Exhibit 99.1
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, 1998, 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 ventures=
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, 1998, 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
February 23, 1999
Exhibit 99.1
Perini Corporation
Combined Balance Sheet of Significant Construction Joint Ventures
For the Year Ended December 31, 1998
(In thousands)
ASSETS
Current Assets:
Cash and Cash Equivalents (Notes 2 and 3) $ 5,244
Accounts Receivable, including Retainage
of $14,733 (Note 2) 42,080
Advances to Venturers (Note 5) 13,000
Unbilled Work (Note 2) 33,982
Other Current Assets 4
-----------
Total Current Assets 94,310
-----------
Property, Plant & Equipment (Note 2) 48
Less - Accumulated Depreciation (47)
-----------
1
-----------
TOTAL ASSETS $ 94,311
===========
LIABILITIES
Current Liabilities:
Cash Overdraft (Note 3) $ 4,318
Accounts Payable, including Retainage
of $10,586 (Note 2) 43,779
Deferred Contract Revenue (Note 2) 22,313
Other Current Liabilities 3,979
-----------
Total Current Liabilities 74,389
-----------
Contingencies and Commitments (Note 4)
VENTURERS' EQUITY
Perini Corporation 12,877
Other Venturers 7,045
-----------
Total Venturers' Equity 19,922
-----------
TOTAL LIABILITIES AND VENTURERS' EQUITY $ 94,311
===========
The accompanying notes are an integral part of these financial statements.
Exhibit 99.1
Perini Corporation
Combined Statement of Income of Significant Construction Joint Ventures
For the Year Ended December 31, 1998
(In thousands)
Contract Revenues (Note 2) $ 211,895
--------------
Cost of Operations:
Materials, Supplies and Subcontracts 141,708
Salaries and Wages 46,536
Depreciation 2
--------------
Total Contract Costs 188,246
--------------
Net Income $ 23,649
==============
The accompanying notes are an integral part of these financial statements.
2
Exhibit 99.1
Perini Corporation
Combined Statement of Venturers' Equity of
Significant Construction Joint Ventures
For the Year Ended December 31, 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
============= =========== ===========
The accompanying notes are an integral part of these financial statements
3
Exhibit 99.1
Perini Corporation
Combined Statement of Cash Flows of Significant Construction Joint Ventures
For the Year Ended December 31, 1998
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 23,649
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 2
Changes in Operating Assets and Liabilities:
Decrease in Accounts Receivable 3,965
(Increase) in Unbilled Work (8,778)
Decrease in Other Current Assets 126
(Decrease) in Cash Overdraft (5,719)
(Decrease) in Accounts Payable (2,723)
(Decrease) in Deferred Contract Revenue (1,772)
Increase in Other Current Liabilities 2,098
----------------
Net Cash Provided from Operating Activities $ 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:
Distributions to Venturers $ (21,000)
Decrease in Advances to Venturers 2,000
----------------
Net Cash Used by Financing Activities $ (19,000)
----------------
Net (Decrease) in Cash and Cash Equivalents $ (8,115)
Cash and Cash Equivalents, Beginning of Period 13,359
----------------
Cash and Cash Equivalents, End of Period $ 5,244
================
The accompanying notes are an integral part of these financial statements
4
Exhibit 99.1
Perini Corporation
Notes to Combined Financial Statements of
Significant Construction Joint Ventures
For the Year Ended December 31, 1998
[1] Basis of Combination
Perini Corporation (the "Company"), in the normal conduct of its business, has
entered into partnership arrangements, referred to as Ajoint 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 considered to be
significant under the test, 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 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
Exhibit 99.1
Notes to Combined Financial Statements of
Significant Construction Joint Ventures For the Year Ended December 31, 1998
(Continued)
[2] Significant Accounting Policies (continued)
[a] Long-Term Contracts (continued)
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 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 and accounts payable. 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] 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, 1998.
5
Exhibit 99.1
Notes to Combined Financial Statements of
Significant Construction Joint Ventures
For the Year Ended December 31, 1998
(Continued)
[4] 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, 1998:
Lease
Year Commitments
------ ------------
1999 $ 1,224,545
2000 293,665
------------
$ 1,518,210
============
Rent expense included in contract costs amounted to $1,261,350 for the year
ended December 31, 1998.
Contingent liabilities include liability of contractors for performance and
completion of joint venture construction contracts. In addition, the joint
ventures are involved in arbitration and alternative dispute resolution (AADR@)
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, 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 a certain joint venture, included in
the accompanying combined financial statements, for various services for the
year ended December 31, 1998 were as follows:
1998
-------------
Equipment Rental $1,658,258
Job Material & Labor 7,172,284
=============
$8,830,542
=============
The above amounts include contract costs and profit being paid to the Company as
a subcontractor to the joint venture. As of December 31, 1998, the total
estimated subcontract price is $32,035,000. 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 charges for subcontract labor, rent and other administrative
costs, including management fees that were incurred with the various related
parties.
6
Exhibit 99.1
Notes to Combined Financial Statements of
Significant Construction Joint Ventures
For the Year Ended December 31, 1998
(Continued)
[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.