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 September 30, 1999 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 November 9, 1999: 5,682,287 Page 1 of 21
<TABLE> <CAPTION> PERINI CORPORATION & SUBSIDIARIES INDEX Page Number ----------- <S> <C> Part I. - Financial Information: Item 1. Financial Statements Consolidated Condensed Balance Sheets - 3 September 30, 1999 and December 31, 1998 Consolidated Condensed Statements of Operations - 4 Three Months and Nine Months ended September 30, 1999 and 1998 Consolidated Condensed Statements of Cash Flows - 5 Nine Months ended September 30, 1999 and 1998 Notes to Consolidated Condensed Financial Statements 6 - 9 Item 2. Management's Discussion and Analysis of the Consolidated 10 - 14 Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 14 Part II. - Other Information: Item 1. Legal Proceedings 15 Item 2. Changes in Securities 15 Item 3. Defaults Upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 - 20 Signatures 21 </TABLE> 2
<TABLE> <CAPTION> PERINI CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) SEPTEMBER 30, 1999 AND DECEMBER 31, 1998 (In Thousands) ASSETS SEPT. 30, DEC. 31, 1999 1998 -------------- ------------- (Note 3) <S> <C> <C> Cash $ 33,625 $ 46,507 Accounts and Notes Receivable 134,264 113,052 Unbilled Work 17,760 19,585 Construction Joint Ventures 74,264 67,100 Net Current Assets of Discontinued Operations (Note 3) 14,206 8,068 Deferred Tax Assets 1,076 1,076 Other Current Assets 5,100 2,469 -------------- ------------- Total Current Assets $ 280,295 $ 257,857 -------------- ------------- Net Long-Term Assets of Discontinued Operations (Note 3) $ --- $ 104,017 ------------- ------------- Other Assets $ 3,704 $ 3,734 -------------- ------------- Property and Equipment, less Accumulated Depreciation of $17,177 in 1999 and $16,378 in 1998 $ 9,840 $ 9,858 -------------- ------------- $ 293,839 $ 375,466 ============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Maturities of Long-Term Debt $ 14,016 $ 2,036 Accounts Payable 108,260 127,349 Advances from Construction Joint Ventures 12,904 17,300 Deferred Contract Revenue 33,187 14,350 Accrued Expenses 38,765 39,157 -------------- ------------- Total Current Liabilities $ 207,132 $ 200,192 -------------- ------------- Deferred Income Taxes and Other Liabilities $ 17,485 $ 15,319 -------------- ------------- Long-Term Debt, less current maturities included above $ 72,382 $ 75,857 -------------- ------------- Redeemable Convertible Series B Preferred Stock $ 36,613 $ 33,540 -------------- ------------- Stockholders' Equity (Deficit): Preferred Stock $ 100 $ 100 Series A Junior Participating Preferred Stock --- --- Stock Purchase Warrants 2,233 2,233 Common Stock 5,743 5,506 Paid-In Surplus 45,184 49,219 Retained Deficit (91,920) (3,642) ESOT Related Obligations (120) (1,381) -------------- ------------- $ (38,780) $ 52,035 Less - Treasury Stock 993 1,477 -------------- ------------- Total Stockholders' Equity (Deficit) $ (39,773) $ 50,558 ============== ============= $ 293,839 $ 375,466 ============== ============= </TABLE> The accompanying notes are an integral part of these financial statements. 3
<TABLE> <CAPTION> PERINI CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) (In Thousands, Except Per Share Data) THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, -------------------------- ----------------------- 1999 1998 1999 1998 ---------- ---------- --------- --------- (Note 3) (Note 3) <S> <C> <C> <C> <C> CONTINUING OPERATIONS: Construction Revenues $ 244,887 $ 247,730 $ 776,233 $ 740,693 ----------- ----------- ---------- ---------- Cost and Expenses: Cost of Operations $ 230,708 $ 234,767 $ 737,729 $ 703,020 General, Administrative and Selling Expenses 7,434 5,947 19,869 19,482 ----------- ----------- ---------- ---------- $ 238,142 $ 240,714 $ 757,598 $ 722,502 ----------- ----------- ---------- ---------- INCOME FROM OPERATIONS $ 6,745 $ 7,016 $ 18,635 $ 18,191 Other Expense, Net (96) (289) (984) (717) Interest Expense (2,048) (1,985) (5,424) (6,198) ----------- ----------- ---------- ---------- Income from Continuing Operations before Income Taxes $ 4,601 $ 4,742 $ 12,227 $ 11,276 Provision for Income Taxes (Note 4) --- 390 500 780 ----------- ---------- ---------- ---------- INCOME FROM CONTINUING OPERATIONS $ 4,601 $ 4,352 $ 11,727 $ 10,496 ----------- ---------- ---------- ---------- DISCONTINUED OPERATIONS (Note 3): Loss from Operations (Note 4) $ --- $ (615) $ (694) $ (1,426) Estimated Loss on Disposal of Real Estate Business Segment (Note 4) --- --- (99,311) --- ----------- ---------- ---------- ---------- LOSS FROM DISCONTINUED OPERATIONS $ --- $ (615) $(100,005) $ (1,426) ----------- ---------- ---------- ---------- NET INCOME (LOSS) $ 4,601 $ 3,737 $ (88,278) $ 9,070 =========== ========== ========== ========== BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE (Note 5): Income from Continuing Operations $ .53 $ .53 $ 1.26 $ 1.15 Loss from Discontinued Operations --- (.11) (.12) (.27) Estimated Loss on Disposal --- --- (17.79) --- ----------- ---------- ---------- ---------- Total $ .53 $ .42 $ (16.65) $ .88 ----------- ---------- ---------- ---------- DIVIDENDS PER COMMON SHARE (Note 6) $ --- $ --- $ --- $ --- =========== ========== ========== ========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note 5) 5,680,485 5,413,647 5,582,859 5,288,825 =========== ========== ========== ========== </TABLE> The accompanying notes are an integral part of these financial statements. 4
<TABLE> <CAPTION> PERINI CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (In Thousands) NINE MONTHS ENDED SEPTEMBER 30, --------------------------------- 1999 1998 -------------- -------------- (Note 3) <S> <C> <C> Cash Flows from Operating Activities: Net Income (Loss) $ (88,278) $ 9,070 Adjustments to reconcile net income (loss) to net cash from operating activities: Loss from discontinued operations 100,005 1,426 Depreciation and amortization 2,328 2,246 Noncurrent deferred taxes and other liabilities 179 395 Distributions greater (less) than earnings of joint ventures and affiliates 1,156 (104) Cash provided from (used by) changes in components of working capital other than cash, net current assets of discontinued operations and current maturities of long-term debt (26,884) 2,998 Other non-cash items, net (34) (76) -------------- -------------- NET CASH PROVIDED FROM (USED BY) OPERATING ACTIVITIES $ (11,528) $ 15,955 -------------- -------------- Cash Flows from Investing Activities: Proceeds from sale of property and equipment $ 492 $ 594 Cash distributions of capital from unconsolidated joint ventures 1,475 2,565 Acquisition of property and equipment (1,222) (568) Capital contributions to unconsolidated joint ventures (9,910) (1,022) Investment in discontinued operations (Note 3) (2,126) (3,052) Investment in other activities (624) (195) -------------- -------------- NET CASH PROVIDED FROM (USED BY) INVESTING ACTIVITIES $ (11,915) $ (1,678) -------------- -------------- Cash Flows from Financing Activities: Proceeds of long-term debt $ 9,790 $ 14,600 Repayment of long-term debt (581) (5,349) Common Stock issued 1,197 2,482 Treasury Stock issued 155 151 -------------- -------------- NET CASH PROVIDED FROM (USED BY) FINANCING ACTIVITIES $ 10,561 $ 11,884 -------------- -------------- Net Increase (Decrease) in Cash $ (12,882) $ 26,161 Cash at Beginning of Year 46,507 31,305 -------------- -------------- Cash at End of Period $ 33,625 $ 57,466 ============== ============== Supplemental Disclosure of Cash paid during the period for: Interest $ 5,627 $ 6,128 ============== ============== Income tax payments $ 110 $ 135 ============== ============== Supplemental Disclosures of Non-cash Transactions: Dividends paid in shares of Series B Preferred Stock (Note 6) $ 2,789 $ 2,527 ============== ============== </TABLE> The accompanying notes are an integral part of these financial statements. 5
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, 1998. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting only of normal recurring adjustments, except for the presentation of Discontinued Operations and related non-cash provision for estimated loss on disposal of the Company's real estate development business segment as more fully described in Note 3 below, necessary to present fairly the Company's financial position as of September 30, 1999 and December 31, 1998, results of operations for the three month and nine month periods ended September 30, 1999 and 1998 and cash flows for the nine month periods ended September 30, 1999 and 1998. The results of operations for the nine month period ended September 30, 1999 may not be indicative of the results that may be expected for the year ending December 31, 1999 because the Company's results generally consist of a limited number of large transactions in both construction and real estate. Therefore, such results can vary depending on the timing of transactions and the profitability of projects being reported. (2) Significant Accounting Policies 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, 1998. The Company has made no significant change in these policies during 1999. (3) 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 through September 30, 1999 have been presented as a discontinued operation in accordance with generally accepted accounting principles. Based on the plan, the 1999 nine month results include a $99,311,000 non-cash provision which represents the estimated loss on disposal of this business segment. This non-cash charge reflects the impact of the previously announced disposition of the Rincon Center property located in San Francisco and the reduction in projected future cash flow from the disposition of PL&D's remaining real estate development operations resulting from the change in strategy of holding the properties through the necessary development and stabilization periods to a new strategy of generating short-term liquidity through an accelerated disposition or bulk sale. The estimated loss on disposal of the real estate business segment also includes a provision for shut down costs related to PL&D during the wind down period. No Federal tax benefit was attributable to the estimated loss on disposal of the real estate business segment (see Note 4). Several of the remaining real estate properties now being offered for sale are currently under or are pending a purchase and sale agreement. At September 30, 1999 the net assets of discontinued real estate development operations, consisting primarily of real estate properties for sale, have been reclassified as current assets at estimated net realizable value. At December 31, 1998 the net current assets of discontinued real estate development operations consist primarily of certain real estate properties for sale. The net long-term assets of discontinued operations at December 31, 1998 consist primarily of land held 6
PERINI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) for sale or development and investments in and advances to real estate joint ventures. In accordance with generally accepted accounting principles, the results of discontinued real estate development operations have been reclassified to "Loss from Operations" of Discontinued Operations. In connection therewith, the revenues related to these operations are summarized below (in thousands): <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- -------------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- <S> <C> <C> <C> <C> Revenues $12,121 $3,556 $21,052 $18,186 ============== ========== ============ =============== </TABLE> During the third quarter of 1999, PL&D concluded the sale of two properties. The net proceeds of $14.6 million realized from the sale of these two properties was equal to the net proceeds originally anticipated in calculating the estimated loss on disposal of the real estate business segment at June 30, 1999. The loss from operations resulting from the sale of these two properties was approximately equal to the loss from operations originally anticipated in calculating the estimated loss on disposal of the real estate business segment at June 30, 1999. (4) Provision For Income Taxes The provision for income taxes applicable to Income from Continuing Operations reflects a lower-than-normal tax rate in 1999 and 1998 due to the realization of a portion of the Federal tax benefit not recognized in prior years due to certain accounting limitations. No tax benefit was attributable to Losses from Discontinued Operations in either 1999 or 1998 due to the same accounting limitations. (5) Per Share Data Computations of basic and diluted earnings (loss) per common share amounts are based on the weighted average number of the Company's common shares outstanding during the periods presented. Earnings from Income from Continuing Operations available for common shares are calculated as follows (in thousands, except per share amounts): <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, --------------------------- ---------------------------- 1999 1998 1999 1998 ------------ ----------- ------------ ------------ <S> <C> <C> <C> <C> Income from Continuing Operations $ 4,601 $ 4,352 $ 11,727 $ 10,496 ------------ ----------- ------------ ------------ Less: - - Accrued dividends on $21.25 Senior Preferred Stock $ (531) $ (531) $ (1,593) $ (1,593) - - Dividends declared on Series B Preferred Stock (953) (863) (2,789) (2,527) - - Accretion deduction required to reinstate mandatory redemption value of Series B Preferred Stock over a period of 8-10 years (95) (93) (284) (280) ------------ ----------- ------------ ------------ $ (1,579) $ (1,487) $ (4,666) $ (4,400) ------------ ----------- ------------ ------------ Earnings from Income from Continuing Operations available for Common Stockholders $ 3,022 $ 2,865 $ 7,061 $ 6,096 ============ =========== ============ ============ Weighted average shares outstanding 5,680 5,414 5,583 5,289 ------------ ----------- ------------ ------------ Basic and diluted earnings per Common Share on Income from Continuing Operations $ 0.53 $ 0.53 $ 1.26 $ 1.15 ============ =========== ============ ============ </TABLE> 7
PERINI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) Basic EPS equals diluted EPS for the periods presented due to the immaterial effect of stock options and the antidilutive effect of conversion of the Company's depositary convertible exchangeable preferred shares, Series B preferred shares and stock purchase warrants into common stock. (6) Dividends There were no cash dividends on common stock declared or paid during the periods presented in the consolidated condensed financial statements presented herein. As previously disclosed, in conjunction with the covenants of the Company's Revolving Credit Agreement, the Company is required to suspend the payment of quarterly dividends on its $21.25 Preferred Stock ("Senior Preferred Stock") until certain financial criteria are met. Therefore, the dividends on the Senior Preferred Stock have not been declared since 1995 (although they have been fully accrued due to the "cumulative" feature of the Senior Preferred Stock). The aggregate amount of dividends in arrears is approximately $8,500,000 at September 30, 1999 which represents approximately $85.00 per share of Preferred Stock or approximately $8.50 per Depositary Share and is included in "Other Liabilities" (long-term) in the accompanying Consolidated Condensed Balance Sheet. 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 both the May 14, 1998 and the May 13, 1999 Annual Meetings. Quarterly In-kind dividends (based on an annual rate of 10%) were paid on March 15, 1999 on the Series B Preferred Stock to the stockholders of record on March 1, 1999. The dividend was paid in the form of approximately 4,534 additional shares of Series B Preferred Stock valued at $200.00 per share for a total of $906,783. In-kind dividends for the second quarter were paid on June 15, 1999 to stockholders of record on June 1, 1999. The dividend was paid in the form of approximately 4,647 additional shares of Series B Preferred Stock valued at $200.00 per share for a total of $929,453. In-kind dividends for the third quarter were paid on September 15, 1999 to stockholders of record on September 1, 1999. The dividend was paid in the form of approximately 4,763 additional shares of Series B Preferred Stock valued at $200.00 per share for a total of $952,689. (7) Business Segments The following tables set forth certain updated business segment information relating to the Company's operations for the three and nine month periods ended September 30, 1999 and 1998 (in thousands): <TABLE> <CAPTION> Three months ended September 30, 1999 Reportable Segments ------------------------------------------- Consolidated Building Civil Totals Corporate Totals ---------- ---------- ----------- ----------- ------------ <S> <C> <C> <C> <C> <C> Revenues $164,532 $ 80,355 $244,887 $ - $244,887 Income (Loss) from Ops. $ 4,760 $ 4,038 $ 8,798 $(2,053)* $ 6,745 Three months ended September 30, 1998 Reportable Segments --------------------------------------- Consolidated Building Civil Totals Corporate Totals ---------- ---------- ----------- ----------- ------------ Revenues $157,317 $ 90,413 $247,730 $ - $247,730 Income (Loss) from Ops. $ 2,935 $ 5,693 $ 8,628 $(1,612)* $ 7,016 </TABLE> 8
PERINI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) <TABLE> <CAPTION> Nine months ended September 30, 1999 Reportable Segments ------------------------------------------- Consolidated Building Civil Totals Corporate Totals ---------- ---------- ----------- ----------- ------------ <S> <C> <C> <C> <C> <C> Revenues $549,224 $227,009 $776,233 $ - $776,233 Income (Loss) from Ops. $ 14,214 $ 9,894 $ 24,108 $(5,473)* $ 18,635 Assets $138,133 $104,270 $242,403 $51,436** $293,839 Nine months ended September 30, 1998 Reportable Segments --------------------------------------- Consolidated Building Civil Totals Corporate Totals ---------- ---------- ----------- ----------- ------------ Revenues $502,865 $237,828 $740,693 $ - $740,693 Income (Loss) from Ops. $ 12,919 $ 10,718 $ 23,637 $(5,446)* $ 18,191 Assets $111,651 $106,094 $217,745 $173,039** $390,784 </TABLE> * 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. 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 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 through September 30, 1999 have been presented as a discontinued operation in accordance with generally accepted accounting principles. Based on the plan, the 1999 nine month results include a $99,311,000 non-cash provision which represents the estimated loss on disposal of this business segment. This non-cash charge reflects the impact of the previously announced disposition of the Rincon Center property located in San Francisco and the reduction in projected future cash flow from the disposition of PL&D's remaining real estate development operations resulting from the change in strategy of holding the properties through the necessary development and stabilization periods to a new strategy of generating short-term liquidity through an accelerated disposition or bulk sale. The estimated loss on disposal of the real estate business segment also includes a provision for shut down costs related to PL&D during the wind down period. No Federal tax benefit was attributable to the estimated loss on disposal of the real estate business segment (see Note 4). On October 12, 1999, the Company and PL&D, the managing partner of Rincon Center Associates ("RCA"), entered into a full and final non-cash settlement regarding its interests in the Rincon Center property. As part of the settlement and in exchange for the transfer of its ownership interest in the RCA property, the Company has exchanged mutual releases with the other RCA general partner, the RCA-related lenders and all other entities formally associated with the RCA property from any claims, lawsuits or other liabilities they may have with respect to each other in connection with the Rincon Center property. This completes a major step in the Company's plan to discontinue its real estate development operations. In addition, during the third quarter of 1999, PL&D concluded the sale of two other properties at prices approximating those originally anticipated in calculating the estimated loss on disposal of the real estate business segment at June 30, 1999. Several of the remaining real estate properties now being offered for sale are currently under or are pending a purchase and sale agreement. Results of Operations from Continuing Operations - ------------------------------------------------ Comparison of the Third Quarter of 1999 with the Third Quarter of 1998 Overall, revenue from construction operations decreased by $2.8 million (or 1.1%), from $247.7 million in 1998 to $244.9 million in 1999. This decrease was primarily due to a decrease in revenues from civil operations of $10.0 million (or 11.1%), from $90.4 million in 1998 to $80.4 million in 1999 due primarily to the completion of several major transit and infrastructure projects in late 1998 and early 1999. Revenues from building operations increased $7.2 million (or 4.6%), from $157.3 million in 1998 to $164.5 million in 1999 due primarily to the start up of several new projects in both the eastern and western United States. Overall, income from construction operations (before corporate G&A expenses) increased by $.2 million (or 2.3%), from $8.6 million in 1998 to $8.8 million in 1999. The increase in operating income results from an increase from building operations of $1.9 million (or 65.5%), from $2.9 million in 1998 to $4.8 million in 1999 primarily due to the increase in revenues discussed above and the non-recurring profit write-down recorded in 1998 on a project associated with a business unit which was being phased out. Largely offsetting the increase from building operations was a $1.7 million (or 29.8%) decrease in operating income from civil operations, from $5.7 million in 1998 to $4.0 million in 1999 due primarily to the decrease in revenues referred to above and a lower average margin in the backlog at the beginning of 1999. Corporate G&A increased $.5 million in 1999 due primarily to an increase in legal fees relating to the administration of the Company's revolving credit agreement with its bank group and other 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) corporate matters. As a result, overall income from operations decreased $.3 million (or 4.3%), from $7.0 million in 1998 to $6.7 million in 1999. Other expense, net, decreased by $.2 million from $.3 million in 1998 to $.1 million in 1999 due primarily to a non-recurring loss on sale of fixed assets recorded in 1998. The provision for income taxes applicable to Income from Continuing Operations reflects a lower-than-normal tax rate in 1999 and 1998 due to the realization of a portion of the Federal tax benefit not recognized in prior years due to certain accounting limitations. No tax benefit was attributable to Losses from Discontinued Operations in either 1999 or 1998 due to the same accounting limitations Comparison of the Nine Months Ended September 30, 1999 With the Nine Months Ended September 30, 1998 Overall, revenue from construction operations increased $35.5 million (or 4.8%), from $740.7 million in 1998 to $776.2 million in 1999. This increase was primarily due to an increase in revenues from building operations of $46.3 million (or 9.2%), from $502.9 million in 1998 to $549.2 million in 1999 due primarily to the start up of several new projects in both the eastern and western United States. Revenues from civil construction operations decreased $10.8 million (or 4.5%), from $237.8 million in 1998 to $227.0 million in 1999 primarily due to the completion of several major mass transit and infrastructure projects in late 1998 and early 1999. Overall, income from construction operations (before corporate G&A expenses) increased by $.5 million (or 2.1%), from $23.6 million in 1998 to $24.1 million in 1999. The increase in operating income results from an increase from building operations of $1.3 million (or 10.1%), from $12.9 million in 1998 to $14.2 million in 1999 primarily due to the increase in revenues discussed above. Operating income from civil operations decreased $.8 million (or 7.5%), from $10.7 million in 1998 to $9.9 million in 1999 primarily due to the decrease in revenues discussed above. Corporate G&A expenses were $5.5 million in both years. Other expenses, net, increased by $.3 million, from $.7 million in 1998 to $1.0 million in 1999 as a result of increased bank financing fees. Interest expense decreased by $.8 million, from $6.2 million in 1998 to $5.4 million in 1999 due in part to a reduction in the average amount borrowed. The provision for income taxes applicable to Income from Continuing Operations reflects a lower-than-normal tax rate in 1999 and 1998 due to the realization of a portion of the Federal tax benefit not recognized in prior years due to certain accounting limitations. No tax benefit was attributable to Losses from Discontinued Operations in either 1999 or 1998 due to the same accounting limitations. Financial Condition - ------------------- Working capital increased $15.5 million, from $57.7 million at the end of 1998 to $73.2 million at September 30, 1999. The current ratio increased from 1.29:1 to 1.35:1 during this same period. During the first nine months of 1999, the Company used $10.5 million from financing activities, primarily additional borrowings under the Company's Revolving Credit Agreement, plus $12.9 million of cash on hand to fund $11.5 million used by operating activities, primarily for changes in working capital, and $11.9 million for investing activities, primarily to fund the working capital needs of construction joint ventures. 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) Long-term debt at September 30, 1999 was $72.4 million, a decrease of $3.5 million from December 31, 1998. Effective March 23, 1999, the Company finalized certain changes to its Revolving Credit Agreement with its Bank Group, including extending the Revolving Credit Agreement from January 3, 2000 to January 3, 2001. Other changes to the Revolving Credit Agreement include, among other things, scheduled mandatory reductions to the maximum commitment of $20.0 million in 1999 and $15.0 million in 2000; additional permanent mandatory reductions, as defined, from the net proceeds from real estate sales with the balance payable in 2001; interest rate increases of 3/4 of 1%; and a bank fee of $483,000 payable in two installments in 1999 and 2000. Under the terms of the Revolving Credit Agreement, the Company had $5.2 million available to borrow under its maximum commitment of $86.2 million as of September 30, 1999. As a result of the net loss recorded in 1999, the Company's stockholders' equity was reduced to a negative $39.8 million. Management is currently continuing to work with its investment bankers in an effort to raise additional capital, restore balance sheet net worth and improve liquidity. Management believes that cash generated from operations, existing credit lines, and sales of real estate should be adequate to meet the Company's funding requirements for at least the next twelve months. Outlook - ------- o Continuing Construction Operations - The overall construction backlog at September 30, 1999 was $1.503 billion, a 22% increase from the backlog at December 31, 1998. Projects awarded during 1999 and included in the backlog at September 30, 1999 totaled in excess of $880 million, including the previously announced construction management services contract for the $650 million Mohegan Sun Phase II Expansion Project in Uncasville, CT. Approximately 60% of the current backlog relates to building construction projects which generally represent lower risk, lower margin work and approximately 40% of the current backlog relates to heavy construction projects which generally represent higher risk, but correspondingly higher margin work. o Discontinued Real Estate Operations - As described in detail at the beginning of Page 10 to this Form 10-Q, the Company is proceeding to implement its plan to wind down its discontinued real estate development operations. A major step in the plan was completed on October 12, 1999 whereby the Company entered into a settlement agreement regarding its interest in the Rincon Center property. As part of the settlement and in exchange for the transfer of its ownership interest in the RCA property, the Company has exchanged mutual releases with the other RCA general partners, the RCA-related lenders and all other entities formally associated with the RCA property from any claims, lawsuits or other liabilities they may have with respect to each other in connection with the Rincon Center property. In addition, during the third quarter of 1999, PL&D concluded the sale of two other properties at prices approximating those originally anticipated in calculating the estimated loss on disposal of the real estate business segment at June 30, 1999. Several of the remaining real estate properties now being offered for sale are currently under or are pending a purchase and sale agreement. o Rebuilding Equity - As a result of the net loss recorded in 1999, the Company's stockholders' equity has been reduced to a negative $39.8 million. Management is continuing to work with its investment bankers in an effort to raise additional capital, restore balance sheet net worth and improve liquidity. o Year 2000 Readiness Disclosures - Since many computers, related software and certain devices with embedded microchips record only the last two digits of a year, they may not be able to recognize that January 1, 2000 (or subsequent dates) comes after December 31, 1999. This situation could cause erroneous calculations or system shutdowns, causing problems that could range from merely inconvenient to significant. 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) As previously reported, the Company began a project to review all of its computer systems in 1995. One factor, among many, to consider was what impact, if any, would the Year 2000 have on computer systems. As a result of this project, the Company implemented new fully integrated on-line construction specific financial systems during the first quarter of 1998 which are Year 2000 compliant. The cost of these new systems, including the hardware, software and implementation costs, approximated $1.5 million which was capitalized and is being amortized over ten years on a straight-line basis. The Company recognizes the Year 2000 issue could be an overall business problem, not just a technical problem. Therefore, it established a Year 2000 Committee early in 1998 to identify all of the other potential Year 2000 problems that could impact the Company, including readiness issues for its computer applications and business processes, non-information technology systems such as those of its facilities and equipment, along with relationships with third parties, such as our customers, vendors, subcontractors, joint ventures, and other business partners; develop plans to evaluate the significance of the potential problem; develop plans to remedy or minimize the potential problem; assign appropriate resources; and monitor the implementation of the plans. During the third quarter of 1998, the Committee, which included both the Company's Chairman and CEO, designated the Year 2000 Project Manager. The Project Manager has organized a Year 2000 Team, consisting of specific individuals assigned from each operating unit and each corporate department. In addition, the Company developed, published and commenced implementation of its Year 2000 Readiness Plan which has as its overall objective "to eliminate or minimize the potential internal and external impact of the Year 2000 issue on the normal business operations of the Company, its subsidiaries, and joint ventures in a timely and cost effective manner". The Year 2000 Plan includes the following phases: (1) potential problem identification, (2) resource commitment, (3) inventory, (4) assessment, (5) prioritization, (6) remediation and (7) testing. The Company completed the problem identification, resource commitment and prioritization phases during 1998, the inventory phase during the first quarter of 1999, and the "assessment", "testing", and "remediation" phases as of September 30, 1999. As a result of completing its Year 2000 Plan the Company believes its internal financial and operating systems are compliant. The Company currently estimates that costs related to implementation of the Year 2000 Plan, over and above the cost of the new financial systems referred to above, were approximately $0.4 million which were expensed as incurred. The Company, as a general contractor, generally provides its construction services in accordance with detailed contracts and specifications provided by its clients. In addition to addressing its own computer applications, facilities, and construction equipment, the Plan includes communication with critical third parties. In light of a relatively weak response to these inquiries, the Company has defined its most reasonably likely worst case scenario at this time to include last minute inquiries and requests for assistance in determining Year 2000 compliance by some limited number of clients or other third parties who have not properly prepared for this event. The Company currently plans to have in place by December 1, 1999 a Year 2000 Urgent Response Team defined and available to respond to last minute Year 2000 issues raised by clients or others, in a timely, proactive and cost effective manner. 13
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. In addition, forward-looking statements regarding the year 2000 issue carry risk factors which include, without limitation, the availability and cost of personnel trained in these areas; the ability to locate and correct all relevant computer codes; changes in consulting fees and costs to remediate or replace hardware and software; changes in non-incremental costs resulting from redeployment of internal resources; timely responses to and corrections by third parties such as significant customers and suppliers; and similar uncertainties. QUANTITATIVE AND QUALITATIVE DISLOSURES ABOUT MARKET RISK There has been no material change in the Company's exposure to market risk since December 31, 1998. 14
Part II. - Other Information Item 1. - Legal Proceedings - None Item 2. - Changes in Securities (a) None (b) None (c) None Item 3. - Defaults Upon Senior Securities (a) None (b) In accordance with the provisions of the 1995 Amended Revolving Credit Agreement and the Credit Agreement which became effective on January 17, 1997, the Company suspended payment of quarterly dividends on its $21.25 Convertible Exchangeable Preferred Stock ("Senior Preferred Stock") commencing with the dividend that normally would have been declared during December 1995 through the dividend that would normally have been declared during September 1999 for a total arrearage of $85.00 per share (or $8.50 per depositary share) which aggregates approximately $8,500,000 to date. While these dividends have not been declared or paid, they have been fully accrued in accordance with the "cumulative" feature of the stock. Item 4. - Submission of Matters to a Vote of Security Holders - None Item 5. - Other Information - None 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 the Securities and Exchange Commission under the Securities Act of 1933 or 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 January 17, 1997 - Exhibit 3.1 to 1996 Form 10-K filed March 31, 1997. 3.2 By-laws - As amended and restated as of January 17, 1997 - Exhibit 3.2 to Form 8-K filed on February 14, 1997. Exhibit 4. Instruments Defining the Rights of Security Holders, Including Indentures Incorporated herein by reference: 15
Part II. - Other Information (Continued) 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. 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. 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. 4.9 Stock Assignment and Assumption Agreement dated as of December 13, 1996 by and among the Company, PB Capital and ULLICO (filed as Exhibit 4.1 to the Schedule 13D filed by ULLICO on December 16, 1996 and incorporated herein by reference). 4.10 Stock Assignment and Assumption Agreement dated as of January 17, 1997 by and among the Company, RCBA and The Common Fund - Exhibit 4.10 to Form 8-K filed on February 14, 1997. 4.11 Voting Agreement dated as of January 17, 1997 by and among PB Capital, David B. Perini, Perini Memorial Foundation, David B. Perini Testamentary Trust, Ronald N. Tutor, and Tutor-Saliba Corporation - Exhibit 4.11 to Form 8-K filed on February 14, 1997. 4.12 Registration Rights Agreement dated as of January 17, 1997 by and among the Company, PB Capital and ULLICO - Exhibit 4.12 to Form 8-K filed on February 14, 1997. 16
Part II. - Other Information (Continued) 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. 10.4 $125 million Credit Agreement dated as of December 6, 1994 among Perini Corporation, the Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Shawmut Bank, N.A., Co-Agent - Exhibit 10.4 to 1994 Form 10-K, as filed. 10.5 Amendment No. 1 as of February 26, 1996 to the Credit Agreement dated as of December 6, 1994 among Perini Corporation, the Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.), as Co-Agent - Exhibit 10.5 to 1995 Form 10-K, as filed. 10.6 Bridge Credit Agreement dated as of February 26, 1996 among Perini Corporation, the Bridge Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.) as Co-Agent - Exhibit 10.6 to 1995 Form 10-K, as filed. 10.7 Amendment No. 2 as of July 30, 1996 to the Credit Agreement dated as of December 6, 1994 and Amendment No. 1 as of July 30, 1996 to the Bridge Credit Agreement dated February 26, 1996 among Perini Corporation, the Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank of Massachusetts, as Co-Agent - Exhibit 10.7 to Perini Corporation's Form 10-Q/A for the fiscal quarter ended September 30, 1996 filed on December 11, 1996. 10.8 Amendment No. 2 as of September 30, 1996 to the Bridge Credit Agreement dated as of February 26, 1996 among Perini Corporation, the Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank of Massachusetts, as Co-Agent - Exhibit 10.8 to Perini Corporation's Form 10-Q/A for the fiscal quarter ended September 30, 1996 filed on December 11, 1996. 10.9 Amendment No. 3 as of October 2, 1996 to the Bridge Credit Agreement dated as of February 26, 1996 among Perini Corporation, the Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank of Massachusetts, as Co-Agent - Exhibit 10.9 to Perini Corporation's Form 10-Q/A for the fiscal quarter ended September 30, 1996 filed on 17
Part II. - Other Information (Continued) December 11, 1996. 10.10 Amendment No. 4 as of October 15, 1996 to the Bridge Credit Agreement dated as of February 26, 1996 among Perini Corporation, the Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank of Massachusetts, as Co-Agent - Exhibit 10.10 to Perini Corporation's Form 10-Q/A for the fiscal quarter ended September 30, 1996 filed on December 11, 1996. 10.11 Amendment No. 5 as of October 21, 1996 to the Bridge Credit Agreement dated as of February 26, 1996 among Perini Corporation, the Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank of Massachusetts, as Co-Agent - Exhibit 10.11 to Perini Corporation's Form 10-Q/A for the fiscal quarter ended September 30, 1996 filed on December 11, 1996. 10.12 Amendment No. 6 as of October 24, 1996 to the Bridge Credit Agreement dated as of February 26, 1996 among Perini Corporation, the Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank of Massachusetts, as Co-Agent - Exhibit 10.12 to Perini Corporation's Form 10-Q/A for the fiscal quarter ended September 30, 1996 filed on December 11, 1996. 10.13 Amendment No. 7 as of November 1, 1996 to the Bridge Credit Agreement dated as of February 26, 1996 among Perini Corporation, the Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank of Massachusetts, as Co-Agent - Exhibit 10.13 to Perini Corporation's Form 10-Q/A for the fiscal quarter ended September 30, 1996 filed on December 11, 1996. 10.14 Amendment No. 8 as of November 4, 1996 to the Bridge Credit Agreement dated as of February 26, 1996 and Amendment No. 3 as of November 4, 1996 to the Credit Agreement dated December 6, 1994 among Perini Corporation, the Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank of Massachusetts, as Co-Agent - Exhibit 10.14 to Perini Corporation's Form 10-Q/A for the fiscal quarter ended September 30, 1996 filed on December 11, 1996. 10.15 Amendment No. 9 as of November 12, 1996 to the Bridge Credit Agreement dated as of February 26, 1996 and Amendment No. 4 as of November 12, 1996 to the Credit Agreement dated December 6, 1994 among Perini Corporation, the Banks listed herein, Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank of Massachusetts, as Co-Agent - Exhibit 10.15 to Perini Corporation's Form 10-Q/A for the fiscal quarter ended September 30, 1996 filed on December 11, 1996. 10.16 Management Agreement dated as of January 17, 1997 by and among the Company, Ronald N. Tutor and Tutor-Saliba Corporation - Exhibit 10.16 to Form 8-K filed on February 14, 1997. 18
Part II. - Other Information (Continued) 10.17 Amended and Restated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - Exhibit 10.17 to 1996 Form 10-K - as filed. 10.18 Amendment No. 1 as of November 10, 1997 to the Amended and Restated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - Exhibit 10.18 to 1998 Form 10-K - as filed. 10.19 Amendment No. 2 as of August 31, 1998 to the Amended and Restated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - Exhibit 10.19 to 1998 Form 10-K - as filed. 10.20 Amendment No. 3 as of September 9, 1998 to the Amended and Restated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - Exhibit 10.20 to 1998 Form 10-K - as filed. 10.21 Amendment No. 4 as of September 30, 1998 to the Amended and Restated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - Exhibit 10.21 to 1998 Form 10-K - as filed. 10.22 Amendment No. 5 as of November 16, 1998 to the Amended and Restated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - Exhibit 10.22 to 1998 Form 10-K - as filed. 10.23 Amendment No. 6 as of December 1, 1998 to the Amended and Restated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - Exhibit 10.23 to 1998 Form 10-K - as filed. 10.24 Amendment No. 7 as of March 23, 1999 to the Amended and Restated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - Exhibit 10.24 to Perini Corporation's Form 10-Q for the fiscal quarter ended March 31, 1999 filed on May 14, 1999. 10.25 Amendment No. 8 as of July 19, 1999 to the Amended and Restated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as 19
Part II. - Other Information (Continued) Agent, and Fleet National Bank, as Co-Agent - Exhibit 10.25 to Perini Corporation's Form 10-Q for the fiscal quarter ended June 30, 1999 filed on August 13, 1999. 10.26 Amendment No. 9 as of October 1, 1999 to the Amended and Restated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - filed herewith. 10.27 Amendment No. 10 as of October 19, 1999 to the Amended and Restated Credit Agreement dated as of January 17, 1997 among Perini Corporation, the Banks listed herein and Morgan Guaranty Trust Company of New York, as Agent, and Fleet National Bank, as Co-Agent - filed herewith. (b) Reports on Form 8-K A Form 8-K was filed on July 15, 1999 and reported on the "Commencement of Rincon Foreclosure" in "Item 5. Other Events" in said Form 8-K. A Form 8-K was filed on July 28, 1999 and reported on the "Receipt of Waiver from Bank Group" in "Item 5. Other Events" in said Form 8-K. 20
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: November 12, 1999 /s/ Robert Band ----------------------------------------------- Robert Band, President, Chief Executive Officer and Chief Financial Officer Date: November 12, 1999 /s/ Michael E. Ciskey ----------------------------------------------- Michael E. Ciskey, Vice President and Controller 21