Item 1. Business.
The Turner Corporation (the "Company") is a holding company that is engaged together with its subsidiaries in general building construction and construction management in the United States and abroad and in real estate investment in the United States. The Turner Corporation establishes general policy direction, coordination and planning, and provides cash management, internal accounting control and other management services for its operating subsidiaries.
Due to economic conditions generally, and to factors specifically affecting the commercial real estate market, beginning in 1989, there was a significant slowdown in commercial construction. In an effort to minimize the effects of this slowdown, during the last several years, the company's construction subsidiaries increased their focus on manufacturing, municipal, institutional, public, justice and amusement (i.e., hospital, university, aviation, aquariums, arenas and similar) projects. Approximately 70% in dollar value of the contracts awarded to the construction subsidiaries in 1994 were in these areas.
During 1993, plans were developed to significantly reduce the company's future operating costs and expenses and to improve productivity. This restructuring program principally involved a reduction in the number of staff, plus the consolidation of offices and facilities and the reorganization of support functions. This program was implemented and substantially completed in 1994. Its final phase is expected to be completed in 1995. While a portion of the benefits of restructuring were realized in 1994, the full benefits are expected to be realized in 1995 and thereafter.
During the early 1980's, the Company acquired and developed a number of properties. In 1987, the Company decided to discontinue its new development activities and began trying to dispose of the properties it owned.
During 1994, the Company sold one developed real estate property, two land parcels and a number of condominium units for $7.5 million which was essentially the carrying amount of the properties on the company's books. While the Company continues to seek purchasers for its real estate properties, it is unlikely it will be able to dispose of its properties in their entirety until there are more stable market conditions in the areas in which the company's properties are located.
In addition to its property sales, during 1994 the Company sold its master lease and development rights at the Rickenbacker Air Industrial Park for $1.8 million.
Financial information about the registrant's operations in its construction and real estate segments appear in the consolidated financial statements and in footnote 15 on page 34 in Part II, Item 8 of this report.
At December 31, 1994, The Turner Corporation and subsidiaries employed approximately 2,500 staff employees, of which 1,400 held supervisory positions and 1,100 held non-supervisory positions. Construction Business
The Turner Corporation's construction business is conducted by a number of construction subsidiaries (together, "Turner Construction"). Turner Construction is engaged primarily in the construction of commercial and multi-family residential buildings, manufacturing and research facilities, hospitals, correctional facilities, stadiums and other entertainment facilities, airports and other structures. It also has a division which does interior work, such as building-out office space. Turner Construction normally does not build roads, dams, or similar infrastructure elements. Turner Construction primarily acts as a general building contractor or as a construction manager. However, Turner Construction also sometimes acts as a consultant to owners and others.
Although Turner Construction is a nationwide (and to a lesser extent, worldwide) construction firm, Turner Construction attempts to compete locally in major cities of the United States through essentially self-contained regional offices and partially self-contained branch offices. Its objective is to be a major builder in each city or region in which it has an office.
The Turner Corporation's principal construction subsidiary is Turner Construction Company. Universal Construction Co., Inc., The Lathrop Company Inc., and Turner Caribe Inc., wholly-owned subsidiary companies of The Turner Corporation or Turner Construction Company, are also engaged in construction activities in the United States principally in the Southeast, Midwest and the Caribbean Islands.
When it acts as a general building contractor, Turner Construction normally undertakes to construct a project and is paid the entire price for the completed project. Most aspects of the construction, however, are performed by subcontractors who are paid by Turner Construction. The functions actually performed by Turner Construction are the planning and scheduling of a construction project, the procurement of materials, the marshaling of the manpower required for the project, the awarding of subcontracts and the direction and management of the construction operation. During 1994, 1993, and 1992 general building contracting activities represented 81%, 75%, and 83%, respectively, of Turner Construction's value of work completed.
Turner Construction makes extensive use of specialty contractors (such as structural steel contractors, electrical contractors and plumbing contractors) as subcontractors in the performance of its construction contracts. The extent to which work is performed by workmen on its own payroll varies with the location of a particular project and is largely dependent on the availability of experienced subcontractors in a particular area. Work performed by Turner Construction is generally limited to temporary facilities, foundation, concrete, masonry and carpentry work.
In its performance of construction management services, Turner Construction, for a fee, monitors and coordinates the progress of the work done by specialty contractors who are employed directly by the owner to build the project. During 1994, 1993 and 1992 management construction services and consulting represented 19%, 25% and 17%, respectively, of Turner Construction's value of work completed. Construction management contracts involve less risk than do projects in which Turner Construction is a general building contractor. However, the profit from construction management contracts can be substantially less than that which Turner Construction can earn when it acts as a general building contractor.
Construction contracts include lump sum or fixed price contracts, cost-plus fixed fee contracts and variations thereof including cost- plus guaranteed total contracts. The majority of Turner Construction's business involves negotiated contracts. The remainder of its contracts are secured by competitive bidding.
The Company is a partner with Karl Steiner Holding AG ("Steiner") of Switzerland in a joint venture by the name of Turner Steiner International SA, which renders general building construction and construction consulting services outside Turner Construction's and Steiner's respective home markets.
In South America, Turner Construction Company is a partner with Birmann SA of Brazil in a joint venture by the name of Turner Birmann Construction Management Do Brazil SA. The purpose of the joint venture is to provide construction management and consulting services to clients in Brazil and other South American markets.
The Company is also a partner with EMCON in a joint venture by the name of ET Environmental Corporation which provides environmental engineering, general building construction, and construction management services on environmental projects throughout the United States.
The United States building construction industry is intensely competitive and Turner Construction Company and the other domestic construction subsidiaries compete with other major contractors as well as with small contractors. Competition in the industry takes on a number of forms, including fee levels, quality of service and degree of risk assumption. Construction companies can expand their operations rapidly and each large population center generally has a number of medium-sized building contractors accustomed to undertaking all but the largest and most complicated projects. Through its organizational structure of permanently established decentralized branch offices and subsidiaries, Turner Construction competes directly with those locally based contractors. Year-to-year operations may be adversely affected by general economic conditions which are unfavorable for business and industry. Exact statistical data is not available for determining the relative size of construction companies, however, based on the contract value of construction contracts received in 1994 and published industry data, Turner Construction believes that it is one of the largest building contractors operating principally within the United States.
A portion of the Company's construction activity is performed under payment and performance bonds obtained through bonding capacity from its sureties. Projects requiring surety bonds are usually either publicly funded or private projects, which often require FHA - type mortgage insurance. While the Company's sureties limit the amount of new payment and performance bonds available, this limitation did not restrict the Company's ability to secure new work. There could be certain circumstances, however, when this limitation could influence the Company's selection of prospective projects to pursue.
At December 31, 1994, the anticipated earnings associated with backlog from work to be completed under construction, construction management and construction consulting contracts and under awards believed to be firm but not yet confirmed by signed formal contracts was $92.6 million. The anticipated earnings from work to be completed on contracts and awards at December 31, 1993 was $91.8 million. Approximately 44% of the December 31, 1994 earnings backlog from construction contracts relates to work expected to be performed during 1996 and beyond. The backlog is important to long-range planning and continuity of work for the company's permanent staff. However, anticipated earnings from construction contracts cannot and should not be used as the basis of predictions with respect to future operating results. The anticipated value of work to be completed under construction, construction management and construction consulting contracts and under awards believed to be firm but not yet confirmed by signed formal contracts was $4.55 billion at December 31, 1994. The anticipated value of work to be completed on contracts and awards at December 31, 1993 was $4.66 billion. Approximately 48% of the December 31, 1994 construction backlog is expected to be completed during 1996 and beyond.
Value of construction completed represents the cost of work put in place and materials fabricated during the year and related earnings pursuant to construction and construction management contracts, together with fees and reimbursed expenses from consulting contracts. It is essentially a measure of construction activity during the year rather than "sales" or "revenues" in the sense that those terms are used in other industries.
Because of the varying proportion of construction, construction management and construction consulting work, the impact of inflation on the value of construction completed, changes in anticipated earnings from construction contracts and anticipated value of work completed will not necessarily be correlative.
At December 31, 1994, Turner Construction employed approximately 2,400 staff employees, of whom about 1,200 were executives, project managers, superintendents, engineers, purchasing agents, estimators, senior accountants and other supervisory personnel. In addition, Turner Construction employs foremen and building craftsmen for construction work which has not been subcontracted to specialty contractors. During 1994, approximately 2,300 foremen and building craftsmen were employed at various times.
Real Estate.
The Company's subsidiaries involved in real estate operations are Rickenbacker Holdings, Inc. ("RHI"), and Turner Development Corporation and subsidiaries ("TDC"). The Company also has certain other real estate holdings, either directly or through joint venture interests, which are currently being marketed. These holdings relate to residential condominium developments in Boston and Puerto Rico.
From 1980 to 1987, TDC engaged in real estate development in the United States, principally in Florida, Georgia, Illinois, Michigan and Virginia. TDC developed and marketed office buildings and other commercial and residential properties, principally in metropolitan suburban areas.
TDC essentially discontinued new development activity in 1987. It is attempting to sell land parcels previously held for development as well as certain developed projects. At December 31, 1994, TDC owned properties in seven states.
TDC's development projects were financed principally by construction and mortgage loans. TDC is attempting to market projects to institutional and other investors in commercial real estate. In connection with sales of projects, TDC may be required to guarantee levels of occupancy and rentals for limited periods.
Turner Medical Building Services ("TMBS") is engaged in project consulting and development services for ancillary medical and other health care facilities. Its principal clients are hospitals, physician group practice clinics, nursing home and life care sponsors. TMBS provides management of architectural and construction services. TMBS subcontracts the design and construction of its projects. At December 31, 1994, TDC (including Turner Medical Building Services) had 3 employees, of whom 2 were management, and marketing personnel.
RHI owns and leases an air cargo distribution facility located at the Rickenbacker Air Industrial Park in Columbus, Ohio. In 1994, the Company sold its master lease and development rights to the 1600 acre air industrial park adjacent to the distribution facility. In addition, the Company has renegotiated a lease with the existing lessee extending the maturity date from 1996 to 2010.
Item 2.
Item 2. Properties.
The Company's executive offices and offices of subsidiary companies are located in leased facilities in commercial office buildings, except for Universal Construction Co., Inc., which owns a small office building in which its offices are located. The Company's corporate headquarters and New York branch office occupy 100,000 square feet of space which is leased until 2005. Rental expense for this space during 1994 was $2.14 million. Each construction project has temporary field offices.
Turner Construction operates three equipment and storage yards, located in Newark, New Jersey, Cincinnati, Ohio and St. Louis, Missouri for the storage and repair of its construction tools and equipment. Turner Construction owns the Ohio storage and repair yards and leases the New Jersey and Missouri facilities. Universal Construction Co., Inc., owns a yard, while The Lathrop Company, Inc., leases yards for the storage and repair of construction equipment.
Turner Construction leases major construction equipment such as hoists, cranes and personnel lifts from equipment suppliers for use on particular projects and generally owns only small tools and other miscellaneous equipment; Universal Construction Co., Inc., and The Lathrop Company, Inc. each own construction equipment, earth-moving equipment and small tools.
TDC holds as an investment a wholly-owned apartment complex which it had previously developed, located in Orlando, Florida (200 units). This property is encumbered by a mortgage note payable.
RHI owns certain buildings and air cargo handling equipment at the Rickenbacker Air Industrial Air Park in Columbus, Ohio, which collateralize related revenue bonds.
Item 3.
Item 3. Legal Proceedings.
Since 1990, the Company and a joint venture including Prudential Insurance Company of America, have been engaged in a litigation in the Circuit Court of Cook County, Illinois in which the Company is seeking an unpaid portion of the cost of constructing the Prudential Plaza 2 Tower in Chicago and Prudential is seeking damages for alleged construction delays. The Company believes it fully performed its obligations with regard to the Prudential Tower. If it were determined that there were impermissible construction delays, the Company might have resulting claims against others. The Company is a defendant in various litigations incident to its business. In some instances the amounts sought are very substantial, including some which are proceeding to trial involving substantial claims and counterclaims, and certain parties are withholding significant amounts included in construction receivables pending the outcome of the litigation. Although the outcome of the litigation cannot be predicted with certainty, in the opinion of management based on the facts known at this time, the resolution of such litigation is not anticipated to have a material adverse effect on the financial position or results of operations of the Company.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
None PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.
The Turner Corporation common stock is listed on the American Stock Exchange under the symbol TUR.
Quarterly Stock Information
1994 High Low Close First $9.50 $7.375 $8.375 Second 9.00 8.00 8.375 Third 9.625 8.375 8.75 Fourth 8.875 7.25 8.25
1993 High Low Close First $11.750 $7.375 $11.50 Second 12.875 11.00 12.50 Third 13.00 9.625 9.875 Fourth 10.50 6.75 7.875
No dividends were declared or paid in 1994 or 1993. As of March 20, 1995, there were approximately 3,517 record holders of the registrant's common stock.
Item 6.
Item 6. Selected Financial Data
The Turner Corporation and Subsidiaries FIVE-YEAR SUMMARY OF FINANCIAL INFORMATION (in thousands, except share amounts)
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition
Results of Operations 1994 vs. 1993 The Company reported net income of $3.7 million or $0.35 per common share compared to a net loss of $6.2 million in 1993 or $1.55 per common share. The most significant factors contributing to this change were improvements in real estate operations, reductions in operating and general and administrative expenses and the recognition of income tax benefits resulting from both operations and excess tax reserves. In addition, 1993's results included pretax charges of $8.5 million for restructuring costs and $6.0 million for real estate valuation adjustments. Results for 1994 include a pretax restructuring credit of $1.1 million which represents excess restructuring reserves.
Gross earnings declined 8 percent from 1993 to $54.6 million primarily due to losses on construction projects in the Caribbean of $7.7 million and a decline in the value of construction completed. These reductions were offset by an improvement in real estate operations.
General and administrative expenses decreased 10 percent primarily due to savings from restructuring steps taken, as well as a leveling off of the start-up costs of the Company's "Total Quality Management" program. 1994's results are more fully described in the discussion that follows.
Construction: Earnings from construction contracts declined 19 percent from 1993 to $54.9 million. While a portion of that can be attributed to a 5 percent decline in construction completed, the majority was the result of the $7.7 million loss incurred by the Company's Caribbean operations in the U.S. Virgin Islands and Puerto Rico. These losses stemmed from overruns on lump sum contracts begun in prior years and substantially completed in 1994.
In recent years construction management contracts have figured more significantly in the mix of the Company's value of construction completed. In 1994 construction management projects amounted to 19 percent of the value of construction completed compared to 25 percent in 1993 and 17 percent in 1992. Construction management contracts normally involve lower risk than other types of contracts; they also typically carry lower fees. The significant proportion of construction management contracts has, therefore, contributed to the decline in the profitability ratio (construction earnings divided by value of construction completed).
The value of new contracts secured in 1994 was $2.69 billion, essentially unchanged from 1993. Although the expected growth in the Company's traditional markets did take place, the flat sales numbers reflect the fact that the Company's penetration in fact declined in the face of intense competition. Construction management contract sales in 1994 declined in favor of more traditional general contracting projects reversing the trends previously noted.
According to F.W. Dodge, the Company's traditional non-residential building markets for 1994 grew by 12 percent over 1993. Projections are that these markets will continue to grow in 1995, and the Company should be in a position to take advantage of that growth.
The Company's sureties limit the annual amount of new payment and performance bonds available to the Company. This limitation did not restrict the Company's ability to secure new business in 1994; however, there could be circumstances in which it could influence the Company's selection of prospective projects.
At the end of 1994, the anticipated earnings associated with backlog from work to be completed under contracts and awards believed to be firm were $92.6 million_essentially unchanged from 1993. The backlog in terms of value of construction to be completed declined 2 percent from 1993 to $4.55 billion. The decline in backlog volume is a result of the cancellation in 1994 of certain projects that had been secured in 1993 and in prior years. The unchanged earnings backlog does represent, however, an improvement in the profitability ratio of the construction backlog when compared to prior years. In support of this, fees on contracts secured in 1994 were slightly higher, on average, than fees on contracts secured in 1993, which is a continuation of the trend begun in 1993.
Approximately 44 percent of the earnings backlog and 48 percent of the value of construction backlog relates to work to be performed in 1996 and beyond. Estimated earnings from construction backlog cannot and should not be used as a basis for predicting future net income.
Real Estate: Losses from real estate operations amounted to $277,000 in 1994 compared to $8.1 million in 1993. Included in the 1993 losses was a $6.0 million valuation provision set up as additional reserves against asset values in relation to their carrying value. During 1994, the Company sold one developed property, two land parcels and certain condominium units, all at their approximate carrying value.
The majority of 1994's excess of real estate sales over the cost of sales comes from the sale of lease rights at the Company's Rickenbacker facility. Rental income and direct operating costs declined by 8 percent and 13 percent, respectively, due to sales of properties in 1993 and 1994.
The Company's real estate portfolio is carried at estimated net realizable value or at cost, as applicable. Management believes that the timing of future sales will depend upon achieving reasonable values under more stable market conditions which the Company believes will be within the next few years for developed properties and a more prolonged period for undeveloped land parcels. Until conditions in the real estate market improve to the point that will permit the Company to conduct real estate transactions, the Company will continue to review the asset values of the properties in relation to prospective net realizable value and make adjustments as necessary. During 1994, the Company sold its master lease and development rights to the 1,600-acre Rickenbacker Air Industrial Park for $1.8 million. In addition, the Company as lessor, successfully renegotiated a lease for a 66-acre site, with the existing lessee, extending the maturity date from 1996 to 2010. As a result of these transactions, the operations of the Rickenbacker facility should not have any future adverse effect on the Company's cash flow.
Operating and General and Administrative Expenses:
Restructuring credits and charges - in the fourth quarter of 1993 the Company recorded an $8.5 million provision for restructuring. The provision included estimated expenses required to implement the Company's plan to consolidate certain support functions and scale down operations in shrinking geographic markets. During 1994, the Company charged $6.5 million of expenditures against the reserve which included severance, benefits and other incentives associated with staff reductions, the costs of the consolidation of offices and facilities resulting from down-sizing operations in shrinking geographic markets, and the reorganization of certain support functions. Approximately $897,000 of the reserve remains in accrued liabilities at December 31, 1994, representing the balance of the charges to be funded in 1995. The remainder of the unused reserve of $1.1 million was credited to income in 1994.
The benefits of the restructuring efforts taken in 1994 are reflected in the 11 percent reduction in operating and general and administrative expenses to $53.4 million from $59.8 million in 1993 (exclusive of the restructuring credits and charges). Management believes that the full benefit of the restructuring efforts will be realized in 1995 and thereafter.
Other Income: In 1994 the Company recorded other losses of $1.9 million compared to $870,000 in 1993. A major part of the loss is attributable to the absorption, on a pretax basis, of the cumulative foreign translation adjustment relating to the planned liquidation of one of the Company's inactive foreign subsidiaries. Cumulative translation adjustments had previously been charged directly to stockholders' equity net of tax.
The Company's investment in Turner Steiner International SA resulted in a $1.7 million loss to the Company in 1994 compared to a $3.0 million loss in 1993. This foreign joint venture has secured work in Europe, the Middle East and Asia- Pacific markets and is expected to break-even in 1995.
1994 losses were partially offset by interest and dividend income and other foreign investments.
Income Taxes: The net tax benefit for 1994 amounted to $3.2 million and is due primarily to the benefits derived from losses incurred in Puerto Rico as well as the reversal of excess reserves resulting from the planned liquidation of one of the Company's inactive foreign subsidiaries.
The Company has recorded $18.4 million of deferred tax assets having resulted principally from net operating loss and tax credit carryforwards. Management believes that no valuation allowance is required for these assets due to the future reversals of existing taxable temporary differences primarily related to the Company's pension plan.
Fourth Quarter 1994 Compared to Third Quarter 1994: Results for the fourth quarter amounted to net income of $698,000 or $0.05 per common share compared to net income of $896,000 or $0.08 per common share recorded in the third quarter.
Fourth quarter construction operations reported value of construction completed of $711 million and operating income of $4.8 million compared to $659 million and $3.4 million, respectively, in the third quarter. The improvement is attributable to the change in construction activity and the increase in productivity as a result of the restructuring program.
Real estate reported operating losses of $23,000 in the fourth quarter compared to $1.5 million in the third quarter. This improvement is attributable to reduced direct operating costs due to the sale of properties as well as a reduction in operating expenses as a result of the restructuring steps taken in previous quarters.
The excess restructuring reserve of $1.1 million was credited to income in the fourth quarter.
Exclusive of the restructuring credit, general and administrative expenses increased 56 percent to $5.3 million in the fourth quarter from $3.4 million in the third quarter. These changes are primarily attributable to the payment of certain incentive benefits which are typically charged to the fourth quarter and the growth in interest expense from slightly increased borrowings and higher interest rates.
The Company recorded a $1.2 million charge to other income representing the recognition of the cumulative foreign translation adjustment which had previously been charged directly to stockholders' equity. In addition, the Company released tax reserves in the fourth quarter that had been held pending the planned liquidation of an inactive foreign subsidiary.
Results of Operations 1993 vs. 1992 The Company reported a net loss of $6.2 million in 1993 or $1.55 per common share compared to net income of $4.0 million in 1992 or $0.50 per common share. This change was primarily attributable to provisions for restructuring charges in 1993 of $5.6 million and real estate valuation adjustments in 1993 of $4.0 million, both net of tax. In addition, 1992's net income included a non- recurring extraordinary gain of $316,000 from the extinguishment of debt and a gain of $1.5 million due to the cumulative effect of an accounting change, both net of tax.
1993 gross earnings declined 9.4 percent from 1992 to $59.4 million primarily due to a decline in construction earnings and an increase in the real estate loss due to the valuation adjustments noted above.
General and administrative expenses increased 26 percent primarily due to increased interest costs associated with corporate credit facilities and costs incurred in implementing the Company's "Total Quality Management" program.
Financial Condition: In total, the Company recorded an increase in cash and cash equivalents in 1994 of $29.3 million.
Operating activities provided positive cash flow of $7.8 million primarily as a result of domestic construction profitability and reduced overhead expenditures. Cash expended to fund the restructuring program amounted to $6.5 million in 1994 and was provided by operations. The remaining balance of the restructuring charge amounts to $897,000 and will be expended in early 1995.
Cash flows from investing activities amounted to $17.4 million and were due primarily to sales of marketable securities and the three real estate properties noted earlier. $5.0 million was also returned to the Company from its investment in a Boston condominium project from unit sales. The remainder of this project is expected to be substantially sold in 1995.
Cash flows from financing activities amounted to $4.1 million which represents the excess of borrowings over debt paydowns during the year. In the fourth quarter of 1994, the Company sold $39.5 million of Senior Notes in a private placement to institutional investors, including the Company's pension plan which participated to the extent of $9.5 million. Proceeds from the sale were used to paydown short-term borrowings under the Company's revolving credit facility. The revolving credit facility remains available to the Company.
Management believes the Company's cash flows from construction backlog, its $40 million revolving credit facility and amounts available from overnight credit facilities will be sufficient to support the Company's operations. Debt maturing in 1995 will be paid from funds generated from operations or will be refinanced prior to its actual maturity date.
Fair Value of Financial Instruments: As described in Note 16 to the financial statements, certain financial instruments have fair values which differ from their carrying amounts. The difference in the values related to Notes Payable reflect current favorable interest rates and terms, given the underlying value of the loan collateral.
Inflation: Inflation and changing prices during the current fiscal year have not significantly affected the major markets in which the Company conducts its business. Domestically, prices have remained relatively stable. In view of the moderate rate of inflation, its impact on the Company's business has not been significant.
Impairment of Loans: In May of 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan", which was amended in October 1994 by Statement of Financial Accounting Standards No. 118.
These statements require that a loan be recognized as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impairments would be recognized by creating valuation allowances with corresponding charges to bad debt expense. The statements are effective for fiscal years beginning after December 15, 1994, and are to be initially applied as of the beginning of an enterprise's fiscal year.
The Company will adopt the standard at the beginning of 1995, and management believes that the impact will not be material to the financial statements.
Item 8.
Item 8. Financial Statements and Supplementary Data.
Page No. Financial Statements: Report of Independent Public Accountants 14 Consolidated Balance Sheets - as of December 31, 1994 and 1993 15 Consolidated Statements of Operations - for the years ended December 31, 1994, 1993 and 1992 16 Consolidated Statements of Stockholders' Equity - for the years ended December 31, 1994, 1993 and 1992 17 Consolidated Statements of Cash Flows - for the years ended December 31, 1994, 1993 and 1992 18 Notes to Consolidated Financial Statements 19-36 Responsibilities for Financial Reporting 37
Report of Independent Public Accountants
To The Turner Corporation:
We have audited the accompanying consolidated balance sheets of The Turner Corporation (a Delaware corporation) and Subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1994. 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.
As further discussed in Note 4 to the consolidated financial statements, the Company has significant interests in real estate properties which are carried at the lower of cost or estimated net realizable value. The financial statements do not purport to present the Company's entire portfolio of real estate interests at their current market value or liquidation value, which may be less than the carrying amounts presented. The Company's management presently intends to hold these real estate interests until they can be sold for prices which they believe reflect reasonable values under more stable market conditions. Given the current market for land, management expects to hold the undeveloped land parcels for a prolonged period of time.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Turner Corporation and Subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
As further discussed in Note 10 to the consolidated financial statements, effective January 1, 1993, the Company changed its method of accounting for postretirement benefits other than pensions. As also discussed in Note 10 to the consolidated financial statements, effective January 1, 1992, the Company changed its method of accounting for amortizing unrecognized pension actuarial gains and losses for the defined benefit pension plan.
New York, New York ARTHUR ANDERSEN LLP March 7, 1995
The Turner Corporation and Subsidiaries Consolidated Balance Sheets (in thousands, except share amounts)
As of December 31, 1994 1993 Assets Cash and cash equivalents $ 54,756 $ 25,485 Marketable securities 4,251 13,046 Construction receivable: (Note 3) Due on contracts including retainage 356,160 314,435 Estimated unbilled construction costs and related earnings 70,733 80,572 Real estate (Note 4) 106,300 119,892 Property and equipment, net (Note 5) 17,490 17,725 Prepaid pension cost (Note 10) 64,259 63,207 Other assets 31,140 29,844 Total assets $705,089 $664,206 Liabilities Construction accounts payable: Trade $276,391 $239,156 Due on completion of contracts 118,959 117,647 Accrued estimated work completed 67,196 78,495 Notes payable and convertible debenture (Note 6) 106,879 102,365 Deferred income taxes (Note 7) 12,731 13,708 Other liabilities 63,717 58,152 Total liabilities 645,873 609,523 Commitments and contingencies (Note 13)
Stockholders' Equity (Note 12) Preferred stock, $1 par value (2,000,000 shares authorized): Series C 8.5% cumulative convertible (9,000 shares issued and outstanding; $9,000 9 9 liquidation preference) Series B cumulative convertible (850,000 shares issued; 848,956 and 849,011 outstanding) 849 849 Common stock, $1 par value (20,000,000 shares authorized, 5,200 5,135 5,199,941 and 5,134,778 issued) Paid in capital 37,778 37,280 Net unrealized loss on marketable (276) - securities Cumulative foreign translation - (787) adjustment Retained earnings 26,656 24,834 70,216 67,320 Less: Loan to Employee Stock Ownership Plan (Note 11) (10,468) (12,105) Treasury stock, at cost (53,489 common shares) (532) (532) Total stockholders' equity 59,216 54,683 Total liabilities and stockholders' equity $705,089 $664,206 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
The Turner Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share amounts) For the years ended December 31, 1994 1993 1992
Value of construction completed (see below) $ 2,638,579 $ 2,768,379 $ 2,644,794 Earnings from construction contracts $ 54,892 $ 67,434 $ 73,118 Losses from real estate operations (see below) (277) (8,069) (7,603) Gross earnings 54,615 59,365 65,515 Operating expenses - construction 36,450 40,156 41,160 Operating expenses - real estate 1,997 3,053 4,143 General and administrative expenses 14,969 16,555 13,107 Restructuring charges (credits) (Note 2) (1,145) 8,500 - Income (loss) from operations 2,344 (8,899) 7,105 Other income (loss), net (Note 14) (1,854) (870) (2,903) Income (loss) before income taxes 490 (9,769) 4,202 Income tax provision (benefit): (Note 7) Current (2,329) 252 405 Deferred (831) (3,816) 1,567 Total income tax provision (benefit) (3,160) (3,564) 1,972 Income (loss) before extraordinary gain and cumulative effect of accounting change 3,650 (6,205) 2,230 Extraordinary gain, net of tax (Note 6) - - 316 Cumulative effect of accounting change, net of tax (Note 10) - - 1,454 Net income (loss) $ 3,650 $ (6,205) $ 4,000
Primary earnings (loss) per common share: Before extraordinary gain and cumulative effect of accounting change $ 0.35 $ (1.55) $ 0.15 Extraordinary gain - - 0.06 Cumulative effect of accounting change - - 0.29 Net income (loss) per common share $ 0.35 $ (1.55) $ 0.50 Fully diluted earnings (loss) per common share: Before extraordinary gain and cumulative effect of accounting change $ 0.30 (a) $ 0.15 Extraordinary gain - - 0.05 Cumulative effect of accounting change - - 0.25 Net income (loss) per common share $ 0.30 (a) $ 0.45 Weighted average common and common equivalent shares outstanding Primary 5,186,879 5,186,442 5,074,943 Fully diluted 6,035,835 (a) 5,924,437
Value of construction completed consists of the following: Revenue from construction contracts: Construction costs incurred by the company $1,835,010 $1,848,800 $1,993,749 Company's share of joint venture 253,080 160,021 134,280 construction costs Earnings from construction contracts (including joint venture earnings of $5,153, $3,253 and $3,785 54,892 67,434 73,118 for 1994, 1993 and 1992, respectively) Total revenue from construction contracts 2,142,982 2,076,255 2,201,147 Construction costs incurred by owners in connection with work under construction management and similar contracts 495,597 692,124 443,647 Value of construction completed 2,638,579 2,768,379 2,644,794
Losses from real estate operations consist of the following: Real estate sales $ 9,279 $ 23,537 $ 252 Cost of sales (7,600) (23,571) (252) Rental and other income 12,416 13,497 15,026 Direct operating costs (8,776) (10,054) (14,879) Depreciation and amortization expense (5,596) (5,460) (5,930) Write-downs and reserves - (6,018) (1,820) Losses from real estate operations $ (277) $ (8,069)$ (7,603) The accompanying Notes to Consolidated (a) Antidilutive Financial Statements are an integral part of these statements.
The Turner Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except share amounts) For the years ended December 31, 1994 1993 1992 Shares Amount Shares Amount Shares Amount Convertible preferred stock, Series C Balance at beginning of year 9,000 $9 9,000 $9 - $- Preferred stock issued - - - - 9,000 9 Balance at end of year 9,000 9 9,000 9 9,000 9 Convertible preferred stock, Series B Balance at beginning of year 849,011 849 849,494 849 850,000 850 Preferred stock retired (55) - (483) - (506) (1) Balance at end of year 848,956 849 849,011 849 849,494 849 Common stock Balance at beginning of year 5,134,778 5,135 5,070,535 5,071 4,980,088 4,980 Common stock issued 65,163 65 64,243 64 90,447 91 Balance at end of year 5,199,941 5,200 5,134,778 5,135 5,070,535 5,071 Paid in capital Balance at beginning of year 37,280 36,699 26,997 Excess of proceeds over par value of Series C preferred stock issued - - 8,991 Excess of proceeds over par value of common stock issued 498 575 695 Excess of proceeds over cost of treasury stock issued - 6 16 Balance at end of year 37,778 37,280 36,699 Net unrealized loss on marketable securities Balance at beginning of year - - - Net unrealized loss for the year (276) - - Balance at end of year (276) - - Cumulative foreign translation adjustment Balance at beginning of year (787) (783) (1,088) Change in cumulative translation adjustments during the year 787 (4) 305 Balance at end of year - (787) (783) Retained earnings Balance at beginning of year 24,834 32,869 30,306 Net income (loss) for the year 3,650 (6,205) 4,000 Cash dividends on Series C preferred stock,$85.00, $85.00 $38.00 per share (765) (765) (342) Cash dividends on Series B preferred stock, $2.16 per share (1,833) (1,835) (1,835) Tax benefits on Series B preferred stock dividends 770 770 740 Balance at end of year 26,656 24,834 32,869 Loan to Employee Stock Ownership Plan (ESOP) Balance at beginning of year (12,105) (13,668) (15,260) Repayment from loan to ESOP 1,637 1,563 1,592 Balance at end of year (10,468) (12,105) (13,668) Treasury stock Balance at beginning of year 53,489 (532) 22,647 (325) 25,965 (382) Purchase of treasury stock - - 32,900 (240) - - Treasury stock issued - - (2,058) 33 (3,318) 57 Balance at end of year 53,489 (532) 53,489 (532) 22,647 (325) Total stockholders' equity $59,216 $54,683 $60,721
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. The Turner Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, except share amounts) For the years ended December 31, 1994 1993 1992 Cash flows from operating activities: Net income (loss) 3,650 (6,205) 4,000 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Restructuring charges (credits) (1,145) 8,500 - (Gain) loss on sale of real (1,679) - - estate sales Cumulative foreign translation 1,193 34 - charge Write-downs and reserves - 6,018 1,820 Extraordinary gain - - (571) Cumulative effect of accounting change - - (2,423) Equity in affiliates' net loss 1,915 3,027 3,928 Depreciation and amortization 9,366 9,824 11,043 Net periodic pension credit (1,052) (9,674) (9,549) Provision (benefit) for deferred (831) (3,816) 2,536 income taxes Changes in operating assets and liabilities: Decrease (increase) in (31,886) 27,703 23,757 construction receivables Increase (decrease) in 27,248 (32,110) (25,857) construction accounts payable Decrease in restructuring (6,458) - - reserve Decrease (increase) in other 7,484 4,780 (7,207) assets and liabilities, net Net cash provided by 7,805 8,081 1,477 operating activities Cash flows from investing activities: Purchases of marketable securities - (25,913) (13,613) Proceeds from sale of marketable 8,389 26,480 - securities Distributions from joint ventures 5,000 - - Investments in joint ventures (900) (8,137) (3,180) Purchases of property and equipment (3,569) (4,610) (4,373) Proceeds from sale of property 1,916 4,162 591 and equipment Proceeds from sale of real estate net 7,049 17,465 - Increase in real estate (3,423) (3,911) (2,468) Repayments on notes receivable 2,888 416 474 Net cash provided by (used in) 17,350 5,952 (22,569) investing activities Cash flows from financing activities: Common stock issued 563 639 786 Convertible preferred stock issued - - 15,000 Cash dividends to preferred stock- (2,598) (2,600) (2,177) holders Repayments from loan to ESOP 1,637 1,563 1,592 Proceeds from borrowings 80,497 62,963 42,386 Payments on borrowings (75,983) (89,217) (34,321) Cash used for debt restructuring - - (1,201) Funding of joint venture borrowings - - (5,034) Proceeds from issuance of - 39 73 treasury stock Purchases of treasury stock - (240) - Net cash provided by (used in) 4,116 (26,853) 17,104 financing activities Net increase (decrease) in cash and 29,271 (12,820) (3,988) cash equivalents Cash and cash equivalents at 25,485 38,305 42,293 beginning of year Cash and cash equivalents at end of year $54,756 $25,485 $38,305 Noncash financing activities: Mortgage note assumed by the buyer in connection with the sale of real estate $ - $ 4,426 $ - Series D convertible preferred stock exchanged for a convertible debenture - - 6,000 Note payable forgiven related to the air industrial park - - 2,500 Noncash investing activities: Net unrealized loss on marketable securities 276 - - Note provided upon the sale of certain assets and liabilities of a construction subsidiary - 1,577 - Notes provided upon the sale of real estate 1,849 1,185 - The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE TURNER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share amounts)
1. Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the accounts of The Turner Corporation and Subsidiaries and their proportionate interest in the accounts of construction joint ventures (the Company). The Company also has investments in affiliates and in real estate joint ventures, which are accounted for under the equity or cost method, as appropriate. All significant intercompany transactions and balances are eliminated. Certain prior year balances have been reclassified in the consolidated financial statements in order to provide a presentation consistent with the current year.
Construction Operations: The Company determines construction earnings under the percentage of completion method. Under this method, the Company recognizes as earnings that portion of the total earnings anticipated from a contract which the value of the work completed bears to the estimated total value of the work covered by the contract. As the Company's construction contracts generally extend over more than one year, revisions in costs and earnings estimates during the course of the work are reflected in the year in which the facts which require the revision become known. When a loss is forecasted for a contract, the full amount of the anticipated loss is recognized in the period in which it is determined that a loss will occur. Claims are included in earnings from construction contracts at an amount based on the related contract costs when realization is probable and the amount can be reliably estimated.
The Company continuously reviews estimated earnings from construction contracts and makes necessary adjustments based on current evaluations of the indicated outcome. In 1994 and 1993, the Company wrote down certain construction receivables and claims deemed unrecoverable.
Under certain contracts, owners of buildings make payments directly to suppliers and subcontractors for all or for portions of work covered by the contract. The Company considers such costs in determining contract percentage of completion and reports such amounts in the value of construction completed.
Real Estate Operations: Rental income, including fixed minimum rents and additional rents, under operating leases with tenants is generally recognized on a contractual basis.
Profit on sales of real estate is recognized in full when the profit is determinable, an adequate down payment has been received, collectability of the sales price is reasonably assured and the earnings process is substantially complete. If the sales transaction does not meet these criteria, all profit or a portion thereof is deferred until such criteria are met.
The real estate properties which are held for investment are carried at cost less accumulated depreciation and are assessed periodically for impairment based on the sum of undiscounted estimated future cash flows. All other real estate properties and investments in real estate joint ventures are carried at the lower of cost or estimated net realizable value (Note 4). Depreciation and Amortization: The Company calculates depreciation on property and equipment, and on real estate primarily on the straight-line method. Estimated useful lives are as follows: buildings and improvements, 20-40 years; office machines and furniture, 5-10 years; and equipment, 10 years. Leasehold improvements (the Company as lessee) to property used in Company operations are amortized on a straight-line basis over the lease terms. Tenant improvements (the Company as lessor) on real estate properties are amortized on a straight-line basis over the term of the lease. Maintenance and repairs are expensed currently, except that expenditures for betterments are capitalized.
In connection with the renegotiated lease of certain facilities at the Rickenbacker Air Industrial Park, effective January 1, 1995, the Company revised the estimated depreciable life of the facilities to coincide with the new lease term.
Cash: The Company considers all investments purchased with maturities of 90 days or less to be cash equivalents. The Company's other liabilities include approximately $36,800 and $26,400 net payable to banks for checks drawn but not cleared as of December 31, 1994 and 1993, respectively.
Marketable Securities: On January 1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain Investments in Debt and Equity Securities." In accordance with the provisions of SFAS No. 115, marketable securities which consist primarily of equity and bond mutual funds are classified as available-for-sale and are reported in the Balance Sheet at fair value as of December 31, 1994. Prior to that date, marketable securities were carried at the lower of cost or market at the Balance Sheet date.
Unrealized gains and losses in 1994 are reported as a separate component of stockholders' equity. In prior periods, net unrealized losses were charged to expense. The effect of the adoption of the Standard was not material to the financial statements.
Loans Receivable: Effective January 1, 1995, the Company will adopt SFAS No. 114 "Accounting by Creditors for Impairment of a Loan" which was amended by SFAS No. 118. These statements require that a loan be recognized as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impairments would be recognized by creating valuation allowances with corresponding charges to bad debt expense. Management believes the impact of the standards upon adoption will not be material to the financial statements.
Income Taxes: Prior to January 1, 1993, deferred income tax expenses or benefits were recorded to reflect the tax consequences of timing differences between the recording of income and expenses for financial reporting purposes and for purposes of filing income tax returns in effect when the difference arose.
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. Deferred income tax expenses or benefits are based on the changes in the asset or liability from period to period. The adoption of the standard was not material to the financial statements.
The Company does not provide for U.S. Federal income taxes on undistributed earnings of foreign subsidiaries since it is the Company's intention to permanently reinvest those earnings outside the United States.
Foreign Currency Translation: Assets and liabilities of operations that represent an investment in a foreign country are translated into U.S. dollars at exchange rates in effect at year-end, while revenues and expenses are translated at average exchange rates prevailing during the year. The resulting translation gains and losses are accumulated as a separate component of stockholders' equity. Foreign exchange transaction gains and losses are included in results of operations during the periods in which they arise.
Earnings Per Common Share: Primary earnings per common share is based on net income less preferred stock dividends (net of tax benefits relating to Series B preferred stock) divided by the weighted average number of common and common equivalent shares outstanding. Fully diluted earnings per common share is further adjusted to reflect the assumed conversion of convertible preferred stock and the convertible debenture, and the elimination of the preferred stock dividends and interest expense on the convertible debenture, net of applicable income taxes, if such conversions are dilutive.
2. Restructuring Charges
During 1993, plans were developed to significantly reduce the Company's future operating costs and expenses and to improve productivity. This restructuring program principally involved a reduction in the number of staff, plus the consolidation of offices and facilities and the reorganization of support functions. The results of operations for 1993 included $8,500 of pretax charges ($5,600 net of tax benefits, or $1.08 per share) related to this program. The charges included provisions for severance pay, incentive programs relating to employee terminations, costs related to the consolidation of offices and other reorganization costs. This program was implemented in 1994 and was substantially completed by the end of the year. During 1994, $6,458 was charged to the reserve and $897 remains in accrued liabilities at December 31, 1994. The balance of the unused reserve of $1,145 was credited to income in the fourth quarter of 1994.
3. Construction Receivables
Due on contracts included $116,856 of retainage at December 31, 1994. It is expected that approximately 86% of such retainage will be collected by December 31, 1995. At December 31, 1993, retainage was $106,665. Construction receivables include estimated net claims. The settlement of the claims depends on individual circumstances, accordingly, the timing of the collection will vary and may extend beyond one year. Those claims, primarily due to owner-caused delays, incomplete specifications or similar reasons, amounted to $8,600 and $10,800 at December 31, 1994 and 1993, respectively.
4. Real Estate
The Company owns a portfolio of real estate, either directly or through joint venture interests, that includes commercial office properties, mixed-use warehouse/service properties, residential properties, undeveloped land, and certain buildings and hangars located at an air industrial park. The properties are located throughout the United States, but primarily in the Southeast and Great Lakes regions. Accumulated depreciation at December 31, 1994 and 1993 was $34,639 and $32,037, respectively.
Given the current real estate market, the Company has determined that its interests in commercial office, mixed-use and residential condominium properties, and undeveloped land parcels will be available for sale when they can be sold for prices which the Company believes reflect the reasonable value of the properties under more stable market conditions. Management expects to dispose of its interests in commercial office, mixed-use and residential condominium properties for those prices generally within the next few years. Based on management's intended holding period, the Company's interests in certain developed properties are carried at their estimated fair value. Given the current market for undeveloped land parcels, management anticipates a prolonged period before land values recover. Due to the relatively low holding costs of the Company's undeveloped land parcels, the Company intends to and has the ability to hold the properties for a prolonged period of time in order to achieve more reasonable prices upon disposition. The carrying amounts of the Company's interests in these developed properties were $45,934 and $57,692, and in the undeveloped land parcels were $30,458 and $31,076 at December 31, 1994 and 1993, respectively. These real estate interests are carried at the lower of cost or estimated net realizable value. The net realizable values reflect the Company's estimates of the net sales proceeds less anticipated capital expenditures through the estimated date of sale and disposal costs, which have not been discounted to net present value.
The Company estimates the net realizable values by evaluating and making assumptions about future events with respect to the property, market conditions and anticipated investor rates of return. The net realizable values reflect each disposition based on the Company's current intended holding period, and do not represent liquidation values. Judgments regarding future events are not subject to precise quantification or verification and may change from time to time as economic and market factors, and the Company's evaluation of them, change and the effects of such changes may be significant.
The Company actively monitors market conditions and reviews, on a quarterly basis, the net realizable values of its real estate interests and reduces carrying amounts when required. On a periodic basis, generally not exceeding two to three years, the Company has independent appraisals performed for significant real estate interests for the purpose of assisting management in determining their fair value and the appropriate timing of disposition. In connection with the Company's review of the carrying amounts of its real estate interests, additional write- downs and reserves of $6,018 were recorded for the year ended December 31, 1993.
5. Property and Equipment
Property and equipment as of December 31, 1994 and 1993 consisted of:
1994 1993 Buildings and $14,063 $12,633 improvements Office machines and 17,000 16,610 furniture Equipment 16,470 16,508 Total 47,533 45,751 Less: accumulated depreciation and amortization (30,043)(28,026) Net $17,490 $17,725 6. Notes Payable and Convertible Debenture
Notes payable and convertible debenture as of December 31, 1994 and 1993 consisted of the following:
1994 1993 Senior Notes $ 39,500 $ - Land and building 24,845 31,877 mortgages Revenue bonds 18,400 20,500 Employee Stock 11,100 12,800 Ownership Plan Revolving credit - 24,000 facility Convertible 6,000 6,000 debenture Other 7,034 7,188 Total $ 106,879 $ 102,365
Senior Notes: On December 21, 1994, the Company sold $39,500 of Senior Notes in a private placement to institutional investors, including the Company's pension plan (Note 10). Proceeds of the Notes were used to paydown short-term borrowings under the revolving credit facility. The Notes bear interest at a fixed rate of 11.74% and mature in even principal amounts on the third through seventh anniversary dates of the Notes. The Note Purchase Agreement contains various covenants, the most restrictive of which is a fixed-charge coverage requirement.
Land and Building Mortgages: Variable rate mortgages bear interest at rates of LIBOR plus 2.25% or prime plus 0.5% and mature in varying installments through 1999. The weighted average interest rate for 1994 and 1993 was approximately 7.47% and 6.64%, respectively. In connection with a variable rate building mortgage, in 1994, the Company entered into an interest rate swap agreement with a bank for a notional amount equal to the underlying mortgage ($9,562 at December 31, 1994). The swap agreement provides for a fixed interest rate of 6.96% through January 27, 1998. Fixed rate mortgages of $5,163 bear interest at 7% or 9.375% and are due in varying installments through 2001.
Revenue Bonds: Adjustable rate revenue refunding bonds collateralized by properties at the air industrial park mature in varying installments through 2010. The bonds bear interest at a weekly variable rate. The weighted average interest rate for 1994 and 1993 was approximately 2.89% and 2.46%, respectively. The bonds are supported by a letter of credit for which the Company pays 1.50% per annum. The Company entered into an interest rate swap agreement with a bank for a $15,000 notional amount providing for a fixed interest rate of 4.13% through December 15, 1996.
Multi-family facility revenue bonds collateralized by a residential property were retired in 1993 upon disposition of the property. The bonds bore interest at a weekly variable rate. The weighted average interest rate for 1993 was approximately 3.32%.
Extinguishment of Debt: In December 1992, the Company restructured certain debt relating to the air industrial park. The previously outstanding revenue bonds, which carried a fixed interest rate of 8.75% were redeemed at 102% of par value. In addition, $2,500 of other debt was forgiven. Proceeds for the redemption were primarily provided by a series of adjustable rate revenue refunding bonds issued in November 1992. The transaction resulted in a net extraordinary gain of $316. Employee Stock Ownership Plan (ESOP): This loan was used to fund the Company's loan to the ESOP and is payable in varying installments through 1999. Interest is payable quarterly at a variable rate equal to 83% of the prime rate or a percentage of LIBOR, at the Company's option. The loan is collateralized by first mortgages on certain real estate properties and letters of credit. The loan allows for collateral substitution and upon disposition of such properties may require additional collateral to maintain loan-to-value relationships. The weighted average interest rate for 1994 and 1993 was approximately 4.56% and 3.44%, respectively. The loan agreement contains various covenants, including the maintenance of a minimum amount of stockholders' equity and debt coverage ratio. At December 31, 1994, the minimum stockholders' equity required was $54,000 and increases by $4,000 annually to $74,000 in 1999.
Revolving Credit Facility: The Company has an unsecured $40,000 revolving credit facility maturing in 1996, the proceeds of which are being used for general corporate purposes. The current facility permits the Company to choose between various interest rate options. The weighted average interest rate for 1994 and 1993 was approximately 6.84% and 5.97%, respectively. The Company pays a commitment fee at an annual rate of 0.5% on the unused portion of the facility. The facility contains various covenants, the most restrictive of which is a fixed-charge coverage requirement.
Convertible Debenture: In July 1992, the Company issued a $6,000 8.5% convertible debenture which matures in 1997. The Company may not prepay the principal balance prior to its maturity. At the option of the holder, the debenture is convertible into 6,000 shares of Series D 8.5% convertible preferred stock of the Company. The holder must convert the full debenture principal balance at the time of conversion. The Series D stock is ultimately convertible into 600,000 shares of the Company's common stock and carries terms similar to the Series C stock of the Company, except as to the election of directors (Note 12).
Other: This amount includes a bank loan for the purpose of financing improvements to the Company's corporate offices which had an outstanding balance of $3,000 and $5,000 at December 31, 1994 and 1993, respectively. The principal is payable in semi-annual installments through 1995. The loan bears interest at LIBOR plus 0.25%. The weighted average interest rate for 1994 and 1993, including associated letter of credit fees, was approximately 7.74% and 4.85%, respectively.
The Company maintains overnight credit facilities with various banks at varying rates. The Company had available $10,500 of which $2,400 was outstanding at December 31, 1994. The facilities are subject to periodic renewal from the banks and certain facilities carry annual commitment fees ranging from 0.375% to 0.5%. During 1994 and 1993, the weighted average interest rates were 7.59% and 6.31%, respectively.
Aggregate maturities of notes due are as follows:
1995 1996 1997 1998 1999 Thereafter $11,9888 $3,288 $22,971 $20,190 $11,926 $36,516
Interest cost, which approximates amounts paid, for the years ended December 31, 1994, 1993 and 1992 was $7,923, $7,427 and $8,124, respectively.
At December 31, 1994, the carrying value of the real estate that was pledged as collateral for notes payable was $68,629. 7. Income Taxes
The components of the income tax provision (benefit) are as follows:
1994 1993 1992 Current: Federal $ (2,924) $ - $ - Foreign 59 145 196 State & Local 536 107 464 (2,329) 252 660
Deferred:
Federal 1,659 (4,027) 2,099 Foreign (2,482) - - State & Local (8) 211 437 (831) (3,816) 2,536 Total $ (3,160) $(3,564) $ 3,196
The income tax provision (benefit) above consists of the following components:
1994 1993 1992 Operations $ (3,160) $ (3,564) $ 1,972 Extraordinary gain - - 255 Accounting change - - 969 $ (3,160) $ (3,564) $ 3,196
In the Statement of Operations for the year ended December 31, 1992, the extraordinary gain and the cumulative effect of the accounting change are shown net of the related tax provision.
Deferred income taxes result from temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. The source of these differences and tax effect of each at December 31, 1994 and 1993 and for the year ended December 31, 1992 are as follows:
Deferred Income Tax Provision (Benefit) for Liability (Asset) Deferred Income Taxes
1994 1993 1992 Construction earnings $ 656 $ 556 $ (314) Pension plans 24,629 24,287 4,216 Depreciation 5,857 5,572 (156) Real estate properties (2,736) (2,362) 159 Net operating loss benefits (11,163) (7,375) (1,886) Restructuring charges (239) (2,890) - Alternative minimum tax credit carryforward (2,451) (2,451) - Jobs credit carryforward (75) (75) - Deferred compensation plan (611) (787) (100) Contributions carryover (1,056) (848) (231) Other (80) 81 848 $ 12,731 $ 13,708 $ 2,536
The Company has recorded $18,411 of deferred tax assets having resulted principally from net operating loss and tax credit carryforwards. Management believes that no valuation allowance is required for these assets due to the future reversals of existing taxable temporary differences primarily related to the Company's defined benefit pension plan.
A comparison of the Federal statutory rate with the company's effective tax rate is as follows:
1994 1993 1992
Statutory Federal income 34.0 % (34.0) % 34.0 % tax rate (benefit) State and local taxes, 86.6 % 2.2 % 8.3 % net of Federal benefit Effective foreign tax (489.3) % (3.0) % 0.7 % rate Reserve reversals (355.2) % -- -- Other 79.0 % (1.7) % 1.4 % Effective tax rate (644.9) % (36.5) % 44.4 % (benefit)
Income taxes paid (refunded) were $(455), $73 and $(3,397) for 1994, 1993, and 1992, respectively.
For Federal income tax purposes, the company has available at December 31, 1994 a net operating loss carryforward of $26,422 which is available to offset future taxable income and expires from 2006 through 2009, and an alternative minimum tax credit carryforward of $2,451 which can be carried forward indefinitely.
The unrecognized deferred tax liability related to cumulative undistributed earnings of foreign subsidiaries which were permanently reinvested was $164 at December 31, 1994.
8. Incentive Compensation Plans
The Company sponsors two incentive compensation plans. The Executive Incentive Compensation Plan (EICP) authorizes payments of awards to executive officers and other designated employees of the Company in the form of cash and common stock of the Company, which may be deferred in part at the election of the recipient. The committee that administers the plan determines the particular recipients who are to receive awards and the amounts of their respective awards. The amounts charged to expense in 1994, 1993 and 1992 aggregated $849, $39, and $1,092, respectively.
The staff Incentive Compensation Plan (ICP) authorizes payment of awards in the form of cash and common stock of the Company to certain salaried employees who are not participants in the Company's EICP. All awards are deferred for a period of five years and are paid out in cash and common stock over a six-year period thereafter. Recipients must remain in the continuous employment of the Company up to the distribution date in order to receive the award. The amounts charged to expense in 1994, 1993 and 1992 aggregated $134, $116 and $78, respectively.
The Company plans to liquidate the ICP during the first quarter of 1995. The liquidation of the plan will be done through issuance of 21,379 shares of the Company's common stock to the current participants of the program. Each share will be valued at $7.919, which is the average market price of the Company's common stock over the last 20 business days of December, 1994. The total gross value of the liquidation is $283. 9. Stock Options
The Company has incentive stock option plans adopted in 1986 and 1992 which provide for the granting of options to officers and designated employees of the Company to purchase shares of the common stock of the Company at a price not less than the market value of the common stock on the date the option is granted. In addition, an incentive plan adopted in 1981 has been terminated and no new options can be granted under this plan, although unexercised options remain outstanding.
Options are exercisable in whole or in part from one to ten years from the date of the grant at the discretion of the stock option committee. Options granted under each plan may not exceed 400,000 shares. No charges to income arise in connection with the plans.
Option plan transactions during 1994 and 1993 are summarized in the following table:
Price Range 1994 1993 Per Share Outstanding January 1 759,788 645,328 $8.00 - 27.50
Granted 99,000 135,500 7.75 - 8.56 Exercised - (800) 8.50 Canceled (114,360) (20,240) 7.75 - 27.50
Outstanding December 31 744,428 759,788 7.75 - 27.50
Exercisable at December 31 617,449 636,568 8.00 - 27.50
Options available for grant at January 1 277,530 405,290
Options available for grant at December 31 247,390 277,530
10. Employee Benefit Plans
Defined Benefit Pension Plan: The Company has a noncontributory defined benefit pension plan which covers salaried employees who meet minimum age and length of service requirements.
On March 31, 1991, the Company curtailed its defined benefit pension plan such that benefits do not accrue to plan participants for future years of service under the benefit formula. Benefits earned prior to the curtailment were based on members' years of service and averaged final salary.
Effective January 1, 1994, the Company amended the defined benefit pension plan to add a cash balance plan feature, to provide benefits to plan participants that were previously provided under the defined contribution retirement plan. Past benefits earned by plan participants prior to curtailment are not changed and benefits earned by participants for future service are provided under a different benefit formula. New participants will earn benefits only under the revised formula. The new benefit formula provides for credits into notional individual account balances based upon salary and years of service. Management anticipates that the cash balance plan will significantly reduce the net periodic pension credit recognized in future years, and result in a reduction of the prepaid pension asset. The projected unit credit actuarial method is used to determine the recognition of net periodic pension expense and to determine funding requirements. The Company will continue to fund the plan as required.
The Company amortizes unrecognized prior service costs on a straight-line basis over a period not exceeding the average life expectancy of retirees.
Effective January 1, 1992, the Company changed the method for amortizing unrecognized pension actuarial gains and losses, under which the full amount of the net actuarial gain or loss in the year is being amortized over a period not exceeding the average life expectancy of employees. The effect of the change in accounting method for the year ended December 31, 1992 related to the 1992 pension expense was to increase net income by $641, net of tax, or $0.12 per share on primary earnings per share and $0.10 per share on fully diluted earnings per share.
Plan assets consist primarily of pooled equity, debt and short-term investment funds, a pooled real estate equity fund, 675,000 shares of the Company's common stock and $9,500 of the Company's Senior Notes (Note 6).
The table below sets forth the funded status of the defined benefit pension plan and the amounts recognized in the Company's financial statements at December 31, 1994 and 1993 and for the years then ended:
1994 1993 Actuarial present value of benefit obligations: Vested benefits $ 100,201 $ 81,843 Accumulated benefit obligation 104,602 86,670 Projected benefit obligation 104,602 86,670 Plan assets at fair value 154,918 163,099
Plan assets in excess of projected benefit obligation 50,316 76,429 Unrecognized prior service cost 8,832 1,825 Unrecognized net loss (gain) 9,514 (9,763) Remaining unrecognized net asset being recognized over 15 years (4,403) (5,284)
Prepaid pension cost $ 64,259 $ 63,207
Components of net periodic pension credit: Service cost $ 7,910 $ - Interest cost on projected benefit obligation 7,651 6,829 Actual return on plan assets 1,370 (15,646) Net amortization and deferral (17,983) (857)
Net periodic pension credit $ (1,052) $ (9,674)
The assumptions used in measuring the actuarial value of projected benefit obligations and determining the net periodic pension credit were:
1994 1993 Weighted average discount rate 8.25% 8.25% Rate of compensation increase - cash balance feature 6.8% N/A Weighted average expected long-term rate of return on plan assets 9.96% 10.00%
Defined Contribution Pension Plans From April 1, 1991 to December 31, 1993, the Company sponsored a defined contribution retirement plan covering salaried employees who met minimum age and length of service requirements. Contributions were based on salaries and length of service. The Company also sponsors a Section 401(k) tax deferred savings plan which covers salaried employees who meet minimum age and length of service requirements. Matching contributions are based on employee contributions and are limited to one-half of the first 3% of the employee's compensation. Effective January 1, 1994, the defined contribution retirement plan was merged into the Section 401(k) tax deferred savings plan. No additional contributions will be made to the defined contribution retirement plan. Benefits earned under the Section 401(k) tax deferred savings plan remain unchanged. The aggregate amount charged to expense for these plans was $1,653 and $6,933 in 1994 and 1993, respectively.
Postretirement Benefit Plan Employees retiring from the Company and eligible for an immediate benefit from the retirement plans (generally age 55 with 15 years of service) are eligible to continue their current medical insurance coverage into retirement. The medical benefits continue to be subject to the deductibles, copayment provisions and other limitations. Retirees pay for a portion of the total cost of their medical insurance and starting with 1993 retirements, the portion of the total cost will be dependent on the individual's total Company service at retirement. The medical plans of the Company are funded on a pay-as-you-go basis.
Effective January 1, 1993, the Company adopted SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions," which mandates the accrual of postretirement health benefits during the years that employees render service. The following table sets forth the funded status of the plan and the amounts recognized in the Company's financial statements at December 31, 1994 and 1993 and for the years then ended: 1994 1993 Actuarial present value of accumulated postretirement benefit obligation: Retirees $14,023 $16,162 Fully eligible active plan participants 1,569 1,371 Other active plan participants 3,590 4,788 Accumulated unfunded postretirement benefit obligation 19,182 22,321 Remaining unrecognized transition obligation being recognized over 20 years (17,829) (18,820) Unrecognized net gain (loss) 2,183 (1,744) Accrued postretirement benefit obligation $ 3,536 $ 1,757
Net periodic postretirement benefit cost includes the following components: Service cost $ 336 $ 286 Interest cost 1,652 1,612 Amortization of unrecognized transition obligation 991 991 Net periodic postretirement benefit cost $ 2,979 $ 2,889
Impact of one percent increase in healthcare trend rate: Aggregate impact on annual service cost and interest cost $ 106 $ 120 Increase in accumulated postretirement benefit obligation $ 1,186 $ 1,619
The accumulated postretirement benefit obligation was computed using an assumed weighted average discount rate of 8.5% in 1994 and 7.5% in 1993. The healthcare cost trend rate was assumed to be 12% in 1994 decreasing by 1% a year to 6% in 2000 and 5.5% in 2001 and beyond.
Effective January 1, 1994, the Company adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits." This statement mandates the accrual of all types of postemployment benefits provided to former or inactive employees, their beneficiaries and covered dependents after employment but before retirement. The effect of the adoption of the standard was not material to the financial statements.
11. Employee Stock Ownership Plan
The Company has a leveraged Employee Stock Ownership Plan (ESOP) for salaried employees who meet minimum age and length of service requirements. To fund the ESOP, the Company originally borrowed $18,092. Proceeds of this borrowing were loaned to the ESOP, which purchased 850,000 shares of Series B convertible preferred stock.
Eligible employees are allocated the Series B stock over the term of the ten-year ESOP loan. The allocated shares vest after five years of service.
The Series B stock is callable, in whole or in part, at the option of the Company at any time after July 1, 1994, at a price per share expressed as a percentage of the issue price of $21.29. At the Company's option, the call may be satisfied by common shares, cash or a combination thereof. The call price is 112% in 1995 and decreases to 100% in 1999 and for years thereafter. The trustee may, at any time, convert each share of Series B stock into one share of common stock.
Prior to the retirement of the ESOP debt, employees can only redeem their vested preferred shares upon death or age 70 1/2. Once the debt is retired, shares can be redeemed at retirement, termination or death. The redemption value is established at the end of each year by an independent appraiser. The latest appraised value dated March 7, 1995 was $17 per preferred share. At the Company's option, redemption by an employee may be satisfied by common shares, cash or a combination thereof.
The preferred stockholders are entitled to identical voting rights as the holders of common shares.
The loan to the ESOP is on the same terms as the Company's bank loan. The ESOP will repay the loan (plus interest) with proceeds from the quarterly dividends paid on the Series B stock and contributions from the Company. All contributions to the ESOP in excess of dividends are treated as compensation expense.
Compensation expense and interest income for the years ended December 31, 1994, 1993 and 1992 were:
1994 1993 1992 Compensation expense $412 $340 $215 Interest income $546 $509 $627
The interest income earned by the Company on the ESOP loan offsets the interest expense incurred on the original borrowing, with no impact on the results of operations.
12. Stockholders' Equity
On July 20, 1992, the Company sold Karl Steiner Holding AG (Steiner) 9,000 shares of Series C 8.5% convertible preferred stock and 6,000 shares of Series D 8.5% convertible preferred stock for a total of $15,000. On July 22, 1992, the Series D stock was exchanged for an 8.5% convertible debenture due in 1997 in the principal amount of $6,000 (Note 6).
The Series C stock is convertible into 1,000,000 shares of common stock or can be exchanged for 9,000 shares of Series E 8.5% convertible preferred stock (which is substantially identical to the Series C stock, except as to transferability and election of directors). The debenture is convertible into 6,000 shares of Series D stock, which is convertible into 600,000 shares of common stock. The Series C stock has, and the Series D and Series E stock will have a liquidation preference of $1,000 per share and a cumulative dividend preference of $85 per share per year. At their option, the holders of the Series C, Series D and Series E stock will have the right to convert either the full amount or a partial percentage into common stock. While the Series C stockholders own securities constituting (after conversion) more than 10 percent of the Company's outstanding common stock, on a fully diluted basis, the Series C stockholders have the right to elect, as a class, between one and three directors, depending on the percentage of the outstanding stock owned. Holders of Series D and Series E stock, and Series C stock (except when they are entitled to elect at least one director as a class), vote on an as- converted basis as though they held common stock. Holders of Series C or Series D stock also have the right to elect a director if the Company is six quarters or more in arrears in paying dividends.
In connection with the purchase of the Company's securities by Steiner, the Company executed an agreement providing the Company and Steiner with certain rights, obligations and options which terminate on June 30, 2002, unless extended.
Under this agreement, Steiner has the right of first refusal in some instances with regard to sales by the Company of more than five percent of its stock. In addition, if the Company issues additional stock or convertible or exchangeable securities, Steiner will have the option in some instances to purchase similar securities to the extent necessary to maintain its percentage ownership.
If the Company issues, in a transaction or related series of transactions, common stock or convertible or exchangeable securities totaling at least 15% of the Company's outstanding common stock, on a fully diluted basis, the Series C stock will be redeemable during a 30-day period at its liquidation preference plus accrued or accumulated dividends, unless the holders of two- thirds of the Series C stock approve the transaction.
The Company has a right of first refusal with regard to sales or transfers of the Company's securities owned by Steiner constituting more than five percent of the Company's outstanding common stock, on a fully diluted basis. In addition, the Company has the option to repurchase the Company's securities owned by Steiner, upon a change in control in the ownership of Steiner.
If after December 31, 1994, the price of the Company's common stock is below $7 for at least 20 consecutive trading days (or if the agreement is not extended), Steiner may require the Company either to find a buyer (which may be the Company) for all of Steiner's holdings (or all its holdings except the debenture or Series D stock), or to sell Steiner additional common stock equal to Steiner's existing holdings on an as-converted basis, at a price selected by Steiner which is not higher than 115% of the market price of the Company's common stock. The Company will not decide until it knows the terms on which it is to find a buyer for Steiner's holdings or to sell Steiner additional common stock, which of the two options it would elect.
13. Commitments and Contingencies
The Company (as lessee) leases office space under operating leases having remaining non-cancelable lease terms in excess of one year. Rental expense for the years ended December 31, 1994, 1993 and 1992 amounted to $9,254, $9,779 and $10,103, respectively. Future minimum rental payments are as follows:
1995 1996 1997 1998 1999 Thereafter $8,597 $7,740 $6,604 $5,599 $5,079 $15,652
The Company (as lessor) has operating leases with tenants that provide for fixed minimum rent and reimbursement of a portion of operating costs. Additional rents for reimbursements included in rental income amounted to $373, $390, and $447 for 1994, 1993 and 1992, respectively. Tenant leases on commercial office and mixed-use properties have terms of up to ten years, and leases on residential properties generally have terms of one year or less. Minimum future rental revenue from non-cancelable leases in effect at December 31, 1994 are as follows:
1995 1996 1997 1998 1999 Thereafter $8,199 $5,405 $4,198 $3,147 $2,553 $17,499
The Company has jointly and severally guaranteed completion of an $93,300 construction contract which was entered into by Turner Steiner International SA in which the Company has a 50% interest. The Company has guaranteed $2,750 of a $5,000 letter of credit facility and $275 of a $500 line of credit facility of Turner Steiner International SA.
In connection with the sale of certain assets and liabilities of a construction subsidiary, the Company agreed to guaranty or otherwise indemnify their surety up to $15,000 in obtaining bonds in excess of $45,000 through December 31, 1997.
The Company owns certain buildings, hangars and equipment and is the ground lessee on the underlying land located at an air industrial park. The Company has leased to a tenant the buildings, hangars, equipment and land with a term of 15 years expiring in 2010. Rental income under this lease represented 37%, 33% and 30% of total rental income for 1994, 1993 and 1992, respectively.
The Company is a defendant in various litigations incident to its business. In some instances the amounts sought are very substantial, including some which are proceeding to trial involving substantial claims and counterclaims, and certain parties are withholding significant amounts included in construction receivables pending the outcome of the litigation. Although the outcome of litigation cannot be predicted with certainty, in the opinion of management based on the facts known at this time, the resolution of such litigation is not anticipated to have a material adverse effect on the financial position or results of operations of the Company.
14. Other Income, net
The major components of Other Income, net are as follows:
1994 1993 1992 Interest and dividend income $ 1,074 $ 1,036 $ 1,035 Investment income (loss) (79) 861 - Equity in affiliates'net loss (1,915) (3,027) (3,928) Cumulative foreign translation reversal (1,193) - - Other 259 260 (10) $ (1,854) $ (870) $(2,903)
Equity in affiliates' net loss includes losses from Turner Steiner International SA of $1,730, $3,027 and $1,726 for the years 1994, 1993 and 1992, respectively. 15. Business Segments
The Consolidated Statements of Operations provide segment information regarding revenues and operating expenses. Certain other financial data of the Company's business segments (construction and real estate) are presented below:
1994 1993 1992 Identifiable assets at year end:
Construction $502,498 $ 448,524 $ 483,245 Real estate 116,007 128,597 143,792 General corporate 86,584 87,085 99,521 $705,089 $ 664,206 $ 726,558
Depreciation and amortization expense:
Construction $ 2,522 $ 3,034 $ 3,706 Real estate 5,644 5,460 5,930 General corporate 1,200 1,330 1,407 $9,366 $ 9,824 $ 11,043
Interest expense:
Construction $ 82 $ 65 $ 94 Real estate 3,586 4,252 6,528 General corporate 4,255 3,110 1,502 $ 7,923 $ 7,427 $ 8,124
16. Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
Cash and Cash Equivalents: The carrying amount of cash and cash equivalents approximates fair value due to the short-term maturity of these amounts.
Marketable Securities: The fair value of marketable securities is based on quoted market prices for such investments. At December 31, 1994 and 1993, the fair value approximates the carrying amount.
Construction Receivables and Construction Payables: The carrying amount of construction receivables and construction payables approximate fair value as these amounts generally are due or payable within the Company's operating cycle.
Notes Payable:
The fair value of notes payable secured by real estate properties is estimated based on discounting the future cash flows at the Company's year-end risk-adjusted incremental borrowing rate for a similar debt instrument, given the underlying value of the loan collateral.
The fair value of unsecured notes payable is estimated based on the Company's year-end, risk- adjusted incremental borrowing rate for similar liabilities.
At December 31, 1994 and 1993, the fair value of notes payable was $99,064 and $95,021, respectively.
Convertible Debenture: The fair value of the convertible debenture is estimated based on the greater of the Company's risk-adjusted incremental borrowing rate for a similar debt instrument, or the value of the debt assuming conversion at the year-end stock price, which would reflect the probability of conversion by the debt holder. At December 31, 1994 and 1993, the fair value was $5,700.
ESOP Loan Receivable: The fair value of the loan receivable from the ESOP is estimated based on the fair value of the Company's borrowing to fund the ESOP. At December 31, 1994 and 1993, the fair value was $10,714 and $12,255, respectively.
Interest Rate Swap Agreements: The Company uses unleveraged interest rate swaps to provide fixed interest rates for selected periods of time on certain outstanding loans (Note 6). Cash settlements on the swaps occur monthly and are recorded as an adjustment to interest expense. The fair value of the interest rate swap agreements is estimated based on the discounted value of the difference between the fixed payments on the swap and the payments that would be required at current market fixed rates for a similar financial instrument. The fair value of the interest rate swap asset was $869 at December 31, 1994. The fair value of the interest rate swap liability was $286 at December 31, 1993.
17. Quarterly Financial Information (Unaudited)
1994 Quarter Ended March 31 June 30 September 30 December 31 Value of construction completed $592,390 $676,629 $658,849 $710,711 Gross earnings $ 14,729 $ 15,209 $ 10,752 $ 13,925 Income (loss) before income taxes 1,122 1,651 (1,837) (446)(a) Net income 1,059 997 896(b) 698(b) Primary earnings per common share (c) 0.12 0.10 0.08 0.05 Fully diluted earnings per common share (c) 0.10 0.09 0.07 0.04
1993 Quarter Ended March 31 June 30 September 30 December 31 Value of construction completed $580,941 $737,080 $735,223 $715,135 Gross earnings $ 15,758 $ 14,936 $ 16,952 $ 11,719 Income (loss) before income taxes 1,704 1,280 1,816 (14,569)(d) Net income (loss) 946 909 911 (8,971) Primary earnings (loss) per common share (c) 0.09 0.09 0.09 (1.83) Fully diluted earnings per common share (c) 0.08 0.07 0.07 (e)
(a) Includes restructuring credits of $1,145. (b) Includes income tax benefits resulting from operations and excess tax reserves. (c) The quarterly per share amounts are computed independently of annual amounts. (d) Includes restructuring charges of $8,500 and real estate write-downs and reserves of $5,188. (e) Antidilutive.
Responsibilities for Financial Reporting:
The management of The Turner Corporation and Subsidiaries has the responsibility for preparing the accompanying consolidated financial statements and for their integrity and objectivity. The financial statements were prepared in accordance with generally accepted accounting principles applied on a consistent basis and are not misstated due to material fraud or error. The financial statements include amounts that are based on management's best estimates and judgments. Management also prepared the other information in the annual report and is responsible for its accuracy and consistency with the financial statements.
The fair presentation of the Company's financial position, results of operations and cash flows are reported on by the independent public accountants, Arthur Andersen LLP (see Report of Independent Public Accountants) for each of the three years in the period ended December 31, 1994. Their report emphasizes that the Company has significant interests in real estate properties, the carrying amounts of which are based on management's present intent to hold these properties until market conditions improve to the extent necessary to achieve reasonable prices upon disposition. Management has made available to Arthur Andersen LLP all of the Company's financial records and related data, as well as the minutes of stockholders' and directors' meetings. Furthermore, management believes that all representations made to Arthur Andersen LLP during its audit were valid and appropriate.
To fulfill the responsibility for the reporting of financial results, management maintains a system of accounting and internal controls. Management has operational and financial personnel perform procedures to provide assurance of compliance with controls and policies. In addition, based upon management's assessments of risk, operational, financial and special reviews are performed by contracted auditors to monitor the effectiveness of selected controls. Management seeks to assure the quality of financial reporting by careful selection and training of supervisory and management personnel, by organization structures that provide an appropriate division of responsibility, and by communication of accounting and business policies and procedures throughout the Company. Management believes the internal accounting controls in use provide reasonable assurance that the Company's assets are safeguarded, that transactions are executed in accordance with management's authorizations, and that the financial records are reliable for the purpose of preparing financial statements. In addition, the Company has distributed a statement of its policies for conducting business affairs in a lawful and ethical manner and receives reports of compliance annually.
The Board of Directors, through the Audit Committee of the Board, meets separately and jointly with management, the contracted auditors and the independent public accountants on a periodic basis to assure itself that each is carrying out its responsibilities.
Item 9.
Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
The information with respect to the directors and nominees for directors which will appear in the registrant's definitive proxy statement to be filed with the Securities and Exchange Commission prior to April 30, 1995, is incorporated herein by reference.
Executive Officers of the Registrant.
Served as an Officer in the Capacity Name Age Office Indicated Since Alfred T. McNeill 58 Chairman of the Board, Chairman since 3/1/89. Chief Executive Officer and Director Harold J. Parmelee 57 President and Director President since 5/11/90. Joseph V. Vumbacco 49 Executive Vice President Executive Vice President and General Counsel since November 11, 1994 David J. Smith 54 Senior Vice President and 1/1/94. Chief Financial Officer Ralph W. Johnson 58 Senior Vice President 6/11/93. Donald R. Kerstetter 64 Senior Vice President 6/11/93. Richard H. Esau, Jr. 60 Vice President 6/11/93. Francis C. O'Connor 52 Vice President 11/1/92. Sara J. Gozo 31 Vice President, Secretary and Associate General Counsel 10/24/94. Donald G. Sleeman 40 Vice President and Treasurer Treasurer since 1/15/92. Anthony C. Breu 47 Vice President and Controller Controller since 6/1/88.
Each executive officer holds office at the pleasure of the Board of Directors.
Each of the executive officers listed above is an employee of The Turner Corporation or Turner Construction Company and has been an employee of these companies or other construction subsidiaries in an executive, managerial or engineering capacity for the past five years except for Mr. Smith and Ms. Gozo. From 1983 to 1993 Mr. Smith served as Vice President and Treasurer of Mack Trucks, Inc., a subsidiary of Renault. From 1976 to 1983 Mr. Smith held various executive financial positions within the Renault organization. From 1989 to 1993, Ms. Gozo practiced construction law at Shea & Gould, and until October 1994, at Thelen, Marrin, Johnson & Bridges.
Item 11.
Item 11. Executive Compensation.
The information which will appear under the caption "Remuneration of Executive Officers" in the registrant's definitive proxy statement to be filed with the Securities and Exchange Commission prior to April 30, 1995, is incorporated herein by reference. Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information under the caption "Election of Directors" in the registrant's definitive proxy statement to be filed with the Securities and Exchange Commission prior to April 30, 1995 with respect to the ownership by certain beneficial owners and management of the registrant's stock is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions.
The information under the caption "Election of Directors" in the registrant's definitive proxy statement to be filed with the Securities and Exchange Commission prior to April 30, 1995 with respect to certain relationships and related transactions is incorporated herein by reference.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form -8-K.
a) Documents filed as part of this report (including documents incorporated herein by reference):
1. Financial Statements: Page No. - Report of Independent Public Accountants 14 - Consolidated Balance Sheets - as of December 31, 1994 and 1993 15 - Consolidated Statements of Operations - for the years ended December 31, 1994, 1993 and 1992 16 - Consolidated Statements of Stockholders' Equity - for the years ended December 31, 1994, 1993 and 1992 17 - Consolidated Statements of Cash Flows - for the years ended December 31, 1994, 1993 and 1992 18 - Notes to Consolidated Financial Statements 19-36 - Responsibilities for Financial Reporting 37
2. Consent of Independent Public Accountants 45
Individual financial statements of the registrant and financial statement schedules not included above are omitted since they are either not required or not applicable or the information has been presented in the notes to consolidated financial statements.
3. Exhibits
Exhibit No. Description
3(a)(i) Certificate of Incorporated herein by Incorporation, as reference to Exhibit 3 to the amended to 7/10/89. Registration Statement on Form S-14 of The Turner Corporation, No. 2- 90235.
3(a)(ii) Amendment dated, 5/19/86 Incorporated herein 3(a)(iii) Amendment dated, 9/12/88 by reference to Exhibit 3(a) 3(a)(iv) Amendment dated, 7/10/89 to the Company's 1989 Annual Report on Form 10-K. Exhibit No. Description
3(b) By-Laws, as amended Incorporated herein by reference to 6/11/93. to Exhibit 3(b) to the Company's 1993 Annual Report on Form 10-K
3(c)(i) Certificate of Designations Incorporated herein relating to Series C 8-1/2% by reference to Exhibit Convertible Preference Stock. 2 to the Company's Form 8-K dated July 20, 1992.
3(c)(ii) Certificate of Designations Incorporated herein relating to Series D 8-1/2% by reference to Convertible Preference Stock. Exhibit 3 to the Company's Form 8-K dated July 20, 1992.
3(c)(iii) Certificate of Designations Incorporated herein by relating to Series E 8-1/2% reference to Exhibit 4 to Convertible Preference Stock. the Company's Form 8-K dated July 20, 1992.
4(a) Shareholders Rights Incorporated herein by Agreement. reference to the Registration Statement on Form 8-A dated September 9, 1988.
4(b) Agreement regarding Security Incorporated herein Holder's Rights, Obligations by reference to and Options. Exhibit 5 to the Company's Form 8-K dated July 20, 1992.
10(c)(i)The Company's Executive Incorporated herein Incentive Compensation by reference to Plan. Exhibit 10.3 to the Registration Statement on Form S-14 of The Turner Corporation, No. 2-90235.
10(c)(ii)The Company's 1981 Stock Incorporated herein by Option Plan, as amended. reference to Exhibit 10(c)(v) 1988 Annual Report on Form 10-K.
10(c)(iii)The Company's 1986 Incorporated herein by reference Stock Option Plan, to Exhibit 10(c)(vii) to the as amended as amended. Company's 1988 Annual Report on Form 10-K.
10(c)(iv)The Company's 1992 Stock Incorporated herein by reference to the Option Plan. Registration Statement on Form S-8.
10(c)(v) The Company's Incentive Incorporated herein Compensation Plan. by reference to Exhibit 10(c)(v) to the Company's 1983 Annual Report on Form 10-K.
Exhibit No.Description
10(c)(vi) The Company's Retirement Incorporated herein by reference Benefit Equalization Plan, to Exhibit 10(c)(vi) to the Company's amended and restated as of 1992 Annual Report 1/22/92. on Form 10-K.
10(c)(vii) The Company's Defined Incorporated herein by reference Contribution Retirement to Exhibit 10(c)(vii) to the Company's Equalization Plan. 1992 Annual Report on Form 10-K
10(c)(viii)The Company's Supplemental Incorporated herein by reference Executive Defined Benefit to Exhibit 10(c)(viii) to the Company's Retirement Plan. 1992 Annual Report on Form 10-K.
10(c)(ix) The Company's Supplemental Incorporated herein by reference Executive Defined Contribution to Exhibit 10(c)(ix) to the Company's Retirement Plan. 1992 Annual Report on Form 10-K.
10(c)(x) Tax Deferred Savings Incorporated herein by reference to Income Plan amended and Exhibit 10(c)(ix) to the Company's restated as of 1/1/89. 1991 Annual Report on Form 10-K.
10(c)(xi) Option Exchange and Incorporated herein by reference to Stock Purchase Plan. Registration Statement on Form S-8, File No. 33-33867.
10(c)(xii)Employees' Retirement Incorporated herein by reference to Plan - Restated as of Exhibit 10(c)(vii) to the Company's 1/1/87. 1991 Annual Report on Form 10-K.
10(c)(xiii)Employees' Retirement Incorporated herein by reference Income Plan as of 4/1/91. to Exhibit 10(c)(viii) to the Company's 1991 Annual Report on Form 10-K. 10(c)(xiv)Director's Retirement Plan
10(d) Asset Purchase Agreement Incorporated herein by reference dated 6/3/92, between to Exhibit 10(d) to the Company's Turner Steiner International 1992 Annual Report on Form 10-K. S.A. and Turner International Industries, Inc., and Turner International Industries (U.K.) Ltd.
10(e) Joint Venture and Shareholders Incorporated herein by reference Agreement dated 6/3/92 between to Exhibit 10(e) to the Company's The Turner Corporation and Karl 1992 Annual Report on Form 10-K. Steiner Holding AG.
10(f) Purchase Agreement dated Incorporated herein by reference June 3, 1992 between Karl to Exhibit 1 to the Company's Steiner Holding AG and The Form 8-K dated July 20, 1992. Turner Corporation. Exhibit No.Description
10(g)(i) The Company's Revolving Incorporated herein by reference Credit Facility dated as of to Exhibit 10(g)(i) to the Company's 12/30/92. 1993 Annual Report on Form 10-K.
10(g)(ii)Amendment No. 1 to Incorporated herein by reference Credit Agreement dated to Exhibit 10(g)(ii) to the Company's as of 12/31/93. 1993 Annual Report on Form 10-K.
10(h) Form of Change of Control Agree- Incorporated herein by reference ment between The Turner Corp- to Exhibit 10(h) to the Company's oration and Messrs. McNeill, 1993 Annual Report on Form 10-K. Parmelee, Smith and Vumbacco, respectively, Chairman, President, Chief Financial Officer and General Counsel dated July 1, 1993.
10(i) Form of Change of Control Incorporated herein by reference Agreement with 56 other to Exhibit 10(i) to the Company's officers of parent or 1993 Annual Report on Form 10-K. subsidaries dated July 1, 1993.
10(j) Note Purchase Agreement 11.74% Senior Notes Due 2001 dated as of December 1, 1994.
11 Computation of earnings per share.
21 Subsidiaries of the Registrant.
27 Financial Data Schedules. SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE TURNER CORPORATION
Registrant
Date: March 10, 1995 By: A. T. McNeill A. T. McNeill Chairman of the Board, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name Capacity Date
H. Baumann - Steiner Director March 10, 1995 (H. Baumann-Steiner)
W. G. Ehlers Director March 10, 1995 (W. G. Ehlers)
A. G. Fieger Director March 10, 1995 (A. G. Fieger)
E. T. Gravette, Jr. Director March 10, 1995 (E. T. Gravette, Jr.)
L. Lomo Director March 10, 1995 (L. Lomo)
A. T. McNeill Chairman of the Board, March 10, 1995 (A. T. McNeill) Chief Executive Officer and Director Name Capacity Date
C. H. Moore, Jr Director March 10, 1995 (C. H. Moore, Jr.)
H. J. Parmelee President and Director March 10, 1995 (H. J. Parmelee)
D. J. Smith Senior Vice President March 10, 1995 (D. J. Smith) and Chief Financial Officer
P. K. Steiner Director March 10, 1995 (P. K. Steiner)
G. A. Walker Director March 10, 1995 (G. A. Walker)
J. O. Whitney Director March 10, 1995 (J. O. Whitney)
F. W. Zuckerman Director March 10, 1995 (F. W. Zuckerman)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our report dated March 7, 1995 included in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 (File Nos. 2-64509 and 33-33867).
ARTHUR ANDERSEN LLP
New York, New York March 30, 1995
EXHIBIT INDEX
Exhibit No. Description
3(a)(i) Certificate of Incorporated herein by Incorporation, as reference to Exhibit 3 to the amended to 7/10/89. Registration Statement on Form S-14 of The Turner Corporation, No. 2- 90235.
3(a)(ii) Amendment dated, 5/19/86 Incorporated herein 3(a)(iii) Amendment dated, 9/12/88 by reference to Exhibit 3(a) 3(a)(iv) Amendment dated, 7/10/89 to the Company's 1989 Annual Report on Form 10-K.
3(b) By-Laws, as amended Incorporated herein by reference to 6/11/93. to Exhibit 3(b) to the Company's 1993 Annual Report on Form 10-K
3(c)(i) Certificate of Designations Incorporated herein relating to Series C 8-1/2% by reference to Exhibit Convertible Preference Stock.2 to the Company's Form 8-K dated July 20, 1992.
3(c)(ii) Certificate of Designations Incorporated herein relating to Series D 8-1/2% by reference to Convertible Preference Stock.Exhibit 3 to the Company's Form 8-K dated July 20, 1992.
3(c)(iii)Certificate of Designations Incorporated herein by relating to Series E 8-1/2% reference to Exhibit 4 to Convertible Preference Stock.the Company's Form 8-K dated July 20, 1992.
4(a) Shareholders Rights Incorporated herein by Agreement. reference to the Registration Statement on Form 8-A dated September 9, 1988.
4(b) Agreement regarding Security Incorporated herein Holder's Rights, Obligations by reference to and Options. Exhibit 5 to the Company's Form 8-K dated July 20, 1992.
10(c)(i)The Company's Executive Incorporated herein Incentive Compensation by reference to Plan. Exhibit 10.3 to the Registration Statement on Form S-14 of The Turner Corporation, No. 2-90235. Exhibit No.Description
10(c)(ii)The Company's 1981 Stock Incorporated herein by reference Option Plan, as amended. to Exhibit 10(c)(v) to the Company's 1988 Annual Report on Form 10-K.
10(c)(iii)The Company's 1986 Incorporated herein by reference Stock Option Plan, to Exhibit 10(c)(vii) to the as amended as amended. Company's 1988 Annual Report on Form 10-K.
10(c)(iv)The Company's 1992 Stock Incorporated herein by reference to the Option Plan. Registration Statement on Form S-8.
10(c)(v) The Company's Incentive Incorporated herein Compensation Plan. by reference to Exhibit 10(c)(v) to the Company's 1983 Annual Report on Form 10-K.
10(c)(vi)The Company's Retirement Incorporated herein by reference Benefit Equalization Plan, to Exhibit 10(c)(vi) to the Company's amended and restated as of 1992 Annual Report 1/22/92. on Form 10-K.
10(c)(vii)The Company's Defined Incorporated herein by reference Contribution Retirement to Exhibit 10(c)(vii) to the Company's Equalization Plan. 1992 Annual Report on Form 10-K
10(c)(viii)The Company's Supplemental Incorporated herein by reference Executive Defined Benefit to Exhibit 10(c)(viii) to the Company's Retirement Plan. 1992 Annual Report on Form 10-K.
10(c)(ix) The Company's Supplemental Incorporated herein by reference Executive Defined Contri- to Exhibit 10(c)(ix) to the Company's bution Retirement Plan. 1992 Annual Report on Form 10-K.
10(c)(x) Tax Deferred Savings Incorporated herein by reference to Income Plan amended and Exhibit 10(c)(ix) to the Company's restated as of 1/1/89. 1991 Annual Report on Form 10-K.
10(c)(xi) Option Exchange and Incorporated herein by reference to Stock Purchase Plan. Registration Statement on Form S-8, File No. 33-33867.
10(c)(xii) Employees' Retirement Incorporated herein by reference to Plan - Restated as of Exhibit 10(c)(vii) to the Company's 1/1/87. 1991 Annual Report on Form 10-K.
10(c)(xiii)Employees' Retirement Incorporated herein by reference Income Plan as of 4/1/91. to Exhibit 10(c)(viii) to the Company's 1991 Annual Report on Form 10-K.
10(c)(xiv)Director's Retirement Plan
Exhibit No. Description
10(d) Asset Purchase Agreement Incorporated herein by reference dated 6/3/92, between to Exhibit 10(d) to the Company's Turner Steiner International 1992 Annual Report on Form 10-K. S.A. and Turner International Industries, Inc., and Turner International Industries (U.K.) Ltd.
10(e) Joint Venture and Shareholders Incorporated herein by reference Agreement dated 6/3/92 between to Exhibit 10(e) to the Company's The Turner Corporation and Karl 1992 Annual Report on Form 10-K. Steiner Holding AG.
10(f) Purchase Agreement dated Incorporated herein by reference June 3, 1992 between Karl to Exhibit 1 to the Company's Steiner Holding AG and The Form 8-K dated July 20, 1992. Turner Corporation.
10(g)(i)The Company's Revolving Incorporated herein by reference Credit Facility dated as of to Exhibit 10(g)(i) to the Company's 12/30/92. 1993 Annual Report on Form 10-K.
10(g)(ii) Amendment No. 1 to Incorporated herein by reference Credit Agreement dated to Exhibit 10(g)(ii) to the Company's as of 12/31/93. 1993 Annual Report on Form 10-K.
10(h) Form of Change of Control Agree- Incorporated herein by reference ment between The Turner Corp- to Exhibit 10(h) to the Company's oration and Messrs. McNeill, 1993 Annual Report on Form 10-K. Parmelee, Smith and Vumbacco, respectively, Chairman, President, Chief Financial Officer and General Counsel dated July 1, 1993.
10(i) Form of Change of Control Incorporated herein by reference Agreement with 56 other to Exhibit 10(i) to the Company's officers of parent or 1993 Annual Report on Form 10-K. subsidiaries dated July 1, 1993.
10(j) Note Purchase Agreement 11.74% Senior Notes Due 2001 dated as of December 1, 1994.
11 Computation of earnings per share.
21 Subsidiaries of the Registrant.
27 Financial Data Schedules.