<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended May 31, 1996
-----------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to _________________
Commission file number: 1-12054
-------
WASHINGTON CONSTRUCTION GROUP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0565601
- -------------------------------- --------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
27400 East Fifth Street, Highland, California 92346
- ---------------------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
(909) 425-4200
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
-------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Common shares outstanding at July 5, 1996 -- 29,481,184
Index to exhibits appears on page 17 of 18 pages constituting manually signed
original of this report.
1 of 18
<PAGE>
WASHINGTON CONSTRUCTION GROUP, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Earnings
for the Three Months and Six Months Ended
May 31, 1996 and May 31, 1995 3
Consolidated Condensed Balance Sheets as of
May 31, 1996 and November 30, 1995 4
Consolidated Condensed Statement of Shareholders' Equity
for the Six Months Ended May 31, 1996 6
Consolidated Condensed Statements of Cash Flows
for the Six Months Ended May 31, 1996 and
May 31, 1995 7
Notes to Consolidated Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
2
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
WASHINGTON CONSTRUCTION GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 31, May 31,
---------- ---------- ---------- ----------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues from construction contracts $ 82,693 $ 51,604 $144,699 $ 88,389
Costs of construction contracts (77,135) (46,787) (135,793) (79,876)
Gain on sale of equipment 238 901 352 1,179
-------- -------- -------- --------
Gross profit 5,796 5,718 9,258 9,692
General and administrative expenses (3,830) (4,421) (7,620) (8,383)
Reorganization expense -- -- (1,500) --
-------- -------- -------- --------
Operating income 1,966 1,297 138 1,309
Investment income 740 1,067 1,607 2,146
Interest expense (192) (20) (382) (44)
Other, net (32) 75 (94) 26
-------- -------- -------- --------
Earnings before income taxes 2,482 2,419 1,269 3,437
Income tax provision (868) (847) (443) (1,203)
-------- -------- -------- --------
Net earnings $ 1,614 $ 1,572 $ 826 $ 2,234
======== ======== ======== ========
Earnings per share $ 0.06 $ 0.06 $ 0.03 $ 0.08
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
WASHINGTON CONSTRUCTION GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
ASSETS
<TABLE>
<CAPTION>
May 31, November 30,
1996 1995
--------- ---------
<S> <C> <C>
Current assets
Cash and cash equivalents $24,863 $30,035
Accounts receivable, including retentions of
$12,873 in 1996 and $14,513 in 1995 47,702 41,327
Due from affiliates 342 355
Costs and estimated earnings in excess of billings 7,604 5,033
Notes receivable 9,483 11,511
Investment in joint ventures 6,487 1,846
Deferred income tax assets 514 514
Prepaid and other assets 3,884 3,035
-------- --------
Total current assets 100,879 93,656
Property, plant and equipment,
net of accumulated depreciation and amortization
of $65,666 in 1996 and $63,783 in 1995 65,466 66,716
Other 931 886
Land held for sale or lease 8,266 8,266
Cost in excess of net assets acquired,
net of accumulated amortization of $1,223 in 1996
and $1,013 in 1995 15,567 15,777
-------- --------
Total assets $191,109 $185,301
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
WASHINGTON CONSTRUCTION GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (continued)
(in thousands, except per share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
May 31, November 30,
1996 1995
--------- -----------
<S> <C> <C>
Current liabilities
Trade accounts payable $ 9,475 $ 9,747
Subcontracts payable, including retentions
of $10,026 in 1996 and $9,778 in 1995 19,189 16,658
Income taxes payable 929 501
Due to affiliates 644 1,327
Accrued payroll and other liabilities 8,507 8,718
Current maturities of long-term debt 448 448
Billings in excess of costs and estimated earnings 8,182 4,789
-------- --------
Total current liabilities 47,374 42,188
Deferred income taxes 9,120 9,120
Long-term debt 4,823 5,042
Shareholders' equity
Preferred stock - par value $.01; authorized 1,000
shares; none issued and outstanding -- --
Common stock - par value $.01; authorized 39,000
shares; issued and outstanding 29,481 in 1996
and 29,484 in 1995 295 295
Additional paid in capital 62,104 62,134
Restricted stock - deferred compensation (40) (85)
Retained earnings 67,433 66,607
-------- --------
Total shareholders' equity 129,792 128,951
-------- --------
Total liabilities and shareholders' equity $191,109 $185,301
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
WASHINGTON CONSTRUCTION GROUP, INC.
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Restricted Stock -
Common Paid in Deferred Retained
Stock Capital Compensation Earnings Total
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
November 30, 1995 $295 $62,134 ($85) $66,607 $128,951
Net earnings 826 826
Restricted stock activity, net (30) 45 15
------- ------- ------- ------- --------
May 31, 1996 $295 $62,104 ($40) $67,433 $129,792
======= ======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
WASHINGTON CONSTRUCTION GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
May 31,
------------------------
1996 1995
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $826 $2,234
Adjustments to reconcile net earnings (loss) to
net cash used in operating activities:
Depreciation and amortization 4,698 3,919
Compensation expense on stock awards 15 104
Gain on sale of equipment (352) (1,314)
Changes in net operating assets (7,207) (4,178)
------- -------
Net cash provided by (used in) operating activities (2,020) 765
------- -------
INVESTING ACTIVITIES
Additions to property, plant and equipment (5,046) (10,899)
Proceeds from sale of equipment 2,160 2,364
Other (45) (37)
------- -------
Net cash used in investing activities (2,931) (8,572)
------- -------
FINANCING ACTIVITIES
Repayment of long-term debt (219) (204)
Repayment of real estate loan -- (7,150)
Restricted stock activity, net (2) (3)
------- -------
Net cash used in financing activities (221) (7,357)
------- -------
Decrease in cash and cash equivalents (5,172) (15,164)
Cash and cash equivalents at beginning of period 30,035 44,872
------- -------
Cash and cash equivalents at end of period $24,863 $29,708
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
7
<PAGE>
WASHINGTON CONSTRUCTION GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MAY 31, 1996 AND MAY 31, 1995
(dollars and share data in thousands)
(1) Basis of Presentation
The consolidated condensed financial statements include the accounts of
Washington Construction Group, Inc. and its wholly owned subsidiaries
(collectively, the Company). The Company was formerly named Kasler Holding
Company prior to the approval of a name change by a majority of the Company's
shareholders, which occurred on April 3, 1996. The consolidated condensed
financial statements have been prepared, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These financial statements
should be read in conjunction with the consolidated financial statements and the
notes thereto included in the Company's annual report on Form 10-K for the year
ended November 30, 1995.
In the opinion of the Company, the accompanying consolidated condensed
financial statements include all adjustments, consisting of normal recurring
accruals and adjustments required to present fairly the Company's financial
position at May 31, 1996 and November 30, 1995, the results of its operations
for the three months and six months ended May 31, 1996 and 1995, and cash flows
for the six months ended May 31, 1996 and 1995.
The results of operations and cash flows for the three months and six months
ended May 31, 1996 are not necessarily indicative of the results to be expected
for the full year.
(2) Related Party Transactions
The Company purchases goods and services from, and has contracted for certain
administrative, financial and data processing services with, affiliated
companies on terms comparable to those available from outside sources.
Transactions with related parties were as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
May 31, May 31,
-------------------------------------
1996 1995 1996 1995
-------------------------------------
<S> <C> <C> <C> <C>
Capital expenditures - equipment $ 394 $ 127 $ 492 $ 854
Cost of construction contracts 1,583 1,766 2,524 3,112
General and administrative expenses 594 891 1,053 1,591
</TABLE>
8
<PAGE>
The Company performs construction services, rents equipment and sells used
parts and equipment to related parties on terms comparable to those available to
outside parties. These transactions were as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
May 31, May 31,
-------------------------------------
1996 1995 1996 1995
-------------------------------------
<S> <C> <C> <C> <C>
Construction services $2,142 $ 97 $3,452 $ 555
Equipment rental 210 52 266 93
Gain on sale of equipment 134 351 232 426
</TABLE>
(3) Earnings per share
Earnings per share for the six months ended May 31, 1996 and 1995 are
computed based on the weighted average number of common shares outstanding. The
weighted average number of shares used in the computation of earnings per share
were 29,482 and 29,475 for the six months ended May 31, 1996 and 1995,
respectively. The earnings per share reported for the quarters ended May 31,
1996 and 1995 represent the difference between the respective earnings per share
for the six months ended May 31, 1996 and 1995, and the amounts previously
reported for the quarters ended February 29, 1996 and February 28, 1995. The
reported earnings per share for the second fiscal quarters differ from earnings
per share calculated on earnings and the number of common shares outstanding due
to rounding.
(4) Income Taxes
Income taxes are computed using the anticipated effective tax rate for the
year. Deferred income taxes are not adjusted quarterly.
(5) Contingencies
The Company is a party to various claims and legal proceedings incidental to
its business. In management's opinion, the outcome of these claims and
proceedings will not have a material adverse effect on the financial statements
of the Company taken as a whole. The Company also has the usual contractor's
liability for the completion of contracts.
The Company's contract mining and environmental remediation services involve
risks that the Company will become liable under federal, state and local
environmental laws and regulations, including the Comprehensive Environmental
Response Compensation and Liability Act, which imposes strict, joint and
several, retroactive liability upon parties who are responsible for the cost of
environmental remediation under such Act. The Company performs, and has
performed, contract mining and environmental remediation work at project sites
that are or may become Superfund sites subject to regulation, and in some cases
operated or managed, by environmental regulatory agencies. A determination that
the Company is liable under environmental laws and regulations for the cost of
environmental remediation could have a material adverse effect on the financial
position or results of operations of the Company. Amendments to, or more
stringent implementation of, current environmental laws and regulations also
could have such an adverse effect. The Company believes that it is in material
compliance with environmental laws and regulations.
9
<PAGE>
The U.S. Environmental Protection Agency (the "EPA") has suggested that a
subsidiary of the Company could be named as a potentially responsible party with
respect to mining waste contamination at a mine near Summitville, Colorado. The
Summitville mine, which covers approximately 550 acres, has been intermittently
mined since the late 1800s. From July 1985 to June 1989, the subsidiary
conducted site preparation, construction, surface mining and crushing activities
under the supervision and direction of the most recent operator of the mine. In
December 1992, after the operator abandoned the mine, the EPA took over site
maintenance activities. In 1994, the EPA added the mine to the Superfund
National Priorities List. The subsidiary has been informed that the estimated
remediation cost of the site is approximately $200,000, of which approximately
$105,000 has been incurred to date. Although the Company believes that there
are approximately 20 potentially responsible parties with respect to the site,
and that the Company and its subsidiaries should not be held liable and would
have valid defenses to any assertion of liability with respect to the site,
there can be no assurance the Company will not eventually be held responsible
for material liabilities associated with the mine.
Applying the percentage of completion method of recognizing revenues
requires the Company estimate the indicated outcome of its long-term contracts.
The Company forecasts such outcomes to the best of its knowledge and belief of
current and expected conditions and its expected course of action. Differences
between the Company's estimates and actual results often occur resulting in
changes to reported revenues and earnings. Such changes could have a material
effect on future financial statements.
Because of the uncertainty about the outcome of claims, disputes and certain
unpriced changeorders, the Company generally defers recognition of revenue until
the items are settled. The Company has ongoing negotiations with customers
regarding these contract issues. When recognized, such items could have a
material impact on future financial statements.
(6) Reorganization expense
The Company announced in the first quarter of 1996 the consolidation of
certain corporate functions (primarily accounting, human resources, contract and
equipment administration) into its Highland, California headquarters. The
Company accrued in the first quarter of 1996 $1,500 in reorganization expense,
which is an estimate of the fiscal 1996 costs associated primarily with employee
termination and relocation.
(7) Restructuring and Merger Agreement with Morrison Knudsen Corporation
The Company signed a restructuring and merger agreement with Morrison Knudsen
Corporation (MK) on May 28, 1996. Under the terms of the agreement, MK's senior
creditors will receive $13,300 in cash, and approximately 24,200 shares of the
Company's newly issued common stock, representing 45% of the shares outstanding
after the merger. The Company also agreed to pay in full MK's debtor-in-
possession loan, not to exceed $50,000. The existing shareholders of MK will
receive warrants to purchase 2,765 shares of the Company's common stock at
$12.00 per share for a term of five years.
10
<PAGE>
The agreement is subject to a number of conditions including confirmation of
the MK Plan of Reorganization pursuant to Section 1129 of the Bankruptcy Code,
and approval by the Company's shareholders. The Company filed a preliminary
proxy statement with the Securities and Exchange Commission on June 17, 1996.
11
<PAGE>
WASHINGTON CONSTRUCTION GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following is management's discussion and analysis of certain
significant factors affecting the operating results and financial condition of
Washington Construction Group, Inc. and Subsidiaries (the "Company") during the
periods included in the accompanying consolidated condensed financial
statements. The Company changed its name to Washington Construction Group, Inc.
from Kasler Holding Company following the approval of a majority of its
shareholders at its Annual Meeting on April 3, 1996.
The Company is a diversified construction enterprise with operations in
infrastructure, contract mining and environmental remediation markets in the
western United States. The Company's customers include both government agencies
and private companies.
The Company has three principal operating subsidiaries: Kasler
Corporation, which specializes in infrastructure and transportation projects;
Washington Contractors Group, Inc., which has operations in infrastructure,
contract mining, construction aggregate mining and environmental remediation;
and Pomeroy Corporation, a manufacturer of precast concrete.
RESULTS OF OPERATIONS
Net earnings
- ------------
Net earnings for the first half of fiscal 1996 totaled $0.8 million,
compared to net earnings of $2.2 million for the first half of 1995. The
decrease in net earnings was primarily attributable to a $1.5 million charge in
the first fiscal quarter associated with the Company's consolidation of its
accounting and administrative functions (reflected as reorganization expense on
the statements of earnings). Other changes between the first half of 1996 and
1995 include a decrease in gross profit of $0.4 million, reduced general and
administrative expenses (G&A) of $0.8 million, a decrease in investment income
of $0.5 million, $0.4 million in additional interest expense and a $0.8 million
decline in income tax expense (due to lower earnings before taxes).
For the second quarter of fiscal 1996, the Company earned $1.6 million,
approximating the prior year's second quarter result. Between the two periods,
the Company realized a slightly higher gross profit in the current quarter, a
reduction of $0.6 million in G&A, a decline of $0.3 million in investment
income, and an increase of $0.2 million in interest expense.
Revenues
- --------
For the first half of fiscal 1996, the Company had revenues of $144.7
million compared with $88.4 million for the same period in 1995. For the second
quarter of 1996, revenues totaled $82.7 million compared with $51.6 million for
the prior year's second quarter. Revenues increased over the prior year period
due to a higher contract workload in fiscal 1996. The year-to-date revenues
were also higher due to unusually heavy rains that occurred in California in the
prior year, which delayed work on public highway contracts in the first
12
<PAGE>
quarter of fiscal 1995. The breakout of contract revenue by significant
contract type for the first three months and six months of fiscal 1996 and 1995
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 31, May 31,
---------------------------------------
1996 1995 1996 1995
---------------------------------------
<S> <C> <C> <C> <C>
Infrastructure (highway) 58% 49% 60% 47%
Infrastructure (other) 15% 18% 12% 19%
Contract mining 7% 16% 9% 16%
Environmental remediation 3% 4% 4% 5%
Commercial construction
and construction materials 17% 13% 15% 13%
</TABLE>
The mix of revenues for the first half of fiscal 1996 compared to the first
half of fiscal 1995 included more highway projects resulting primarily from
unusually heavy rains that hampered construction at California highway projects
in the 1995 period. The changes in percentages of revenue by contract type
between the second quarter of 1996 versus the prior year's second quarter
primarily reflects a difference in the composition of the Company's work.
Backlog
- -------
During the first half of fiscal 1996, the Company improved its backlog
(anticipated revenues from the uncompleted portions of existing contracts
including the Company's pro-rata share of joint venture interests). The
Company's backlog of $418 million on May 31, 1996 was $140 million higher than
its May 31, 1995 backlog (a 50% increase), and $132 million higher than its
November 30, 1995 backlog (a 46% increase). The following table shows changes
in backlog during the six months and three months ended May 31, 1996 and 1995
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 31, May 31,
--------------------------------------------
1996 1995 1996 1995
--------------------------------------------
<S> <C> <C> <C> <C>
Beginning backlog $385,876 $234,569 $ 286,346 $158,000
Less contract revenue (82,693) (51,604) (144,699) (88,389)
New awards 98,353 74,268 253,423 175,926
Additions to existing contracts 16,808 21,582 23,274 33,278
-----------------------------------------------
Ending backlog $418,344 $278,815 $ 418,344 $278,815
===============================================
</TABLE>
13
<PAGE>
Breakout of the Company's ending backlog by type of contract follows:
<TABLE>
<CAPTION>
May 31, November 30,
1996 1995
-----------------------
<S> <C> <C>
Infrastructure (highway) 33% 70%
Infrastructure (other) 46% 8%
Contract mining 8% 15%
Environmental remediation 10% 1%
Commercial construction and 3% 6%
construction materials
</TABLE>
Gross profit
- ------------
For the first half of fiscal 1996, the gross profit margin of 6% was down
from 11% in last year's first half due to lower claim revenue and reduced gains
on the sale of equipment. Absent these items, gross profit for the first half
of 1996 was down 1% compared to the prior year's first half, primarily due to a
higher concentration of lower margin public highway work.
The gross profit margin in the second quarter declined from 11% in the second
quarter of 1995 to 7% in the second quarter of 1996. This reduction was due to
lower claim revenue and reduced gains on the sale of equipment. Without these
items, gross profit for the second quarter increased 1% over the prior year's
second quarter.
Generally, gains from equipment sales can vary between periods depending upon
the age, type, condition, and quantity of equipment sold. The Company buys and
sells equipment in the ordinary course of business based on its current and
anticipated contract workload.
Revenue from claims can also vary significantly between periods, as the
process of settlement is inherently uncertain and depends upon the nature of the
underlying claims, the client's willingness to negotiate, the dollar amounts
involved, legal processes and other varying factors. The Company has ongoing
negotiations with clients for claims, which could have a material impact on the
Company's results in the second half of fiscal 1996.
Reorganization expense
- ----------------------
The Company announced in the first fiscal quarter of 1996 the consolidation
of certain corporate functions into its Highland, California headquarters. The
Company accrued in the first quarter of 1996 $1.5 million in reorganization
expense, which is an estimate of the fiscal 1996 costs associated primarily with
employee termination and relocation. Through May 31, 1996, the Company has
expended $0.4 million on the reorganization. The Company expects the
reorganization will reduce annual general and administrative expenses by $0.3
million.
General and administrative expenses
- -----------------------------------
G&A for the first half of fiscal 1996 was down $0.8 million compared to the
same period in 1995. For the second quarter of fiscal 1996, G&A decreased by
$0.6 million from the same prior year period. The decrease in expense for the
1996 periods resulted primarily from lower profit sharing expense (due to
reduced profits) and cost containment activities.
14
<PAGE>
Other income and expenses
- -------------------------
For the first half of fiscal 1996, investment income decreased to $1.6
million from $2.1 million for the same fiscal 1995 period. For the second
quarter of fiscal 1996, investment income of $0.7 million was down $0.3 million
from the prior year's second quarter. Investment income decreased in the 1996
periods from the same 1995 periods due to reduced interest bearing cash and
receivables balances.
Interest expense for the first half of fiscal 1996 increased to $0.4
million compared with a nominal expense in the first half of fiscal 1995. For
the second quarter of fiscal 1996, interest expense was $0.2 million. The
increase between the 1996 and 1995 periods reflects the cessation of interest
capitalization on the Company's debt due to the commencement of operations at
the Company's construction aggregate operation in late 1995. Interest also
increased due to financing costs associated with the Company's credit line.
Income taxes
- ------------
The income tax provision for the first six months of fiscal 1996 and 1995,
and the second quarters of those years, has been estimated at 35% of net
earnings before taxes.
FINANCIAL CONDITION
Cash and cash equivalents
- -------------------------
The Company had negative cash flow of $5.2 million for the six months ended
May 31, 1996. Total cash and cash equivalents decreased from $30.0 million to
$24.9 million due to negative operating cash flow of $2.0 million, $2.9 million
in net cash used primarily for buying and selling equipment, and $0.2 million in
debt repayments.
For the remainder of fiscal 1996, the Company anticipates that cash and cash
equivalents will be generated by operations as a result of new contracts awarded
that should cause billings in excess of costs and estimated earnings to
increase. However, large increases in backlog for certain types of work that
are equipment intensive can result in significant investments in such equipment.
The Company may also undertake opportunities to complement its existing
operations through acquisitions or joint ventures. As acquisitions or joint
venture opportunities arise, the capital resources of the Company may be
utilized. The timing and nature of these opportunities can vary; therefore, the
financing of future acquisitions, joint ventures or equipment expenditures may
take a variety of forms. In addition, on limited occasions, certain financing
arrangements have been extended by the Company to its customers to accommodate
their financial needs. The Company may elect to enter into similar arrangements
in the future.
Management believes that cash flow from operations supplemented by credit
under the Company's revolving credit facility will be adequate to meet the
Company's requirements, including cash required to complete the proposed merger
with Morrison Knudsen Corporation (MK).
15
<PAGE>
Merger with MK
- --------------
The Company signed a restructuring and merger agreement with MK on May 28,
1996. Under the terms of the agreement, MK's senior creditors will receive
$13.3 million in cash, and approximately 24.2 million shares of the Company's
newly issued common stock, representing 45% of the shares outstanding after the
merger. The Company also agreed to pay in full MK's debtor-in-possession loan,
not to exceed $50 million. The existing shareholders of MK will receive
warrants to purchase 2,765,000 shares of the Company's common stock at $12.00
per share for a term of five years.
The agreement is subject to a number of conditions including confirmation of
the MK Plan of Reorganization pursuant to Section 1129 of the Bankruptcy Code,
and approval by the Company's shareholders. The Company filed a preliminary
proxy statement with the Securities and Exchange Commission on June 17, 1996.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 6(a). EXHIBITS.
Exhibit 27 Financial Data Shedule (electronic filing only).
ITEM 6(b). REPORTS ON FORM 8-K.
On March 4, 1996, the Company filed a Form 8-K, which included information under
Item 5 (other events) and Item 7 (exhibits).
On May 20, 1996, the Company filed a Form 8-K, which included information under
Item 5 (other events) and Item 7 (exhibits).
On May 31, 1996, the Company filed a Form 8-K, which included information under
Item 5 (other events) and Item 7 (exhibits).
17
<PAGE>
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.
WASHINGTON CONSTRUCTION GROUP, INC.
Date: July 10, 1996 /s/ John H. Wimberly
-------------------------
John H. Wimberly
President and
Chief Executive Officer
Date: July 10, 1996 /s/ Gregory J. Rutherford
---------------------------
Gregory J. Rutherford
Vice President and
Chief Financial Officer
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-Q FOR THE
PERIOD ENDED MAY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 24,863
<SECURITIES> 0
<RECEIVABLES> 65,131
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 100,879
<PP&E> 131,132
<DEPRECIATION> 65,666
<TOTAL-ASSETS> 191,109
<CURRENT-LIABILITIES> 47,374
<BONDS> 0
0
0
<COMMON> 295
<OTHER-SE> 129,497
<TOTAL-LIABILITY-AND-EQUITY> 191,109
<SALES> 144,699
<TOTAL-REVENUES> 144,699
<CGS> 135,441
<TOTAL-COSTS> 135,441
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 382
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