UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6314
Perini Corporation
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-1717070
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
73 MT. WAYTE AVENUE, FRAMINGHAM, MASSACHUSETTS 01701-9160
(Address of principal executive offices)
(Zip code)
(508)-628-2000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
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 ____
Number of shares of common stock of registrant outstanding at August 7, 2001: 22,638,802
Page 1 of 22
PERINI CORPORATION & SUBSIDIARIES
INDEX
Page Number
Part I. - Financial Information:
Item 1. Financial Statements
Consolidated Condensed Balance Sheets - 3
June 30, 2001 and December 31, 2000
Consolidated Condensed Statements of Operations - 4
Three Months and Six Months ended June 30, 2001 and 2000
Consolidated Condensed Statements of Cash Flows - 5
Three Months and Six Months ended June 30, 2001 and 2000
Notes to Consolidated Condensed Financial Statements 6 - 11
Item 2. Management's Discussion and Analysis of the Consolidated Financial 12 - 15
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Part II. - Other Information:
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17 - 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 19 - 21
Signatures 22
PERINI CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
JUNE 30, 2001 AND DECEMBER 31, 2000
(In Thousands)
ASSETS
JUNE 30, DEC. 31,
2001 2000
------------- --------------
Cash (Note 4) $ 32,569 $ 59,515
Accounts and Notes Receivable 221,453 189,365
Unbilled Work 21,766 18,323
Construction Joint Ventures 102,319 101,339
Net Current Assets of Discontinued Operations (Note 8) 10,865 10,614
Other Current Assets 2,700 796
------------- --------------
Total Current Assets $ 391,672 $ 379,952
------------- --------------
Other Assets $ 3,293 $ 3,610
------------- --------------
Property and Equipment, less Accumulated Depreciation of $18,303 in 2001 and
$18,071 in 2000 $ 11,628 $ 9,890
------------- --------------
$ 406,593 $ 393,452
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Maturities of Long-Term Debt (Note 4) $ 10,670 $ 10,398
Accounts Payable 206,882 183,359
Advances from Construction Joint Ventures 16,846 25,570
Deferred Contract Revenue 32,581 33,573
Accrued Expenses 36,819 46,575
------------- --------------
Total Current Liabilities $ 303,798 $ 299,475
------------- --------------
Long-term Debt, less current maturities included above (Note 4) $ 12,204 $ 17,218
------------- --------------
Other Long-term Liabilities (Note 7) $ 16,690 $ 16,137
------------- --------------
Stockholders' Equity (Note 3):
Preferred Stock $ 100 $ 100
Series A Junior Participating Preferred Stock - -
Stock Purchase Warrants 2,233 2,233
Common Stock 22,681 22,645
Paid-In Surplus 98,582 99,518
Retained Earnings (Deficit) (48,730) (62,909)
------------- --------------
$ 74,866 $ 61,587
Less - Treasury Stock 965 965
------------- --------------
Total Stockholders' Equity $ 73,901 $ 60,622
------------- --------------
$ 406,593 $ 393,452
============= ==============
The accompanying notes are an integral part of these financial statements.
PERINI CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(In Thousands, Except Share Data)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------------- -----------------------------
2001 2000 2001 2000
------------- -------------- ------------- -------------
Construction Revenues (Note 9) $ 421,222 $ 251,948 $ 773,400 $ 449,850
Cost of Operations 406,365 239,392 745,044 425,198
------------- -------------- ------------- -------------
Gross Profit $ 14,857 $ 12,556 $ 28,356 $ 24,652
General and Administrative Expenses 6,602 6,071 12,398 12,292
------------- -------------- ------------- -------------
INCOME FROM OPERATIONS (Note 9) $ 8,255 $ 6,485 $ 15,958 $ 12,360
Other Income (Expense), Net (22) 348 - 654
Interest Expense (564) (824) (1,169) (2,532)
------------- -------------- ------------- -------------
Income before Income Taxes $ 7,669 $ 6,009 $ 14,789 $ 10,482
(Provision) Credit for Income Taxes (Note 5) (310) (100) (610) 600
------------- -------------- ------------- -------------
NET INCOME $ 7,359 $ 5,909 $ 14,179 $ 11,082
============= ============== ============= =============
BASIC EARNINGS PER COMMON SHARE (Note 6) $ 0.30 $ 0.24 $ 0.58 $ 0.61
============= ============== ============= =============
DILUTED EARNINGS PER COMMON SHARE (Note 6) $ 0.29 $ 0.24 $ 0.57 $ 0.61
============= ============== ============= =============
DIVIDENDS PER COMMON SHARE (Note 7) $ - $ - $ - $ -
============= ============== ============= =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note 6) 22,603,447 22,584,469 22,594,010 14,411,985
The accompanying notes are an integral part of these financial statements.
PERINI CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(In Thousands)
SIX MONTHS
ENDED JUNE 30,
----------------------------
2001 2000
------------ -------------
Cash Flows from Operating Activities:
Net Income $ 14,179 $ 11,082
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 1,214 1,054
Other long-term liabilities (509) (2,356)
Distributions greater than earnings of joint ventures 8,119 4,282
Cash used by changes in components of working capital other
than cash, net current assets of discontinued operations and current maturities of
long-term debt (33,384) (40,941)
Other non-cash items, net (54) (36)
------------ -------------
NET CASH USED BY OPERATING ACTIVITIES $ (10,435) $ (26,915)
------------ -------------
Cash Flows from Investing Activities:
Proceeds from sale of property and equipment $ 129 $ 132
Acquisition of property and equipment (2,689) (739)
Capital contributions to unconsolidated joint ventures (9,099) (14,589)
Proceeds from (investment in) discontinued operations (Note 8) (251) 144
Investment in other activities (21) (962)
------------ -------------
NET CASH USED BY INVESTING ACTIVITIES $ (11,931) $ (16,014)
------------ -------------
Cash Flows from Financing Activities:
Proceeds from long-term debt $ 532 $ -
Reduction of long-term debt (5,274) (40,523)
Proceeds from issuance of Common Stock, net - 37,308
Proceeds from exercise of Common Stock options 162 -
------------ -------------
NET CASH USED BY FINANCING ACTIVITIES $ (4,580) $ (3,215)
------------ -------------
Net Decrease in Cash $ (26,946) $ (46,144)
Cash at Beginning of Year 59,515 58,193
------------ -------------
Cash at End of Period $ 32,569 $ 12,049
============ =============
Supplemental Disclosure of Cash paid during the period for:
Interest $ 1,205 $ 2,496
============ =============
Income tax payments $ 872 $ 280
============ =============
Supplemental Disclosures of Non-cash Transactions:
Dividends paid in shares of Series B Preferred Stock (Note 7) $ - $ 1,161
============ =============
Conversion of Series B Preferred Stock into Common Stock
at $5.50 per share (Note 3) $ - $ 38,942
============ =============
The accompanying notes are an integral part of these financial statements.
PERINI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) Basis of Presentation
The unaudited consolidated condensed financial statements presented herein have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles. These statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2000. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company’s financial position as of June 30, 2001 and December 31, 2000 and results of operations and cash flows for the three month and six month periods ended June 30, 2001 and 2000. The results of operations for the six month period ended June 30, 2001 may not be indicative of the results that may be expected for the year ending December 31, 2001 because the Company’s results are primarily generated from a limited number of significant active construction contracts. Therefore, such results can vary depending on the timing of progress achieved and changes in estimated profitability of projects being reported.
(2) Significant Accounting Policies
Effective June 30, 2001, the Financial Accounting Standards Board finalized SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". Statement No. 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method. With the adoption of Statement No. 142, effective December 31, 2001, goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill will be subject to at least an annual assessment for impairment by applying a fair-value-based test. The adoption of Statements No. 141 and No. 142 will not have a material effect on the Company.
The significant accounting policies followed by the Company and its subsidiaries in preparing its consolidated financial statements are set forth in Note (1) to such financial statements included in Form 10-K for the year ended December 31, 2000. The Company has made no significant change in these policies during 2001.
(3) Recapitalization
On March 29, 2000, the Company completed the sale of 9,411,765 shares of its common stock, par value $1.00 (the “Common Stock”), for an aggregate of $40 million (the “Purchase”), to an investor group led by Tutor-Saliba Corporation. Tutor-Saliba Corporation is owned and controlled by Ronald N. Tutor, who serves as Chairman of the Company’s Board of Directors and Chief Executive Officer.
Concurrent with the closing of the Purchase and as a condition thereto, the Company exchanged 100% of its Redeemable Series B Cumulative Convertible Preferred Stock (the “Series B Preferred Stock”) (which had a current accreted face amount of approximately $41.2 million) for an aggregate of 7,490,417 shares of common stock at an exchange price of $5.50 per share (the “Exchange” and together with the Purchase, the “Transaction”).
A Special Committee of the Company’s Board of Directors approved the Transaction after receiving a fairness opinion from an investment banking firm. A majority of outstanding common shares, including a majority of shares held by disinterested shareholders, were voted in favor of the Transaction at a Special Meeting of Stockholders held on March 29, 2000.
PERINI
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
(3) Recapitalization (continued)
In connection with the Transaction and as a condition thereto, the Company also entered into an Amended and Restated Credit Agreement with its lenders that extended the credit facility from January 2001 to January 2003 (see Note 4).
The effect of the Transaction on Stockholders’ Equity was to increase Stockholders’ Equity by approximately $76.2 million; $37.3 million from the Purchase (gross proceeds of $40.0 million less related capital expenses of $2.7 million) and $38.9 million from the Exchange (accreted value of $41.2 million less non-accreted capital expenses of $2.3 million).
(4) Long-term Debt
In conjunction with the recapitalization of the Company as described in Note 3, effective March 29, 2000, the Company entered into an Amended and Restated Credit Agreement (the “New Credit Agreement”) with its lenders that extended the credit facility from January 2001 to January 2003. The New Credit Agreement provides for a $35 million term loan (the “Term Loan”) and a $21 million revolving credit facility (the “Revolving Credit Facility”). The New Credit Agreement requires that the Company repay the Term Loan in quarterly installments through 2002 and the Revolving Credit Facility by January 21, 2003. Commitments under the New Credit Agreement have been reduced to $35.8 million as of June 30, 2001 as a result of scheduled Term Loan payments and proceeds from sales of certain real estate. In addition, on September 6, 2000, the Company completed a refinancing of its corporate headquarters building for $7.5 million at an annual interest rate of approximately 9%. In connection with the refinancing, approximately $.8 million was set aside in escrow for immediate and future repairs and improvements to the structure and the grounds. As of June 30, 2001, approximately $.5 million remains in escrow. The loan is payable in equal monthly installments of $67,300 over a ten year period, with a balloon payment of $5.3 million due in 2010.
(5) Provision For Income Taxes
The (provision) credit for income taxes reflects a lower-than-normal tax rate in both 2001 and 2000 due primarily to the realization of a portion of the federal tax benefit not recognized in prior years due to certain accounting limitations. In addition, the credit for income taxes for the six months ended June 30, 2000 reflects the reversal of foreign taxes accrued in prior years that were no longer required.
(6) Per Share Data
Computations of basic and diluted earnings per common share (“EPS”) amounts are based on the weighted average number of the Company’s common shares outstanding during the periods presented. The actual basic and diluted EPS for the three and six month periods ended June 30, 2001 and 2000 and the pro forma basic and diluted EPS for the six months ended June 30, 2000, assuming the Transaction described in Note 3 closed on January 1, 2000, are calculated as follows (in thousands, except per share amounts):
PERINI
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
(6) Per Share Data (continued)
Three Months Six Months
Ended June 30, Ended June 30,
-----------------------------------------------------------------------
2001 2000 2001 2000 2000
Actual Actual Actual Pro Forma Actual
---------- --------- ---------- ------------ ----------
Net Income $ 7,359 $ 5,909 $ 14,179 $ 11,082 $ 11,082
---------- --------- ---------- ------------ ----------
Less:
- - Accrued dividends on $21.25 Senior Preferred Stock $ (531) $ (531) $ (1,062) $ (1,062) $ (1,062)
- - Dividends declared on Series B Preferred Stock - - - - (a) (1,161)
- - Accretion deduction required to reinstate mandatory
redemption value of Series B Preferred Stock over a
period of 8-10 years - - - - (a) (96)
Plus - Interest Expense - - - 863 (b) -
---------- --------- ---------- ------------ ----------
$ (531) $ (531) $ (1,062) $ (199) $ (2,319)
---------- --------- ---------- ------------ ----------
Total Available for Common Stockholders $ 6,828 $ 5,378 $ 13,117 $ 10,883 $ 8,763
========== ========= ========== ============ ==========
Weighted average shares outstanding for basic EPS 22,603 22,584 22,594 22,584 (c) 14,412
Effect of dilutive stock options outstanding 1,199 (d) - (e) 608 (d) - - (e)
---------- --------- ---------- ------------ ----------
Weighted average shares outstanding for diluted EPS 23,802 22,584 23,202 22,584 14,412
Basic earnings per Common Share $ 0.30 $ 0.24 $ 0.58 $ 0.48 $ 0.61
========== ========= ========== ============ ==========
Diluted earnings per Common Share $ 0.29 $ 0.24 $ 0.57 $ 0.48 $ 0.61
========== ========= ========== ============ ==========
(a) For pro forma purposes it is assumed that the Series B Preferred Stock was exchanged for shares of Common Stock as of January 1, 2000. Therefore, the deduction of $1,161 for dividends declared on the Series B Preferred Stock and the deduction of $96 for accretion applicable to the Series B Preferred Stock are not required when calculating the pro forma earnings per share for the six months ended June 30, 2000.
(b) The pro forma adjustment reducing interest expense by $863 is based on the assumption that the net cash proceeds of $37.3 million ($40 million less estimated related expenses of $2.7 million) received from the New Investors was used to reduce debt under the Company's Revolving Credit Facility as of January 1, 2000 based on the average effective borrowing rate of 9.25% experienced during the first three months of 2000.
(c) Adjusted to give effect to (i) the sale of 9,411,765 shares of Common Stock to the New Investors and (ii) the exchange of the Series B Preferred Stock (which had a current accreted face amount of $41,197) for 7,490,417 shares of Common Stock assuming the Transaction closed on January 1, 2000.
PERINI
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
(6) Per Share Data (continued)
(d) Options to purchase 554,000 shares of Common Stock at prices ranging from $8.66 to $16.44 per share were outstanding at June 30, 2001 but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the Common Stock. In addition, the effect of the assumed conversion of the Company's depositary convertible exchangeable preferred shares and stock purchase warrants into Common Stock is antidilutive.
(e) Options to purchase 2,934,000 shares of Common Stock at prices ranging from $4.50 to $16.44 per share were outstanding at June 30, 2000 but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the Common Stock. In addition, the effect of the assumed conversion of the Company's depositary convertible exchangeable preferred shares and stock purchase warrants into Common Stock is antidilutive.
(7) Dividends
(a) Common Stock - There were no cash dividends on common stock declared or paid during the periods presented in the consolidated condensed financial statements presented herein.
(b) $21.25 Preferred Stock - As previously disclosed, in conjunction with the covenants of the Company's current and prior Credit Agreements, the Company was required to suspend the payment of quarterly dividends on its $21.25 Preferred Stock ("Preferred Stock") until certain financial criteria were met. Therefore, the dividends on the Preferred Stock have not been declared since 1995 (although they have been fully accrued due to the "cumulative" feature of the Preferred Stock). The aggregate amount of dividends in arrears is approximately $12,217,000 at June 30, 2001 which represents approximately $122.17 per share of Preferred Stock or approximately $12.22 per Depositary Share and is included in "Other Long-term Liabilities" in the accompanying Consolidated Condensed Balance Sheets. Under the terms of the Preferred Stock, the holders of the Depositary Shares were entitled to elect two additional Directors since dividends had been deferred for more than six quarters and they did so at each of the last four Annual Meetings of Stockholders.
Although these bank restrictions were satisfied as of December 31, 2000 and may not apply in the future, the Board of Directors does not believe that it is proper or prudent to pay or commit to pay dividends on the Preferred Stock (or the Common Stock) for the foreseeable future based on the Company's other working capital requirements. See additional comments under "Financial Condition" on page 14 herein.
(c) Series B Preferred Stock - Quarterly In-kind dividends (based on an annual rate of 10%) were paid on March 15, 2000 on the Series B Preferred Stock to the stockholders of record on March 1, 2000. The dividends were paid in the form of approximately 5,004 additional shares of Series B Preferred Stock valued at $200.00 per share for a total of $1,000,918. In addition, accrued in-kind dividends were paid on the Series B Preferred Stock for the 14-day period from
PERINI
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
(7) Dividends (continued)
March 16, 2000 through March 29, 2000, the date on which the holders of the Series B Preferred Stock exchanged 100% of their shares of Series B Preferred Stock for shares of the Company's Common Stock (see Note 3). The dividends were paid in the form of approximately 798 additional shares of Series B Preferred Stock valued at $200.00 per share for a total of $159,621.
(8) Discontinued Operations
Effective June 30, 1999, management adopted a plan to withdraw completely from the real estate development business and to wind down the operations of Perini Land and Development Company ("PL&D"), the Company's real estate development subsidiary. Therefore, both historical and current real estate results have been presented as a discontinued operation in accordance with accounting principles generally accepted in the United States.
At June 30, 2001 and December 31, 2000, the net current assets of discontinued real estate development operations consisted primarily of real estate properties for sale. The revenues related to discontinued real estate operations are summarized below (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
2001 2000 2001 2000
---- ---- ---- ----
Revenues $ 633 $ 5 $ 983 $ 954
========== ========== ========= ==========
(9) Business Segments
The following tables set forth certain updated business segment information relating to the Company’s operations for the three month and six month periods ended June 30, 2001 and 2000 (in thousands):
(9) Business Segments (continued)
Six months ended June 30, 2001
Reportable Segments
---------------------------------------------
Consolidated
Building Civil Totals Corporate Totals
------------- ------------- ------------- ------------ ----------------
Revenues $610,883 $ 162,517 $773,400 $ - $ 773,400
Income from Operations $ 15,666 $ 2,966 $ 18,632 $ (2,674) * $ 15,958
Assets $199,282 $ 161,632 $360,914 $ 45,679 ** $ 406,593
Six months ended June 30, 2000
Reportable Segments
---------------------------------------------
Consolidated
Building Civil Totals Corporate Totals
------------- ------------- ------------- ------------ ----------------
Revenues $318,898 $ 130,952 $449,850 $ - $ 449,850
Income from Operations $ 13,367 $ 1,503 $ 14,870 $ (2,510) * $ 12,360
Assets $136,480 $ 119,815 $256,295 $ 26,939 ** $ 283,234
Three months ended June 30, 2001
Reportable Segments
---------------------------------------------
Consolidated
Building Civil Totals Corporate Totals
------------- ------------- ------------- ------------ ----------------
Revenues $326,862 $ 94,360 $421,222 $ - $ 421,222
Income from Operations $ 7,169 $ 2,581 $ 9,750 $ (1,495) * $ 8,255
Three months ended June 30, 2000
Reportable Segments
---------------------------------------------
Consolidated
Building Civil Totals Corporate Totals
------------- ------------- ------------- ------------ ----------------
Revenues $178,554 $ 73,394 $251,948 $ - $ 251,948
Income from Operations $ 8,127 $ (321) $ 7,806 $ (1,321) * $ 6,485
* In all periods, consists of corporate general and administrative expenses.
** In all periods, corporate assets consist principally of cash, cash equivalents, marketable securities and other investments available for general corporate purposes plus the net assets of discontinued operations.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
Results of Operations
Comparison of the Second Quarter of 2001 with the Second Quarter of 2000
Overall revenue from construction operations increased by $169.2 million (or 67.1%), from $252.0 million in 2000 to $421.2 million in 2001. This resulted from increased construction revenues in both building and civil construction operations. Building construction revenues increased by $148.3 million (or 83.0%), from $178.6 million in 2000 to $326.9 million in 2001 due primarily to an increase in the volume of work completed at the Mohegan Sun Expansion project in the eastern United States and the start-up of three hotel/casino projects in the southwestern United States late in 2000. Civil construction revenues increased by $20.9 million (or 28.5%), from $73.4 million in 2000 to $94.3 million in 2001 due primarily to the start-up of several infrastructure projects in the metropolitan New York area late in 2000.
Overall, pretax income increased by $1.7 million (or 27.6%), from $6.0 million in 2000 to $7.7 million in 2001. This increase primarily reflects the impact of the increased revenues discussed above which was partly offset by a lower average gross margin from the Company’s building construction operations, a decrease in other income, and higher general and administrative expenses.
Income from construction operations increased by $2.0 million (or 25.6%), from $7.8 million in 2000 to $9.8 million in 2001. Despite the increase in revenues discussed above, building construction operating income decreased by $0.9 million, from $8.1 million in 2000 to $7.2 million in 2001, primarily due to a decrease in the average gross margin from 6.2% in 2000 to 3.4% in 2001 because 2000 included the favorable close out of certain projects. In addition, building construction operating income was negatively impacted by a $1.1 million (or 37.9%) increase in building construction-related general and administrative expenses primarily in connection with the pursuit of new work opportunities. Civil construction operating income increased by $2.9 million, from a negative $0.3 million in 2000 to $2.6 million in 2001, due primarily to an increase in the average gross margin from 2.2% in 2000 to 3.9% in 2001 because 2000 included downward profit revisions on certain transportation-related projects as well as the increase in revenues discussed above. In addition, civil construction operating income was positively impacted by a $0.8 decrease in civil construction-related general and administrative expenses.
The $0.3 million decrease in other income (expense), from income of $0.3 million in 2000 to zero in 2001, is primarily due to decreases in interest income on short-term investments and gains on sales of fixed assets.
The provision for income taxes reflects a lower than normal tax rate for both 2001 and 2000 due to the realization of a portion of the federal tax benefit not recognized in prior years due to certain accounting limitations.
Comparison of the Six Months Ended June 30, 2001 with the Six Months Ended June 30, 2000
Overall revenue from construction operations increased by $323.5 million (or 71.9%), from $449.9 million in 2000 to $773.4 million in 2001. This increase resulted from an increase in building construction revenues of $292.0 million (or 91.6%), from $318.9 million in 2000 to $610.9 million in 2001, due primarily to an increase in the volume of work completed at the Mohegan Sun Expansion project in the eastern United States and the start-up of three hotel/casino projects in the southwestern United States. Civil construction revenues increased by $31.5 million (or 24.0%), from $131.0 million in 2000 to $162.5 million in 2001, due primarily to the start-up of several infrastructure projects in the metropolitan New York area.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Continued)
Overall, pretax income increased by $4.3 million (or 41.1%), from $10.5 million in 2000 to $14.8 million in 2001. This increase primarily reflects the increased revenues discussed above as well as lower interest expense due to the reduction in debt achieved at the end of the first quarter of 2000 as a result of the new equity transaction.
Income from construction operations increased by $3.8 million (or 25.5%), from $14.9 million in 2000 to $18.7 million in 2001. Building construction operating income increased by $2.4 million, from $13.3 million in 2000 to $15.7 million in 2001, due to the increase in revenues discussed above which was partially reduced by a decrease in average gross margin from 6.1% in 2000 to 3.8% in 2001 because 2000 included the favorable close out of certain projects. In addition, building construction operating income was negatively impacted by a $1.3 million (or 21.0%) increase in building construction-related general and administrative expenses primarily in connection with the pursuit of new work opportunities. Civil construction operating income increased by $1.4 million, from $1.6 million in 2000 to $3.0 million in 2001, due primarily to the increase in revenues discussed above which was offset by a decrease in average gross margin from 4.0% in 2000 to 3.2% in 2001, due to downward revisions of estimated profit on certain transportation-related projects, as well as a decrease in civil construction-related general and administrative expenses.
Interest expense decreased by $1.3 million, from $2.5 million in 2000 to $1.2 million in 2001, due primarily to the reduction in debt achieved at the end of the first quarter of 2000 as a result of the new equity transaction described in Note 3 of Notes to Consolidated Condensed Financial Statements.
The $0.6 million decrease in other income (expense), from income of $0.6 million in 2000 to zero in 2001, is primarily due to decreases in interest income on short-term investments and gains on sales of fixed assets.
The (provision) credit for income taxes reflects a lower than normal tax rate for both 2001 and 2000 due to the realization of a portion of the federal tax benefit not recognized in prior years due to certain accounting limitations. In addition, the credit for income taxes in 2000 reflects the reversal of foreign taxes accrued in prior years that were no longer required.
Financial Condition
Working capital increased $7.4 million, from $80.5 million at the end of 2000 to $87.9 million at June 30, 2001. The current ratio increased from 1.27:1.00 to 1.29:1.00 during the same period.
During the first six months of 2001, the Company used $26.9 million in cash to fund $10.4 million used by operating activities, primarily for changes in working capital; $11.9 million for investing activities, primarily to fund construction joint ventures; and $4.6 million for financing activities, primarily to reduce debt by a net amount of $4.7 million.
Long-term debt at June 30, 2001 was $12.2 million, a decrease of $5.0 million from December 31, 2000. The long-term debt to equity ratio at June 30, 2001 was .17:1.00 compared to .28:1.00 at December 31, 2000.
Effective March 29, 2000, the Company entered into a New Credit Agreement with its lenders. The New Credit Agreement provides for a $35 million Term Loan and a $21 Revolving Credit Facility. The New Credit Agreement requires, among other things, that the Company repay the Term Loan quarterly through
MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Continued)
2002 and the Revolving Credit Facility by January 21, 2003. Under the terms of the New Credit Agreement, the Company had $21 million available to borrow under the maximum commitment of $35.8 million at June 30, 2001. In addition, on September 6, 2000, the Company completed a refinancing of its corporate headquarters building for $7.5 million at an annual interest rate of approximately 9%. The loan is payable in monthly installments over a ten year period with a balloon payment of $5.3 million due in 2010. Management believes that cash generated from operations and existing credit lines should be adequate to meet the Company’s funding requirements for at least the next twelve months.
In conjunction with the covenants of the Company’s current and prior Credit Agreements, the Company was required to suspend the payment of quarterly dividends on its $21.25 Preferred Stock (“Preferred Stock”) until certain financial criteria were met. The aggregate amount of dividends in arrears is approximately $12,217,000 at June 30, 2001. As of December 31, 2000, the financial criteria in the Credit Agreement which restricted the payment of dividends were satisfied, thereby making the resumption of dividends possible if the Company believed that its working capital was sufficient to warrant the resumption of payment of the regular dividend or any of the dividends in arrears on the $21.25 Preferred Stock. The Company does not currently have any plans or target date for when this action may occur. This decision is based on the following circumstances:
- A strong working capital position provides the Company the option of performing large projects without a joint venture partner or to assume the sponsoring partner position resulting in a larger proportionate interest and a greater share of joint venture profits.
- A significant amount of working capital is dedicated to the funding requirements of the Company’s construction backlog, including collection of receivables, and the timely resolution of unapproved change orders and contract claims.
- The Company is currently in the process of pursuing a strategy to profitably expand its construction business internally or through acquisition, either of which will likely require additional capital.
- The Company is currently in the process of replacing its existing Credit Agreement with a new bank group which may result in future restrictions on the Company’s ability to pay dividends.
Outlook
- Construction Operations - The overall construction backlog at June 30, 2001 was $1.56 billion, a 13% decrease from the $1.79 billion record year-end backlog at December 31, 2000. With a strong backlog in hand, the Company plans to continue its strategy of improving the profitability of its construction operations by emphasizing gross margin and bottom line improvement. The Company is also continuing the process of developing a strategy to profitably expand its construction business internally or through acquisition. The Company’s reputation as a world class builder and the strong outlook in the gaming and hospitality building markets and civil infrastructure repair markets support this strategy. These markets remain strong and have not shown any noticeable deterioration due to the softness in the general economic environment.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Continued)
Forward-looking Statements
The statements contained in this Management’s Discussion and Analysis of the Consolidated Condensed Financial Statements, including “Outlook”, and other sections of this Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding the Company’s expectations, hopes, beliefs, intentions or strategies regarding the future. Forward-looking statements involve a number of risks, uncertainties or other factors that may cause actual results or performance to be materially different from those expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the continuing validity of the underlying assumptions and estimates of total forecasted project revenues, costs and profits and project schedules; the outcomes of pending or future litigation, arbitration or other dispute resolution proceedings; changes in federal and state appropriations for infrastructure projects; possible changes or developments in worldwide or domestic social, economic, business, industry, market and regulatory conditions or circumstances; and actions taken or omitted to be taken by third parties including the Company’s customers, suppliers, business partners, and competitors and legislative, regulatory, judicial and other governmental authorities and officials.
QUANTITATIVE AND QUALITATIVE DISLOSURES ABOUT MARKET RISK
There has been no material change in the Company’s exposure to market risk since December 31, 2000.
Part II. - Other Information
Item 1. - Legal Proceedings
Preferred Shareholders Class Action Lawsuit
On May 3, 2001 the Company was served with a Complaint entitled Frederick Doppelt, Arthur I.
Caplan and Michael Miller v. Perini Corporation, Ronald N. Tutor, Robert Band, Christopher H. Lee,
Marshall M. Criser, Arthur J. Fox, Jr., Michael R. Klein, Richard J. Boushka, Peter Arkley,
Robert A. Kennedy, Jane E. Newman, Douglas J. McCarron, Nancy Hawthorne, Raymond R.
Oneglia, Albert A. Dorman and John J. McHale, Supreme Court of the State of New York, County of
New York, Civil Action No. 602156/01. Each plaintiff is a holder of the Company's $21.25
Convertible Exchangeable Preferred Stock ("Preferred Stock"). One plaintiff, Mr. Doppelt, is a
current Director of the Company and one plaintiff, Mr. Caplan, is a former Director of the Company.
Plaintiffs purport to bring the action individually and on behalf of the entire class of holders of the
Preferred Stock.
The Plaintiffs have asserted claims for breach of contract, breach of fiduciary duty, fraud and
negligent misrepresentation. The Plaintiffs principally allege that the Company and its Directors
improperly authorized the exchange of Series B Preferred Stock for Common Stock without first
paying all accrued dividends on the Preferred Stock. More specifically, plaintiffs allege that the
Company and its Directors violated the terms of the Preferred Stock when, in March 2000, the
Company authorized the exchange of Series B Preferred Stock for Common Stock. The Plaintiffs
further allege that the Company and its Directors issued a false and misleading prospectus in 1987
relating to the issuance of the Preferred Stock. The Plaintiffs seek payment of accrued dividends in
the amount of approximately $11.7 million and unspecified punitive and exemplary damages.
On May 23, 2001, the Company and the Defendant Directors removed the action from the Supreme
Court of New York to the United States District Court for the Southern District of New York.
On June 26, 2001, the Plaintiffs filed an Amended Complaint. Through the Amended Complaint, the
Plaintiffs limited their Class Action to an action for Breach of Contract against the Company and an
action for Breach of Fiduciary Duty against the Defendant Directors. The Company and the
Defendant Directors filed their formal Response to the Complaint on August 10, 2001.
WMATA Matter
On July 30, 1993, the U.S. District Court for the District of Columbia, in a preliminary opinion, upheld
termination 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. In July 1997, the remaining issues were ruled on by a successor judge, who
awarded approximately $4.3 million to the joint venture, thereby reducing the net amount payable to
approximately $12.2 million. The joint venture appealed the decision and filed a motion for a new
trial.
On February 16, 1999, the U.S. Court of Appeals for the District of Columbia vacated the April 1995
Part II. - Other Information (Continued)
and July 1997 Orders and remanded the case back to the successor jugde with instructions for the
successor judge to consider certain post-trial motions to the same extent an original judge would
have, and to make findings and conclusions regarding the unresolved issues, giving appropriate
consideration to whether or not witnesses must be recalled. During 1999, a new successor judge
was appointed.
On February 28, 2001, the new successor judge informed the parties that in the absence of a new
trial, he could not certify adequate familiarity with the record to complete the remaining proceedings;
therefore, he ordered that the joint venture's motion for a new trial be granted, with a preliminary
pretrial conference scheduled for April 9, 2001. This decision means that the original July 30, 1993
Decision and Order of the U.S. District Court no longer has any force or effect and that the interim
judgment in favor of WMATA for $16.5 million was set aside.
The new successor Judge has scheduled the matter for trial, with evidence beginning on September
10, 2001. The Judge has allotted three (3) weeks for the completion of the trial and has held that
new and/or substitute witnesses will not be allowed to testify unless a party can show the Judge a
compelling reason why such addition and/or substitution is required. This will require the parties to
put a substantial portion of evidence through the written record. The Joint Venture is currently
preparing its case for trial.
Item 2. - Changes in Securities and Use of Proceeds
(a) None
(b) None
(c) None
(d) Not applicable
Item 3. - Defaults Upon Senior Securities
(a) None
(b) In accordance with the covenants of the 1995 Amended Revolving Credit Agreement, the First
Amended and Restated Credit Agreement effective January 17, 1997 and the Second Amended
and Restated Credit Agreement effective March 29, 2000, the Company was required to suspend the
payment of quarterly dividends on its $21.25 Convertible Exchangeable Preferred Stock ("Preferred
Stock") until certain financial criteria were met, commencing with the dividend that normally would
have been declared during December 1995 through the dividend that normally would have been
declared during June 2001. As of June 30, 2001, the aggregate amount of dividends in arrears is
approximately $12,217,000, which represents approximately $122.17 per share of Preferred Stock or
approximately $12.22 per Depositary Share. While these dividends have not been declared or paid,
they have been fully accrued in accordance with the "cumulative" feature of the Preferred Stock.
Item 4. - Submission of Matters to a Vote of Security Holders
(a) May 17, 2001 - Annual Meeting of Stockholders, as adjourned until May 31, 2001.
(b) Not applicable
Part II. - Other Information (Continued)
(c) (1) Nominees for Class II Directors as listed in the proxy statement, to hold office for a three
year term, expiring 2003 and until their successors are chosen and qualified, were elected by
the holders of Common Stock with the following vote:
Number of Votes
-------------------------------------------------------------
Authority
Class II Director For Against Withheld -----------------
--------------- ---------------- ----------------------
Richard J. Boushka 22,274,078 - 116,702
Robert A. Kennedy 22,233,954 - 156,826
Ronald N. Tutor 22,260,853 - 129,927
(2) Two nominees for Preferred Directors (the "Preferred Directors") as listed in the proxy
statement to hold office until the earlier of (i) the 2002 Annual Meeting of Stockholders and
until their successors are chosen and qualified, or (ii) all dividends in arrears on the Preferred
Stock have been paid or declared and funds therefor set apart for payment, were elected by
the Depositary, based on the two nominees who received the greatest number of votes as
indicated by the holders of the Depositary Shares. A summary of the voting results follows:
Number of Votes
-----------------------------------------------------------
Nominees for Authority
Preferred Directors For Against Withheld -------------------
------------- ---------------- ----------------------
Frederick Doppelt (elected) 410,263 - 257,365
Asher B. Edelman (elected) 413,713 - 253,915
Arthur I. Caplan 313,294 - 354,334
(d) Not applicable
Item 5. - Other Information
During 1995, a joint venture, Tutor-Saliba-Perini ("TSP"), in which Perini Corporation is a 40% minority
partner and Tutor-Saliba Corporation of Sylmar, CA is the 60% managing partner, filed a complaint in the
Superior Court of the State of California for the County of Los Angeles against the Los Angeles County
Metropolitan Transportation Authority ("MTA") seeking to recover cost for extra work required by the MTA
in connection with the construction of the Wilshire/Normandie Subway Station. In February 1999, the MTA
filed a cross complaint against TSP, Tutor-Saliba Corporation, Perini Corporation, and their respective
surety companies (together the "cross defendants").
Trial of the complaint and the cross complaint began on May 14, 2001, with the selection of the jury.
During the trial, the judge found TSP liable to the MTA, as a sanction, because of the alleged failure of
TSP to comply with certain discovery requirements. The jury was charged with the responsibility of
determining damages based on the judge's order. On August 1, 2001, the jury found damages in favor of
cross-complainant, the MTA, and against cross-defendants in the amount of $29.6 million.
The Company has been advised that TSP intends to appeal immediately. The ultimate financial impact, if
any, of this case is not yet determinable, and therefore, no impact is reflected in the Company's financial
Part II. - Other Information (Continued)
statements.
Item 6. - Exhibits and Reports on Form 8-K
(a) The following designated exhibits are, as indicated below, either filed herewith or have heretofore
been filed with Securities and Exchange Commission under the Securities Act of 1933 or the
the Securities Act of 1934 and are referred to and incorporated herein by reference to such filings:
Exhibit 3. Articles of Incorporation and By-laws
Incorporated herein by reference:
3.1 Restated Articles of Organization - As amended through March 29, 2000 -
Exhibit 3.1 to Form 8-K filed on April 12, 2000.
3.2 By-laws - As amended and restated as of March 29, 2000 - Exhibit 3.2 to
Form 8-K filed on April 12, 2000.
Exhibit 4. Instruments Defining the Rights of Security Holders, Including Indentures
Incorporated herein by reference:
4.1 Certificate of Vote of Directors Establishing a Series of a Class of Stock
determining the relative rights and preferences of the $21.25 Convertible
Exchangeable Preferred Stock - Exhibit 4(a) to Amendment No. 1 to Form S-
2 Registration Statement filed June 19, 1987; SEC Registration No. 33-
14434.
4.2 Form of Deposit Agreement, including form of Depositary Receipt - Exhibit
4(b) to Amendment No. 1 to Form S-2 Registration Statement filed June 19,
1987; SEC Registration No. 33-14434.
4.3 Form of Indenture with respect to the 8 1/2% Convertible Subordinated
Debentures Due June 15, 2012, including form of Debenture - Exhibit 4(c) to
Amendment No. 1 to Form S-2 Registration Statement filed June 19, 1987;
SEC Registration No. 33-14434.
4.4 Shareholder Rights Agreement dated as of September 23, 1988, as
amended and restated as of May 17, 1990, as amended and restated as of
January 17, 1997, between Perini Corporation and State Street Bank and
Trust Company, as Rights Agent - Exhibit 4.4 to Amendment No. 1 to
Registration Statement on Form 8-A/A filed on January 29, 1997, and as
further amended as of March 29, 2000 - Exhibit 4.3 to Form 8-K filed on April
12, 2000.
4.5 Stock Purchase and Sale Agreement dated as of July 24, 1996 by and
among the Company, PB Capital and RCBA, as amended - Exhibit 4.5 to the
Company's Quarterly Report on Form 10-Q/A for the fiscal quarter ended
September 30, 1996 filed on December 11, 1996 and as amended by the
Termination/Amendment Agreement on March 29, 2000 - Exhibit 4.4 to Form
8-K filed on April 12, 2000.
Part II. - Other Information (Continued)
4.8 Certificate of Vote of Directors Establishing a Series of Preferred Stock
determining the relative rights and preferences of the Series B Cumulative
Convertible Preferred Stock, dated January 16, 1997 - Exhibit 4.8 to Form 8-K
filed on February 14, 1997.
4.13 Exchange Agreement by and between Perini Corporation and The Union
Labor Life Insurance Company, acting on behalf of its Separate Account P,
dated as of February 7, 2000 - Exhibit 10.1 to Form 8-K filed on April 12,
2000.
4.14 Exchange Agreement by and between Perini Corporation and PB Capital
Partners, L.P., dated as of February 14, 2000 - Exhibit 10.2 to Form 8-K filed
on April 12, 2000.
4.15 Exchange Agreement by and between Perini Corporation and The Common
Fund for Non-Profit Organizations, dated as of February 14, 2000 - Exhibit
10.3 to Form 8-K filed on April 12, 2000.
4.16 Registration Rights Agreement by and among Perini Corporation, Tutor-
Saliba Corporation, Ronald N. Tutor, O&G Industries, Inc. and National Union
Fire Insurance Company of Pittsburgh, Pa., BLUM Capital Partners, L.P., PB
Capital Partners, L.P. The Common Fund for Non-Profit Organizations, and
The Union Labor Life Insurance Company, acting on behalf of its Separate
Account P, dated as of March 29, 2000 - Exhibit 4.1 to Form 8-K filed on
April 12, 2000.
4.17 Shareholders' Agreement by and among Perini Corporation, Tutor-Saliba
Corporation, Ronald N. Tutor, O&G Industries, Inc. and National Union Fire
Insurance Company of Pittsburgh, Pa., BLUM Capital Partners, L.P., PB
Capital Partners, L.P., The Common Fund for Non-Profit Organizations, and
The Union Labor Life Insurance Company, acting on behalf of its Separate
Account P, dated as of March 29, 2000 - Exhibit 4.2 to Form 8-K filed on
April 12, 2000.
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 1997 Form 10-K filed on March 30, 1998.
10.3 Perini Corporation Amended and Restated Construction Business Unit
Incentive Compensation Plan - Exhibit 10.3 to 1997 Form 10-K filed on March
30, 1998.
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.
Part II. - Other Information (Continued)
10.30 Second Amended and Restated Credit Agreement dated as of March 29,
2000 among Perini Corporation, the Banks listed herein and Morgan
Guaranty Trust Company of New York, as Agent and Fleet National Bank, as
Co-Agent - Exhibit 10.4 to Form 8-K filed on April 12, 2000.
10.31 Amendment No. 2 dated as of December 31, 1999 to the Management
Agreement by and among the Company, Ronald N. Tutor and Tutor-Saliba
Corporation - Exhibit 10.31 to Form 10-Q filed on May 9, 2000.
10.32 Special Equity Incentive Plan - Exhibit A to Registrant's Proxy Statement for
Annual Meeting of Stockholders dated April 19, 2000.
10.33 Securities Purchase Agreement by and among Perini Corporation and Tutor-
Saliba Corporation, O&G Industries, Inc. and National Union Fire Insurance
Company of Pittsburgh, PA, dated as of February 5, 2000 - Exhibit 10.1 to Form
8-K filed on February 9, 2000.
10.34 Promissory Note dated as of September 6, 2000 by and among Mt. Wayte
Realty, LLC (a wholly-owned subsidiary of Perini Corporation) and The
Manufacturers Life Insurance Company (U.S.A.) - Exhibit 10.34 to Form 10-Q
filed on November 6, 2000.
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.
Perini Corporation
------------------
Registrant
Date: August 13, 2001 /s/Robert Band
------------------------------------------------------
Robert Band, President and Chief Operating Officer
Date: August 13, 2001 /s/Michael E. Ciskey
----------------------------------------------------
Michael E. Ciskey, Vice President and Controller
