Report of Independent Public Accountants
To the Stockholders of Perini Corporation:
We have audited the accompanying combined balance sheet of the joint ventures
identified in Note 1 as of December 31, 1997, and the related combined
statements of income, venturers' equity and cash flows for the year then ended.
These financial statements are the responsibility of the joint venturers'
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides 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, 1997, and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 25, 1998
Exhibit 99.1
Perini Corporation
Combined Balance Sheet of Significant Joint Ventures
For the Year Ended December 31, 1997
(In thousands)
ASSETS
Current Assets:
Cash and Cash Equivalents $ 37,978
Accounts Receivable - Contracts, including Retainage
of $35,243 (Note 2) 113,072
Due from Perini Corporation 20,600
Unbilled Work (Note 2) 49,618
Equipment Held for Sale 10,024
Other Current Assets 286
--------------
Total Current Assets 231,578
--------------
Property, Plant & Equipment 17,427
Less - Accumulated Depreciation (16,829)
--------------
598
--------------
TOTAL ASSETS $ 232,176
==============
LIABILITIES
Current Liabilities:
Accounts Payable, including Retainage
of $19,239 (Note 2) $ 111,661
Accrued Expenses 6,832
Deferred Contract Revenue (Note 2) 30,472
Other Current Liabilities 5,507
--------------
Total Current Liabilities 154,472
--------------
Contingencies and Commitments (Note 3)
VENTURERS' EQUITY
Perini Corporation 41,168
Other Venturers 36,536
--------------
Total Venturers' Equity 77,704
--------------
TOTAL LIABILITIES AND VENTURERS' EQUITY $ 232,176
==============
The accompanying notes are an integral part of these financial statements.
1
Exhibit 99.1
Perini Corporation
Combined Statement of Income of Significant Joint Ventures
For the Year Ended December 31, 1997
(In thousands)
Contract Revenues (Note 2) $ 622,419
--------------
Cost of Operations:
Materials, Supplies and Subcontracts 469,414
Salaries and Wages 84,874
Depreciation 16,292
--------------
Total Contract Costs 570,580
--------------
Income from Operations 51,839
Interest Income 3,155
Other Income/(Expense) 745
--------------
Net Income $ 55,739
==============
The accompanying notes are an integral part of these financial statements.
2
Exhibit 99.1
Perini Corporation
Combined Statement of Venturers' Equity of Significant Joint Ventures
For the Year Ended December 31, 1997
(In thousands)
Perini Other
Corporation Venturers Total
----------------- ---------------- -------------
Balance, December 31, 1996 $ 40,064 $ 31,401 $ 71,465
Capital Distributions (9,340) (7,660) (17,000)
Net Income 25,394 30,345 55,739
Profit Distributions (14,950) (17,550) (32,500)
----------------- ---------------- -------------
Balance, December 31, 1997 $ 41,168 $ 36,536 $ 77,704
================= ================ =============
The accompanying notes are an integral part of these financial statements.
3
Exhibit 99.1
Perini Corporation
Combined Statement of Cash Flows of Significant Joint Ventures
For the Year Ended December 31, 1997
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 55,739
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 16,292
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Accounts Receivable (14,744)
(Increase) Decrease in Unbilled Work (39,037)
(Increase) Decrease in Due from Perini Corporation 9,100
(Increase) Decrease in Other Current Assets 677
Increase (Decrease) in Accounts Payable 30,458
Increase (Decrease) in Accrued Expenses (923)
Increase (Decrease) in Deferred Contract Revenue (11,583)
Increase (Decrease) in Other Current Liabilities 4,073
--------------
Net Cash Provided from Operating Activities $ 50,052
--------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Property, Plant & Equipment, net $ (17)
Proceeds from Disposal of Equipment Held for Sale 3,550
--------------
Net Cash Provided by Investing Activities $ 3,533
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital Distributions to Venturers $ (17,000)
Profit Distributions (32,500)
--------------
Net Cash Used by Financing Activities $ (49,500)
--------------
Net Increase in Cash and Cash Equivalents $ 4,085
Cash and Cash Equivalents, Beginning of Period 33,893
--------------
Cash and Cash Equivalents, End of Period $ 37,978
==============
The accompanying notes are an integral part of these financial statements.
4
Exhibit 99.1
Perini Corporation
Notes to Combined Financial Statements of Significant Joint Ventures
For the Year Ended December 31, 1997
[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 joint ventures considered to be significant
under the test, because the Company believes that reporting the financial
results of any one 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 joint ventures have been combined in the accompanying financial
statements:
Joint Venture Name Type of Work
- ------------------------------------------ ------------------------------------------------
Perini/ICA/O&G, A Joint Venture Construction of an
approximately 9 mile tunnel in
Chicago, IL for the Metropolitan
Water Reclamation District of
Greater Chicago.
J.M. Cashman Inc./Kiewit Eastern Spectacle Island Material Disposal Systems in
Co./Perini Corporation/Guy F. Boston, MA for the Massachusetts
Atkinson Construction Company, A Department of Public Works.
Joint Venture
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 Tunnel and road work in Boston, MA for the
Venture Massachusetts Highway Department.
Bridgeton Prison Constructors, A Joint Construction of a prison in Bridgeton, NJ for
Venture the State of New Jersey, Department of the
Treasury.
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Joint Venture Name Type of Work
- ------------------------------------------ ------------------------------------------------
Grow-Perini, A Joint Venture Rehabilitation work on the Queensboro
Bridge in New York City for the New York
City Department of Transportation, Bureau of
Bridges.
Tutor-Saliba Corporation, Perini Construction of Phase II at the Hyperion
Corporation and Scott Company of Waste Water Treatment Plant in Los Angeles,
California, A Joint Venture CA for the City of Los Angeles.
Redondo/Perini, A Joint Venture Railway System and Track project in Puerto
Rico for the Puerto Rico Highways &
Transportation Authority.
Perini/Henderson Constructors, Inc., A Satellite Terminal at McCarron Airport in Las
Joint Venture Vegas, NV for the Board of Commissioners
of Clark County, Nevada.
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 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 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 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 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 financial statements
related 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
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contingencies, as discussed in Note 3. 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, accounts payable and accrued
expenses. The carrying amount of these financial instruments approximates fair
value due to their short-term nature.
[e] Property and Equipment
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated remaining life of the contract.
[f] Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with original
maturities of three months or less.
[3] Contingencies and Commitments
Certain joint ventures have noncancellable office and equipment leases with
varying expiration dates through March 31, 2000. The following is a schedule, by
year, of future minimum rental payments required under all operating leases that
have initial or remaining noncancellable lease terms as of December 31, 1997:
Lease
Year Commitments
- ------------------ ------------------
1998 $ 1,217,062
1999 1,052,263
2000 128,441
------------------
$ 2,397,766
==================
Rent expense included in contract costs amounted to $680,846 for the year ended
December 31, 1997.
During 1997, a joint venture, in which the Company is a 50% participant, entered
into a $5 million line of credit, secured by the joint venture's accounts
receivable. The line of credit is available for the duration of the joint
venture and is guaranteed by the Company on a joint and several basis, and as of
December 31, 1997, no amounts were outstanding under the line.
Contingent liabilities include liability of contractors for performance and
completion of joint venture construction contracts. In addition, the joint
ventures are defendants in various lawsuits, 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.
[4] Related Party Transactions
[a] Perini Corporation
Significant billings from the Company to a certain joint venture, included in
the accompanying combined financial statements, for various services for the
year ended December 31, 1997 were as follows:
1997
------------------
Equipment Rental $ 1,748,342
Job Material & Labor 15,513,048
------------------
$ 17,261,390
==================
7
The above amounts include contract costs and profit being paid to the Company as
a subcontractor to the joint venture. As of December 31, 1997, the subcontract
price is $22,725,581. In addition, included in the combined joint ventures' cost
of operations are charges for administrative costs including management fees.
[b] Other Joint Venturers
Included in the combined joint ventures' cost of operations are changes for
subcontract labor, rent and other administrative costs, including management
fees, that were incurred with the various related parties.
[5] Employee Benefit Plans
The combined 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.
8