SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year ended December 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File number 0-3062 GUY F. ATKINSON COMPANY OF CALIFORNIA (Exact name of registrant as specified in its charter) STATE OF DELAWARE 94-1649018 (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 1001 Bayhill Drive, San Bruno, California 94066 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (415) 876-1000 Securities Registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $0.01 par value (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of January 31, 1996, the aggregate market value of the voting stock held by nonaffiliates of the registrant was $59,100,688 based on closing sale prices on the NASDAQ National Market System. This calculation does not reflect a determination that certain persons are affiliates of the registrant for any other purpose. The number of shares of common stock, $0.01 par value, outstanding as of January 31, 1996 was 8,956,154. Items 10, 11, 12 and 13 of Part III incorporate information by reference from the definitive proxy statement for the Annual Meeting of Shareholders to be held on April 18, 1996. PART I Items 1 & 2. Business and Properties. Guy F. Atkinson Company of California was incorporated in Delaware in 1995 as a successor in interest to a California corporation of the same name that was incorporated in 1967, as the successor in interest to Guy F. Atkinson Company, a Nevada corporation organized in December 1934. The Company provides a full range of engineering, procurement, construction and related services to worldwide clients in the power, industrial and commercial building, pulp and paper, mining and infrastructure markets. The Company also operates a small business involved in the manufacture of heavy duty industrial intercoms, and it is also developing a water and wastewater treatment business. The Company previously operated businesses in automobile parts manufacturing, distribution of industrial pipe, and oil and gas exploration and production. These operations were sold in the fourth quarter of 1994. The Company's executive offices are located at 1001 Bayhill Drive, 2nd Floor, San Bruno, California 94066. The telephone number is 415/876-1000. Guy F. Atkinson Company of California (the parent corporation), establishes general policy direction, and provides planning and coordination, accounting and audit control, treasury functions, insurance services, legal services, personnel and benefits administration, public relations, and other management services for its operating divisions and subsidiaries. The Company's construction operations and activities are best summarized through a discussion of its markets, construction operations, and some of the projects in which the Company participated in 1995. Markets: The Company competes for construction work in the public and private sectors in the U.S., Canada and internationally. In 1995, the Company's construction revenues were approximately 60 percent from the private sector and 40 percent from the public sector. Competition within the construction industry is based primarily on price, reputation for quality, experience, reliability, and the financial strength of the contractor. The markets served by the Company are competitive and require substantial resources, in particular, highly skilled and experienced technical personnel. Further, domestic construction activity depends to a significant degree on the general state of the U.S. economy and, more specifically, on the relevant market industry segments and their economic condition and future planning. As a result of economic changes within its markets, the Company's level of work will vary year to year. By diversifying its services to various markets and expanding the international markets, the Company is able to moderate the effects of fluctuations in its markets. The Company sells its capabilities on the basis of price using the bidding process, contract negotiation, or a combination of both. It also sells its capabilities through additional incremental services its markets may require, such as design and engineering or turnkey packages with design, construction, procurement, and advice on financial structure and sources. While these services may be offered by the Company, more typically they are offered through an alliance or in association with other firms. Projects are staffed by management supplied by the Company and by hourly craft personnel mostly obtained in a local labor market. Trained hourly employees are normally available in the vicinity of the Company's projects. However, substantial training must be undertaken in those locations where experienced labor is not available. The Company frequently participates in joint ventures with other contractors to share risks and combine financial, technical, and other resources. When the Company undertakes work in a joint venture it may act as sponsor or lead contractor, in which case it manages the work. If not the sponsor, the Company's participation is normally limited to assistance in estimating and policy management and sharing on a pro-rata basis the financial risks and rewards of the work. In 1995, 18 percent of the Company's construction revenue was derived from work performed in joint ventures. The Company performs its construction work under prime contracts that take various forms. These contractual arrangements include fixed-unit or lump-sum price, cost-reimbursable, fixed or percentage fee, or maximum price contracts. Contracts are either competitively bid and awarded or individually negotiated. In performing as a general contractor, the Company undertakes the planning and scheduling of projects, marshals the required personnel, procures materials, awards and administers subcontracts, and directs and manages the construction project. In the case of a construction management contract, the Company monitors and coordinates the progress of the work and assists the owner where other prime contractors are employed to build the project. In a growing part of the industry, it acts as a turnkey contractor taking responsibility for engineering design, construction, and procurement of equipment ("EPC"), and provides other operating services from inception through delivery of a completed project. Construction Operations: Through four construction divisions and subsidiaries in the U.S. and Canada, Atkinson provides full service worldwide construction and related engineering services to heavy civil, industrial, commercial, energy, natural resources, utility, and government clients. The Company generally competes for work that is complex in engineering and significant in the scope of services required. Its acquisition of work is facilitated by its excellent reputation, diversity of services, technical expertise, and worldwide geographic coverage. Atkinson Construction, headquartered in San Bruno, California, is one of the largest U.S. contractors of heavy civil projects, serving both public and private sectors, working not only in the U.S., but also internationally. The division performs general construction services for hydroelectric power development, bridges, highways, dams, water and wastewater treatment facilities, and tunnels and shafts for power, transportation, and water conveyance. The Company's primary domestic industrial construction division, Walsh Construction Company, with headquarters in Trumbull, Connecticut, is a major provider of design-construct services to both the power and building markets. Its power experience includes geothermal and cogeneration development, using fuels ranging from gas and coal to municipal solid waste and biomass. Its buildings are equally diverse, embracing commercial, industrial, institutional and R&D laboratory facilities. The Company services Canada's industrial construction markets through its Commonwealth Construction Company division, which has its head office in Burnaby, British Columbia. Commonwealth serves a variety of industrial markets including pulp and paper, mining, metallurgical processing, water and wastewater treatment, and energy throughout the Americas and Southeast Asia. Commonwealth is also active in markets for power generation and process facilities for oil and gas, chemical and petrochemical, as well as, general industrial construction. Through Monterey Construction Company, operating from San Bruno, California, the Company provides merit-shop services to heavy civil and infrastructure construction markets. The following is a discussion of the types of construction in which the Company is involved and a partial listing of 1995 construction projects to illustrate the breadth of its capabilities and services. Heavy Civil Heavy civil work provides a significant portion of the Company's revenues. Projects requiring a high degree of organization and complex engineering are well-matched to the Company's long standing expertise. The Company's heavy civil work includes the building of dams, hydroelectric developments, bridges, locks, tunnels, shafts, highways, and other large infrastructure-related projects. The Company believes that work within the public sector for infrastructure development and rehabilitation, major transportation projects, power development, water and wastewater treatment, locks and dams, and underground construction will continue to be important markets for it in the 1990s. The Company performs this type of work throughout the U.S., Canada, and internationally. The Company continued its work in 1995 as a participant of a joint venture in Venezuela on the Macagua II hydroelectric facility, a major power development for the Venezuelan government. The Company began construction of a two-unit, 42 megawatt hydroelectric power plant on an existing lock and dam on the Ohio River in West Virginia. In Washington, the Company continued work for the U.S. Corps of Engineers constructing new intake structures for a dam, as well as tunnel excavation, and removal of a cofferdam. In Oregon, work by the Company continued on a contract for a 10 megawatt powerhouse addition to a hydroelectric project, and in Arizona, it completed work on the rehabilitation of a large dam structure. Late in 1995, as sponsor of a joint venture, the Company was awarded a contract to provide all construction services for a 1.7 mile-long, 285-foot-high rockfill dam, and an associated saddle dam that will form the largest water storage reservoir in Southern California. Also, late in the year, a joint venture led by the Company was awarded a contract for lock construction on the Ohio River in Illinois. Work on both these projects will start in 1996. In 1995, the Company was at work on or completed a number of infrastructure projects located in various geographic locations. Exemplifying its work in this market, the Company worked on or completed projects in the State of Washington for a new balanced drawbridge structure and approaches, and, two stages of a High Occupancy Vehicle (HOV) roadway featuring the latest in Surveillance Control and Driver Information Systems (SC&DI). In California, the Company worked on the retrofit of an earthquake damaged freeway in San Francisco completing one project and starting a second. In Nevada, the Company was part of a joint venture that finished construction on a runway extension at McCarran International Airport. The Company has broad experience in underground construction, making it a prime competitor for work related to power generation, transportation, water supply, and mining. In 1995, the Company was active on several joint venture projects in Boston, Massachusetts, two of which involved underground or tunneling construction. One project entails construction of two cut-and-cover tunnels over a depressed roadway and the second involves construction of an effluent outfall tunnel. The Company is also part of a joint venture handling excess excavated and dredged soil and sediment materials from other projects in the Boston area with placement on a island for future development of a park. In 1995, the Company also completed a contract to enlarge existing railroad tunnels for Conrail in Pennsylvania. Industrial Typically, the Company competes for work ranging from modernization to new construction of industrial facilities, power generating stations, installation of mineral processing facilities, commercial and institutional building construction, academic centers, research facilities, and chemical and manufacturing plants. Its industrial construction business provides feasibility studies, design/build services, value-engineering, construction management information systems, general construction services, construction management, start-up and operation services as the markets may require. The Company's industrial construction business serves a broad range of markets and clients. These markets are very competitive, serviced by numerous well-established and highly competent contractors, and they are driven by their own set of strategic and economic market factors. Some of these factors can translate into diminished capital spending for construction programs and/or delays in planned projects. For example, recent construction activity within the resources development industries has emphasized modernization and upgrading of facilities and compliance with environmental standards. In response, the Company promotes its record of reliable performance, quality, safety, and its capabilities in scheduling and cost control as integral services. The Company was engaged in several significant pulp and paper mill projects during 1995, including a 150,000 ton-per-year recycle/de-inking pulp mill in Maryland, for which the Company and its joint-venture partners provided engineering, procurement, and construction services, as well as start-up and initial operation. The Company also began work in Indonesia on a 1,500-ton-per-day greenfield kraft pulp mill and associated effluent treatment facilities. In addition, it completed a fast-track rebuild and conversion of a paper machine for a client in British Columbia, Canada. In 1995, the Company was active in the building market as work continued on the interior renovation of buildings at the City College of New York on behalf of the Dormitory Authority of New York. In La Jolla, California, construction continued on a full-service contract for a 20-story, 238-unit residential continuing-care community for seniors. The Company continues to contract for a significant amount of work for cogeneration and other types of industrial power generating facilities. Exemplifying this, are a 40-megawatt cogeneration powerplant in New York for which the Company provided engineering, procurement, and construction services. During the year, construction was completed on a design/build 49.5-megawatt cogeneration plant in Montana. In California, work continued on a new central utilities plant on the San Francisco medical campus of the University of California, while construction started on a two-unit, 125 megawatt cogeneration facility in Sacramento. Work also began on a coal-processing plant in Wyoming, for which the Company is providing balance-of-plant engineering and all procurement and construction services. Due to the types of construction the Company undertakes, its work is, to some extent, seasonal. Typically, less can be accomplished in winter than in other seasons. Accordingly, the Company plans construction to mitigate, where possible, the effects of weather. Revenues from contracts with the U.S. government, principally for construction services, provided revenues of $9.8 million in 1995, equal to 2.4 percent of the Company's consolidated revenues. Those contracts are terminable at the election of the U.S. government. In certain instances, the Company has guaranteed facility completion by a scheduled acceptance date and/or achievement of certain acceptance and performance testing levels. Failure to meet any such schedule or performance requirements could result in significant additional costs, thus eroding expected project profit margins. The Company also owns substantial quantities of construction equipment located at the sites of its projects or at owned or leased storage yards. Raw materials required for the Company's construction projects are normally available in the open market for purchase or lease and may be obtained from local sources. Working Capital: The Company often obtains working capital for its construction projects by pricing mechanisms that provide capital early in the project for mobilization and start-up costs. However, contract terms may also necessitate, in some cases, an infusion of working capital from the Company from time to time during the course of construction. In addition, working capital may be provided from internal Company sources or outside borrowing to finance the cost of work for which pricing negotiations are incomplete or responsibility is disputed by the owner. It is also customary in the construction industry for owners to withhold sums as retention until the work is completed. This retention can range from 5 percent to 15 percent of the contract price. Backlog: The approximate value of the Company's firm backlog of contracts as of December 31, 1995 and December 31, 1994 was $642 million and $310 million, respectively. The $332 increase in backlog from 1994 to 1995 is attributable to new contract awards in 1995 amounting to $749 million, more than double the same period in 1994. The dollar value of the backlog is not necessarily indicative of the future earnings of the Company related to the performance of such work. Backlog includes only those contracts for which work is proceeding, or for which the Company has received a notice to proceed, but there can be no assurance that cancellations or adjustments in the scope of work will not occur. Other Operations: The Company's construction-related operations include Atkinson Dynamics Company, based in South San Francisco, California, which designs, manufactures, and repairs heavy-duty, extreme-service industrial intercoms. These intercoms are used primarily by general industrial and manufacturing companies, and government and public safety agencies. The Company is developing a water and wastewater treatment business, Microsep International Corporation, based in Burnaby, British Columbia, which uses patented technologies to offer environmental solutions to both industrial and municipal sanitation markets. Geographic Area Information: The Financial Statement (Item 8 of this Report) note entitled "Geographic Area Information," found at page 22 thereof, sets forth for the fiscal years 1993 through 1995 the Company's revenue, profits, and assets with respect to the geographic areas in which the Company operates. Approximately 9 percent of the Company's revenues during the fiscal year were attributable to its Canadian operations, with a further 9 percent attributable to its operations in Asia. The Company believes the construction risks of these operations are similar to those presented by domestic projects. The Company recognizes that foreign work may present financial and political risks which must be specially considered. The Company attempts, through its foreign exchange risk management and pricing arrangements, to mitigate these risks and achieve a satisfactory profit. Employees The number of employees of the Company during the fiscal year varied substantially from time to time, depending on work volume, the status of completion of construction contracts, weather, and season. The average number of such employees was 1,101, including employees of joint ventures sponsored by the Company. The number of salaried employees averaged 499 during the same period. Executive Officers of the Registrant. Jack J. Agresti (58) has been Chief Executive Officer and President since April, 1994. He was President and Chief Operating Officer of the Company from April, 1991 to April, 1994. He was Executive Vice President of the Company from April, 1990 to April, 1991 and Group Vice President of the Company from February, 1985 to April, 1990. William J. Carlson (52) has been Senior Vice President of the Company since April, 1991. From February, 1991 to the present he has also served as President and General Manager of Guy F. Atkinson Construction Company. From August, 1986 to February, 1991 he was Vice President, Executive Vice President, General Manager or President of the Company's Walsh Construction Company division. Herbert D. Montgomery (53) is Senior Vice President Finance, Chief Financial Officer and Treasurer. He joined the Company in June, 1994. He was Vice President Finance, Treasurer and Chief Financial Officer from August, 1989 to June, 1994 of Harding Associates, Inc., an environmental consulting engineering Company. John F. Huguet (50) has been Senior Vice President of the Company since April, 1995. From January, 1990 to the present he has also served as President or President and General Manager of the Company's Commonwealth Construction Company division. Thomas J. Walsh, III (45) has been Vice President of the Company since April, 1995. From September, 1990 to the present he has also served as President and General Manager or Executive Vice President of the Company's Walsh Construction Company division. Therese Ambrusko (48) has been Vice President of the Company since April, 1995. From March, 1989 to the present she has also served as General Counsel or General Counsel and Corporate Secretary. James D. Stevens (58) has been Vice President and Chief Administrative Officer of the Company since Janury, 1985. Item 3. Legal Proceedings. On March 7, 1995, a complaint was filed in the Supreme Court of New York by Valeo and Valeo Engine Cooling against the Company and its investment banker, Dillon, Read & Co. Inc. in connection with the Company's sale of its manufacturing subsidiary, Lake Center Industries, Inc. The Plaintiffs, the unsuccessful bidder for Lake Center Industries, allege breach of contract and other wrongdoing. They seek actual damages of two hundred ninety thousand dollars in connection with preparing their bid, seven million dollars on a theory of unjust enrichment and ten million dollars in punitive damages. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of the security holders during the fourth quarter of 1995. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. (a) The Company's common stock is traded in the over-the-counter market and is quoted on the National Association of Securities Dealers Automated Quotation (NASDAQ) National Market System under the symbol "ATKN." The following table sets forth the high and low NASDAQ sales prices for such common stock in each quarterly period during the two most recent fiscal years. 1995 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Low $ 7.00 $ 7.50 $ 9.38 $ 9.00 High 10.50 9.63 11.00 11.00 1994 Low $ 8.00 $ 8.13 $ 9.50 $ 9.25 High 9.50 11.00 11.00 11.00 (b) The number of holders of record of the Company's common stock as of January 31, 1996 was 1,292. (c) dividends declared in 1994 and 1995 are as follows: 1995 1994 Dividends per share by quarter: First $2.00 $0.00 Second 0.00 0.00 Third 0.00 0.00 Fourth 0.00 0.00 Total Dividends $2.00 $0.00 Item 6 Selected Financial Data. (in thousands except per share amounts) 1995 1994 1993 1992 1991 Revenue $416,995 $422,969 $345,036 $320,963 $519,290 Income (loss) from continuing operations, before extraordinary item, and cumulative effect of changes in accounting 3,609 (52,023) (8,660) (779) (2,633) Income from discontinued operations 3,238 5,065 2,256 3,869 Gain on disposal of discontinued operations 36,866 Income (loss) before extraordinary item and cumulative effect of changes in accounting 3,609 (11,919) (3,595) 1,477 1,236 Extraordinary item: Utilization of tax loss carryforward 213 Cumulative effect of changes in accounting: Postretirement healthcare costs (7,096) Income taxes 12,070 Postemployment benefit costs (739) Other Net income (loss) $ 3,609 $(12,658) $ 1,379 $ 1,690 $ 1,236 -------- -------- -------- -------- -------- Loss per share of common stock from continuing operations, before extraordinary item and cumulative effect of changes in accounting $0.39 $(5.86) $(0.99) $(0.09) $(0.30) Income per share from discontinued operations $ 0.36 $ 0.58 $ 0.26 $ 0.44 Gain per share from disposition of discontinued operations $ 4.16 Income (loss) per share of common stock before extraordinary item and cumulative effect of changes in accounting $0.39 $(1.34) $(0.41) $0.17 $0.14 Extraordinary item per share of common stock 0.02 Cumulative effect per share of common stock of changes in accounting $(0.08) $0.57 Net income (loss) per share of common stock $0.39 $(1.42) $0.16 $0.19 $0.14 -------- -------- -------- -------- -------- Total Assets $234,844 $199,714 $271,879 $260,206 $272,816 -------- -------- -------- -------- -------- Long-term debt, less current portion $ 1,917 $ 2,199 $ 18,273 $ 18,227 $ 3,417 -------- -------- -------- -------- -------- Notes payable, including current portion of long-term debt $ 844 $ 662 $ 36,568 $ 41,389 $ 39,475 -------- -------- -------- -------- -------- Dividends per share $2.00 -------- -------- -------- -------- -------- Average number of shares and common stock equivalents utilized in net income per share calculations 9,161 8,877 8,788 8,777 8,777 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview of the Business Guy F. Atkinson Company of California provides a full range of engineering, procurement, construction and related services to worldwide clients in the power, industrial and commercial building, pulp and paper, mining and infrastructure markets. The Company principally operates through three construction divisions, Atkinson Construction Company, located in San Bruno, California; Walsh Construction Company, located in Trumbull, Connecticut; and Commonwealth Construction Company, located in Vancouver, Canada. The Company's traditional markets have been the United States and Canada, with approximately 60% of its revenues in 1995 derived from the private sector and the balance from the public sector. The Company sells its construction services on the basis of price through competitive bidding, negotiated contracts, or a combination of both. Construction work may be performed under contract for a fixed-price, price per unit of work performed, cost- reimbursable plus fee, or other form of contract, with most contracts being fixed-price. The Company may perform construction work alone, or in conjunction with full-service design, engineering, procurement and other services which may include taking a project from inception through commercial operation. In performing construction services on a fixed-price basis, the Company takes certain performance and financial risks, namely that it can maintain project costs within budget for the work to be performed, and that payment will be forthcoming for work performed, including appropriate compensation for work outside the defined scope of the original contract. In exchange for assuming this risk, the Company earns a gross margin, from which overhead and general corporate expenses are met. From time to time, contract disputes occur, generally arising from work performed resulting from conditions or circumstances not envisioned in the original contract. Such disputes may be negotiated to the satisfaction of both parties, or, on occasion, may lead to litigation or mediation, which can give rise to unforeseen losses and additional expense to the Company. Prior to 1995, the Company operated certain nonconstruction businesses, engaged in automotive parts manufacturing, pipe distribution, and oil and gas exploration and production. During 1994, the Company sold these businesses and refocused on its core construction activities. Ancillary to its construction activities, the Company also operates a subsidiary, Microsep International Corporation, a developing water and wastewater treatment business which offers environmental solutions to both industrial and municipal sanitation markets. Reclassification of Statement of Income As a result of the Company's sale of substantially all of its nonconstruction businesses (as explained in the note to the Financial Statements entitled "Discontinued Operations and Restructuring"), certain income statement amounts for 1994 and 1993 have been reclassified as discontinued operations. Revenues and expenses reflect only those amounts attributable to the ongoing construction and other businesses of the Company, while the net operating results of the disposed businesses, and the related gain on disposition, have been shown separately. Results of Operations (all dollar amounts are in thousands unless otherwise stated) Revenue: The Company's revenue of $416,995 in 1995 was slightly lower than the corresponding figure of $422,969 in 1994, and 21% higher than the $345,036 of revenue in 1993. This reduction in revenue was attributable to the completion of certain industrial construction projects in 1994, while new contract awards (amounting to $748,887 for 1995) did not begin to make a contribution to revenue until late in the third quarter. The backlog of uncompleted contracts amounted to $641,670 at December 31, 1995, representing an increase of 107% over the December 31, 1994 backlog of $309,778 and a 63% increase over the $392,702 at December 31, 1993. The 1993 backlog has been restated for the removal of a $293,000 contract award due to its unlikely prospects of proceeding. Gross margin: The Company's gross margin was $39,172 in 1995 compared with $(14,080) in 1994 and represents a 109% improvement over the 1993 gross margin of $18,729. Gross margin in 1994 was adversely impacted by contract dispute settlements, cost overruns, and the write-down of certain assets, together amounting to $29,771. The improvement in the 1995 gross margin reflects a more profitable mix of construction contracts in 1995, as the Company focuses on higher-margin construction opportunities. General and administrative expense: General and administrative expenses of $38,551 were slightly lower than the corresponding figure of $39,080 in 1994 and represent a 27% increase over the $30,302 in 1993. The savings from lower 1995 corporate expenses, resulting from cost reduction efforts implemented in the fourth quarter of 1994, were partially offset by costs of increased bidding activities and ongoing business-development efforts in both the construction and water and wastewater treatment businesses. Interest income: Interest income, principally from short-term investments, of $3,784 in 1995, increased almost sixfold over the corresponding 1994 interest of $563 and is almost four times greater than the $808 earned in 1993. The increase in investable funds, giving rise to the higher interest income, can be attributed to cash proceeds from the 1994 sale of the Company's principal nonconstruction operations. Miscellaneous: Miscellaneous income in 1995 consists primarily of gains of $2,138 from property dispositions and $2,079 on the favorable settlement of certain accrued liabilities, offset by a $3,041 reduction in the carrying value of property. Miscellaneous income of $887 in 1994 was mainly attributable to foreign exchange gains, while the 1993 amount of $6,942 was principally derived from a gain on the disposition of the Company's headquarters building. Interest expense: Interest expense declined to $904 in 1995 from $4,902 in 1994 and $3,481 in 1993 due to the repayment of short-term debt in 1994. Income taxes: Income taxes gave rise to an expense of $1,141 in 1995 compared to a benefit of $8,758 in 1994 and an expense of $1,356 in 1993. The tax expense in 1995 was attributable to state and foreign income taxes. The 1994 tax benefit was due to the allocation of income taxes to discontinued operations, and the 1993 tax expense was attributable to state and foreign taxes in conjunction with U.S. tax losses for which no net tax benefit was available. Discontinued operations: In 1994 and 1993, discontinued operations provided net income of $3,238 and $5,065 respectively. Due to the sale of these operations in 1994, the results are for less than a full year in 1994. Gain on disposal of discontinued operations: As explained more fully in the note to the Financial Statements entitled "Discontinued Operations and Restructuring," the disposal of the Company's principal nonconstruction operations resulted in a net after tax gain in 1994 of $36,866. Net income (loss): In 1995, the Company had income before the cumulative effect of changes in accounting of $3,609, compared to losses of $(11,919) in 1994 and $(3,595) in 1993. As explained more fully in the note to the Financial Statements entitled "Summary of Significant Accounting Policies - Changes in Accounting Principles", the Company adopted Statements of Financial Accounting Standards Nos. 106 and 109 on January 1, 1993, and No. 112 on January 1, 1994, resulting in a net accounting gain of $4,974 in 1993 and an accounting charge of $739 in 1994. The Company's net income for 1995 was $3,609 or $0.39 per share, compared with, after giving effect to accounting changes, a net loss of $(12,658) or $(1.42) per share in 1994, and net income of $1,379 or $0.16 per share in 1993. In 1995, the Company recorded an increase in the accumulated translation adjustment of stockholders' equity in the amount of $803 as a result of favorable changes in the exchange rate of the Canadian dollar, following reductions of $1,808 and $1,207 in 1994 and 1993 respectively. In addition, the Company recorded a charge to stockholders' equity in 1993 with respect to unearned compensation in the amount of $759 for the issuance of restricted shares of common stock which would be earned based on certain performance objectives. As a result of those objectives not being met, this charge was reduced in 1994 and 1995 by $152 and $336 respectively, to reflect the forfeiture of a portion of these restricted shares. In 1994, the charge was increased by $129 to reflect the increase in value of those restricted shares which remain outstanding. The adjustments to equity for restricted stock are offset by corresponding adjustments to paid-in capital. The Company periodically records a charge or credit to stockholders' equity with respect to minimum pension liabilities resulting from changes in the assumed discount rate used to measure pension liabilities. In 1995, this charge amounted to $344, compared with a credit of $805 in 1994 and a charge of $805 in 1993. An explanation of the accounting for pension assets and liabilities is contained in the note to the Financial Statements entitled "Employees' Pension and Retirement Plans." Liquidity and Capital Resources As reported in the Consolidated Statements of Cash Flows, operating activities of continuing operations used cash of $6,412 in 1995, compared with a provision of cash of $14,201 in 1994 and a utilization of cash of $20,844 in 1993. Negative operating cash in 1995 was attributable to the cash requirements of a significantly increased backlog of construction work-in-progress at the end of 1995, compared with 1994 and 1993. Discontinued operations provided a negative operating cash flow of $3,448 in 1994 and a positive $10,324 in 1993. Net investing activities in 1995 used $15,191 of cash compared to the generation of $96,882 in 1994 and $9,137 in 1993. The utilization of cash in 1995 was due to the acquisition of construction equipment to service the Company's construction work- in-progress. In 1994, cash of $100,903 was generated from the sale of the Company's nonconstruction businesses, while in 1993, $12,000 was generated by the sale of its headquarters building. Financing activities utilized cash of $17,697 in 1995, compared with $35,039 in 1994 and $4,775 in 1993. In 1995, the Company paid a special $2.00 per share dividend amounting to $17,835. In 1993 and 1994, funds were used principally to pay down short-term borrowings, which in 1994 were fully retired. The Company currently has no material commitments for capital expenditures. However, it anticipates purchasing equipment in the normal course of its business and meeting liquidity requirements from internally generated funds or through available lines of credit. Cash requirements for construction operations are dependent upon construction contract payment provisions, the volume of work scheduled for performance, and the timing and success of dispute resolutions. On September 29, 1995, the Company secured a two-year $40 million syndicated line of credit. The availability of this line of credit is reduced by any letters of credit which may be outstanding under the lines. At December 31, 1995, the Company had no borrowings outstanding, and $6,793 of standby letters of credit outstanding. The syndicated line of credit expires on June 30, 1997. The terms of renewal are dependent upon operating results, future circumstances and events, and conditions in the credit market at the time of renewal. The Company reasonably believes that its cash and invested balances, together with lines of credit, funds generated from operations including claim settlements, and from investing and financing activities will be adequate for foreseeable future requirements. Item 8. Financial Statements and Supplementary Data. Reference is made to the Consolidated Balance Sheets, Consolidated Statements of Stockholders' Equity, Consolidated Statements of Income, Consolidated Statements of Cash Flows, Notes to Consolidated Financial Statements and Report of Independent Accountants bound separately and attached to this Form 10-K. Item 9. Disagreements on Accounting and Financial Disclosure. None PART III Item 10. Directors and Executive Officers of the Registrant. Information with respect to directors and certain executive officers of the Company is incorporated by reference from the information under the caption "Information with Respect to Nominees" in the Company's definitive proxy statement for the Annual Meeting of Shareholders to be held on April 18, 1996 ("Annual Meeting"). Information regarding other executive officers of the Registrant is contained in Item 1 of this 10-K. Item 11. Executive Compensation. Incorporated by reference from the information under the caption "Compensation of Directors and Executive Officers" in the Company's definitive proxy statement for the Annual Meeting of Shareholders to be held on April 18, 1996. Item 12. Security Ownership of Certain Beneficial Owners and Management. Incorporated by reference from the information to be included under the captions "Certain Beneficial Ownership of Securities" and "Stock Ownership of Executive Officers and Directors" in the Company's definitive proxy statement for the Annual Meeting of Shareholders to be held April 18, 1996. Item 13. Certain Relationships and Related Transactions. Incorporated by reference from the information under the caption "Certain Transactions" in the Company's definitive proxy statement for the Annual Meeting of Shareholders to be held April 18, 1996. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. Reference Page Bound Attachment (a) 1. Consolidated Financial Statements. Report of Independent Accountants. . . . . . . . 2 Consolidated balance sheets at Decem- ber 31, 1995 and December 31, 1994 . . . . . . 3-4 Consolidated statements of stockholders' equity for each of the three years in the period ended December 31, 1995 . . . . . . 5 Consolidated statements of income for each of the three years in the period ended December 31, 1995. . . . . . . . . . . . 6-7 Consolidated statements of cash flows for each of the three years in the period ended December 31, 1995 . . . . . . . . 8 Notes to financial statements. . . . . . . . . . 9-24 2. Financial Statement Schedules. None 3. Exhibits. Exhibit Number Description 2 Agreement of Merger and Plan of Reorganization dated as of April 22, 1994 between the Company and Guy F. Atkinson Company of California, a California corporation, for the purpose of merging to reincorporate the California company in the state of Delaware, filed as an exhibit to the Form 10-K for the period ended December 31, 1994 (File No. 0-3062) and incorporated herein by reference. 3.1 Certificate of Incorporation of the Company, filed as an exhibit to the Form 10-Q of the Company for the period ended March 31, 1994 (File No. O-3062) and incorporated herein by reference. 3.2 Bylaws of the Company, filed as an exhibit to the Form 10-Q of the Company for the period ended March 31, 1994 (File No. O-3062) and incorporated herein by reference. 4 Stockholder Rights Agreement, dated as of May 9, 1994, between the Company and The Bank of New York, as Rights Agent ("Shareholder Rights Agreement"), filed as an exhibit to the Form 8-A of the Company filed on May 10, 1994 (File No. O-3062) and incorporated herein by reference. 10.1 Loan Agreement and Guaranty Agreement, dated December 23, 1991, relating to a loan from the Guy F. Atkinson Company Federal Credit Union and guaranteed by Guy F. Atkinson Company, a Nevada corporation, to William J. Carlson, filed as Exhibit 10.1 to the Company's 1991 Form 10-K (File No. 0-3062) and incorporated herein by reference. 10.2 Atkinson Corporate Management Incentive Compensation Plan. Filed as Exhibit 10.4 to the Company's 1988 Form 10-K (File No. 0-3062) and incorporated herein by reference. 10.3 Guy F. Atkinson Company of California 1990 Executive Stock Plan as amended and restated filed as Exhibit 10.1 to Form 10-Q of the Company (File No. 0-3062) for the period ended March 31, 1995 and incorporated herein by reference. 10.4 Guy F. Atkinson Company of California Common Stock Purchase Warrant dated May 28, 1993 beween the Company and Morgan Guaranty Trust Company filed as Exhibit 10.4 to the Company's 1993 Form 10-K (File No. 0-3062) and incorporated herein by reference. 10.5 Employment Agreement dated as of April 21, 1994, between the Company and Jack J. Agresti, filed as Exhibit 10.5 to the Company's 1994 Form 10-K (File No. 0-3062) and incorporated herein by reference. 21 Subsidiaries of the Company 24 Powers of Attorney of certain Directors 27 Financial Data Schedule (b) Reports on Form 8-K. There were no reports on Form 8-K filed by the Company during the last quarter of 1995. 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. GUY F. ATKINSON COMPANY OF CALIFORNIA By: /s/ Herbert D. Montgomery Herbert D. Montgomery Senior Vice President, Chief Financial Officer and Treasurer Date: March 19, 1996. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /S/ J. J. Agresti* President and Chief March 19, 1996 J. J. Agresti Executive Officer /S/ H. D. Montgomery Senior Vice President March 19, 1996 H. D. Montgomery Chief Financial Officer and Treasurer (Principal Financial Officer) /S/ J. Harrison Controller March 19, 1996 J. Harrison (Principal Accounting Officer) /S/ D. E. Atkinson* Director March 19, 1996 D. E. Atkinson /s/ R. N. Atkinson* Director March 19, 1996 R. N. Atkinson /S/ W. E. Burch* Director March 19, 1996 W. E. Burch /S/ J. P. Frazier* Director March 19, 1996 J. P. Frazier /S/ D. R. Kayser* Director March 19, 1996 D. R. Kayser /S/ R. J. Turner* Director March 19, 1996 R. J. Turner /S/ J. F. Whitsett* Director March 19, 1996 J. F. Whitsett *By:/S/ Therese Ambrusko Therese Ambrusko, Attorney-In-Fact CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Guy F. Atkinson Company of California on Post-Effective Amendment No. 2 to Form S-8 (File No. 33-6296) and Form S-8 (File No. 33-34891) of our report dated February 23, 1996, on our audits of the consolidated financial statements and financial statement schedule of Guy F. Atkinson Company of California as of December 31, 1995 and 1994, and for the years ended December 31, 1995, 1994 and 1993, which report is included in this Annual Report on Form 10-K. Coopers & Lybrand L.L.P. San Francisco, California March 14, 1996 INDEX TO EXHIBITS Exhibit Number Description 21 Subsidiaries of the Company 24 Powers of Attorney of certain Directors 27 Financial Data Schedule EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Organized Under Corporate Subsidiaries Laws of -------- Guy F. Atkinson Company Nevada Atkinson Building Company California Guy F. Atkinson Company - Overseas Delaware Guy F. Atkinson Construction Ltd. California Atkinson Development Company California Atkinson-International Venezuela, Inc. California Atkinson Land Company California Atkinson Middle East, Inc. Nevada Atkinson Realty, Incorporated California Atkinson Venezuela, Inc. Delaware Andrew H. Charles Corporation Delaware Commonwealth Water Solutions, Inc. California DWA Fed Oak Inc. California Offshore Hydro Services, Inc. California J. E. Record, Inc. Delaware WBL Solar Corporation California Walsh-Puerto Rico, Inc. California Wismer & Becker Contracting Engineers, California d/b/a Atkinson Mechanical Contractors Co. Colma Casualty Company Vermont Guy F. Atkinson Holdings Ltd. Canada Commonwealth Asia Constructors Ltd. Canada Commonwealth Asia Pacific Constructors Pte Singapore Commonwealth Construction Company (1985) Limited Canada Commonwealth Pacific Consultants Ltd. Canada Microsep International Corporation Delaware EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned constitutes and appoints Therese Ambrusko and Herbert D. Montgomery, and each of them, his true and lawful attorney-in-fact, each with full power of substitution, for him and in his name, place and stead to execute for him and on his behalf in each of his offices and capacities with Guy F. Atkinson Company of California, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, on Form 10-K, with respect to fiscal year ended December 31, 1995, together with any amendments thereto on Form 8-K, said report to be filed with the Securities and Exchange Commission in Washington, D.C., 19549, on or before March 31, 1996, approving and confirming all that said attorneys-in- fact do by virtue of these presents. Dated: February 15, 1996 /s/ Jack J. Agresti Jack J. Agresti Dated: February 15, 1996 /s/ Duane E. Atkinson Duane E. Atkinson Dated: February 15, 1996 /s/ Ray N. Atkinson Ray N. Atkinson Dated: February 15, 1996 /s/ William E. Burch William E. Burch Dated: February 15, 1996 /s/ J. Phillip Frazier J. Phillip Frazier Dated: February 22, 1996 /s/ Donald R. Kayser Donald R. Kayser Dated: February 15, 1996 /s/ Ross J. Turner Ross J. Turner Dated: February 15, 1996 /s/ John F. Whitsett John F. Whitsett SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K GUY F. ATKINSON COMPANY OF CALIFORNIA AND CONSOLIDATED SUBSIDIARIES FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 and 1994 and FOR THE THREE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993 GUY F. ATKINSON COMPANY OF CALIFORNIA AND CONSOLIDATED SUBSIDIARIES INDEX Item 8. Financial Statements and Supplementary Data. (a) Financial Statements Financial statements of the registrant and consolidated subsidiaries are included as a separate section of this report. The index to these financial statements follows: Page 2 Report of Independent Accountants Consolidated Financial Statements: 3-4 Balance Sheets, December 31, 1995 and 1994 5 Statements of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993 6-7 Statements of Income for the years ended December 31, 1995, 1994 and 1993 8 Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 9-24 Notes to Financial Statements Financial statement schedules: Financial Statement schedules are omitted because the conditions requiring their filing do not exist, or because the required information is given in the financial statements, including the notes thereto. Page 1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Guy F. Atkinson Company of California: We have audited the consolidated balance sheets of Guy F. Atkinson Company of California and Consolidated Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income (loss), changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Guy F. Atkinson Company of California and Consolidated Subsidiaries as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. As discussed in the notes to the consolidated financial statements, in 1994 and 1993, the Company adopted Statement of Financial Accounting Standards No. 112, Employers' Accounting for Postemployment Benefits, and Statements of Financial Accounting Standards No. 106, Employers'Accounting for Postretirement Benefits Other Than Pensions and No. 109, Accounting for Income Taxes, respectively. Coopers & Lybrand L.L.P. San Francisco, California February 23, 1996 Page 2 Guy F. Atkinson Company of California Consolidated Balance Sheets (in thousands of dollars except share and per share amounts) As of December 31, 1995 1994 -------- -------- ASSETS Current assets Cash and short-term investments $ 39,804 $ 78,441 Accounts receivable 76,196 33,150 Costs and estimated earnings in excess of billings 28,751 4,338 Inventories and unamortized costs on contracts 20,987 20,062 Investments in joint ventures 32,272 40,503 Deferred income taxes - 23 Other current assets 5,244 3,163 -------- -------- Total current assets 203,254 179,680 -------- -------- Property, plant and equipment At cost: Land 2,683 3,969 Buildings 11,203 17,371 Construction equipment 36,036 25,361 Other equipment 7,478 5,195 -------- -------- 57,400 51,896 Less accumulated depreciation 28,163 34,345 -------- -------- Total property, plant and equipment, net 29,237 17,551 -------- -------- Other assets Deferred income taxes - 88 Other assets 2,353 2,395 -------- -------- Total other assets 2,353 2,483 -------- -------- Total assets $234,844 $199,714 ======== ======== The accompanying notes are an integral part of these financial statements Page 3 Guy F. Atkinson Company of California Consolidated Balance Sheets (in thousands of dollars except share and per share amounts) As of December 31, 1995 1994 -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Notes payable, including current portion of long-term debt $ 844 $ 662 Accounts payable 86,671 39,743 Billings in excess of costs and estimated earnings 20,300 16,920 Accrued payroll 9,310 5,276 Accrued federal and foreign income taxes 5,020 6,953 Other accrued expenses 18,835 23,219 Deferred income taxes 248 - Due to joint ventures 730 103 -------- -------- Total current liabilities 141,958 92,876 -------- -------- Non-current liabilities Long-term debt, less current portion 1,917 2,199 Deferred income taxes 88 - Postretirement healthcare and postemployment benefit obligations 7,423 7,651 -------- -------- Total liabilities 151,386 102,726 -------- -------- Stockholders' Equity Preferred stock, par value $0.01; 2,000,000 shares authorized; none issued or outstanding Common stock, par value $0.01; 20,000,000 shares authorized; 8,951,154 issued and outstanding at December 31, 1995 and 8,950,824 at December 31, 1994 1,895 1,894 Paid-in capital 13,085 13,185 Accumulated translation adjustment (4,446) (5,249) Unearned compensation (400) (736) Additional pension liability (344) - Retained earnings 73,668 87,894 -------- -------- Total stockholders' equity 83,458 96,988 -------- -------- Total liabilities and stockholders' equity $234,844 $199,714 ======== ======== The accompanying notes are an integral part of these financial statements Page 4 Guy F. Atkinson Company of California Consolidated Statements of Stockholders' Equity (in thousands of dollars except share and per share amounts) Capital Stock Accumulated Unearned Additional Number Paid-in Translation Compen- Pension Retained of Shares Amount Capital Adjustment sation Liability Earnings --------- ------ ------- ----------- -------- ---------- -------- Balance, December 31, 1992 8,777,224 $1,894 $11,480 $(2,234) $ - $ - $99,173 Changes for the year - 1993: Net income 1,379 Restricted shares: Issued 92,000 759 (759) Foreign currency translation (1,207) Additional minimum pension liability (805) --------- ------ ------- ------- ----- ----- -------- Balance, December 31, 1993 8,869,224 1,894 12,239 (3,441) (759) (805) 100,552 Changes for the year - 1994: Net (loss) (12,658) Restricted shares: Forfeited (18,400) (152) 152 Valuation adjustment 129 (129) Issued to pension plan 100,000 969 Foreign currency translation (1,808) Additional minimum pension liability 805 --------- ------ ------- ------- ----- ----- -------- Balance, December 31, 1994 8,950,824 1,894 13,185 (5,249) (736) - 87,894 Changes for the year - 1995: Net income 3,609 Cash dividend - $2.00 per share (17,835) Restricted shares: Forfeited (33,600) (336) 336 Stock options exercised 33,930 1 236 Foreign currency translation 803 Additional minimum pension liability (344) --------- ------ ------- ------- ----- ----- -------- Balance, December 31, 1995 8,951,154 $1,895 $13,085 $(4,446) $(400) $(344) $ 73,668 ========= ====== ======= ======= ===== ===== ======== The accompanying notes are an integral part of these financial statements Page 5 Guy F. Atkinson Company of California Consolidated Statements of Income (in thousands of dollars except share and per share amounts) Years ended December 31, 1995 1994 1993 - ------------------------ -------- -------- -------- Revenue $416,995 $422,969 $345,036 Cost of revenue 377,823 437,049 326,307 -------- -------- -------- Gross margin 39,172 (14,080) 18,729 Restructuring charges - 4,169 - General and administrative expenses 38,551 39,080 30,302 -------- -------- -------- Income (loss) from operations 621 (57,329) (11,573) Other income (expense) Interest income 3,784 563 808 Interest expense (904) (4,902) (3,481) Miscellaneous 1,249 887 6,942 -------- -------- -------- Total other income (expense) 4,129 (3,452) 4,269 -------- -------- -------- Income (loss) from continuing operations before income taxes and cumulative effect of changes in accounting 4,750 (60,781) (7,304) Provision (benefit) for income taxes 1,141 (8,758) 1,356 -------- -------- -------- Income (loss) from continuing operations before cumulative effect of changes in accounting 3,609 (52,023) (8,660) Income from discontinued operations, net of income taxes: Income from discontinued operations - 3,238 5,065 Gain on disposal of discontinued operations - 36,866 - -------- -------- -------- Total income from discontinued operations, net of income taxes - 40,104 5,065 -------- -------- -------- Income (loss) before cumulative effect of changes in accounting 3,609 (11,919) (3,595) Cumulative effect of changes in accounting: Postemployment benefit costs - (739) - Postretirement healthcare costs - - (7,096) Income taxes - - 12,070 -------- -------- -------- Total cumulative effect of changes in accounting - (739) 4,974 -------- -------- -------- Net income (loss) $ 3,609 $(12,658) $ 1,379 ======== ======== ======== The accompanying notes are an integral part of these financial statements Page 6 Guy F. Atkinson Company of California Consolidated Statements of Income (in thousands of dollars except share and per share amounts) Years ended December 31, 1995 1994 1993 - ------------------------ -------- -------- -------- Income (loss) per share of common stock from continuing operations before cumulative effect of changes in accounting $0.39 $(5.86) $(0.99) Income per share of common stock from discontinued operations, net of income taxes - 4.52 0.58 -------- -------- -------- Income (loss) per share of common stock before cumulative effect of changes in accounting 0.39 (1.34) (0.41) Cumulative effect per share of common stock of changes in accounting - (0.08) 0.57 -------- -------- -------- Net income (loss) per share of common stock $0.39 $(1.42) $ 0.16 ======== ======== ======== Average number of shares of common stock and common stock equivalents utilized in net income (loss) per share calculation 9,161,000 8,877,000 8,788,000 ========= ========= ========= The accompanying notes are an integral part of these financial statements Page 7 Guy F. Atkinson Company of California Consolidated Statement of Cash Flows (in thousands of dollars except share and per share amounts) Years ended December 31, 1995 1994 1993 - ------------------------ -------- -------- -------- Operating activities Net income (loss) $ 3,609 $(12,658) $ 1,379 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: (Income) from discontinued operations - (3,238) (5,065) Restructuring charges - 4,169 - Depreciation, depletion and amortization 6,666 2,822 2,684 Provision for loss on investment in energy properties - 300 - Deferred income taxes 444 1,104 1,729 (Gain) on dispositions of property, plant and equipment (3,028) (92) (7,704) (Gain) on disposition of discontinued operations - (36,866) - Cumulative effect of changes in accounting - 739 (4,974) Changes in operating assets and liabilities: Accounts receivable (43,080) 21,965 (16,767) Inventories and unamortized costs on contracts (963) 15,601 21,410 Investments in joint ventures 8,845 10,190 (14,894) Other current assets (2,089) 1,557 3,668 Accounts payable and accrued expenses 46,353 6,525 (3,772) Accrued income taxes (1,877) (7,757) 1,395 Billings in excess of costs and estimated earnings, net (21,033) 10,351 698 Other, net (259) (511) (631) -------- -------- -------- Net cash provided by (used in) operating activities from continuing operations (6,412) 14,201 (20,844) Net cash provided by (used in) operating activities of discontinued operations - (3,448) 10,324 -------- -------- -------- Net cash provided by (used in) operating activities (6,412) 10,753 (10,520) -------- -------- -------- Cash flows from investing activities: Property, plant and equipment expenditures (23,022) (1,852) (2,472) Proceeds from dispositions of property, plant and equipment 7,791 1,036 14,260 Proceeds from disposition of discontinued operations - 100,903 - Increase (decrease) in other assets, net 40 (778) (540) Net investing activities of discontinued operations - (2,427) (2,111) -------- -------- -------- Net cash provided by (used in) investing activities (15,191) 96,882 9,137 -------- -------- -------- Cash flows from financing activities: Short-term borrowings (repayments), net - (34,215) (5,785) Proceeds of long-term borrowings 812 - 453 Long-term debt repayments (911) (678) (1,118) Common stock issuance related to stock option awards 237 - - Cash dividends paid (17,835) - - Net financing activities of discontinued operations - (146) 1,675 -------- -------- -------- Net cash provided by (used in) financing activities (17,697) (35,039) (4,775) -------- -------- -------- Effect of exchange rate changes on cash 663 (1,003) (1,132) -------- -------- -------- Net increase (decrease) in cash and short-term investments $(38,637) $ 71,593 $ (7,290) ======== ======== ======== Supplementary information: Cash paid during the year for: Interest $ 553 $ 4,798 $ 5,131 Federal, foreign and state income taxes 2,563 838 (533) Common stock contributed to pension plan - 969 - ======== ======== ======== The accompanying notes are an integral part of these financial statements Page 8 Guy F. Atkinson Company of California Notes to Consolidated Financial Statements (in thousands of dollars except share and per share amounts) Summary of Significant Accounting Policies Nature of the Business - ---------------------- The company provides full service construction and construction-related services in the United States, Canada and internationally, to the following markets: Power generation Industrial and commercial building Pulp and paper Mining Transportation and infrastructure Water and wastewater treatment Use of Estimates in the Preparation of Financial Statements - ----------------------------------------------------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation - --------------------------- The company conducts business primarily through the following subsidiaries/ business units: Atkinson Construction Company Commonwealth Construction Company Walsh Construction Company The consolidated financial statements include Guy F. Atkinson Company of California and its subsidiaries. Investments in joint ventures are recorded on the equity method. Significant transactions between the company and its subsidiaries are eliminated in consolidation. Construction Contract Accounting - -------------------------------- Construction revenue and gross margin, including the company's share of joint- venture contracts, are recognized using the percentage of completion method. This method applies the ratio of costs incurred to company engineers' estimates of total costs on a contract-by-contract basis. These estimates include provisions for known and unknown cost overruns, if any exist or are expected to occur, and may be subject to revision in the normal course of business. Revenue from claims by the company for additional contract compensation is recorded when agreed to by the owner. Provision is made currently for any anticipated future losses on contracts in progress. The classification of construction contract-related current assets and current liabilities is based on the company's contract performance cycle, which may exceed one year. Page 9 Guy F. Atkinson Company of California Notes to Consolidated Financial Statements (All dollar amounts are in thousands except where otherwise noted) Summary of Significant Accounting Policies (continued) Foreign Exchange - ---------------- The company has assets, liabilities and transactions in foreign currencies, principally the Canadian dollar, which potentially expose it to the risk of foreign exchange gains and losses. The company evaluates foreign currency transaction risk and will protect against such risks by various hedging strategies where appropriate. The company does not engage in speculation, nor does it typically hedge nontransaction-related balance sheet exposure. Cash and Short-term Investments - ------------------------------- Short-term investments consist of debt securities with a maturity of one year or less, which are classified as "held-to-maturity" and carried at amortized cost. Inventories and Unamortized Costs on Contracts - ---------------------------------------------- Inventories are valued at the lower of cost (principally first-in, first-out) or market prices. Unamortized costs on contracts include the cost of plant and project facilities to be absorbed over the life of the projects, the estimated value of recoverable assets, and costs related to unpriced change orders and claims for additional contract compensation to the extent their recovery is probable. The amount of costs relating to unpriced change orders and claims that is included in inventories and unamortized costs on contracts is the lesser of the actual amount of costs incurred and the estimated amount that is recoverable as additional compensation. These estimates are based upon management's expectations regarding the probability of future recovery and may be subject to revision in the normal course of business. Property, Plant, and Equipment - ------------------------------ Property, plant, and equipment are stated at cost. Major improvements and renewals are capitalized, while maintenance and repairs are charged to cost as incurred. The company depreciates all property, plant, and equipment over its expected useful life on a straight-line basis. The depreciation expense is determined by means of management estimates of expected useful life, salvage value and asset useage. These estimates may be subject to revision in the normal course of business. Included in property, plant and equipment are capitalized computer software costs, together with the costs of systems implementation, in 1995 amounting to $1,581 which are being depreciated on a straight-line basis over a five year period. Upon sale or retirement of property, plant, and equipment, the related costs and accumulated depreciation or amortization are removed from the accounts and any resulting gain or loss is included in income. Income Taxes - ------------ Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. Page 10 Guy F. Atkinson Company of California Notes to Consolidated Financial Statements (in thousands of dollars except share and per share amounts) Summary of Significant Accounting Policies (continued) Concentration of Credit Risk - ---------------------------- Financial instruments that potentially subject the company to concentrations of credit risk consist principally of short-term investments and accounts receivable. The company places excess cash in U.S. and Canadian government debt obligations, investment-grade commercial paper and certificates of deposit, in accordance with investment objectives which are designed to preserve principal, meet liquidity needs, minimize credit risk and achieve a satisfactory yield. The company provides construction services to a large number of public agencies and private sector companies in different industries and geographic areas. The company performs ongoing credit evaluations of its customers and generally does not require collateral. The company maintains reserves for potential credit losses, and such losses have been within management's expectations. Earnings per share - ------------------ Earnings per share of common stock and common stock equivalents are calculated using the weighted average number of common shares outstanding, excluding restricted shares for which performance goals have not been met, plus (in periods where they have a dilutive effect) the net additional number of shares which would be issuable upon the exercise of stock options and warrants, assuming that the company used the proceeds received to repurchase outstanding shares at market prices. Adoption of New Accounting Standards - ------------------------------------ In March 1995, Statement of Financial Accounting Standards No. 121, "Accounting for Long-Lived Assets" (SFAS 121) was issued. The company will adopt this standard in 1996, the effect of which is not expected to be significant. In October 1995, Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based Compensation" (SFAS 123) was issued. This statement requires the fair value of stock options and other stock-based compensation issued to employees to be either included as compensation expense in the income statement, or the pro-forma effect on net income and earnings per share to be disclosed in the footnotes to the financial statements commencing in 1996. The company has elected to adopt SFAS 123 on a disclosure basis and, as such, the effect of its implementation is not expected to be significant. Changes in Accounting Principles - -------------------------------- In 1994, the company recorded an accounting charge of $739 for postemployment benefit costs upon the adoption of SFAS 112. In 1993, the company recorded an accounting charge of $7,096 for postretirement healthcare costs upon the adoption of SFAS 106 and an accounting gain of $12,070 representing deferred income tax benefits upon the adoption of SFAS 109. Reclassification of 1994 and 1993 Financial Statements - ------------------------------------------------------ Certain amounts for 1994 and 1993 have been reclassified to conform with the 1995 financial statement presentation and have not affected previously reported net income or stockholders' equity. Page 11 Guy F. Atkinson Company of California Notes to Consolidated Financial Statements (in thousands of dollars except share and per share amounts) Cash and Short-Term Investments - ------------------------------- Cash and short-term investments consist of the following: 1995 1994 ------- ------- U.S. government treasury securities $ 256 $ - Canadian government debt obligations - 13,429 Investment-grade commercial paper 25,097 56,336 Cash balances 14,451 8,676 ------- ------- Total cash and short-term investments $39,804 $78,441 ======= ======= Accounts Receivable Accounts receivable include retained percentages of $13,366 and $8,288 at December 31, 1995 and 1994 respectively. The amount for 1995 is expected to be collected as follows: $7,523 in 1996 and $5,843 in 1997. Inventories and Unamortized Costs on Contracts The major classifications of inventory are as follows: 1995 1994 ------- ------- Construction materials, parts and supplies $ 2,812 $ 3,724 Unamortized costs on contracts 18,175 16,338 ------- ------- $20,987 $20,062 ======= ======= Unamortized costs on contracts include $9,414 (1994 - $13,965) of costs relating to claims, and $4,315 (1994 - $2,200) of costs relating to unapproved change orders. Investments in Joint Ventures The company participates in various construction joint ventures in the United States, Canada and other countries. Net assets of these joint ventures are as follows: Total Company Interest Other Interest -------- ---------------- -------------- 1995 Assets $110,624 $38,937 $ 71,687 Liabilities 67,850 7,395 60,455 -------- ------- -------- Net assets $ 42,774 $31,542 $ 11,232 ======== ======= ======== 1994 Assets $190,640 $66,196 $124,444 Liabilities 91,034 25,796 65,238 -------- ------- -------- Net assets $ 99,606 $40,400 $ 59,206 ======== ======= ======== Page 12 Guy F. Atkinson Company of California Notes to Consolidated Financial Statements (in thousands of dollars except share and per share amounts) Investments in Joint Ventures (continued) Investment in joint ventures is made up as follows: 1995 1994 --------- -------- Investment in joint ventures $ 32,272 $ 40,503 Due to joint ventures (730) (103) -------- -------- Net investment $ 31,542 $ 40,400 ======== ======== Income statement amounts for joint ventures are: 1995 1994 1993 -------- -------- -------- Revenue Sponsored joint ventures $143,933 $121,934 $141,239 Less other venturers' shares 90,064 62,292 81,732 -------- -------- -------- Company share of sponsored joint ventures 53,869 59,642 59,507 Company share of non-sponsored joint ventures 20,588 41,322 56,557 -------- -------- -------- Revenue recorded from joint ventures $ 74,457 $100,964 $116,064 ======== ======== ======== Cost of revenue Sponsored joint ventures $129,518 $109,885 $125,135 Less other venturers' shares 81,260 49,899 70,645 -------- -------- -------- Company share of sponsored joint ventures 48,258 59,986 54,490 Company share of non-sponsored joint ventures 20,173 44,835 48,969 -------- -------- -------- Cost of revenue recorded from joint ventures $ 68,431 $104,821 $103,459 ======== ======== ======== Gross margin Sponsored joint ventures $ 14,415 $ 12,049 $ 16,104 Less other venturers' shares 8,804 12,393 11,087 -------- -------- -------- Company share of sponsored joint ventures 5,611 (344) 5,017 Company share of non-sponsored joint ventures 415 (3,513) 7,588 -------- -------- -------- Gross margin recorded from joint ventures $ 6,026 $ (3,857) $ 12,605 ======== ======== ======== The company's investment in each joint venture consists of cash contributions, plus its share of earnings, minus its share of losses and cash distributions. The company adjusts its share of earnings from each joint venture, where necessary, to conform with the percentage of completion method as outlined in the Summary of Significant Accounting Policies. As a consequence, investments in joint ventures will be subject to estimates regarding total costs to be incurred and the amount of costs relating to unpriced change orders and claims that is recoverable as additional contract compensation. These estimates may be subject to revision in the normal course of business. Credit Agreements The company has short-term credit lines with domestic and foreign banks aggregating $40,000. The company's credit agreements provide for commitment and other fees in accordance with standard banking practice, and contain certain restrictive covenants relating to net worth and other criteria. Assets pledged as collateral under the agreements, principally deposit accounts, accounts receivable, equipment and inventories, had a net book value of $121,214 at December 31, 1995. Page 13 Guy F. Atkinson Company of California Notes to Consolidated Financial Statements (in thousands of dollars except share and per share amounts) Credit Agreements (continued) At December 31, 1995 and during the year, there were no borrowings outstanding under the agreements, and the company was in compliance with all covenants. The company's weighted average interest rate on short-term borrowings was 6.11% in 1994 and 6% in 1993. The company is contingently liable under standby letters of credit totaling $6,793 at December 31, 1995, issued in the normal course of business. These outstanding letters of credit reduce the amount available for borrowing under the company's credit agreements. Accounts Payable Checks written which have not yet been presented for payment are included in accounts payable. These amounts were approximately $4,700 and $3,900 at December 31, 1995 and 1994, respectively. Long-term Obligations Long-term obligations consist of the following: 1995 1994 ------ ------ Industrial development bond, 5.95%, due 1998 $ 779 $1,063 Equipment financing agreements and capitalized lease obligations, 8.75% to 10.1%, due 1995-1998 778 290 Subordinated debentures, 6.5%, due 1999 677 784 Real estate mortgage, 8.5% - 152 Promissory notes, 10%, due 2003 527 572 ------ ------ 2,761 2,861 Less current portion 844 662 ------ ------ $1,917 $2,199 ====== ====== Required principal repayments for the years 1996 through 2000 are as follows: $844, $900, $462, $256 and $72, respectively, with $227 due after 2000. Financing agreements contain restrictive covenants relating to net worth and other criteria. Properties and equipment with a net book value of $3,279 at December 31, 1995, are pledged as collateral for an industrial development bond and equipment financing agreements. Operating Leases The company leases office space, facilities and equipment under various operating leases. At December 31, 1995, future minimum rental payments applicable to noncancellable operating leases were as follows: 1996 $ 3,115 1997 3,093 1998 2,824 1999 1,700 2000 1,569 After 2000 3,866 ------- Total $16,167 ======= For the years 1995, 1994 and 1993 rental expense amounted to $3,095, $2,861 and $1,568 respectively. Page 14 Guy F. Atkinson Company of California Notes to Consolidated Financial Statements (in thousands of dollars except share and per share amounts) Restricted Stock, Stock Options and Warrants Under the provisions of the company's Executive Stock Plan, the Board of Directors can grant nonqualified and incentive stock options, restricted stock and stock appreciation rights for up to 1,300,000 shares to key executives at the current market price on the date of the grant. No awards may be granted after April 15, 2005. The right to exercise options granted vests 25 percent on each of the first four annual anniversary dates of the grant and expires after 10 years. Restrictions on restricted stock are progressively removed based on achievement of earnings per share performance goals. At December 31, 1995 the market value of the restricted shares in issue amounted to $400 which has been recorded as "Unearned compensation," a component of stockholders' equity (offset by an identical increase in paid-in capital). Unearned compensation is amortized as the performance goals are met and charged to general and administrative expenses, or reversed in conjunction with any forfeitures of restricted shares. Performance goals with respect to 1995 were not met and no amounts were amortized in 1995. In accordance with plan provisions, 40,000 restricted shares, with a market value of $400 as of December 31, 1995, will be forfeited and returned to the company in March of 1996. The exercise price of all oustanding options and warrants issued prior to March 31, 1995 were repriced as a consequence of the special $2.00 per share dividend paid on that date. Summary of stock options Number of Shares Price per Share ---------------- --------------- Outstanding at December 31, 1993 310,300 $8.50 - $15.50 Granted in 1994 116,000 8.50 Forfeited in 1994 5,000 8.50 - 15.50 ------- -------------- Outstanding at December 31, 1994 421,300 8.50 - 15.50 ------- -------------- Granted in 1995 (1) 371,104 6.55 - 11.95 Forfeited in 1995 64,003 6.55 - 11.95 Exercised in 1995 33,930 6.55 - 7.23 ------- -------------- Outstanding at December 31, 1995 694,471 6.55 - 11.95 ------- -------------- Exercisable at December 31, 1995 268,821 6.55 - 11.95 Exercisable at December 31, 1994 184,675 $6.55 - $11.95 Summary of restricted stock Number of Shares ---------------- Outstanding at December 31, 1993 92,000 Forfeited in 1994 18,400 ------- Outstanding at December 31, 1994 73,600 Forfeited in 1995 33,600 ------- Outstanding at December 31, 1995 40,000 ------- Total shares available for grant at: December 31, 1995 529,827 December 31, 1994 5,100 (1) Includes 109,104 additional options issued in conjunction with the repricing formula resulting from the $2.00 per share dividend paid on March 31, 1995. In 1994, 100,000 shares of restricted stock with a market value of $969 were contributed to the company's pension plan. The company has issued stock warrants, expiring in 1998, for 387,500 shares exercisable at $7.00 per share in conjunction with renewal of a 1993 credit facility. Page 15 Guy F. Atkinson Company of California Notes to Consolidated Financial Statements (in thousands of dollars except share and per share amounts) Other Income Miscellaneous income (expense) in 1995 includes gains of $2,138 on property dispositions, a loss of $3,041 on the write-down of a property, and gains of $2,079 on the favorable settlement of certain accrued liabilities. Miscellaneous income (expense) in 1993, includes a gain in the amount of $7,243 on sale of the company's headquarters property. Discontinued Operations and Restructuring During 1994 the company disposed of its nonconstruction operations, specifically its manufacturing subsidiary, Lake Center Industries, Inc.; its pipe distribution business, Comco Pipe & Supply Company; and its oil and gas interests. The results of operations of these businesses are shown separately in the income statement as "income from discontinued operations" for each of the years presented. The balance sheets of the company at December 31, 1994 and 1993 have not been restated. Summarized results of discontinued operations are as follows: 1995 1994 1993 ---- -------- -------- Revenue $ - $170,495 $173,554 ==== ======== ======== Income from discontinued operations before taxes - 6,060 7,818 Provision for income taxes - 2,822 2,753 ---- -------- -------- Income from discontinued operations $ - $ 3,238 $ 5,065 ==== ======== ======== Gain on disposal of discontinued operations before taxes $ - $ 58,969 $ - Provision for income taxes - 22,103 - ---- -------- -------- Gain on disposal of discontinued operations $ - $ 36,866 $ - ==== ======== ======== Per share of common stock: Income from discontinued operations $ - $ 0.36 $ 0.58 Gain on disposal of discontinued operations - 4.16 - ---- -------- -------- Income per share of common stock from discontinued operations $ - $ 4.52 $ 0.58 ==== ======== ======== Restructuring charges in 1994, amounting to $4,169 are made up of the following: Reductions in staffing levels $2,290 Consolidation of offices and facilities 698 Abandonment of non-productive assets 1,181 ------ Total restructuring charge $4,169 ====== Page 16 Guy F. Atkinson Company of California Notes to Consolidated Financial Statements (in thousands of dollars except share and per share amounts) Income Taxes The consolidated tax provision is made up as follows: 1995 1994 1993 ------- -------- -------- Income (loss) from continuing operations before provision (benefit) for income taxes and cumulative effect of changes in accounting: United States $ 3,201 $(62,969) $(15,710) Foreign 1,549 2,188 8,406 ------- -------- -------- 4,750 (60,781) (7,304) ------- -------- -------- Provision (benefit) for income taxes Federal Current 121 (12,379) (3,277) Deferred - 1,350 1,115 State 92 1,170 500 Foreign Current 481 606 2,404 Deferred 447 495 614 ------- -------- -------- 1,141 (8,758) 1,356 ------- -------- -------- Income (loss) from continuing operations before cumulative effect of changes in accounting: $ 3,609 $(52,023) $ (8,660) ======= ======== ======== The current benefit in 1994 of $12,379 was attributable to the intraperiod allocation of taxes to the gain on disposal of discontinued operations, see "Discontinued Operations and Restructuring." The provisions for income taxes are different than the amounts computed by applying the statutory federal income tax rate of 34 percent. Tax differences are summarized as follows: 1995 1994 1993 ------- -------- -------- Provision (benefit) at statutory rates $ 1,615 $(20,666) $ (2,483) U.S. losses for which no tax benefit was recorded - 13,555 5,541 Net operating loss utilization (1,552) - - Foreign taxes 916 (390) 1,186 State income taxes 61 772 330 Nondeductible expenses 101 68 79 Reconciliation of previous tax estimates - - (1,404) Tax reimbursements from discontinued operations - (2,097) (1,893) ------- -------- -------- Provision (benefit) for income taxes $ 1,141 $ (8,758) $ 1,356 ======= ======== ======== No provision has been made for additional income taxes on undistributed earnings of a foreign subsidiary (which totaled $34,688 at December 31, 1995) because of reinvestment policies. Page 17 Guy F. Atkinson Company of California Notes to Consolidated Financial Statements (in thousands of dollars except share and per share amounts) Income Taxes (continued) In the first quarter of 1993, the company adopted SFAS 109, "Accounting for Income Taxes," and recorded a gain of $12,070 represented by an increase in deferred income tax assets of $33,016, less a valuation allowance of $20,946. Deferred income tax assets (liabilities) are made up as follows: 1995 1994 1993 ------- ------- ------- Temporary differences: Contract recognition method for tax purposes $(2,385) $(3,985) $ (788) Depreciation 235 570 1,547 Estimated losses and reserves 6,845 9,602 (507) Employee benefits (494) (676) 635 Inventory cost capitalization - 54 675 Other 69 175 (287) ------- ------- ------- 4,270 5,740 1,275 Operating loss carryforward 12,934 13,633 20,769 Foreign tax credits - 8,266 11,094 Alternative minimum tax carryforward 1,394 1,044 1,044 ------- ------- ------- Deferred income tax asset 18,598 28,683 34,182 Less, valuation allowance 18,934 28,572 23,366 ------- ------- ------- Net deferred income tax asset (liability) $ (336) $ 111 $10,816 ======= ======= ======= Deferred income taxes are classified as follows: 1995 1994 1993 ------- ------- ------- Deferred income tax asset (liability) - current $ (248) $ 23 $ (342) Deferred income tax asset (liability) - long-term (88) 88 11,158 ------- ------- ------- Net deferred income tax asset (liability) $ (336) $ 111 $10,816 ======= ======= ======= SFAS 109 provides that deferred income tax benefits be reduced by a valuation allowance with respect to any benefits that, based on available evidence, are not expected to be realized. The gain recorded upon adoption of SFAS 109 was based on tax strategies which included the sale of those assets associated with discontinued operations. During 1994 those strategies were implemented and the related gains recognized. As required by the standard, the company has evaluated the available evidence as defined by SFAS 109, and has increased the valuation allowance. The company's net operating loss carryforwards expire as follows: Year Amount ------- 2004 $25,277 2006 5,735 2007 3,369 2008 3,660 ------- Total $38,041 ======= Page 18 Guy F. Atkinson Company of California Notes to Consolidated Financial Statements (in thousands of dollars except share and per share amounts) Employees' Pension and Retirement Plans The company maintains defined benefit pension plans covering substantially all U.S. salaried employees and certain hourly employees. Benefits are generally based on years of service and compensation during the last five years of employment. The company's funding policy is to contribute annually amounts deductible for income tax purposes. The company records expenses and liabilities for these plans based upon assumptions regarding current and future interest rates, inflation rates,life expectancy and expected returns on plan assets. These estimates may be subject to revision in the normal course of business. The company provides an excess benefit plan for defined benefits in excess of qualified plan limits imposed by federal tax law. In addition, the company maintains defined contribution plans covering salaried and certain hourly employees. Participation in the defined contribution programs is generally voluntary and the company matches employee contributions, based on covered payroll, up to specified limits. The following table sets forth the defined benefit plans' funded status and amounts recognized in the company's financial statements: 1995 1994 ------- ------- Actuarial present value of benefit obligations: Accumulated benefit obligation: Nonvested $ 3,737 $ 3,097 Accumulated benefit obligation: Vested 17,300 11,447 ------- ------- Total accumulated benefit obligation $21,037 $14,544 ======= ======= Projected benefit obligation for service rendered to date $21,977 $16,414 Plans' assets at fair market value, primarily listed stocks and bonds, including $1,000 in restricted shares of common stock of Guy F. Atkinson Company of California 16,783 12,379 Excess of projected benefit obligation over plans' assets 5,194 4,035 Unrecognized net loss from past experience different from that assumed, and effect of changes in assumptions (5,404) (4,042) Remaining portion of unrecognized net assets at January 1, 1986, being recognized over approximately 13 years 186 263 Adjustment to recognize minimum liability 4,278 1,909 ------- ------- Accrued pension expense $ 4,254 $ 2,165 ======= ======= Net pension expense is made up as follows: 1995 1994 1993 ------- ------- ------- Service costs - benefits earned during the year $ 925 $ 1,224 $ 1,539 Interest cost on projected benefit obligation 1,369 1,255 1,738 Actual return on plan assets (3,404) 416 (1,352) Net amortization and deferral 2,493 (1,127) (40) ------- ------- ------- Net pension expense $ 1,383 $ 1,768 $ 1,885 ======= ======= ======= Page 19 Guy F. Atkinson Company of California Notes to Consolidated Financial Statements (in thousands of dollars except share and per share amounts) Employees' Pension and Retirement Plans (continued) Assumptions used in computing the plans' funded status: 1995 1994 ------ ------ Discount rate 7.5% 8.5% Expected long-term rate of return on plan assets 9.0% 9.0% Rate of increase in future compensation levels 4.5% 4.5% </table? In accordance with SFAS No. 87, the company has recorded an additional minimum pension liability to reflect the excess of accumulated benefits over the fair market value of plan assets. A corresponding amount has been recorded as an intangible pension asset, except to the extent that the additional minimum liability exceeds related unrecognized prior service costs, in which case the excess is charged to stockholders' equity. The following pension assets and liabilities have been recorded: 1995 1994 ------ ------ Additional minimum pension liability $4,278 $1,909 Intangible pension asset 3,934 1,909 ------ ------ Charge to stockholders' equity $ 344 $ - ====== ====== The company contributes to defined contribution retirement plans and various defined benefit multiemployer plans on behalf of unionized employees. Costs of these plans were as follows: 1995 1994 1993 ------ ------ ------ Defined benefit multiemployer plans $2,652 $4,835 $3,358 Defined contribution retirement plans 719 981 2,122 Total plan costs ------ ------ ------ $3,371 $5,816 $5,480 ====== ====== ====== Supplementing pension benefits, the company provides certain healthcare benefits for retired salaried employees reaching retirement age while working with the company. The following are the components of postretirement benefit liability: 1995 1994 ------ ------ Accumulated postretirement benefit obligation: Retirees $5,259 $5,072 Fully eligible employees 589 507 Other active plan participants 494 384 ------ ------ 6,342 5,963 Unrecognized net gain 140 752 ------ ------ Accrued postretirement obligation $6,482 $6,715 ====== ====== Page 20 Guy F. Atkinson Company of California Notes to Consolidated Financial Statements (in thousands of dollars except share and per share amounts) Employees' Pension and Retirement Plans (continued) Postretirement healthcare expense consists of: 1995 1994 1993 ---- ---- ---- Service costs - benefits earned during the period $ 27 $ 62 $ 60 Interest cost on accumulated postretirement benefit obligation 500 462 530 Net amortization of unrecognized gains (losses) (9) - - ---- ---- ---- Net postretirement benefit cost $518 $524 $590 ==== ==== ==== Assumptions used for postretirement benefit costs and obligations: 1995 1994 ---- ---- Discount rate 7.5% 8.5% Medical cost trend rate % in 1995 10% in 1994 reducing to reducing to 6% in 2001 5% in 2004 Postemployment Benefits The company provides certain postemployment benefits, such as self-insured disability benefits to former and inactive employees. The liability for postemployment benefits was $941 at December 31, 1995 and $936 at December 31, 1994. Postemployment benefit expense was $333 in 1995, $228 in 1994 and $206 in 1993. Litigation and Contingencies Litigation - ---------- The nature of the construction business periodically results in liens, disputes, suits and claims. Certain claims and suits have been brought against the company in connection with contractual disputes, alleging personal injury, property or other damages. Disputes are generally negotiated to settlement or litigated, with judgments against the company being either promptly satisfied or appealed. Company policy is to accrue amounts for any liabilities which it believes will result from claims and suits against the company. These amounts are based upon management's estimates of the most likely outcome of such claims and suits, and may be materially different from the amounts asserted by the claimants. On March 7, 1995, a complaint asserting breach of contract and other wrongdoing in connection with the company's sale of its manufacturing subsidiary, Lake Center Industries, Inc., was filed against the company and its financial advisor by an unsuccessful bidder for Lake Center. The plaintiffs allege they have suffered actual damages of $290 in connection with preparing their bid, and also seek to recover $7,000 on a theory of unjust enrichment together with an additional $10,000 in punitive damages. The company will vigorously defend this suit, which it believes to be without merit, and further believes that the outcome will not have a material adverse effect on its financial condition. Environmental Liabilities - ------------------------- The company has certain potential environmental remediation obligations with respect to properties which have been sold. In recording the sale of these properties, the company set aside a portion of the sale proceeds to cover the potential future costs of such environmental remediation which may become necessary. The portion of the sale proceeds which was set aside was based upon management's best estimate of potential future costs, if any. These estimates may be subject to revision in the normal course of business. Page 21 Guy F. Atkinson Company of California Notes to Consolidated Financial Statements (in thousands of dollars except share and per share amounts) Litigation and Contingencies (continued) Self-Insurance Programs - ----------------------- The company is insured for workers' compensation, automobile and general liability losses through a risk retention program, with excess liability insurance to cover more significant liability exposures. The company sets aside reserves for estimated losses to be incurred from both asserted and unasserted claims. These estimates are based on historical claims data and may be subject to revision in the normal course of business. Geographic Area Information Summarized geographic area information: 1995 1994 1993 -------- -------- -------- Revenue: United States $332,409 $388,969 $279,036 Canada 37,136 16,700 33,800 Asia 37,158 - - Other areas 10,292 17,300 32,200 -------- -------- -------- Total revenue $416,995 $422,969 $345,036 ======== ======== ======== Operating profit (loss): United States $ 9,312 $(41,000) $(12,100) Canada (4,561) 2,100 2,100 Asia 3,194 - - Other areas 2,099 1,700 6,900 -------- -------- -------- Total operating profit (loss) 10,044 (37,200) (3,100) -------- -------- -------- General corporate (expense) (4,390) (18,679) (723) Interest (expense) (904) (4,902) (3,481) -------- -------- -------- Income (loss) from continuing operations before taxes and cumulative effect of changes in accounting $ 4,750 $(60,781) $ (7,304) ======== ======== ======== Identifiable assets: United States $144,062 $ 98,600 $198,200 Canada 18,656 15,400 31,500 Asia 20,222 - - Other areas 6,893 10,700 10,600 Corporate assets 45,011 75,014 31,579 -------- -------- -------- Total assets $234,844 $199,714 $271,879 ======== ======== ======== Operating profit (loss) is total revenue less operating expenses, excluding corporate general and administrative expense, corporate miscellaneous expense, interest expense, and income taxes. Identifiable assets by geographic area are those that are used in the company's operations in each area. Corporate assets are principally cash and short-term investments, accrued and deferred income taxes, and corporate properties and equipment. The company derived 2.4 percent in 1995, 5.0 percent in 1994 and 4.3 percent in 1993, of total revenue from contracts with the U.S. government. Page 22 Guy F. Atkinson Company of California Notes to Consolidated Financial Statements (in thousands of dollars except share and per share amounts) Quarterly Financial Data - Unaudited 1995 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter ----------- ----------- ----------- ----------- Revenue $ 89,738 $ 86,434 $ 91,364 $149,459 ======== ======== ========= ======== Gross margin 6,938 7,264 10,818 14,152 -------- -------- --------- -------- Net income (loss) (987) 721 1,215 2,660 ======== ======== ========= ======== Net income (loss) per share of common stock (0.11) 0.08 0.13 0.29 ======== ======== ========= ======== 1994 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter ----------- ----------- ----------- ----------- Revenue $127,171 $123,429 $109,942 $ 62,427 ======== ======== ======== ======== Gross margin 5,849 7,036 1,908 (28,873) (Loss) from continuing operations before cumulative effect of changes in accounting (2,129) (2,664) (7,700) (39,530) Income (loss) from discontinued operations 1,371 1,670 396 (199) Gain on disposal of discontinued operations - - 2,611 34,255 -------- -------- -------- -------- (Loss) before cumulative effect of changes in accounting (758) (994) (4,693) (5,474) Cumulative effect of changes in accounting (739) - - - -------- -------- -------- -------- Net (loss) (1,497) (994) (4,693) (5,474) ======== ======== ======== ======== (Loss) per share of common stock from continuing operations before cumulative effect of changes in accounting (0.24) (0.30) (0.87) (4.45) Income per share of common stock from discontinued operations 0.15 0.19 0.34 3.84 -------- -------- -------- -------- (Loss) per share of common stock before cumulative effect of changes in accounting (0.09) (0.11) (0.53) (0.61) Cumulative effect per share of common stock of changes in accounting (0.08) - - - -------- -------- -------- -------- Net (loss) per share of common stock (0.17) (0.11) (0.53) (0.61) ======== ======== ======== ======== Page 23 Guy F. Atkinson Company of California Notes to Consolidated Financial Statements (in thousands of dollars except share and per share amounts) Quarterly Financial Data - Unaudited (continued) 1993 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter ----------- ----------- ----------- ----------- Revenue $ 82,025 $ 70,908 $ 89,497 $102,606 ======== ======== ======== ======== Gross margin 4,518 5,895 5,376 2,940 (Loss) from continuing operations before cumulative effect of changes in accounting (487) (1,277) (758) (6,138) Income from discontinued operations 1,617 1,581 841 1,026 -------- -------- -------- -------- Income (loss) before cumulative effect of changes in accounting 1,130 304 83 (5,112) Cumulative effect of changes in accounting 4,974 - - - -------- -------- -------- -------- Net income (loss) $ 6,104 $ 304 $ 83 $ (5,112) ======== ======== ======== ======== (Loss) per share of common stock from continuing operations before cumulative effect of changes in accounting $ (0.05) (0.15) (0.09) (0.70) Income per share of common stock from discontinued operations 0.18 0.18 0.10 0.12 -------- -------- -------- -------- Income (loss) per share of common stock before cumulative effect of changes in accounting 0.13 0.03 0.01 (0.58) Cumulative effect per share of common stock of changes in accounting 0.57 - - - -------- -------- -------- -------- Net income (loss) per share of common stock $ 0.70 $ 0.03 $ 0.01 $ (0.58) ======== ======== ======== ======== Page 24