SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarter Ended
March 31, 1995
Commission File Number 1-8889
MORRISON KNUDSEN CORPORATION
A Delaware Corporation
IRS Employer Identification No. 82-0393735
MORRISON KNUDSEN PLAZA, BOISE, IDAHO 83729
208/386-5000
The registrant's common stock is registered on the New York and Pacific Stock
Exchanges.
At May 31, 1995, 33,049,100 shares of the registrant's common stock were
outstanding (excluding 436,286 shares held in treasury).
The registrant 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
and has been subject to such filing requirements for the past 90 days.
_ Yes X No
MORRISON KNUDSEN CORPORATION
Quarterly Report Form 10-Q for the
Three Months Ended March 31, 1995
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE
----
Item 1. Consolidated Condensed Financial Statements and Notes Thereto
Statements of Operations for the Three Months
Ended March 31, 1995 and 1994 I-1
Balance Sheets at March 31, 1995 and
December 31, 1994 I-2
Statements of Cash Flows for the
Three Months Ended March 31, 1995 and 1994 I-4
Notes to Financial Statements I-5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations I-16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K I-20
Signatures I-20
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MORRISON KNUDSEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
1995 1994(a)
---------- ----------
Revenue $ 517,172 $ 461,794
Cost of revenue (511,096) (452,532)
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Operating income from continuing operations 6,076 9,262
General and administrative expenses (10,619) (8,725)
Interest expense (5,431) (575)
Other income (expense), net (292) 3,332
Equity in net income (loss) of unconsolidated
affiliates 3,186 113
Gain on subsidiary sale of stock -- 1,255
Gain (loss) on disposition of investments in
affiliates, net (6,816) 4,877
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Income (loss) from continuing operations before
income taxes and minority interests (13,896) 9,539
Income tax expense (1,437) (3,737)
Minority interests in net (income) loss of
subsidiaries (4,551) 1,415
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Income (loss) from continuing operations (19,884) 7,217
Discontinued operations of MK Rail:
Income (loss) from discontinued operations (5,935) 2,435
Estimated loss on sale, including disposal
costs (25,500) --
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Net income (loss) $ (51,319) $ 9,652
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- ------------------------------------------------------------------------------
Earnings (loss) per common share:
Continuing operations $ (.60) $ .22
Discontinued operations (.96) .08
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Net income (loss) $ (1.56) $ .30
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Common shares used to compute earnings (loss)
per share 32,865,000 32,174,200
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Dividends per share $ -- $ .20
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<FN>
(a) Certain amounts reclassified to conform to 1995 financial statement
presentation.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
I-1
MORRISON KNUDSEN CORPORATION
CONSOLIDATED BALANCE SHEETS
AT MARCH 31, 1995 (UNAUDITED) AND DECEMBER 31, 1994
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
ASSETS 1995 1994(a)
- ------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 77,180 $ 65,088
Accounts receivable including retentions of $58,009
and $45,386 183,250 209,564
Unbilled receivables 98,686 124,468
Refundable federal income taxes, net 30,389 20,607
Inventories, net of advances of $281,294 and $293,697 115,300 152,053
Investments in and advances to construction joint
ventures 858 12,854
Deferred income taxes 51,436 63,437
Assets of subsidiaries and investments held for sale 213,956 --
Net assets of discontinued MK Rail operations 122,936 147,521
Other 14,848 24,300
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Total current assets 908,839 819,892
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INVESTMENTS AND OTHER ASSETS
Securities available for sale, at fair value 17,526 25,101
Investments in and advances to unconsolidated
affiliates 41,640 71,382
Goodwill and other intangibles, net 4,706 18,288
Other investments and assets 33,990 37,694
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Total investments and other assets 97,862 152,465
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PROPERTY AND EQUIPMENT, AT COST
Land and mineral rights 10,507 18,402
Buildings and improvements 94,632 116,106
Machinery and equipment 34,171 44,105
Construction equipment 140,199 190,807
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Total property and equipment 279,509 369,420
LESS ACCUMULATED DEPRECIATION (178,460) (223,585)
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Property and equipment, net 101,049 145,835
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TOTAL ASSETS $1,107,750 $1,118,192
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- ------------------------------------------------------------------------------
<FN>
(a) Certain amounts reclassified to conform to 1995 financial statement
presentation.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
I-2
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994(a)
- ------------------------------------------------------------------------------
CURRENT LIABILITIES
Short-term and current portion of long-term debt $ 296,737 $ 192,152
Accounts payable including retentions of $19,975
and $29,348 169,982 233,240
Accrued salaries, wages and benefits 46,957 43,663
Accruals for estimated losses on uncompleted
contracts 107,806 146,796
Other accrued liabilities 48,314 57,274
Billings in excess of costs and earnings on
uncompleted contracts 64,644 98,415
Advances from customers 118,910 156,817
Liabilities of subsidiaries held for sale 126,046 --
- ------------------------------------------------------------------------------
Total current liabilities 979,396 928,357
- ------------------------------------------------------------------------------
NON-CURRENT LIABILITIES
Deferred income taxes 18,258 22,203
Deferred compensation 17,669 18,001
Deferred income 9,604 11,082
Accrued workers' compensation insurance 14,544 11,026
Accrued postretirement benefit obligation 26,198 26,710
Debt due after one year 1,400 9,273
Accrued litigation settlement 25,000 25,000
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Total non-current liabilities 112,673 123,295
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COMMITMENTS AND CONTINGENCIES (Note 9)
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MINORITY INTERESTS IN SUBSIDIARIES -- 3,647
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STOCKHOLDERS' EQUITY
Preferred stock, par value $.10, authorized
10,000,000 shares, none
Common stock, par value $1.67, authorized
100,000,000 shares, issued 33,490,664
shares 55,818 55,818
Capital in excess of par value 270,396 272,594
Retained deficit (299,528) (248,209)
Treasury stock, 447,977 and 626,434 shares, at cost (7,620) (11,116)
Unearned compensation - restricted stock (2,236) (2,345)
Cumulative translation adjustments (1,070) (3,270)
Net unrealized holding loss on securities available
for sale (79) (579)
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Total stockholders' equity 15,681 62,893
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,107,750 $1,118,192
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I-3
MORRISON KNUDSEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995, AND 1994 (UNAUDITED)
(THOUSANDS OF DOLLARS)
1995 1994(a)
- ------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $(51,319) $ 9,652
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Provision for estimated loss on sale of
discontinued operations 25,500 --
Loss on disposition of businesses and assets,
net 10,025 --
Depreciation and amortization 7,037 9,108
Provision for (reversals of) estimated losses
on uncompleted contracts (38,990) (930)
Increase in working capital from cancellation
of accounts receivable sales (60,000) --
Other changes in working capital, net 5,015 17,291
Increase (decrease) in other assets and
liabilities, net 14,424 (34,732)
- ------------------------------------------------------------------------------
Net cash provided (used) by operating activities (88,308) 389
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INVESTING ACTIVITIES
Property and equipment acquisitions (3,653) (10,473)
Property and equipment disposals 4,400 4,110
Purchase of securities available for sale (6,875) --
Proceeds from securities available for sale 15,035 --
Proceeds from sale of investments in affiliates 9,994 --
Investments in and advances to unconsolidated
affiliates (167) (2,403)
Other investing activities (149) --
- ------------------------------------------------------------------------------
Net cash provided (used) by investing activities 18,585 (8,766)
- ------------------------------------------------------------------------------
FINANCING ACTIVITIES
Borrowing (repayments) under credit agreements and
short-term debt, net including $60,000 from
cancellation of accounts receivable sales
in 1995 111,631 12,499
Borrowings of long-term debt -- 10,479
Payments of long-term debt -- (159)
Proceeds from stock issued -- 380
Dividends paid (6,164) (12,925)
- ------------------------------------------------------------------------------
Net cash provided (used) by financing activities 105,467 10,274
- ------------------------------------------------------------------------------
Effect of exchange rate changes on cash (466) --
- ------------------------------------------------------------------------------
Cash and cash equivalents of businesses held for sale (23,186) --
- ------------------------------------------------------------------------------
Increase in cash and cash equivalents 12,092 1,897
Cash and cash equivalents at beginning of period 65,088 80,108
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 77,180 $82,005
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Other cash flow information for continuing and discontinued operations
Interest paid $ 6,417 $ 858
Income taxes paid (refunded), net 527 (13,200)
Acquisition of business for stock:
Property and equipment and other assets -- 9,128
Goodwill and other intangibles -- 19,215
Long-term debt -- 4,675
Other liabilities assumed -- 4,005
<FN>
(a) Certain amounts reclassified to conform to 1995 financial statement
presentation.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
I-4
MORRISON KNUDSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS)
The term "Corporation" as used in this Quarterly Report includes Morrison
Knudsen Corporation and its consolidated subsidiaries unless otherwise
indicated.
1. BASIS OF PRESENTATION AND MANAGEMENT'S PLANS
In March 1995, the Corporation announced its decision to sell its 65%
ownership interest in MK Rail Corporation ("MK Rail"). The accompanying
consolidated financial statements and financial statement footnotes as of and
for the three months in the periods ended March 31, 1995 and 1994 give effect
to the anticipated sale of the Corporation's 65% ownership interest in MK
Rail. The disposal of the MK Rail segment has been accounted for as a
discontinued operation at March 31, 1995 and accordingly, its results of
operations and cash flows are segregated and reported as discontinued
operations in the accompanying consolidated statements of operations and cash
flows for the three month period ended March 31, 1995. The assets and
liabilities of MK Rail have been segregated on the consolidated balance sheet
at March 31, 1995, from their historical classifications consistent with the
presentation of the related results of operations of MK Rail as a separate
item in the accompanying statements of operations. Prior period consolidated
financial statements and financial statement footnotes have been reclassified
to conform to the current period presentation. The comparative consolidated
balance sheet and financial statement footnotes included herein as December
31, 1994 amounts have been derived from the audited balance sheet and
financial statement footnotes at December 31, 1994. See Note 2. "Changes in
Business - Discontinued Operations".
The accompanying consolidated financial statements include the accounts of
the Corporation and its majority-owned subsidiaries. Investments in 20
percent to 50 percent owned companies and joint ventures are accounted for by
the equity method. The Corporation's proportionate share of joint venture
revenue, cost of revenue and operating income (loss) is included in the
consolidated statements of operations. Intercompany accounts and transactions
have been eliminated.
The consolidated financial statements have been prepared without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain financial information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations. These consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and
notes thereto included in the Corporation's Annual Report to Stockholders or
the Corporation's Annual Report on Form 10-K for the year ended December 31,
1994.
The unaudited consolidated financial statements included herein reflect all
adjustments consisting of normal recurring adjustments which are, in the
opinion of management, necessary to a fair presentation of the results of
operations and cash flows for the interim period. The results of operations
for the three month period ended March 31, 1995 are not necessarily
indicative of the results to be expected for the full year.
The Corporation's consolidated financial statements have been prepared on the
basis that it will continue as a going concern, which contemplates the
realization of asset values and the satisfaction of liabilities in the normal
course of business. There are certain conditions that raise substantial doubt
about the Corporation's ability to continue as a going concern:
- - The Corporation reported net losses of $51,319 and $349,635 for the quarter
ended March 31, 1995 and year ended December 31, 1994, respectively.
- - Net cash used by the Corporation's operating activities was $88,308 and
$142,536 for the quarter ended March 31, 1995 and year ended December 31,
1994, respectively.
- - At March 31, 1995 and December 31, 1994 stockholders' equity was $15,681
and $62,893 respectively, and included retained deficits of $299,528 and
$248,209 at March 31, 1995 and December 31, 1994, respectively.
- - At March 31, 1995 and December 31, 1994 there were working capital deficits
of $70,557 and $108,465, respectively.
I-5
- - At December 31, 1994 the Corporation was not in compliance with certain
financial covenants under its unsecured credit agreements and subsequently
failed to meet scheduled repayment terms.
- - The Corporation expects significant negative cash flow from operations in
1995 and will require additional funding to cover expected negative cash
flows.
The Corporation has received bank waivers on certain covenant defaults under
its unsecured credit agreements, additional funding of $50,000 from its banks
(of which $31,200 has been repaid as of the date of this Quarterly Report on
Form 10-Q) and received extensions of all the bank credit agreements through
July 31, 1995. The Corporation announced on June 30, 1995 that it had reached
a preliminary understanding with the bank group steering committee
representing its lenders under the Corporation's secured and unsecured credit
facilities. The preliminary agreement, which still must be approved by all of
the Corporation's lenders would provide $30,000 in new borrowing capacity
together with cash proceeds from the future sales of certain non-core
businesses and investments and would extend through December 31, 1996 with
several partial repayments required during this period. This preliminary
agreement is conditioned upon a number of matters, including the resolution
of certain matters relating to liabilities associated with the Transit
segment and formal approval of the lenders.
In addition, in July 1995, the Corporation reached a preliminary agreement
("transit agreement") with its surety-syndicate-manager and letter-of-credit
banks ("LC banks") to minimize the Transit segment's anticipated cash flow
deficiency. The transit agreement contemplates, among other matters, the
sharing of Transit's cash flow deficiency between the Corporation and its
surety syndicate and LC banks, including limits on the Corporation's funding
requirements and participation in future operating losses.
These preliminary agreements contemplate that ongoing indebtedness of the
Corporation to the banks and to its surety syndicate will be secured and the
Corporation will grant stock purchase warrants for unissued common stock up
to approximately one-third of its outstanding common stock.
In conjunction with these preliminary agreements the Corporation would also
receive some level of new bonding capacity.
The Corporation believes these preliminary agreements with its banks and
surety syndicate will provide sufficient liquidity until the latter part of
1996 when a substantial recapitalization through an equity infusion or new
debt will be required.Unless the Corporation is able to finalize these
preliminary agreements or obtain alternative sources of cash, the Corporation
may, among other alternatives, seek protection from its creditors under the
United States Bankruptcy Code. The Corporation believes that, in such
circumstances, the ability, if any, of its stockholders to recover their
investments would be significantly impaired and that any such recovery, if
available, would be substantially delayed.
In addition to finalizing the aforementioned agreements with its banks and
surety syndicate, the Corporation's ability to continue as a going concern is
dependent upon the Corporation successfully completing a recapitalization by
obtaining additional debt or equity capital and returning the Corporation to
profitable operations. In this connection, the Corporation has adopted the
following operating and management plans to:
- - Sell non-core businesses and use the cash proceeds to substantially reduce
the debt burden. See Note 2. "Changes in Business".
- - Successfully resolve the stockholders' litigation. See Note 9. "Commitments
and Contingencies -- Legal Proceedings".
- - Continue to obtain new, profitable contracts and to generate positive cash
flow from continuing operations in 1996 and beyond.
Although the results of these actions cannot be predicted with certainty,
management believes that if the Corporation can continue to receive the
cooperation of its banks and surety syndicate, and can obtain additional debt
or equity financing that the Corporation has the ability ultimately to return
to profitability and pay off or refinance the existing bank debt.
I-6
2. CHANGES IN BUSINESS
The Corporation decided in the fourth quarter of 1994 and the first quarter
of 1995 to pursue the sale of certain of its consolidated subsidiaries and
investments in unconsolidated affiliates.
DISCONTINUED OPERATIONS: In March 1995, the Corporation adopted a plan to
sell its 65% ownership interest in MK Rail Corporation. The sale is expected
to be completed no later than March 31, 1996. Accordingly, the Corporation
has accounted for the planned divestiture as a discontinued operation at
March 31, 1995, and the accompanying consolidated financial statements have
been reclassified to report the net assets, results of operations and cash
flows of MK Rail separately. Prior period consolidated financial statements
and financial statement footnotes have been reclassified to conform to the
current period presentation. The Corporation has recorded an estimated loss
on sale of its ownership interest in MK Rail based upon the information
available in the circumstances. However, there can be no assurance that the
net proceeds realized by the Corporation from the ultimate sale of its
ownership interest therein will not be less than the estimated fair value
assumed in this estimate at March 31, 1995.
Summary results of operations for the discontinued segment for the three
months ended March 31, 1995 and 1994 follows:
RESULTS OF OPERATIONS (UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1995 1994
- ------------------------------------------------------------------------------
Revenue $78,404 $79,507
Operating income (loss) (1,351) 4,910
Net income (loss) (1) (8,162) 2,435
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Corporation's share of net income (loss) $(5,305) $ 1,583
- ------------------------------------------------------------------------------
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<FN>
(1) Included in the 1995 net loss is an aggregate after-tax loss of $7,285 in
connection with MK Rail's wholly-owned subsidiary Morrison Knudsen
Corporation of Australia, Ltd. ("MKA"). MK Rail recognized a $4,485 loss from
MKA's operations and a $2,800 loss on sale of its ownership interest to the
Corporation. See Note 10. "Subsequent Events -- Morrison Knudsen Corporation
of Australia, Ltd."
The assets and liabilities of MK Rail have been segregated on the
consolidated balance sheets at March 31, 1995 and December 31, 1994. Such
amounts are summarized as follows:
(UNAUDITED) DECEMBER 31,
MARCH 31, 1995 1994
- ------------------------------------------------------------------------------
Cash and cash equivalents $ 2,893 $ 12,459
Accounts receivable 50,594 34,675
Unbilled receivables 10,853 11,393
Inventories 115,561 116,526
Other current assets 7,750 8,119
Property and equipment, net 69,995 71,426
Deferred income taxes 18,961 19,171
Goodwill and other intangibles, net 28,811 29,511
Prepaid lease cost 5,748 8,017
Short-term and current portion of long-term debt (5,607) (2,776)
Accounts payable (25,948) (31,133)
Accrued expenses and other accrued liabilities (55,520) (30,463)
Customer advances -- (6,196)
Debt due after one year (49,500) (38,091)
Other non-current liabilities (13,077) (13,450)
Minority interests (38,578) (41,667)
- ------------------------------------------------------------------------------
Net assets of discontinued operations $122,936 $147,521
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
I-7
ASSETS OF SUBSIDIARIES AND INVESTMENTS HELD FOR SALE: The assets and
liabilities of the Corporation's subsidiaries - McConnell Dowell Corporation,
Ltd., MK Investments, Inc. (North Pacific construction operations) and
Western Aircraft, Inc. and the Corporation's investments in MK Gold Company
and Amerbank, have been segregated on the balance sheet at March 31, 1995
from their historical classifications to separately identify them as held for
sale. Such amounts are summarized as follows:
(UNAUDITED)
MARCH 31, 1995
- ------------------------------------------------------------------------------
Cash and cash equivalents $ 23,170
Accounts receivable 77,017
Unbilled receivables 20,025
Investments in and advances to construction joint ventures 8,643
Investments in and advances to unconsolidated affiliates 37,144
Property and equipment, net 34,150
Other assets 13,807
- ------------------------------------------------------------------------------
Total assets $213,956
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Short-term and current portion of long-term debt $ 13,255
Accounts payable and accrued expenses 64,084
Accrued salaries and wages 1,709
Other accrued liabilities 5,789
Billings in excess of costs and earnings on uncompleted contracts 27,667
Deferred income taxes 2,709
Debt due after one year 1,424
Other long-term liabilities 1,383
Minority interests in subsidiaries 8,026
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Total liabilities $126,046
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- ------------------------------------------------------------------------------
3. DISPOSITION OF INVESTMENTS IN AFFILIATES
1995
SALE OF INVESTMENT IN MK GOLD COMPANY ("MK GOLD"): On June 6, 1995 the
Corporation sold its 46.4% ownership interest in MK Gold to Leucadia National
Corporation ("Leucadia") for $22,500 cash. As a condition to the purchase of
the shares, Leucadia acquired MK Gold's $20,000 bank credit facility and
released the Corporation from its guarantee obligations under the facility.
The Corporation recognized a pretax provision for loss on disposal of $9,256
and has included the net realizable value of its investment in MK Gold on the
accompanying balance sheet at March 31, 1995 under the caption "Assets of
subsidiaries and investments held for sale."
SALE OF INVESTMENT IN BENJAMIN DEVELOPMENTS, LTD. In March 1995, the
Corporation's majority-owned subsidiary McConnell Dowell Corporation, Ltd. sold
its ownership interest in Benjamin Developments, Ltd. for cash and recognized a
pretax gain of $9,994.
MK INVESTMENTS, INC. (NORTH PACIFIC CONSTRUCTION OPERATIONS) ("MKI"): On July
21, 1995, the Corporation and a potential buyer reached a preliminary
understanding which contemplates the sale of certain MKI operations for cash.
The preliminary understanding is predicated on the occurrence of certain
events, including the negotiation and execution of a definitive purchase and
sale agreement. In this connection, the Corporation recognized a provision of
$7,554 to write-down the carrying value of its investment in MKI to its
estimated fair value based on the preliminary understanding.
I-8
1994
SALE OF INTEREST IN STRAIT CROSSING DEVELOPMENT, INC. ("SCDI"): In October
1993, Strait Crossing Development, Inc., a 45% owned unconsolidated
subsidiary, entered into a development agreement with the government of
Canada to design, construct and operate for 35 years an 8.4 mile long toll
bridge linking the Atlantic Provinces of New Brunswick and Prince Edward
Island. On March 31, 1994, the Corporation entered into an agreement to sell
a portion of its ownership interest in SCDI to a third party for $1,301 cash
and a $3,576 note receivable with interest at 7% per annum, due and payable
on the earlier of the date of final completion of the toll bridge or May 31,
1998. The sale decreased the Corporation's ownership interest in SCDI from
45% to 36%. The Corporation recognized a pretax gain of $4,877 on the change
of interest.
4. INVENTORIES
Transit segment inventories at March 31, 1995 and December 31, 1994 are
summarized as follows:
(UNAUDITED) DECEMBER 31,
MARCH 31, 1995 1994
- ------------------------------------------------------------------------------
Work in progress $ 270,901 $ 302,334
Raw materials 125,693 143,416
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Total inventories 396,594 445,750
Payments on account of work in progress (281,294) (293,697)
- ------------------------------------------------------------------------------
Net inventories $(115,300 $ 152,053
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- ------------------------------------------------------------------------------
I-9
5. CONSTRUCTION JOINT VENTURES
The Corporation has from time to time entered into a number of partnership
arrangements with other contractors commonly referred to as "joint ventures".
Construction joint ventures frequently have a short life span, since they are
designed and created for the sole purpose of bidding on, negotiating for, and
completing one specific project and are liquidated when the project is
completed. The number of joint ventures in which the Corporation participates
and the size, scope and duration of the projects vary between periods.
Specific joint ventures change from period to period, and the comparability
of the following summary financial information between periods may not be
meaningful. The following table presents summarized financial information of
the construction joint ventures on a combined 100 percent basis at March 31,
1995 and December 31, 1994 and for the three months in the periods ended
March 31, 1995 and 1994.
(UNAUDITED) DECEMBER 31,
FINANCIAL POSITION AT MARCH 31, 1995 1994
- ------------------------------------------------------------------------------
Cash and cash equivalents $ 103,057 $ 124,627
Other current assets 92,819 143,521
Non-current assets 14,008 19,365
Property and equipment, net 36,775 32,299
Advances from customers (82,899) (88,214)
Other current liabilities (157,347) (213,295)
- ------------------------------------------------------------------------------
Net assets $ 6,413 $ 18,303
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Corporation's investment in and advances to
construction joint ventures $ 858 $ 12,854
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
RESULTS OF OPERATIONS (UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1995 1994
- ------------------------------------------------------------------------------
Combined joint ventures, net
Revenue $ 218,089 $ 262,350
Cost of revenue (210,317) (260,104)
- ------------------------------------------------------------------------------
Operating income $ 7,772 $ 2,246
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Corporation's share, net
Revenue $ 68,496 $ 89,171
Cost of revenue (65,283) (90,285)
- ------------------------------------------------------------------------------
Operating income (loss) $ 3,213 $ (1,114)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
The Corporation recognized a net loss from its proportionate share of the
combined joint ventures' results of operations in the three month period
ended March 31, 1994 because the Corporation's proportionate share of joint
ventures with operating losses exceed its proportionate share of joint
ventures with operating income.
I-10
6. Investments in and Advances to Unconsolidated Affiliates
The following table presents summarized financial information of the
unconsolidated affiliates accounted for by the equity method on a combined
100 percent basis at March 31, 1995 and December 31, 1994 and for the three
months in the periods ended March 31, 1995 and 1994. Amounts for all periods
presented include the accounts of the following individually significant
investees (the Corporation's ownership interests therein are shown
parenthetically): MK Gold Company (46.4%); Strait Crossing Development, Inc.
(36%); AmerBank (29.5%); Westmoreland Resources, Inc. (24%) and
Mitteldeutsche Braunkohlengesellschaft mbH ("MIBRAG mbH") (33%) except as
noted in (1) below.
(UNAUDITED) DECEMBER 31,
FINANCIAL POSITION AT MARCH 31, 1995(1) 1994
- ------------------------------------------------------------------------------
Current assets $ 344,376 $ 446,260
Non-current assets 609,142 494,560
Current liabilities (196,348) (241,174)
Long-term debt (85,703) (75,455)
Other non-current liabilities (460,146) (440,987)
- ------------------------------------------------------------------------------
Net assets $ 211,321 $ 183,204
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Corporation's investment in and advances to
unconsolidated affiliates $ 41,640 $ 71,382
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
RESULTS OF OPERATIONS (UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1995 1994
- ------------------------------------------------------------------------------
Revenue $145,638 $18,335
Operating income 17,228 1,705
Net income 16,758 881
- ------------------------------------------------------------------------------
Corporation's equity in net income of
unconsolidated affiliates $ 3,186 $ 113
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<FN>
(1) As of March 31, 1995 the assets and liabilities of MK Gold Company and
AmerBank are not included in the summarized financial position of the
unconsolidated affiliates since the Corporation has included the carrying
amounts of its investments therein in "Assets of subsidiaries and investments
held for sale" in the balance sheet at March 31, 1995. The results of
operations of MK Gold Company and AmerBank for the three months in the
periods ended March 31, 1995 and 1994 are included in the summarized results
of operations of unconsolidated affiliates.
Effective January 1, 1994, the Corporation and two nonaffiliated investors
acquired majority ownership of MIBRAG mbH from the German government, subject
to several contingencies. Because of the existing contingencies at March 31,
1994 the Corporation did not reflect its share of equity in the net income of
MIBRAG mbH for the three months ended March 1994 in its 1994 first quarter
results of operations. During the second quarter of 1994, the contingencies
were favorably resolved and accordingly, the Corporation recorded its $5,600
share of equity in the net income of MIBRAG mbH for the six months ended June
1994 in its 1994 second quarter results of operations.
I-11
7. SHORT-TERM DEBT
Short-term debt at March 31, 1995 and December 31, 1994 consisted of the
following:
(UNAUDITED) DECEMBER 31,
MARCH 31, 1995 1994
- ------------------------------------------------------------------------------
Unsecured revolving credit borrowings,
interest rates of 9% in 1995 and 6.5%
in 1994 $146,000 $139,000
Commercial paper, interest rate of 6.1%
in 1994 -- 19,765
Secured loans, interest rates of 6.9% in
1995, 6.7% in 1994 72,100 12,100
Other unsecured borrowings, interest rates
of 7.5% to 9.3% in 1995, 6.4% to 10.5%
in 1994 78,600 21,287
- ------------------------------------------------------------------------------
Total short-term debt $296,737 $192,152
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
The weighted average interest rates on short-term borrowings outstanding of
$296,737 at March 31, 1995 and $192,152 at December 31, 1994 were 8.4% and
6.6%, respectively.
NEW CREDIT FACILITY: On April 11, 1995, the Corporation and its current
lender banks entered into a New Credit Facility under which certain of the
lender banks provided secured loans of $110,000. The Facility included
establishment of $50,000 in new borrowing capacity and absorption of an
existing $60,000 accounts receivable purchase agreement. The New Credit
Facility also waived until May 31, 1995, non-compliance with various
financial covenants under the unsecured revolving credit agreements under
which $146,000 has been borrowed as of the date of this Quarterly Report on
Form 10-Q. Interest on the outstanding unsecured revolving credit borrowings,
equal to the prime rate (9% at June 30, 1995), is generally payable on the
last day of each month. On April 25, 1995 the New Credit Facility was amended
to include an additional accounts receivable facility of $12,100. The
$122,100 outstanding under the New Credit Facility was due and payable on May
31, 1995. Effective June 1, 1995, the New Credit Facility was amended to (i)
extend the loan termination date and the waivers from May 31, 1995 to July
31, 1995 and (ii) require the Corporation to repay $31,200 of the secured
loans by July 31, 1995. The Corporation repaid $31,200 by June 30, 1995.
Interest on the outstanding $122,100 secured loans, equal to the prime rate
plus three percent per annum (12% at June 30, 1995), is payable on the last
day of each month and on July 31, 1995. The New Credit Facility specifies
certain events of default. These events of default arise upon the occurrence
of, among other things, (i) the Corporation's failure to pay amounts owing
under the secured loans (ii) breaches of covenants, representations and
warranties and (iii) other events that customarily constitute events of
default under loan agreements similar to the secured loans.
The Corporation announced on June 30, 1995 that it had reached a preliminary
understanding with the bank group steering committee representing its lenders
under the Corporation's secured and unsecured credit facilities. The
preliminary agreement, which still must be approved by all of the
Corporation's lenders, would provide $30,000 in new borrowing capacity
together with cash proceeds from the future sales of certain non-core
businesses and investments and would extend through December 31, 1996 with
several partial repayments required during this period. The Corporation
believes the bank arrangement will provide sufficient liquidity until the
latter part of 1996 when a substantial recapitalization through an equity
infusion or new debt will be required. The preliminary agreement contemplates
the issuance of common stock warrants to the bank group.
I-12
8. OTHER INCOME (EXPENSE), NET
Other income (expense) items for the three months in the periods ended March
31, 1995 and 1994 are as follows:
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1995 1994
- ------------------------------------------------------------------------------
Interest and dividends $ 4,341 $ 1,652
Net gains on sales of marketable securities 208 1,564
Write-down of carrying amount of asset held
for sale (3,209) --
Loss on sales of receivables -- (1,656)
Underwriting income (expense) of insurance
subsidiary, net (160) 2,979
Miscellaneous income (expense), net (1,472) (1,207)
- ------------------------------------------------------------------------------
Other income (expense), net $ (292) $ 3,332
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS: The Corporation and several of its current and former
officers and the Corporation's auditors were named as defendants in lawsuits
asserted by certain stockholders who claim to represent a class of
stockholders that purchased shares of the Corporation's common stock between
October 15, 1993 and March 20, 1995 (the "MK Securities Class Actions").
These class action complaints, which were first filed on July 28, 1994,
purport to present claims under federal and state securities and other laws
and seek equitable relief and unspecified damages for losses resulting from
alleged improper disclosures during the class periods. The Corporation, MK
Rail, several of MK Rail's officers and directors, and the managing
underwriters of MK Rail's initial public offering were named as defendants in
lawsuits asserted by stockholders who claim to represent a class of
stockholders that purchased shares of MK Rail's common stock between April
26, 1994 and September 29, 1994 (the "MK Rail Securities Class Actions"). The
complaints, which were first filed on October 20, 1994,purport to present
claims under the federal securities laws and seek equitable relief and
unspecified damages for losses resulting from, among other things, alleged
improper disclosures during the class period. Certain of the Corporation's
current and former directors and officers have been named as defendants in
thirteen derivative actions which have been filed in state courts in Idaho
and Delaware between February 13 and June 2, 1995. The Corporation is a
nominal defendant in each of these actions. Plaintiffs assert that the
defendants authorized or acquiesced in wrongful conduct on the part of the
Corporation's former chairman and failed to properly supervise his
activities, and also allege waste of corporate assets through payment of
excessive compensation.
Settlement discussions have resulted in preliminary agreements as to the
principal economic terms to settle the foregoing litigation. The preliminary
agreements will be followed by formal settlement documentation, and the
settlement will be submitted for approval by the appropriate courts.
Effective December 1994, the Corporation recognized an aggregate pretax
charge of $25,000 for the estimated costs of the settlement. However, there
can be no assurance that all the parties to the preliminary agreements will
agree on the terms of the final settlement or that such final settlement will
be approved by the appropriate courts. Although the Corporation has recorded
its estimate of the minimum liability, the ultimate outcome of the litigation
cannot presently be determined. Accordingly, no provision for additional loss
that may result upon resolution of this matter has been made in the
consolidated financial statements. See Note 10. "Subsequent Events --
Litigation Settlement".
On February 7, 1995 the Corporation was named a defendant in lawsuits by
former stockholders of Touchstone. The plaintiffs allege that certain
financial statements of the Corporation, upon which they based their decision
to exchange their shares for shares of common stock of the Corporation, were
misleading. The plaintiffs purport to state claims for violation of federal
and state securities laws and also assert certain common law and contractual
claims. The Touchstone actions are at a preliminary state of proceedings and
accordingly, the outcome cannot be predicted with any certainty. As a result,
the Corporation cannot make a determination if the affects of the Touchstone
actions will have a material adverse affect on the Corporation's financial
position.
The Corporation is a defendant in a number of other legal actions of the type
normally associated with the Corporation's business and involving claims for
damages. The Corporation is of the opinion that such actions will not result
in any material adverse effect on the Corporation's financial position.
I-13
LETTERS OF CREDIT: The Corporation was contingently liable, in the normal
course of business, for $357,000 in standby and financial letters of credit
not reflected in the accompanying financial statements at March 31, 1995 for
contract performance guarantees on a number of Engineering and Construction
and Transit segments contracts.
DISCONTINUED SHIPBUILDING OPERATIONS: In April 1989, the Corporation sold its
interest in National Steel and Shipbuilding Company ("NASSCO") and in June
1994, the Corporation renegotiated and amended the April 1989 sale agreement
with NASSCO. Under the terms of the amended agreement the Corporation will
provide NASSCO a $21,000 credit facility continuing for a period of three
years after completion of a U.S. Navy contract, expected in mid 1996, and
NASSCO will relinquish its right to require the Corporation to accept
repayment in NASSCO preferred stock for any balance outstanding under the
credit facility. At March 31, 1995, NASSCO had no balance outstanding under
the Corporation's credit facility.
At March 31, 1995, the Corporation was contingently liable up to a maximum of
$21,000 on a bank credit facility obtained by NASSCO. The balance outstanding
under NASSCO's bank credit facility at March 31, 1995 was $21,000. The
Corporation's credit facility is reduced by the amount of funds borrowed
under NASSCO's bank credit facility. The Corporation has also guaranteed
$21,000 of NASSCO's port facility bonds until not later than December 1,
2002, and guaranteed $1,860 of NASSCO's federal workers' compensation bonds.
NASSCO's floating dry dock is pledged as collateral for the $21,000 port
facility bonds.
DISCONTINUED REAL ESTATE OPERATIONS: At March 31, 1995, the Corporation was
contingently liable for $30,980 of bank loans in connection with commercial
real estate operations discontinued in 1987. Net assets of the real estate
operations of Emkay Development Company, Inc. ("Emkay"), a subsidiary of the
Corporation, are included in the accompanying balance sheets under the
caption"Other investments and assets" and consist of:
(UNAUDITED) DECEMBER 31,
FINANCIAL POSITION AT MARCH 31, 1995 1994
- ------------------------------------------------------------------------------
Notes and interest receivable $ 25,257 $ 25,504
Properties held for sale 4,787 5,920
Other assets, net 2,664 2,853
Unsecured bank loans, 8.75% at March 31, 1995
and 6.4% and 6.9% at December 31, 1994 (30,980) (31,078)
- ------------------------------------------------------------------------------
Net assets $ 1,728 $ 3,199
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
The notes receivable are due at various dates from 1995 through 1999 at
interest rates ranging from 6.4% to 6.9%. Most of the notes are
collateralized by deeds of trust.
On March 31, 1995, Emkay failed to make a scheduled $5,000 payment under one
of two unsecured loan agreements with banks. The Corporation and the banks
have reached a Forbearance Agreement which, among other things, provides for
the waiving of existing defaults resulting from the nonpayment of the $5,000
owed under the loan agreement and the granting to the banks of security
interests and mortgages in all of Emkay's real estate and other assets, and
the repayment of the outstanding loan balance by June 30, 1996. Interest on
the outstanding secured loans, equal to the prime rate (9% at June 30, 1995),
is payable on the last day of each month.
10. SUBSEQUENT EVENTS
LITIGATION SETTLEMENT: Preliminary agreements as to the principal economic
terms of a settlement of securities class actions and derivative actions were
reached in June 1995, subject, among other things, to approval by the
appropriate courts. The $69,000 settlement will include payment of cash and
the issuance of stock. The $40,000 cash settlement will be paid by the
Corporation's and MK Rail's insurers. The Corporation and MK Rail will issue
new common and preferred stock in the amounts of $25,000 and $4,000,
respectively, based on predetermined stock prices. Effective December 1994,
the Corporation recognized an aggregate pretax charge of $25,000 for the
estimated costs of the settlement. The estimated liability for the $25,000
settlement is included in the balance sheet at December 31, 1994 as a
non-current liability. Assuming court approval and issuance of the stock, the
$25,000 will be reflected in stockholders' equity. However, there can be no
assurance that all the parties to the preliminary agreements will agree on
the terms of the final settlement or that such final settlement will be
approved by the appropriate courts. Although the Corporation has recorded its
estimate of the minimum liability, the ultimate outcome of the litigation
cannot presently be determined. Accordingly, no provision for additional loss
that may result upon resolution of this matter has been made in the
consolidated financial statements. This
I-14
settlement does not include the two actions brought by the former
stockholders of Touchstone and a derivative action that was filed on June 2,
1995. See Note 9. "Commitments and Contingencies -- Legal Proceedings".
MK RAIL INTERCOMPANY AGREEMENT: On June 15, 1995, the Corporation entered
into an intercompany agreement with MK Rail regarding the amount of
intercompany indebtedness owed by MK Rail to the Corporation and certain
other matters. The agreement will result in the Corporation reducing the
intercompany receivable from MK Rail through a capital contribution of
$29,500 to be recorded in 1995. The remaining balance of the intercompany
receivable of $52,200 will be converted into a note, with interest at the
prime rate, due in 2000 with earlier repayments under certain default and
change-of-interest conditions. The outstanding balance of the intercompany
debt would be due and payable in full upon the acquisition of all of the
common stock or substantially all of the assets of MK Rail by a third party.
The estimated loss on sale of MK Rail recognized at March 31, 1995 includes
the effect of this additional capital contribution to MK Rail.
MORRISON KNUDSEN CORPORATION OF AUSTRALIA, LTD.: Effective July 1, 1995, the
Corporation, subject to the approval of the Australian governmental
authorities, acquired MK Rail's ownership interest in Morrison Knudsen
Corporation of Australia, Ltd. ("MKA") for $3,000 in preferred stock of MKA.
MK RAIL CREDIT FACILITY: In June and July 1995, MK Rail completed (i) a
$30,000 credit facility for MK Gain S.A. de C.V., its Mexican subsidiary,
which will use the proceeds over a three-year period to fund the purchase of
U.S.-manufactured locomotive parts and (ii) received a financing commitment
for a domestic revolving credit facility of up to $75,000. The credit
facility will be used to refinance MK Rail's existing $50,000 revolving
credit facility and to provide additional working capital for its domestic
operations. Prior to closing, the transaction is subject to numerous
conditions, including the completion of negotiations and execution of
definitive loan agreements.
I-15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1994
REVENUE OPERATING INCOME (LOSS)
THREE MONTHS ENDED MARCH 31, 1995 1994 1995 1994
- ------------------------------------------------------------------------------
Engineering and construction $415,960 $456,121 $ 7,746 $10,424
Transit 101,212 5,673 (1,670) (1,162)
- ------------------------------------------------------------------------------
$517,172 $461,794 $ 6,076 $ 9,262
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
ENGINEERING AND CONSTRUCTION: E&C's revenue for the first quarter of 1995 was
$416.0 million a decrease of $40.2 million compared to the same period of
1994 reflecting the decline in new work booked in prior periods.
E&C reported a $7.7 million operating income in the first quarter of 1995
compared to a $10.4 million operating income in the comparable period of
1994. The decrease stems from (i) a decline in 1995 revenue (ii) completion
of several significant and profitable contracts in 1994 and (iii) $1.1
million increase in indirect engineering and construction costs in 1995
including legal costs incurred in the pursuit of additional claim revenue. In
addition, operating income in 1995 was favorably affected by a $3.3 million
increase in additional revenue from a negotiated claim settlement.
TRANSIT: Transit's revenue for the first quarter of 1995 was $101.2 million
an increase of $95.5 million compared to the same period of 1994. The
increase was due to the higher volume of new transit car deliveries for the
first three months of 1995.
NUMBER OF TRANSIT CARS
-----------------------------------------------------------------
SHIPPED SHIPPED DURING REMAINING IN
UNDER THROUGH THREE MONTHS ENDED BACKLOG AT
NEW TRANSIT CAR CUSTOMER CONTRACT DEC. 31, 1994 MARCH 31, 1995 MARCH 31, 1995
Metro North Commuter Railroad 48 (12) (15) 21
Illinois Metra Authority 173 (3) (3) 167
National Railroad Passenger
Corporation 50 -- -- 50
Bay Area Rapid Transit District 80 (1) (13) 66
California Department of
Transportation 113 -- (8) 105
- ------------------------------------------------------------------------------------------------
TOTAL NEW TRANSIT CARS 464 (16) (39) 409
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Transit reported a $1.7 million operating loss in the first quarter of 1995
compared to a $1.2 million operating loss in the comparable period of 1994.
The 1995 operating loss stems entirely from the recognition of
non-manufacturing indirect overhead costs and expenses and not from contract
performance. In 1994 the Transit segment recognized $198.0 million of pretax
charges to operating income for anticipated cost overruns on fixed-price new
transit car contracts in the early stages of production which are anticipated
to be manufactured and delivered in 1995 and 1996.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses for
the first quarter of 1995 increased $1.9 million or 22% compared to the same
period of 1994. The increase is due to substantial non-recurring pretax
expenses of $6.9 million for legal and other professional fees associated
with pending litigation and financial restructuring offset by allocations of
centralized common-services costs to segment operations.
INTEREST EXPENSE: Interest expense for the first quarter of 1995 increased
$4.9 million from $.6 million in the same period of 1994. The significant
increase reflects the advance in short-term debt outstanding from $59.8
million at March 31, 1994 to $296.7 million at March 31, 1995, at a weighted
average cost of borrowing for 1995 of 8.34% compared to 4.2% for 1994.
I-16
OTHER INCOME (EXPENSE), NET: As presented in Note 8. "Other Income (Expense),
Net", the rise in expenses for the quarter ended March 31, 1995 compared to
the same period of 1994 is primarily due to the recognition of $3.2 million
estimated loss in connection with write-down of the carrying amount of an
asset held for sale to its estimated net realizable value.
EQUITY IN NET INCOME (LOSS) OF UNCONSOLIDATED AFFILIATES: The Corporation's
share of unconsolidated affiliates' income increased from $.1 million in the
first quarter of 1994 to $3.2 million in the comparable quarter of 1995. The
increase is due to the recognition by the Corporation of its $4.1 million
equity in the net income of MIBRAG mbH. Although MIBRAG mbH was acquired
effective January 1, 1994, the Corporation deferred recognition of its equity
in the net income of MIBRAG mbH for the first quarter of 1994 until certain
contingencies existing at March 31, 1994 were resolved in the second quarter
of 1994. See Note 6. "Investments in and Advances to Unconsolidated
Affiliates".
GAIN ON SUBSIDIARY SALE OF STOCK: Under an option granted by MK Gold Company
to their initial-public-offering underwriters in December 1993, MK Gold sold
additional shares of its stock in January 1994. The Corporation recognized a
pretax gain of $1.3 million with respect to such shares, because MK Gold's
public offering price per share exceeded the Corporation's carrying value per
share.
DISPOSITION OF INVESTMENTS IN AFFILIATES: The $6.8 million net loss on
disposition of investments in affiliates for the first quarter of 1995
consisted of a pretax gain of $10.0 million in connection with the sale of a
McConnell Dowell subsidiary, offset by a pretax loss provision of $9.3
million in connection with the Corporation's sale in June 1995 of its
remaining ownership interest in MK Gold Company and a pretax loss provision
of $7.5 million to write-down the carrying amount of its investment in MK
Investments, Inc. (North Pacific construction operations). The $4.9 million
net gain on disposition of investments in affiliates for the first quarter of
1994 resulted from the Corporation's sale of a portion of its ownership
interest in Strait Crossing Development, Inc. See Note 3. "Disposition of
Investments in Affiliates".
INCOME TAX EXPENSES: The Corporation recognized tax expense for the first
quarter of 1995 of $1.4 million consisting only of estimated foreign and
state income taxes relating to certain jurisdictions in which the Corporation
had net taxable income. The Corporation did not provide any tax benefit in
1995 because management could not predict with reasonable certainty the
amount of such benefit which would be realized from future taxable income.
Income taxes provided in the first quarter of 1994 was based upon an
estimated annual effective tax rate of 40.0% which was slightly lower than
the Corporation's blended statutory tax rate of 40.85% because of anticipated
utilization of foreign tax credits to offset U.S. income taxes.
DISCONTINUED OPERATIONS: In connection with its decision to sell MK Rail, the
Corporation recorded a loss from discontinued operations of $31.4 million,
without providing any future tax benefit. The loss includes (i) a $25.5
million write-down of the Corporation's carrying value of its investment in
MK Rail to estimated net realizable value based upon information available in
the circumstances and (ii) an estimated $5.9 million provision for the
Corporation's share of MK Rail's net operating loss of $5.3 million for the
three months ended March 31, 1995 and estimated net operating loss until the
expected time of disposal.
Consistent with the presentation of MK Rail as a discontinued operation, the
Corporation's share of MK Rail's results of operations for the three months
ended March 31, 1994 have been segregated and reported as discontinued
operations in the statements of operations.
I-17
FINANCIAL CONDITION
Liquidity and capital resources (THOUSANDS OF DOLLARS) March 31,
-------------------
1995 1994
CASH AND CASH EQUIVALENTS:
Beginning of period $65,088 $80,108
End of period 77,180 82,005
THREE MONTHS ENDED
March 31,
-------------------
1995 1994
NET CASH PROVIDED (USED) BY:
Operating activities $(88,308) $ 389
Investing activities 18,585 (8,766)
Financing activities 105,467 10,274
Total capitalization at March 31, 1995 was $313.8 million, and consisted of
$298.1 million debt and $15.7 million equity compared to total capitalization
at December 31, 1994 of $264.3 million, which consisted of $201.4 million
debt and $62.9 million equity.
Net cash of $88.3 million was used for continuing operations in the first
quarter of 1995. The $88.3 million consisted of an increase in accounts
receivable at March 31, 1995 of $60.0 million. These accounts receivable were
sold at December 31, 1994, cancelled effective March 31, 1995, and
subsequently absorbed into the new bank credit facility on April 11, 1995. In
addition, approximately $24.0 million of cash was used to fund cost overruns
on fixed-price contracts including approximately $15.1 million for Transit,
which cost overruns had been fully reserved in prior periods.
Net cash provided by investing activities in the first quarter of 1995 of
$18.6 million arose substantially from (i) $8.2 million net proceeds from
sales less purchases of securities available for sale and (ii) $10.0 million
proceeds from the sale of McConnell Dowell's ownership interest in Benjamin
Developments, Ltd. Net cash used by investing activities in the first quarter
of 1994 of $8.8 million stemmed from (i) $6.4 million net acquisition of
property and equipment and (ii) $2.4 million net investment in and advances
to unconsolidated affiliates. See Note 3. "Disposition of Investments in
Affiliates".
Net cash provided by financing activities in the first quarter of 1995 of
$105.5 million included $111.6 million additional borrowings under bank
credit agreements and the payment of the fourth quarter dividend of $6.1
million.
LIQUIDITY
As of July 27, 1995, the Corporation had available cash and credit of $44.5
million for working capital requirements. The Corporation expects significant
negative cash flow from operations during 1995, due primarily to the funding
of the losses recognized in 1994 for the Transit segment, interest cost on
bank debt and legal and professional service fees in connection with the
Corporation's financial restructuring. Cash has been generated from the sales
of non-core businesses, including MK Gold Corporation which was sold in June
1995 for $22.5 million cash and Western Aircraft, Inc. which was sold in July
1995 for $4.9 million cash. During the second half of 1995, planned sales of
other non-core business units, including MK Rail Corporation, McConnell
Dowell and North Pacific construction operations and the investment in
AmerBank are, if consummated, expected to generate significant cash which is
required to be used to pay down bank debt. No assurance can be given as to
the amount or timing of the proceeds from such sales.
On April 11, 1995, the Corporation and certain current lenders entered into a
New Credit Facility under which the lenders provided secured loans of $110.0
million and waived conditions of default under its unsecured credit
agreements through May 31, 1995. The agreement established $50.0 million of
new credit capacity and the absorption of an existing $60.0 million accounts
receivable facility. On April 25, 1995 the Facility was amended to include an
additional accounts receivable facility of $12.1 million. The $122.1 million
outstanding under the secured loans was due and payable on May 31, 1995. On
June 14, 1995, a second amendment was signed which extended the maturity date
and waivers to July 31, 1995. Interest on the outstanding balance under the
New Credit Facility accrues at prime plus three percent, (12% at June 30,
1995) and is payable on the last day of each month. Interest on the unsecured
loans, equal to the prime
I-18
rate, currently 9%, is generally payable on the last day of each month. The
banks have not agreed to fund any additional operating cash flow
requirements. The Corporation repaid $31.2 million by June 30, 1995.
The Corporation announced on June 30, 1995 that it had reached a preliminary
understanding with the bank group steering committee representing its lenders
under the Corporation's secured and unsecured credit facilities. The
preliminary agreement, which still must be approved by all of the
Corporation's lenders, would provide $30,000 in new borrowing capacity
together with cash proceeds from the future sales of certain non-core
businesses and investments and would extend through December 31, 1996 with
several partial repayments required during this period. This preliminary
agreement is conditioned upon a number of matters, including the resolution
of certain matters relating to liabilities associated with the Transit
segment and formal approval of the lenders.
In addition, in July 1995, the Corporation reached a preliminary agreement
("transit agreement") with its surety-syndicate-manager and letter-of-credit
banks ("LC banks") to minimize the Transit segment's anticipated cash flow
deficiency. The transit agreement contemplates, among other matters, the
sharing of Transit's cash flow deficiency between the Corporation and its
surety syndicate and LC banks, including limits on the Corporation's funding
requirements and participation in future operating losses.
These preliminary agreements contemplate that ongoing indebtedness of the
Corporation to the banks and its surety syndicate will be secured and the
Corporation will grant stock purchase warrants for unissued common stock up
to approximately one-third of its outstanding common stock.
In conjunction with these preliminary agreements the Corporation would also
receive some level of new bonding capacity.
The Corporation believes these preliminary agreements with its banks and
surety syndicate will provide sufficient liquidity until the latter part of
1996 when a substantial recapitalization through an equity infusion or new
debt will be required. Unless the Corporation is able to finalize these
preliminary agreements or obtain alternative sources of cash, the Corporation
may, among other alternatives, seek protection from its creditors under the
United States Bankruptcy Code. The Corporation believes that, in such
circumstances, the ability, if any, of its stockholders to recover their
investments would be significantly impaired and that any such recovery, if
available, would be substantially delayed.
I-19
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
FILED IN PART I
None
FILED IN PART II
Exhibit 27-Financial Data Schedule
(b) Reports on Form 8-K
The Registrant filed current reports on Form 8-K to report
(i) on February 1, 1995 the elimination of its quarterly
dividend, the retirement of William J. Agee as Chief Executive
Officer, the election of William P. Clark as Acting
Chairman of the Board and that the Registrant anticipated a
substantial net loss of approximately $175 million for the
year 1994 (ii) on March 6, 1995 announced the possible
dispositions of certain of its non-core businesses and other
equity investments, the election of Robert A. Tinstman as a
Director and President and Chief Executive Officer and
(iii) on March 20, 1995 announced an increase to the
previously announced preliminary unaudited net loss for 1994
to approximately $310 million, and the resignation of Acting
Chairman William P. Clark and Director Zbigniew Brzezinski.
All other items required under Part II are omitted because they are not
applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MORRISON KNUDSEN CORPORATION
/S/M.E. Howland
---------------------------------------
Vice President and Controller and
Principal Accounting Officer, in his
respective capacities as such
Date: July 31, 1995
I-20