Exhibit 99.1
Report of Independent Public Accountants
To the Stockholders of Perini Corporation:
We have audited the accompanying combined balance sheets of the joint ventures
identified in Note 1 as of December 31, 1999 and 1998, and the related combined
statements of income, venturers' equity and cash flows for each of the two years
in the period ended December 31, 1999. These financial statements are the
responsibility of the joint ventures' management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the joint ventures identified
in Note 1 as of December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the two years in the period ended December 31,
1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 11, 2000
1
Exhibit 99.1
Perini Corporation
Combined Balance Sheet of Significant Construction Joint Ventures
December 31, 1999 and 1998
(In thousands)
1999 1998
------------- -------------
ASSETS
Current Assets:
Cash and Cash Equivalents (Notes 2 and 3) $ 8,160 $ 5,244
Accounts Receivable, including Retainage
of $7,736 and $14,733, respectively (Note 2) 41,052 42,081
Advances to Venturers (Note 5) 16,200 13,000
Unbilled Work (Note 2) 47,594 33,982
Other Current Assets 4 4
-------- --------
TOTAL ASSETS $113,019 $ 94,311
======== ========
LIABILITIES
Current Liabilities:
Cash Overdraft (Note 3) $ 4,477 $ 4,318
Accounts Payable, including Retainage
of $8,005 and $10,586, respectively (Note 2) 29,577 43,779
Deferred Contract Revenue (Note 2) 36,100 22,313
Other Current Liabilities 4,772 3,979
-------- --------
Total Current Liabilities 74,926 74,389
-------- --------
Contingencies and Commitments (Note 4)
VENTURERS' EQUITY
Perini Corporation 22,505 12,877
Other Venturers 15,588 7,045
-------- --------
Total Venturers' Equity 38,093 19,922
-------- --------
TOTAL LIABILITIES AND VENTURERS' EQUITY $113,019 $ 94,311
======== ========
The accompanying notes are an integral part of these financial statements.
2
Exhibit 99.1
Perini Corporation
Combined Statement of Income of Significant Construction Joint Ventures
For the Years Ended December 31, 1999 and 1998
(In thousands)
1999 1998
-------------- -------------
Contract Revenues (Note 2) $ 188,070 $ 211,895
Cost of Operations:
Materials, Supplies and Subcontracts 118,212 141,710
Salaries and Wages 55,687 46,536
-------------- -------------
Total Contract Costs 173,899 188,246
-------------- -------------
Net Income $ 14,171 $ 23,649
============== =============
The accompanying notes are an integral part of these financial statements.
3
Exhibit 99.1
Perini Corporation
Combined Statement of Venturers' Equity of Significant Construction Joint Ventures
For the Years Ended December 31, 1999 and 1998
(In thousands)
Perini Other
Corporation Venturers Total
------------------ ----------------- ----------------
Balance, December 31, 1997 $ 12,055 $ 5,218 $ 17,273
Net Income 13,722 9,927 23,649
Distributions (12,900) (8,100) (21,000)
------------------ ----------------- ----------------
Balance, December 31, 1998 $ 12,877 $ 7,045 $ 19,922
Capital Contributions 10,080 7,920 18,000
Net Income 7,748 6,423 14,171
Distributions (8,200) (5,800) (14,000)
------------------ ----------------- ----------------
Balance, December 31, 1999 $ 22,505 $ 15,588 $ 38,093
================== ================= ================
The accompanying notes are an integral part of these financial statements
4
Exhibit 99.1
Perini Corporation
Combined Statement of Cash Flows of Significant Construction Joint Ventures
For the Years Ended December 31, 1999 and 1998
(In thousands)
1999 1998
--------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 14,171 $ 23,649
Adjustments to Reconcile Net Income to Net Cash
Provided from Operating Activities: -
Depreciation 2
Changes in Operating Assets and Liabilities: 1,029
Decrease in Accounts Receivable (13,612) 3,965
Increase in Unbilled Work - (8,778)
Decrease in Other Current Assets 159 126
Increase (Decrease) in Cash Overdraft (14,202) (5,719)
Decrease in Accounts Payable 13,787 (2,723)
Increase (Decrease) in Deferred Contract Revenue 793 (1,772)
Increase in Other Current Liabilities 2,098
--------------- ----------------
Net Cash Provided from Operating Activities $ 2,125 $ 10,848
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Fixed Assets $ - $ 37
--------------- ----------------
Net Cash Provided from Investing Activities $ - $ 37
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital Contributions from Venturers $ 18,000 $ -
Distributions to Venturers (14,000) (21,000)
(Increase) Decrease in Advances to Venturers (3,200) 2,000
--------------- ----------------
Net Cash Provided from (Used by) Financing Activities $ 800 $ (19,000)
--------------- ----------------
Net Increase (Decrease) in Cash and Cash Equivalents $ 2,925 $ (8,115)
Cash and Cash Equivalents, Beginning of Period 5,244 13,359
--------------- ----------------
Cash and Cash Equivalents, End of Period $ 8,169 $ 5,244
=============== ================
The accompanying notes are an integral part of these financial statements
5
Exhibit 99.1
Perini Corporation
Notes to Combined Financial Statements of Significant
Construction Joint Ventures
For the Years Ended December 31, 1999 and 1998
[1] Basis of Combination
Perini Corporation (the "Company"), in the normal conduct of its business, has
entered into partnership arrangements, referred to as "joint ventures", for
certain construction projects in order to share risk, working capital, bonding
and other financial requirements and, in some instances, to obtain more
extensive knowledge of a new local construction market or certain unique
construction expertise required. 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.
These joint ventures are temporary in nature, generally from three to five
years, since they are formed to bid on a specific project, execute the work if
awarded the contract, and are liquidated at the end of the project. While
control over the actual construction work performed is normally delegated to the
designated joint venture sponsor, usually the partner with a 50% or higher
percentage interest in the project, the overall management of the joint venture
resides with a Management Committee that requires unanimous approval of certain
key operational and financial matters such as the amount of the original bid,
ability to borrow funds, incur debt, guarantees and lease commitments and
investment policy regarding venture funds. In addition, the Management Committee
requires unanimous approval over terms of sale of venture assets, settlement
guidelines related to contract claims and any transaction between the joint
venture and any of its partners.
In accordance with Rule 3-09 of Regulation S-X, the Company has presented
combined financial statements of construction joint ventures rather than
separate financial statements for each joint venture, because the Company
believes that reporting the financial results of any one construction joint
venture by itself would not be significant to users and could be detrimental to
the Company when negotiating unapproved contract change orders and claims with
the owner of the project or could unfairly assist competitors when bidding
against the Company on similar contracts in the future. The following
construction joint ventures have been combined in the accompanying financial
statements:
Joint Venture Name Type of Work
- ------------------------------------------------------------ ---------------------------------------------------------
Perini/O&G, A Joint Venture Rehabilitation work on the Williamsburg Bridge in New
York City for the New York City Department of Traffic.
Perini/Kiewit/Cashman, A Joint Venture Tunnel and road work in Boston, MA for the
Massachusetts Highway Department.
Perini/Slattery, A Joint Venture Hudson-Bergen Light Rail Transit project in New Jersey
for the New Jersey Transit Corporation.
[2] Significant Accounting Policies
[a] Long-Term Contracts
Profits from construction joint venture contracts are generally recognized by
applying the percentages of completion for each year to the total estimated
profits for the 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 ventures' 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
6
Exhibit 99.1
Perini Corporation
Notes to Combined Financial Statements of Significant Construction Joint
Ventures
For the Years Ended December 31, 1999 and 1998
(Continued)
[2] Significant Accounting Policies (continued)
[a] Long-Term Contracts (continued)
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 joint
ventures include 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.
[b] Income Taxes
The joint ventures have not recorded any provision for income taxes in the
accompanying combined financial statements as such liabilities are the
responsibility of the joint venture partners.
[c] Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of 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 the accompanying combined financial
statements relate to the estimating of final construction contract profit in
accordance with accounting for long-term contracts (see Note 2[a]) and
estimating potential liabilities in conjunction with certain commitments and
contingencies, as discussed in Note 4. Actual results could differ from
management's estimates and assumptions.
[d] Fair Value of Financial Instruments
The joint ventures' financial instruments consist primarily of cash and cash
equivalents, contract accounts receivable and accounts payable. The carrying
amount of these financial instruments approximates fair value due to their
short-term nature.
[e] Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with original
maturities of three months or less.
[3] Cash Management
The joint ventures regularly invest excess cash in highly liquid, interest
bearing investments. These temporary investments are converted to cash on an "as
needed" basis to fund obligations as they become due. The amount of cash
overdraft represents the amount of checks outstanding which have not been
presented for payment as of December 31, 1999 and 1998.
7
Exhibit 99.1
Perini Corporation
Notes to Combined Financial Statements of Significant
Construction Joint Ventures
For the Years Ended December 31, 1999 and 1998
(Continued)
[4] Contingencies and Commitments
The joint ventures have noncancellable office and equipment leases with varying
expiration dates through July 31, 2005. The following is a schedule, by year, of
future minimum rental payments required under all operating leases that have
remaining noncancellable lease terms as of December 31, 1999:
Year Lease Commitments
------------ -----------------
2000 $ 1,314,315
2001 489,913
2002 361,092
2003 208,092
2004 208,092
2005 121,387
-----------------
$ 2,702,891
=================
For the years ended December 31, 1999 and 1998, rent expense relating to
noncancellable operating leases amounted to $1,764,182 and $1,261,350,
respectively, which is included in contract costs.
Contingent liabilities include liability of contractors for performance and
completion of the joint venture construction contracts. In addition, the joint
ventures are involved in arbitration and alternative dispute resolution ("ADR")
proceedings. In the opinion of management of the various joint ventures, the
resolution of these proceedings will not have a material effect on the results
of operations or financial condition as reported in the accompanying combined
financial statements.
[5] Related Party Transactions
Certain joint ventures periodically make temporary cash advances to the joint
venture participants. At December 31, 1999, the amount of such temporary cash
advances to Perini Corporation and other joint venture participants totalled
$8,760,000 and $7,440,000, respectively. At December 31, 1998, the amount of
such temporary cash advances to Perini Corporation and other joint venture
participants totalled $8,000,000 and $5,000,000, respectively.
[a] Perini Corporation
Significant billings from the Company to the joint ventures, included in the
accompanying combined financial statements, for various services for the years
ended December 31, 1999 and 1998 were as follows:
1999 1998
--------------- --------------
Equipment Rental $2,948,330 $1,658,258
Labor, Job Materials and Administrative Costs, including management fees 9,647,313 7,172,284
--------------- --------------
$12,595,643 $8,830,542
=============== ==============
The above amounts include contract costs and profit paid to the Company as a
subcontractor to a certain joint venture. At December 31, 1999, the subcontract
was complete and had a final price of $33,871,625.
8
Exhibit 99.1
Perini Corporation
Notes to Combined Financial Statements of Significant
Construction Joint Ventures
For the Years Ended December 31, 1999 and 1998
(Continued)
[5] Related Party Transactions (continued)
[b] Other Joint Venturers
Included in the combined joint ventures' cost of operations are charges for
labor and certain other job material costs that were incurred with the various
related parties.
[6] Employee Benefit Plans
The combined construction joint ventures contribute to various multi-employer
union retirement plans under collective bargaining agreements, which provide
retirement benefits for substantially all of its union employees. The
Multi-employer Pension Plan Amendments Act of 1980 defines certain employer
obligations under multi-employer plans. Information regarding union retirement
plans are not available from plan administrators to enable the Company to
determine its share of unfunded vested liabilities.
Supervisory personnel are generally covered under the sponsoring joint
venturer's plan.
9