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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
MAY 31, 1997
Commission File Number 1-12054
MORRISON KNUDSEN CORPORATION
A Delaware Corporation
IRS Employer Identification No. 33-0565601
MORRISON KNUDSEN PLAZA, BOISE, IDAHO 83729
208 / 386-5000
At May 31, 1997, 54,038,927 shares of the registrant's $.01 par value common
stock were outstanding.
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
(or for such shorter period that the registrant was required to file such
reports) and has been subject to such filing requirements for the past 90
days.
/X/ Yes / / No
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MORRISON KNUDSEN CORPORATION
QUARTERLY REPORT FORM 10-Q FOR THE
SIX MONTHS ENDED MAY 31, 1997
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Condensed Consolidated Financial Statements and Notes Thereto
Statements of Operations for the Three and Six Months
Ended May 31, 1997 and 1996 I-1
Balance Sheets at May 31, 1997 and November 30, 1996 I-2
Statements of Cash Flows for the Six Months Ended
May 31, 1997 and 1996 I-4
Notes to Financial Statements I-5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations I-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings II-1
Item 6. Exhibits and Reports on Form 8-K II-1
SIGNATURES
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MORRISON KNUDSEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED MAY 31, 1997 AND 1996 (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
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THREE MONTHS ENDED SIX MONTHS ENDED
MAY 31, MAY 31,
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Revenue $414,225 $82,693 $803,755 $144,699
Cost of revenue (395,019) (76,897) (766,445) (135,441)
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Gross profit 19,206 5,796 37,310 9,258
General and administrative expenses (5,881) (3,830) (11,386) (9,120)
Goodwill amortization (891) (105) (1,796) (210)
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Operating income (loss) 12,434 1,861 24,128 (72)
Investment income 1,435 740 3,485 1,607
Interest expense (218) (192) (475) (382)
Other income (expense), net (60) 73 (127) 116
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Income before income taxes 13,591 2,482 27,011 1,269
Income tax expense (6,172) (868) (12,588) (443)
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Net income $ 7,419 $ 1,614 $ 14,423 $ 826
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Income per share $.14 $.06 $.27 $.03
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Common shares used to compute income per share 53,917 29,482 53,875 29,482
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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MORRISON KNUDSEN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AT MAY 31, 1997 (UNAUDITED) AND NOVEMBER 30, 1996
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
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ASSETS 1997 1996
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CURRENT ASSETS
Cash and cash equivalents $ 34,451 $ 48,310
Accounts receivable, including retentions of $37,275 in 1997
and $28,348 in 1996 196,628 222,341
Unbilled receivables 68,312 101,564
Refundable income taxes, net 11,209 10,806
Current portion of note receivable 3,000 3,000
Investments in and advances to construction joint ventures 35,897 24,538
Deferred income taxes 26,703 31,291
Other 12,474 17,399
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Total current assets 388,674 459,249
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INVESTMENTS AND OTHER ASSETS
Securities available for sale, at fair value 33,233 30,494
Investments in mining ventures 61,119 56,210
Assets held for sale 18,751 18,853
Cost in excess of net assets acquired, net of accumulated
amortization of $3,973 in 1997 and $2,177 in 1996 138,632 140,677
Note receivable, net of current portion 3,435 4,935
Deferred income taxes 26,930 31,555
Other 8,636 12,330
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Total investments and other assets 290,736 295,054
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PROPERTY AND EQUIPMENT, AT COST
Construction equipment 177,500 179,483
Land and improvements 7,110 7,110
Buildings and improvements 25,965 25,062
Equipment and fixtures 31,592 30,388
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Total property and equipment 242,167 242,043
LESS ACCUMULATED DEPRECIATION (161,335) (156,709)
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Property and equipment, net 80,832 85,334
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Total assets $760,242 $839,637
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
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<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 45,196 $ 68,926
Subcontracts payable, including retentions of $20,598 in 1997
and $27,006 in 1996 46,496 75,036
Billings in excess of cost and estimated earnings on uncompleted contracts 44,035 49,626
Advances from customers 5,404 11,280
Estimated costs to complete long-term contracts 87,127 100,832
Accrued salaries, wages and benefits 48,231 49,136
Income taxes payable 2,209 8,255
Other accrued liabilities 25,667 37,513
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Total current liabilities 304,365 400,604
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NON-CURRENT LIABILITIES
Postretirement benefit obligation 53,829 53,433
Accrued workers' compensation 27,123 26,061
Pension and deferred compensation liabilities 19,718 20,563
Environmental remediation obligations 8,815 8,972
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Total non-current liabilities 109,485 109,029
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CONTINGENCIES AND COMMITMENTS (Note 5)
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REDEEMABLE PREFERRED STOCK, issued 1,799,984 shares of Series A 18,000 18,000
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STOCKHOLDERS' EQUITY
Preferred stock, 10,000,000 shares authorized,
1,799,984 redeemable shares of Series A issued and outstanding
Common stock, par value $.01 per share; authorized 100,000,000 shares;
issued 54,100,946 and 53,808,748 541 538
Capital in excess of par value 245,766 242,669
Stock purchase warrants 6,560 6,564
Retained earnings 76,250 61,827
Treasury stock, 62,019 shares, at cost (682) --
Unearned compensation - restricted stock (12) (19)
Cumulative translation adjustments (216) (154)
Net unrealized gain on securities available for sale 185 579
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Total stockholders' equity 328,392 312,004
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Total liabilities and stockholders' equity $760,242 $839,637
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</TABLE>
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MORRISON KNUDSEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MAY 31, 1997 AND 1996 (UNAUDITED)
(THOUSANDS OF DOLLARS)
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1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 14,423 $ 826
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation of property and equipment 12,097 4,288
Amortization of goodwill 1,796 410
Deferred income taxes 8,384 --
Equity in net income of mining ventures, net of dividends received (4,740) --
Decrease in cash from changes in operating assets and liabilities (41,558) (7,544)
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Net cash used in operating activities (9,598) (2,020)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (6,740) (5,046)
Proceeds from disposals of property and equipment 2,308 2,160
Purchases of securities available for sale (5,676) --
Proceeds from sales of securities available for sale 2,511 --
Proceeds from collection of note receivable 1,500 --
Other investing activities (326) (45)
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Net cash used in investing activities (6,423) (2,931)
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CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt -- (219)
Proceeds from stock issued and other 2,162 (2)
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Cash provided (used) in financing activities 2,162 (221)
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Net increase (decrease) in cash and cash equivalents (13,859) 5,172
Cash and cash equivalents at beginning of period 48,310 30,035
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Cash and cash equivalents at end of period $ 34,451 $24,863
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Supplemental disclosure of cash paid for:
Interest $ 475 $362
Income taxes 9,111 15
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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MORRISON KNUDSEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION: On September 11, 1996, the Corporation (then known as
Washington Construction Group, Inc.) acquired the net assets and the
engineering and construction, environmental response service and mining
service operations of Morrison Knudsen Corporation ("Old MK") in a business
combination accounted for as a purchase and changed its name to Morrison
Knudsen Corporation. The acquisition of Old MK was an integral part of the
reorganization of Old MK pursuant to a plan of reorganization filed by Old MK
in the United States Bankruptcy Court for the District of Delaware, which
Plan was confirmed by the Bankruptcy Court on August 26, 1996, and became
effective concurrently with the business combination on September 11, 1996.
The Corporation provides global (i) engineering and construction
management services to industrial companies, electric utilities and public
agencies, (ii) comprehensive environmental and hazardous substance
remediation services to governmental and private-sector clients, (iii)
diverse heavy construction services for the highway, airport, water resource,
railway and commercial building industries, and (iv) mine planning,
engineering and contract mining services.
BASIS OF PRESENTATION: The accompanying condensed consolidated financial
statements include the accounts of the Corporation and all of its
majority-owned subsidiaries. Investments in 20% to 50% owned companies and
all construction joint ventures and mining ventures are accounted for by the
equity method. The Corporation's proportionate share of construction joint
venture and mining venture revenue, cost of revenue and gross profit (loss)
is included in the consolidated statements of operations. Intercompany
accounts and transactions are eliminated.
The accompanying unaudited consolidated financial statements and
financial statement footnotes should be read in conjunction with the audited
consolidated financial statements and financial statement footnotes included
in the Corporation's Annual Report on Form 10-K for the year ended November
30, 1996. The comparative consolidated balance sheet and related disclosures
at November 30, 1996 have been derived from the audited balance sheet and
financial statement footnotes.
The preparation of the Corporation's consolidated financial statements in
conformity with generally accepted accounting principles necessarily requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the balance sheet dates and the reported amounts of revenue and cost
during the reporting periods. Actual results could differ in the near term
from those estimates.
The Corporation has a substantial history of making reasonably dependable
estimates of the extent of progress towards completion, contract revenue and
contract completion costs on its long-term contracts. However, due to
uncertainties inherent in the estimation process, it is at least reasonably
possible that actual contract completion costs may vary from estimates in the
near term.
The accompanying consolidated financial statements reflect all
adjustments, consisting of normal recurring adjustments, that in the opinion
of management are necessary to a fair presentation of the results of
operations and cash flows for the interim periods presented. The results of
operations for the six months ended May 31, 1997 are not necessarily
indicative of the operating results to be expected for the full year.
CLASSIFICATION OF CURRENT ASSETS AND LIABILITIES: The Corporation includes in
current assets and liabilities amounts realizable and payable under contracts
that extend beyond one year. Accounts receivable at May 31, 1997 included
approximately $3,850 of contract retentions that are not expected to be
collected within one year, and $10,891 of short-term marketable securities
jointly held with customers as contract retentions, the market values of
which approximated the carrying amounts.
PREACQUISITION CONTINGENCIES: The Corporation allocated the purchase price of
Old MK to the assets acquired and liabilities assumed, including preacquisition
contingencies, on the basis of estimated fair values at September 11, 1996 or,
as applicable, reasonable estimates of the preacquisition contingencies the
occurrence of which is considered to be probable. The effects of resolving
preacquisition contingencies within one year of the acquisition date are
reflected as an adjustment to the goodwill recorded at the acquisition date. The
effects of resolving preacquisition contingencies after one year from the
acquisition date will be recognized in the determination of net income.
Unresolved
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preacquisition contingencies at May 31, 1997, in connection with the
acquisition of Old MK on September 11, 1996, include long-term contract
obligations, claims for additional revenue, performance guarantees, letters
of credit, environmental liabilities, results of government audits and legal
proceedings.
RECLASSIFICATIONS: Certain reclassifications have been made in prior period
financial statements to conform to the 1997 presentation.
2. STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
The Financial Accounting Standards Board Statement No. 123 ACCOUNTING FOR
STOCK-BASED COMPENSATION became effective December 1, 1996. The Statement
defines a fair value based method of accounting and reporting for stock-based
compensation plans. However, it also allows continued use of the intrinsic
value based method of accounting and reporting prescribed by previous
accounting standards. The Corporation has elected to continue to use the
intrinsic value method of accounting for stock-based compensation plans.
Accordingly, the Corporation will make pro forma disclosures of net income
and income per share for the year ending November 30, 1997 reflecting the
hypothetical effects of the application of the fair value based method of
accounting for such plans.
The Financial Accounting Standards Board has issued Statement No. 128
EARNINGS PER SHARE. The Corporation will implement the provisions of the
Statement in the quarter ending February 28, 1998. The Statement requires, in
all instances, the presentation of two earnings per share ("EPS") amounts:
basic EPS, which excludes dilution; and diluted EPS, which reflects the
potential dilution that could occur if the exercise of options or warrants or
conversion of convertible securities resulted in the issuance of common
stock. It also requires a reconciliation of the income available to common
stockholders and weighted-average shares used in the basic EPS computation to
the income available to common stockholders and weighted-average shares plus
dilutive potential common shares used in the diluted EPS computation. If the
provisions of the Statement were implemented effective December 1, 1996, the
amount of basic EPS for the three and six months ended May 31, 1997 would be
the same as the income per share amount reported in the accompanying
condensed consolidated statements of operations. The hypothetical issuance of
shares subject to outstanding stock options and warrants would not have had a
dilutive effect on the amounts of basic EPS reported for the three and six
months ended May 31, 1997.
The Financial Accounting Standards Board has issued Statement No. 129
DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE. The Statement continues
the requirements to disclose certain information about an enterprise's
capital structure prescribed by previous accounting standards. The
Corporation's current disclosures are in compliance with the requirements of
the Statement.
The Financial Accounting Standards Board has issued Statement No. 130
REPORTING COMPREHENSIVE INCOME. The Corporation will implement the provisions
of the Statement in the quarter ending February 28, 1999. The Statement
requires an enterprise to report certain changes in stockholders' equity that
are not reported in net income, except those resulting from investments by
and distributions to stockholders, and display these gains and losses below
net income in the income statement, in a separate statement that begins with
net income or in the statement of changes in stockholders' equity. The
provisions of the Statement are limited to issues of reporting and
presentation and do not affect matters of recognition and measurement of
items of comprehensive income. Consequently, the Corporation does not expect
the effect of its adoption of the Statement to be material.
The Financial Accounting Standards Board has issued Statement No. 131
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION which
supersedes Statement No. 14 FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS
ENTERPRISE. The Corporation will implement the provisions of the Statement
for the year ending November 30, 1999.
Generally, financial information is required to be reported on the basis
that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments. The Statement requires an enterprise
to report a measure of segment profit or loss, certain specific revenue and
expense items and segment assets. It requires reconciliations of total
segment revenues, total segment profit or loss, total segment assets, and
other amounts disclosed for segments to corresponding amounts in the
enterprise's financial statements. It requires an enterprise to report
information about the revenues derived from its products or services (or
groups of similar products and services), about the countries in which the
enterprise earns revenues and holds assets, and about major customers
regardless of whether that information is used in making operating decisions.
The Statement also requires an enterprise to report descriptive
information about the way that the operating segments were determined, the
products and services provided by the operating segments, differences between
the measurements used in
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reporting segment information and those used in the enterprise's financial
statements and changes in the measurement of segment amounts from period to
period.
In the initial year of application, comparative information for earlier
years is to be restated. The Statement need not be applied to interim
financial statements in the initial year of its application, but comparative
information for interim periods in the initial year of application is to be
reported in financial statements for interim periods in the second year of
application.
The provisions of the Statement relate primarily to issues of reporting
and presentation, and the Corporation does not expect the effect of its
adoption of the Statement to be material.
3. VENTURE SUMMARY FINANCIAL INFORMATION
CONSTRUCTION JOINT VENTURES: The Corporation participates in joint ventures,
generally as sponsor and manager of the joint ventures, which are formed to
bid, negotiate and complete specific projects, the size, scope and duration
of which vary among periods.
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(UNAUDITED)
COMBINED FINANCIAL POSITION OF CONSTRUCTION JOINT VENTURES MAY 31, 1997 NOVEMBER 30, 1996
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<S> <C> <C>
Current assets $239,860 $247,869
Property and equipment, net 6,724 5,684
Current liabilities (187,189) (216,763)
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Net assets $ 59,395 $ 36,790
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COMBINED RESULTS OF OPERATIONS OF CONSTRUCTION JOINT VENTURES (UNAUDITED) (UNAUDITED)
SIX MONTHS ENDED MAY 31, 1997 MAY 31, 1996
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Revenue $300,607 $51,179
Cost of revenue (251,602) (46,316)
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Gross profit $ 49,005 $ 4,863
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CORPORATION'S SHARE OF RESULTS OF OPERATIONS OF CONSTRUCTION
JOINT VENTURES (UNAUDITED) (UNAUDITED)
SIX MONTHS ENDED MAY 31, 1997 MAY 31, 1996
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Revenue $125,878 $23,345
Cost of revenue (110,442) (21,109)
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Gross profit $ 15,436 $ 2,236
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</TABLE>
Combined financial position at May 31, 1997 and November 30, 1996, and
results of operations of construction joint ventures for the six months ended
May 31, 1997, reflect ownership interests in and operating results of
construction joint ventures acquired in the business combination with Old MK
at September 11, 1996.
MINING VENTURES: At May 31, 1997, the Corporation had ownership interests in
two unconsolidated mining ventures, MIBRAG mbH (33%) and Westmoreland
Resources, Inc. ("Westmoreland Resources") (20%).
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<TABLE>
<CAPTION>
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(UNAUDITED)
COMBINED FINANCIAL POSITION OF MINING VENTURES MAY 31, 1997 NOVEMBER 30, 1996
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<S> <C> <C>
Current assets $316,994 $352,586
Non-current assets 128,864 114,835
Property and equipment, net 497,254 509,919
Current liabilities (102,562) (128,435)
Long-term debt (271,398) (259,084)
Other non-current liabilities (374,439) (411,432)
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Net assets $194,713 $178,389
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COMBINED RESULTS OF OPERATIONS OF MINING VENTURES (UNAUDITED)
SIX MONTHS ENDED MAY 31, 1997
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Revenue $198,848
Cost of revenue (181,214)
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Gross profit $ 17,634
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CORPORATION'S SHARE OF RESULTS OF OPERATIONS OF MINING VENTURES (UNAUDITED)
SIX MONTHS ENDED MAY 31, 1997
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Revenue $63,443
Cost of revenue (57,901)
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Gross profit $ 5,542
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</TABLE>
The Corporation received dividend distributions of $802 from
unconsolidated mining ventures during the six months ended May 31, 1997.
On December 23, 1996, Westmoreland Coal and four subsidiaries, including
Westmoreland Resources, filed for protection under Chapter 11 of the United
States Bankruptcy Code. The debtor corporations are in possession of their
respective properties and assets and are operating as debtors in possession
pursuant to the provisions of the Bankruptcy Code. The debtor corporations
have not filed a plan of reorganization as of the date of this quarterly
report, but expect to file one in the near term. No assurance can be given
that the debtor corporations will be successful in reorganizing their affairs
pursuant to the Chapter 11 bankruptcy proceedings. At May 31, 1997, the
carrying amount of the Corporation's ownership interest in Westmoreland
Resources was $5,689, and the Corporation's proportionate share of
Westmoreland Resources' revenue and earning for the six months ended May 31,
1997 was $4,259 and $503, respectively. The Corporation cannot presently
predict with any certainty to what extent, if any, its ownership interest in
Westmoreland Resources will ultimately be impaired, but such impairment, if
any, is not expected to have a material adverse effect on the Corporation's
financial position, results of operations or cash flows.
4. RELATED PARTY TRANSACTIONS
POTENTIAL BUSINESS ACQUISITION FROM A PRINCIPAL STOCKHOLDER: A principal
stockholder and Chairman of the Board of Directors of the Corporation
disclosed in a public filing with the Securities and Exchange Commission on
March 19, 1997 his intent to explore the possible exchange of stock owned by
him in an entity which has a 50.1% ownership interest in a copper and
molybdenum mine in Butte, Montana, for newly issued shares of the
Corporation's common stock having a then current market value of
approximately $125,000. The Corporation's Board of Directors has appointed a
special committee of three independent directors to evaluate and make a
recommendation to the Board regarding such a transaction. The special
committee of the Board has retained independent legal counsel and engaged the
services of a financial advisor. The
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Corporation has agreed to pay all expenses of the special committee,
including legal and financial advisory fees and expenses. The public filing
also disclosed that any such transaction would be subject to a number of
conditions, including approval by the special committee and satisfaction of
contractual rights of the minority ownership interest in the mine, if any.
There can be no assurance that such a transaction will be completed or, if
completed, as to the timing or terms thereof.
TRANSACTIONS WITH AFFILIATES: During the six months ended May 31, 1997 and
May 31, 1996, the Corporation rented construction equipment and aircraft,
purchased construction equipment and spare parts, mechanical and
transportation services from, and made charitable contributions to,
affiliates of a principal stockholder and Chairman of the Board of Directors
of the Corporation. The Corporation, by agreement dated August 1993,
purchases certain administrative, financial and business consulting, public
and government relations and aviation services from affiliates of this
principal stockholder for an annual fee of $1,140 plus expenses. In addition,
the Corporation and a brokerage firm owned by a member of the Board of
Directors entered into an agreement with respect to the provision to the
Corporation of insurance brokerage services for the period August 1, 1996
through December 31, 1997, pursuant to which the brokerage firm receives an
annual fee of $1,280 inclusive of commissions. The costs of these
transactions are reported in the accompanying statements of operations as
follows:
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(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
MAY 31, MAY 31,
1997 1996 1997 1996
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Property and equipment $ 404 $ 394 $ 404 $ 492
Cost of revenue 1,322 1,583 2,247 2,524
General and administrative expenses 492 594 1,058 1,053
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The Corporation also participated in a construction joint venture with,
performed construction services for, rented and sold equipment to affiliates
of a principal stockholder and Chairman of the Board of Directors of the
Corporation. The Corporation's investment in the joint venture was $150 at
May 31, 1997 and $1,080 at November 30, 1996. The revenue and gross profit
from these operations and transactions are reported in the accompanying
statements of operations as follows:
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(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
MAY 31, MAY 31,
1997 1996 1997 1996
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Revenue $112 $2,905 $523 $4,381
Gross profit 28 596 193 835
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5. CONTINGENCIES AND COMMITMENTS
SUMMITVILLE ENVIRONMENTAL MATTERS: From July 1985 to June 1989, a subsidiary
of the Corporation performed certain contract mining services at the
Summitville mine near Del Norte, Colorado. The United States Environmental
Protection Agency (the "EPA") has notified the Corporation and approximately
20 other parties that each is a potentially responsible party ("PRP") with
regard to hazardous substances generated or disposed of at the Summitville
Mine Superfund Site (the "Site"). The EPA has not commenced any litigation or
other proceedings against the Corporation. The Corporation has had only
preliminary discussions with the EPA but has been informally advised that the
EPA does not consider the Corporation eligible for a de minimis settlement
(the basis for settlement by several PRPs considered to have contributed less
than 3% volume and toxicity of the hazardous substances at the Site).
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According to a report published in August 1996, the EPA estimated that
the total remediation costs incurred and to be incurred at the Site will be
$120,000. The Corporation is not a party to any agreement regarding an
allocation of responsibility, and the EPA has not made an allocation of
responsibility among the PRPs. The Corporation's share, if any, of the
aggregate environmental liability associated with the Site is not presently
determinable and depends upon, among other things, the manner in which
liability may be allocated to or among the Corporation or other PRPs
associated with the Site, the efficacy of any defenses that the Corporation
or such other PRPs may have to any assertion of liability, the willingness
and ability of such other PRPs to discharge such liability as may be
allocated to them and the outcome of any negotiations or settlement
discussions between the Corporation and the EPA and/or such other PRPs.
Accordingly, the Corporation has no accrued liability for remediation costs
at May 31, 1997.
Management believes that the ultimate resolution of this matter could
have a material adverse effect on the Corporation's financial position and
could materially and adversely affect its results of operations and cash
flows in one or more periods.
OTHER ENVIRONMENTAL MATTERS: The Corporation assumed a discounted liability
of Old MK of $4,000 for the estimated costs of monitoring and treatment of
ground water contamination at or adjacent to rail facilities in Boise, Idaho,
previously owned by Old MK. In December 1996, the current owner and operator
of the facilities qualified for a post-closure permit and assumption of
related monitoring and treatment obligations for such facilities. The
Corporation has not adjusted the accrued liability pending fulfillment of the
obligation by the current owner. The cost, and the Corporation's share
thereof, if any, of remediation of the contamination at the facilities cannot
be estimated at this time and, accordingly, no liability has been accrued.
The Corporation has been identified as a PRP and is contingently liable
for remediation liabilities in connection with Old MK's former Transit
business. The Corporation agreed to indemnify the buyer of the Transit
business for remediation costs and recorded an estimated undiscounted
liability of $3,000. It is possible that the ultimate cost, which cannot be
determined at this time, could exceed the Corporation's recorded liability by
a material amount.
The Corporation has recorded an undiscounted liability of Old MK, which
at May 31, 1997 was $1,815, for environmental cleanup activities at four
other sites. The Corporation estimates that such costs could range from
$1,550 to $3,300 in the aggregate.
CONTRACT-RELATED MATTERS: In 1995, Old MK entered into a fixed-price
contract with the Texas Natural Resource Conservation Commission ("TNRCC")
for construction of a solvent-extraction facility and treatment of
contaminated soil at a Superfund site in Texas. The facility is required to
meet certain specific treatment and volume performance criteria. The facility
is currently processing contaminated waste and is exceeding the treatment
criteria, but has not met the volume criteria. On July 7, 1997, TNRCC
notified the Corporation that, subject to a sixty-day "cure" period expiring
September 5, 1997, TNRCC was terminating the contract due to the failure of
the Corporation to fulfill its obligations thereunder. If the treatment
facility does not meet the volume criteria by the expiration of the "cure"
period or the Corporation does not successfully negotiate modifications that
effectively change, among other things, the manner of performance and/or the
period for completion of the work, TNRCC may seek to recover up to $13,619 of
advances by drawing on an outstanding letter of credit issued at the request
of the Corporation (and under which the Corporation would have an obligation
to reimburse the issuer for any amounts so drawn). The Corporation has
accrued $6,300 for cost overrun contingencies, including potential liquidated
damages. While there can be no assurance with respect thereto, the
Corporation believes that it can resolve the matter without incurring costs
or obligations in excess of such accrual. In addition, the Corporation has
asserted claims against TNRCC for additional revenue resulting from
customer-caused delays, changed conditions and other causes of unanticipated
costs.
In connection with a 1989 sale of Old MK's ownership interest in a
shipbuilding subsidiary, the Corporation assumed a guarantee of port facility
industrial revenue bonds of $21,000 through 2002. The former subsidiary has
collateralized the bonds with certain assets and has deposited $2,758 in a
bond retirement fund at May 31, 1997. The Corporation does not anticipate a
loss as a result of this guarantee.
The Corporation is contingently liable under a residual value guarantee
at the termination of a long-term locomotive lease agreement in 2005 between
a third-party equipment lessor and one of Old MK's customers relating to the
sale by Old MK of 25 remanufactured locomotives to the lessor. The estimated
range of the contingent liability is from $2,203 Australian ($1,675 U.S.) at
May 31, 1997, increasing over the lease term to $13,876 Australian ($10,547
U.S.) in 2005. The Corporation does not anticipate a loss as a result of this
guarantee.
The Corporation has a number of cost reimbursable contracts with the
U.S. government, the allowable costs of which are subject to adjustments upon
audit by various agencies of the U.S. government. Audits of the Corporation's
I-10
<PAGE>
allocations of periodic costs of self-insurance programs and general and
administrative expenses for years ended 1987 through 1995 are in progress.
Proposed claims and cost disallowances aggregate approximately $23,300. The
Corporation believes that the government's claims and disallowances are
overstated and has an accrued liability at May 31, 1997 of approximately
$14,100. The Corporation does not believe that the ultimate cost, which
cannot be determined at this time, will exceed the Corporation's accrued
liability.
LETTERS OF CREDIT: In the normal course of business, the Corporation causes
letters of credit to be issued in connection with contract performance
obligations which are not reflected in the balance sheet. The Corporation is
obligated to reimburse the issuer of such letters of credit for any payments
made thereunder. At May 31, 1997, $51,413 in face amount of such letters of
credit were outstanding, including a $13,619 letter of credit issued in
connection with the contract performance obligation to TNRCC discussed above.
The Corporation has pledged securities available for sale as collateral for
its reimbursement obligations in respect of $16,106 in face amount of certain
letters of credit.
OTHER: Former shareholders of TMS, Inc. ("TMS"), which was acquired by Old
MK in December 1992, filed an action in December 1995 alleging they were
falsely induced to enter into an agreement to exchange TMS shares for common
stock of Old MK and related noncompetition agreements by Old MK. Plaintiffs
seek compensatory damages of $7,500, treble damages, punitive damages of
$5,000, pre-and postjudgment interest and attorneys' fees. The Corporation's
motion to dismiss the action was granted on May 23, 1997. The plaintiffs
filed a notice of appeal regarding the dismissal on June 10, 1997. The
Corporation believes that it has insurance coverage for all or a substantial
part of any damages that may be awarded in this matter. Although the ultimate
outcome of this matter cannot be predicted with certainty, management
believes that the outcome will not have a material adverse effect on the
Corporation's financial position, results of operations or cash flows.
There are other claims, lawsuits, disputes with third parties,
investigations and administrative proceedings against the Corporation and its
subsidiaries relating to matters in the ordinary course of its business
activities that are not expected to have a material adverse effect on the
Corporation's financial position, results of operations or cash flows.
I-II
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE CORPORATION'S FINANCIAL POSITION AT MAY 31, 1997 AND ITS RESULTS OF
OPERATIONS AND CASH FLOWS FOR THE THREE AND SIX MONTHS THEN ENDED WERE
SIGNIFICANTLY IMPACTED BY THE ACQUISITION OF OLD MK ON SEPTEMBER 11, 1996 AND
ARE NOT COMPARABLE TO THE CORPORATION'S FINANCIAL POSITION, RESULTS OF
OPERATIONS AND CASH FLOWS FOR PRIOR PERIODS.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED MAY 31, 1997 COMPARED TO
THE THREE AND SIX MONTHS ENDED MAY 31, 1996
THE CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED MAY
31, 1997 AND MAY 31, 1996 INCLUDE THE RESULTS OF OLD MK'S OPERATIONS FOR ONLY
THE THREE AND SIX MONTHS ENDED MAY 31, 1997.
- -------------------------------------------------------------------------------
THREE MONTHS SIX MONTHS
ENDED MAY 31, ENDED MAY 31,
(MILLIONS OF DOLLARS) 1997 1996 1997 1996
- -------------------------------------------------------------------------------
Revenue $414.2 $82.7 $803.8 $144.7
Gross profit 19.2 5.8 37.3 9.3
General and administrative expenses (5.9) (3.8) (11.4) (9.1)
Goodwill amortization (.9) (.1) (1.8) (.2)
Investment income 1.4 .7 3.5 1.6
Interest expense (.2) (.2) (.5) (.4)
Income before income taxes 13.6 2.5 27.0 1.3
Income tax expense (6.2) (.9) (12.6) (.5)
Net income 7.4 1.6 14.4 .8
- -------------------------------------------------------------------------------
REVENUE AND GROSS PROFIT: Revenue and gross profit for the three and six
months ended May 31, 1997 increased significantly compared to the three and
six months ended May 31, 1996, principally due to the acquisition of Old MK.
Gross profit, as a percent of revenue, was 4.6% for the three and six months
ended May 31, 1997 compared to 7.0% and 6.4% for the comparable periods of
1996. Gross profit for the three and six months ended May 31, 1997 was
increased for changes in estimates on contracts nearing completion by $5.8
million and $4.4 million, respectively. Changes in estimates for contracts in
progress reduced gross profit by $4.3 million and $8.2 million for the three
and six months ended May 31, 1997, respectively. The primary reason for the
reduction in gross profit for the three and six months ended May 31, 1997 was
provisions for losses estimated at completion for contracts in progress of
$5.8 million and $9.5 million, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses of
$9.1 million for the six months ended May 31, 1996 include $1.5 million of
expenses for termination and other costs related to the reorganization and
consolidation of certain corporate functions from Montana to California.
Excluding these nonrecurring expenses, general and administrative expenses
for the three and six months ended May 31, 1997 increased $2.1 million and
$3.6 million, respectively, from the comparable periods of 1996, principally
due to the retention of substantially all of Old MK's administrative
functions necessary to support the Corporation's expanded engineering,
construction, mining and environmental response services both domestically
and internationally.
GOODWILL AMORTIZATION: Goodwill amortization for the three and six months
ended May 31, 1997 increased $.8 million and $1.6 million, respectively, from
the comparable periods of 1996, reflecting the periodic amortization of the
$125.1 million goodwill recorded in connection with the acquisition of Old
MK, using the straight-line method over 40 years. Goodwill amortization for
1997 is estimated to be $3.6 million. However, resolution of certain
preacquisition contingencies within one year of the acquisition date may
effect the amount of goodwill and the related amortization.
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<PAGE>
INVESTMENT INCOME: Investment income is comprised of (i) earnings from cash
equivalents, securities jointly held with customers as contract retentions
and securities available for sale, and (ii) interest on a note receivable and
anticipated claims for U.S. federal income tax refunds. Investment income
for the three and six months ended May 31, 1997 increased $.7 million and
$1.9 million, respectively, from the comparable periods of 1996, principally
due to interest recognized on claims for U.S. federal income tax refunds and
earnings from securities available for sale.
INTEREST EXPENSE: Interest expense for the three and six months ended May 31,
1997 increased slightly from the comparable periods of 1996, principally due
to the periodic amortization of the $1.1 million prepaid underwriting fee in
connection with the Corporation's five-year, $200.0 million revolving loan
and letter of credit facility obtained in the fourth quarter of 1996.
INCOME TAX EXPENSE: The effective tax rates for the three and six months
ended May 31, 1997 were 45% and 47%, respectively. These effective rates were
greater than the U.S. federal statutory rate of 35%, primarily due to the
impact of state and foreign income taxes and expenses which are not
deductible in computing taxable income. The income tax expense for the
comparable three and six months ended May 31, 1996 was provided at a rate of
35%.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES (THOUSANDS OF DOLLARS)
- ----------------------------------------------------------------------------
MAY 31,
(THOUSANDS OF DOLLARS) 1997 1996
- ----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS:
Beginning of period $48,310 $30,035
End of period 34,451 24,863
- ----------------------------------------------------------------------------
SIX MONTHS ENDED
MAY 31,
1997 1996
- ----------------------------------------------------------------------------
NET CASH PROVIDED (USED) IN:
Operating activities $ (9,598) $ (2,020)
Investing activities (6,423) (2,931)
Financing activities 2,162 (221)
- ----------------------------------------------------------------------------
The Corporation has three principal sources of near-term liquidity: (i)
existing cash and equivalents; (ii) cash generated by operations, and (iii)
available revolving loan borrowings. Management believes the Corporation's
liquidity and capital resources should be sufficient to meet its reasonably
foreseeable working capital, capital expenditure and other anticipated cash
requirements.
Cash and equivalents at May 31, 1997 decreased $13.9 million to $34.4
million from $48.3 million at November 30, 1996, reflecting primarily the use
of $9.6 million cash for operating activities, $4.4 million for net
acquisitions of property and equipment and $3.2 million for net purchases of
securities held for sale offset by an aggregate of $3.7 million cash proceeds
from stock transactions and note receivable. The Corporation had no
outstanding borrowings under its credit facility at May 31, 1997.
The Corporation anticipates capital expenditures for major construction
equipment of approximately $21.0 million during the remainder of 1997 for
normal replacement and to meet near-term equipment requirements for new work.
Capital expenditures for the six months ended May 31, 1997 were $6.7 million.
The Corporation may pursue opportunities to complement existing
operations through business combinations and ownership interests in ventures,
which may require additional financing and utilization of the Corporation's
capital resources, and may materially affect the Corporation's financial
position, results of operations and cash flows. A principal stockholder and
Chairman of the Board of Directors of the Corporation disclosed on March 19,
1997 in a public filing with the Securities and Exchange Commission his
intention to explore the possible exchange of stock owned by him in an entity
which has a 50.1% ownership interest in a copper and molybdenum mine in
Butte, Montana, for newly issued shares of the Corporation's common stock
having a then current market value of approximately $125.0 million.
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<PAGE>
Depending upon conditions in the capital markets and other factors, the
Corporation may from time to time consider the possible issuance of long-term
debt or other securities or other capital market transactions.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statements No. 123
ACCOUNTING FOR STOCK-BASED COMPENSATION, No. 128 EARNINGS PER SHARE, No. 129
DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE, No. 130 REPORTING
COMPREHENSIVE INCOME and No. 131 DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE
AND RELATED INFORMATION. See Note 2 "Statements of Financial Accounting
Standards" of Notes to Condensed Consolidated Financial Statements for the
impact, if any, that recently issued accounting standards are expected to
have on the Corporation' financial statements when adopted.
BACKLOG
Backlog of all uncompleted contracts at May 31, 1997 was $3,528 million,
compared with $3,520 million at November 30, 1996.
ENVIRONMENTAL CONTINGENCY
From July 1985 to June 1989, a subsidiary of the Corporation performed
certain contract mining services at the Summitville mine near Del Norte,
Colorado. The United States Environmental Protection Agency ("EPA") has
notified the Corporation and approximately 20 other parties that each is a
potentially responsible party ("PRP") with regard to hazardous substances
generated or disposed of at the Summitville Mine Superfund Site. The EPA has
not commenced any litigation or other proceedings against the Corporation.
The Corporation has had only preliminary discussions with the EPA but has
been informally advised that the EPA does not consider the Corporation
eligible for a de minimis settlement (the basis for settlement by several
PRPs considered to have contributed less than 3% volume and toxicity of the
hazardous substances at the Site).
According to a report published in August 1996, the EPA estimated that
the total remediation costs incurred and to be incurred at the Site will be
$120.0 million. The Corporation is not a party to any agreement regarding an
allocation of responsibility, and the EPA has not made an allocation of
responsibility among the PRPs. The Corporation's share, if any, of the
aggregate environmental liability associated with the Site is not presently
determinable and depends upon, among other things, the manner in which
liability may be allocated to or among the Corporation or other PRPs
associated with the Site, the efficacy of any defenses that the Corporation
or such other PRPs may have to any assertion of liability, the willingness
and ability of such other PRPs to discharge such liability as may be
allocated to them and the outcome of any negotiations or settlement
discussions between the Corporation and the EPA and/or such other PRPs.
Accordingly, the Corporation has no accrued liability for remediation costs
at May 31, 1997.
Management believes that the ultimate resolution of this matter could
have a material adverse effect on the Corporation's financial position and
could materially and adversely affect its results of operations and cash
flows in one or more periods.
I-14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Former shareholders of TMS, Inc. ("TMS"), which was acquired by Old MK in
December 1992, filed an action in December 1995 alleging they were falsely
induced to enter into an agreement to exchange TMS shares for common stock of
Old MK and related noncompetition agreements by Old MK. Plaintiffs seek
compensatory damages of $7,500, treble damages, punitive damages of $5,000,
pre-and postjudgment interest and attorneys' fees. The Corporation's motion
to dismiss the action was granted on May 23, 1997. The plaintiffs filed a
notice of appeal regarding the dismissal on June 10, 1997. The Corporation
believes that it has insurance coverage for all or a substantial part of any
damages that may be awarded in this matter. Although the ultimate outcome of
this matter cannot be predicted with certainty, management believes that the
outcome will not have a material adverse effect on the Corporation's
financial position, results of operations or cash flows.
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
On March 17, 1997, the registrant filed a current report of Form 8-K to
disclose that a principal stockholder and member of the Board of Directors
filed an amendment to his Schedule 13D indicating an interest in the
possible sale to the registrant of his 50.1% equity interest in a copper
and molybdenum mine.
On April 22, 1997, the registrant filed a current report on Form 8-K to
announce the appointment of A. S. Cleberg as Executive Vice President and
Chief Financial Officer.
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/ Anthony S. Cleberg
----------------------------
Executive Vice President and Chief
Financial Officer, in his respective
capacities as such
Date: July 14, 1997
II-1
<PAGE>
MORRISON KNUDSEN CORPORATION
EXHIBIT INDEX
COPIES OF EXHIBITS WILL BE SUPPLIED UPON REQUEST. EXHIBITS WILL BE PROVIDED
AT A FEE OF $.25 PER PAGE REQUESTED.
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
- ------- --------
10.1 * The registrant's employment agreement with A. S. Cleberg dated as
of April 11, 1997 (1).
10.2 * The registrant's employment agreement with C. Stephen Allred dated
as of April 26, 1996 (1).
10.3 * The registrant's employment agreement with S. Y. Chi dated as of
April 26, 1996 (1).
10.4 * The form of the registrant's Indemnification Agreement (filed as
Exhibit 10.20 to the registrant's Form 10-K Annual Report for
fiscal year ended November 30, 1996 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.
- ------------------------
(1) Management contract or compensatory plan or arrangement.
E-1
<PAGE>
EXHIBIT 10.1
April 11, 1997
Mr. A. S. (Tony) Cleberg
5579 Bristol Lane
Minnetonka, MN 55343
RE: OFFER OF EMPLOYMENT
Dear Tony:
On behalf of Morrison Knudsen Corporation (the "Company"), I am pleased to offer
you employment pursuant to the terms and conditions set forth in this letter and
subject to Board of Director approval.
1. POSITION AND SERVICES TO BE RENDERED. The Company hereby agrees to
employ you as Executive Vice President and Chief Financial Officer,
beginning on or about May 1, 1997. You accept such employment and
agree to devote your full time and attention exclusively to rendering
services to the Company. You will report to the Company's Chief
Executive Officer. Your actual first date of active employment with
the Company (whether May 1, 1997, or some other date) will hereafter
be referred to as the "Effective Date".
2. SALARY. You will receive an annual base salary of $250,000 commencing
as of the Effective Date, payable in accordance with the Company's
normal payroll practice (i.e., every two weeks). Your position will
be a regular full-time position and you will be assigned a Grade Level
of 40. The Company will review your base salary annually to determine
any increase.
3. SIGNING BONUS. You will be paid a signing bonus of $200,000. This
payment will be made on the first payroll period following the
effective date.
4. ANNUAL CASH BONUS. You will be considered for a 40% of base salary
annual cash bonus at the end of each fiscal year as determined by the
Executive Compensation & Nominating Committee of the Board of
Directors.
<PAGE>
Anthony S. Cleberg
April 11, 1997
Page 2
5. STOCK OPTIONS. You will be granted options to purchase 150,000 shares
of the Company's common stock under the Company's Stock Compensation
Plan at a price equal to the per share closing price of the Company's
common stock as of the Effective Date. The option shall vest 20% each
year for five years. Such option shall be subject to the terms and
conditions of the Stock Compensation Plan and such additional
conditions as the Executive Compensation & Nominating Committee may
impose.
6. FRINGE BENEFITS. You will be entitled to the Company's standard
relocation assistance when you move from Minneapolis, Minnesota to
Boise, 401(k) Savings Plan, group medical and dental plan, and all
other group plans and other benefits that are normally offered to
regular full-time salaried employees. Prior to your move to Boise,
you will receive two coach fare round trip tickets per month from
Minneapolis to Boise, not to exceed four months from the Effective
Date. In addition, you shall be entitled to receive all other, if
any, perquisites and fringe benefits normally offered to executives of
the Company who are part of its senior management, including annual
executive physicals and company country or business club membership.
7. EXECUTIVE LIFE AND DISABILITY. In addition to the fringe benefits set
forth in paragraph 5 herein, during your employment, you will be
provided with supplemental benefits at no cost to you which shall
result in the following levels of coverage, inclusive of any coverage
provided by basic Company-sponsored benefits:
a. Pre-retirement (up to age 65) life insurance equal to three times
your annual base salary;
b. Post-retirement (age 65) life insurance equal to one times your
annual base salary as of the date of your retirement; and
c. Disability coverage from all Company-sponsored and government
sources equal to 60% of the sum of your base salary plus annual
Executive Incentive Plan bonus, less any offsets under the terms
of such disability programs.
8. CONTINGENCIES. This employment offer must be contingent upon the
following contingencies:
a. Your passing of a drug screening test, pursuant to the Company's
Substance Abuse Prevention Program, and your continued compliance
with such program. After reporting to work, you will also be
required to complete an "Employment Certification" form that
complies with the passing of the Drug-Free Workplace Act of 1988.
<PAGE>
Anthony S. Cleberg
April 11, 1997
Page 3
b. Your compliance with the following laws:
- In accordance with Public Law 99-603, the Immigration and
Naturalization Act of 1986, this offer is made pending receipt of
verifiable documentation from you confirming your eligibility for
employment under the terms and conditions of this Act. Proof of
U.S. citizenship or adequate identification is required before
any hire can be processed. You must present acceptable documents
for employment eligibility verifications when you report for your
first day of work.
- In accordance with Public Law 100-679, the Office of Federal
Procurement Policy Act Amendments of 1988, the Company is
prohibited for a period of two years from hiring former
government officials or employees (military or civilian) who
participated personally and substantially in the conduct of any
Federal agency procurement. Consequently, this offer is
contingent upon receipt of information from you that your
employment with the Company will not result in a violation of the
Procurement Policy Act. You will be required to complete an
employee certification form verifying your prior employment
before your employment with the Company begins.
By accepting this employment offer, you agree to the terms and conditions
established herein. To indicate your acceptance of this offer, please sign the
facsimile copy of this letter and return it to me. An original will be provided
for your signature at a later date. If you have any questions, please do not
hesitate to contact me.
Sincerely,
/s/ Robert A. Tinstman
Robert A. Tinstman
AGREED AND ACCEPTED:
/s/ Anthony S. Cleberg
- ------------------------------
Anthony S. Cleberg
DATE:
4/11/97
- ------------------------------
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made as of the 26th day of April,
1996, by and between Morrison Knudsen Corporation, a Delaware corporation
("Company"), and C STEPHEN ALLRED, an executive employee of the Company
("Executive").
WHEREAS, Executive has rendered valuable services to Company, and has acquired
an extensive background in and knowledge of Company's business; and
WHEREAS, Company desires to continue the services of Executive in such executive
capacity as the parties may mutually agree.
NOW, THEREFORE, in consideration of the foregoing, Company and Executive agree
as follows:
ARTICLE 1 - TERM
1.1 Company shall employ Executive and Executive accepts such employment for a
term beginning on the effective date of this Agreement and ending December 31,
1998, upon the terms and conditions set forth herein, unless such employment is
earlier terminated in accordance with the provisions herein.
ARTICLE 2 - DEFINITIONS
For purposes of this Agreement, the following terms shall have the meanings set
forth below:
2.1 "BASE COMPENSATION" shall mean an amount per annum equal to the annual base
salary rate in effect for Executive immediately preceding termination of
employment.
2.2 "CAUSE" shall mean (i) willful refusal by Executive to follow a lawful
written order of the Chief Executive Officer, (ii) Executive's willful and
continued failure to perform his duties under this Agreement (except due to
Executive's incapacity due to physical or mental illness) after a written demand
is delivered to Executive by the Chief Executive Officer specifically
identifying the manner in which the Chief Executive Officer believes that
Executive has failed to perform his duties, (iii) Executive's willful engagement
in conduct materially injurious to the Company, or (iv) Executive's conviction
for any felony involving moral turpitude. For purposes of clauses (i), (ii),
and (iii) of this definition, no act, or failure to act on Executive's part
shall be deemed "willful" unless done, or omitted to be done, by Executive not
in good faith and without reasonable belief that Executive's act, or failure to
act, was in the best interests of Company.
2.3 "CONSTRUCTIVE TERMINATION" shall mean Executive's voluntary termination of
employment within ninety (90) days following the occurrence of one or more of
the following events, unless such event is approved in writing by Executive in
advance of such event:
<PAGE>
(i) A failure by the Company to abide by any part of this Agreement that is not
remedied within ten (10) business days of notification by Executive of such
failure, including any violation of Executive's rights as described in
Section 3 of this Agreement unless such rights are replaced by alternative
rights of approximately equal value; or
(ii) A reduction in Executive's title or responsibilities in effect on the
execution of this agreement.
2.4 "DISABILITY" shall be deemed to have occurred if Executive makes
application for disability benefits under any Company-sponsored long-term
disability program (whether insured or self-insured, basic or supplemental)
covering Executive and qualifies for such benefits.
2.5 "RETIREMENT" shall mean Executive's termination of service with Company on
or after his Early Retirement Date or Normal Retirement Date as defined in the
Morrison Knudsen Corporation Retirement Plan, established January 1, 1988 and
frozen December 31, 1991 (the "MKRP"), assuming that the MKRP had never been
frozen.
ARTICLE 3 - COMPENSATION AND BENEFITS
Executive shall receive the annual base salary set by Company, which salary
shall be commensurate with Executive's duties and consistent with the
compensation policies of the Executive Compensation and Nominating Committee of
Company's Board of Directors. Such salary shall be, at a minimum, the amount of
base salary in effect for Executive as of the date this Agreement is executed.
At least annually, Company will review Executive's base salary to determine the
amount of any increase. Upon any such increase in Executive's base salary, such
increased rate shall thereafter constitute Executive's annual base salary for
all purposes of this Agreement.
ARTICLE 4 - RIGHTS UPON TERMINATION
In the event that Executive's employment with Company is terminated for any
reason other than (a) death, (b) Disability, (c) Cause, (d) voluntary
resignation by Executive not constituting Constructive Termination or (e)
Retirement before the expiration of the term, Company will pay to Executive Base
Salary for a period of 18 months.
Base salary payments shall be made when payments would otherwise have been made
to Executive if he were still employed by Company.
In the event Executive's employment with Company is terminated for death,
Disability, Cause, voluntary resignation not constituting Constructive
Termination or Retirement, Executive shall not be entitled to any benefits under
this Agreement. This statement, however, shall not preclude Executive from any
payments or benefits available to Executive from participation in
Company-sponsored plans or programs that are generally applicable to salaried
personnel.
2
<PAGE>
ARTICLE 5 - MITIGATION AND OFFSET
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking employment or otherwise, nor to offset the
amount of any payment provided for in this Agreement by amounts earned as a
result of Executive's employment or self-employment during the period he is
entitled to such payment.
ARTICLE 6 - SUCCESSORS
The rights and duties of a party hereunder shall not be assignable by that
party; provided, however, that this Agreement shall be binding upon and inure to
the benefit of any successor of Company, and any such successor shall be deemed
substituted for Company under the terms of this Agreement. The term successor
as used herein shall include any person, firm, corporation or other business
entity which at any time, by merger, purchase or otherwise, acquires all or
substantially all of the assets or business of Company.
ARTICLE 9 - ENTIRE AGREEMENT
With respect to the matters specified herein, this Agreement contains the entire
agreement between the parties and supersedes all prior oral and written
agreements, understandings and commitments between the parties. This Agreement
shall not affect the provisions of any other compensation, retirement or other
benefit programs of Company to which Executive is a party.
ARTICLE 10 - VALIDITY
In the event that any provision of this Agreement is held to be invalid, void or
unenforceable, the same shall not affect, in any respect whatsoever, the
validity of any other provision of the Agreement.
IN WITNESS WHEREOF, Company has executed this Agreement by a duly authorized
officer, and Executive this 26 day of Apr , 1996.
EXECUTIVE MORRISON KNUDSEN CORPORATION
/s/ C Stephen Allred /s/ Stephen G. Hanks
- ------------------------------ ------------------------------
Signature By: Stephen G. Hanks
Its: Executive Vice President and
Chief Legal Officer
5/3/96
- ------------------------------ ------------------------------
Date Date
3
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made as of the 26th day of April,
1996, by and between Morrison Knudsen Corporation, a Delaware corporation
("Company"), and STEVEN Y CHI, an executive employee of the Company
("Executive").
WHEREAS, Executive has rendered valuable services to Company, and has acquired
an extensive background in and knowledge of Company's business; and
WHEREAS, Company desires to continue the services of Executive in such executive
capacity as the parties may mutually agree.
NOW, THEREFORE, in consideration of the foregoing, Company and Executive agree
as follows:
ARTICLE 1 - TERM
1.1 Company shall employ Executive and Executive accepts such employment for a
term beginning on the effective date of this Agreement and ending December 31,
1998, upon the terms and conditions set forth herein, unless such employment is
earlier terminated in accordance with the provisions herein.
ARTICLE 2 - DEFINITIONS
For purposes of this Agreement, the following terms shall have the meanings set
forth below:
2.1 "BASE COMPENSATION" shall mean an amount per annum equal to the annual base
salary rate in effect for Executive immediately preceding termination of
employment.
2.2 "CAUSE" shall mean (i) willful refusal by Executive to follow a lawful
written order of the Chief Executive Officer, (ii) Executive's willful and
continued failure to perform his duties under this Agreement (except due to
Executive's incapacity due to physical or mental illness) after a written demand
is delivered to Executive by the Chief Executive Officer specifically
identifying the manner in which the Chief Executive Officer believes that
Executive has failed to perform his duties, (iii) Executive's willful engagement
in conduct materially injurious to the Company, or (iv) Executive's conviction
for any felony involving moral turpitude. For purposes of clauses (i), (ii),
and (iii) of this definition, no act, or failure to act on Executive's part
shall be deemed "willful" unless done, or omitted to be done, by Executive not
in good faith and without reasonable belief that Executive's act, or failure to
act, was in the best interests of Company.
2.3 "CONSTRUCTIVE TERMINATION" shall mean Executive's voluntary termination of
employment within ninety (90) days following the occurrence of one or more of
the following events, unless such event is approved in writing by Executive in
advance of such event:
<PAGE>
(i) A failure by the Company to abide by any part of this Agreement that is not
remedied within ten (10) business days of notification by Executive of such
failure, including any violation of Executive's rights as described in
Section 3 of this Agreement unless such rights are replaced by alternative
rights of approximately equal value; or
(ii) A reduction in Executive's title or responsibilities in effect on the
execution of this agreement.
2.4 "DISABILITY" shall be deemed to have occurred if Executive makes
application for disability benefits under any Company-sponsored long-term
disability program (whether insured or self-insured, basic or supplemental)
covering Executive and qualifies for such benefits.
2.5 "RETIREMENT" shall mean Executive's termination of service with Company on
or after his Early Retirement Date or Normal Retirement Date as defined in the
Morrison Knudsen Corporation Retirement Plan, established January 1, 1988 and
frozen December 31, 1991 (the "MKRP"), assuming that the MKRP had never been
frozen.
ARTICLE 3 - COMPENSATION AND BENEFITS
Executive shall receive the annual base salary set by Company, which salary
shall be commensurate with Executive's duties and consistent with the
compensation policies of the Executive Compensation and Nominating Committee of
Company's Board of Directors. Such salary shall be, at a minimum, the amount of
base salary in effect for Executive as of the date this Agreement is executed.
At least annually, Company will review Executive's base salary to determine the
amount of any increase. Upon any such increase in Executive's base salary, such
increased rate shall thereafter constitute Executive's annual base salary for
all purposes of this Agreement.
ARTICLE 4 - RIGHTS UPON TERMINATION
In the event that Executive's employment with Company is terminated for any
reason other than (a) death, (b) Disability, (c) Cause, (d) voluntary
resignation by Executive not constituting Constructive Termination or (e)
Retirement before the expiration of the term, Company will pay to Executive Base
Salary for a period of 18 months.
Base salary payments shall be made when payments would otherwise have been made
to Executive if he were still employed by Company.
In the event Executive's employment with Company is terminated for death,
Disability, Cause, voluntary resignation not constituting Constructive
Termination or Retirement, Executive shall not be entitled to any benefits under
this Agreement. This statement, however, shall not preclude Executive from any
payments or benefits available to Executive from participation in
Company-sponsored plans or programs that are generally applicable to salaried
personnel.
2
<PAGE>
ARTICLE 5 - MITIGATION AND OFFSET
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking employment or otherwise, nor to offset the
amount of any payment provided for in this Agreement by amounts earned as a
result of Executive's employment or self-employment during the period he is
entitled to such payment.
ARTICLE 6 - SUCCESSORS
The rights and duties of a party hereunder shall not be assignable by that
party; provided, however, that this Agreement shall be binding upon and inure to
the benefit of any successor of Company, and any such successor shall be deemed
substituted for Company under the terms of this Agreement. The term successor
as used herein shall include any person, firm, corporation or other business
entity which at any time, by merger, purchase or otherwise, acquires all or
substantially all of the assets or business of Company.
ARTICLE 9 - ENTIRE AGREEMENT
With respect to the matters specified herein, this Agreement contains the entire
agreement between the parties and supersedes all prior oral and written
agreements, understandings and commitments between the parties. This Agreement
shall not affect the provisions of any other compensation, retirement or other
benefit programs of Company to which Executive is a party.
ARTICLE 10 - VALIDITY
In the event that any provision of this Agreement is held to be invalid, void or
unenforceable, the same shall not affect, in any respect whatsoever, the
validity of any other provision of the Agreement.
IN WITNESS WHEREOF, Company has executed this Agreement by a duly authorized
officer, and Executive this 29th day of April , 1996.
EXECUTIVE MORRISON KNUDSEN CORPORATION
/s/ Steven Y Chi /s/ Stephen G. Hanks
- ------------------------------ ------------------------------
Signature By: Stephen G. Hanks
Its: Executive Vice President and
Chief Legal Officer
April 29, 1996
- ------------------------------ ------------------------------
Date Date
3
<PAGE>
SCHEDULE TO EXHIBIT 10.4
MORRISON KNUDSEN CORPORATION
SCHEDULE OF INDEMNIFICATION AGREEMENTS
Name Date of Agreement
---- -----------------
David H. Batchelder September 12, 1996
Douglas L. Brigham September 12, 1996
Anthony S. Cleberg May 5, 1997
Darrol N. Groven September 12, 1996
Stephen G. Hanks September 12, 1996
Alvia L. Henderson September 12, 1996
Leonard R. Judd September 12, 1996
William C. Langley September 12, 1996
James E. McCallum October 1, 1996
Robert S. Miller, Jr. September 12, 1996
Dorn Parkinson September 12, 1996
Terry W. Payne September 12, 1996
John D. Roach September 12, 1996
Charles W. Simpson September 12, 1996
Robert A. Tinstman September 12, 1996
Dennis R. Washington September 12, 1996
Thomas H. Zarges September 12, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
accompanying unaudited consolidated financial statements and financial statement
footnotes of Morrison Knudsen Corporation for the six months ended May 31, 1997,
and is qualified in its entirety by reference to such consolidated financial
statements and financial statement footnotes.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> MAY-31-1997
<CASH> 34,451
<SECURITIES> 0
<RECEIVABLES> 199,628
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 388,674
<PP&E> 242,167
<DEPRECIATION> 161,335
<TOTAL-ASSETS> 760,242
<CURRENT-LIABILITIES> 304,365
<BONDS> 0
18,000
0
<COMMON> 541
<OTHER-SE> 327,851
<TOTAL-LIABILITY-AND-EQUITY> 760,242
<SALES> 0
<TOTAL-REVENUES> 803,755
<CGS> 0
<TOTAL-COSTS> (766,445)
<OTHER-EXPENSES> (13,182)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (475)
<INCOME-PRETAX> 27,011
<INCOME-TAX> (12,588)
<INCOME-CONTINUING> 14,423
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,423
<EPS-PRIMARY> .27
<EPS-DILUTED> 0
</TABLE>
