348,730 $544,546
Cost of operations 702,997 329,414 505,347
--------- --------- ---------
Pretax income $ 50,217 $ 19,316 $ 39,199
========= ========= =========
Company's share of joint ventures
Revenue $446,793 $182,799 $241,784
Cost of operations 413,935 177,990 224,039
--------- --------- ---------
Pretax income $ 32,858 $ 4,809 $ 17,745
========= ========= =========
Equity $ 78,233 $ 61,846 $ 66,346
========= ========= =========
The Company has a centralized cash management arrangement with certain
construction joint ventures in which it is the sponsor. Under this arrangement,
excess cash is controlled by the Company; cash is made available to meet the
individual joint venture requirements, as needed; and interest income is
credited to the ventures at competitive market rates. In addition, certain joint
ventures sponsored by other contractors, in which the Company participates,
distribute cash at the end of each quarter to the participants who will then
return these funds at the beginning of the next quarter. Of the total cash
advanced at the end of 1996 ($47.5 million) and 1995 ($34.8 million),
approximately $25.6 million in 1996 and $12.1 million in 1995 was deemed to be
temporary.
Real Estate Joint Ventures
Financial position at December 31, 1996 1995 1994
--------- --------- ---------
Property held for sale or development $ 12,683 $ 18,350 $ 28,885
Investment properties, net 168,833 173,468 177,258
Other assets 64,530 61,700 62,101
Long-term debt (69,195) (72,603) (77,968)
Other liabilities* (334,087) (305,755) (277,184)
---------- ---------- ---------
Net assets (liabilities) $(157,236) $(124,840) $(86,908)
========== ========== =========
Operations for the year ended December 31, 1996 1995 1994
---------- --------- ---------
Revenue $ 42,921 $ 49,560 $ 58,326
---------- ---------- ---------
Cost of operations -
Depreciation $ 6,614 $ 7,304 $ 7,245
Other 64,289 73,829 71,211
---------- ---------- ---------
$ 70,903 $ 81,133 $ 78,456
---------- ---------- ---------
Pretax income (loss) $ (27,982) $ (31,573) $(20,130)
========== ========== =========
Company's share of joint ventures
Revenue $ 22,502 $ 23,424 $ 27,059
---------- ---------- ---------
Cost of operations -
Depreciation $ 3,441 $ 3,275 $ 3,323
Other ** 19,127 20,888 26,682
---------- ---------- ---------
$ 22,568 $ 24,163 $ 30,005
---------- ---------- ---------
Pretax income (loss) $ (66) $ (739) $ (2,946)
========== ========== =========
Equity *** $(125,877) $ (46,640) $(30,095)
Advances 222,341 198,741 181,934
---------- ---------- ---------
Total Equity and Advances $ 96,464 $ 152,101 $151,839
========== ========== =========
Total Equity and Advances, Long-term $ 71,253 $ 148,225 $148,843
Total Equity and Advances, Short-term **** 25,211 3,876 2,996
---------- ---------- ---------
$ 96,464 $ 152,101 $151,839
========== ========== =========
- 35 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1996, 1995 & 1994 (continued)
[2] Joint Ventures (continued)
* Included in "Other liabilities" are advances from joint venture partners
in the amount of $259.3 million in 1994, $287.6 million in 1995, and
$255.0 million in 1996. Of the total advances from joint venture
partners, $181.9 million in 1994, $198.7 million in 1995, and $222.3
million in 1996 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, 1996.
**** Included in real estate inventory classified as current.
[3] Long-term Debt
Long-term debt of the Company at December 31, 1996 and 1995 consists of the
following (in thousands):
1996 1995
------ ------
Real Estate Development:
Industrial revenue bonds, at 65% of prime, payable in semi-annual installments $ 891 $ 1,034
Mortgages on real estate, at rates ranging from 8% to 10.82%,
payable in installments 7,222 5,521
-------- -------
Total $ 8,113 $ 6,555
Less - current maturities 3,826 2,895
-------- -------
Net real estate development long-term debt $ 4,287 $ 3,660
======== =======
Other:
Revolving credit loans at an average rate of 8.1% in 1996 and 1995 $ 85,000 $73,000
PB Capital bridge loan at a rate of prime plus 4% 10,000 -
ESOT Notes at 8.24%, payable in semi-annual installments (Note 7) 3,495 4,484
Industrial revenue bonds at various rates, payable in installments to 2005 4,000 4,000
Other indebtedness 2,706 1,813
-------- -------
Total $105,201 $83,297
Less - current maturities 12,595 2,802
-------- -------
Net other long-term debt $ 92,606 $80,495
======== =======
Payments required under these obligations amount to approximately $16,421 in
1997, $6,139 in 1998, $1,754 in 1999, $85,000 in 2000, $ - in 2001 and $4,000
for the years 2002 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, with a $25 million
maximum of such amount also being available for letters of credit, of which
$11.2 million was outstanding at December 31, 1996. 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.
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. During 1996, the
Company would have been in violation of certain of these financial covenants;
however, the Company obtained waivers of any such violations. Effective February
26, 1996, certain modifications were made to the revolving credit agreement
including, among other things, additional collateral which consists of all
available assets not included as collateral in other agreements and suspension
of payment of the 53 1/8 cent per share quarterly
- 36 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1996, 1995 & 1994 (continued)
[3] Long-term Debt (continued)
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 at an interest rate of prime
plus 2%. During November 1996, the Bridge Loan Facility was temporarily
increased by $10 million to allow PB Capital Partners, L.P. ("PB Capital"), one
of the investors in the Company's new Series B Cumulative Convertible Preferred
Stock ("Series B Preferred Stock") (see Note 14 "Subsequent Events" for details
of this transaction), to participate 100% in the additional Bridge Loan by
temporarily loaning $10 million to the Company until such time as the issuance
of the new Series B Preferred Stock was approved by the Company's shareholders.
In connection with this transaction, the Company paid PB Capital a fee of
$400,000 payable in shares of the Company's $1.00 par value Common Stock (47,267
shares) valued at fair market value at the time of the transaction. Concurrent
with the approval of the Series B Preferred Stock by the Company's shareholders
on January 17, 1997, the Company issued its Series B Preferred Stock for
approximately $30 million, repaid the $10 million temporary Bridge Loan from PB
Capital, and entered into a new revolving credit agreement with its bank group
(the "New Credit Agreement"). Under the New Credit Agreement, the previous
Revolving Credit Agreement and Bridge Loan Facility were combined into a single
$129.5 million Credit Facility and the expiration dates extended from 1997 to
January 1, 2000. The New Credit Agreement provides for scheduled mandatory
reductions of the total Credit Facility and compliance with certain financial
ratios and other financial limitations (see Note 14).
[4] Write Down of Certain Real Estate Assets
The Company recently changed its real estate strategy on certain of its
properties from maximizing value by holding them through the necessary
development and stabilization periods to a new strategy of generating short-term
liquidity through an accelerated disposition or bulk sale. This change in
strategy substantially reduced the estimated future cash flow from those
properties. Therefore, an impairment loss on those properties, in an aggregate
amount of $79.9 million, representing the excess of book value of those
properties over their estimated future cash flow, was provided in the fourth
quarter of 1996 in accordance with SFAS No. 121. An estimated allocation of the
write down by geographic area is California ($59.9 million), Arizona ($18
million), and Florida ($2 million). Revenues and pretax loss related to these
properties included in the 1996 Statement of Operations were approximately $14.6
million and $.5 million, respectively.
[5] Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109. This
standard determines deferred income taxes based on the estimated future tax
effects of differences between the financial statement and tax bases of assets
and liabilities, given the provisions of enacted tax laws.
- 37 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1996, 1995 & 1994 (continued)
[5] Income Taxes (continued)
The (provision) credit for income taxes is comprised of the following (in
thousands):
Federal State Total
------- ----- -----
1996
Current $ - $ (736) $ (736)
Deferred - (94) (94)
-------- -------- --------
$ - $ (830) $ (830)
======== ======== ========
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)
======== ======== ========
The table below reconciles the difference between the statutory federal income
tax rate and the effective rate provided in the statements of operations.
1996 1995 1994
---- ---- ----
Statutory federal income tax rate (34)% (34)% 34 %
State income taxes, net of federal tax benefit 1 - 4
Change in valuation allowance 34 25 -
Goodwill and other - - (1)
----- ----- -----
Effective tax rate 1 % (9)% 37 %
===== ===== =====
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of December 31, 1996 and 1995 (in
thousands):
1996 1995
------------------------------------ --------------------------------
Deferred Deferred Tax Deferred Deferred Tax
Tax Assets Liabilities Tax Assets Liabilities
Provision for estimated losses $ 30,291 $ - $ 5,646 $ -
Contract losses 6,562 - 5,642 -
Joint ventures - construction - 8,176 - 4,929
Joint ventures - real estate - 21,962 - 20,419
Timing of expense recognition 4,370 - 4,253 -
Capitalized carrying charges - 1,813 - 2,187
Net operating loss carryforwards 16,157 - 13,675 -
Alternative minimum tax credit
carryforwards 2,419 - 2,419 -
General business tax credit
carryforwards 3,532 - 3,532 -
Foreign tax credit carryforwards 979 - 978 -
Other, net 413 321 576 985
--------- --------- -------- --------
$ 64,723 $ 32,272 $36,721 $28,520
Valuation allowance for deferred
tax assets (32,945) - (9,342) -
--------- --------- -------- --------
Total $ 31,778 $ 32,272 $27,379 $28,520
========= ========= ======== ========
The net of the above is deferred taxes in the amount of $494 in 1996 and $1,141
in 1995 which is classified
- 38 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1996, 1995 & 1994 (continued)
[5] Income Taxes (continued)
in the respective Consolidated Balance Sheets as follows:
1996 1995
---- ----
Long-term deferred tax liabilities
(included in "Deferred Income
Taxes and Other Liabilities") $ 4,007 $14,180
Short-term deferred tax asset 3,513 13,039
------- -------
$ 494 $ 1,141
======= =======
A valuation allowance is provided to reduce the deferred tax assets to a level
which, more likely than not, will be realized. The net deferred assets reflect
management's estimate of the amount which will be realized from future taxable
income which can be predicted with reasonable certainty.
As a result of not providing any federal income tax benefit in 1996 and only a
partial benefit in 1995, approximately $92 million of future pretax earnings
should benefit from minimal, if any, federal tax provisions.
At December 31, 1996, 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
1997 - 2000 $ - $ 979 $ -
2001 - 2005 3,532 - 1,696
2006 - 2010 - - 45,825
------- ------ -------
$ 3,532 $ 979 $47,521
======= ====== =======
Net operating loss carryforwards may be limited in the event of certain changes
in ownership interests of significant stockholders. In addition, 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.
[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, 1996 and 1995
consist of the following (in thousands):
1996 1995
------- -------
Deferred Income Taxes $ 4,007 $14,180
Insurance related liabilities 9,385 20,484
Employee benefit-related liabilities 5,016 5,110
Other 12,889 12,889
-------- -------
$31,297 $52,663
======== =======
Other Income (Expense), Net
Other income (expense) items for the three years ended December 31, 1996 consist
of the following (in thousands):
1996 1995 1994
------- ------- -------
Interest and dividend income $ 1,018 $ 1,369 $ 205
Minority interest (Note 1) 416 10 24
Bank fees (1,906) (1,099) (1,100)
Miscellaneous income (expense), net (20) 534 15
-------- -------- --------
$ (492) $ 814 $ (856)
======== ======== ========
- 39 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1996, 1995 & 1994 (continued)
[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 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 earlier to occur of (i) 10 days following a public announcement that a
person or group (an "Acquiring Person") has acquired 20% or more of the
Company's outstanding common stock (the "Stock Acquisition Date"), (ii) 10
business days following the announcement by a person or group of an intention to
make an offer that would result in such persons or group becoming an Acquiring
Person or (iii) the declaration by the Board of Directors that any person is an
"Adverse Person", as defined under the Plan. The Rights will not have any voting
rights or be entitled to dividends.
Upon the occurrence of a triggering event as described above, each Right will be
entitled to that number of Units of Preferred Stock of the Company having a
market value of two times the exercise price of the Right. If the Company is
acquired in a merger or 50% or more of its assets or earning power is sold, each
Right will be entitled to receive common stock of the acquiring company having a
market value of two times the exercise price of the Right. Rights held by such a
person or group causing a triggering event may be null and void. The Rights are
redeemable at $.02 per Right by the Board of Directors at any time prior to the
occurrence of a triggering event.
On January 17, 1997, the Board of Directors amended the Company's Shareholder
Rights Plan to; (i) permit the acquisition of the Series B Preferred Stock by
certain investors (see Note 14 "Subsequent Events"), any additional Preferred
Stock issued as a dividend thereon, any Common Stock issued upon
- 40 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1996, 1995 & 1994 (continued)
[8] Series a Junior Participating Preferred Stock (continued)
conversion of the Series B Preferred Stock and certain other events without
triggering the distribution of the Rights; (ii) lower the threshold for the
occurrence of a Stock Acquisition Date from 20% to 10%; and (iii) extend the
expiration date of the Plan from September 23, 1998 to January 21, 2007.
[9] Stock Options
At December 31, 1996 and 1995, 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 of common stock granted in 1992 become
exercisable on March 31, 2001 if the Company achieves a certain profit target in
the year 2000; may become exercisable earlier if certain interim profit targets
are achieved; and to the extent not exercised, expire 10 years from the date of
grant. A summary of stock option activity related to the Company's stock option
plan is as follows:
Option Price Per Share Shares
Number of Weighted Available
Shares Range Average To Grant
Outstanding at December 31, 1994 421,525 $11.06-$33.06 $17.58 60,085
Granted 10,000 $10.44 $10.44
Canceled (52,875) $11.06-$33.06 $20.85
Outstanding at December 31, 1995 378,650 $10.44-$33.06 $16.65 102,960
Granted - $ - -
Canceled (15,150) $11.06-$33.06 $20.53
Outstanding at December 31, 1996 363,500 $10.44-$33.06 $16.48 118,110
Options outstanding at December 31, 1996 and related weighted average price and
life information follows:
Remaining Grant Options Options Exercise
Life (Years) Date Outstanding Exercisable Price
- ------------ ---- ----------- ----------- -----
1 05/17/89 17,850 17,850 $33.06
2 05/17/90 19,750 19,750 $24.00
3 07/16/91 55,900 55,900 $11.06
4 12/21/92 240,000 90,000 $16.44
6 03/22/94 20,000 10,000 $13.00
7 05/18/95 10,000 - $10.44
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. As discussed in Note (1)(k) above,
the Company elected the optional pro forma disclosures under SFAS No. 123 as if
the Company adopted the cost recognition requirements in 1995 which are
discussed below.
The fair value of the options granted during 1995 is $58,000 and was estimated
on the date of grant using the Black-Scholes option-pricing model with the
following assumptions: dividend yield of 0%, expected volatility of 37%,
risk-free interest rate of 6.58%, and expected life of 8 years. If SFAS No. 123
had been fully implemented, stock based compensation costs would have increased
the net loss in 1996 and 1995 by $19,000 or less than one cent per common share.
The effect of applying SFAS No. 123 in this pro forma disclosure may not be
indicative of future amounts.
- 41 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1996, 1995 & 1994 (continued)
[10] Employee Benefit Plans
The Company and its U.S. subsidiaries have a defined benefit plan that covers
its executive, professional, administrative and clerical employees, subject to
certain specified service requirements. The plan is noncontributory and benefits
are based on an employee's years of service and "final average earnings", as
defined. The plan provides reduced benefits for early retirement and takes into
account offsets for social security benefits. All employees are vested after 5
years of service. Net pension cost for 1996, 1995 and 1994 follows (in
thousands):
1996 1995 1994
------ ------ ------
Service cost - benefits earned
during the period $ 1,247 $ 988 $ 1,178
Interest cost on projected
benefit obligation 3,062 2,956 2,936
Return on plan assets:
Actual (4,053) (6,971) 1,229
Deferred 1,263 4,217 (3,839)
-------- -------- --------
Net pension cost $ 1,519 $ 1,190 $ 1,504
======== ======== ========
Actuarial assumptions used:
Discount rate 7 1/2%* 7 %** 8 3/4%***
Rate of increase in compensation 4 % 4 %** 5 1/2%
Long-term rate of return on assets 8 % 8 % 8 %
* Rate was changed effective December 31, 1996 and resulted in a $2.7
million decrease in the projected benefit obligation referred to below.
** Rates were changed effective December 31, 1995. The decrease in the
discount rate resulted in an increase in the projected benefit
obligations of $8.1 million, while the decrease in the rate of increase
in compensation resulted in a decrease in the projected benefit
obligations of $1.3 million, resulting in a net increase of $6.8 million
in 1995 in the projected benefit obligations referred to below.
*** Rate was changed from 71/2% effective December 31, 1994 and resulted in
a net decrease of $5.6 million in the projected benefit obligation.
The Company's plan has assets in excess of its accumulated benefit obligations.
Plan assets generally include equity and fixed income funds. The status of the
Company's employee pension benefit plan is summarized below (in thousands):
December 31,
1996 1995
-------- -------
Assets available for benefits:
Funded plan assets at fair value $40,618 $37,542
Accrued pension expense 4,355 4,122
-------- --------
Total assets $44,973 $41,664
-------- --------
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested benefits of $40,198 and $40,596 $39,760
$39,050
Effect of future salary increases 3,628 3,831
-------- --------
Projected benefit obligations $44,224 $43,591
-------- --------
Assets available more (less) than projected benefits $ 749 $(1,927)
======== ========
Consisting of:
Unamortized net liability existing at date of adopting SFAS No. 87 $ (24) $ (29)
Unrecognized net gain (loss) 347 (2,408)
Unrecognized prior service cost 426 510
-------- --------
$ 749 $(1,927)
======== ========
- 42 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1996, 1995 & 1994 (continued)
[10] Employee Benefit Plans (continued)
The Company also has a contributory Section 401(k) plan and a noncontributory
employee stock ownership plan (ESOP) which cover its executive, professional,
administrative and clerical employees, subject to certain specified service
requirements. Under the terms of the Section 401(k) plan, the provision 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, Section 401(k) plan and the ESOP.
The Company also has an unfunded supplemental retirement plan for certain
employees whose benefits under principal salaried retirement plans are reduced
because of compensation limitations under federal tax laws. Pension expense for
this plan was $.2 million in each of the last three years. At December 31, 1996,
the projected benefit obligation was $1.4 million. A corresponding accumulated
benefit obligation of $.9 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 $8.5
million in 1996, $7.6 million in 1995 and $9.2 million in 1994.
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 $8.5 million in 1996, $12.6
million in 1995 and $12.4 million in 1994. 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 $56 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 $3.9 million; and has
guaranteed a master lease under a sale operating lease-back transaction. In
calculating the potential obligation under the master lease guarantee, the
Company has an agreement with its lenders which employs a 10% discount rate and
no increases in future rental rates beyond current lease terms. Based on these
assumptions, management believes its additional future obligation will not
exceed $4.6 million. The Company has also guaranteed the $3.7 million letter of
credit, the subsidiary's $3.9 million amortization guaranty and any obligation
under the master lease during the next two 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
- 43 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1996, 1995 & 1994 (continued)
[11] Contingencies and Commitments (continued)
financing from $46.5 million to $40.5 million. Subsequent payments through 1996
have further reduced the loan to $36.2 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 two 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 1996 further reduced
the loan by $4.6 million. The joint venture may be required to amortize up to
$6.4 million more of the principal, however, under certain conditions, that
amortization could be as low as $4.9 million. Total lease payments and loan
amortization obligations at Rincon Center are $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
1997 is $8.4 million. The 1997 estimate assumes a period of approximately 5
months during which a portion of the building is unoccupied as that segment of
the building is improved for the use of a new tenant currently expected to take
occupancy in 1997.
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 $4 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 borrower has the right to extend the loan to May 1, 1998 on
similar terms but with an increase in quarterly amortization to $750,000.
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
1997. Under the terms of the loan extension, payment of the preferred return out
of operating profits requires lender approval. In February 1997, the Company's
wholly-owned real estate subsidiary entered into a letter of intent to sell its
- 44 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1996, 1995 & 1994 (continued)
[11] Contingencies and Commitments (continued)
partnership position in this property to one of its partners. If this
transaction is consummated, it is anticipated that all of the contingent
liabilities related to this project will be removed.
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
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. In the opinion of
management, the resolution of these matters will not have a material effect on
the results of operation or financial condition as reported in the accompanying
financial statements.
[12] Unaudited Quarterly Financial Data
The following table sets forth unaudited quarterly financial data for the years
ended December 31, 1996 and 1995 (in thousands, except per share amounts):
1996 by Quarter
1st 2nd 3rd 4th
--- --- --- ---
Revenues $270,029 $316,492 $340,670 $343,093
Net income (loss) $ 1,487 $ 2,024 $ 2,311 $(76,425)*
Earnings (loss) per common share $ .20 $ .31 $ .37 $ (15.79)
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
* Includes a non-cash $79.9 million write down of certain real estate
assets (see Note 4).
** Includes a charge, which aggregates $25.6 million, to provide for
reserves related to previously disclosed litigation discussed in Note 11
and downward revisions in estimated probable recoveries on certain
outstanding contract claims.
- 45 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1996, 1995 & 1994 (continued)
[13] Business Segments and Foreign Operations
The Company is currently engaged in the construction and real estate development
businesses. The Company provides general contracting, construction management
and design-build services to private clients and public agencies throughout the
United States and selected overseas locations. The Company's construction
business involves three types of operations: civil, building and international.
The Company's real estate development operations are concentrated in Arizona,
California, Florida, Georgia and Massachusetts; however, the Company has not
commenced the development of any new real estate projects since 1990. The
following tables set forth certain business and geographic segment information
relating to the Company's operations for the three years ended December 31, 1996
(in thousands):
Business Segments
Revenues
1996 1995 1994
------------ ------------ ----------
Construction $1,224,428 $1,056,673 $ 950,884
Real Estate 45,856 44,395 61,161
------------ ------------ ----------
$1,270,284 $1,101,068 $1,012,045
============ ============
RINCON CENTER ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP==========
Income (Loss) From Operations
1996 1995 1994
------------ ------------ -----------
Construction $ 28,198 $ (15,322) $ 13,989
Real Estate (82,467) (2,921) 732
Corporate (5,141) (4,185) (5,909)
------------ ------------ -----------
$ (59,410) $ (22,428) $ 8,812
============ ============ ===========
Assets
1996 1995 1994
------------ ------------ -----------
Construction $ 318,333 $ 298,564 $ 262,850
Real Estate 132,215 209,789 209,635
Corporate* 13,744 30,898 10,015
------------ ------------ -----------
$ 464,292 $ 539,251 $ 482,500
============ ============ ===========
Capital Expenditures
1996 1995 1994
------------ ------------ -----------
Construction $ 1,449 $ 1,960 $ 2,491
Real Estate 8,989 9,555 10,274
------------ ------------ -----------
$ 10,438 $ 11,515 $ 12,765
============ ============ ===========
Depreciation
1996 1995 1994
------------ ------------ -----------
Construction $ 2,032 $ 2,369 $ 2,551
Real Estate** 558 400 328
------------ ------------ -----------
$ 2,590 $ 2,769 $ 2,879
============ ============ ===========
Geographic Segments
Revenues
1996 1995 1994
------------ ------------ -----------
United States $1,256,323 $1,084,390 $ 996,832
Foreign 13,961 16,678 15,213
------------ ------------ -----------
$1,270,284 $1,101,068 $1,012,045
============ ============ ===========
- 46 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBERFor the Years Ended December 31, 1993, 1992 AND 1991
TOGETHER WITH AUDITORS' REPORT
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS1996, 1995 & 1994 (continued)
[13] Business Segments and Foreign Operations (continued)
Income (Loss) From Operations
1996 1995 1994
------------ ------------ -----------
United States $ (55,047) $ (15,405) $ 17,275
Foreign 778 (2,838) (2,554)
Corporate (5,141) (4,185) (5,909)
------------ ------------ -----------
$ (59,410) $ (22,428) $ 8,812
============ ============ ===========
Assets
1996 1995 1994
----------- ----------- -----------
United States $ 446,408 $ 503,114 $ 467,298
Foreign 4,140 5,239 5,187
Corporate* 13,744 30,898 10,015
----------- ----------- -----------
$ 464,292 $ 539,251 $ 482,500
=========== =========== ===========
* 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 52% of construction revenues in 1996 and 56% in 1995
and 1994.
[14] Subsequent Events
New Equity
At a special stockholders' meeting on January 17, 1997, the Company's
stockholders approved two proposals that allowed the Company to close its new
equity transaction with an investor group led by Richard C. Blum & Associates,
L.P. immediately after the meeting. The transaction included, among other
things, classification by the Board of Directors of 500,000 shares of preferred
stock of the Company as Series B Cumulative Convertible Preferred Stock, par
value $1.00 per share, (the "Series B Preferred Stock"), issuance of 150,150
shares of Series B Preferred Stock at $200 per share (or $30 million) to the
investor group, (with the remainder of the shares set aside for possible future
payment-in-kind dividends to the holders of the Series B Preferred Stock),
amendments to the Company's By-Laws that redefines the Executive Committee and
added certain powers (generally financial in nature), including the power to
give overall direction to the Company's Chief Executive Officer, appointment of
three new members recommended by the investor group to the Board of Directors,
appointment of these same new directors to constitute a majority of the
Executive Committee referred to above and repayment of the $10 million temporary
Bridge Loan referred to in Note 3. Tutor-Saliba Corporation, a corporation
controlled by a newly appointed Director who is also a member of the Executive
Committee and a newly appointed Officer of the Company, is a participant in
certain construction joint ventures with the Company. The Company currently
participates in active joint ventures with Tutor-Saliba Corporation, with a
total contract value of over $1 billion.
- 47 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31,
1996, 1995 & 1994 (continued)
[14] Subsequent Events (continued)
If this transaction had been closed on or before December 31, 1996, the pro
forma impact on the December 31, 1996 balance sheet would have been as follows
(in millions):
As Reported Pro Forma
----------- ---------
Working Capital $ 56.7 $ 85.1
Other Investments $ 4.0 $ 2.6
Series B Preferred Stock $ -- $ 27.0
Stockholders' Equity $ 35.6 $ 35.6
Total Assets $ 464.3 $ 492.9
Dividends on the Series B Preferred Stock are generally payable at an annual
rate of 7% when paid in cash and 10% when paid in-kind Series B Preferred Stock.
According to the terms of the Series B Preferred Stock, it (i) ranks junior in
cash dividend and liquidation preference to the $21.25 Convertible Exchangeable
Preferred Stock and senior to Common Stock, (ii) provides that no cash dividends
will be paid on any shares of Common Stock except for certain limited dividends
beginning in 2001, (iii) is convertible into shares of Common Stock at an
initial conversion price of approximately $9.68 per share (equivalent to
3,101,571 shares), (iv) has the same voting rights as shareholders of Common
Stock immediately equal to the number of shares of Common Stock into which the
Series B Preferred Stock can be converted, (v) generally has a liquidation
preference of $200 per share of Series B Preferred Stock, (vi) is optionally
redeemable by the Company after three years at a redemption price equal to the
liquidating value per share and higher amounts if a Special Default, as defined,
has occurred, (vii) is mandatorily redeemable by the Company if a Special
Default has occurred and a holder of the Series B Preferred Stock requests such
a redemption, (viii) is mandatorily redeemable by the Company of approximately
one-third of the shares still outstanding on January 17, 2005 and one-third of
the remaining shares in each of the next two years.
New Credit Agreement
Concurrent with the closing of the equity transaction referred to above, the
Company entered into a new renegotiated Revolving Credit Agreement (the "New
Credit Agreement") with the same Bank Group.
Under the New Credit Agreement, the previous Revolving Credit Agreement and
Bridge Loan Facility were combined into a single $129.5 million Credit Facility
and the expiration dates extended from 1997 to January 1, 2000. The New Credit
Agreement provides for scheduled mandatory reductions of the total $129.5 Credit
Facility in the amount of $15.0 million in 1997, $15.0 million in 1998, $12.5
million in 1999 and the balance in 2000. Receipt of 50% of the net proceeds from
real estate sales in excess of $20 million and 80% of net proceeds from the sale
of certain other assets immediately reduce the total commitment under the Credit
Facility and can represent all or part of the decrease on the scheduled
mandatory reduction dates. In consideration of the restructuring of the Credit
Facilities, the Bank Group received fees in the amount of $444,000 and stock
purchase warrants enabling the participating banks to purchase up to 420,000
shares of the Company's Common Stock, $1.00 par value, at $8.30 per share, the
average fair market value of the stock for the five business days prior to the
January 17, 1997 closing.
The New Credit Agreement provides for, among other things, maintaining specified
working capital and tangible net worth levels, minimum operating cash flow
levels, as defined, limitations on indebtedness and certain limitations on
future cash dividends.
- 48-
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,
19931996 and 1992,1995, 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, 1993.1996. 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, 19931996 and 1992,1995, and the results of itstheir
operations and itstheir cash flows for each of the three years in the period ended
December 31, 1993,1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 11, 1994
RINCON CENTER ASSOCIATES
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS14, 1997
- DECEMBER 31, 1993 AND 1992
1993 1992
ASSETS
CASH $ 120,000 $ 272,000
ACCOUNTS RECEIVABLE, net49-
Report 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
============ ============
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 formedIndependent Public Accountants 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 ACCOUNTANTSSchedules
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 theconsolidated financial statements are freeincluded in this Form 10-K, and have issued
our report thereon dated February 14, 1997. Our audits were made for the purpose
of material misstatement. An audit includes examining,forming an opinion on the consolidated financial statements taken as a test basis,
evidence supporting the amounts and disclosureswhole.
The supplemental schedules listed in the accompanying index are the
responsibility of the Company's management and are presented for the purpose of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. An audit also includes assessingThese schedules have been subjected to the
accounting principles usedauditing procedures applied in the audits of the basic financial statements 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.
Inin our opinion, the financial statements referred to above present fairly state, in all material respects, the financial positiondata
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 14, 1997
- 50
Schedule I
Perini Corporation (Parent Company)
Condensed Financial Information of Registrant
Balance Sheet
(In Thousands of Dollars)
Assets
December 31,
---------------------------------
1996 1995
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 10,614 $ 36,928
Accounts and notes receivable, including retainage of $11,041
and $12,271, respectively 31,795 48,283
Unbilled work 20,375 15,564
Construction joint ventures 71,070 56,335
Deferred tax asset 3,513 13,039
Other current assets 1,423 1,969
----------- -----------
Total current assets $ 138,790 $ 172,118
----------- -----------
INVESTMENTS AND OTHER ASSETS:
Investments in subsidiaries $ 138,559 $ 174,645
Other 3,804 1,641
----------- -----------
Total investments and other assets $ 142,363 $ 176,286
----------- -----------
PROPERTY AND EQUIPMENT, at cost
Land $ 793 $ 809
Buildings and improvements 11,931 12,404
Construction equipment 7,411 9,581
Other 5,556 5,749
----------- -----------
$ 25,691 $ 28,543
Less: Accumulated depreciation 15,807 17,649
----------- -----------
Total property and equipment, net $ 9,884 $ 10,894
----------- -----------
$ 291,037 $ 359,298
=========== ===========
The "Notes to Consolidated Financial Statements of Rincon Center Associates, A
California Limited Partnership as of December 31, 1992Perini Corporation 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 notesSubsidiaries" are an integral part of these statements. See accompanying "Notes
to Condensed Financial Information of Registrant".
- 51 -
RINCON CENTER ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
1992 1991 1990
Schedule I
Perini Corporation (Parent Company)
Condensed Financial Information of Registrant
Balance Sheet (Continued)
(In Thousands of Dollars)
Liabilities and Stockholders' Equity
December 31,
---------------------------------
1996 1995
---- ----
REVENUE:
Rental incomeCURRENT LIABILITIES:
Current maturities of long-term debt $ 17,583,21712,595 $ 16,814,229 $10,657,413
Parking2,802
Accounts payable, including retainage of $5,639 and other
income 1,149,377 1,194,601 1,170,619
------------ ------------$5,568,
respectively 22,350 31,759
Advances from construction joint ventures 44,478 34,830
Deferred contract revenue 2,612 7,181
Accrued expenses 16,648 16,802
---------- ----------
Total current liabilities $ 98,683 $ 93,374
---------- ----------
DEFERRED INCOME TAXES AND OTHER LIABILITIES $ 25,094 $ 45,465
---------- ----------
INTERCOMPANY NOTES AND ADVANCES PAYABLE, net $ 39,096 $ 34,358
---------- ----------
LONG-TERM DEBT, less current maturities included above $ 92,606 $ 80,495
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value:
Authorized: 1,000,000 shares
Issued and outstanding: 100,000 shares
($25,000,000 aggregate liquidation preference) $ 100 $ 100
Series A junior participating preferred stock, $1 par value:
Authorized: 200,000 shares
Issued: None
Common stock, $1 par value:
Authorized: 15,000,000 shares
Issued: 5,032,427 shares and 4,985,160 shares 5,032 4,985
Paid-in surplus 57,080 57,659
Retained earnings (deficit) (20,666) 52,062
ESOT related obligations (3,856) (4,965)
---------- ----------
$ 37,690 $ 109,841
Less: Common stock in treasury, at cost - 133,779 shares and
265,735 shares 2,132 4,235
---------- -----------
Total revenue 18,732,594 18,008,830 11,828,032
------------ ------------stockholders' equity $ 35,558 $ 105,606
---------- -----------
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) $(9,012,098)
============ ============ ============$ 291,037 $ 359,298
========== ===========
The accompanying notes"Notes to Consolidated Financial Statements of Perini Corporation and
Subsidiaries" 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)
------------ ------------ ------------See accompanying "Notes
to Condensed Financial Information of Registrant".
- 52 -
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%
===== ===== ======Schedule I
Perini Corporation (Parent Company)
Condensed Financial Information of Registrant
Statement of Operations
(In Thousands of Dollars)
For the years ended December 31,
----------------------------------------------
1996 1995 1994
---- ---- ----
REVENUE:
Construction operations $102,786 $161,444 $145,453
Share of construction joint ventures 276,739 129,987 161,219
---------- ---------- ----------
$379,525 $291,431 $306,672
---------- ---------- ----------
COST OF OPERATIONS:
Construction operations $101,107 $174,239 $137,579
Share of construction joint ventures 253,210 127,384 146,524
---------- ---------- ----------
$354,317 $301,623 $284,103
---------- ---------- ----------
GROSS PROFIT FROM OPERATIONS $ 25,208 $ (10,192) $ 22,569
General, administrative and selling expenses 17,758 16,983 21,797
---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS $ 7,450 $ (27,175) $ 772
Other Income (Expense), net (1,391) 306 (1,373)
Interest expense including intercompany interest of
$1,726, $4,805 and $4,759, respectively (11,123) (12,933) (11,614)
---------- ---------- ----------
LOSS BEFORE INCOME TAXES AND
EQUITY IN NET LOSS OF SUBSIDIARIES $ (5,064) $ (39,802) $ (12,215)
Equity in net income (loss) of subsidiaries (64,709) 9,606 12,698
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES $ (69,773) $ (30,196) 483
(Provision) Credit for income taxes (830) 2,611 (180)
---------- ---------- ----------
NET INCOME (LOSS) $ (70,603) $ (27,585) $ 303
========== ========== ==========
The accompanying notes"Notes to Consolidated Financial Statements of Perini Corporation and
Subsidiaries" 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)
AdjustmentsSee accompanying "Notes
to reconcile net lossCondensed Financial Information of Registrant".
- 53 -
Schedule I
Perini Corporation (Parent Company)
Condensed Financial Information of Registrant
Statement of Cash Flows
(In Thousands of Dollars)
For the years ended December 31,
--------------------------------------------
1996 1995 1994
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (70,603) $(27,585) $ 303
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 1,191 1,203 1,451
Noncurrent deferred taxes and other liabilities (20,371) 13,100 3,698
Distributions greater (less) than earnings of joint
ventures (5,734) 12,385 (2,013)
Equity in net income (loss) of subsidiaries 64,709 (9,606) (12,698)
Cash provided from (used by) changes in
components of working capital other than cash
and current maturities of long-term debt 14,418 36,898 (49,590)
Other non-cash items, net (732) (1,455) (249)
------------ ----------- -----------
NET CASH PROVIDED FROM (USED BY)
OPERATING ACTIVITIES $ (17,122) $ 24,940 $ (59,098)
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment $ 1,359 $ 1,069 $ 951
Cash distributions of capital from unconsolidated
construction joint ventures 4,642 19,445 13,112
Acquisition of property and equipment (745) (1,242) (1,334)
Capital contributions to unconsolidated
construction joint ventures (12,920) (27,734) (16,778)
(Decrease) increase in intercompany notes,
advances and equity (23,949) (169) 37,992
Investment in other activities (2,163) 313 -
------------ ----------- -----------
NET CASH PROVIDED FROM (USED BY)
INVESTING ACTIVITIES $ (33,776) $ (8,318) $ 33,943
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt $ 24,706 $ 12,033 $ 3,127
Repayment of long-term debt (1,693) (1,802) (317)
Treasury stock issued 1,171 2,243 1,735
Finance fee paid in stock 400 - -
Cash dividends paid - (2,125) (2,125)
------------ ----------- -----------
NET CASH PROVIDED FROM (USED BY)
FINANCING ACTIVITIES $ 24,584 $ 10,349 $ 2,420
------------ ---------- ------------
Net increase (decrease) in cash and cash equivalents $ (26,314) $ 26,971 $ (22,735)
Cash and cash equivalents at beginning of year 36,928 9,957 32,692
------------ ---------- ------------
Cash and cash equivalents at end of year $ 10,614 $ 36,928 $ 9,957
============ ========== ============
Supplemental disclosures of cash paid during the year for:
Interest $ 9,122 $ 8,227 $ 6,614
============ ========== ============
Income tax payments $ 221 $ 121 $ 1,230
============ ========== ============
The "Notes to net cash used in
operating
activities-
DepreciationConsolidated Financial Statements of Perini Corporation 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 notesSubsidiaries" are an integral part of these statements. RINCON CENTER ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIPSee accompanying "Notes
to Condensed Financial Information of Registrant".
- 54 -
Schedule I
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1992
1. PARTNERSHIP ORGANIZATION:
Rincon Center Associates, A California Limited Partnership (the Partnership)
was formed on September 18, 1984,INFORMATION OF REGISTRANT
[1] Basis of Presentation
Pursuant to leasethe rules and develop landregulations of the Securities and buildings
located inExchange Commission,
the Rincon Point-South Beach Redevelopment Project Area inCondensed Financial Statements of the CityRegistrant do not include all of the
information 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 partnersnotes normally included with financial statements prepared in
accordance with their
percentage interests as providedgenerally accepted accounting principles. It is, therefore,
suggested that these Condensed Financial Statements be read in conjunction with
the Consolidated Financial Statements and Notes thereto included in the
partnership agreement andRegistrant's Annual Report as shownreferenced in
theForm 10-K, Part II, Item 8, page 21.
Certain financial 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 to the
1996 presentation.
[2] Cash Dividends from Subsidiaries
Dividends of $8.9 million in 1996, $1.0 million in 1995 and $4.2 million in 1994
were paid to the Registrant by certain unconsolidated construction joint
ventures.
[3] Long-term Debt
Payments required by the Registrant amount to approximately $12,595,000 in 1997,
$2,345,000 in 1998, $1,261,000 in 1999, $85,000,000 in 2000, $ - in 2001 and
$4,000,000 for the years 2002 and beyond.
- 55 -
Schedule II
Perini Corporation and Subsidiaries
Valuation and Qualifying Accounts and Reserves
for the Years Ended December 31, 1996, 1995 and 1994
(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, 1996
- ----------------------------
Reserve for doubtful accounts $ 351 $ - $ - $ 191 (1) $ 160
======= ======= ==== ====== =======
Reserve for depreciation on $ 3,444 $ 558 $ - $4,002 (2) $ -
real estate properties used ======= ======= ==== ====== =====
in operations
Reserve for real estate $10,497 $79,900 $ - $6,314 (4) $84,083
investments ======= ======= ==== ====== =======
Year Ended December 31, 1995
Reserve for doubtful accounts $ 351 $ - $ - $ - $ 351
======= ======= ==== ====== =======
Reserve for depreciation on $ 3,698 $ 387 $ - $ 641 (3) $ 3,444
real estate properties used ======= ======= ==== ====== =======
in operations
Reserve for real estate $11,471 $ - $ - $ 974 (4) $10,497
investments ======= ======= ==== ====== =======
Year Ended December 31, 1994
Reserve for doubtful accounts $ 351 $ - $ - $ - $ 351
======= ======= ==== ====== =======
Reserve for depreciation on $ 3,637 $ 328 $ - $ 267 (4) $ 3,698
real estate properties used ======= ======= ==== ====== =======
in operations
Reserve for real estate $20,838 $ - $ - $9,367 (4) $11,471
investments ======= ======= ==== ====== =======
(1) Represents write-off of a bad debt.
(2) Represents $265 of reserve reclassified with related asset to "Real
estate inventory", with the current
year presentation.
3. OPERATING LEASE, RINCON ONE:
On June 24, 1988,balance representing sales of real estate
properties.
(3) Represents reserves reclassified with related asset to "Real estate
inventory".
(4) Represents sales of real estate properties.
- 56-
Exhibit Index
The following designated exhibits are, as indicated below, either filed herewith
or have heretofore been filed with the Partnership sold Rincon One to ChryslerSecurities 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.
PaymentsExchange Commission under
the master lease agreement may be adjustedSecurities Act of 1933 or the Securities Act of 1934 and are referred to reflect
adjustments inand
incorporated herein by reference to such filings.
Exhibit 3. Articles of Incorporation and By-laws
Incorporated herein by reference:
3.1 Restated Articles of Organization - As amended
through January 17, 1997 - Exhibit 3.1 to 1996
Form 10-K filed herewith.
3.2 By-laws - As amended and restated as of January
17, 1997 - Exhibit 3.2 to Form 8-K filed on
February 14, 1997.
Exhibit 4. Instruments Defining the rateRights of interest payableSecurity Holders,
Including Indentures
Incorporated herein by Chrysler onreference:
4.1 Certificate of Vote of Directors Establishing a
Series of a Class of Stock determining the
Rincon One
debt. Future minimum lease payments based on scheduled payments underrelative rights and preferences of 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$21.25
Convertible Exchangeable Preferred Stock -
Exhibit 4(a) to put the property backAmendment 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 Partnership
at stipulated prices beginning8 1/2%
Convertible Subordinated Debentures Due June 15,
2012, including form of Debenture - Exhibit 4(c)
to Amendment No. 1 to Form S-2 Registration
Statement filed June 19, 1987; SEC Registration
No. 33-14434.
4.4 Shareholder Rights Agreement dated as of
September 23, 1988, as amended and restated as
of May 17, 1990, as amended and restated as of
January 17, 1997, between Perini Corporation and
State Street Bank and Trust Company, as Rights
Agent - Exhibit 4.4 to Amendment No. 1 1993, if long-term financing
meeting certain conditions is not obtained. Financing has been arranged withto
Registration Statement on Form 8-A/A filed on
January 29, 1997.
4.5 Stock Purchase and Sale Agreement dated as of
July 24, 1996 by and among the current lender which meetsCompany, PB
Capital and RCBA, as amended - Exhibit 4.5 to
the conditionsCompany's Quarterly Report on Form 10-Q/A
for the fiscal quarter ended September 30, 1996
filed on December 11, 1996.
4.8 Certificate of Vote of Directors Establishing a
Series of Preferred Stock, dated January 16,
1997 - Exhibit 4.8 to Form 8-K filed on February
14, 1997.
4.9 Stock Assignment and Assumption Agreement dated
as of December 13, 1996 by and among the
Company, PB Capital and ULLICO (filed as Exhibit
4.1 to the Schedule 13D filed by ULLICO on
December 16, 1996 and
- 57 -
Exhibit Index
(Continued)
incorporated herein by reference).
4.10 Stock Assignment and Assumption Agreement dated
as of January 17, 1997 by and among the Company,
RCBA and The Common Fund - Exhibit 4.10 to Form
8-K filed on February 14, 1997.
4.11 Voting Agreement dated as of January 17, 1997 by
and among PB Capital, David B. Perini, Perini
Memorial Foundation, David B. Perini
Testamentary Trust, Ronald N. Tutor, and
Tutor-Saliba Corporation - Exhibit 4.11 to Form
8-K filed on February 14, 1997.
4.12 Registration Rights Agreement dated as of
January 17, 1997 by and among the Company, PB
Capital and ULLICO - Exhibit 4.12 to Form 8-K
filed on February 14, 1997.
Exhibit 10. Material Contracts
Incorporated herein by reference:
10.1 1982 Stock Option and Long Term Performance
Incentive Plan - Exhibit A to Registrant's Proxy
Statement for Annual Meeting of Stockholders
dated April 15, 1992.
10.2 Perini Corporation Amended and Restated General
Incentive Compensation Plan - 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
Banks listed herein, Morgan Guaranty Trust
Company of New York, as Agent, and Shawmut Bank,
N.A., Co-Agent - Exhibit 10.4 to 1994 Form 10-K,
as filed.
10.5 Amendment No. 1 as of February 26, 1996 to the
Credit Agreement dated as of December 6, 1994
among Perini Corporation, the Banks listed
herein, Morgan Guaranty Trust Company of New
York, as Agent, and Fleet National Bank of
Massachusetts (f/k/a Shawmut Bank, N.A.), as
Co-Agent Exhibit 10.5 to 1995 Form 10-K, as
filed.
10.6 Bridge Credit Agreement dated as of February 26,
1996 among Perini Corporation, the Bridge Banks
listed herein, Morgan Guaranty Trust Company of
New York, as Agent, and Fleet National Bank of
Massachusetts (f/k/a Shawmut Bank, N.A.) as
Co-Agent - Exhibit 10.6 to 1995 Form 10-K, as
filed.
10.7 Amendment No. 2 as of July 30, 1996 to the
Credit Agreement dated as of December 6, 1994
and Amendment No. 1 as of July 30, 1996 to the
Bridge Credit Agreement dated February 26, 1996
among Perini Corporation, the Banks
- 58 -
Exhibit Index
(Continued)
listed herein, Morgan Guaranty Trust Company of
New York, as Agent, and Fleet National Bank of
Massachusetts, as Co-Agent - Exhibit 10.7 to
Perini Corporation's Form 10-Q/A for the fiscal
quarter ended September 30, 1996 filed on
December 11, 1996.
10.8 Amendment No. 2 as of September 30, 1996 to the
Bridge Credit Agreement dated as of February 26,
1996 among Perini Corporation, the Banks listed
herein, Morgan Guaranty Trust Company of New
York, as Agent, and Fleet National Bank of
Massachusetts, as Co-Agent - Exhibit 10.8 to
Perini Corporation's Form 10-Q/A for the fiscal
quarter ended September 30, 1996 filed on
December 11, 1996.
10.9 Amendment No. 3 as of October 2, 1996 to the
Bridge Credit Agreement dated as of February 26,
1996 among Perini Corporation, the Banks listed
herein, Morgan Guaranty Trust Company of New
York, as Agent, and Fleet National Bank of
Massachusetts, as Co-Agent - Exhibit 10.9 to
Perini Corporation's Form 10-Q/A for the fiscal
quarter ended September 30, 1996 filed on
December 11, 1996.
10.10 Amendment No. 4 as of October 15, 1996 to the
Bridge Credit Agreement dated as of February 26,
1996 among Perini Corporation, the Banks listed
herein, Morgan Guaranty Trust Company of New
York, as Agent, and Fleet National Bank of
Massachusetts, as Co-Agent - Exhibit 10.10 to
Perini Corporation's Form 10-Q/A for the fiscal
quarter ended September 30, 1996 filed on
December 11, 1996.
10.11 Amendment No. 5 as of October 21, 1996 to the
Bridge Credit Agreement dated as of February 26,
1996 among Perini Corporation, the Banks listed
herein, Morgan Guaranty Trust Company of New
York, as Agent, and Fleet National Bank of
Massachusetts, as Co-Agent - Exhibit 10.11 to
Perini Corporation's Form 10-Q/A for the fiscal
quarter ended September 30, 1996 filed on
December 11, 1996.
10.12 Amendment No. 6 as of October 24, 1996 to the
Bridge Credit Agreement dated as of February 26,
1996 among Perini Corporation, the Banks listed
herein, Morgan Guaranty Trust Company of New
York, as Agent, and Fleet National Bank of
Massachusetts, as Co-Agent - Exhibit 10.12 to
Perini Corporation's Form 10-Q/A for the fiscal
quarter ended September 30, 1996 filed on
December 11, 1996.
10.13 Amendment No. 7 as of November 1, 1996 to the
Bridge Credit Agreement dated as of February 26,
1996 among Perini Corporation, the Banks listed
herein, Morgan Guaranty Trust Company of New
York, as Agent, and Fleet National Bank of
Massachusetts, as Co-Agent - Exhibit 10.13 to
Perini Corporation's Form 10-Q/A for the fiscal
quarter ended September 30, 1996 filed on
December 11, 1996.
10.14 Amendment No. 8 as of November 4, 1996 to the
Bridge Credit Agreement dated as of February 26,
1996 and Amendment No. 3 as of November 4, 1996
- 59-
Exhibit Index
(Continued)
to the Credit Agreement dated December 6, 1994
among Perini Corporation, the Banks listed
herein, Morgan Guaranty Trust Company of New
York, as Agent, and Fleet National Bank of
Massachusetts, as Co-Agent - Exhibit 10.14 to
Perini Corporation's Form 10-Q/A for the fiscal
quarter ended September 30, 1996 filed on
December 11, 1996.
10.15 Amendment No. 9 as of November 12, 1996 to the
Bridge Credit Agreement dated as of February 26,
1996 and Amendment No. 4 as of November 12, 1996
to the Credit Agreement dated December 6, 1994
among Perini Corporation, the Banks listed
herein, Morgan Guaranty Trust Company of New
York, as Agent, and Fleet National Bank of
Massachusetts, as Co-Agent - Exhibit 10.15 to
Perini Corporation's Form 10-Q/A for the fiscal
quarter ended September 30, 1996 filed on
December 11, 1996.
10.16 Management Agreement dated as of January 17,
1997 by and among the Company, Ronald N. Tutor
and Tutor-Saliba Corporation - Exhibit 10.16 to
Form 8-K filed on February 14, 1997.
10.17 Amended and Restated Credit Agreement dated as
of January 17, 1997 among Perini Corporation,
the Banks listed herein and Morgan Guaranty
Trust Company of New York, as Agent, and Fleet
National Bank, as Co- Agent - filed herewith.
Exhibit 21. Subsidiaries of Perini Corporation - filed herewith.
Exhibit 23. Consent of Independent Public Accountants - filed herewith.
Exhibit 24. Power of Attorney - filed herewith.
Exhibit 27. Financial Data Schedule - filed herewith.
- 60 -
Exhibit 21
Perini Corporation
Subsidiaries 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
deedRegistrant
Percentage of
Place of Interest or Voting
Name Organization Securities Owned
Perini Corporation Massachusetts
Perini Building Company, Inc. Arizona 100%
Perini Environmental Services, Inc. Delaware 100%
International Construction Management Services, Inc. Delaware 100%
Percon Constructors, Inc. Delaware 100%
Perini International Corporation Massachusetts 100%
Bow Leasing Company, Inc. New Hampshire 100%
Perini Land & Development Company Massachusetts 100%
Paramount Development Associates, Inc. Massachusetts 100%
I-10 Industrial Park Developers AZ General Partnership 80%
Glenco-Perini - HCV Partners CA Limited Partnership 85%
Squaw Creek Associates CA General Partnership 40%
Perland Realty Associates, Inc. Florida 100%
Rincon Center Associates CA Limited Partnership 46%
Perini Central Limited Partnership AZ Limited Partnership 75%
Perini Eagle Limited Partnership AZ Limited Partnership 50%
Perini/138 Joint Venture GA General Partnership 49%
Perini/RSEA Partnership GA General Partnership 50%
- 61 -
Exhibit 23
Consent 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 priorIndependent Public Accountants
As independent public accountants, we hereby consent to the regular
reappraisal datesuse 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 areour reports,
dated February 14, 1997, 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 basedPerini Corporation's Annual Report on the average discount
rates of 90-day U.S. Treasury bills, which was approximately 4.125 percentthis
Form 10-K for the year ended December 31, 1992. The rate will be adjusted every 90
days as long as a balance is due1996, and into the Company's
previously filed Registration Statements Nos. 2-82117, 33-24646, 33-46961, 33-
53190, 33-53192, 33-60654, 33-70206, 33-52967, 33-58519 and 333-03417.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 27, 1997
- 62 -
Exhibit 24
Power of Attorney
We, the undersigned, 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 them and to each
of them to sign for us, and in our names in the capacities indicated below, any
Annual Report on the deferred rent. The remaining
deferred ground rent relatedForm 10-K pursuant 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 portionSection 13 or 15(d) of the Project is being financed with a $36,000,000
loan from the Redevelopment AgencySecurities
Exchange Act 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 are1934 to be madefiled with the Securities and Exchange Commission and
any and all amendments to said Annual Report on the first business day of each March, June, SeptemberForm 10-K, hereby ratifying and
December.
The Partnership has the optionconfirming our signatures as they may be signed by our said Attorneys to convert the Bondssaid
Annual Report on Form 10-K and to a fixed interest rate
at any of the above interest payment dates. The fixed rateand all amendments thereto and generally
to do all such things in our names and behalf and in our said capacities as 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 andenable 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 accordancecomply 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 plan and
perform the audits 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
The Partnership has in the past relied upon, and will continue 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 receivable - trade 838,554 1,038,319
Accounts receivable - 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 portion 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
Pursuant to the second amendment 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 obligation of $177,043 and $311,060, respectively, for
the year ended December 31, 1993 and 1992.
During the year ended December 31, 1993, the Partnership distributed a note
receivable worth $87,500 to one of its partners.
1. Organization
Nature of Business
Squaw Creek Associates, a California general partnership (the Partnership),
was formed under the provisions of a partnership agreement dated June 3, 1988
(the Agreement) 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, one of the general partnership
interests was sold, and the Agreement was amended. Subsequent to and in
connection 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 26, 1997
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/Richard J. Boushka Director March 26, 1997
Richard J. Boushka Date
/s/Marshall M. Criser Director March 26, 1997
Marshall M. Criser Date
Director March 26, 1997
Thomas E. Dailey Date
/s/Albert A. Dorman Director March 26, 1997
Albert A. Dorman Date
/s/Arthur J. Fox, Jr. Director March 26, 1997
Arthur J. Fox, Jr. Date
/s/ Nancy Hawthorne Director March 26, 1997
Nancy Hawthorne Date
/s/ Michael R. Klein Director March 26, 1997
Michael R. Klein Date
Director March 26, 1997
Douglas J. McCarron Date
/s/John J. McHale Director March 26, 1997
John J. McHale Date
/s/Jane E. Newman Director March 26, 1997
Jane E. Newman Date
/s/Bart W. Perini and its parent corporation,Director March 26, 1997
Bart W. 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/ Ronald N. Tutor Director March 26, 1997
Ronald N. Tutor Date
- 63 - - 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.
- - - An operating lease through May 1996 for storage facilities.
- - - 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 - 126,546
Thereafter - 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.