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
JUNE 30, 1995
Commission File Number 1-8889
[LOGO] 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 June 30, 1995, 33,053,754 shares of the registrant's common stock were
outstanding (excluding 436,910 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.
/X/ Yes / / No
MORRISON KNUDSEN CORPORATION
QUARTERLY REPORT FORM 10-Q FOR THE
THREE MONTH PERIOD ENDED JUNE 30, 1995
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Consolidated Condensed Financial Statements and Notes Thereto
Statements of Operations for the Three and Six Month
Periods Ended June 30, 1995 and 1994 I-1
Balance Sheets at June 30, 1995 and December 31, 1994 I-2
Statements of Cash Flows for the
Six Month Periods Ended June 30, 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-17
PART II.OTHER INFORMATION
Item 1. Legal Proceedings II-1
Item 6. Exhibits and Reports on Form 8-K II-2
Signatures II-3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MORRISON KNUDSEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1994 (UNAUDITED)
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ----------------------------
1995 1994 (a) 1995 1994 (a)
Revenue $ 633,848 $ 517,308 $ 1,151,020 $ 979,102
Cost of revenue (623,104) (589,091) (1,134,200) (1,041,246)
- -------------------------------------------------------------------------------------------------------------------------
Operating income (loss) from continuing operations 10,744 (71,783) 16,820 (62,144)
General and administrative expenses (15,165) (8,249) (25,784) (16,974)
Interest expense (9,008) (1,219) (14,439) (1,794)
Other income (expense), net 2,005 (4,259) 1,713 (49)
Equity in net income of unconsolidated affiliates 1,724 4,774 4,910 4,887
Gain (loss) on disposition of investments in affiliates, net (1,282) (13,828) (8,098) (8,951)
- -------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations before income
taxes and minority interests (10,982) (94,564) (24,878) (85,025)
Income tax (expense) benefit (902) 37,910 (2,339) 34,173
Minority interests in net (income) loss of subsidiaries (504) (66) (5,055) 1,349
- -------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations (12,388) (56,720) (32,272) (49,503)
Discontinued operations of MK Rail:
Net income (loss) of discontinued operations - 1,825 (5,935) 4,260
Estimated loss on sale, including disposal costs - - (25,500) -
Gain on MK Rail's sale of stock (less applicable
income taxes of $9,600) - 14,429 - 14,429
- -------------------------------------------------------------------------------------------------------------------------
Net loss $ (12,388) $ (40,466) $ (63,707) $ (30,814)
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share:
Continuing operations $(.37) $(1.74) $ (.98) $(1.53)
Discontinued operations - .50 (.95) .58
- -------------------------------------------------------------------------------------------------------------------------
Net loss $(.37) $(1.24) $(1.93) $ (.95)
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Common shares used to compute earnings (loss) per share 33,042,000 32,550,800 32,954,000 32,363,500
Dividends declared per share $ - $ .20 $ - $ .40
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
<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 JUNE 30, 1995 (UNAUDITED) AND DECEMBER 31, 1994
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
ASSETS 1995 1994 (a)
- ----------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 72,877 $ 65,088
Accounts receivable including retentions of $37,014 and $45,386 181,201 209,564
Unbilled receivables 117,342 124,468
Refundable federal income taxes, net 7,189 20,607
Inventories, net of advances of $240,322 and $293,697 90,750 152,053
Investments in and advances to construction joint ventures 11,670 12,854
Deferred income taxes 53,366 63,437
Assets of subsidiaries and investments held for sale 189,342 -
Net assets of discontinued MK Rail operations 127,184 147,521
Other 15,410 24,300
- ----------------------------------------------------------------------------------------------------
Total current assets 866,331 819,892
- ----------------------------------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
Securities available for sale, at fair value 21,825 25,101
Investments in and advances to unconsolidated affiliates 42,805 71,382
Goodwill and other intangibles, net 4,476 18,288
Other investments and assets 27,536 37,694
- ----------------------------------------------------------------------------------------------------
Total investments and other assets 96,642 152,465
- ----------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, AT COST
Land and mineral rights 10,507 18,402
Buildings and improvements 96,647 116,106
Machinery and equipment 36,033 44,105
Construction equipment 135,614 190,807
- ----------------------------------------------------------------------------------------------------
Total property and equipment 278,801 369,420
LESS ACCUMULATED DEPRECIATION (179,173) (223,585)
- ----------------------------------------------------------------------------------------------------
Property and equipment, net 99,628 145,835
- ----------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,062,601 $1,118,192
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<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 $ 307,617 $ 192,152
Accounts payable including retentions of $19,094 and $29,348 153,643 233,240
Accrued salaries, wages and benefits 45,359 43,663
Accruals for estimated losses on uncompleted contracts 75,327 146,796
Other accrued liabilities 67,785 57,274
Billings in excess of costs and earnings on uncompleted contracts 82,994 98,415
Advances from customers 90,784 156,817
Liabilities of subsidiaries held for sale 124,529 -
- ----------------------------------------------------------------------------------------------------
Total current liabilities 948,038 928,357
- ----------------------------------------------------------------------------------------------------
NON-CURRENT LIABILITIES
Deferred income taxes 18,713 22,203
Deferred compensation 13,582 18,001
Deferred income 8,988 11,082
Accrued workers' compensation insurance 15,937 11,026
Accrued postretirement benefit obligation 27,035 26,710
Debt due after one year 1,400 9,273
Accrued litigation settlement 25,000 25,000
- ----------------------------------------------------------------------------------------------------
Total non-current liabilities 110,655 123,295
- ----------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 1 and 9)
- ----------------------------------------------------------------------------------------------------
MINORITY INTERESTS IN SUBSIDIARIES - 3,647
- ----------------------------------------------------------------------------------------------------
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 270,629 272,594
Retained deficit (311,916) (248,209)
Treasury stock, 436,910 and 626,434 shares, at cost (7,467) (11,116)
Unearned compensation - restricted stock (2,304) (2,345)
Cumulative translation adjustments (1,236) (3,270)
Net unrealized holding gain (loss) on securities available for sale 384 (579)
- ----------------------------------------------------------------------------------------------------
Total stockholders' equity 3,908 62,893
- ----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,062,601 $1,118,192
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
I-3
MORRISON KNUDSEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTH PERIODS ENDED JUNE 30, 1995, AND 1994 (UNAUDITED)
(THOUSANDS OF DOLLARS)
1995 1994 (a)
- -----------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net (loss) $(63,707) $ (30,814)
Adjustments to reconcile net 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 11,309 8,951
Depreciation and amortization 15,861 18,694
Gains on subsidiaries sales of stock - (25,284)
Equity in net income of unconsolidated subsidiaries (4,910) (4,887)
Increase in working capital from cancellation
of accounts receivable sales (60,000) -
Other changes in working capital, net (55,714) (33,221)
Increase (decrease) in other assets and liabilities, net 14,281 (14,752)
- -----------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (117,380) (81,313)
- -----------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Property and equipment acquisitions (10,824) (21,481)
Property and equipment disposals 8,120 13,942
Purchase of securities available for sale (11,339) -
Proceeds from securities available for sale 15,664 -
Proceeds from sales of investments in affiliates 32,494 -
Investments in and advances to unconsolidated affiliates 1,030 (7,653)
Other investing activities 714 187
- -----------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 35,859 (15,005)
- -----------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Borrowing (repayments) under credit agreements and short-term debt, net
including $60,000 from cancellation of accounts receivable sales in 1995 121,096 121,459
Borrowings of long-term debt - 10,739
Payments of long-term debt - (66)
Proceeds from stock issued - 496
Dividends paid (6,164) (19,215)
- -----------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 114,932 113,413
- -----------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (466) -
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents of businesses held for sale (25,156) -
- -----------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 7,789 17,095
Cash and cash equivalents at beginning of period 65,088 80,108
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 72,877 $ 97,203
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
OTHER CASH FLOW INFORMATION FOR CONTINUING AND DISCONTINUED OPERATIONS
Interest paid $ 17,613 $ 3,965
Income taxes paid (refunded), net (21,121) (12,096)
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 (UNAUDITED)
(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
and six month periods ended June 30, 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, and June 30, 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 and six month periods ended June 30, 1995. The assets and liabilities of
MK Rail have been segregated on the consolidated balance sheet at June 30, 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 have
been restated to present MK Rail as a discontinued operation. 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 annual
financial statements 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 six month
period ended June 30, 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 $63,707 and $349,635 for the six
month period ended June 30, 1995 and year ended December 31, 1994,
respectively.
- - Net cash used by the Corporation's operating activities was $117,380 and
$142,536 for the six month period ended June 30, 1995 and year ended
December 31, 1994, respectively.
- - At June 30, 1995 and December 31, 1994 stockholders' equity was $3,908 and
$62,893, respectively, and included retained deficits of $311,916 and
$248,209 at June 30, 1995 and December 31, 1994, respectively.
- - At June 30, 1995 and December 31, 1994 there were working capital deficits
of $81,707 and $108,465, respectively.
- - The Corporation expects significant negative cash flow from operations in
1995 and will require additional funding to cover expected negative cash
flows.
I-5
The Corporation received bank waivers on certain covenant defaults under its
credit agreements, additional funding of $50,000 from its banks (of which
$31,200 was repaid prior to June 30, 1995) and received extensions of all the
bank credit agreements through July 31, 1995. On August 11, 1995, the
Corporation its bank lenders and sureties agreed as of July 31, 1995 to a
restructuring of the Corporation's existing indebtedness and the establishment
of new interim credit facilities, expiring September 1, 1995 to advance funds to
the Transit segment prior to its planned divestiture as a limited liability
company, anticipated by September 1, 1995. The restructuring provides for an
increase in the amount of the bridge loans from $122,100 to $129,000.
Outstanding borrowings under the bridge loans are due and payable on March 31,
1996. The restructuring agreements require the repayment of $100,000 of the
antecedent bank debt on September 30, 1996 and the balance payable on December
31, 1996. In addition to these required payments, the restructuring agreements
also provide for the Corporation to repay (i) net cash proceeds in excess of
$10,000 received from the sales of certain businesses and assets currently held
for sale, (ii) any prepayments or repayments received by the Corporation on the
$52,200 note receivable from MK Rail, and (iii) any tax refunds received.
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 fund 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.
The restructuring provides ongoing indebtedness of the Corporation to the lender
banks and its sureties to be secured and the Corporation will grant stock
purchase warrants to the lender banks and sureties for unissued common stock up
to 14,859,430 shares. In connection with the restructuring the Corporation would
also receive limited bonding capacity.
The Corporation believes that the funds available under the restructuring
agreements, together with the anticipated net proceeds from sales of businesses
and assets currently held for sale will provide sufficient liquidity until
September 1996 when the Corporation believes, a substantial recapitalization
through an equity infusion or new debt will be required. Unless the Corporation
is able to obtain alternative sources of cash to meet the mandatory interim
$100,000 repayment of the antecedent bank debt on September 30, 1996 required
under the restructuring, 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.
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" and Note 7. "Short-Term
Debt - New and Amended Credit Facilities".
- - Successfully resolve the stockholders' litigation. See Note 9. "Commitments
and Contingencies - Legal Proceedings" and Item 1. "Legal Proceedings" in
Part II of this Quarterly Report on Form 10-Q.
- - 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 repay or refinance the existing indebtedness.
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 of MK Rail as a discontinued operation,
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 have been restated to
present MK Rail as a discontinued operation. 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.
Summary results of operations for the discontinued MK Rail segment for the six
months in the periods ended June 30, 1995 and 1994 follows:
RESULTS OF OPERATIONS
FOR THE SIX MONTHS IN THE PERIODS ENDED JUNE 30, 1995 1994
- -----------------------------------------------------------------------------------------------
Revenue $139,073 $153,643
Operating income (loss) (3,866) 9,660
Net income (loss) (9,048)(1) 5,129
- -----------------------------------------------------------------------------------------------
Corporation's share of net income (loss) $ (5,881) $ 3,334
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
<FN>
(1) Included in the net loss for the six months ended June 30, 1995 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 operating loss from MKA's operations and a $2,800 loss on
sale of its ownership interest in MKA to the Corporation. See Note 10.
"Subsequent Events - Morrison Knudsen Corporation of Australia, Ltd."
The assets and liabilities of MK Rail adjusted to give effect to the estimated
fair value of the Corporation's ownership interest therein, have been segregated
on the consolidated balance sheets at June 30, 1995 and December 31, 1994. Such
amounts are summarized as follows:
JUNE 30, 1995 DECEMBER 31, 1994
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 2,674 $ 12,459
Accounts receivable 41,542 34,675
Unbilled receivables 1,254 11,393
Inventories 122,484 116,526
Other current assets 6,120 8,119
Property and equipment, net 70,128 71,426
Deferred income taxes 10,001 19,171
Goodwill and other intangibles, net 28,266 29,511
Prepaid lease cost 6,062 8,017
Short-term and current portion of long-term debt (458) (2,776)
Accounts payable (26,832) (31,133)
Accrued expenses and other accrued liabilities (26,585) (35,560)
Customer advances - (6,196)
Debt due after one year (50,081) (38,091)
Other non-current liabilities (13,089) (13,450)
Minority interests (41,750) (41,667)
Cumulative translation losses 5,538 5,097
Excess of investment in MK Rail over proportionate share of net assets 17,410 -
Accrual for estimated loss on sale (25,500) -
- -----------------------------------------------------------------------------------------------
Net assets of discontinued operations $ 127,184 $ 147,521
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
I-7
MK RAIL INTERCOMPANY AGREEMENT: On June 15, 1995, the Corporation entered into
an agreement with MK Rail regarding the amount of intercompany indebtedness owed
by MK Rail to the Corporation and certain other matters. The agreement resulted
in the Corporation reducing its receivable from MK Rail through a capital
contribution of $29,500. The remaining balance of $52,200 was 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 is 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 includes the effect of this
additional capital contribution to MK Rail.
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 investment in Amerbank, have been segregated on the
balance sheet at June 30, 1995 from their historical classifications to
separately identify them as held for sale. Such amounts are summarized as
follows:
JUNE 30, 1995
- -----------------------------------------------------------------------------------
Cash and cash equivalents $ 25,156
Accounts receivable 70,751
Unbilled receivables 20,183
Investments in and advances to construction joint ventures 9,078
Investments in and advances to unconsolidated affiliates 5,389
Property and equipment, net 34,132
Other assets 24,653
- -----------------------------------------------------------------------------------
Total assets $ 189,342
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Short-term and current portion of long-term debt $ 11,934
Accounts payable and accrued expenses 63,670
Accrued salaries and wages 1,599
Other accrued liabilities 6,514
Billings in excess of costs and earnings on uncompleted contracts 25,497
Deferred income taxes 3,634
Debt due after one year 1,330
Other long-term liabilities 1,397
Minority interests in subsidiaries 8,954
- -----------------------------------------------------------------------------------
Total liabilities $ 124,529
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
3. DISPOSITION OF INVESTMENTS IN AFFILIATES
DISPOSITIONS IN 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 loss on disposal of $9,256.
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 $8,836
to write-down the carrying value of its investment in MKI to its estimated fair
value based on the preliminary understanding.
I-8
DISPOSITIONS IN 1994
WRITE OFF OF INVESTMENT IN TEXAS TGV CORPORATION ("TEXAS TGV"): Texas TGV was
awarded a franchise in May 1991 to finance, construct and operate a high speed
rail system in Texas. Because Texas TGV failed to provide equity financing by
December 31, 1993 as required under the franchise agreement and since its
efforts to extend the deadline or to negotiate amendments to the franchise
agreement with the Texas High Speed Rail Authority in early 1994 were
unsuccessful, the Corporation abandoned the project and wrote-off its $13,828
investment in Texas TGV in June 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 June 30, 1995 and December 31, 1994 are
summarized as follows:
JUNE 30, 1995 DECEMBER 31, 1994
- --------------------------------------------------------------------------------------
Work in progress $ 220,263 $ 302,334
Raw materials 110,809 143,416
- --------------------------------------------------------------------------------------
Total inventories 331,072 445,750
Payments on account of work in progress (240,322) (293,697)
- --------------------------------------------------------------------------------------
Net inventories $ 90,750 $ 152,053
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
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 June 30, 1995 and
December 31, 1994 and for the six months in the periods ended June 30, 1995 and
1994.
FINANCIAL POSITION AT JUNE 30, 1995 DECEMBER 31, 1994
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 91,833 $ 124,627
Other current assets 107,937 143,521
Non-current assets 20,080 19,365
Property and equipment, net 35,891 32,299
Advances from customers (83,674) (88,214)
Other current liabilities (138,389) (213,295)
- -------------------------------------------------------------------------------------------------------------------
Net assets $ 33,678 $ 18,303
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Corporation's investment in and advances to construction joint ventures $11,670 $12,854
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1995 1994
- -------------------------------------------------------------------------------------------------------------------
Combined joint ventures, net:
Revenue $ 453,242 $584,623
Cost of revenue (434,724) 590,033
- -------------------------------------------------------------------------------------------------------------------
Operating income $ 18,518 $5,410
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Corporation's share, net:
Revenue $ 137,003 $ 169,938
Cost of revenue (126,463) (179,154)
- -------------------------------------------------------------------------------------------------------------------
Operating income (loss) $ 10,540 $ (9,216)(1)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
<FN>
(1)The Corporation recognized a net loss from its proportionate share of the
combined joint ventures' results of operations for the six month period ended
June 30, 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 June 30, 1995 and December 31, 1994 and for the six months in
the periods ended June 30, 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.
FINANCIAL POSITION AT JUNE 30, 1995 (1) DECEMBER 31, 1994
- -------------------------------------------------------------------------------------------------------------------
Current assets $ 330,820 $ 446,260
Non-current assets 624,798 494,560
Current liabilities (131,345) (241,174)
Long-term debt (85,427) (75,455)
Other non-current liabilities (524,252) (440,987)
- -------------------------------------------------------------------------------------------------------------------
Net assets $ 214,594 $ 183,204
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Corporation's investment in and advances to unconsolidated affiliates $42,805 $71,382
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1995(1) 1994
- -------------------------------------------------------------------------------------------------------------------
Revenue $377,169 $335,540
Operating income 10,168 20,499
Net income 17,847 17,504
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Corporation's equity in net income of unconsolidated affiliates $4,910 $4,887
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
<FN>
(1) As of June 30, 1995 the assets and liabilities of MK Gold Company and
AmerBank are not included in the summarized financial position of the
unconsolidated affiliates. On June 6, 1995 the Corporation sold its ownership
interest in MK Gold and in connection with its decision to sell its ownership
interest in AmerBank, the Corporation has included the carrying amount of its
investment in AmerBank in "Assets of subsidiaries and investments held for sale"
in the balance sheet at June 30, 1995. The results of operations of AmerBank for
the six months in the periods ended June 30, 1995 and 1994 are included in the
summarized results of operations of unconsolidated affiliates.
I-11
7. SHORT-TERM DEBT
Short-term debt at June 30, 1995 and December 31, 1994 consisted of the
following:
JUNE 30, 1995 DECEMBER 31, 1994
- -------------------------------------------------------------------------------------------------------------------
Secured antecedent bank debt, interest rates of
9% at June 30, 1995, 6.5% at December 31, 1994 $208,873 $139,000
Secured bridge loans, interest rates of 12% at June 30, 1995,
6.7% at December 31, 1994 84,104 12,100
Unsecured borrowings, interest rates of
7.5% to 12% at June 30, 1995, 6.4% to 10.5% at December 31, 1994 14,640 21,287
Commercial paper, interest rate of 6.1% at December 31, 1994 - 19,765
- -------------------------------------------------------------------------------------------------------------------
Total short-term debt $307,617 $192,152
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
The weighted average interest rates on short-term borrowings outstanding of
$307,617 at June 30, 1995 and $192,152 at December 31, 1994 were 10.4% and 6.6%,
respectively.
CREDIT FACILITY: On April 11, 1995, the Corporation and its current lender banks
entered into a Credit Facility under which certain of the lender banks provided
secured bridge loans of $110,000. The Facility included establishment of $50,000
in new borrowing capacity and absorption of a then existing $60,000 accounts
receivable purchase agreement. The Credit Facility also waived until May 31,
1995, non-compliance with various financial covenants under the unsecured
antecedent bank debt agreement. Interest on the outstanding unsecured antecedent
bank debt, 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 Credit Facility was amended
to include an additional accounts receivable facility of $12,100. The $122,100
outstanding under the Credit Facility was due and payable on May 31, 1995.
Effective June 1, 1995, the 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 bridge loans by July 31,
1995. The Corporation repaid $31,200 prior to June 30, 1995. Interest on the
outstanding $122,100 secured bridge 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 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
bridge 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 bridge loans.
NEW AND AMENDED CREDIT FACILITIES: On August 11, 1995, the Corporation its bank
lenders and sureties agreed as of July 31, 1995 to (i) a restructuring of the
Corporation's existing indebtedness (ii) establishment of an interim Revolving
Credit Facility, expiring September 1, 1995, to advance funds of up to $15,000
with interest at the prime rate to the Transit segment to finance its operations
in connection with its Metra contract, and (iii) establishment of an Interim
Loan Facility, expiring September 1, 1995, to advance funds of up to $25,000 to
the Transit segment prior to its planned divestiture as a limited liability
company, anticipated by September 1, 1995. Funds advanced to the Transit segment
bear interest at the prime rate and are to be used solely for financing its
operations in connection with its non-Metra contracts and are guaranteed by the
Corporation's principal surety.
In connection with the restructuring, the bank lenders increased the amount of
the secured bridge loans from $122,100 to $129,000. Amounts borrowed are to be
used for non-Transit-segment working capital purposes. As of July 31, 1995 the
Corporation had unused borrowing capacity under the secured bridge loans of
$52,287. Outstanding borrowings under the secured bridge loans are due and
payable on March 31, 1996 and bear interest at a rate equal to the prime rate
plus three percent. Interest is payable on the last day of each calendar month
and on March 31, 1996. The Corporation paid a closing fee of $1,290 on August
11, 1995.
The restructuring permits the deferral of principal payments on the antecedent
bank debt from July 1, 1995 until December 31, 1996, except, the Corporation is
required to repay $100,000 on September 30, 1996 plus interest and periodic bank
fees accrued to that date. Outstanding borrowings under the antecedent bank debt
bear interest at the prime rate. Interest accrued on outstanding borrowings
after July 1, 1995, may be deferred and paid in six equal monthly installments,
together with accrued interest thereon at the prime rate on the unpaid interest,
commencing April 30, 1996 unless repaid with optional principal prepayments.
Under the restructuring agreements, the antecedent bank debt was secured by
security interests and mortgages on substantially all of the assets of the
Corporation and certain of its subsidiaries.
I-12
In addition to the required repayment of the outstanding balance under the
bridge loans at March 31, 1996 and $100,000 repayment under the antecedent bank
debt at September 30, 1996, the restructuring agreements also provide for (i)
optional prepayments and (ii) mandatory prepayments. The Corporation may, at its
option, prepay at any time all or part of the amount outstanding under the
antecedent bank debt and bridge loans. The Corporation must prepay (i) net cash
proceeds in excess of $10,000 received from the sales of certain businesses and
assets currently held for sale, (ii) any prepayments or repayments received by
the Corporation on the $52,200 note receivable from MK Rail, and (iii) any tax
refunds received.
In connection with the restructuring, the Corporation as of July 31, 1995,
granted to the bank lenders two stock purchase warrants to acquire a total of
14,029,391 shares of unissued common stock at an exercise price of $6.75 per
share. The warrants may be exercised for all or any part thereof at December 31,
1996, or earlier upon a payment default on the antecedent bank debt, but not
later than July 31, 2000. The Corporation's obligation for the warrant covering
9,415,696 shares can be (i) eliminated if the Corporation repays the outstanding
balance of the antecedent bank debt by June 30, 1996 or (ii) reduced by 50% if
repaid during the period from July 1, 1996 through September 30, 1996. The
Corporation's obligation for the warrant covering 4,613,695 shares can be (i)
eliminated if the Corporation repays the outstanding balance of all indebtedness
in connection with Transit segment's Metra contract by June 30, 1996 or (ii)
reduced by 50% if repaid during the period from July 1, 1996 through December
31, 1996 or (iii) reduced by 25% if repaid during the period from January 1,
1997 through June 30, 1997. The Corporation's sureties were also granted a stock
purchase warrant to acquire a total of 830,039 shares of unissued common stock
at an exercise price of $6.75 per share. The sureties warrant may be exercised
for all or any part thereof at December 31, 1996, or earlier upon a payment
default with respect to the Corporation's reimbursement obligation to its
sureties for Transit segment liabilities, but not later than July 31, 2000. The
Corporation's obligation for the sureties warrant can be (i) eliminated if the
Corporation satisfies its reimbursement obligation to the sureties for their
Transit segment liabilities by June 30, 1996 or (ii) reduced by 50% if satisfied
during the period from July 1, 1996 through September 30, 1996.
I-13
8. OTHER INCOME (EXPENSE), NET
Other income (expense) items for the three and six months in the periods ended
June 30, 1995 and 1994 are as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
- ---------------------------------------------------------------------------------------------------------------
Interest and dividends $ 1,606 $ 112 $ 5,947 $ 1,933
Net gains (losses) on sales of marketable securities (99) (165) 109 1,399
Net loss on disposals and write-downs
of assets held for sale, net - (2,446) (3,209) (4,102)
Gain on MK Gold's sale of stock - - - 1,255
Underwriting income (expense) of insurance subsidiary, net 29 344 (131) 3,323
Miscellaneous income (expense), net 469 (2,104) (1,003) (3,857)
- ---------------------------------------------------------------------------------------------------------------
Other income (expense), net $ 2,005 $(4,259) $ 1,713 $ (49)
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
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.
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 sheets at December 31,
1994 and June 30, 1995 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.
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.
I-14
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.
LETTERS OF CREDIT: The Corporation was contingently liable, in the normal
course of business, for $298,000 in standby and financial letters of credit not
reflected in the accompanying financial statements at June 30, 1995 for contract
performance guarantees on a number of Engineering and Construction and Transit
segment 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 June
30, 1995, NASSCO had no balance outstanding under the Corporation's credit
facility.
At June 30, 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 June 30, 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 $1,793 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 June 30, 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:
FINANCIAL POSITION AT JUNE 30, 1995 DECEMBER 31, 1994
- -------------------------------------------------------------------------------------------------------------------
Notes and interest receivable $ 25,179 $ 25,504
Properties held for sale 4,744 5,920
Other assets, net 2,185 2,853
Secured bank loans, 9% at June 30, 1995 and
6.4% and 6.9% at December 31, 1994 (30,980) (31,078)
- -------------------------------------------------------------------------------------------------------------------
Net assets $ 1,128 $ 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 bank loans, equal to the prime rate (9% at June 30, 1995), is payable on
the last day of each month.
I-15
10. SUBSEQUENT EVENTS
MORRISON KNUDSEN CORPORATION OF AUSTRALIA, LTD.: Effective July 1, 1995, the
Corporation acquired MK Rail's ownership interest in Morrison Knudsen
Corporation of Australia, Ltd. ("MKA") for $3,000 in preferred stock of MKA.
SALE OF WESTERN AIRCRAFT, INC. ("WESTERN"): On July 21, 1995, the Corporation
sold its ownership interest in Western for $4,900 cash. Since the Corporation's
carrying value of its investment in Western was written down to its estimated
realizable value at December 31, 1994, no gain or loss was recognized upon
closing of the sale transaction.
RETENTION AND SEVERANCE PAY PLANS: Effective July 7, 1995, the Corporation
adopted a key employee retention and severance program to retain certain key
executives and key employees. The program encourages employees to remain
employed at the Corporation by providing additional compensation from the date
of adoption through July 1, 1996, and by providing enhanced severance benefits
to any covered employee who is involuntarily terminated prior to July 1, 1996.
Under the retention plan, covered employees will receive awards in cash and
stock ranging from 23.3% to 62.5% of their annual base salaries, payable on
December 15, 1995, and July 1, 1996. Under the severance plan, covered employees
who are involuntarily terminated after the occurrence of (i) a change in control
of either the Corporation or the covered employee's division, or (ii) a
bankruptcy filing, will receive cash awards ranging from four to nine months
annual base salary. The severance plan terminates on July 1, 1996, provided that
neither event has occurred. The aggregate amount of the retention plan awards
are estimated to be approximately $12,000, which amount will be accrued ratably
over the service period from July 1995 through June 1996.
NEW AND AMENDED CREDIT FACILITIES: On August 11, 1995, the Corporation and its
lender banks and sureties agreed to a restructuring of the Corporation's
existing indebtedness. See Note 7. "Short-Term Debt" for a description of the
restructuring of the Corporation's existing indebtedness, establishment of
interim credit facilities for its Transit segment, issuance of stock purchase
warrants to its lender banks and sureties, and other matters.
I-16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED JUNE 30, 1995 COMPARED TO THE THREE MONTH PERIOD ENDED
JUNE 30, 1994
Three Months Ended
June 30,
1995 1994 (a)
- --------------------------------------------------------------------------------------------------------------------
Revenue
Engineering and construction $513,755 $499,070
Transit 120,093 18,238
- --------------------------------------------------------------------------------------------------------------------
Total revenue $633,848 $517,308
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Operating income (loss)
Engineering and construction $12,878 $ (8,664)
Transit (2,134) (63,119)
- --------------------------------------------------------------------------------------------------------------------
Total operating income (loss) $10,744 $(71,783)
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
<FN>
(a) Certain amounts reclassified to conform to 1995 financial statement
presentation.
ENGINEERING AND CONSTRUCTION: E&C's revenue for the second quarter of 1995 was
$513.8 million an increase of $14.7 million compared to the same period of 1994.
The increase is principally due to an increase in additional revenue from claim
settlements of $9.5 million.
The E&C segment reported $12.9 million operating income in the second quarter of
1995 compared to an $8.7 million operating loss in the comparable period of
1994. The second quarter 1995 results of operations were affected by the
recognition of certain unusual items consisting of (i) a $9.5 million favorable
impact from the settlement of a number of claims on contracts completed in prior
periods which benefit was partially offset by (ii) the adverse impact of a $2.2
million provision for anticipated costs of settling a long-term real estate
lease obligation.
The second quarter 1994 results of operations were affected by the recognition
of certain unusual items consisting of (i) the adverse impact from the
recognition of a $17.6 million charge to write down investments in two
environmental businesses and fixed assets and provide for an anticipated loss on
a long-term construction project which charge was partially offset by (ii) the
beneficial impact from the recognition of $1.4 million proceeds from a claim
settlement.
TRANSIT: Transit's revenue for the second quarter of 1995 was $120.1 million an
increase of $101.9 million compared to the same period of 1994. The increase was
due to the higher volume of new transit car deliveries for the second quarter
of 1995 as reflected in the table below.
NUMBER OF TRANSIT CARS
-----------------------------------------------------------------------
SHIPPED SHIPPED DURING REMAINING IN
UNDER THROUGH THREE MONTHS ENDED BACKLOG AT
NEW TRANSIT CAR CUSTOMER CONTRACT MARCH 31, 1995 JUNE 30, 1995 JUNE 30, 1995
Metro North Commuter Railroad 48 (27) (18) 3
Illinois Metra Authority 173 (6) (4) 163
National Railroad Passenger Corporation 50 - - 50
Bay Area Rapid Transit District 80 (14) (18) 48
California Department of Transportation:
Inter-city cars 66 (8) (12) 46
Commuter cars 47 - - 47
- -----------------------------------------------------------------------------------------------------------------------
Total New Transit Cars 464 (55) (52) 357
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
I-17
Transit reported a $2.1 million operating loss in the second quarter of 1995
compared to a $63.1 million operating loss in the comparable period of 1994. The
1995 operating loss stems almost entirely from the recognition of
non-manufacturing overhead costs and expenses. In 1994 the Transit segment
recognized $198.0 million of pretax charges to operating income for anticipated
cost overruns on fixed-price new transit cars in the early stages of production
which were anticipated to be manufactured and delivered in 1995 and 1996.
In the second quarter of 1994 the Transit segment recognized $59.4 million of
pretax charges to operating income for anticipated cost overruns on fixed-price
new transit cars in the early stages of production which were anticipated to be
manufactured and delivered in 1995 and 1996.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses for
the second quarter of 1995 increased $6.9 million or 84% compared to the same
period of 1994. The increase is due to substantial non-recurring expenses for
legal and other professional fees associated with pending litigation and
financial restructuring offset by allocations of centralized common-service
costs to segment operations.
INTEREST EXPENSE: Interest expense for the second quarter of 1995 increased
$7.8 million from $1.2 million in the same period of 1994. The significant
increase in interest expense in 1995 is attributed to a substantially higher
level of short-term debt outstanding during the second quarter of 1995 compared
to the comparable period of 1994 and a weighted average cost of borrowing during
the second quarter of 1995 of 10.4% compared to 4.3% during the comparable
period of 1994.
OTHER INCOME (EXPENSE), NET: Other income of $2.0 million, net for the second
quarter of 1995 is comprised principally of interest earned on short-term
investments. Other expense of $4.3 million, net for the second quarter of 1994
is comprised principally of losses on disposals of assets, write-downs of
certain assets held overseas, and a loan guarantee loss. See Note 8. "Other
Income (Expense), Net".
EQUITY IN NET INCOME (LOSS) OF UNCONSOLIDATED AFFILIATES: The Corporation's
share of unconsolidated affiliates' income decreased from $4.8 million in the
second quarter of 1994 to $1.7 million in the comparable quarter of 1995. The
decrease is due to the recognition by the Corporation of its $5.6 million equity
in the net income of MIBRAG mbH in the second quarter of 1994. 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".
DISPOSITION OF INVESTMENTS IN AFFILIATES: The $1.3 million loss on disposition
of investments in affiliates for the second quarter of 1995 is the result of
writing-down the increase in the carrying value of its investment in an
affiliate resulting from the Corporation's recognition of affiliate's periodic
income which increase is not expected to be realized through subsequent
disposition of the affiliate. The $13.8 million loss on disposition of
affiliates for the second quarter of 1994 is the result of the Corporation
writing off its investment in Texas TGV Corporation after Texas TGV's failure to
provide equity financing for a high speed rail system project as required under
the franchise agreement. See Note 3. "Disposition of Investments in Affiliates".
INCOME TAX EXPENSES: The Corporation recognized tax expense for the second
quarter of 1995 of $.9 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 second 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: 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 month period ended June 30, 1994 and the
Corporation's gain recognized from MK Rail's sale of stock in May 1994, have
been segregated and reported as discontinued operations in the statements of
operations. On May 3, 1994, MK Rail completed an IPO of 6,000,000 shares of
its common stock at an offering price of $16.00 per share which decreased the
Corporation's investment to 65%. The Corporation recognized a $24.0 million
pretax gain with respect to such shares because MK Rail's public offering
price per share exceeded the Corporation's carrying value per share.
I-18
RESULTS OF OPERATIONS
SIX MONTH PERIOD ENDED JUNE 30, 1995 COMPARED TO THE SIX MONTH PERIOD ENDED
JUNE 30, 1994
Six Months Ended
June 30,
1995 1994 (a)
- -----------------------------------------------------------------
Revenue
Engineering and construction $ 929,713 $955,191
Transit 221,307 23,911
- -----------------------------------------------------------------
Total revenue $1,151,020 $979,102
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Operating income (loss)
Engineering and construction $20,625 $ 1,760
Transit (3,805) (63,904)
- -----------------------------------------------------------------
Total operating income (loss) $16,820 $(62,144)
- -----------------------------------------------------------------
- -----------------------------------------------------------------
<FN>
(a) Certain amounts reclassified to conform to 1995 financial statement
presentation.
ENGINEERING AND CONSTRUCTION: E&C's revenue for the first six months of 1995 was
$929.7 million, a decrease of $25.5 million compared to the same period of 1994
reflecting the decline in new work booked in prior periods.
The E&C segment reported $20.6 million operating income for the first six months
of 1995 compared to $1.8 million operating income in the comparable period of
1994. The results of operations for the first six months of 1995 were affected
by the recognition of certain unusual items consisting of (i) a $12.8 million
favorable impact from the settlement of claims on contracts completed in prior
periods which benefit was partially offset by (ii) the adverse impact of a $2.2
million provision for anticipated costs of settling a long-term real estate
obligation.
The results of operations for the first six months of 1994 were affected by the
recognition of a $17.6 million charge to write down investments in two
environmental businesses and fixed assets and provide for an anticipated loss on
a long-term project which charge was partially offset by (ii) the benefit from
recognition of $1.4 million proceeds from a claim settlement.
TRANSIT: Transit's revenue for the first six months of 1995 was $221.3 million
an increase of $197.4 million compared to the same period of 1994. The increase
was due to the higher volume of new transit car deliveries for the first six
months of 1995 as reflected in the table below.
NUMBER OF TRANSIT CARS
-------------------------------------------------------------------
SHIPPED SHIPPED DURING REMAINING IN
UNDER THROUGH SIX MONTHS ENDED BACKLOG AT
NEW TRANSIT CAR CUSTOMER CONTRACT DEC. 31, 1994 JUNE 30, 1995 JUNE 30, 1995
Metro North Commuter Railroad 48 (12) (33) 3
Illinois Metra Authority 173 (3) (7) 163
National Railroad Passenger Corporation 50 - - 50
Bay Area Rapid Transit District 80 (1) (31) 48
California Department of Transportation:
Inter-city cars 66 - (20) 46
Commuter cars 47 - - 47
- -------------------------------------------------------------------------------------------------------------------
Total New Transit Cars 464 (16) (91) 357
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Transit reported a $3.8 million operating loss in the first half of 1995
compared to a $63.9 million operating loss in the comparable period of 1994. The
1995 operating loss stems almost entirely from the recognition of
non-manufacturing overhead costs and expenses.
I-19
In the first half of 1994 the Transit segment recognized $59.4 million of pretax
charges to operating income for anticipated cost overruns on fixed-price new
transit cars in the early stages of production which were anticipated to be
manufactured and delivered in 1995 and 1996.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expense for the
first half of 1995 increased $8.8 million or 52% compared to the same period of
1994. The increase is due to substantial non-recurring expenses 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 half of 1995 increased $12.6
million from $1.8 million in the same period of 1994. The significant increase
in interest expense in 1995 is attributed to a substantially higher level of
short-term debt outstanding during the first half of 1995 compared to the
comparable period of 1994 and a weighted average cost of borrowing during the
first half of 1995 of 9.4% compared to 4.2% during the comparable period of
1994.
OTHER INCOME (EXPENSE), Net: Other income of $1.7 million, net for the first
half of 1995 is comprised principally of interest earned on short-term
investments. Other expense, net for the first half of 1994 is comprised
principally of losses on disposals of assets, write-downs of certain assets held
overseas, and a loan-guarantee loss, offset by investment gains, underwriting
income and gain from MK Gold's sale of stock. See Note 8. "Other Income
(Expense), Net".
EQUITY IN NET INCOME (LOSS) OF UNCONSOLIDATED AFFILIATES: The Corporation's
share of unconsolidated affiliates' income for the first half of 1995 remained
about the same as reported for the comparable period of 1994 due to the
recognition by the Corporation of its $5.7 million and $5.6 million equity in
the net income of MIBRAG mbH for the first six months of 1995 and 1994,
respectively. See Note 6. "Investments in and Advances to Unconsolidated
Affiliates".
DISPOSITION OF INVESTMENTS IN AFFILIATES: The $8.1 million net loss on
disposition of investments in affiliates for the first half 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 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 $8.8 million to write-down the carrying
amount of its investment in MK Investments, Inc. (North Pacific construction
operations). The $8.9 million net loss on disposition of investments in
affiliates for the first half of 1994 resulted from a $4.9 million gain on the
Corporation's sale of a portion of its ownership interest in Strait Crossing
Development, Inc. and a $13.8 million loss from writing off the Corporation's
investment in Texas TGV after Texas TGV's failure to provide equity financing
for a high speed rail system project as required under the franchise agreement.
See Note 3. "Disposition of Investments in Affiliates".
INCOME TAX EXPENSES: The Corporation recognized tax expense for the first half
of 1995 of $2.3 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 half 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 in
March 1995, 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 estimated net operating loss until the expected
time of disposal. See Note 2. "Changes in Business - Discontinued Operations".
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 and six
month periods ended June 30, 1994 and the Corporation's gain recognized from MK
Rail's sale of stock in May 1994 have been segregated and reported as
discontinued operations in the statements of operations. On May 3, 1994, MK Rail
completed an IPO of 6,000,000 shares of its common stock at an offering price of
$16.00 per share which decreased the Corporation's investment to 65%. The
Corporation recognized a $24.0 million pretax gain with respect to such shares
because MK Rail's public offering price per share exceeded the Corporation's
carrying value per share.
I-20
FINANCIAL CONDITION
Liquidity and capital resources (THOUSANDS OF DOLLARS) JUNE 30,
-------------------------
1995 1994
CASH AND CASH EQUIVALENTS:
Beginning of period $65,088 $80,108
End of period 72,877 97,203
SIX MONTHS ENDED
JUNE 30,
-------------------------
1995 1994
NET CASH PROVIDED (USED) BY:
Operating activities $(117,380) $(81,313)
Investing activities 35,859 (15,005)
Financing activities 114,932 113,413
Total capitalization at June 30, 1995 was $312.9 million, and consisted of
$309.0 million debt and $3.9 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 used for operating activities of $117.4 million in the first half of
1995 included an increase in accounts receivable at June 30, 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, the balance of $57.4 million was
principally used to fund cost overruns on fixed-price contracts, which cost
overruns had been fully reserved in prior periods.
Net cash used for operating activities of $81.3 million in the first half of
1994 was primarily used to fund Transit segment inventories, accounts receivable
and unbilled receivables.
Net cash provided by investing activities in the first half of 1995 of $35.9
million arose principally from (i) $4.3 million net proceeds from sales and
purchases of securities available for sale (ii) $32.5 million proceeds from the
sales of investments in affiliates which included $10.0 million from the sale of
McConnell Dowell's ownership interest in Benjamin Developments, Ltd. and $22.5
million from the sale of the Corporation's ownership interest in MK Gold and
(iii) $1.7 million from collection of outstanding accounts receivables from
affiliates.
Net cash used by investing activities in the first half of 1994 of $15.0 million
resulted from (i) $7.5 million for net acquisitions of property and equipment
and (ii) $7.5 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 half of 1995 of $114.9
million included $121.1 million additional borrowings under bank credit
agreements less the payment of the fourth quarter 1994 cash dividend of $6.2
million.
Net cash provided by financing activities in the first half of 1994 of $113.4
million included $132.1 million additional net borrowings under bank credit
agreements less the payment of $19.2 million cash dividends for the three
quarters ended June 1994.
LIQUIDITY
As of August 18, 1995, the Corporation had available cash and credit of $75.9
million for working capital requirements. The Corporation expects significant
negative cash flow from operations during 1995, due primarily to the funding of
the operating losses recognized in 1994, interest cost on bank debt and legal
and professional service fees in connection with the Corporation's legal
proceedings and 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
I-21
and the investment in AmerBank are, if consummated, expected to generate
significant cash which is required to be used to repay existing indebtedness. 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 lenders entered into a Credit
Facility ("the Facility") under which the lenders provided secured bridge loans
of $110.0 million and waived conditions of default under its unsecured credit
agreements through May 31, 1995. The Facility 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 bridge 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
Facility accrues at the prime rate plus three percent, (12% at June 30, 1995)
and is payable on the last day of each month. Interest on the antecedent bank
debt, equal to the prime rate (9% at June 30, 1995) is generally payable on the
last day of each month. The Corporation repaid $31.2 million of the secured
bridge loans prior to June 30, 1995.
On August 11, 1995, the Corporation, its bank lenders and sureties agreed as
of July 31, 1995 to a restructuring of the Corporation's existing indebtedness
and the establishment of new interim credit facilities, expiring September 1,
1995 to advance funds to the Transit segment prior to its planned divestiture as
a limited liability company, anticipated by September 1, 1995. The restructuring
provides, among other things, for (i) an increase in the amount of the secured
bridge loans from $122.1 million to $129.0 million, (ii) extension of the
maturity date for the secured bridge loans to March 31, 1996 and extension of
the maturity date for the antecedent bank debt to December 31, 1996, (iii)
mandatory repayment of $100.0 million of antecedent bank debt on September 30,
1996, (iv) required repayments with the net cash proceeds from sales of certain
businesses and assets, and cash collected on certain receivables and (v) the
granting of stock purchase warrants to the lender banks and sureties.
The restructuring provides that ongoing indebtedness of the Corporation to the
banks and its surety syndicate to be secured. In connection with the
restructuring the Corporation would also receive limited bonding capacity.
The Corporation anticipates that the funds available under the restructuring
agreements together with the net proceeds from planned sales of businesses and
assets currently held for sale and collection of certain receivables should
provide sufficient liquidity until September 30, 1996 when the Corporation
believes, a substantial recapitalization through an equity infusion or new debt
will be required.Unless the Corporation is able to obtain alternative sources of
cash to meet the scheduled repayments at September 30, 1996 and December 31,
1996 required under the restructuring, 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-22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Corporation previously has reported in its Annual Report on
Form 10-K for the fiscal year ending December 31, 1994, that
lawsuits in the following four general categories currently are
pending against the Corporation and its directors and/or
officers: (1) class actions relating to transactions in the
common stock of the Corporation ("MK Securities Class Actions");
(2) class actions relating to the issuance of, and transactions
in, the common stock of MK Rail ("MK Rail Securities Class
Actions"); (3) derivative actions brought by persons who claim to
be stockholders of the Corporation ("Derivative Actions"); and
(4) claims brought by the former stockholders of Touchstone, Inc.
("Touchstone Litigation").
The MK Securities Class Actions consist of seven separate cases
which have been consolidated as IN RE: MORRISON KNUDSEN
SECURITIES LITIGATION, No. 94-0334-S-EJL (U.S. District Court,
Dist. of Idaho) (first filed July 28, 1994). The defendants
include the Corporation, certain of the Corporation's current and
former officers, and the Corporation's auditors. The MK Rail
Securities Class Actions consist of two cases relating to the
issuance of, and transactions in, the common stock of MK Rail
which have been consolidated in the U.S. District Court for the
District of Idaho. The defendants include the Corporation, MK
Rail, certain current and former officers and directors of the
Corporation and MK Rail, and the managing underwriters of MK
Rail's initial public offering. Those two cases are: SUSSER, ET
AL. V. AGEE, ET AL., No. CIV 94-0477-S-LMB (U.S. District Court
for the District of Idaho); and NEWMAN, ET AL. V. AGEE, ET AL.,
No. CIV 94-0478-S-EJL (U.S. District Court for the District of
Idaho) (both filed October 20, 1994).
The Derivative Actions consist of 13 derivative actions which
have been filed in state courts in Idaho and Delaware , naming as
defendants certain of the Corporation's President and former
Directors and Officers. The Corporation is a nominal defendant in
each of these actions. The five Idaho derivative cases are as
follows: (i) DEKLOTZ, ET AL. V. MORRISON KNUDSEN CO., ET AL.,
No. CV-00-9500605D (Idaho District Court, Ada County) (filed
February 13, 1995); (ii) WOHLGELERNTER V. AGEE, ET AL., No.
CV-OC-9500656D (Idaho District Court, Ada County) (filed March
24, 1995); (iii) FLINN V. AGEE, ET AL., No. CV-OC-9500765D
(Idaho District Court, Ada County) (filed February 21, 1995);
(iv) STEINER V. AGEE, ET AL., No. CV-OC-9500745D (Idaho District
Court, Ada County) (filed February 17, 1995); and (v) STATE BOARD
OF ADMINISTRATION OF FLORIDA V. MORRISON KNUDSEN CORPORATION, ET
AL., No. CV-OC-9502463D (Idaho District Court, Ada County) (filed
June 2, 1995) and the eight Delaware derivative cases are as
follows: (i) STERN V. AGEE, ET AL., Civil Action No. 14032
(Delaware Chancery Court) (filed February 13, 1995); (ii) HAGER
V. AGEE, ET AL., Civil Action No. 14034 (Delaware Chancery
Court) (filed February 14, 1995); (iii) TROY V. AGEE, ET AL.,
Civil Action No. 14167 (Delaware Chancery Court) (filed March 31,
1995); (iv) CAFFREY V. AGEE, ET AL., Civil Action No. 14033
(Delaware Chancery Court) (filed February 13, 1995); (v)
HAMMERSLOUGH V. AGEE, ET AL., Civil Action No. 14042 (Delaware
Chancery Court) (filed February 17, 1995); (vi) ROSENN V. AGEE,
ET AL., Civil Action No. 14106 (Delaware Chancery Court) (filed
March 9, 1995); (vii) CITRON V. AGEE, ET AL., Civil Action No.
14136 (Delaware Chancery Court) (filed March 22, 1995); and
(viii) ANTONICELLO V. AGEE, ET AL., Civil Action No. 14182
(Delaware Chancery Court) (filed April 4, 1995).
The Touchstone Litigation consists of two cases brought by the
former stockholders of Touchstone which currently are pending in
U.S. District Court in Tennessee: THEODORE E. NELSON V. MORRISON
KNUDSEN CORP., No. 95-1029 (U.S.D.C. W.D. Tenn.) (filed February
7, 1995); and RICHARD JACOBS, ET AL. V. MORRISON KNUDSEN CORP.,
No. 95-1024 (U.S.D.C. W.D. Tenn.) (filed February 7, 1995). The
plaintiffs, who among other things purport to state claims for
violation of federal and Tennessee securities laws, purport to be
all of the stockholders of Touchstone prior to the Corporation's
acquisition of Touchstone through an exchange offer. The
Corporation is the sole defendant in these two cases. The
Corporation has been advised that the plaintiffs have filed a
separate lawsuit against William J. Agee, the Corporation's
former chairman: RICHARD L. JACOBS, ET AL. V. WILLIAM J. AGEE,
No. 95-1168 (U.S.D.C. W.D. Tenn.) (filed July 18, 1995). The
Corporation further has been advised that the complaint naming
Mr. Agee, which contains allegations similar to those against the
Corporation, has not been served and that such case currently
remains inactive.
II-1
As has been previously reported, settlement discussions have been
held among the Corporation, MK Rail, certain of their present and
former officers and directors, their insurance carriers, the
underwriter defendants, and plaintiffs, and that those
discussions have resulted in agreements as to the principal terms
of settlement of the MK Securities Class Actions, the MK Rail
Securities Class Actions and the Derivative Actions (other than
the FLORIDA case pending in Idaho) as to all defendants in those
cases other than the Corporation's auditors. Discussions are
continuing between certain of the plaintiffs and defendants with
respect to the final terms of the memoranda of understanding with
respect to the settlements. Once the final terms have been agreed
to, it is anticipated that the parties will enter into formal
settlement documentation; the settlements then will be submitted
for and be subject to approval by the appropriate courts.
The settlement terms will require the Corporation, as its share
of the settlement; to (i) issue 2,976,923 shares of Common Stock
in connection with the settlement of the MK Securities Class
Actions, (ii) issue 869,231 shares of Common Stock in connection
with the settlement of the MK Rail Securities Class Actions,
(iii) pay the net (after plaintiffs attorneys fees and related
expenses) insurance proceeds received by the Corporation in
connection with the settlement of the Derivative Actions into a
settlement fund to be created in connection with the settlement
of the MK Securities Class Actions, and (iv) implement certain
corporate governance procedures (including, among other things,
making reasonable efforts to appoint up to seven additional
non-employee directors, a presumption that Board and Stockholders
meetings will be held in Boise or certain other specified
locations, disclosure of certain common memberships of directors
or their immediate families on governing bodies of not-for-profit
organizations, and a requirement that future executive
compensation not be based on non-recurring items without
stockholder approval). In addition, the defendant non-employee
directors (other than Mrs. Peden) would relinquish five years of
credited service for purposes of the Corporation's Retirement
Plan for Non-Employee Directors. The settlement terms also would
require MK Rail, as its share of the settlement of the MK Rail
Securities Class Actions, to issue 413,793 shares of Common Stock
and shares of a new class of Preferred Stock with a redemption
value of $1 million. The Corporation's insurance carriers will
pay $35 million (including the amounts referred to in clause
(iii) above) on behalf of the individual defendants in the MK
Securities Class Actions and the Derivative Actions, and MK
Rail's insurance carrier will pay $6 million into a settlement
fund to be created in connection with the settlement of the MK
Rail Securities Class Actions, such payments to be made with
respect to the individual defendants in those cases. The funds
paid by MK Rail's insurance carrier will include the purchase
from the settlement fund of the MK Rail Preferred Stock referred
to above for $1 million. As part of the proposed settlement of
the Derivative Actions, Mr. Agee would relinquish his claim to
contractual severance pay and all other contractual benefits
other than his Supplemental Savings Plan account (approximately
$350,000 as of April 20, 1995, the date the Plan was terminated),
a reduced lifetime (with right of survivorship) annual
supplemental retirement benefit of $99,750 commencing in 1995,
and prepaid medical and dental benefits for Mr. Agee and his
family.
In connection with the agreements as to the principal terms of
settlement of the MK Securities Class Actions, the MK Rail
Securities Class Actions, and the Derivative Actions (other than
the FLORIDA case pending in Idaho), the Corporation and MK Rail
accrued a total estimated liability of $29 million at December
31, 1994. However, there can be no assurance that all the parties
to these agreements will agree on the terms of the final
settlement or that such final settlement will be approved by the
appropriate courts.
The Corporation has been advised that it may become
subject to an ongoing investigation by the Central Regional
Office of the Securities and Exchange Commission of the issuance
by the City and County of Denver of revenue bonds to finance the
construction of the new Denver International Airport. A
subsidiary of the Corporation is a joint venture partner of The
Greiner/MKE Team, which was the program management support
consultant in connection with the construction of the new
airport.
II-2
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
FILED IN PART I
None
FILED IN PART II
The exhibits to this Quarterly Report on Form 10-Q are listed in
the Exhibit Index contained elsewhere in this Quarterly Report.
(b) Reports on Form 8-K
The Registrant filed current reports on Form 8-K to report that
(i) on April 11, 1995, the Registrant filed Form 12b-25
Notification of Late Filing on March 31, 1995 with respect to its
Annual Report on Form 10-K which it expected to file on May 1,
1995 and that the Registrant and certain of its current lenders
entered into a new credit agreement under which the lenders would
provide secured loans of up to $110 million (ii) on May 1, 1995,
the Registrant was not able to file its Annual Report on Form
10-K on May 1, 1995 (iii) on June 6, 1995, the Registrant
completed the sale of its 35% ownership interest in MK Gold
Company for cash and postponed its annual meeting of stockholders
pending filing of its Annual Report on Form 10-K, and (iv) on
June 30, 1995, the Registrant's annual meeting of stockholders
would be held on Friday, September 8, 1995 in Boise, Idaho.
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: August 21, 1995
II-3
MORRISON KNUDSEN CORPORATION
EXHIBIT INDEX
EXHIBITS MARKED WITH AN ASTERISK ARE FILED HEREWITH, THE REMAINDER OF THE
EXHIBITS HAVE HERETOFORE BEEN FILED WITH THE COMMISSION AND ARE
INCORPORATED BY REFERENCE.
EXHIBIT
NUMBER EXHIBITS
- ------- --------
4.1* Third Amendment to the registrant's Rights Agreement effective as of
August 1, 1995 with Norwest Bank Minnesota, N.A., as Successor Rights
Agent to Bank of America National Trust and Savings Association.
4.2* The registrant's Override Agreement dated as of July 31, 1995 with
Mellon Bank, N.A., as Agent, and other financial institutions named
therein.
4.3* The registrant's Amended and Restated Credit Agreement dated as of
July 31, 1995 with Mellon Bank, N.A., as Administrative Agent and
Co-Agent, and other financial institutions named therein with combined
commitments of the banks in the aggregate of $129 million.
4.4* The registrant's Credit Agreement dated as of July 31, 1995 with
Mellon Bank, N.A., as Agent and other financial institutions named
therein with combined commitments of the banks in the aggregate of $25
million.
4.5* The registrant's Revolving Credit Agreement with Bank of America
National Trust and Savings Association, as Agent, and other financial
institutions named therein.
4.6* The form of Warrant to purchase 9,415,696 Shares of Common Stock of
the registrant by the financial institutions named therein.
4.7* The form of Warrant to Purchase 4,613,695 Shares of Common Stock of
the registrant by the financial institutions named therein.
4.8* The form of Warrant to Purchase 830,039 Shares of Common stock of the
registrant by Fidelity and Deposit Company of Maryland and certain
cosureties and other reinsurers.
4.9* The registrant's Securities Purchase Agreement dated as of July 31,
1995 with Mellon Bank, N.A., as Agent, and other financial
institutions named therein.
4.10* The registrant's Securities Purchase Agreement dated as of July 31,
1995 with Fidelity and Deposit Company of Maryland and certain
cosureties and other reinsurers.
4.11* The registrant's Registration Rights Agreement dated as of July 31,
1995 with certain financial institutions in connection with Warrants
to Purchase 14,029,391 shares of Common Stock of the registrant.
4.12* The registrant's Registration Rights Agreement dated as of July 31,
1995 with Fidelity Deposit Company of Maryland and certain cosureties
and other reinsurers in connection with Warrants to Purchase 830,039
shares of Common Stock of the registrant.
4.13* The registrant's Indemnification and Reimbursement Agreement dated as
of July 31, 1995 with Fidelity and Deposit Company of Maryland and
Colonial American Casualty and Surety Company.
4.14* The registrant's Guaranty dated as of July 31, 1995 with Bank of
America National Trust and Savings Association, as agent, and other
financial institutions named therein.
4.15 The registrant agrees to provide the Securities and Exchange
Commission, upon request, with copies of instruments defining the
rights of holders of other long-term debt of the registrant.
10.1* The registrant's Forbearance Agreement dated as of June 30, 1995, with
Mellon Bank, N.A., United States National Bank of Oregon and Emkay
Development Company, Inc., a wholly owned subsidiary of registrant.
10.2* The registrant's Key Employee Retention Incentive Plan.
10.3* The registrant's Retention Severance Pay Plan.
10.4 Form of registrant's Indemnification Agreement (filed as Exhibit B to
Proxy Statement dated March 23, 1987, and incorporated herein by
reference.) A schedule listing the individuals with whom the
registrant has entered into such agreements is filed herewith.
27.* Financial Data Schedule.