-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, NHfKh2lPnweqItDoVAWXSPnQp0nfWOd1U0JHb83w7UGMAeYH8yBjuqyFKVaG+8t5 VXPkj7qzQtVmS5UMWWv7dA== 0000077543-94-000019.txt : 19940812 0000077543-94-000019.hdr.sgml : 19940812 ACCESSION NUMBER: 0000077543-94-000019 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940808 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PERINI CORP CENTRAL INDEX KEY: 0000077543 STANDARD INDUSTRIAL CLASSIFICATION: 1540 IRS NUMBER: 041717070 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-06314 FILM NUMBER: 94542293 BUSINESS ADDRESS: STREET 1: 73 MT WAYTE AVE CITY: FRAMINGHAM STATE: MA ZIP: 01701 BUSINESS PHONE: 5086282000 EX-1 1 EXHIBIT TO FORM 10-K/A RINCON CENTER ASSOCIATES Balance Sheet As of March 31, 1994 ASSETS 3/31/94 12/31/93 CASH $ 366,825 $ 120,129 ACCOUNTS RECEIVABLE 402,363 44,399 DEFERRED RENT RECEIVABLE 7,430,165 7,882,208 NOTES RECEIVABLE 15,751,844 15,828,196 REAL ESTATE PROPERTIES USED IN OPERATIONS, Net 116,802,510 118,021,303 LEASEHOLD IMPROVEMENTS, Net 2,235,690 1,854,719 OTHER ASSETS 2,195,626 2,855,012 ------------ ------------ Total Assets $145,185,023 $146,605,966 ============ ============ LIABILITIES CONSTRUCTION NOTES PAYABLE $ 62,182,500 $ 62,370,000 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 3,036,584 3,415,936 DEFERRED GROUND RENT, Net 7,197,194 7,306,810 DEFERRED LEASE EXPENSE, Net 1,609,927 3,101,814 DEFERRED INCOME 1,540,311 1,540,311 ACCRUED INTEREST DUE GENERAL PARTNERS 35,326,625 33,900,724 DUE TO PERINI LAND AND DEVELOPMENT COMPANY 69,759,693 68,499,293 DUE TO PACIFIC GATEWAY PROPERTIES, INC. 17,428,051 16,988,451 ------------ ------------ Total Liabilities $198,080,885 $197,123,339 PARTNERS' DEFICIT (52,895,862) (50,517,373) ------------- ------------- Liabilities and Partners' Deficit $145,185,023 $146,605,966 ============= =============
RINCON CENTER ASSOCIATES Income Statement For Period 1/1/93 thru 3/31/94 Current Year-To-Date Year-To-Date Period 3/31/94 3/31/93 REVENUE: Rental Income $ 1,448,804 $ 4,328,191 $ 4,284,069 Parking Income 112,890 316,517 341,329 Interest Income 140,897 404,456 259,104 ----------- ----------- ----------- Total Revenue $ 1,702,591 $ 5,049,164 $ 4,884.502 OPERATIONS EXPENSE: Operating Expense $ 794,219 $ 2,181,212 $ 2,058,734 Ground Rent Expense 233,306 754,664 850,152 ----------- ----------- ----------- Total Operating Expense $ 1,027,525 $ 2,935,876 $ 2,908,886 ----------- ----------- ----------- NET OPERATING INCOME $ 675,066 $ 2,113,288 $ 1,975,616 DEBT SERVICE: Sale Lease Back Basic Rent 442,468 1,327,405 873,358 Interest Expense 217,945 581,225 630,971 LC Fees 44,601 133,802 215,818 ----------- ----------- ----------- Total Debt Service $ 705,014 $ 2,042,432 $ 1,720,327 INCOME OR (LOSS) B/F PARTNER EXPENSES & DEPRECIATION (29,948) 70,856 255,289 PARTNER EXPENSES: General Partner Loan Interest Expense $ 595,982 $ 1,709,665 1,524,815 General Partner LC Fees 43,400 (285,257) 215,753 Other 94 96 1,800 ----------- ----------- --------- Total Partner Expenses $ 639,476 $ 1,424,504 1,742,368 DEPRECIATION: Amortization $ 26,394 $ 69,421 $ 49,265 Depreciation 324,916 955,421 946,259 ----------- ----------- ----------- Total Amortization/Depreciation $ 351,310 $ 1,024,842 $ 995,524 ----------- ----------- ----------- NET INCOME OR (LOSS) $(1,020,734) $(2,378,490) $(2,482,603) ============ ============ ============
RINCON CENTER ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP FINANCIAL STATEMENTS AS OF DECEMBER 31, 1993, 1992 AND 1991 TOGETHER WITH AUDITORS' REPORT REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Rincon Center Associates, A California Limited Partnership: We have audited the accompanying balance sheets of Rincon Center Associates, A California Limited Partnership as of December 31, 1993 and 1992, and the related statements of operations, changes in partners' deficit and cash flows for the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Partnership's 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 Rincon Center Associates, A California Limited Partnership as of December 31, 1993 and 1992, and the results of its operations and its cash flows for the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. Boston, Massachusetts February 11, 1994 RINCON CENTER ASSOCIATES A CALIFORNIA LIMITED PARTNERSHIP BALANCE SHEETS - DECEMBER 31, 1993 AND 1992 1993 1992 ASSETS CASH $ 120,000 $ 272,000 ACCOUNTS RECEIVABLE, net of reserves of $239,000 and $95,000 at December 31, 1993 and 1992, respectively 44,000 2,074,000 DEFERRED RENT RECEIVABLE 7,883,000 7,626,000 NOTES RECEIVABLE 15,828,000 10,140,000 REAL ESTATE USED IN OPERATIONS, net 118,021,000 121,505,000 LEASEHOLD IMPROVEMENTS, net 1,855,000 1,894,000 OTHER ASSETS, net 2,855,000 2,368,000 ------------ ------------ Total assets $146,606,000 $145,879,000 ============ ============ LIABILITIES AND PARTNERS' DEFICIT CONSTRUCTION NOTES PAYABLE $ 62,370,000 $ 64,224,000 ACCOUNTS PAYABLE AND ACCURED LIABILITIES 3,416,000 3,607,000 ACCRUED GROUND RENT LIABILITY, net 7,307,000 7,636,000 ACCRUED LEASE LIABILITY, net 3,102,000 3,030,000 DEFERRED INCOME 1,540,000 1,540,000 ACCRUED INTEREST DUE GENERAL PARTNERS 33,901,000 27,432,000 DUE TO PERINI LAND AND DEVELOPMENT COMPANY 68,399,000 61,592,000 DUE TO PACIFIC GATEWAY PROPERTIES, INC. 17,089,000 15,390,000 ------------ ------------ Total liabilities $197,124,000 $184,451,000 COMMITMENTS (NOTE 3) PARTNERS' DEFICIT (50,518,000) (38,572,000) ------------- ------------ Total liabilities and partners'deficit $146,606,000 $145,879,000 ============ ============ The accompanying notes are an integral part of these financial statements. RINCON CENTER ASSOCIATES A CALIFORNIA LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1993 1993 1992 1991 REVENUE: Rental income $ 17,083,000 $ 17,583,000 $ 16,814,000 Parking and other income 1,260,000 1,150,000 1,195,000 ------------ ------------ ------------ Total revenue 18,343,000 18,733,000 18,009,000 ------------ ------------ ------------ EXPENSES: Operating 5,132,000 5,448,000 4,824,000 Administrative and other 1,556,000 1,313,000 1,437,000 Property taxes and insurance 2,438,000 3,200,000 1,835,000 Leases 4,515,000 3,775,000 4,755,000 Ground rent 3,391,000 3,407,000 3,437,000 Interest and letter of credit fees 10,582,000 10,862,000 12,802,000 Depreciation and amortization 4,040,000 4,726,000 3,487,000 ------------ ------------ ------------ Total expenses 31,654,000 32,731,000 32,577,000 INTEREST INCOME 1,365,000 1,062,000 1,023,000 ------------- ------------- ------------- Net loss $(11,946,000) $(12,936,000) $(13,545,000) ============= ============= ============= The accompanying notes are an integral part of these financial statements. RINCON CENTER ASSOCIATES A CALIFORNIA LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' DEFICIT FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1993 General Limited Partners Partners Total BALANCE, DECEMBER 31, 1990 $ (5,923,000) $ (6,168,000) $(12,091,000) Net loss (6,786,000) (6,759,000) (13,545,000) ------------- ------------- ------------- BALANCE, DECEMBER 31, 1991 (12,709,000) (12,927,000) (25,636,000) Net loss (6,481,000) (6,455,000) (12,936,000) ------------- ------------- ------------- BALANCE, DECEMBER 31, 1992 (19,190,000) (19,382,000) (38,572,000) Net loss (5,985,000) (5,961,000) (11,946,000) ------------- ------------- ------------- BALANCE, DECEMBER 31, 1993 $(25,175,000) $(25,343,000) $(50,518,000) ------------- ------------- ------------- PARTNERS' PERCENTAGE INTEREST 50.10 49.90 100.00 ====== ===== ====== The accompanying notes are an integral part of these financial statements. RINCON CENTER ASSOCIATES A CALIFORNIA LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1993 1993 1992 1991 CASH FLOW FROM OPERATING ACTIVITIES: Net loss $(11,946,000) $(12,936,000) $(13,545,000) Adjustments to reconcile net loss to net cash used in operating activities - Depreciation and amortization 4,040,000 4,726,000 3,487,000 (Increase) decrease in accounts receivable 2,030,000 (1,620,000) (102,000) (Increase) decrease in deferred rent receivable (257,000) (479,000) (2,170,000) (Increase) decrease in other assets (214,000) (598,000) (467,000) Increase (decrease) in accounts payable and accrued liabilities (191,000) 61,000 (1,072,000) (Decrease) in accrued ground rent liabilities (329,000) (329,000) (329,000) Increase (decrease) in accrued lease liability 72,000 (500,000) (946,000) Increase in accrued interest due general partners 6,469,000 5,271,000 7,918,000 ------------- ------------- ------------- Net cash used in operating activities (326,000) (6,404,000) (7,226,000) CASH FLOW FROM INVESTING ACTIVITIES: Expenditure on real estate used in operations (642,000) (369,000) (5,133,000) Additions to leasehold improvements (118,000) - (18,000) Additions to fixed assets (30,000) (73,000) (10,000) Increase in notes receivable (6,000,000) (32,000) (138,000) Payments on notes receivable 312,000 440,000 277,000 ------------- ------------- ------------- Net cash used in investing activities (6,478,000) (34,000) (5,022,000) ------------- ------------- ------------- CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from construction notes payable - 858,000 2,787,000 Payments on notes payable (1,854,000) - - Proceeds from advances from general 8,506,000 5,634,000 8,505,000 partners ------------- ------------- ------------- Net cash provided by financing activities 6,652,000 6,492,000 11,292,000 ------------- ------------- ------------- INCREASE (DECREASE) IN CASH (152,000) 54,000 (956,000) CASH AT BEGINNING OF YEAR 272,000 218,000 1,174,000 ------------- ------------ ------------- CASH AT END OF YEAR $ 120,000 $ 272,000 $ 218,000 ============ ============ ============
The accompanying notes are an integral part of these financial statements. RINCON CENTER ASSOCIATES A CALIFORNIA LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1993 1. PARTNERSHIP ORGANIZATION: Rincon Center Associates, A California Limited Partnership (the Partnership) was formed on September 18, 1984, to lease and develop land and buildings located in the Rincon Point-South Beach Redevelopment Project Area in the City and County of San Francisco, California. The Rincon Center Project (the Project) comprises commercial and retail space, 320 rental housing units and associated off-street parking. The Project was developed in two distinct segments: Rincon One and Rincon Two. Profits and losses are shared by the partners in accordance with their percentage interest as provided in the partnership agreement and as shown in the statements of changes in partners' deficit. Cash profits, as determined by the managing general partner, are distributed to the partners in the same percentage interest. Perini Land and Development Company (PL&D) is the managing general partner of the Partnership and has the responsibility for general management, administration and control of the Partnership's property, business addition, PL&D provides project and general accounting services to the Partnership (Note 7). Pacific Gateway Properties, Inc. (PGP), formerly Perini Investment Properties, Inc., is the other general partner. 2. SIGNIFICANT ACCOUNTING POLICIES: The accompanying financial statements have been prepared using the accrual basis of accounting. Real Estate Used in Operations Real estate used in operations includes all costs capitalized during the development of the project. These costs include interest and financing costs, ground rent expense during construction, property taxes, tenant improvements and other capitalizable overhead costs. Depreciation and Amortization The Partnership uses the straight-line method of depreciation. The significant asset groups and their estimated useful lives are: Structural components of buildings 60 years Nonstructural components of buildings 25 years All other depreciable assets 5-30 years Leasehold improvements are amortized using the straight-line method over the lesser of their useful lives or the lease terms. Income Taxes In accordance with federal and state income tax regulations, no income taxes are levied on the Partnership; rather, such taxes are levied on the individual partners. Consequently, no provision or liability for federal or state income taxes is reflected in the accompanying financial statements. Rental Income Certain lease agreements provide for periods of free rent or stepped increases in rent over the lease term. In such cases, revenue is recognized at a constant rate over the term of the lease. Amounts recognized as income but not yet due under the terms of the leases are shown in the accompanying balance sheets as deferred rent receivable. Statements of Cash Flows Cash paid for interest was $2,414,000, $3,199,000 and $4,015,000 in 1993,1992 and 1991, respectively. Accrued Lease Liability The Partnership is leasing Rincon One from Chrysler McNally (Chrysler) over a 25-year lease term (Note 3). In connection with this lease, the Partnership was granted a free rent concession for one year. The intent of Chrysler's free rent provision was to match a similar provision granted by the Partnership to an anchor sublease tenant of Rincon One, whose lease is for 10 years. The Partnership expensed rent in the first year of the lease and is amortizing the accrued lease liability related to Rincon One over 10 years to match the expense with the revenue recorded on the sublease. Three amendments to the master lease agreement were made in 1993 in connection with the extending of Chrysler's existing financing on the property (Note 3). The rent schedule was revised which resulted in an increase to the accrued lease liability during 1993 in order to normalize the rent expense over the remaining lease term. Other Assets Other assets include prepaid expenses, deferred lease commissions and fixed assets. Deferred lease commissions are amortized over the life of the lease. Fixed assets are amortized over the life of the asset, which is generally five years. Reclassification of Prior Year Amounts Certain prior year amounts have been reclassified to conform with the current year presentation. 3. OPERATING LEASE, RINCON ONE: On June 24, 1988, the Partnership sold Rincon One to Chrysler and subsequently leased the property back under a master lease with a basic term of 25 years and four 5-year renewal options at the Partnership's discretion. The transaction was accounted for as a sale and operating leaseback and the gain on the sale of $1,540,000 has been deferred. In connection with the sale and operating leaseback of Rincon One, Chrysler assumed and agreed to perform the Partnership's financing obligations. The Partnership, in accordance with the master lease and several amendments in 1993, obtained a financial commitment on behalf of Chrysler to replace at least $43,000,000 of long-term financing by July 1, 1993. To satisfy this obligation, the Partnership successfully extended existing financing to July 1, 1998. To complete the extension, the Partnership had to advance funds sufficient to reduce the financing from $46,500,000 to $40,500,000. The Partnership received a 10% secured note in the principal amount of $6,000,000 from Chrysler upon the Partnership's advance of funds to reduce the financing. If by January 1, 1998, the Partnership has not received a further extension or new commitment for financing on the property for at least $33,000,000, Chrysler will have the right under the lease to require the Partnership to purchase the property for a stipulated amount significantly in excess of the debt. The Partnership intends to obtain financing meeting the conditions of the lease prior to January 1, 1998. The master lease was amended several times in 1993 in connection with the extending of Chrysler's existing financing on the property through July 1, 1998. Payments under the master lease agreement may be adjusted to reflect adjustments in the rate of interest payable by Chrysler on the Rincon One debt. Future minimum lease payments based on scheduled payments under the master lease agreement are as follows: 1994 $ 6,565,000 1995 6,570,000 1996 6,550,000 1997 5,952,000 1998 5,634,000 Thereafter 85,120,000 4. NOTES RECEIVABLE: At December 31, 1993 and 1992, the Partnership had the following notes receivable: 1993 1992 Due from Chrysler secured by second deed on trust on Rincon One, bearing interest at 10 percent, with monthly principal and interest payments of $150,285 in 1993 and $92,383 in 1992; unpaid balance due July 2013 $15,469,000 $ 9,739,000 Notes from tenants secured by tenant improvements, bearing interest at 8 percent to 11 percent, with maturities from 1994 to 2001, due in monthly installments 359,000 401,000 ----------- ----------- $15,828,000 $10,140,000 =========== =========== In 1993, the Partnership received a 10% secured note in the principal amount of $6,000,000 from Chrysler upon the Partnership's advance of funds (Note 3). 5. GROUND LEASE: The Partnership entered into a 65-year ground lease with the United States Postal Service for the Project property on April 19, 1985. On June 24, 1988, this lease was bifurcated into two leases (Rincon One and Rincon Two). The terms of the original lease did not change; the dollar amounts were simply split between the two properties. Under the terms of the leases, the Partnership must make monthly lease payments (Basic Rent) of $101,750 and $173,250 for Rincon One and Rincon Two, respectively. In April, 1994 and every six years thereafter, the monthly base payments can be increased based on the increase in the Consumer Price Index subject to a minimum of 5 percent per year and a maximum of 8 percent per year. In addition, the Basic Rent can be increased based on reappraisal of the underlying property on the occurrence of certain events if those events occur prior to the regular reappraisal dates of April 19, 2019, and each twelfth year thereafter for the remainder of the lease term. The lease agreement calls for the payment of certain percentage rents based on revenues received from the subleasing of the Rincon One building. Percentage rents paid in 1993, 1992 and 1991 were $259,000, $267,000 and $271,000, respectively. This lease has been accounted for as an operating lease, with minimum future lease payments of: 1994 $ 4,120,000 1995 4,410,000 1996 4,410,000 1997 4,410,000 1998 4,290,000 Thereafter 894,853,000 During 1993, 1992 and 1991, Basic Rent was not capitalized because the entire project was placed in service. At December 31, 1990, ground rent of $10,407,312 was capitalized. Under the provisions of the original lease, no lease payments were to be made from the inception of the lease (April 19, 1985) until April 18, 1987, and one-half of the regular monthly payment was due for the period from April 19, 1987 to April 18, 1988. However, as allowed by the lease agreement, the Partnership deferred the payment of Basic Rent until the initial occupancy date, February 8, 1988. At December 31, 1993 and 1992, the deferred Basic Rent and interest for the period April 19, 1987 to April 18, 1988, amount to $552,000 and $685,000, respectively, and are being paid in 120 monthly installments together with interest at a rate based on the average discount rates of 90-day U.S. Treasury bills, which was approximately 3.88 percent for the year ended December 31, 1993. The rate will be adjusted every 90 days as long as a balance is due on the deferred rent. The remaining deferred ground rent related to the free rent period amounted to $6,754,000 and $6,951,000 at December 31, 1993 and 1992, respectively, and is being amortized over the lease term. 6. CONSTRUCTION NOTES PAYABLE: Residential The residential portion of the Project is being financed with a $36,000,000 loan from the Redevelopment Agency of the City and County of San Francisco (the Agency), of which $34,100,000 and $34,600,000 was outstanding at December 31, 1993 and 1992, respectively. The Agency raised these funds through the issuance of Variable Rate Demand Multifamily Housing Revenue Bonds (Rincon Center Project) 1985 Issue B (the Bonds). The interest rate on the Bonds is variable at the rate required to produce a market value for the Bonds equal to their par value. At December 31, 1993, 1992 and 1991, the effective interest rate on the bonds was 3.00 percent, 3.13 percent and 4.20 percent, respectively. Interest payments are to be made on the first business day of each March, June, September and December. The Partnership has the option to convert the Bonds to a fixed interest rate at any of the above interest payment dates. The fixed rate will be the rate required to produce a market value for the Bonds equal to their par value. After conversion to a fixed rate, interest payments must be made on each June 1 and December 1. The Partnership must repay the residential loan as the Bonds become due. The Bonds shall be redeemed in at least the minimum amounts set forth below: 1994 $ 600,000 1995 600,000 1996 600,000 1997 700,000 1998 900,000 Thereafter 30,700,000 The Bonds are due December 1, 2006. The Bonds are secured by an irrevocable letter of credit issued by Citibank in the name of the Partnership in the amount of approximately $36,200,000. In the event that drawings are made on the letter of credit, the Partnership has agreed to reimburse Citibank for such drawings pursuant to the terms of a Reimbursement Agreement. The Partnership obligations under the Reimbursement Agreement are secured by a deed of trust on the Project and the equity letters of credit and guarantees described below. Commercial The development and construction of the commercial portion of the Project was financed pursuant to a Construction Loan Agreement between the Partnership and Citibank of which $28,270,000 and $28,849,000 was outstanding at December 1993 and 1992, respectively. The loan, as is the irrevocable letter of credit supporting the residential bond, is secured by a deed of trust on the Project and equity letters of credit currently in the aggregate amount of $9,000,000, issued to Citibank by Bank of America, N.T. & S.A. on behalf of the general partners. PL&D has also provided a $3.5 million corporate guarantee to support the project financing. PGP and Perini Corporation, the parent company of PL&D, have agreed to reimburse Bank of America for any drawings under these letters of credit. An annual fee equal to prime plus 1 percent of the aggregate amount is due to PGP and PL&D for the use of these letters of credit. The loan is also secured by the guarantees described in Note 7. As of December 31, 1993 and 1992, $751,000 and $0, respectively, of accrued letter of credit fees were included in accrued interest due general partners in the accompanying balance sheets. The total fee in 1993, 1992 and 1991 was $751,000, $909,000 and $1,180,000, respectively. In 1993, the Partnership extended the loan to October 1, 1998, that required a $600,000 up front paydown and an additional fee of $105,000. The loan requires the Partnership to amortize $13,000,000 over the next five years. Amounts are payable as follows: $1,475,000 in 1994; $2,192,000 in 1995; $2,708,000 in 1996; $3,150,000 in 1997 and the remainder in 1998. The Partnership obtained a swap agreement with interest rates stepping up from 3.61% to 5.96% over the loan term. At December 31, 1993 the rate on the loan was 3.61%. At December 31, 1992, the Partnership has purchased an option to acquire an interest rate hedge for principal amounts totaling $46,500,000 at 11.5% until December 1993. The total fee paid of $51,000 is included in interest and letter of credit fees in 1992. Additionally, the Partnership obtained short-term financing to fund tenant improvements. The amount outstanding at December 31, 1993 and 1992, was $0 and $775,000, respectively. The loan was paid on March 31, 1993 by the Partnership. 7. TRANSACTIONS WITH GENERAL PARTNERS: PL&D has guaranteed the payment of both interest on the financing of the Project and operating deficit, if any. It has also guaranteed the master lease under the sale and operating lease-back transaction (Note 3). In accordance with the construction loan agreement (Note 6), the general partners have advanced monies to the Partnership to fund project costs. At December 31, 1993 and 1992, the general partners had advanced $85,488,000 and $76,982,000, respectively. The advances accrue interest at a rate of prime plus 2 percent. The related accrued interest liability of $33,901,000 and $27,432,000 as of December 31, 1993 and 1992, respectively, is reflected in the accompanying balance sheets. For the years ended December 31, 1993, 1992 and 1991, interest expense on partner advances was $6,469,000, $6,141,000 and $7,048,000, respectively. Effective January 1, 1988, PL&D retained Pacific Gateway Properties Management Corporation (PGPMC), a wholly owned subsidiary of PGP, to provide management and leasing services for the Project. As compensation for managing the facilities, the Partnership paid PGPMC a base management fee of $222,000 annually until leasing the residential portion of the Project was completed. At such time, the compensation increased to $319,200 per year or, if greater, the sum of 3 percent of the first $13,000,000 of the annual gross receipts plus 2 percent of receipts in excess of the $13,000,000. The fees incurred for the years ended December 31, 1993, 1992 and 1991 were $497,000, $485,000 and $514,000, respectively, and were included in administrative and other expenses in the accompanying statements of operations. At December 31, 1993 and 1992, $27,000 and $96,000, respectively, related to this fee had not been paid and is included in accounts payable and accrued liabilities. Additionally, the Partnership reimburses PGPMC for certain payroll costs. RINCON CENTER ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP FINANCIAL STATEMENTS AS OF DECEMBER 31, 1992, 1991 AND 1990 TOGETHER WITH AUDITORS' REPORT REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Rincon Center Associates, A California Limited Partnership: We have audited the accompanying balance sheets of Rincon Center Associates, A California Limited Partnership as of December 31, 1992 and 1991, and the related statements of operations, changes in partners' deficit and cash flows for the three years ended December 31, 1992, 1991 and 1990. These financial statements are the responsibility of the Partnership's 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 Rincon Center Associates, A California Limited Partnership as of December 31, 1992 and 1991, and the results of its operations and its cash flows for the three years ended December 31, 1992, 1991 and 1990, in conformity with generally accepted accounting principles. San Francisco, California, February 2, 1993 RINCON CENTER ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP BALANCE SHEETS--DECEMBER 31, 1992 AND 1991 1992 1991 ASSETS CASH $ 272,450 $ 217,525 ACCOUNTS RECEIVABLE, net of reserves of $94,969 and $60,213 at December 31, 1992 and 1991, respectively 2,073,326 452,754 DEFERRED RENT RECEIVABLE 7,626,401 7,147,821 NOTES RECEIVABLE 10,140,144 10,486,680 REAL ESTATE USED IN OPERATIONS, net 121,505,397 124,827,339 LEASEHOLD IMPROVEMENTS, net 1,894,035 2,151,027 OTHER ASSETS, net 2,367,087 2,536,882 ------------ ------------ Total assets $145,878,840 $147,820,028 ============ ============ LIABILITIES AND PARTNERS' DEFICIT CONSTRUCTION NOTES PAYABLE $ 64,223,609 $ 63,366,870 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 3,606,324 3,545,690 ACCRUED GROUND RENT LIABILITY, net 7,635,657 7,964,505 ACCRUED LEASE LIABILITY, net 3,029,494 3,529,855 DEFERRED INCOME 1,540,311 1,540,311 ACCRUED INTEREST DUE GENERAL PARTNERS 27,432,444 22,161,596 DUE TO PERINI LAND AND DEVELOPMENT COMPANY 61,592,314 57,132,226 DUE TO PACIFIC GATEWAY PROPERTIES, INC. 15,390,273 14,215,189 ------------ ------------ Total liabilities 184,450,426 173,456,242 PARTNERS' DEFICIT (38,571,586) (25,636,214) ------------ ------------ Liabilities and partners' deficit $145,878,840 $147,820,028 ============ ============ The accompanying notes are an integral part of these statements. RINCON CENTER ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990 1992 1991 1990 REVENUE: Rental income $ 17,583,217 $ 16,814,229 $10,657,413 Parking and other income 1,149,377 1,194,601 1,170,619 ------------ ------------ ----------- Total revenue 18,732,594 18,008,830 11,828,032 ------------ ------------ ----------- EXPENSES: Operating 5,146,334 4,315,732 3,395,729 Administrative and other 1,614,502 1,944,545 1,334,475 Property taxes and insurance 3,200,377 1,835,409 949,078 Leases 3,774,793 4,755,463 4,957,081 Ground rent 3,406,939 3,436,746 2,255,221 Interest and letter of credit fees 10,861,967 12,802,374 7,210,713 Depreciation and amortization 4,726,039 3,487,034 1,800,615 ------------ ------------ ------------ Total expenses 32,730,951 32,577,303 21,902,912 ------------ ------------ ------------ OTHER INCOME- Interest income 1,062,985 1,023,517 1,062,782 ------------ ------------ ------------ Net loss $(12,935,372) $(13,544,956) $(9,012,098) ============ ============ ============
The accompanying notes are an integral part of these statements. RINCON CENTER ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP STATEMENTS OF CHANGES IN PARTNERS' DEFICIT FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990 General Limited Partners Partners Total BALANCE, DECEMBER 31, 1989 $ (1,408,133) $ (1,671,027) $ (3,079,160) Net loss (4,515,061) (4,497,037) (9,012,098) ------------ ------------ ------------ BALANCE, DECEMBER 31, 1990 (5,923,194) (6,168,064) (12,091,258) Net loss (6,786,023) (6,758,933) (13,544,956) ------------ ------------ ------------ BALANCE, DECEMBER 31, 1991 (12,709,217) (12,926,997) (25,636,214) Net loss (6,480,621) (6,454,751) (12,935,372) ------------ ------------ ------------ BALANCE, DECEMBER 31, 1992 $(19,189,838) $(19,381,748) $(38,571,586) ============ ============ ============ PARTNERS' PERCENTAGE INTEREST 50.10% 49.90% 100.00% ===== ===== ====== The accompanying notes are an integral part of these statements. RINCON CENTER ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990 1992 1991 1990 CASH FLOW FROM OPERATING ACTIVITIES: Net loss $(12,935,372) $(13,544,956) $(9,012,098) Adjustments to reconcile net loss to net cash used in operating activities- Depreciation and amortization 4,726,039 3,487,034 1,800,615 Increase in accounts receivable (1,620,572) (102,469) (210,746) Increase in deferred rent receivable (478,580) (2,169,965) (190,527) Increase in other assets (597,550) (465,927) (638,700) Decrease in other receivable - - 1,006,810 Increase (decrease) in accounts payable and accrued liabilities 60,634 (1,071,547) (4,685,396) Decrease in accrued ground rent liability (328,848) (328,848) (328,847) Decrease in accrued lease liability (500,361) (945,808) (1,716,176) Recognition of deferred income - (1,374) (67,996) Increase in accrued interest due general partners 5,270,848 7,918,261 6,701,884 ------------ ------------ ------------ Net cash used in operating activities (6,403,762) (7,225,599) (7,341,177) ------------ ------------ ------------ CASH FLOW FROM INVESTING ACTIVITIES: Expenditure on real estate used in operations (367,631) (5,133,601) (10,334,901) Additions to leasehold improvements - (17,782) (2,447,205) Additions to fixed assets (73,392) (10,676) (111,060) Issuance of notes receivable (32,206) (138,669) (346,830) Payments on notes receivable 440,005 277,301 221,562 ------------ ------------ ------------ Net cash used in investing activities (33,224) (5,023,427) (13,018,434) ------------ ------------ ------------ CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from construction notes payable 856,739 2,787,284 2,942,807 Proceeds from advances from general partners 5,635,172 8,504,998 18,012,417 ------------ ------------ ------------ Net cash provided by financing activities 6,491,911 11,292,282 20,955,224 ------------ ------------ ------------ INCREASE (DECREASE) IN CASH 54,925 (956,744) 595,613 CASH AT BEGINNING OF YEAR 217,525 1,174,269 578,656 ------------ ------------ ------------ CASH AT END OF YEAR $ 272,450 $ 217,525 $ 1,174,269 ============ ============ ============ The accompanying notes are an integral part of these statements. RINCON CENTER ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1992 1. PARTNERSHIP ORGANIZATION: Rincon Center Associates, A California Limited Partnership (the Partnership) was formed on September 18, 1984, to lease and develop land and buildings located in the Rincon Point-South Beach Redevelopment Project Area in the City and County of San Francisco, California. The Rincon Center Project (the Project) comprises commercial and retail space, 320 rental housing units and associated off-street parking. The Project was developed in two distinct segments: Rincon One and Rincon Two. Profits and losses are shared by the partners in accordance with their percentage interests as provided in the partnership agreement and as shown in the statement of changes in partners' deficit. Cash profits, as determined by the managing general partner, shall be distributed to the partners in the same percentage interest. Perini Land and Development Company (PL&D) is the managing general partner of the Partnership and has the responsibility for general management, administration and control of the Partnership's property, business and affairs. In addition, PL&D provides project and general accounting services to the Partnership (Note 7). Pacific Gateway Properties, Inc. (PGP), formerly Perini Investment Properties, Inc. is the other general partner. 2. SIGNIFICANT ACCOUNTING POLICIES: The accompanying financial statements have been prepared using the accrual basis of accounting. Real Estate Used in Operations Real estate used in operations includes all costs capitalized during the development of the project. These costs include interest and financing costs, ground rent expense during construction, property taxes, tenant improvements and other capitalizable overhead costs. In 1990, $5,935,541 of interest was capitalized. Depreciation and Amortization The Partnership uses the straight-line method of depreciation. The significant asset groups and their estimated useful lives are: Structural components of buildings 60 years Nonstructural components of 25 years buildings All other depreciable assets 5-30 years Leasehold improvements are amortized on the straight-line method over the lesser of their useful lives or the lease terms. Income Taxes In accordance with federal and state income tax regulations, no income taxes are levied on the Partnership; rather, such taxes are levied on the individual partners. Consequently, no provision or liability for federal or state income taxes is reflected in the accompanying financial statements. Rental Income Certain lease agreements provide for free rent or stepped increases in rent over the lease term. In such cases, revenue is recognized at a constant rate over the term of the lease. Amounts recognized as income but not yet due under the terms of the leases are shown on the balance sheets as deferred rent receivable. Statements of Cash Flows Cash paid for interest was $3,198,881 and $4,015,315 in 1992 and 1991, respectively. Cash paid for interest, net of capitalized interest and interest income paid on funds held in escrow and invested, was $3,190,246 in 1990. Accrued Lease Liability The Partnership is leasing Rincon One from Chrysler McNally (Chrysler) over a 25-year lease term (Note 3). In connection with this lease, the Partnership was granted a free rent concession for one year. The intent of Chrysler's free rent provision was to match a similar provision granted by the Partnership to an anchor sublease tenant of Rincon One, whose lease is for 10 years. The Partnership expensed rent in the first year of the lease and is amortizing the accrued lease liability related to Rincon One over 10 years to match the expense with the revenue recorded on the sublease. Other Assets Other assets include prepaid expenses, deferred lease commissions and fixed assets. Deferred lease commissions are amortized over the life of the lease. Fixed assets are amortized over the life of the asset, which is generally five years. Reclassification of Prior Year Amounts Certain prior year amounts have been reclassified to conform with the current year presentation. 3. OPERATING LEASE, RINCON ONE: On June 24, 1988, the Partnership sold Rincon One to Chrysler and subsequently leased the property back under a master lease with a basic term of 25 years and four 5-year renewal options at the Partnership's discretion. The transaction was accounted for as a sale and operating leaseback and the gain on the sale of $1,540,311 has been deferred. Payments under the master lease agreement may be adjusted to reflect adjustments in the rate of interest payable by Chrysler on the Rincon One debt. Future minimum lease payments based on scheduled payments under the master lease agreement are as follows: 1993 $ 6,639,000 1994 5,929,000 1995 5,929,000 1996 5,891,000 1997 5,906,000 Thereafter 106,405,000 The lease also permits the lessor to put the property back to the Partnership at stipulated prices beginning January 1, 1993, if long-term financing meeting certain conditions is not obtained. Financing has been arranged with the current lender which meets the conditions of the lease through April 1, 1998, subsequent to year-end. 4. NOTES RECEIVABLE: At December 31, 1992 and 1991, the Partnership had the following notes receivable: 1992 1991 Due from Chrysler secured by second deed of trust on Rincon One, bearing interest at 10 percent, with monthly principal and interest payments of $92,383 in 1992, 1991 and 1990; unpaid balance due July 2013 $ 9,739,079 $ 9,875,504 Notes from tenants secured by tenant improvements, bearing interest at 10 percent to 12 percent, with maturities from 1994 to 1998, due in monthly installments 629,179 611,176 ----------- ----------- $10,368,258 $10,486,680 =========== =========== 5. GROUND LEASE: The Partnership entered into a 65-year ground lease with the United States Postal Service for the Project property on April 19, 1985. On June 24, 1988, this lease was bifurcated into two leases (Rincon One and Rincon Two). The terms of the original lease did not change; the dollar amounts were simply split between the two properties. Under the terms of the leases, the Partnership must make monthly lease payments (Basic Rent) of $101,750 and $173,250 for Rincon One and Rincon Two, respectively. In February 1995 and every six years thereafter, the monthly base payments can be increased based on the increase in the Consumer Price Index subject to a minimum of 5 percent per year and a maximum of 8 percent per year. In addition, the Basic Rent can be increased based on reappraisal of the underlying property on the occurrence of certain events if those events occur prior to the regular reappraisal dates of April 19, 2020, and each twelfth year thereafter for the remainder of the lease term. The lease agreement calls for the payment of certain percentage rents based on revenues received from the subleasing of the Rincon One building. Percentage rents paid in 1992, 1991 and 1990 were $267,474, $271,388 and $221,454, respectively, and are included in ground rent expense. This lease has been accounted for as an operating lease, with minimum future lease payments of: 1993 $ 3,436,260 1994 3,436,260 1995 3,436,260 1996 3,436,260 1997 3,436,260 Thereafter 175,036,260 During 1990, Basic Rent relating only to those portions of Rincon Two under construction was capitalized. During 1992 and 1991, Basic Rent was not capitalized because the entire project was placed in service. At December 31, 1990, ground rent of $10,407,312 was capitalized. Under the provisions of the original lease, no lease payments were to be made from the inception of the lease (April 19, 1985) until April 18, 1987, and one-half of the regular monthly payment was due for the period from April 19, 1987, to April 18, 1988. However, as allowed by the lease agreement, the Partnership deferred the payment of Basic Rent until the initial occupancy date, February 8, 1988. At December 31, 1992 and 1991, the deferred Basic Rent and interest for the period April 19, 1987, to April 18, 1988, amount to $684,881 and $817,439, respectively, and are being paid in 120 monthly installments together with interest at a rate based on the average discount rates of 90-day U.S. Treasury bills, which was approximately 4.125 percent for the year ended December 31, 1992. The rate will be adjusted every 90 days as long as a balance is due on the deferred rent. The remaining deferred ground rent related to the free rent period amounted to $6,950,776 and $7,047,066 at December 31, 1992 and 1991, respectively, and is being amortized over the lease term. 6. CONSTRUCTION NOTES PAYABLE: Residential The residential portion of the Project is being financed with a $36,000,000 loan from the Redevelopment Agency of the City and County of San Francisco (the Agency), of which $34,600,000 and $35,100,000 was outstanding at December 31, 1992 and 1991, respectively. The Agency raised these funds through the issuance of Variable Rate Demand Multifamily Housing Revenue Bonds (Rincon Center Project) 1985 Issue B (the Bonds). The interest rate on the Bonds is variable at the rate required to produce a market value for the Bonds equal to their par value. At December 31, 1992, 1991 and 1990, the effective interest rate on the Bonds was 3.13 percent, 4.2 percent and 5.5 percent, respectively. Interest payments are to be made on the first business day of each March, June, September and December. The Partnership has the option to convert the Bonds to a fixed interest rate at any of the above interest payment dates. The fixed rate will be the rate required to produce a market value for the Bonds equal to their par value. After conversion to a fixed rate, interest payments must be made on each June 1 and December 1. The Partnership must repay the residential loan as the Bonds become due. The Bonds shall be redeemed in at least the minimum amounts set forth below: 1993 $ 500,000 1994 600,000 1995 600,000 1996 600,000 1997 700,000 Thereafter 31,600,000 The Bonds are due December 1, 2006. The Bonds are secured by an irrevocable letter of credit issued by Citibank in the name of the Partnership in the amount of approximately $36,200,000. In the event that drawings are made on the letter of credit, the Partnership has agreed to reimburse Citibank for such drawings pursuant to the terms of a Reimbursement Agreement. The Partnership obligations under the Reimbursement Agreement are secured by a deed of trust on the Project and the equity letters of credit and guarantees described below. Commercial The development and construction of the commercial portion of the Project is being financed pursuant to a Construction Loan Agreement between the Partnership and Citibank of which $28,849,475 and $27,990,000 was outstanding at December 31, 1992 and 1991, respectively. The loan, as is the irrevocable letter of credit supporting the residential bond, is secured by a deed of trust on the Project and equity letters of credit currently in the aggregate amount of $9,000,000, issued to Citibank by Bank of America, N.T. & S.A. on behalf of the general partners. PL&D has also provided a $3.5 million corporate guarantee to support the project financing. PGP and Perini Corporation, the parent company of PL&D, have agreed to reimburse Bank of America for any drawings under these letters of credit. An annual fee equal to prime plus 1 percent of the aggregate amount is due to PGP and PL&D for the use of these letters of credit. The loan is also secured by the guarantees described in Note 7. As of December 31, 1992 and 1991, $0 and $870,033, respectively, of accrued letter of credit fees were included in accrued interest due general partners in the accompanying balance sheet. The total fee in 1992, 1991 and 1990 was $908,733, $1,180,394 and $1,376,199, respectively. The loan matured on May 31, 1988, but was extended until May 31, 1993, for an additional fee of .5 percent of the maximum loan amount. The lender has indicated a willingness to renegotiate the loan at its maturity. Interest on the loan is generally at Citibank's base rate plus 1 percent, payable monthly. The Partnership has the option to convert the loan to a fixed rate of interest for a set period of time based upon the London Interbank Offered Rate (LIBOR) plus 1.5 percent at the time of the conversion. The interest rate shall be increased by .125 percent each year after the first two years of the extension period. At December 31, 1992, the Partnership had purchased an option to acquire an interest rate hedge for principal amounts totaling $46,500,000 at 11.5 percent until December 1993. The total fee paid of $51,000 is included in interest and letter of credit fees. Additionally, the Partnership obtained short-term financing to fund tenant improvements. The amount outstanding at December 31, 1992, was $774,134. This amount was due at December 31, 1992, but the bank agreed to extend the date to March 31, 1992, while the Partnership collected from the respective tenant. 7. RELATED PARTY TRANSACTIONS: PL&D has guaranteed the payment of both interest on the financing of the Project and operating deficits, if any. It has also guaranteed the master lease under the sale and operating lease-back transaction (Note 3). In accordance with the construction loan agreement (Note 6), the general partners have advanced monies to the Partnership to fund project costs. At December 31, 1992 and 1991, the general partners had advanced $76,982,587 and $71,347,415, respectively. The advances and accrued interest accrue interest at a rate of prime plus 2 percent. The related accrued interest liability of $27,432,445 and $21,291,563 as of December 31, 1992 and 1991, respectively is reflected in the accompanying balance sheet. For the years ended December 31, 1992, 1991 and 1990, interest expensed on partner advances was $6,140,883, $7,048,277 and $3,658,993, respectively. Effective January 1, 1988, PL&D retained Pacific Gateway Properties Management Corporation (PGPMC), a wholly owned subsidiary of PGP, to provide management and leasing services for the Project. As compensation for managing the facilities, the Partnership paid PGPMC a base management fee of $222,000 annually until leasing the residential portion of the Project was completed. At such time, the compensation increased to $319,200 per year or, if greater, the sum of 3 percent of the first $13,000,000 of the annual gross receipts plus 2 percent of receipts in excess of the $13,000,000. The fees incurred for the years ended December 31, 1992, 1991 and 1990, were $485,306, $513,950 and $346,241, respectively, and were included in administrative and other expense in the accompanying statement of operations. At December 31, 1992 and 1991, $96,294 and $100,353, respectively, related to this fee had not been paid and is included in accounts payable and accrued liabilities. Additionally, the partnership reimburses PGPMC for certain payroll costs. SQUAW CREEK ASSOCIATES BALANCE SHEET MARCH 31, 1994 ALL DEPARTMENTS CONSOLIDATED ASSETS CURRENT ASSETS: CASH $ 327,581.84 ACCOUNTS RECEIVABLE 2,371,634.21 INVENTORIES 1,078,549.79 PREPAID ASSETS 886,886.38 LAND HELD FOR SALE 314,457.01 -------------- TOTAL CURRENT ASSETS 4,979,109.23 PROPERTIES AND EQUIPMENT - COST: LAND 2,001,823.54 LAND IMPROVEMENTS 39,701,908.32 BUILDINGS AND IMPROVEMENTS 63,591,248.32 FURN., FIXT. & EQUIP. - COST 23,314,880.13 PROPERTIES UNDER CONSTRUCTION 421,160.40 -------------- TOTAL PROP. AND EQUIP. - COST 129,033.020.71 ACCUMULATED DEPRECIATION: ACC. DEP. - LAND IMPROVEMENTS (4,440,773.62) ACC. DEP. BUILDINGS & IMPROV. (3,764,788.21) ACC. DEP. - F, F, & E. (7,081,718.68) -------------- TOTAL ACCUMULATED DEPRECIATION (15,287.280.51) OTHER ASSETS - NET: OTHER ASSETS - GROSS 6,780,624.90 ACC. AMORT. - OTHER ASSETS (4,587,036.54) -------------- TOTAL OTHER ASSETS - NET 2,193,588.36 --------------- TOTAL ASSETS $120,916,437.79 =============== LIABILITIES AND CAPITAL CURRENT LIABILITIES: ACCOUNTS PAYABLE AND ACCRUALS $ 4,727,353.48 OTHER LIABILITIES - CURRENT 451,223.25 INTEREST PAYABLE - CURRENT 226,593.36 --------------- TOTAL CURRENT LIABILITIES 5,405,170.09 NON-CURRENT LIABILITIES: N/P - BANK OF AMERICA LOAN 48,013,422.86 N/P - GPH JUNIOR LOAN 14,931,327.00 I/P - GPH JUNIOR LOAN 4,921,622.52 --------------- TOTAL NON-CURRENT LIABILITIES 67,866,372.38 --------------- TOTAL LIABILITIES 73,271,542.47 PARTNERS CAPITAL CAPITAL ACCOUNTS: GLENCO - PERINI - HCV 63,090,864.86 PACIFIC SQUAW CREEK, INC. 33,270,026.85 --------------- CAPITAL ACCOUNTS 96,360,891.71 RETAINED EARNINGS - PRIOR YEAR (47,613,634.12) CURRENT YEAR P&L (1,102,362.27) ---------------- RETAINED EARNINGS (48,715,996.39) ---------------- PARTNERS CAPITAL 47,644,895.32 --------------- TOTAL LIABILITIES AND CAPITAL $120,916,437.79 =============== SQUAW CREEK ASSOCIATES INCOME STATEMENT ALL DEPARTMENTS CONSOLIDATED THREE MONTHS ENDED MARCH 31, 1994 --THIS YEAR-- --LAST YEAR-- --VARIANCE-- AMOUNT AMOUNT AMOUNT REVENUES: RESORT OPERATIONS $8,909,303.00 $9,032,880.00 $(123,577.00) HOMESITE SALES 0.00 175.000.00 (175,000.00) OTHER REVENUE 445.60 848.03 (402.43) ------------- ------------- ------------- TOTAL REVENUES 8,909,748.60 9,208,728.03 (298,979.43) ------------- ------------- ------------- COSTS AND EXPENSES RESORT OPERATIONS: DIR. COSTS AND EXP'S - 5,326,096.34 5,563,532.80 237,436.66 HOTEL SELLING, GENERAL & ADMIN. 1,673,116.50 1,791,269.00 118,152.50 FIXED HOTEL EXPENSES 385,470.38 21,526.00 (363,944.38) ------------- ------------- ------------- TOTAL RESORT 7,384,683.02 7,376,327.80 (8,355.22) OPERATIONS COST OF HOMESITES SOLD: COST OF HOMESITES SOLD 1,095.00 107,899.52 106,804.52 ------------- ------------- ------------ COST OF HOMESITES SOLD 1,095.00 107,899.52 106,804.52 OTHER GENERAL AND ADMIN.: OTHER GENERAL AND ADMIN. 135,394.01 111,168.33 (24,225.68) ------------- ------------- ------------- OTHER GENERAL AND 135,394.01 111,168.33 (24,225.68) ADMIN. ------------- ------------- ------------- NET OPERATING INCOME 1,388,576.57 1,613,332.38 (224,755.81) DEPRECIATION AND AMORTIZATION: DEPRECIATION EXPENSE 1,065,663.33 1,065,663.30 (0.03) AMORTIZATION EXPENSE 470,417.34 451,023.33 (19,394.01) ------------- -------------- ------------- TOTAL DEPRECIATION AND 1,536,080.67 1,516,686.63 (19,394.04) AMORT. INTEREST EXPENSE: INTEREST EXPENSE - B OF A 728,353.20 721,180.80 (7,172.40) LOAN INTEREST EXPENSE - GPW 226,504.97 224,275.00 (2,229.97) LOAN ------------- ------------- ------------- TOTAL INTEREST EXPENSE 954,858.17 945,455.80 (9,402.37) ------------- ------------- ------------- TOTAL COSTS AND 10,012,110.87 10,057,538.08 45,427.21 EXPENSES ------------- ------------- ------------- TOTAL INCOME/(LOSS) (1,102,362.27) (848,810.05) (253,552.22) ============== ============== ============= Squaw Creek Associates (a California general partnership) Financial Statements and Additional Information December 31, 1993 and 1992 Squaw Creek Associates (a California general partnership) Index to Financial Statements December 31, 1993 and 1992 Page Financial Statements with Standard Report Report of Independent Accountants 1 Financial Statements 2-6 Notes to Financial Statements 7-13 Additional Information Report of Independent Accountants on Additional Information14 Details of Cumulative Preferred Returns 15 Comparison of Resort Operations Revenues and Expenses to Annual Operating Plan 16-19 Schedule of Cash Flows Used in Operating Activities - Excluding Homesite Operations 20 Schedule of Changes in Partners' Capital 21 Report of Independent Accountants February 22, 1994 To the General Partners of Squaw Creek Associates In our opinion, the accompanying balance sheet and the related statements of operations, of changes in partners' capital and of cash flows present fairly, in all material respects, the financial position of Squaw Creek Associates (a California general partnership) at December 31, 1993 and 1992, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Partnership's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audits 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. The Partnership has in the past relied upon, and will continue to rely upon, cash provided by partner contributions to service operating cash shortfalls. Squaw Creek Associates (a California general partnership) Balance Sheet December 31, 1993 1992 Assets Current assets: Cash $ 454,395 $ 441,170 Accounts receivable - trade 838,554 1,038,319 Accounts receivable - other 660,821 375,649 Inventories 1,159,113 1,153,658 Prepaid expenses 652,009 486,347 Land held for sale 314,457 399,775 ------------ ------------ Total current assets 4,079,349 3,894,918 Property and equipment, net 114,117,662 117,699,950 Deferred expenses, net 2,552,040 3,985,846 Deposit for land purchase 375,000 - ------------ ------------ Total assets $121,124,051 $125,580,714 Liabilities and partners' capital Current liabilities: Trade and other accounts payable $ 3,399,876 $ 4,078,590 Construction payables 65,974 101,547 Due to affiliates 10,818 101,813 Customer advance deposits 730,187 850,827 Current portion of obligations under capital leases 470,970 348,452 ------------ ------------ Total current liabilities 4,677,825 5,481,229 Notes payable 48,013,423 48,013,423 Partner loan 14,931,327 14,931,327 Accrued interest on partner loan 4,695,118 3,783,235 Obligations under capital leases, less current portion 589,848 951,806 ------------ ------------ Total liabilities 72,907,541 73,161,020 Commitments (Note 8) Partners' capital 48,216,510 52,419,694 ------------ ------------ Total liabities and partners' capital $121,124,051 $125,580,714 ============ ============ See accompanying notes to financial statements. Squaw Creek Associates (a California general partnership) Statement of Operations For the Year Ended December 31 1993 1992 Revenue Resort operations $29,038,722 $ 22,126,014 Sales of homesites 177,967 3,718,690 ----------- ------------ 29,216,689 25,844,704 ----------- ------------ Expenses Resort operations 20,919,792 19,741,176 Resort selling, general and administrative 6,224,580 6,826,032 Partnership selling, general and administrative 473,006 546,929 Cost of homesites sold, including selling and other expenses 111,696 2,215,547 Legal settlement - 1,723,158 ----------- ------------ 27,729,074 31,052,842 ----------- ------------ Income (loss) before depreciation, amortization and interest expense 1,487,615 (5,208,138) Depreciation and amortization 6,326,004 6,248,185 Interest expense 3,844,144 4,501,357 ------------ ------------ Net loss $(8,682,533) $(15,957,680) See accompanying notes to financial statements. Squaw Creek Associates (a California general partnership Statement of Changes in Partners' Capital Balance at December 31, 1991 $ 61,568,115 Contributions 14,657,060 Distributions (4,416,474) Reclassification (Note 1) (3,431,327) Net loss (15,957,680) ------------- Balance at December 31, 1992 52,419,694 Contributions 6,630,348 Distributions (2,150,999) Net loss (8,682,533) ------------- Balance at December 31, 1993 $ 48,216,510 ============ See accompanying notes to financial statements. Squaw Creek Associates (a California general partnership) Statement of Cash Flows For the year ended December 31, 1993 1992 Cash flows from operating activities Net loss $(8,682,533) $(15,957,680) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 6,326,004 6,248,185 Non-cash costs of homesites sold 85,318 1,796,487 Note receivable, homesites sold (87,500) - Changes in operating assets and liabilities: Accounts receivable and prepaid expenses (251,069) (529,593) Inventories (5,455) 410,349 Accounts payable and other liabilities (834,927) 1,367,535 Due to affiliates (90,995) (324,138) Accrued interest on partner loan 911,883 1,036,956 ------------ ------------- Net cash used in operating activities (2,629,274) (5,951,899) ------------ ------------- Cash flows from investing activities Additions to property and equipment (1,132,867) (1,848,602) Deposit for land purchase (375,000) - Deferred expenses - (662,149) ------------ ------------- Net cash used in investing activities (1,507,867) (2,510,751) ------------ ------------- Cash flows from financing activities Partner contributions 6,630,348 14,657,060 Partner distributions (2,063,499) (4,416,474) Repayment of note payable and obligations under capital leases (416,483) (1,996,238) ------------ ------------- Net cash provided by financing activities 4,150,366 8,244,348 ----------- ------------ Net increase (decrease) in cash 13,225 (218,302) Cash at beginning of year 441,170 659,472 ----------- ------------- Cash at end of year $ 454,395 $ 441,170 =========== ============ Supplemental disclosure of cash flow information Cash paid during the year for interest $ 3,141,989 $ 3,698,599 =========== ============ Supplemental disclosure of noncash investing and financing activities Pursuant to the second amendment to the Partnership agreement, during the year ended December 31, 1992, $3,431,327 was reclassified from partners' capital to partner loan (Notes 1 and 5). During the years ended December 31, 1993 and 1992, the Partnership executed lease arrangements which qualify for treatment as capital leases. Accordingly, the Partnership has recorded an asset under capital lease and related capital lease obligation of $177,043 and $311,060, respectively, for the year ended December 31, 1993 and 1992. During the year ended December 31, 1993, the Partnership distributed a note receivable worth $87,500 to one of its partners. 1. Organization Nature of Business Squaw Creek Associates, a California general partnership (the Partnership), was formed under the provisions of a partnership agreement dated June 3, 1988 (the Agreement) to own, develop and manage The Resort at Squaw Creek, a 405 room resort facility located in Olympic Valley, California (the Resort). The Resort was substantially complete on December 19, 1990 and commenced operations on that date. In addition, the Partnership has developed for sale 48 single family homesites on land surrounding the Resort. At December 31, 1993, 3 homesites remain unsold. Ownership During the year ended December 31, 1992, one of the general partnership interests was sold, and the Agreement was amended. Subsequent to and in connection with this transaction, the Partnership successfully extended the maturity date of its note payable (Note 4). Currently, the Partnership is owned by Glenco-Perini-HCV (GPH), a California limited partnership (40%), and Pacific Squaw Creek, Inc. (PSC), a California corporation (60%). PSC serves as the managing partner and receives a management fee for services rendered to the Partnership based upon the results of operations, as defined in the amended Agreement. In conjunction with the change in ownership mentioned above, and under the provisions of the amended Agreement, certain modifications were made to the partners' capital accounts and the partner loan. As a result, the partner loan was increased by $3,431,327, the GPH capital account was decreased by the same amount and certain components of equity used to determine preferred returns were adjusted. 2. Accounting Policies Development costs Land acquisition costs and certain other development costs were incurred by affiliates of the partners prior to the formation of the Partnership. These costs were assumed by GPH ($3,254,063) and contributed to the Partnership as the initial capital contribution. The Partnership used the cost basis of the previous owners to record the land and other development costs contributed. The Agreement assigned a value of $13,500,000 to the GPH contributions ($4,000,000 in cash and $9,500,000 attributable to the land) for the purpose of calculating certain preferred returns, as defined. Land development costs contributed to the Partnership and the cost incurred in connection with development of the Resort (including amenities) were capitalized and allocated to the related project components. Real estate taxes, insurance, general and administrative, marketing and interest expense were capitalized during the development period. No interest costs were capitalized during 1993 and 1992. Depreciation Depreciation is computed using the straight-line method over the estimated useful lives of the respective property (25 to 60 years) and equipment (5 to 12 years). For assets under capital lease, amortization is provided over the lesser of the estimated useful life of the asset or the lease term. Contributions The Agreement provides that funds required to support operation of the Resort in excess of funds available from operations must be provided by PSC and GPH in the form of additional capital contributions (Shortfall Contributions). The first $2,500,000 of Shortfall Contributions was the responsibility of GPH; all additional Shortfall Contributions require a 60% capital contribution by PSC and a 40% capital contribution by GPH. In addition, as defined in the Agreement, GPH is required to contribute cash necessary for the Partnership to make certain preferred return distributions to PSC. Allocation of profits and losses The Agreement provides that net profits of the Partnership are allocated to the partners in accordance with their respective percentage interests, after special allocations are made for depreciation and certain preferred returns, as defined. Net losses of the Partnership are allocated so as to entirely offset previous allocations of net profits and then as follows: $13,500,000 to GPH, to the extent of GPH's additional capital contributions (excluding Shortfall Contributions), then to GPH and PSC to the extent of their Shortfall Contributions and, thereafter, in accordance with the partners' respective interests. Distribution of cash flow Cash flow from operations and capital transactions are distributed to the partners in accordance with the Agreement. The Agreement provides that each of the partners are entitled to various preferred returns based upon specifically defined capital amounts. At December 31, 1993, PSC and GPH had cumulative preferred returns totaling $13,415,843 and $28,001,419, respectively. Inventories Inventories consist of food and beverage, apparel and other consumer products for retail sale at the Resort, and provisions (food and beverage and other incidentals) for use in Resort operations. Inventories are accounted for on a first-in, first-out basis and are stated at the lower of cost or market. Inventories also include hotel supplies such as china, glassware, silver and other reusable items which are valued at original cost of the par stock purchased less a provision for normal use, damage and loss. All subsequent purchases of these items are expensed in the period purchased. Deferred expenses Costs incurred which relate to activities having future benefit to the Partnership are deferred. Deferred expenses principally include costs incurred in connection with bringing the Resort to full operational capacity. Such amounts are being amortized over a period of 60 months beginning at the date Resort operations commenced. Also included are deferred financing fees, which are amortized over the life of the related loan agreement. At December 31, 1993 and 1992, accumulated amortization totals $4,228,585 and $2,794,779, respectively. Land held for sale The Partnership has developed residential homesites on land adjacent to the Resort. Revenue from parcels sold is recognized at the time title passes to the buyer and full funding is received. Costs of parcels sold are based on an allocation of the cost of developing the parcels, determined using the ratio of each parcel's sales proceeds to the total expected sales proceeds for all parcels. The cost of developing the parcels includes certain marketing, selling, general and administrative and interest costs that were incurred during the development period. The Agreement provides that net proceeds from homesite sales be used to reduce the outstanding note payable balance and for remaining development costs. Deposit for land purchase The Partnership has cash that is held in escrow for the purchase of land located adjacent to the Resort (Note 8). Income taxes Consideration of income taxes is not necessary in the financial statements of the Partnership because, as a partnership, it is not subject to income tax and the tax effect of its activities accrues to the partners. 3. Property and Equipment Property and equipment consist of the following: 1993 1992 Land $ 1,574,202 $ 1,574,202 Land improvements 39,763,047 39,658,830 Buildings and improvement 63,376,837 62,935,293 Furniture, fixtures and equipment 21,211,236 20,765,426 Furniture, fixtures and equipment under capital lease 1,985,982 1,808,939 Construction in progress 507,546 381,075 ------------ ------------ 128,418,850 127,123,765 (14,301,188) (9,423,815) ------------- ------------- $114,117,662 $117,699,950 ============ ============ Certain of the above assets are pledged as security for the construction loan and the partner loan (Notes 4 and 5). Accumulated amortization on assets under capital lease totaled $1,060,923 and $639,286 at December 31, 1993 and 1992, respectively, and is included above. Related amortization expense for the years ended December 31, 1993 and 1992 totaled $421,637 and $332,985, respectively. 4. Note Payable The Partnership has outstanding a note payable relating to construction of the Resort and development of the homesites. Depending upon the form of the borrowing, interest is payable monthly at the applicable rate plus a margin of 1.25% for borrowings based on prime rate; a margin of 2.5% for borrowings based on the Eurodollar rate; or a margin of 2.625% for borrowings based upon the CD rate. The interest rate at December 31, 1993 and 1992 was 6%. During 1992, the note agreement was modified and extended through May 1, 1995. The note payable is secured by the Resort and remaining homesites, and by the assignment of certain agreements related principally to operation of the Resort. The terms of the loan agreement prohibit capital distributions from net operating cash flows of the Partnership until it is retired. Perini Land and Development Corporation (Perini), an affiliate of GPH, has provided a guarantee for $10,000,000 in outstanding principal and payment of unpaid interest on this loan. In addition, the partners have provided the lender with letters of credit totaling $4,000,000 at December 31, 1993 as guarantee of the related debt service obligation. 5. Partner Loan The Partnership has outstanding $14,931,327 in the form of a loan from GPH at December 31, 1993 and 1992. Under the terms of the Agreement, during the construction period the Partnership had the ability to borrow funds from GPH as necessary to pay for obligations arising from construction. The loan bears interest at the same rate of interest as due under the note payable discussed at Note 4. The loan and any accrued interest payable, except in certain circumstances described in the Agreement, will be repaid from positive cash flows from operations and has priority over other Partnership distributions of positive cash flows. The loan is secured by a second deed of trust on the Resort. Management has classified this loan and the related accrued interest as non-current liabilities since repayment of these amounts will not occur in 1994. Interest expense under the partner loan totaled $911,883 and $1,036,956 in 1993 and 1992, respectively. 6. Related Party Transactions The Partnership paid approximately $53,256 and $439,000 to Perini and its affiliates during 1993 and 1992, respectively, for administrative services provided. During 1993, the Partnership incurred costs totalling $306,525 in connection with management services provided by PSC under the terms of the Agreement and the related amendment. In 1992, the Partnership incurred costs totaling $130,000 and $99,962 in connection with management services provided by GPH and PSC, respectively. During 1992, the Partnership entered into certain subleases for equipment with Perini and its parent corporation, Perini Corporation. Under the sublease arrangements, the Partnership pays approximately $102,000 annually relating to leases which expire in 1996. 7. Resort Management Agreement The Resort is managed by Benchmark Management Company (BMC) under an agreement that provides for fees based upon the Resort's operating results. A total of $651,648 and $648,700 was paid to BMC for management services in 1993 and 1992, respectively. During 1992 the agreement with BMC was amended to allow for certain reductions in the management fee based on specified performance factors. As a result, the Partnership is owed approximately $555,200 and $325,000 by BMC for fee reductions at December 31, 1993 and 1992, respectively. 8. Commitments The Partnership has entered into various lease agreements for land, buildings and equipment. The lease terms are primarily for one or two year periods except as follows: - - - At December 31, 1993 the Partnership had two separate ground lease agreements for approximately 24 acres of land in Olympic Valley, California. The primary use of the land is for the Resort's golf course. These agreements include escalation clauses that will increase the scheduled rents due beginning in 1992 based on increases in the Consumer Price Index. Subsequent to December 31, 1993, the Partnership completed the purchase, for $350,000, of the land subject to one of these ground leases (Note 2). Accordingly, this lease is not included in the schedule of future minimum lease payments below. - - - An operating lease through May 1996 for storage facilities. - - - Various capital and operating leases for equipment. Rent expense for land, building and equipment was approximately $311,000 and $497,000 for 1993 and 1992, respectively. The future minimum lease payments for all leases existing at December 31, 1993 are as follows: Capital Operating Leases Leases 1994 $ 601,128 $ 217,644 1995 585,478 215,311 1996 59,524 183,342 1997 2,576 158,696 1998 - 126,546 Thereafter - 3,818,327 ----------- ---------- 1,248,706 $4,719,866 ========== Less amounts representing interest (187,888) ----------- Present value of obligations 1,060,818 Less current portion of obligations under capital leases (470,970) ----------- $ 589,848 =========== 9. Legal Settlement The Partnership, together with its partners and several affiliated entities, was a defendant in a lawsuit seeking damages for alleged malicious prosecution in connection with a lawsuit the Partnership brought against the Institute for Conservation Education, the Sierra Club and several individuals alleging breach of contract, among other things, relating to agreements between the parties. During 1992 and prior to the scheduled court date, the Partnership agreed to a settlement of this matter. The aggregate settlement amount was $2,250,000; legal and related costs incurred by the Partnership relating to this matter totaled $1,075,890. Of the total costs, $1,325,890 was covered by the insurance carriers of the Partnership and its legal counsel. The remaining amounts are the direct responsibility of the Partnership, and have been properly recorded in the accompanying financial statements. As of December 31, 1993, all amounts have been paid. Audited Financial Statements and Other Financial Information Squaw Creek Associates (a California general partnership) (dba The Resort at Squaw Creek) Years ended December 31, 1991 and 1990 with Report of Independent Auditors Squaw Creek Associates (a California general partnership) (dba The Resort at Squaw Creek) Audited Financial Statements and Other Financial Information Years ended December 31, 1991 and 1990 CONTENTS Report of Independent Auditors 1 Audited Financial Statements Balance Sheets 2 Statements of Revenue and Expenses 4 Statements of Changes in Partners' Capital 5 Statement of Cash Flows 6 Notes to Financial Statements 7 Other Financial Information Report of Independent Auditors on Other Financial Information 16 Details of Cumulative Preferred Return 17 Comparison of Resort Operations Revenue and Expenses to Annual Operating Plan 18 Schedules of Cash Flows used by Operating Activities Excluding Homesite Operations, Accrued Interest Payable - Affiliate and Initial Purchase of Provisions Inventories 22 Schedule of Changes in Partners' Capital 23 Report of Independent Auditors The General Partners Squaw Creek Associates We have audited the accompanying balance sheets of Squaw Creek Associates (a California general partnership) (dba The Resort at Squaw Creek) as of December 31, 1991 and 1990 and the related statements of revenue and expenses, changes in partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conduct 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 Squaw Creek Associates at December 31, 1991 and 1990, and the results of its operations and cash flows for the years then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that Squaw Creek Associates will continue as a going concern. As discussed in Note 1 to the financial statements, the Partnership has sustained operating cash flow deficits and operating losses and has been unable to reach agreement with its lender regarding terms of an extension of its note payable that was due on August 1, 1991. These conditions raise substantial doubt about the Partnership's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. In addition, recovery of the Partnership's investment in the Resort is dependent upon the Resort's ability to generate profits from operations and/or from disposition of the property, the achievement of which cannot be determined at this time. As discussed in Note 4 to the financial statements, in December 1990 the Partnership became a defendant in a lawsuit alleging malicious prosecution, among other claims, in connection with a lawsuit brought by the Partnership against a third party. The Partnership denies all liability and is vigorously defending against these claims. The ultimate outcome of this litigation cannot be determined. Accordingly, no provision for any liability that may result has been made in the financial statements. February 22, 1992 Squaw Creek Associates (a California general partnership) (dba The Resort at Squaw Creek) Balance Sheets December 31 1991 1990 Assets Current assets: Cash $ 659,472 $ 1,244,128 Accounts receivable: Trade 754,559 433,237 Other 202,971 177,688 ------------ ------------ 957,530 610,925 Inventories: Inventories - retail 676,214 397,170 Inventories - provisions 383,543 268,023 Hotel supplies 504,250 759,000 ------------ ------------ 1,564,007 1,424,193 Prepaid expenses 413,192 215,205 Land held for sale 2,196,262 3,528,103 ------------ ------------ Total current assets 5,790,463 7,022,554 Property and equipment, at cost: Land 925,397 925,397 Land improvements 29,696,458 24,188,117 Buildings and improvements 66,014,868 64,541,702 Furniture, fixtures and equipment 28,877,507 27,416,383 ------------ ------------ 125,514,230 117,071,599 Accumulated depreciation 4,690,428 80,640 ------------ ------------ 120,823,802 116,990,959 Deferred expenses (net of accumulated amortization of $1,518,154 and $0 at December 31, 1991 and 1990, respectively) 4,649,505 80,640 ------------ ------------ Total assets $131,263,770 $130,205,714 ============ ============ December 31 1991 1990 Liabilities and Partners' Capital Current Liabilities: Accounts payable: Construction $ 204,762 $ 10,274,938 Trade or other 3,561,882 2,220,323 Retainage payable 100,332 1,836,654 Due to affiliates 425,951 396,305 ------------ ------------ 4,292,927 14,728,220 Current portion of obligations under capital leases 457,619 256,000 Note payable 49,715,159 43,766,924 ------------ ------------ Total current liabilities 54,465,705 58,751,144 Obligations under capital leases, net of current portion 983,671 1,193,497 Accrued interest payable - affiliate 2,746,279 1,653,072 Loan payable - affiliate 11,500,000 11,500,000 ------------ ------------ Total liabilities 69,695,655 73,097,713 Partners' capital 61,568,115 57,108,001 ------------ ------------ Total liabilities and partners' $131,263,770 $130,205,714 capital ============ ============ See accompanying notes. Squaw Creek Associates (a California general partnership) (dba The Resort at Squaw Creek) Statements of Revenue and Expenses Year ended December 31 1991 1990 Revenue: Resort operations $ 13,055,986 $ 787,800 Sales of homesites 2,742,833 2,305,000 ------------ ---------- 15,798,819 3,092,800 Costs and expenses: Resort operations: Direct costs and expenses 13,042,821 916,052 Selling, general and administrative expenses 10,288,443 646,168 Fixed expenses 817,661 62,814 Cost of homesites sold, including selling 2,246,386 1,369,708 and other expenses Depreciation and amortization 6,180,161 10,320 Interest expense 6,264,624 200,628 ------------ ---------- 38,840,096 3,205,690 ------------ ---------- Net loss $(23,041,277) $ (112,890) ============= =========== See accompanying notes. Squaw Creek Associates (a California general partnership) (dba The Resort at Squaw Creek) Statements of Changes in Partners' Capital Partners' capital at December 31, 1989 $34,054,063 Additional capital contributions 23,166,828 Net loss (112,890) ------------ Partners' capital at December 31, 1990 57,108,001 Additional capital contributions 27,501,391 Net loss (23,041,277) ------------ Partners' capital at December 31, 1991 $61,568,115 =========== See accompanying notes. Squaw Creek Associates (a California general partnership) (dba The Resort at Squaw Creek) Statements of Cash Flows Year ended December 31, 1991 1990 Operating activities Net loss $(23,041,277) $ (112,890) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization expense 6,180,161 10,320 Cost of homesites sold related to land and development costs 1,455,933 1,020,701 Increase in accrued interest payable to affiliate 1,093,207 1,173,252 Changes in operating assets and liabilities: Accounts receivable and prepaid expenses (544,592) (826,130) Inventories - retail (279,044) (397,170) Inventories - provisions (115,520) (268,023) Hotel supplies 254,750 (759,000) Accounts payable - trade and other 1,341,559 2,220,323 Due to affiliates - current 29,646 79,272 ------------ ------------ Net cash (used in) provided by operating activities (13,625,177) 2,140,655 Investing activities Additions to property, equipment and deferred expenses (8,307,348) (72,496,868) (Decrease) increase in construction accounts and retainage payable (11,806,498) 2,706,647 ------------- ----------- Net cash used in investing activities (20,113,846) (69,790,221) Financing activities Proceeds from loan payable - affiliate - 2,504,357 Proceeds from partners' capital contributions 27,501,391 23,166,828 Proceeds from note payable 7,068,806 44,053,145 Repayment of note payable and obligations under capital leases (1,415,830) (873,161) ------------- ------------ Net cash provided by financing activities 33,154,367 68,851,169 ------------- ----------- Net (decrease) increase in cash (584,656) 1,201,603 Cash at beginning of year 1,244,128 42,525 ------------- ----------- Cash at end of year $ 659,472 $ 1,244,128 ============ =========== Supplemental cash flow disclosures: Cash paid for interest $ 4,862,870 $ 159,000 ============ =========== See accompanying notes. Squaw Creek Associates (a California general partnership) (dba The Resort at Squaw Creek) Notes to Financial Statements December 31, 1991 and 1990 1. Accounting Policies Nature of Business Squaw Creek Associates (the Partnership) is a California general partnership formed through the Partnership Agreement (Agreement) dated June 3, 1988 to own, develop and manage a resort located in Placer County, California (the Resort). The Resort was substantially complete on December 19, 1990 and commenced operations on that date. Homesite sales activities commenced in 1990, with the first title closing occurring in September 1990. Revenue and expenses for the year ended December 31, 1990 are presented for the period subsequent to August 1990 for homesite sales and for the period subsequent to December 18, 1990 for Resort operations. The Partnership is owned by Glenco- Perini-HCV Partners (GPH), a California limited partnership, and Squaw Creek Investors Corporation (SCIC). GPH, a partnership owned by Glenco-Squaw Associates, Perini Resorts, Inc., and HCV Pacific Investors III, serves as a managing partner through its general partner, Perini Resorts, Inc., a wholly owned subsidiary of Perini Land & Development Company (Perini) which is a wholly owned subsidiary of Perini Corporation. GPH receives a management fee for services rendered to the Partnership based upon the results of operations as defined in the Agreement. The Partnership experienced operating cash flow deficits and operating losses in 1991. Additionally, the Partnership has been unable to reach agreement with its lender regarding terms of an extension of its note payable that was due on August 1, 1991. The Partnership has been unable to obtain other permanent financing and could be required to repay the outstanding loan if called by the lender. The Partnership has implemented plans to improve operating performance and has had ongoing discussions with its lender regarding its capital situation. The Partnership's financial condition and its inability to extend or to secure permanent financing raise substantial doubt regarding the Partnership's ability to continue as a going concern. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. In addition, recovery of the Partnership's investment in the Resort is dependent upon its ability to generate profits from operations and/or from disposition of the property, the achievement of which cannot be determined at this time. Squaw Creek Associates (a California general partnership) (dba The Resort at Squaw Creek) Notes to Financial Statements (continued) 1. Accounting Policies (continued) Development Costs Land acquisition costs and certain other development costs were incurred by Glenco-Squaw Associates and Perini prior to the formation of the Partnership. These costs were assumed by GPH ($3,254,063) and contributed to the Partnership as the initial capital contribution. The Partnership used the cost basis of the previous owners to record the land and other development costs contributed. The Agreement assigned to contribution value to the GPH contributions of $13,500,000 (consisting of $4,000,000 in cash equity and $9,500,000 in land equity) for the purpose of calculating certain preferred returns (see Note 2 for further discussion). SCIC's initial contribution was $8,312,981. Land development costs contributed to the Partnership and the cost incurred by the Partnership for developing the Resort (including amenities) are allocated to the related Project components. Real estate taxes, insurance, general and administrative, marketing and interest expense were capitalized during the development period. Interest cost capitalized amounted to $3,025,994 in 1990. No interest costs were capitalized in 1991. Contributions The Agreement provides that funds needed to operate the Resort in excess of funds available from the Resort's operations (cash shortfall) must be provided by SCIC and GPH in the form of additional capital contributions. The first $2,500,000 of cash shortfall was the responsibility of GPH with all additional cash shortfall contributions requiring a 60% capital contribution by SCIC and a 40% capital contribution by GPH. Starting in November 1991, SCIC has not made its required contributions under the cash shortfall provisions of the Agreement. Consequently, GPH has made the necessary contributions to fund all operating cash shortfalls, including amounts not funded by SCIC, under the default contribution provisions of the Agreement. The Agreement provides that in the event of default, the defaulting partner loses certain partnership rights, authorities and other distribution priorities. SCIC disputes that its actions and failure to fund its share of the cash shortfalls has resulted in its default. Squaw Creek Associates (a California general partnership) (dba The Resort at Squaw Creek) Notes to Financial Statements (continued) 1. Accounting Policies (continued) Distribution of Cash Flows and Profits and Losses Operating cash flow, as defined by the Agreement, principally consists of net cash generated from operations of the Resort less interest and principal paid by the Partnership for indebtedness (excluding indebtedness and interest due to affiliate). Distributable cash flow, as defined by the Agreement, principally consists of operating cash flow and proceeds from capital transactions; however, if the operating cash flow after December 31, 1991 is insufficient to permit the payment of SCIC's 9% preferred return, GPH is to contribute the deficiency to the Partnership, thereby increasing distributable cash flow. The Agreement generally provides that distributable cash flows are shared by the partners in accordance with their respective percentage interests after repayment of: default contributions; the outstanding interest and principal of GPH's (affiliate) loans to the Partnership; the unpaid SCIC 9% preferred returns (see Note 2 for further discussion); and, the partners' additional capital contributions resulting from operating cash shortfalls and after repayment of certain other preferred returns and related contributions to capital by the partners (see Note 2 for further discussion). The Agreement generally provides that the net profits of the Partnership are allocated to the partners in accordance with their respective percentage interests after allocations are made for certain preferred returns (see Note 2 for further discussion). Net losses of the Partnership are generally allocated so as to entirely offset previous allocations of allocated net profits and then as follows: $13,500,000 to GPH, to the extent of GPH's additional capital contributions (excluding operating shortfall contribution amounts), to the extent of GPH's and SCIC's operating shortfall contribution amounts, and thereafter, in accordance with the partners' respective interests. Squaw Creek Associates (a California general partnership) (dba The Resort at Squaw Creek) Notes to Financial Statements (continued) 1. Accounting Policies (continued) Capital Transactions Capital transactions, as defined by the Agreement, principally consist of dispositions of any of the Partnership assets other than through the ordinary course of business of the Resort and the net proceeds from refinancing or financing the indebtedness of the Partnership. The Agreement generally provides that the proceeds from capital transactions are distributed as other cash proceeds except that the distributions for the partners' unpaid preferred returns and related capital contribution amounts are performed in a different priority. Inventories Inventories consist of food and beverage, apparel and other consumer products for retail sale or rental to the Resort's patrons and provisions (food and beverage and other incidentals) for use in the Resort's operations. Retail, rental and provisions inventories are stated at the lower of cost (first-in, first-out method) or market. Hotel supplies consist of china, glassware, silver and other reusable items and are valued at the original cost of the par stock purchased less a provision for normal use, damage and loss. All subsequent purchases of hotel supplies are expensed in the period purchased. Deferred Expenses Costs which are incurred and which relate to activities having future benefit to the Partnership are deferred. Deferred expenses principally include costs associated with bringing the Resort to full operational capacity. Deferred expenses are being amortized over 60 months beginning in January 1991, the first full month subsequent to the date that Resort operations commenced. Squaw Creek Associates (a California general partnership) (dba The Resort at Squaw Creek) Notes to Financial Statements (continued) 1. Accounting Policies (continued) Land Held for Sale The Partnership has developed residential homesites in conjunction with the development of the Resort. Revenue from the parcels sold is recognized at the time title passes to the buyer and full funding is received. The costs for parcels sold are based on the allocation of the costs of developing the parcels as determined using the ratio of each parcel's sales proceeds to the total expected sales proceeds for all parcels. The cost of developing the parcels includes certain marketing, selling, general and administrative and interest costs that were incurred during the development period. The Agreement calls for the net proceeds from the homesite sales to be used to reduce the outstanding note payable balance and the development costs. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the respective property (25 to 60 years) and equipment (5 to 12 years). For leased equipment, amortization is provided using the lesser of the estimated useful life or the lease term. The Partnership uses the mid-month convention whereby property and equipment placed in service on or before the fifteenth day of the month will be depreciated for the full month with no depreciation provided for property and equipment placed in service after the fifteenth day of the month. Income Taxes The Partnership is not subject to taxes on its income. Federal and state income tax regulations provide that the items of income, gain, loss, deduction, credit and tax preference of the Partnership are reportable by the partners in their income tax returns. Accordingly, no provision for income taxes has been made in these financial statements. Squaw Creek Associates (a California general partnership) (dba The Resort at Squaw Creek) Notes to Financial Statements (continued) 2. Cumulative Preferred Return Under the terms of the Agreement, SCIC and GPH will receive cumulative preferred returns. SCIC's return is based upon 9% and 3% (noncompounded) returns on its adjusted contribution amount and a 12% return on its adjusted shortfall contribution amount, as defined in the Agreement. The total cumulative preferred return of SCIC amounted to approximately $7,950,000 for the period July 25, 1988 through December 31, 1991. GPH's return is based upon 12% and 9% (noncompounded) of its adjusted cash equity and adjusted phase I and phase II land equity amounts, respectively, 12% of the first $2,500,000 of its adjusted shortfall contribution amount and 24% of its adjusted default contribution amount as defined in the Agreement. The total cumulative preferred return of GPH amounted to approximately $12,104,000 for the period July 25, 1988 through December 31, 1991. Because there has been no net positive cash flows from operations, these amounts are unpaid at December 31, 1991. 3. Note Payable and Loan Payable - Affiliate The Partnership has a note payable relating to a construction loan agreement (loan agreement) that permits the Partnership to borrow funds as necessary to pay for project costs up to a maximum of $53,000,000. Depending upon the form of the borrowing, interest is payable monthly at the applicable rate plus: a margin of 1.25% for borrowings based on prime rate; a margin of 2.5% for borrowings based on the Eurodollar rate; or a margin of 2.625% for borrowings based upon the CD rate. The interest rate at December 31, 1991 was 7.75% (10.72% at December 31, 1990). The loan is secured by the Project and the assignment of certain agreements related to, among other things, the operation of the Project. Perini has guaranteed $10,000,000 of any outstanding principal balance, payment of unpaid interest and the lien free completion of the project. The loan was originally payable on August 1, 1991. The loan agreement permits the Partnership to extend the agreement through August 1, 1996. However, the Partnership has been unable to reach agreement with the lender as to the terms of extension. The Partnership is currently negotiating an extension to the loan agreement, and management believes it has performed its obligations under the loan agreement as if the loan had been extended. Squaw Creek Associates (a California general partnership) (dba The Resort at Squaw Creek) Notes to Financial Statements (continued) 3. Notes Payable and Loan Payable - Affiliate (continued) The Partnership has an $11,500,000 loan payable to GPH, an affiliate, at December 31, 1991 and 1990. The Partnership, under the Agreement, has the ability to borrow funds from GPH as necessary (to the extent other funds are not available, as discussed in Note 1) to pay for obligations arising from construction. The loan bears interest at the same rate of interest as due under the note payable. The loan and any accrued interest payable, except in certain circumstances as described in the Agreement, will be repaid from positive cash flows from operations and has priority over the Partnership distributions of positive cash flows. Management has classified the note payable to affiliate (and related interest) as a long-term liability, as repayment of these amounts will not occur in 1992. 4. Commitments and Contingencies The partnership has entered into various lease agreements for land, buildings and equipment. The lease terms are primarily for one or two year periods except as follows: - - - The Partnership has two separate ground lease agreements for approximately 24 acres of land in Olympic Valley, California. The primary use of the land is for construction of the Resort's golf course. Under these agreements, the Partnership also leases ski lift equipment, two buildings and also receives certain rights to conduct snow skiing activities. These agreements contain rent escalation clauses that will increase the scheduled rents due beginning in 1992 based on increases in the consumer price index. An option under one of the lease agreements permits the Partnership to acquire a ten acre parcel for $2,900,000 before May 31, 1992, with a scheduled purchase price increase thereafter. - - - An operating lease through May 1996 for storage facilities. - - - Various capital and operating leases for equipment. Equipment accounted for as capital leases is recorded at the present value of future minimum rental payments and is included in the net book value of equipment at December 31, 1991 and 1990 in the amount of approximately $1,783,000 and $1,496,000, respectively. During 1991 and 1990, the Company acquired approximately $287,000 and $1,263,000, respectively, in equipment through lease financing. Squaw Creek Associates (a California general partnership) (dba The Resort at Squaw Creek) Notes to Financial Statements (continued) 4. Commitments and Contingencies (continued Rent expense for land, building and equipment was approximately $305,000 and $7,000 for 1991 and 1990, respectively. The future minimum lease payments for all leases are as follows: Capital Operating Leases Leases 1992 $ 504,824 $ 226,802 1993 474,283 206,833 1994 468,845 181,357 1995 442,132 177,773 1996 5,397 171,874 Thereafter - 3,295,145 ----------- ---------- 1,895,481 $4,259,784 ========== Amounts representing interest (454,191) ----------- Present value of obligations under capital 1,441,290 leases Less current portion of obligations under capital leases (457,619) ----------- $ 983,671 =========== The Partnership has recorded various other commitments under agreements with both third and related parties including the following: - - - An agreement to pay various amounts to a management company for services received based upon the results of Resort operations (approximately $376,000 in 1991 and $23,000 in 1990). - - - An agreement to pay various amounts to GPH for services received based upon the results of Resort operations and the gross sales of homesites (approximately $227,000 in 1991 and $79,000 in 1990). Squaw Creek Associates (a California general partnership) (dba The Resort at Squaw Creek) Notes to Financial Statements (continued) 4. Commitments and Contingencies (continued The Partnership is involved in litigation and various other legal matters which are being defended and handled in the ordinary course of business. Specifically, in December 1990, the Partnership, along with a number of related entities, including the partners of the Partnership, was named as a defendant in a lawsuit seeking damages for alleged malicious prosecution in connection with a lawsuit it brought against the Sierra Club alleging breach of contract, among other things, relating to certain agreements between the parties. The Partnership denies all liability and is vigorously defending against these claims. 5. Related Party Transactions The Partnership incurred approximately $1,111,000 and $1,774,000 in 1991 and 1990, respectively, for administrative, occupancy and management fees related to services provided by Perini. Perini has guaranteed to the Partnership, and to SCIC, the obligations of Perini Resorts, Inc., as the General Partner of GPH, including contributions of cash, under the shortfall contributions provision of the Agreement, and provision of certain services. 10-K/A 2 FORM 10-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993 TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to ___________________ 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 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 508-628-2000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of Each Class on which registered Common Stock, $1.00 par value The American Stock Exchange $2.125 Depositary Convertible Exchangeable Preferred Shares, each representing 1/10th Share of $21.25 Convertible Exchangeable Preferred Stock, $1.00 par value The American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X The aggregate market value of voting stock held by nonaffiliates of the registrant is $38,731,414 as of March 4, 1994. The number of shares of Common Stock, $1.00 par value per share, outstanding at March 4, 1994 is 4,330,807. DOCUMENTS INCORPORATED BY REFERENCE Portions of the annual proxy statement for the year ended December 31, 1993 are incorporated by reference into Part III. PERINI CORPORATION INDEX TO ANNUAL REPORT ON FORM 10-K/A PAGE ---- PART I ------ Item 1: Business 2 Item 2: Properties 19 Item 3: Legal Proceedings 20 Item 4: Submission of Matters to Vote of Security 20 Holders PART II ------- Item 5: Market for the Registrant's Common Stock 21 and Related Stockholder Matters Item 6: Selected Financial Data 21 Item 7: Management's Discussion and Analysis of 22 Financial Condition and Results of Operations Item 8: Financial Statements and Supplementary Data 28 Item 9: Disagreements on Accounting and Financial 28 Disclosure PART III -------- Item 10: Directors and Executive Officers of the 29 Registrant Item 11: Executive Compensation 30 Item 12: Security Ownership of Certain Beneficial 30 Owners and Management Item 13: Certain Relationships and Related 30 Transactions PART IV ------- Item 14: Exhibits, Financial Statement Schedules and 31 Reports on Form 8-K Signatures 33 PART I. ITEM 1. BUSINESS General Perini Corporation and its subsidiaries (the "Company" unless the context indicates otherwise) is engaged in two principal businesses: construction and real estate development. The Company, incorporated in 1918 as a successor to businesses which had been engaged since 1894 in providing construction services, will celebrate its 100th anniversary in 1994. The Company provides general contracting, construction management and design-build services to private clients and public agencies throughout the United States and selected overseas locations. Historically, the Company's construction business involved four types of operations: civil and environmental ("heavy"), building, international and pipeline. However, the Company sold its pipeline construction business in January, 1993 (see Note 1 to the Consolidated Financial Statements). The Company's real estate development operations are conducted by Perini Land & Development Company, a wholly-owned subsidiary with extensive development interests concentrated in historically attractive markets in the United States - Arizona, California, Florida, Georgia and Massachusetts, but has not commenced the development of any new real estate projects since 1990. Because the Company's results consist in part of a limited number of large transactions in both construction and real estate, results in any given quarter can vary depending on the timing of transactions and the profitability of the projects being reported. As a consequence, quarterly results may reflect such variations. In 1988, the Company, in conjunction with two other companies, formed a new entity called Perland Environmental Technologies, Inc. ("Perland"). Perland provides consulting, engineering and construction services primarily on a turn-key basis for hazardous material management and clean-up to both private clients and public agencies nationwide. The outlook for this business on a long-term basis appears to be attractive because of the environmental protection laws enacted by Congress. During the fourth quarter of 1991 and early in 1992, Perland repurchased its stock owned by the other outside investors, resulting in an increase in the Company's ownership from its original investment of 47 1/2% to slightly more than 90%. In March 1992, Majestic sold its 41%-interest in Monenco, a company primarily involved in providing engineering services in Canada and throughout the world, resulting in a pretax gain to the Company of approximately $2 million. In January 1993, the Company sold its 74%-ownership in Majestic, its Canadian pipeline construction subsidiary, for $31.7 million which resulted in an after tax gain of approximately $1.0 million. Although these companies were profitable in both 1992 and 1991, they participated in sectors of the construction business that were not directly related to the Company's core construction operations. The sale of these companies served to generate liquid assets which improved the Company's financial condition without affecting its core construction business. Effective July 1, 1993, the Company acquired Gust K. Newberg Construction Co.'s ("Newberg") interest in certain construction projects and related equipment. The purchase price for the acquisition was (i) approximately $3 million in cash for the equipment paid by a third party leasing company, which in turn simultaneously entered into an operating lease agreement with the Company for the use of said equipment, (ii) the greater of $1 million or 25% of the aggregate pretax earnings during the period from April 1, 1993 through December 31, 1994, net of payments accruing to Newberg as described in (iii) below, and (iii) 50% of the aggregate of net profits earned from each project from April 1, 1993 through December 31, 1994 and, with regard to one project through December 31, 1995. This acquisition is being accounted for as a purchase. Information on lines of business and foreign business is included under the following captions of this Annual Report on Form 10K for the year ended December 31, 1993. Annual Report On Form 10K Caption Page Number ------------- Selected Consolidated Financial Information Page 21 Management's Discussion and Analysis Page 22 Footnote 14 to the Consolidated Financial Page 53 Statements, entitled Business Segments and Foreign Operations While the "Selected Consolidated Financial Information" presents certain lines of business information for purposes of consistency of presentation for the five years ended December 31, 1993, additional information (business segment and foreign operations) required by Statement of Financial Accounting Standards No. 14 for the three years ended December 31, 1993 is included in Note 14 to the Consolidated Financial Statements on pages 53 and 54. A summary of revenues by product line for the three years ended December 31, 1993 is as follows: Revenues (in thousands) Year Ended December 31, 1993 1992 1991 Construction: Building $ 736,116 $ 620,628 $ 507,399 Heavy 294,225 288,158 288,686 Pipeline - 100,929 69,470 Engineering Services - 13,559 54,086 ---------- ---------- ---------- Total Construction $ 919,641 Revenues $1,030,341 $1,023,274 ---------- ---------- ---------- Revenues (in thousands) Year Ended December 31, 1993 1992 1991 Real Estate: Sales of Real Estate $ 40,053 $ 12,636 $ 41,548 Building Rentals 19,313 24,208 17,866 Interest Income 6,110 6,452 9,000 All Other 4,299 4,282 3,853 ---------- ---------- ---------- Total Real Estate $ 69,775 $ 47,578 $ 72,267 Revenues ---------- ---------- ---------- Total Revenues $1,100,116 $1,070,852 $ 991,908 ========== ========== ========== Construction The general contracting and construction management services provided by the Company consist of planning and scheduling the manpower, equipment, materials and subcontractors required for the timely completion of a project in accordance with the terms and specifications contained in a construction contract. The Company was engaged in over 145 construction projects in the United States and overseas during 1993. The Company has three principal construction operations: heavy, building, and international, having sold its Canadian pipeline construction business in January 1993, and its interest in an engineering services business in March 1992. The Company also has a subsidiary engaged in hazardous waste remediation. The heavy operation undertakes large civil construction projects throughout the United States, with current emphasis on major metropolitan areas, such as Boston, New York City, Chicago and Los Angeles. The heavy operation performs construction and rehabilitation of highways, subways, tunnels, dams, bridges, airports, marine projects, piers and waste water treatment facilities. The Company has been active in heavy operations since 1894, and believes that it has particular expertise in large and complex projects. The Company believes that infrastructure rehabilitation is and will continue to be a significant market in the 1990's. The building operation provides its services through regional offices located in several metropolitan areas: Boston and Philadelphia, serving New England and the Mid-Atlantic area; Detroit and Chicago, operating in Michigan and the Midwest region; and Phoenix, Las Vegas, Los Angeles and San Francisco, serving Arizona, Nevada and California. In 1992, the Company combined its building operations into a new wholly-owned subsidiary, Perini Building Company, Inc. This new company combines substantial resources and expertise to better serve clients within the building construction market, and enhances Perini's name recognition in this market. The Company undertakes a broad range of building construction projects including health care, correctional facilities, sports complexes, hotels, casinos, residential, commercial, civic, cultural and educational facilities. The international operation engages in both heavy and building construction services overseas, funded primarily in U.S. dollars by agencies of the United States government. In selected situations, it pursues private work internationally. Construction Strategy The Company plans to continue to increase the amount of heavy construction work it performs because of the relatively higher margin available on such work. The Company believes the best opportunities for growth in the coming years are in the urban infrastructure market, particularly in Boston, metropolitan New York, Chicago, Los Angeles and other major cities where it has a significant presence, and in other large, complex projects. The Company's acquisition during 1993 of Chicago-based Newberg referred to above is consistent with this strategy. The Company's strategy in building construction is to maximize profit margins; to take advantage of certain market niches; and to expand into new markets compatible with its expertise. Internally, the Company plans to continue both to strengthen its management through management development and job rotation programs, and to improve efficiency through strict attention to the control of overhead expenses and implementation of improved project management systems. Finally, a department was formed in 1992 to improve the Company's focus on strategic planning, construction project development and project finance, and marketing. Backlog As of December 31, 1993, the Company's construction backlog was $1.24 billion compared to backlogs of $1.17 billion and $1.23 billion as of December 31, 1992 and 1991, respectively. Backlog (in thousands) as of December 31, 1993 1992 1991 Northeast $ 552,035 45% $ 451,746 39% $ 460,482 37% Mid-Atlantic 34,695 3 34,840 3 92,130 8 Southeast 34,980 3 53,971 5 8,847 1 Midwest 143,961 12 211,649 18 129,103 11 Southwest 314,058 25 256,973 22 91,897 7 West 143,251 11 123,384 10 274,657 22 Canada - - 711 - 90,152 7 Other Foreign 15,161 1 36,279 3 86,690 7 ---------- ---- ---------- ---- ---------- ---- Total $1,238,141 100% $1,169,553 100% $1,233,958 100% ========== ==== ========== ==== ========== ==== The Company includes a construction project in its backlog at such time as a contract is awarded or a firm letter of commitment is obtained. As a result, the backlog figures are firm, subject only to the cancellation provisions contained in the various contracts. The Company estimates that approximately $475 million of its backlog will not be completed in 1994. The Company's backlog in the Northeast region of the United States remains strong because of its ability to meet the needs of the growing infrastructure construction and rehabilitation market in this region, particularly in the metropolitan Boston and New York City areas. The increase in the Southwest region reflects certain fast-track hotel/casino projects. The decrease in the Other Foreign region reflects a severe decline in U.S. Government- sponsored foreign construction. Other fluctuations in backlog are viewed by management as transitory. Types of Contracts The four general types of contracts in current use in the construction industry are: - Fixed price contracts ("FP"), which include unit price contracts, usually transfer more risk to the contractor but offer the opportunity, under favorable circumstances, for greater profits. With the Company's increasing move into heavy and publicly bid building construction in response to current opportunities, the percentage of fixed price contracts continue to represent the major portion of the backlog. - Cost-plus-fixed-fee contracts ("CPFF") which provide greater safety for the contractor from a financial standpoint but limit profits. - Guaranteed maximum price contracts ("GMP") which provide for a cost-plus-fee arrangement up to a maximum agreed price. These contracts place risks on the contractor but may permit an opportunity for greater profits than cost-plus-fixed-fee contracts through sharing agreements with the client on any cost savings. - Construction management contracts ("CM") under which a contractor agrees to manage a project for the owner for an agreed-upon fee which may be fixed or may vary based upon negotiated factors. The contractor generally provides services to supervise and coordinate the construction work on a project, but does not directly purchase contract materials, provide construction labor and equipment or enter into subcontracts. Historically, a high percentage of company contracts have been of the fixed price type. Construction management contracts remain a relatively small percentage of company contracts. A summary of revenues and backlog by type of contract for the most recent three years follows: Revenues - Year Ended Backlog As Of December 31, December 31, 1993 1992 1991 1993 1992 1991 ---- ---- ---- ---- ---- ---- 56% 68% 57% Fixed Price 65% 64% 64% 44 32 43 CPFF, GMP or CM 35 36 36 ---- ---- ---- ----- ---- ---- 100% 100% 100% 100% 100% 100% ==== ==== ==== ==== ==== ==== Clients During 1993, the Company was active in the building, heavy and international construction markets. The Company performed work for over 100 federal, state and local governmental agencies or authorities and private customers during 1993. No material part of the Company's business is dependent upon a single or limited number of private customers; the loss of any one of which would not have a materially adverse effect on the Company. As illustrated in the following table, the Company continues to serve a significant number of private owners. During the period 1991-1993, the portion of construction revenues derived from contracts with various governmental agencies remained relatively constant at 56% in 1991, 57% in 1992 and 54% in 1993. Revenues by Client Source Year Ended December 31, 1993 1992 1991 ---- ---- ---- Private Owners 46% 43% 44% Federal Governmental Agencies 12 6 2 State, Local and Foreign Governments 42 51 54 ---- ---- ---- 100% 100% 100% ==== ==== ==== All Federal government contracts are subject to termination provisions, but as shown in the table above, the Company does not have a material amount of such contracts. General The construction business is highly competitive. Competition is based primarily on price, reputation for quality, reliability and financial strength of the contractor. While the Company experiences a great deal of competition from other large general contractors, some of which may be larger with greater financial resources than the Company, as well as from a number of smaller local contractors, it believes it has sufficient technical, managerial and financial resources to be competitive in each of its major market areas. The Company will endeavor to spread the financial and/or operational risk, as it has from time to time in the past, by participating in construction joint ventures, both in a majority and in a minority position, for the purpose of bidding on projects. These joint ventures are generally based on a standard joint venture agreement whereby each of the joint venture participants is usually committed to supply a predetermined percentage of capital, as required, and to share in the same predetermined percentage of income or loss of the project. Although joint ventures tend to spread the risk of loss, the Company's initial obligations to the venture may increase if one of the other participants is financially unable to bear its portion of cost and expenses. For a possible example of this situation, see "Legal Proceedings" on page 20. For further information regarding certain joint ventures, see Note 2 of the Notes to Consolidated Financial Statements. While the Company's construction business may experience some adverse consequences if shortages develop or if prices for materials, labor or equipment increase excessively, provisions in certain types of contracts often shift all or a major portion of any adverse impact to the customer. On fixed price type contracts, the Company attempts to insulate itself from the unfavorable effects of inflation by incorporating escalating wage and price assumptions, where appropriate, into its construction bids. Gasoline, diesel fuel and other materials used in the Company's construction activities are generally available locally from multiple sources and have been in adequate supply during recent years. Construction work in selected overseas areas primarily employs expatriate and local labor which can usually be obtained as required. The Company does not anticipate any significant impact in 1994 from material and/or labor shortages or price increases. Economic and demographic trends tend not to have a material impact on the Company's heavy construction operation. Instead, the Company's heavy construction markets are dependent on the amount of heavy civil infrastructure work funded by various governmental agencies which, in turn, may depend on the condition of the existing infrastructure or the need for new expanded infrastructure. The building markets in which the Company participants are dependent on economic and demographic trends, as well as governmental policy decisions as they impact the specific geographic markets. The Company has minimal exposure to environmental liability as a result of the activities of Perland Environmental Technologies, Inc. ("Perland"), a 90%-owned subsidiary of the Company. Perland provides hazardous waste engineering and construction services to both private clients and public agencies nationwide. Perland is responsible for compliance with applicable law in connection with its clean up activities and bears the risk associated with handling such materials. In addition to strict procedural guidelines for conduct of this work, the Company and Perland generally carry insurance or receive satisfactory indemnification from customers to cover the risks associated with this business. The Company also owns real estate nationwide, most of which is residential, and as an owner, is subject to laws governing environmental responsibility and liability based on ownership. The Company is not aware of any environmental liability associated with its ownership of real estate property. The Company has been subjected to a number of claims from former employees of subcontractors regarding exposure to asbestos on the Company's projects. None of the claims have been material. The Company also operates construction machinery in its business and will, depending on the project or the ease of access to fuel for such machinery, install fuel tanks for use on- site. Such tanks run the risk of leaking hazardous fluids into the environment. The Company, however, is not aware of any emissions associated with such tanks or of any other environmental liability associated with its construction operations or any of its corporate activities. Progress on projects in certain areas may be delayed by weather conditions depending on the type of project, stage of completion and severity of the weather. Such delays, if they occur, may result in more volatile quarterly operating results. In the normal course of business, the Company periodically evaluates its existing construction markets and seeks to identify any growing markets where it feels it has the expertise and management capability to successfully compete or withdraw from markets which are no longer economically attractive. Real Estate The Company's real estate development operations are conducted by Perini Land & Development Company ("PL&D"), a wholly-owned subsidiary, which has been involved in real estate development since the early 1950's. PL&D engages in real estate development in Arizona, California, Florida, Georgia and Massachusetts. However, in 1993, PL&D significantly reduced its staff in California and has suspended any new land acquisition in that area. PL&D's development operations generally involve identifying attractive parcels, planning the development, arranging financing, obtaining needed zoning changes and permits, site preparation, installation of roads and utilities and selling the land. Originally, PL&D concentrated on land development. In appropriate situations, PL&D has also constructed buildings on the developed land for rental or sale. For the past three to four years PL&D has been severely affected by the reduced liquidity in real estate markets brought on by the cutbacks in real estate funding by commercial banks, insurance company and other institutional lenders. Many traditional buyers of PL&D properties are other developers or investors who depend on third party sources for funding. As a result, some potential PL&D transactions have been cancelled, altered or postponed because of financing problems. Over this period, PL&D looked to foreign buyers not affected by U.S. banking policies or in some cases, provided seller financing to complete transactions. PL&D also experienced slowdowns in negotiations in the sale of PL&D developed income properties or residential units because of economic uncertainties and the reluctance of some buyers to commit to acquisitions in the current environment. Based on a weakening in property values which has come with the industry credit crunch and the national real estate recession, PL&D took a $30 million pre-tax net realizable value writedown against earnings in 1992. The charge affected those properties which PL&D had decided to sell in the near term. Currently it is management's belief that its remaining real estate properties are not carried at amounts in excess of their net realizable values. To achieve full value for some of its real estate holdings, in particular its investments in Rincon Center and the Resort at Squaw Creek, the Company may have to hold those properties several years and currently intends to do so. Real Estate Strategy Since 1990, PL&D has taken a number of steps to minimize the adverse financial impact of current market conditions. In early 1990, all new real estate investment was suspended pending market improvement, all but critical capital expenditures were curtailed on on-going projects and PL&D's workforce was cut by over 60%. Certain project loans were extended, with such extension usually requiring paydowns and increased annual amortization of the remaining loan balance. Going forward, PL&D will operate with a reduced staff and adjust its activity to meet the demands of the market. PL&D's real estate development project mix includes planned community, industrial park, commercial office, multi-unit residential, urban mixed use, resort and single family home developments. Given the current real estate environment, PL&D's emphasis is on the sale of completed product and also developing the projects in its inventory with the highest near term sales potential. It may also selectively seek new development opportunities in which it serves as development manager with limited equity exposure, if any. Real Estate Properties The following is a description of the Company's major development projects and properties by geographic area: Florida West Palm Beach and Palm Beach County - At year end, only 21 acres remained unsold of the original 1,428 acres located in West Palm Beach, at the development known as "The Villages of Palm Beach Lakes" . Of the remaining acreage all but 3 acres are currently under contract to be sold in 1994. "The Villages" is a planned community development that, when complete based on current plans, will provide approximately 6,750 residential dwelling units and related commercial developments, clustered around two championship golf courses designed by Jack Nicklaus. From 1982 to 1989, Burg & DiVosta, one of Florida's largest privately-owned building firms, built and sold 2,264 townhouse units in "The Villages". Burg & DiVosta also delivered 575 zero-lot-line three bedroom, two bath, single-family homes within several subdivisions of "The Villages" and 480 mid-rise condominium units. In 1991, the final 57 of 83 lots at Bear Lakes Estates, an upscale single family neighborhood within "The Villages", were sold to a residential developer who is currently building out the development. In 1993, PL&D sold tracts totaling approximately 52 acres and placed under contract for closing in 1994 another 18 acres. At "Congress Crossing", a 24-acre planned commercial urban development at 45th Street and Congress Avenue, the final 1.5 acres within the park was sold in 1993. At Metrocentre, a 51-acre commercial/office park at the intersection of Interstate 95 and 45th Street in West Palm Beach, a 1.5 acre site was sold in 1993 for use as a medical center. The park consists of 17 parcels, of which 5 remain unsold at year-end. The park provides for 570,500 square feet of mixed commercial uses. PL&D also sold a 16-acre site on Australian Avenue in West Palm Beach in 1993. That parcel was sold to a religious congregation who are building a tabernacle and community recreational facility on the site. Massachusetts Perini Land and Development or Paramount Development Associates, Inc. ("Paramount"), a wholly-owned subsidiary of PL&D, owns the following projects: Raynham Woods Commerce Center, Raynham - In 1987, Paramount acquired a 409 acre site located in Raynham, Massachusetts, on which it had done preliminary investigatory and zoning work under an earlier purchase option period. During 1988, Paramount secured construction financing and completed infrastructure work on a major portion of the site (330 acres) which is being developed as a mixed-use corporate campus style park known as "Raynham Woods Commerce Center". During 1989, Paramount completed the sale of a 24-acre site to be used as a headquarters facility for a division of a major U.S. company. During 1990, construction was completed on this facility. In 1990 construction was also completed on two new commercial buildings by Paramount. During 1992, a 17-acre site was sold to a developer who was working with a major national retailer. The site has since been developed into the first retail project in the park. No new land sales were made in 1993, but both of Paramount's commercial buildings within the park continue to be close to fully leased at year-end. The park is planned to eventually contain 2.5 million square feet of office, R&D, light industrial and mixed commercial space. Robin Hill, Marlborough - The Robin Hill project is located at the intersection of Routes 495 and 290 in Marlborough, Massachusetts. The major portion of this property was sold in 1985-1987. Paramount exercised its option to purchase an additional 53 acres of contiguous property in 1989. In 1993, this site was identified as the potential location for a new retail center and is currently under an agreement of sale to close sometime in 1994. Easton Business Center, Easton - In 1989, Paramount acquired a 40-acre site in Easton, Massachusetts, which had already been partially developed. Paramount completed the work in 1990 and is currently marketing the site to commercial/industrial users. No sales were closed in 1993. Wareham - In early 1990, Paramount acquired an 18.9 acre parcel of land at the junction of Routes 495 and 58 in Wareham, Massachusetts. The property is being marketed to both retail and commercial/industrial users. No sales were closed in 1993. Easton Industrial Park, Easton - In 1992, PL&D acquired four single-story industrial/office buildings located in the Easton Industrial Park with an aggregate square footage of 110,000 for $500,000 plus assumption of $4.5 million in third party debt. The buildings, originally developed by Paramount, were acquired from Pacific Gateway Properties (formerly Perini Investment Properties) as part of an overall settlement agreement. Late in 1993, these buildings were put under a contract of sale and were sold in early 1994. Georgia The Villages at Lake Ridge, Clayton County - During 1987, PL&D (49%) entered into a joint venture with 138 Joint Venture partners to develop a 348-acre planned commercial and residential community in Clayton County to be called "The Villages at Lake Ridge", six miles south of Atlanta's Hartsfield International Airport. By year end 1990, the first phase infrastructure and recreational amenities were in place. In 1991, the joint venture completed the infrastructure on 48 lots for phased sales of improved lots to single family home builders and sold nine. During 1992, the joint venture sold an additional 60 lots and also sold a 16-acre parcel for use as an elementary school. During 1993, unusually wet weather in the spring delayed construction on improvements required to deliver lots as scheduled. As a result, the sale of an additional 58 lots in 1993 were below expectation. However, current backlog plus construction progress during 1993 should result in greater lot sales in 1994. Interest in single family lots continues to be strong, but financing restrictions generally require the joint venture to allow developers to take down finished lots only as homes built on previously acquired lots are sold. The development plan calls for mixed residential densities of apartments and moderate priced single-family homes totalling 1,158 dwelling units in the residential tracts plus 220,000 square feet of retail and 220,000 square feet of office space in the commercial tracts. Garden Lakes - During 1993 PL&D (49.5%), in joint venture, maintained close to a fully leased status at its 278-unit apartment complex on an 18.5 acre tract within the Villages at Lake Ridge. Construction on the project was completed in 1990. Also during 1993, a sale of the property was negotiated with closing occurring in January 1994. The property continues to yield positive cash flow to the partnership. The Oaks at Buckhead, Atlanta - Sales commenced on this 217-unit residential condominium project at a site in the Buckhead section of Atlanta near the Lenox Square Mall in 1992. The project consists of 201 residences in a 30-story tower plus 16 adjacent three-story townhome residences. At year end 73 units were either sold or under contract. PL&D (50%) is developing this project in joint venture with a subsidiary of a major Taiwanese company. In connection with the project financing on the Oaks, PL&D has committed to certain guarantees described in the sixth paragraph of Note 11 to Notes to the Consolidated Financial Statements which starts on page 50. California Golden Gateway Commons, San Francisco - In 1993 the remaining 263,500 square feet of commercial office/retail space and 375 parking spaces owned by the Golden Gateway North partnership were sold. The Golden Gateway Commons was developed in the late '70's and early '80's and was owned by the Golden Gateway North, a partnership, in which PL&D-owned entities held an approximately 58% interest. Rincon Center, San Francisco - Major construction on this mixed-use project in downtown San Francisco was completed in 1989. The project, constructed in two phases, consists of 320 residential rental units, approximately 423,000 square feet of office space, 63,000 square feet of retail space, and a 700-space parking garage. Following its completion in 1988, the first phase of the project was sold and leased back by the developing partnership. The first phase consists of about 223,000 square feet of office space and 42,000 square feet of retail space. The Phase I office space continues to be close to 100% leased with the regional telephone directory company as the major tenant. The retail space was 86% leased at year end. Phase II of the project, which began operations in late 1989, consists of approximately 200,000 square feet of office space, 21,000 square feet of retail space, a 14,000 square foot U.S. postal facility, and 320 apartment units. At year end, close to 100% of the office space, 94% of the retail space and all but 10 of the 320 residential units were leased. The major tenant in the office space in Phase II is the Ninth Circuit Federal Court of Appeals which is leasing approximately 176,000 square feet. PL&D currently holds a 46% interest in and is managing general partner of the partnership which is developing the project. The land related to this project is being leased from the U.S. Postal Service under a ground lease which expires in 2050. In addition to the project financing and guarantees disclosed in the second and third paragraphs of Footnote 11 to Notes to the Consolidated Financial Statements, which starts on page 50, the Company has advanced approximately $70 million to the partnership through December 31, 1993, of which approximately $8 million was advanced during 1993, primarily to paydown some of the principal portion of project debt which was renegotiated during 1993. Although the project is close to fully occupied, rent concessions during 1993 prevented operations from exceeding breakeven on a cash flow basis. Those concessions have ended and in 1994 operations are expected to generate positive cash flow before any required principal paydowns on loans. Two major loans on this property in aggregate totaling over $75 million were scheduled to mature in 1993. During 1993 both loans were extended for five additional years. To extend these loans, PL&D provided approximately $6 million in new funds which were used to reduce the principal balances of the loans. Going forward, additional amortization will be required, some of which may not be covered by operating cash flow and, therefore, at least 80% of those funds not covered by operations will be provided by PL&D as managing general partner. Lease payments and loan amortization obligations at Rincon Center through 1997 are as follows: $4,226,000 in 1994; $4,948,000 in 1995; $5,531,000 in 1996; $5,886,000 in 1997. Based on Company forecasts, it could be required to contribute as much as $6-7 million in aggregate to cover these requirements not covered by project cash flow through 1997. Although management believes operating expenses will be covered by operating cash flow at least through 1997, the Company's share of project depreciation which could be as much as $2 million annually, will not be covered through operating profit and therefore will continue to reduce the Company's reported earnings by that amount. In addition, interest rates on much of the debt financing covering Rincon Center are variable based on various rate indices. With the exception of approximately $20 million of the financing, none of the debt has been hedged or capped and is subject to market fluctuations. From time to time the Company reviews the costs and anticipated benefits from hedging Rincon Center's interest rate commitments. Current Company forecasts anticipate a 50 basis point annual increase in rates between 1994 and 1997. In view of this expectation of interest rate risk and current costs to further hedge rate increases, the Company has elected not to hedge all interest rates. As part of the Rincon One sale and operating lease-back transaction, the joint venture agreed to obtain an additional financial commitment on behalf of the lessor to replace at least $33 million of long-term financing by January 1, 1998. If the joint venture has not secured a further extension or new commitment for financing on the property for at least $33 million, the lessor will have the right under the lease to require the joint venture to purchase the property for a stipulated amount of approximately $18.8 million in excess of the then outstanding debt. Management believes it will be able to extend the financing or refinance the building such that this sale back to the Company will not occur. During the past year PL&D agreed, if necessary, to lend Pacific Gateway Properties (PGP) funds to meet its 20% share of cash calls. In return PL&D receives a priority return from the partnership on those funds and penalty fees in the form of rights to certain distributions due PGP by the partnership controlling Rincon. During 1993, PL&D advanced $1.7 million under this agreement, primarily to meet the principal payment obligations of the loan extensions described above. The Resort at Squaw Creek - During 1990, construction was completed on the 405-unit first phase of the hotel complex of this major resort-conference facility. In mid-December of that year, the resort was opened. In 1991, final work was completed on landscaping the golf course, as well as the remaining facilities to complete the first phase of the project. The first phase of the project includes a 405-unit hotel, 36,000 square feet of conference facilities, a Robert Trent Jones, Jr. golf course, 48 single-family lots, all of which had been sold or put under contract by early 1993, three restaurants, an ice skating rink, pool complex, fitness center and 11,500 square feet of various retail support facilities. The second phase of the project is planned to include an additional 409-unit hotel facility, 36 townhouses, 27,000 square feet of conference space, 5,000 square feet of retail space and a parking structure. No activity on the second phase will begin until stabilization is attained on phase one and market conditions warrant additional investment. While PL&D has an effective 18% ownership interest in the joint venture, it has additional financial commitments as described below. In addition to the project financing and guarantees disclosed in the fifth paragraph of Note 11 to Notes to the Consolidated Financial Statements, which starts on page 50, the Company has advanced approximately $68 million to the joint venture through December 31, 1993, of which approximately $2 million was advanced during 1993, for the cost of operating expenses and interest payments. Further, it is anticipated the project may require additional funding by PL&D before it reaches stabilization which may take several years. During 1992, the majority partner in the joint venture sold its interest to a group put together by an existing limited partner. As a part of that transaction, PL&D relinquished its managing general partnership position to the buying group, but retained a wide range of approval rights. The result of the transaction was to strengthen the financial support for the project and led to an extension of the bank financing on the project to mid-1995. The $48 million of bank financing on the project currently matures in May, 1995. Preliminary conversations have taken place with the project's lead bank and management anticipates extension or replacement of the loan. However, as with any real estate financing, there is no assurance that an extension or replacement financing will be available. In the event that were to happen, the property would be subject to foreclosure and possible sale at a value below the Company's present investment basis. As part of Squaw Creek Associates partnership agreement, either partner may initiate a buy/sell agreement on or after January 1, 1997. Such buy/sell agreement, which is similar to those often found in real estate development partnerships, provides for the recipient of the offer to have the option of selling its share or purchasing its partners share at the proportionate amount applicable based on the offer price and the specific priority of payout as called for under the partnership agreement based on a sale and termination of the partnership. The Company does not anticipate such a circumstance, because until the end of the year 2001, the partner would lose the certainty of a $2 million annual preferred return currently guaranteed by the Company. However, an exercise of the buy/sell agreement by its partner could force the Company to sell its ownership at a price possibly significantly less than its full value should the Company be unable to buy out its partner and were forced to sell at the price initiated by its partner. The operating results of this project are weather sensitive. A large snowfall in late 1992 and early 1993 helped improve results in the first quarter of 1993 and, for the full year, the resort showed marked improvement over the previous year. Occupancy for 1993, its third year of operation, was approximately 60%, up from 50% the previous year. Corte Madera, Marin County - After many years of intensive planning, PL&D obtained approval for a 151 single-family home residential development on its 85-acre site in Corte Madera and, in 1991, was successful in gaining water rights for the property. In 1992, PL&D initiated development on the site which was continued into 1993. This development is one of the last remaining in-fill areas in southern Marin County. In 1993, when PL&D decided to scale back its operations in California, it also decided to sell this development in a transaction set to close in early 1994 which calls for PL&D to get the majority of its funds from the sale of residential units or upon the sixth anniversary of the sale whichever takes place first and, although indemnified, to leave in place certain bonds and other assurances previously given to the town of Corte Madera guaranteeing performance in compliance with approvals previously obtained. Arizona I-10 West, Phoenix - In 1979, I-10 Industrial Park Developers ("I-10"), an Arizona partnership between Paramount Development Associates, Inc. (80%) and Mardian Development Company (20%), purchased approximately 160 acres of industrially zoned land located immediately south of the Interstate 10 Freeway, between 51st and 59th Avenues in the city of Phoenix. The project experienced strong demand through 1988. With the recent downturn in the Arizona real estate markets, sales have slowed. No sales were made in 1993, leaving approximately 13 acres unsold. Airport Commerce Center, Tucson - In 1982, the I-10 partnership purchased 112 acres of industrially zoned property near the Tucson International Airport. During 1983, the partnership added 54 acres to that project, bringing its total size to 166 acres. This project has experienced a low level of sales activity due to an excess supply of industrial property in the marketplace. However, the partnership built and fully leased a 14,600 square foot office/warehouse building in 1987 on a building lot in the park, which was sold during 1991. In 1990, the partnership sold 14 acres to a major airline for development as a processing center and, in 1992, sold a one acre parcel adjacent to the existing property. No new land sales were made since. At year end, approximately 123 acres remain to be sold. Perini Central Limited Partnership, Phoenix - In 1985, PL&D (75%) entered into a joint venture with the Central United Methodist Church to master plan and develop approximately 4.4 acres of the church's property in midtown Phoenix. Located adjacent to the Phoenix Art Museum and near the Heard Museum, the project is positioned to become the mixed use core of the newly formed Phoenix Arts District. In 1990, the project was successfully rezoned to permit development of 580,000 square feet of office, 37,000 square feet of retail and 162 luxury apartments. Plans for the first phase of this project, known as "The Coronado" have been put on hold pending improved market conditions and in 1993, PL&D obtained a three-year extension of the construction start date required under the original zoning. Grove at Black Canyon, Phoenix - The project consists of an office park complex on a 30-acre site located off of Black Canyon Freeway, a major Phoenix artery, approximately 20 minutes from downtown Phoenix. When complete, the project will include approximately 650,000 square feet of office, hotel, restaurant and/or retail space. Development, which began in 1986, is scheduled to proceed in phases as market conditions dictate. In 1987, a 150,000 square foot office building was completed within the park and now is 93% leased with approximately half of the building leased to a major area utility company. During 1993, PL&D (50%) successfully restructured the financing on the project by obtaining a seven-year extension with some amortization and a lower interest rate. The annual amortization commitment is not currently covered by operating cash flow. No new development within the park was begun in 1993 nor were any land sales consummated. Sabino Springs Country Club, Tucson - During 1990, the Tucson Board of Supervisors unanimously approved a plan for this 410-acre residential golf course community close to the foothills on the east side of Tucson. In 1991, that approval which had been challenged, was affirmed by the Arizona Supreme Court. When developed, the project will consist of 496 single-family homes and an 18-hole Robert Trent Jones, Jr. designed championship golf course and club. In 1993, PL&D recorded the master plat on the project and sold a major portion of the property to an international real estate company. PL&D will retain 33 estate lots for sale in future years. Capitol Plaza, Phoenix - In 1988, PL&D acquired a 1 3/4-acre parcel of land located in the Governmental Mall area of Phoenix. Original plans were to either develop a 200,000 square foot office building on the site to be available to government and government related tenants or to sell the site. The project has currently been placed on hold pending a change in market conditions. General The Company's real estate business is influenced by both economic conditions and demographic trends. A depressed economy may result in lower real estate values and longer absorption periods. Higher inflation rates may increase the values of current properties, but often are accompanied by higher interest rates which may result in a slowdown in property sales because of higher carrying costs. Important demographic trends are population and employment growth. A significant reduction in either of these may result in lower real estate prices and longer absorption periods. The well publicized problems in the commercial bank and savings and loan industries over the past several years have resulted in sharply curtailed credit available to acquire and develop real estate; further, the current national real estate recession has significantly slowed the pace at which PL&D has been able to proceed on certain of its development projects and its ability to sell developed product. In some or all cases, it has also reduced the sales proceeds realized on such sales and/or required extended payment terms. Generally, there has been no material impact on PL&D's real estate development operations over the past 10 years due to interest rate increases. However, an extreme and prolonged rise in interest rates could create market resistance for all real estate operations in general, and is always a potential market obstacle. PL&D, in some cases, employs hedges or caps to protect itself against increases in interest rates on any of its variable rate debt and, therefore, is insulated from extreme interest rate risk on borrowed funds, although specific projects may be impacted if the decision has been made not to hedge or to hedge at higher than current rates. The Company has been replacing relatively low cost debt-free land in Florida acquired in the late 1950's with land purchased at current market prices. In the future, as the mix of land sold contains proportionately less low cost land, the gross margin on real estate revenues will decrease. Insurance and Bonding All of the Company's properties and equipment, both directly owned or owned through partnerships or joint ventures with others, are covered by insurance and management believes that such insurance is adequate. However, due to conditions in the insurance market, the Company's California properties, both directly owned and owned in partnership with others, are not fully covered by earthquake insurance. In conjunction with its construction business, the Company is often required to provide various types of surety bonds. The Company has dealt with the same surety for over 75 years and it has never been refused a bond. Although from time-to-time the surety industry encounters limitations affecting the bondability of very large projects, the Company has not encountered any limit on its bonding ability that has adversely impacted its operations. Employees The total number of personnel employed by the Company is subject to seasonal fluctuations, the volume of construction in progress and the relative amount of work performed by subcontractors. During 1993, the maximum number of employees employed approximately 2,600 and the minimum was approximately 1,900. The Company operates as a union contractor. As such, it is a signatory to numerous local and regional collective bargaining agreements, both directly and through trade associations, throughout the country. These agreements cover all necessary union crafts and are subject to various renewal dates. Estimated amounts for wage escalation related to the expiration of union contracts are included in the Company's bids on various projects and, as a result, the expiration of any union contract in the current fiscal year is not expected to have any material impact on the Company. ITEM 2. PROPERTIES Properties applicable to the Company's real estate development activities are described in detail by geographic area in Item 1. Business on pages 9 through 18. All other properties used in operations are summarized below: Approximate Owned or Leased Approximate Square Feet of Principal Offices by Perini Acres Office Space ----------------- --------------- ----------- -------------- Framingham, MA Owned 9 110,000 Phoenix, AZ Owned 1 22,000 Southfield, MI Leased - 13,900 San Francisco, CA Leased - 11,000 Hawthorne, NY Leased - 8,800 Burlington, MA Leased - 10,300 West Palm Beach, FL Leased - 5,000 Pasadena, CA Leased - 4,000 Las Vegas, NV Leased - 3,000 Atlanta, GA Leased - 1,700 Chicago, IL Leased - 14,700 Philadelphia, PA Leased - 2,100 -- ------- 10 206,500 == ======= Principal Permanent Storage Yards Bow, NH Owned 70 Framingham, MA Owned 6 E. Boston, MA Owned 4 Las Vegas, NV Leased 2 Novi, MI Leased 3 -- 85 == The Company's properties are generally well maintained and in good condition. ITEM 3. LEGAL PROCEEDINGS - - - On July 30, 1993, the U.S. District Court (D.C.) upheld the Contracting Officer's terminations for default, both dated May 11, 1990, on two adjacent contracts for subway construction between Mergentime-Perini (two joint ventures) and the Washington Metropolitan Area Transit Authority ("WMATA") and found the Mergentime Corporation, Perini Corporation and the Insurance Company of North America, the surety, jointly and severally liable to WMATA for damages in the amount of $16.5 million, consisting primarily of excess reprocurement costs. The court deferred ruling on the net value of the joint ventures' major claims against WMATA. Any such amounts awarded to the joint ventures could serve to offset the above damages award. Originally Mergentime Corporation was the sponsor and manager of both joint ventures with a 60% interest in each. Perini held the remaining 40%. The contracts were awarded in 1985 and 1986 but in 1987, Perini and Mergentime entered into an agreement whereby Perini withdrew from the joint ventures, but remained obligated to WMATA under the contracts. At that point, Mergentime assumed full control over the performance of both projects. After the termination of the joint ventures' contracts in May of 1990, Perini Corporation, acting independently, was awarded a separate contract by WMATA to finish these projects, both of which were successfully completed on schedule. Mergentime may be unable to meet its financial obligations under the award. In such event the Company, as a joint venture partner, could be liable for the entire amount. Currently, both parties have filed post- trial motions with the District Court attacking the decision and award. For the purpose of these motions, the successor judge (who was recently named) is treating the judgment as one that is not a final judgment and thus not one from which an appeal lies pending rulings on the motions. Although no date has been set for a review of the post-trial motions, the Court has indicated that such consideration will require substantial effort and that it intends to give this case the consideration it deserves. The ultimate financial impact, if any, of this judgment is not yet determinable, and therefore, no impact is reflected in the 1993 financial statements. In the ordinary course of its construction business, the Company is engaged in other lawsuits. The Company believes that such lawsuits are usually unavoidable in major construction operations and that their resolution will not materially affect its results of future operations and financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on the American Stock Exchange under the symbol "PCR". The quarterly market price ranges (high-low) for 1993 and 1992 are summarized below: 1993 1992 Market Price Range per Common Share: ------------ ------------ High Low High Low ---- --- ---- --- Quarter Ended March 31 18 5/8 - 14 1/8 14 3/8 - 11 3/4 June 30 14 7/8 - 13 14 3/4 - 11 5/8 September 30 13 1/2 - 9 7/8 13 1/8 - 10 7/8 December 31 12 3/4 - 10 1/8 18 3/4 - 10 1/4 For information on dividend payments, see Selected Financial Data in Item 6 below and "Dividends" under Management's Discussion and Analysis on page 27. As of March 4, 1994, there was approximately 1,523 record holders of the Company's Common Stock. ITEM 6. SELECTED FINANCIAL DATA SELECTED CONSOLIDATED FINANCIAL INFORMATION (In thousands, except per share data) OPERATING SUMMARY 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Revenues Construction operations $1,030,341 $1,023,274 $ 919,641 $ 983,689 $ 830,553 Real estate operations 69,775 47,578 72,267 31,331 70,216 ---------- ---------- ---------- ---------- ---------- Total Revenues $1,100,116 $1,070,852 $ 991,908 $1,015,020 $ 900,769 ========== ========== ========== ========== ========== Gross Profit $ 52,786 $ 22,189 $ 60,854 $ 43,388 $ 74,377 ---------- ---------- ---------- ---------- ---------- Net Income (Loss) $ 3,165 $ (16,984) $ 3,178 $ (2,575) $ 13,152 ---------- ----------- ---------- ----------- ---------- Per Share of Common Stock: Net income (loss) $ .24 $ (4.69) $ .27 $ (1.20) $ 3.11 ---------- ----------- ---------- ----------- ---------- Cash dividends declared $ - $ - $ - $ .60 $ .80 ---------- ----------- ---------- ---------- ---------- Book value $ 24.49 $ 23.29 $ 28.96 $ 28.48 $ 30.10 ---------- ---------- ---------- ---------- ---------- Weighted Average Number of Common Shares Outstanding 4,265 4,079 3,918 3,916 3,545 ---------- ---------- ---------- ---------- ---------- FINANCIAL POSITION SUMMARY Working Capital $ 36,877 $ 31,028 $ 30,724 $ 33,756 $ 40,203 ---------- ---------- ---------- ---------- ---------- Current Ratio 1.17:1 1.14:1 1.16:1 1.16:1 1.21:1 ---------- ---------- ---------- ---------- ---------- Long-term Debt, less current maturities $ 82,366 $ 85,755 $ 96,294 $ 100,912 $ 82,848 ---------- ---------- ---------- ---------- ---------- Stockholders' Equity $ 131,143 $ 121,765 $ 138,644 $ 136,682 $ 142,970 ---------- ---------- ---------- ---------- ---------- Ratio of Long-term Debt to Equity .63:1 .70:1 .69:1 .74:1 .58:1 ---------- ---------- ---------- ---------- ---------- Total Assets $ 476,378 $ 470,696 $ 498,574 $ 509,707 $ 456,000 ---------- ---------- ---------- ---------- ---------- OTHER DATA Backlog at Year-end $1,238,141 $1,169,553 $1,233,958 $1,091,077 $1,018,912 ---------- ---------- ---------- ---------- ----------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATION - 1993 COMPARED TO 1992 The improved operating results in 1993 resulted in net income of $3.2 million (or $.24 per common share) compared to a net loss in 1992 of $17 million (or $4.69 per common share). The primary reason for this improvement was the nominal profit generated by real estate operations in 1993 compared to a $47 million operating loss in 1992 which included a $31.4 million pretax net realizable value writedown on certain real estate assets management decided to liquidate in the near-term. However, profits from construction operations decreased due primarily to the mix of work performed in 1993, relatively more of the lower margin building work and relatively less of the higher margin heavy and pipeline construction work, the latter being due to the sale by the Company of its 74%-ownership interest in Majestic Contractors Limited ("Majestic"), its Canadian pipeline construction subsidiary, in January, 1993. Revenues reached a new record for the second consecutive year and amounted to $1.100 billion in 1993 compared to $1.071 billion in 1992, an increase of $29 million (or 3%). This increase resulted primarily from a net increase in construction revenues of $7 million from $1.023 million in 1992 to $1.030 million in 1993 due primarily to an increase in volume from building operations of $113 million (or 19%), from $604 million in 1992 to $717 million in 1993 due to an increased backlog going into 1993 and certain fast- track hotel/casino projects included in the backlog, and to a lesser degree, a small increase in heavy construction revenues. These increases more than offset the $101 million decrease in revenues from pipeline construction due to the sale referred to above and a $14 million decrease from engineering services due to the sale of Monenco Group Ltd. ("Monenco") in the first quarter of 1992. In addition, revenues from real estate operations increased by $22.2 million, from $47.6 million in 1992 to $69.8 million in 1993 due primarily to the sale of a partnership interest in certain commercial rental properties in San Francisco ($23.2 million) and, to a lesser degree, a $7 million increase in land sales in Florida. Gross profit in 1993 increased by $30.6 million, from $22.2 million in 1992 to $52.8 million in 1993 due primarily to a $47.2 million increase from real estate operations, from a $43.5 million loss in 1992 to a $3.7 million profit in 1993. This improvement from real estate operations is due primarily to the non-recurring $31.4 million pretax net realizable value writedown in 1992 referred to previously, the profitable sale of certain commercial rental properties in San Francisco, profitable land sales in Florida and a $1.3 million improvement in results from a major ongoing operating property, The Resort at Squaw Creek. This increase in gross profit was offset by a decrease in gross profit from construction operations of $16.6 million, from $65.7 million in 1992 to $49.1 million in 1993 due primarily to the sale of Majestic and Monenco referred to above, a combined $18 million decrease. Total general, administrative and selling expenses increased by $2.9 million (or 7%) in 1993, from $41.3 million in 1992 to $44.2 million in 1993 due to several factors, including $2.2 million related to the acquisition referred to in Note 1 to Notes to the Consolidated Financial Statements on page 36, a $2.1 million expense for severance incurred in connection with re-engineering some of the business units, and additional personnel for the Company's ongoing heavy construction operations. These increases were partially offset by the $5.1 million decrease resulting from the sale of Majestic referred to above. The increase in other income of $4.8 million, from $.4 million in 1992 to $5.2 million in 1993 is due to the gain of $4.6 million on the sale of Majestic and a decrease in the deduction for minority interest, both of which were partially offset by the nonrecurring gain of $2 million from the sale of Monenco in 1992. The decrease in interest expense of $2 million (or 26%), from $7.7 million in 1992 to $5.7 million in 1993 primarily results from lower interest rates during 1993 and lower average borrowings due to the continued pay down of real estate and other debt, and, to a lesser degree, less interest expense related to Majestic due to the sale. The higher-than-normal tax rate in 1993 is due to additional tax provided on the gain on the sale of Majestic for the difference between the book and tax bases of the Company's investment in this subsidiary. Looking ahead, we must consider the Company's construction backlog and remaining inventory of real estate projects. While the overall construction backlog at December 31, 1993 was 6% higher than the 1992 level, slightly less than half of this backlog was obtained in the fourth quarter of 1993. With several of the contracts in the backlog going through the start-up phase and severe winter weather in the Northeast, construction revenues should be lower during the first half of 1994 and higher in the second half of 1994, as compared with prior year amounts. This increase in backlog can be attributable to an increase in the backlog of heavy construction contracts. This increase could indicate a relative increase in higher margin heavy construction revenues in the future. At December 31, 1993, only 21 acres of the Company's Villages of Palm Beach Lakes, Florida land remain in inventory. Because of its low book value, sales of this acreage have provided a major portion of the Company's real estate profit in recent years. When this is fully sold, the Company's ability to generate profit from real estate sales and the related gross margin will be reduced. Since 1989, property prices in general have fallen substantially due to the liquidity in real estate markets and reduced demand. Recently, the Company has noted improvement in some property areas. This trend has had some effect on residential property sales negotiated by the Company for 1994 closings, but is still not widespread nor proven to be sustainable. The Company's profitability will also be affected by the continuation of from $3-4 million of annual depreciation recognized through its share of ownership in joint venture properties which to date has not been fully covered by operating profit. For 1994, the Company has currently under contract for scheduled closings two major land sales, one in Florida and the other in Massachusetts. If both transactions meet their scheduled closing dates, they will produce over $6 million in revenue and have an important profit impact on the Company. However, until the sale of the project actually occurs, this revenue and profit cannot be assured since it is not unusual for such closings to be delayed or cancelled. RESULTS OF OPERATIONS - 1992 COMPARED TO 1991 Operations in 1992 resulted in a net loss of $17 million (or $4.69 per common share) compared to 1991 net income of $3.2 million (or $.27 per common share). The primary reason for this decline in earnings was a substantial loss recorded by the Company's real estate operations, due to a combination of significant operating losses and a $30 million pre-tax net realizable value writedown in the fourth quarter of 1992 on certain real estate assets management decided to liquidate in the near-term. These losses and writedown resulted from a weakening in property values caused by the continuing adverse impact of the national real estate recession, the surplus of real estate product for sale in most markets, and severely restricted financing sources (both domestic and foreign) for potential buyers due to the well-publicized problems in the commercial banking industry. Overall construction operations, on the other hand, reached an all-time record level of profitability in 1992 due to the fourth consecutive year of record earnings from domestic construction operations, as well as a significant increase in earnings from Canadian pipeline operations. In January 1993, the Company sold its investment in the Canadian pipeline operation (see Note 1 to Notes to the Consolidated Financial Statements on page 40). Revenues reached a record of $1.071 billion in 1992 compared to $992 million in 1991, an increase of $79 million (or 8%). This increase reflected an overall increase in construction revenues of $103 million (or 11%), from $920 million in 1991 to $1.023 billion in 1992, which was partially offset by a decline in real estate revenues of $24 million (or 33%), from $72 million in 1991 to $48 million in 1992. The increase in construction revenues was due primarily to increased volume from building construction operations which increased $97 million (or 19%), from $507 million in 1991 to $604 million in 1992, resulting from a high level of activity in the hotel/casino market as well as a higher overall backlog of work going into 1992 compared to 1991. In addition, revenues from Canadian pipeline operations increased $32 million (or 46%), from $69 million in 1991 to $101 million in 1992, due primarily to higher margins on projects obtained in the resurgent Canadian natural gas pipeline construction market. Revenues from international construction operations increased $32 million, more than tripling the 1991 level of $15 million, due primarily to a higher backlog of work entering 1992 compared to 1991. These increases in construction revenues were partially offset by a decrease in volume from engineering services of $41 million, from $54 million in 1991 to $13 million in 1992 due to the sale in the first quarter of 1992 of the Company's investment in Monenco and, to a lesser degree, a decrease in volume from heavy operations of $10 million (or 4%) from $263 million in 1991 to $253 million in 1992 due to the timing in start-up of new projects. The decrease in real estate revenues was due to a decrease in real estate closings, primarily in the California and Florida market areas where sales activity remained constrained due to the factors noted above. Gross profit in 1992 decreased $38.7 million (or 64%), from $60.9 million in 1991 to $22.2 million in 1992 due primarily to a $43.1 million decrease from real estate operations, from a $.4 million loss in 1991 to a $43.5 million loss in 1992, caused by the reasons mentioned above. Gross profit from construction operations increased $4.4 million (or 7%), from $61.3 million in 1991 to $65.7 million in 1992 due primarily to the higher revenues discussed above as well as strong operating results achieved in Canada where certain pipeline projects were successfully completed. Total general, administrative and selling expenses decreased $7.2 million (or 15%) from $48.5 million in 1991 to $41.3 million in 1992 due primarily to the impact of cost reduction programs implemented in recent years throughout the Company's corporate, construction and real estate operations and, to a lesser degree, a reduction in sales commissions resulting from the decrease in real estate land sales. Other income decreased $.7 million, from $1.1 million in 1991 to $.4 million in 1992. A $2 million gain relating to the Company's sale of its 45%- interest in Monenco in 1992 was more than offset by the increase in the deduction for minority interest in the 1992 earnings of Majestic. Interest expense decreased $1.4 million, from $9 million in 1991 to $7.6 million in 1992, due primarily to lower average interest rates on borrowings under the Company's credit facilities and repayment of loans in early 1992 relating to the sale of Monenco. The tax credit for 1992 reflects an effective tax rate of 36% compared to the Federal statutory rate of 34%, because of the impact of foreign and state tax credits. FINANCIAL CONDITION CASH AND WORKING CAPITAL During 1993, the Company used $39.1 million of cash for investment activities, primarily to fund construction and real estate joint ventures; $3 million for financing activities, primarily to pay down company debt; and $1.6 million to fund operating activities, primarily changes in working capital. In the future, the Company has additional financial commitments to certain real estate joint ventures as described in Footnote 11 to Notes to the Consolidated Financial Statements which start on page 50. During 1992, the Company provided $55.4 million of cash from operations and $14.2 million of cash from the sale of its investment in Monenco. Of this amount, $29.9 million was used for investing activities, primarily in two real estate joint ventures and, to a lesser degree, real estate properties used in operations; $7.1 million was used for financing activities, primarily to pay down company debt; and the remaining amount ($31.7 million, net) increased cash on hand. During 1991, the Company used $50.9 million of cash for investing activities, primarily in two real estate joint ventures and, to a lesser degree, in land held for sale or development and construction equipment, and a net of $24.2 million of cash primarily to pay down company debt. These uses of cash were funded by cash provided by operations ($70.9 million) and an overall reduction in cash of $4.2 million. The two recently completed real estate development joint ventures referred to above are currently experiencing operating profits before depreciation, but show negative cash flow after debt service. Since 1990 the Company has paid down $33.2 million of real estate debt on wholly-owned real estate projects (from $50.9 million to $17.7 million) utilizing proceeds from sales of property and general corporate funds. Similarly, real estate joint venture debt has been reduced by $127 million over the same period. As a result, the Company has reached a point at which revenues from further real estate sales which, in the past, have been largely used to retire real estate debt will be increasingly available to improve general corporate liquidity. With the exception of the major properties mentioned above, this trend should continue over the next several years with debt on projects often being fully repaid prior to full project sell out. On the other hand, the softening of the national real estate market coupled with problems in the commercial banking industry have significantly reduced credit availability for both new real estate development projects and the sale of completed product, sources historically relied upon by the Company and its customers to meet liquidity needs for its real estate development business. The Company has addressed this problem by relying on corporate borrowings, extending certain maturing real estate loans (with such extensions usually requiring pay downs and increased annual amortization of the remaining loan balance), suspending the acquisition of new real estate inventory, significantly reducing development expenses on certain projects, utilizing treasury stock in partial payment of amounts due under certain of its incentive compensation plans, utilizing cash internally generated from operations and, during the first quarter of 1992, selling its interest in Monenco. In addition, in January, 1993, the Company sold its majority interest in Majestic for approximately $31.7 million in cash. Since Majestic had been fully consolidated, the net result to the Company was to increase working capital by $8 million and cash by $4 million. In addition, the Company implemented a company-wide cost reduction program in 1990, and again in 1991 and 1993 to improve long-term financial results and suspended the dividend on its common stock during the fourth quarter of 1990. Also, the Company increased the aggregate amount available under its revolving credit agreement from $53 million to $70 million in May, 1993. Management believes that cash generated from operations, existing credit lines and additional borrowings should probably be adequate to meet the Company's funding requirements for at least the next twelve months. However, the withdrawal of many commercial lending sources from both the real estate and construction markets and/or restrictions on new borrowings and extensions on maturing loans by these very same sources cause uncertainties in predicting liquidity. In addition to internally generated funds, the Company has access to additional funds under its $18 million short-term lines of credit and its $70 million long-term revolving credit facility. At December 31, 1993, the Company has $18 million available under its short-term lines of credit and $.5 million available under its revolving credit facility. The full amount available under the credit facilities may be borrowed during any fiscal quarter. However, financial covenants limiting the debt to equity ratio contained in the agreements governing these facilities limit the amount of borrowings which may be outstanding at the end of any fiscal quarter. Based on these covenants, $4.3 million of additional borrowing capacity was available at December 31, 1993. The financial covenants to which the Company is subject include minimum levels of working capital, debt/net worth ratio, net worth level and interest coverage all as defined in the loan documents. The Company is in compliance with all of its covenants as of the most recent balance sheet date. The working capital current ratio improved to 1.17:1 at the end of 1993, compared to 1.14:1 at the end of 1992 and 1.16:1 at the end of 1991. Of the total working capital of $36.9 million at the end of 1993, $15 million may not be converted to cash within the next 12-18 months. LONG-TERM DEBT Long-term debt was $82.4 million at the end of 1993 which represented a decrease of $3.4 million compared with $85.8 million at the end of 1992, which was a decrease of $10.5 million from the $96.3 million at the end of 1991. Of the total decrease in 1992, $5.5 million was due to repayment of loans relating to the purchase of Monenco in 1987 and, to a lesser degree, equipment financings. The ratio of long-term debt to equity stood at .63:1 at the end of 1993 compared to .70:1 at the end of 1992 and .69:1 at the end of 1991. STOCKHOLDERS' EQUITY The Company's book value per common share stood at $24.49 at December 31, 1993, compared to $23.29 per common share and $28.96 per common share at the end of 1992 and 1991, respectively. The major factors impacting stockholders' equity during the three-year period under review were results of operations, preferred dividends and, in 1992 and 1993, treasury stock issued in partial payment of incentive compensation. At December 31, 1993, there were 1,433 common stockholders of record based on the stockholders list maintained by the Company's transfer agent. DIVIDENDS There were no cash dividends declared during 1993, 1992 or 1991 on the Company's outstanding common stock. It is management's intent to recommend reinstating dividends on common stock once it is prudent to do so. In 1987, the Company issued 1,000,000 depositary convertible exchangeable preferred shares, each depositary share representing ownership of 1/10 of a share of $21.25 convertible exchangeable preferred stock. During the three-year period ended December 31, 1993, the Board of Directors declared regular quarterly cash dividends of $5.3125 per share for the annual total of $21.25 per share (equivalent to quarterly dividends of $.53125 per depositary share for an annual total of $2.125 per depositary share). Dividends on preferred shares are cumulative and are payable quarterly before any dividends may be declared or paid on the common stock of the Company (see Note 7 to Notes to the Consolidated Financial Statements on page 47). ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Reports of Independent Public Accountants, Consolidated Financial Statements, and Supplementary Schedules, are set forth on the pages that follow in this Report and are hereby incorporated herein. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Reference is made to the information to be set forth in the section entitled "Election of Directors" in the definitive proxy statement involving election of directors in connection with the Annual Meeting of Stockholders to be held on May 19, 1994 (the "Proxy Statement"), which section is incorporated herein by reference. The Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 1993 pursuant to Regulation 14A of the Securities and Exchange Act of 1934, as amended. Listed below are the names, offices held, ages and business experience of all executive officers of the Company. Year First Elected To Present Name, Offices Held and Age Office and Business Experience - - -------------------------- ------------------------------ David B. Perini, Director, He has served as a Director, President, Chairman, President and Chief Chief Executive Officer and Acting Executive Office - 56 Chairman since 1972. He became Chairman on March 17, 1978 and has worked for the Company since 1962 in various capacities. Prior to being elected President, he served as Vice President and General Counsel. Thomas E. Dailey, Director, He served in this capacity since July, Executive Vice President, 1992, which entails overall responsibility Construction - 61 for all of the Company's building, heavy and international construction operations. Prior to that, he served as President, Construction Group since January, 1986. Since June, 1984, he had been serving as Vice President and General Manager, Western Building Division. Before that he was Chairman of the Company's Detroit-based subsidiary, R. E. Dailey & Co. Joining that company in 1956, he was elected Vice President in 1964, President in 1968 and Chairman in 1977. James M. Markert, Director, He has served in his Sr. Vice President, Finance and present capacity since June, 1984, which Administration - 60 entails overall responsibility for the Company's financial and administrative matters. Previously, he was Treasurer of Fluor Corporation since 1980. John H. Schwarz, Chief Exec. He has served in his present capacity Officer of Perini Land and since April, 1992, which entails overall Development Company - 55 responsibility for the Company's real estate operations. Prior to that, he served as Vice President, Finance and Controls of Perini Land and Development Company. Previously, he served as Treasurer from August, 1984, and Director of Corporate Planning since May, 1982. He joined the Company in 1979 as Manager of Corporate Development. The Company's officers are elected on an annual basis at the Board of Directors Meeting immediately following the Shareholders Meeting in May, to hold such offices until the Board of Directors Meeting following the next Annual Meeting of Shareholders and until their respective successors have been duly appointed or until their tenure has been terminated by the Board of Directors, or otherwise. _____________________________________________________________________________ ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In response to Items 11-13, reference is made to the information to be set forth in the section entitled "Election of Directors" in the Proxy Statement, which is incorporated herein by reference. PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K PERINI CORPORATION AND SUBSIDIARIES (a)1. The following financial statements and supplementary financial information are filed as part of this report: Pages Financial Statements of the Registrant Consolidated Balance Sheets as of December 31, 1993 and 34 - 35 1992 Consolidated Statements of Operations for the three years 36 ended December 31, 1993, 1992 and 1991 Consolidated Statements of Stockholders' Equity for the 37 three years ended December 31, 1993, 1992 and 1991 Consolidated Statements of Cash Flows for the three years 38 - 39 ended December 31, 1993, 1992 and 1991 Notes to Consolidated Financial Statements 40 - 54 Report of Independent Public Accountants 55 (a)2. The following financial statement schedules are filed as part of this report: Pages Report of Independent Public Accountants on Schedules 56 Schedule II -- Amounts Receivable from Related Parties and 57 Underwriters, Promoters and Employees other than Related Parties Schedule VIII -- Valuation and Qualifying Accounts and 58 Reserves All other schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in the Consolidated Financial Statements or in the Notes thereto. Separate condensed financial information of the Company has been omitted since restricted net assets of subsidiaries included in the consolidated financial statements and its equity in the undistributed earnings of 50% or less owned persons accounted for by the equity method do not, in the aggregate, exceed 25% of consolidated net assets. (a)3. Exhibits The exhibits which are filed with this report or which are incorporated herein by reference are set forth in the Exhibit Index which appears on pages 59 through 60. The Company will furnish a copy of any exhibit not included herewith to any holder of the Company's common and preferred stock upon request. (b) During the quarter ended December 31, 1993, the Registrant made no filings on Form 8-K. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. PERINI CORPORATION (Registrant) Dated: August 2, 1994 s/David B. Perini ----------------- David B. Perini Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated. Signature Title Date (i) Principal Executive Officer David B. Perini Chairman, President and Chief Executive Officer s/David B. Perini August 2, 1994 - - ----------------- David B. Perini (ii) Principal Financial Officer John H. Schwarz Executive Vice President, Finance & Administration s/John H. Schwarz August 2, 1994 - - ----------------- John H. Schwarz (iii) Principal Accounting Officer Barry R. Blake Vice President and Controller s/Barry R. Blake August 2, 1994 - - ---------------- Barry R. Blake (iv) Directors David B. Perini ) Joseph R. Perini )By Richard J. Boushka ) Marshall M. Criser )s/David B. Perini Thomas E. Dailey )----------------- Albert A. Dorman ) David B. Perini Arthur J. Fox, Jr. ) Nancy Hawthorne ) Marshall A. Jacobs ) Attorney in Fact Robert M. Jenney ) Dated: August 1, 1994 James M. Markert ) John J. McHale ) Jane E. Newman ) Bart W. Perini ) Consolidated Balance Sheets December 31, 1993 and 1992 (In thousands except per share data) Assets 1993 1992 ---- ---- CURRENT ASSETS: Cash, including cash equivalents of $20,354 and $52,749 (Note 1) $ 35,871 $ 79,563 Accounts and notes receivable, including retainage of $45,084 and $48,748 123,009 123,189 Unbilled work 14,924 8,878 Construction joint ventures (Notes 1 and 2) 61,156 29,654 Real estate inventory, at the lower of cost or market (Note 1) 11,666 7,225 Deferred income taxes (Notes 1 and 5) 7,702 - Other current assets 3,274 3,505 -------- -------- Total current assets $257,602 $252,014 -------- -------- REAL ESTATE DEVELOPMENT INVESTMENTS: Land held for sale or development (including land development costs) at the lower of cost or market (Note 1) $ 48,011 $ 46,943 Investments in and advances to real estate joint ventures (Notes 1, 2 and 11) 138,095 127,104 Real estate properties used in operations, less accumulated depreciation of $3,638 and $3,181 12,678 16,235 Other - 636 -------- -------- Total real estate development investments $198,784 $190,918 -------- -------- PROPERTY AND EQUIPMENT, at cost: Land $ 1,451 $ 1,307 Buildings and improvements 15,566 15,455 Construction equipment 16,440 40,388 Other equipment 11,625 11,624 -------- -------- $ 45,082 $ 68,774 Less - Accumulated depreciation (Note 1) 28,986 44,233 -------- -------- Total property and equipment, net $ 16,096 $ 24,541 -------- -------- OTHER ASSETS: Other investments $ 2,188 $ 1,473 Goodwill (Note 1) 1,708 1,750 -------- -------- Total other assets $ 3,896 $ 3,223 -------- -------- $476,378 $470,696 ======== ======== The accompanying notes are an integral part of these financial statements. Liabilities and Stockholders' Equity 1993 1992 -------- -------- CURRENT LIABILITIES: Current maturities of long-term debt (Note 4) $ 7,617 $ 10,776 Accounts payable, including retainage of $45,508 and $34,168 136,231 134,750 Deferred contract revenue 25,867 25,768 Accrued expenses 47,827 49,170 Accrued income taxes (Notes 1 and 5) 3,183 522 -------- -------- Total current liabilities $220,725 $220,986 -------- -------- DEFERRED INCOME TAXES AND OTHER LIABILITIES (Notes 1 and 5) $ 38,794 $ 30,830 -------- -------- LONG-TERM DEBT, less current maturities included above (Note 4): Real estate development $ 11,382 $ 17,661 Other 70,984 68,094 -------- -------- Total long-term debt $ 82,366 $ 85,755 -------- -------- MINORITY INTEREST (Note 1) $ 3,350 $ 11,360 -------- -------- CONTINGENCIES AND COMMITMENTS (Note 11) STOCKHOLDERS' EQUITY (Notes 1, 7, 8, 9 and 10): Preferred stock, $1 par value - Authorized - 1,000,000 shares Issued and outstanding - 100,000 shares ($25,000 aggregate liquidation preference) $ 100 $ 100 Series A junior participating preferred stock, $1 par value - Authorized - 200,000 Issued - none Common stock, $1 par value - Authorized - 7,500,000 shares Issued - 4,985,160 shares 4,985 4,985 Paid-in surplus 59,875 60,019 Retained earnings 83,594 82,554 Cumulative translation adjustment - (4,696) ESOT related obligations (6,982) (7,888) ------- --------- $141,572 $135,074 Less - Common stock in treasury, at cost - 654,353 shares and 835,036 shares 10,429 13,309 -------- -------- Total stockholders' equity $131,143 $121,765 -------- -------- $476,378 $470,696 ======== ======== Consolidated Statements of Operations For the years ended December 31, 1993, 1992 & 1991 (In thousands, except per share data) 1993 1992 1991 ---------- ---------- -------- REVENUES (Notes 2 and 14) $1,100,116 $1,070,852 $991,908 COSTS AND EXPENSES (Notes 2 and 10): Cost of operations $1,047,330 $1,048,663 $931,054 General, administrative and selling expenses 44,212 41,328 48,530 ---------- ---------- -------- $1,091,542 $1,089,991 $979,584 ---------- ---------- -------- INCOME (LOSS) FROM OPERATIONS (Note 14) $ 8,574 $ (19,139) $ 12,324 ---------- ----------- -------- Other income, net (Note 6) 5,207 436 1,136 Interest expense, net of capitalized amounts (Notes 1, 3 and 4) (5,655) (7,651) (9,022) ----------- ----------- --------- INCOME (LOSS) BEFORE INCOME TAXES $ 8,126 $ (26,354) $ 4,438 (Provision) credit for income taxes (Notes 1 and 5) (4,961) 9,370 (1,260) ----------- ----------- --------- NET INCOME (LOSS) $ 3,165 $ (16,984) $ 3,178 =========== =========== ========= EARNINGS (LOSS) PER COMMON SHARES (Note 1) $ .24 $ (4.69) $ .27 ========== =========== ======== The accompanying notes are an integral part of these financial statements. Consolidated Statements of Stockholders' Equity For the Years Ended December 31, 1993, 1992 & 1991 (In thousands, except per share data) Cumulative ESOT Preferred Common Paid-In Retained Translation Related Treasury Stock Stock Surplus Earnings Adjustment Obligation Stock Balance-December 31, 1990 $100 $4,985 $60,635 $100,610 $(3,080) $(9,528) $(17,040) Net income - - - 3,178 - - - Preferred stock-cash dividends declared ($21.25 per share*) - - - (2,125) - - - Restricted stock awarded - - (8) - - - 80 Translation adjustment - - - - 45 - - Payments related to ESOT notes - - - - - 792 - Balance-December 31, 1991 $100 $4,985 $60,627 $101,663 $(3,035) $(8,736) $(16,960) Net Income (loss) - - - (16,984) - - - Preferred stock-cash dividends declared ($21.25 per share*) - - - (2,125) - - - Treasury stock issued in partial payment of incentive compensation - - (606) - - - 3,642 Restricted stock awarded - - (2) - - - 9 Translation adjustment - - - - (1,661) - - Payments related to ESOT notes - - - - - 848 - Balance-December 31, 1992 $100 $4,985 $60,019 $ 82,554 $(4,696) $(7,888) $(13,309) Net income - - - 3,165 - - - Preferred stock-cash dividends declared ($21.25 per share*) - - - (2,125) - - - Treasury stock issued in partial payment of incentive compensation - - (143) - - - 2,872 Restricted stock awarded - - (1) - - - 8 Related to Sale of Majestic - - - - 4,696 - - Payments related to ESOT notes - - - - - 906 - Balance-December 31, 1993 $100 $4,985 $59,875 $ 83,594 $ - $(6,982) $(10,429)
*Equivalent to $2.125 per depositary share (see Note 7). The accompanying notes are an integral part of these financial statements. Consolidated Statements of Cash Flows For the years ended December 31, 1993, 1992 & 1991 (In thousands) 1993 1992 1991 -------- --------- -------- Cash Flows from Operating Activities: Net income (loss) $ 3,165 $(16,984) $ 3,178 Adjustments to reconcile net income (loss) to net cash from operating activities - Depreciation and amortization 3,515 6,297 7,190 Non-current deferred taxes and other liabilities 11,239 (13,236) 3,406 Distributions greater (less) than earnings of joint ventures and affiliates (2,821) 9,412 (2,291) Writedown of certain real estate properties - 31,368 2,800 (Gain) on sale of Monenco - (1,976) - (Gain) on sale of Majestic (Notes 1 and 6) (4,631) - - (Gain) loss on sale of fixed assets (299) (570) (94) Minority interest, net (78) 2,001 1,292 Cash provided from (used by) changes in components of working capital other than cash, notes payable and current maturities of long-term debt (19,653) 35,819 29,549 Real estate development investments other than joint ventures 10,908 6,253 18,322 Other non-cash items, net (2,922) (2,972) 7,501 --------- --------- -------- NET CASH FROM OPERATING ACTIVITIES $ (1,577) $ 55,412 $ 70,853 --------- --------- -------- Cash Flows from Investing Activities: Proceeds from sale of property and equipment $ 1,344 $ 1,890 $ 1,815 Cash distributions of capital from unconsolidated joint ventures 4,977 3,413 4,469 Acquisition of property and equipment (4,387) (4,044) (6,614) Improvements to land held for sale or development (4,227) (4,341) (8,307) Improvements to and acquisitions of real estate properties used in operations (614) (6,310) (894) Capital contributions to unconsolidated joint ventures (24,579) (8,425) (8,503) Advances to real estate joint ventures, net (16,031) (12,091) (33,991) Proceeds from sale of Monenco shares - 14,180 - Proceeds from sale of Majestic, net of subsidiary's cash 4,377 - - Investments in other activities - (3) 1,127 --------- --------- --------- NET CASH USED BY INVESTING ACTIVITIES $(39,140) $(15,731) $(50,898) --------- --------- --------- Consolidated Statements of Cash Flows (Continued) For the years ended December 31, 1993, 1992 & 1991 (In thousands) Cash Flows from Financing Activities: Proceeds from long-term debt $ 8,014 $ 9,571 $ 4,563 Repayment of long-term debt (11,600) (17,590) (18,661) Cash dividends paid (2,125) (2,125) (2,125) Treasury stock issued 2,736 3,043 72 Repayment of notes payable to banks - - (8,000) --------- --------- --------- NET CASH USED BY FINANCING ACTIVITIES $ (2,975) $ (7,101) $(24,151) --------- --------- --------- Effect of Exchange Rate Changes on Cash $ - $ (831) $ 18 --------- --------- --------- Net Increase (Decrease) in Cash $(43,692) $ 31,749 $ (4,178) Cash and Cash Equivalents at Beginning of Year 79,563 47,814 51,992 --------- --------- --------- Cash and Cash Equivalents at End of Year $ 35,871 79,563 $ 47,814 ========= ========= ========= Supplemental Disclosures of Cash Paid During the Year For: Interest, net of amounts capitalized $ 5,947 $ 10,995 $ 7,953 ========= ========= ========= Income tax payments (refunds) $ 843 $ (2,603) $(10,446) ========= ========= ========= The accompanying notes are an integral part of these financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1993, 1992 & 1991 [1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [a] Principles of Consolidation The consolidated financial statements include the accounts of Perini Corporation, its subsidiaries and certain majority-owned real estate joint ventures (the "Company"). All subsidiaries are wholly-owned except Majestic Contractors Limited ("Majestic"), which was approximately 74%-owned and Perland Environmental Technologies, Inc., which is approximately 90%-owned. All significant intercompany transactions and balances have been eliminated in consolidation. Non-consolidated joint venture interests are accounted for on the equity method with the Company's share of revenues and costs in these interests included in "Revenues" and "Cost of Operations," respectively, in the accompanying consolidated statements of operations. All significant intercompany profits between the Company and its joint ventures have been eliminated in consolidation. Taxes are provided on joint venture results in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. In January, 1993, the Company sold its 74%-ownership in Majestic, its Canadian pipeline construction subsidiary, for $31.7 million which resulted in an after tax gain of approximately $1.0 million. Effective July 1, 1993, the Company acquired Gust K. Newberg Construction Co.'s ("Newberg") interest in certain construction projects and related equipment. The purchase price for the acquisition was (i) approximately $3 million in cash for the equipment paid by a third party leasing company, which in turn simultaneously entered into an operating lease agreement with the Company for the use of said equipment, (ii) the greater of $1 million or 25% of the aggregate pretax earnings during the period from April 1, 1993 through December 31, 1994, net of payments accruing to Newberg as described in (iii) below, and (iii) 50% of the aggregate of net profits earned from each project from April 1, 1993 through December 31, 1994 and, with regard to one project through December 31, 1995. This acquisition is being accounted for as a purchase. If this acquisition had been consummated as of January 1, 1992, the 1992 and 1993 pro forma results would have been, respectively, Revenues of $1,164,444,000 and $1,134,264,000 and Net Income (Loss) of $(14,935,000) ($(4.18) per common share) and $3,724,000 ($.37 per common share). [b] Translation of Foreign Currencies The accounts of the Canadian subsidiary are translated in accordance with Statement of Financial Accounting Standards (SFAS) No. 52, under which translation adjustments are accumulated directly as a separate component of stockholders' equity. Gains and losses on foreign currency transactions are included in results of operations during the period in which they arise. [c] Method of Accounting for Contracts Profits from construction contracts and construction joint ventures 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 Company's 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 which caused the revision became 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 claims is recorded in the year such claims are resolved. In accordance with normal practice in the construction industry, the Company includes 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. [d] Methods of Accounting for Real Estate Operations All real estate sales are recorded in accordance with SFAS. No. 66. Gross profit is not recognized in full unless the collection of the sale price is reasonably assured and the Company is not obliged to perform significant activities after the sale. Unless both conditions exist, recognition of all or a part of gross profit is deferred. The gross profit recognized on sales of real estate is determined by relating the estimated total land, land development and construction costs of each development area to the estimated total sales value of the property in the development. Real estate investments are stated at the lower of cost, which includes applicable interest and real estate taxes during the development and construction phases, or market. The market or net realizable value of a development is determined by estimating the sales value of the development in the ordinary course of business less the estimated costs of completion (to the stage of completion assumed in determining the selling price), holding and disposal. Estimated sales values are forecast based on comparable local sales (where applicable), trends as foreseen by knowledgeable local commercial real estate brokers or others active in the business and/or project specific experience such as offers made directly to the Company relating to the property. If the net realizable value of a development is less than the cost of a development, a provision is made to reduce the carrying value of the development to net realizable value. These provisions (or writedowns to net realizable value) amounted to $31.4 million in 1992 and $2.8 million in 1991. At present, the Company believes its remaining real estate properties are carried at amounts at or below their net realizable values considering the expected timing of their disposal. Interest expense incurred by the Company and capitalized during the development or construction phase amounted to $.2 million in 1993 and 1992, and $2.2 million in 1991. [e] Depreciable Property and Equipment Land, buildings and improvements, construction and computer-related equipment and other equipment are recorded at cost. Depreciation is provided primarily using accelerated methods for construction and computer-related equipment and the straight-line method for the remaining depreciable property. [f] Goodwill Goodwill represents the excess of the costs of subsidiaries acquired over the fair value of their net assets as of the dates of acquisition. These amounts are being amortized on a straight-line basis over 40 years. [g] Income Taxes Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," the adoption of which did not result in a material impact on the accompanying financial statements (see Note 5). It is the policy of the Company to accrue appropriate U.S. and foreign income taxes on earnings of foreign subsidiaries which are intended to be remitted to the Company. [h] Earnings Per Common Share Computations of earnings per common share amounts are based on the weighted average number of common shares outstanding during the respective periods. During the three-year period ended December 31, 1993, earnings per common share reflect the effect of preferred dividends accrued during the year. Common stock equivalents related to additional shares of common stock issuable upon exercise of stock options (see Note 9) have not been included since their effect would be immaterial or antidilutive. Earnings per common share on a fully diluted basis are not presented because the effect of conversion of the Company's depositary convertible exchangeable preferred shares into common stock is antidilutive. [i] Cash and Cash Equivalents Cash equivalents include short-term, highly liquid investments with original maturities of three months or less. [j] Reclassifications Certain prior year amounts have been reclassified to be consistent with the current year classifications. [2] JOINT VENTURES The Company, in the normal conduct of its business, has entered into certain partnership arrangements, referred to as "joint ventures," for construction and real estate development projects. 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. Summary financial information (in thousands) for construction and real estate joint ventures accounted for on the equity method for the three years ended December 31, 1993 follows: Construction Joint Ventures Financial position at December 31, 1993 1992 1991 -------- --------- --------- Current assets $241,905 $216,568 $177,388 Property and equipment, net 17,228 18,203 10,434 Current liabilities (151,181) (155,026) (103,785) --------- --------- --------- Net assets $107,952 $ 79,745 $ 84,037 ========= ========= ========= Operations for the year ended December 31, 1993 1992 1991 --------- --------- --------- Revenue $626,327 $487,758 $419,772 Cost of operations 574,383 445,494 381,508 --------- --------- --------- Pretax income $ 51,944 $ 42,264 $ 38,264 ========= ========= ========= Company's share of joint ventures Revenue $293,547 $254,265 $207,458 Cost of operations 272,137 231,564 184,996 --------- --------- --------- Pretax income $ 21,410 $ 22,701 $ 22,462 ========= ========= ========= Equity $ 61,156 $ 29,654 $ 29,958 ========= ========= ========= Real Estate Joint Ventures Financial position at December 31, 1993 1992 1991 --------- --------- --------- Property held for sale or development $ 35,855 $ 17,902 $ 50,822 Investment properties, net 191,606 243,477 239,089 Other assets 61,060 59,688 51,664 Long-term debt (103,090) (151,538) (168,937) Other liabilities* (256,999) (229,865) (205,326) --------- --------- --------- Net assets (liabilities) $(71,568) $(60,336) $(32,688) ========= ========= ========= Operations for the year ended 1993 1992 1991 December 31, --------- --------- --------- Revenue $ 83,710 $ 64,776 $ 59,501 Cost of operations 101,623 95,823 89,938 --------- --------- --------- Pretax income (loss) $(17,913) $(31,047) $(30,437) --------- --------- --------- Company's share of joint ventures Revenue $ 43,590 $ 27,118 $ 38,223 Cost of operations 50,339 46,423 42,523 --------- --------- --------- Pre-tax income (loss) $ (6,749) $(19,305) $ (4,300) ========= ========= ========= Equity ** $(27,768) $(23,542) $ (4,889) ========= ========= ========= * Included in "Other Liabilities" are advances from joint venture partners in the amount of $181.3 million in 1991, $209.0 million in 1992 and $239.4 million in 1993. Of the total advances from joint venture partners, $127.1 million in 1991, $150.6 million in 1992 and $165.9 million in 1993 represented advances from the Company. ** When the Company's equity in a real estate joint venture is combined with advances by the Company to that joint venture, each joint venture has a positive investment balance at December 31, 1993. [3] NOTES PAYABLE TO BANKS The Company maintains unsecured short-term lines of credit totaling $18 million at December 31, 1993. In support of these credit lines, the Company generally has agreed to pay fees which approximate 1/4 of 1% of the amount of the lines. Information relative to the Company's short-term debt activity under such lines in 1993 and 1992 follows (in thousands): 1993 1992 ------- ------- Borrowings during the year: Average $ 8,451 $ 3,980 Maximum $18,000 $17,000 At year-end $ - $ - Weighted average interest rates: During the year 6.2% 6.4% At year-end - - [4] LONG-TERM DEBT Long-term debt of the Company at December 31, 1993 and 1992 consists of the following (in thousands): 1993 1992 ------- ------- Real Estate Development: Industrial revenue bonds, primarily at 65% of prime, payable in semi-annual installments $ 1,683 $ 5,340 Mortgages on real estate, at rates ranging from 4 7/8% to 10.82%, payable in installments 16,027 19,732 Other indebtedness - 687 ------- ------- Total $17,710 $25,759 Less - current maturities 6,328 8,098 ------- ------- Net real estate development long-term debt $11,382 $17,661 ======= ======= Other: Revolving credit loans at an average rate of 5.8% in 1993 and 5% in 1992 $60,000 $53,125 ESOT Notes at 8.24%, payable in semi-annual installments (Note 7) 6,238 7,014 Industrial revenue bonds at various rates, payable in installments to 2005 4,000 5,254 Other indebtedness 2,035 5,379 ------- ------- Total $72,273 $70,772 Less - current maturities 1,289 2,678 ------- ------- Net other long-term debt $70,984 $68,094 ======= ======= Payments required under these obligations amount to approximately $7,617 in 1994, $5,359 in 1995, $62,666 in 1996, $2,656 in 1997, $3,601 in 1998 and $8,084 for the years 1999 and beyond. The Company's revolving credit agreement, as amended, with a group of major banks provides for, among other things, the Company to borrow up to an aggregate of $70 million, with a $15 million maximum of such amount also being available for letters of credit. The Company may choose from three interest rate alternatives including a prime-based rate, as well as other interest rate options based on LIBOR (London inter-bank offered rate) or participating bank certificate of deposit rates. Borrowings and repayments may be made at any time through April 30, 1996, at which time all outstanding loans under the agreement must be paid or otherwise refinanced. The Company must pay a commitment fee of 1/2 of 1% annually on the unused portion of the commitment. The revolving credit agreement, as well as certain other loan agreements, provides for, among other things, maintaining specified working capital and tangible net worth levels and, additionally, imposes limitations on indebtedness and future investment in real estate development projects. [5] INCOME TAXES Effective January 1, 1993, the Company adopted SFAS No. 109 on accounting for income taxes. This standard determines deferred income taxes based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities, given the provisions of enacted tax laws. Prior to the implementation of this statement, the Company accounted for income taxes under Accounting Principles Board Opinion No. 11. The impact of adopting SFAS No. 109 was not material, and accordingly, there is no cumulative effect of a change in accounting method presented in the statement of operations for the year ended December 31, 1993. Prior year financial statements have not been restated to apply the provisions of SFAS No. 109. The (provision) credit for income taxes is comprised of the following (in thousands): Federal Foreign State Total ------- ------- ----- ----- 1993 Current $(2,824) $ - $ (430) $(3,254) Deferred (1,808) - 101 (1,707) -------- -------- -------- -------- $(4,632) $ - $ (329) $(4,961) ======== ======== ======== ======== 1992 Current $ - $(5,486) $ (325) $(5,811) Deferred 13,236 814 1,131 15,181 ------- -------- -------- -------- $13,236 $(4,672) $ 806 $ 9,370 ======= ======== ======== ======== 1991 Current $ 5,964 $(2,497) $ (200) $ 3,267 Deferred (5,325) 742 56 (4,527) -------- -------- -------- -------- $ 639 $(1,755) $ (144) $(1,260) ======== ======== ======== ======== The domestic and foreign components of income (loss) before income taxes are as follows (in thousands): U.S. Foreign Total -------- ------- -------- 1993 $ 8,126 $ - $ 8,126 1992 $(42,238) $15,884 $(26,354) 1991 $ 328 $ 4,110 $ 4,438 The table below reconciles the difference between the statutory federal income tax rate and the effective rate provided in the statements of operations. 1993 1992 1991 ---- ---- ---- Statutory federal income tax rate 34% (34)% 34% Foreign taxes - (1) 3 State income taxes, net of federal tax benefit 2 (1) - Reversal of tax valuation reserves no longer required - - (10) Sale of Canadian subsidiary 24 - - Other 1 - 1 ---- ----- ---- 61% (36)% 28% ==== ===== ==== The following is a summary of the significant components of the Company's deferred tax assets and liabilities as of December 31, 1993 (in thousands): Deferred Deferred Tax Tax Assets Liabilities ---------- ------------ Provision for estimated losses $ 9,684 $ - Contract losses 2,841 - Joint ventures - construction - 6,996 Joint ventures - real estate - 18,078 Timing of expense recognition 5,012 - Capitalized carrying charges - 2,301 Net operating loss carryforwards 916 - Alternative minimum tax credit carryforwards 3,567 - General business tax credit carryforwards 4,038 - Foreign tax credit carryforwards 1,352 - Other, net 422 - ------- ------- $27,832 $27,375 Valuation allowance for deferred tax assets (2,251) - -------- ------- Total $25,581 $27,375 ======== ======= The valuation allowance for deferred tax assets is principally attributable to the net operating loss carryforwards of Perland Environmental Technologies, Inc. and foreign tax credit carryforwards resulting from the 1993 sale of the Company's Canadian subsidiary. Any portion of the valuation allowance attributable to these deferred tax assets for which benefits are subsequently recognized will be applied to reduce income tax expense. At December 31, 1993, the Company has unused tax credits and net operating loss carryforwards for income tax reporting purposes which expire as follows (in thousands): Unused Investment Foreign Net Operating Loss Tax Credits Tax Credits Carryforwards ----------------- ----------- ----------------- 1994-1998 $ 32 $1,352 $ - 1999-2002 935 - - 2003-2006 3,071 - 2,700 ------ ------ ------- $4,038 $1,352 $ 2,700 ====== ====== ======= Approximately $2.7 million of the net operating loss carryforwards can only be used against the taxable income of the corporation in which the loss was recorded for tax and financial reporting purposes. [6] OTHER INCOME, NET Other income items for the three years ended December 31, 1993 are as follows (in thousands): 1993 1992 1991 ------ ------- ------- Interest and dividend income $ 624 $ 1,783 $ 1,016 Minority interest (Note 1) 167 (3,039) (76) Gain on sale of Majestic (Note 1) 4,631 - - Gain on sale of investment in Monenco - 1,976 - Miscellaneous income (expense), net (215) (284) 196 ------- -------- ------- $5,207 $ 436 $ 1,136 ======= ======== ======= [7] CAPITALIZATION In July 1989, the Company sold 262,774 shares of its $1 par value common stock, previously held in treasury, to its Employee Stock Ownership Trust ("ESOT") for $9,000,000. The ESOT borrowed the funds via a placement of 8.24% Senior Unsecured Notes ("Notes") guaranteed by the Company. The Notes are payable in 20 equal semi-annual installments of principal and interest commencing in January 1990. The Company's annual contribution to the ESOT, plus any dividends accumulated on the Company's common stock held by the ESOT, will be used to repay the Notes. Since the Notes are guaranteed by the Company, they are included in "Long-Term Debt" with an offsetting reduction in "Stockholders' Equity" in the accompanying consolidated balance sheets. The amount included in "Long-Term Debt" will be reduced and "Stockholders' Equity" reinstated as the Notes are paid by the ESOT. In June 1987, net proceeds of approximately $23,631,000 were received from the sale of 1,000,000 depositary convertible exchangeable preferred shares (each depositary share representing ownership of 1/10 of a share of $21.25 convertible exchangeable preferred stock, $1 par value) at a price of $25 per depositary share. Annual dividends are $2.125 per depositary share and are cumulative. Generally, the liquidation preference value is $25 per depositary share plus any accumulated and unpaid dividends. The preferred stock of the Company, as evidenced by ownership of depositary shares, is convertible at the option of the holder, at any time, into common stock of the Company at a conversion price of $37.75 per share of common stock. The preferred stock is redeemable at the option of the Company at any time after June 15, 1990, in whole or in part, at declining premiums until June 1997 and thereafter at $25 per share plus any unpaid dividends. The preferred stock is also exchangeable at the option of the Company, in whole but not in part, on any dividend payment date into 8 1/2% convertible subordinated debentures due in 2012 at a rate equivalent to $25 principal amount of debentures for each depositary share. [8] SERIES A JUNIOR PARTICIPATING PREFERRED STOCK Under the terms of the Company's Shareholder Rights Plan, as amended, the Board of Directors of the Company declared a distribution on September 23, 1988 of one preferred stock purchase right (a "Right") for each outstanding share of common stock. Under certain circumstances, each Right will entitle the holder thereof to purchase from the Company one one-hundredth of a share (a "Unit") of Series A Junior Participating Cumulative Preferred Stock, $1 par value (the "Preferred Stock"), at an exercise price of $100 per Unit, subject to adjustment. The Rights will not be exercisable or transferable apart from the common stock until the occurrence of certain events viewed to be an attempt by a person or group to gain control of the Company (a "triggering event"). The Rights will not have any voting rights or be entitled to dividends. Upon the occurrence of a triggering event, each Right will be entitled to that number of Units of Preferred Stock of the Company having a market value of two times the exercise price of the Right. If the Company is acquired in a merger or 50% or more of its assets or earning power is sold, each Right will be entitled to receive common stock of the acquiring company having a market value of two times the exercise price of the Right. Rights held by such a person or group causing a triggering event may be null and void. The Rights are redeemable at $.02 per Right by the Board of Directors at any time prior to the occurrence of a triggering event and will expire on September 23, 1998. [9] STOCK OPTIONS At December 31, 1993 and 1992, 481,610 shares of the Company's authorized but unissued common stock were reserved for issuance to employees under its 1982 Stock Option Plan. Options are granted at fair market value on the date of grant and generally become exercisable in two equal annual installments on the second and third anniversary of the date of grant and expire eight years from the date of grant. The options granted in 1992 become exercisable on March 31, 2001 if the Company achieves a certain profit target in the year 2000, may become exercisable earlier if certain interim profit targets are achieved, and, to the extent not exercised, expire 10 years from the date of grant. A summary of stock option activity related to the Company's stock option plan is as follows: Number of Number of Option Price Shares Shares Per Share Exercisable --------- ------------ ----------- Outstanding at December 31, 1991 216,925 $11.06-$33.06 71,025 Granted 252,000 $16.44 Canceled (30,100) $11.06-$33.06 Outstanding at December 31, 1992 438,825 $11.06-$33.06 91,075 Granted - - Canceled (4,400) $11.06-$33.06 Outstanding at December 31, 1993 434,425 $11.06-$33.06 143,000 When options are exercised, the proceeds are credited to stockholders' equity. In addition, the income tax savings attributable to nonqualified options exercised is credited to paid-in surplus. [10] EMPLOYEE BENEFIT PLANS The Company and its U.S. subsidiaries have a defined benefit plan which covers its executive, professional, administrative and clerical employees, subject to certain specified service requirements. The plan is noncontributory and benefits are based on an employee's years of service and "final average earnings", as defined. The plan provides reduced benefits for early retirement and takes into account offsets for social security benefits. All employees are vested after 5 years of service. Net pension cost for 1993, 1992 and 1991 follows (in thousands): 1993 1992 1991 ------ ------ ------ Service cost - benefits earned during the period $1,000 $ 896 $ 949 Interest cost on projected benefit obligation 2,862 2,314 2,456 Return on plan assets: Actual (4,002) (1,220) (5,143) Deferred 1,309 (1,043) 2,895 Other 19 19 18 ------ ------- ------- Net pension cost $1,188 $ 966 $1,175 ====== ======= ======= Actuarial assumptions used: Discount rate 7 1/2%* 8 1/2% 8 1/2% Rate of increase in compensation 5 1/2%* 6 1/2% 6 1/2% Long-term rate of return on assets 8%* 9% 9% * Rates were changed effective December 31, 1993 and resulted in a net increase of $3.1 million in the projected benefit obligation referred to below. The Company's plan has assets in excess of accumulated benefit obligation. Plan assets generally include equity and fixed income funds. The status of the Company's employee pension benefit plan is summarized below (in thousands): December 31, 1993 1992 ------ ------- Assets available for benefits: Funded plan assets at fair value $32,795 $30,305 Accrued pension expense 3,780 2,592 ------- ------- Total assets $36,575 $32,897 ------- ------- Actuarial present value of benefit obligations: Accumulated benefit obligations, including vested benefits of $31,837 and $26,790 $32,463 $27,243 Effect of future salary increases 6,468 6,229 ------- ------- Projected benefit obligations $38,931 $33,472 ------- ------- Assets available less than projected benefits $ 2,356 $ 575 ======= ======= Consisting of: Unamortized net liability existing at date of adopting SFAS No. 87 $ 41 $ 47 Unrecognized net loss 2,260 460 Unrecognized prior service cost 55 68 ------- ------- $ 2,356 $ 575 ======= ======= The Company's policy is generally to fund currently the costs accrued under the pension plan and the Section 401(k) plan described below. The Company also has noncontributory Section 401(k) and employee stock ownership plans (ESOP) which cover its executive, professional, administrative and clerical employees, subject to certain specified service requirements. Under the terms of the Section 401(k) plan, the provision is based on a specified percentage of profits, subject to certain limitations. Contributions to the related employee stock ownership trust (ESOT) are determined by the Board of Directors and may be paid in cash or shares of company common stock. In addition, the Company has an incentive compensation plan for key employees which is generally based on achieving certain levels of profit within their respective business units. The aggregate amounts provided under these employee benefit plans were $9.1 million in 1993, $10.8 million in 1992 and $12.7 million in 1991. The Company also contributes to various multiemployer union retirement plans under collective bargaining agreements, which provide retirement benefits for substantially all of its union employees. The aggregate amounts provided in accordance with the requirements of these plans were $5.2 million in 1993, $11.2 million in 1992 and $8.5 million in 1991. The Multiemployer Pension Plan Amendments Act of 1980 defines certain employer obligations under multiemployer plans. Information regarding union retirement plans is not available from plan administrators to enable the Company to determine its share of unfunded vested liabilities. [11] CONTINGENCIES and COMMITMENTS At December 31, 1993, the Company has guaranteed approximately $1.7 million of debt incurred by various joint ventures in addition to the guarantees referred to below. In connection with a real estate development joint venture known as Rincon Center, the Company's wholly-owned real estate subsidiary has guaranteed the payment of interest on both mortgage and bond financing covering a project with loans totaling $62 million; has issued a secured letter of credit to collateralize $4.5 million of these borrowings; has guaranteed amortization payments up to $10.4 million on these borrowings; and has guaranteed a master lease under a sale operating lease-back transaction. In calculating the potential obligation under the master lease guarantee, the Company has an agreement with its lenders which employs a 10% discount rate and no increases in future rental rates beyond current lease terms. Based on these assumptions, management believes its additional future obligation will not exceed $2.6 million. The Company has also guaranteed $5.0 million of the subsidiary's $10.4 million amortization guaranty and any obligation under the master lease during the next five years. As part of the sale operating lease-back transaction, the joint venture, in which the Company's real estate subsidiary is a 46% general partner, agreed to obtain a financial commitment on behalf of the lessor to replace at least $43 million of long-term financing by July 1, 1993. To satisfy this obligation, the partnership successfully extended existing financing to July 1, 1998. To complete the extension, the partnership had to advance funds sufficient to reduce the financing from $46.5 million to $40.5 million. In addition, as part of the obligations of the extension, the partnership will have to further amortize the debt from its current $40.5 million to $33 million over the next five years. If by January 1, 1998, the joint venture has not received a further extension or new commitment for financing on the property for at least $33 million, the lessor will have the right under the lease to require the joint venture to purchase the property for $18.8 million in excess of the debt. In 1993, the joint venture also extended $29 million of the $62 million financing mentioned above through October 1, 1998. This extension required a $.6 million up front paydown and also requires the joint venture to amortize up to $13 million of the principal over the next five years. Under certain conditions, the amortization could be as low as $9 million. It is expected that some but not all of the amortization requirements will be generated by the project's operations. The Company is obligated to fund any of the following loan amortization and/or lease payments at Rincon in the event sufficient funds are not generated by the property or contributed to by its partners: $4,226,000 in 1994; $4,948,000 in 1995; $5,531,000 in 1996; and $5,886,000 in 1997. Based on current Company forecasts, it is expected the maximum exposure to service these commitments in each of the years through 1997 is as follows: $1,200,000 in 1994; $1,800,000 in 1995; $2,200,000 in 1996; and $1,200,000 in 1997. In a separate agreement related to this same property, the 20% co-general partner has indicated it does not have nor does it expect to have the financial resources to fund its share of capital calls. Therefore, the Company's wholly-owned real estate subsidiary agreed to lend this 20% co- general partner on an as-needed basis, its share of any capital calls which the partner cannot meet. In return, the Company's subsidiary receives a priority return from the partnership on those funds it advances for its partner and penalty fees in the form of rights to certain other distributions due the borrowing partner from the partnership. The severity of the penalty fees increases in each succeeding year for the next several years. During 1993, the subsidiary advanced $1.7 million under this agreement, primarily to meet the principal payment obligations of the loan extensions described above. In connection with a second real estate development joint venture known as the Resort at Squaw Creek, the Company's wholly-owned real estate subsidiary has guaranteed the payment of interest on mortgage financing with a total bank loan value currently estimated at $48 million; has guaranteed $10 million of loan principal; has posted a letter of credit for $1.6 million as its part of credit support required to extend the maturity of the $48 million loan to May, 1995, which letter of credit is guaranteed by both the Company and its subsidiary; and has guaranteed leases which aggregate $2 million on a present value basis as discounted at 10%. It also has an obligation through the year 2001 to cover approximately a $2 million per year preferred return at the Resort if the funds are not generated from hotel operations. Although results have shown improvement since the Resort opened in late 1990, it is not expected that hotel operations will contribute to the obligation during 1994. Although the results of the hotel's operations can be somewhat weather dependent, management believes that operations should contribute increasing amounts toward the coverage of the preferred return over the next three to four years and will at some point during that period, fully cover it. In connection with a third real estate development joint venture known as The Oaks, the Company's wholly-owned real estate subsidiary has guaranteed 50% of the outstanding loan, up to a maximum of $12.5 million of principal of the loan, of which $5.6 million represents the subsidiary's share of the amount outstanding at December 31, 1993. Included in the loan agreements related to the above joint ventures, among other things, are provisions that, under certain circumstances, could limit the subsidiary's ability to transfer funds to the Company. In the opinion of management, these provisions should not affect the operations of the Company or the subsidiary. On July 30, 1993, the U.S. District Court (D.C.), in a preliminary opinion, upheld terminations for default on two adjacent contracts for subway construction between Mergentime-Perini, under two joint ventures, and the Washington Metropolitan Area Transit Authority ("WMATA") and found the Mergentime Corporation, Perini Corporation and the Insurance Company of North America, the surety, jointly and severally liable to WMATA for damages in the amount of $16.5 million, consisting primarily of excess reprocurement costs to complete the projects. Many issues were left partially or completely unresolved by the opinion, including substantial joint venture claims against WMATA. Any such amounts awarded to the joint ventures could serve to offset the above damages awarded. The ultimate financial impact, if any, of this judgement is not yet determinable, and therefore, no impact is reflected in the 1993 financial statements. Contingent liabilities also include liability of contractors for performance and completion of both company and joint venture construction contracts. In addition, the Company is a defendant in various lawsuits (some of which are for significant amounts). In the opinion of management, the resolution of these matters will not have a material effect on the accompanying financial statements. [12] RELATED PARTY TRANSACTIONS During 1984, the Company transferred certain of its income producing real estate properties and real estate joint venture interests to a new company, Perini Investment Properties, Inc. (PIP) and distributed the common stock of PIP to the company's shareholders on a share-for-share basis. In 1992 PIP changed its name to Pacific Gateway Properties, Inc. (PGP), reflecting that company's new West Coast focus and minimal ongoing interdependence with Perini Corporation. Hereafter, PIP will be referred to as PGP. Initially, a majority of PGP's directors were also directors of the Company and, the two companies also had the same initial controlling stockholder group. Currently, the two companies have only one common director. Pursuant to a Service Agreement with PGP, which was terminated effective June 30, 1991, the Company provided certain management, operational, accounting, tax and other administrative services to PGP for a fee based on a formula that included an annual base fee and property acquisition fees plus reimbursement for certain expenses. Fees and expenses under this agreement amounted to $182,000 in 1991. PGP is a partner in certain of the real estate joint ventures discussed in Note 2 and in the first real estate development joint venture referred to in Note 11. [13] UNAUDITED QUARTERLY FINANCIAL DATA The following table sets forth unaudited quarterly financial data for the years ended December 31, 1993 and 1992 (in thousands except per share amounts): 1993 by Quarter 1st 2nd 3rd 4th -------- -------- -------- -------- Revenues $258,043 $348,004 $274,795 $219,274 Net income $ 745 $ 965 $ 679 $ 776 Earnings per common share $ .05 $ .10 $ .04 $ .05 1992 by Quarter 1st 2nd 3rd 4th -------- -------- -------- -------- Revenues $246,126 $238,059 $289,602 $297,065 Net income (loss) $ 1,510 $ 960 $ 2,701 $(22,155) Earnings (loss) per common share $ .25 $ .10 $ .53 $ (5.47) [14] BUSINESS SEGMENTS AND FOREIGN OPERATIONS The Company is currently engaged in the construction and real estate development businesses. The following tables set forth certain business and geographic segment information relating to the Company's operations for the three years ended December 31, 1993 (in thousands): Business Segments Revenues 1993 1992 1991 ---------- ---------- -------- Construction $1,030,341 $1,023,274 $919,641 Real Estate 69,775 47,578 72,267 ---------- ---------- -------- $1,100,116 $1,070,852 $991,908 ========== ========== ======== Income (Loss) From Operations 1993 1992 1991 ---------- ---------- --------- Construction $ 15,164 $ 34,387 $ 24,938 Real Estate 240 (47,206) (7,239) Corporate (6,830) (6,320) (5,375) ----------- ----------- --------- $ 8,574 $ (19,139) $ 12,324 =========== =========== ========= Assets 1993 1992 1991 ---------- ---------- -------- Construction $ 219,604 $ 214,089 $198,971 Real Estate 218,715 204,713 252,870 Corporate* 38,059 51,894 46,733 ---------- ---------- -------- $ 476,378 $ 470,696 $498,574 ========== ========== ======== Capital Expenditures 1993 1992 1991 ---------- ---------- -------- Construction $ 4,387 $ 4,042 $ 6,599 Real Estate 23,590 29,131 44,207 ---------- ---------- -------- $ 27,977 $ 33,173 $ 50,806 ========== ========== ======== Depreciation 1993 1992 1991 ---------- ---------- -------- Construction $ 2,552 $ 5,489 $ 6,342 Real Estate 963 808 848 ---------- ---------- -------- $ 3,515 $ 6,297 $ 7,190 ========== ========== ======== Geographic Segments Revenues 1993 1992 1991 ---------- ---------- -------- United States $1,064,380 $ 909,358 $859,398 Canada - 107,709 109,764 Other Foreign 35,736 53,785 22,746 ---------- ---------- -------- $1,100,116 $1,070,852 $991,908 ========== ========== ======== Income (Loss) From Operations 1993 1992 1991 ---------- ----------- -------- United States $ 17,249 $ (28,994) $ 13,478 Canada - 12,812 4,218 Other Foreign (1,845) 3,363 3 Corporate (6,830) (6,320) (5,375) ----------- ----------- --------- $ 8,574 $ (19,139) $ 12,324 =========== =========== ========= Assets 1993 1992 1991 ---------- ---------- --------- United States $ 433,488 $ 365,997 $408,797 Canada - 46,089 40,895 Other Foreign 4,831 6,716 2,149 Corporate* 38,059 51,894 46,733 ---------- ---------- -------- $ 476,378 $ 470,696 $498,574 ========== ========== ======== *In all years, corporate assets consist principally of cash, cash equivalents, marketable securities and other investments available for general corporate purposes. Contracts with various federal, state, local and foreign governmental agencies represented approximately 54% of construction revenues in 1993, 57% in 1992 and 56% in 1991. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Perini Corporation: We have audited the accompanying consolidated balance sheets of PERINI CORPORATION (a Massachusetts corporation) and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Perini Corporation and subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN & CO. Boston, Massachusetts February 11, 1994 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES To the Stockholders of Perini Corporation: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in this Form 10- K/A, and have issued our report thereon dated February 11, 1994. Our audits were made for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The supplemental schedules listed in the accompanying index are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN & CO. Boston, Massachusetts February 11, 1994 SCHEDULE II PERINI CORPORATION AND SUBSIDIARIES AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (IN THOUSANDS OF DOLLARS) Balance Deductions Balance at at ---------------------- End of Period Beginning Amounts Amounts Not Name of Debtor of Period Additions Collected Written-Off Current Current - - -------------- --------- --------- --------- ----------- ------- ------- 1993 Pacific Gateway Properties, Inc. $302 $ - $250 $ - $ 52 $ - ==== ==== ==== ==== ==== ==== 1992 Pacific Gateway Properties, Inc. $441 $ - $139 $ - $302 $ - (1) ==== ==== ==== ==== ==== ==== 1991 Perini Investment $259 $182 $ - $ - $441 $ - Properties, Inc. ==== ==== ==== ==== ==== ==== (1) In 1992, Perini Investment Properties, Inc. changed its name to Pacific Gateway Properties, Inc. SCHEDULE VIII PERINI CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (IN THOUSANDS OF DOLLARS) Additions Balance at Charged Charged to Deductions Balance Beginning to Costs Other from at End Description of Year & Expenses Accounts Reserves of Year - - ----------- ---------- ---------- ---------- ---------- ------- Year Ended December 31, 1993 - - ----------------- Reserve for doubtful accounts $ 351 $ - $ - $ - $ 351 ======= ======= ==== ====== ======= Reserve for depreciation on real estate properties used in operations $ 3,181 $ 920 $ - $ 464 (3) $ 3,637 ======= ======= ==== ====== ======= Reserve for real estate investments $29,968 $ - $ - $9,130 (2) $20,838 ======= ======= ==== ====== ======= Year Ended December 31, 1992 - - ----------------- Reserve for doubtful accounts $ 742 $ - $ - $ 391 (1) $ 351 ======= ======= ==== ====== ======= Reserve for depreciation on real estate properties used in operations $ 2,428 $ 974 $ - $ 221 (2) $ 3,181 ======= ======= ==== ====== ======= Reserve for real estate investments $ 4,732 $31,368 $ - $6,132 (2) $29,968 ======= ======= ==== ====== ======= Year Ended December 31, 1991 - - ----------------- Reserve for doubtful $ 967 $ - $ - $ 225 (1) $ 742 accounts ======= ======= ==== ====== ======= Reserve for depreciation on real estate properties used in operations $ 2,996 $ 626 $ - $1,194 (2) $ 2,428 ======= ======= ==== ====== ======= Reserve for real estate investments $ 1,932 $ 3,300 $ - $ 500 (3) $ 4,732 ======= ======= ==== ====== ======= (1) Represents write-off of uncollectible accounts and reversal of reserves no longer required. (2) Represents sales of real estate properties. (3) Represents sale of real estate asset and reversal of reserve no longer required. EXHIBIT INDEX 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 - Exhibit 4 to Form S-2 Registration Statement filed April 28, 1989; SEC Registration No. 33-28401. 3.2 By-laws - As amended through September 14, 1990 - Exhibit 3.2 to 1991 Form 10K, as filed. Exhibit 4. Instruments Defining the Rights of Security Holders, Including Indentures Incorporated herein by reference: 4.1 Certificate of Vote of Directors Establishing a Series of a Class of Stock determining the relative rights and preferences of the $21.25 Convertible Exchangeable Preferred Stock - Exhibit 4(a) to Amendment No. 1 to Form S-2 Registration Statement filed June 19, 1987; SEC Registration No. 33-14434. 4.2 Form of Deposit Agreement, including form of Depositary Receipt - Exhibit 4(b) to Amendment No. 1 to Form S-2 Registration Statement filed June 19, 1987; SEC Registration No. 33-14434. 4.3 Form of Indenture with respect to the 8 1/2% Convertible Subordinated Debentures Due June 15, 2012, including form of Debenture - Exhibit 4(c) to Amendment No. 1 to Form S-2 Registration Statement filed June 19, 1987; SEC Registration No. 33-14434. 4.4 Shareholder Rights Agreement and Certificate of Vote of Directors adopting a Shareholders Rights Plan providing for the issuance of a Series A Junior Participating Cumulative Preferred Stock purchase rights as a dividend to all shareholders of record on October 6, 1988, incorporated by reference from Current Report on Form 8-K filed on May 25, 1990. Exhibit 10. Material Contracts Incorporated herein by reference: 10.1 1982 Stock Option and Long Term Performance Incentive Plan - Registrant's Proxy Statement for Annual Meeting of Stockholders dated April 27, 1987. 10.2 Perini Corporation Amended and Restated General Incentive Compensation Plan - Exhibit 10.2 to 1991 Form 10K, as filed. 10.3 Perini Corporation Amended and Restated Construction Business Unit Incentive Compensation Plan - Exhibit 10.3 to 1991 Form 10K, as filed. Exhibit 22. Subsidiaries of Perini Corporation Filed herewith Exhibit 23. Consent of Independent Public Accountants Filed herewith Exhibit 24. Power of Attorney Filed herewith EXHIBIT 22 PERINI CORPORATION SUBSIDIARIES OF THE REGISTRANT Percentage of Interest or Place Voting Name of Organization Securities Owned ---- --------------- ---------------- Perini Corporation Massachusetts Perini Building Company, Inc. Arizona 100% (Formerly Mardian Construction Company) R.E. Dailey & Co. Michigan 100% Pioneer Construction, Inc. West Virginia 100% Perland Environmental Delaware 90.5% Technologies, Inc. International Construction Delaware 100% Management Services, Inc. Percon Constructors, Inc. Delaware 100% Perini International Massachusetts 100% Corporation Perini Land & Development Delaware 100% Company Paramount Development Massachusetts 100% Associates, Inc. I-10 Industrial Park Arizona General 80% Developers Partnership Ring Mountain Associates California 50% General Partnership Perini Resorts, Inc. California 100% Glenco-Perini - HCV California 45% Partners Limited Partnership Squaw Creek Associates California 40% General Partnership Perland Realty Associates, Florida 100% Inc. Perini Lake Tahoe Properties, California 100% Inc. Golden Gateway North California 58% Limited Partnership Rincon Center Associates California 46% Limited Partnership International Towers California 49.5% Development Co. General Partnership Perini Central Limited Arizona Limited 75% Partnership Partnership Phoenix Associates Land Arizona General 50% Venture Partnership Perini/138 Joint Venture Georgia General 49% Partnership Garden Lakes Apartments Joint Georgia General 49.5% Partnership Venture Perini/RSEA Partnership Georgia General 50% Partnership EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports, dated February 11, 1994, included in Perini Corporation's Annual Report on this Form 10-K/A for the year ended December 31, 1993, and into the Company's previously filed Registration Statements No. 2-82117, 33-24646, 33- 46961, 33-53190, 33-53192, 33-60654, 33-70206 and 33-52967. ARTHUR ANDERSEN & CO. Boston, Massachusetts August 2, 1994 EXHIBIT 24 POWER OF ATTORNEY We, the undersigned, Directors of Perini Corporation, hereby severally constitute David B. Perini, James M. Markert and Robert E. Higgins, and each of them singly, our true and lawful attorneys, with full power to them and to each of them to sign for us, and in our names in the capacities indicated below, any Annual Report on Form 10-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 to be filed with the Securities and Exchange Commission and any and all amendments to said Annual Report on Form 10-K, hereby ratifying and confirming our signatures as they may be signed by our said Attorneys to said Annual Report on Form 10-K and to any and all amendments thereto and generally to do all such things in our names and behalf and in our said capacities as will enable Perini Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission. WITNESS our hands and common seal on the date set forth below. s/David B. Perini Director March 24, 1994 - - ----------------- ---------------------------- David B. Perini Date s/Joseph R. Perini Director March 24, 1994 - - ------------------ ---------------------------- Joseph R. Perini Date s/Richard J. Boushka Director March 24, 1994 - - -------------------- ---------------------------- Richard J. Boushka Date s/Marshall M. Criser Director March 24, 1994 - - -------------------- ---------------------------- Marshall M. Criser Date s/Thomas E. Dailey Director March 24, 1994 - - ------------------ ---------------------------- Thomas E. Dailey Date s/Albert A. Dorman Director March 24, 1994 - - ------------------ ---------------------------- Albert A. Dorman Date s/Arthur J. Fox, Jr. Director March 24, 1994 - - -------------------- ---------------------------- Arthur J. Fox, Jr. Date s/Nancy Hawthorne Director March 24, 1994 - - ----------------- ---------------------------- Nancy Hawthorne Date s/Marshall A. Jacobs Director March 24, 1994 - - -------------------- ---------------------------- Marshall A. Jacobs Date s/Robert M. Jenney Director March 24, 1994 - - ------------------ ---------------------------- Robert M. Jenney Date s/James M. Markert Director March 24, 1994 - - ------------------ ---------------------------- James M. Markert Date s/John J. McHale Director March 24, 1994 - - ---------------- ---------------------------- John J. McHale Date s/Jane E. Newman Director March 24, 1994 - - ---------------- ---------------------------- Jane E. Newman Date s/Bart W. Perini Director March 24, 1994 - - ---------------- ---------------------------- Bart W. Perini Date -----END PRIVACY-ENHANCED MESSAGE-----