<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): April 6, 1999
MORRISON KNUDSEN CORPORATION
Commission File Number 1-12054
A Delaware corporation
IRS Employer Identification No. 33-0565601
MORRISON KNUDSEN PLAZA, BOISE, IDAHO 83729
208/386-5000
<PAGE>
The undersigned Registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K dated
April 6, 1999 (the "4/6/99 Form 8-K"):
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
The response to Item 7 in the 4/6/99 Form 8-K is hereby amended to read
in its entirety as follows (with terms that are not otherwise defined
herein having the respective meanings assigned to them in the 4/6/99
Form 8-K):
(a) Financial Statements of Business Acquired
The audited financial statements of the operations of the
Westinghouse businesses acquired by the Corporation through WGS
and WGES (the "GESCO Businesses") as of December 31, 1998 and 1997
and for each of the three years in the period ended December 31,
1998 are filed herewith as Exhibit 99.1.
(b) Pro Forma Financial Information
The pro forma financial information required to be filed by Item
7(b) of Form 8-K is filed herewith as Exhibit 99.2.
(c) Exhibits
Exhibit
Number Exhibit
------- -------
23 Consent of KPMG LLP.
99.1 Financial statements of the GESCO Businesses as of
December 31, 1998 and 1997 and for each of the years in
the three-year period ended December 31, 1998.
99.2 Unaudited Pro Forma Combined Condensed Consolidated
Balance Sheet of the Corporation and the GESCO
Businesses as of February 26, 1999, and Unaudited Pro
Forma Combined Condensed Consolidated Statements of
Income of the Corporation and the GESCO Businesses for
the three months ended February 26, 1999 and for the
year ended November 30, 1998.
Signature
---------
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
June 7, 1999 By: /s/ Stephen G. Hanks
---------------------------------
Executive Vice President,
Chief Legal Officer and Secretary
2
<PAGE>
Exhibit 23
Independent Auditor's Consent
-----------------------------
The Board of Directors
CBS Corporation:
We consent to the inclusion of our report dated March 12, 1999, with respect to
the combined balance sheets of the GESCO Businesses (certain businesses of a
division of CBS Corporation) as of December 31, 1998 and 1997, and the related
combined statements of income and cash flows for each of the years in the three-
year period ended December 31, 1998, which report appears in the Form 8-K/A of
Morrison Knudsen Corporation.
KPMG LLP
/s/ KPMG LLP
Pittsburgh, Pennsylvania
June 7, 1999
<PAGE>
Exhibit 99.1
Independent Auditor's Report
----------------------------
The Board of Directors
CBS Corporation:
We have audited the accompanying combined balance sheets of GESCO Businesses
(certain businesses of a division of CBS Corporation) as of December 31, 1998
and 1997, and the related combined statements of income and cash flows for each
of the years in the three-year period ended December 31, 1998. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the GESCO Businesses
as of December 31, 1998 and 1997, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1998, in conformity with generally accepted accounting principles.
KPMG LLP
/s/ KPMG LLP
Pittsburgh, Pennsylvania
March 12, 1999
<PAGE>
GESCO BUSINESSES
COMBINED STATEMENT OF INCOME
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31 1998 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues - management services $ 77,082 $ 74,556 $ 45,250
Revenues - manufacturing and engineering 149,451 121,348 121,371
- ---------------------------------------------------------------------------------------------
Total revenues (note 3) 226,533 195,904 166,621
- ---------------------------------------------------------------------------------------------
Cost of goods sold - management services (22,023) (19,136) (706)
Cost of goods sold - manufacturing and engineering (121,086) (98,784) (99,936)
- ---------------------------------------------------------------------------------------------
Total cost of goods sold (note 3) (143,109) (117,920) (100,642)
- ---------------------------------------------------------------------------------------------
Restructuring and other matters (notes 2, 11, and 13) (171) (14,817) (17,948)
Marketing, administration and general expenses (note 3) (34,072) (31,263) (30,108)
- ---------------------------------------------------------------------------------------------
Operating profit 49,181 31,904 17,923
Other income and expenses, net 303 80 (30)
- ---------------------------------------------------------------------------------------------
Income before income taxes and minority interest
in income of consolidated subsidiaries 49,484 31,984 17,893
Income tax expense (note 5) (19,627) (12,712) (7,138)
Minority interest in income of consolidated subsidiaries (3,315) (3,212) (2,719)
- ---------------------------------------------------------------------------------------------
Net income $ 26,542 $ 16,060 $ 8,036
- ---------------------------------------------------------------------------------------------
</TABLE>
The Notes to the Combined Financial Statements are an integral part of these
financial statements.
<PAGE>
GESCO BUSINESSES
COMBINED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
At December 31 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents (note 2) $ 4,281 $ 3,191
Customer receivables (note 6) 53,463 42,991
Inventories (note 7) 7,886 13,948
Costs and estimated earnings over billings
on uncompleted contracts (note 7) 8,286 11,091
Deferred income taxes (note 5) 12,721 13,869
Prepaid and other current assets 792 706
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 87,429 85,796
Plant and equipment, net (note 8) 23,699 26,180
Deferred income taxes, noncurrent (note 5) 1,733 1,812
Other noncurrent assets 6 6
- ------------------------------------------------------------------------------------------------------------------------
Total assets $112,867 $113,794
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND INVESTED EQUITY:
Accounts payable $ 26,225 $ 15,853
Billings over costs and estimated earnings
on uncompleted contracts (note 7) 14,298 17,063
Other current liabilities (note 9) 41,877 41,710
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 82,400 74,626
Other noncurrent liabilities (note 9) 7,554 8,207
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 89,954 82,833
- ------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (notes 11 and 12)
Minority interest in equity of consolidated subsidiaries 2,824 2,484
Invested equity (note 10): 20,089 28,477
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and invested equity $112,867 $113,794
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Notes to the Combined Financial Statements are an integral part of these
financial statements.
<PAGE>
GESCO BUSINESSES
COMBINED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31 1998 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 26,542 $ 16,060 $ 8,036
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 4,740 4,933 5,171
Asset impairment charge -- -- 8,988
Changes in assets and liabilities:
Customer receivables (10,472) (7,216) (12,653)
Inventories 6,062 (1,188) 9,149
Billings, net of costs and estimated earnings
on uncompleted contracts 40 2,444 3,284
Accounts payable 10,372 4,982 1,683
Environmental liabilities (986) (782) 2,623
Accrued restructuring (1,557) (4,103) 4,660
Reserve for rate adjustments and other 1,057 (3,422) 9,002
Product warranty 326 1,373 (150)
Deferred income taxes 1,227 1,931 (4,933)
Other assets and liabilities 654 (326) 7,328
- ------------------------------------------------------------------------------------
Cash provided by operating activities 38,005 14,686 42,188
- ------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (1,985) (1,208) (1,422)
- ------------------------------------------------------------------------------------
Cash used by investing activities (1,985) (1,208) (1,422)
- ------------------------------------------------------------------------------------
Cash flows from financing activities:
Disbursements to parent company,
net of direct charges and allocations (34,930) (10,745) (43,753)
- ------------------------------------------------------------------------------------
Cash used by financing activities (34,930) (10,745) (43,753)
- ------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents 1,090 2,733 (2,987)
Cash and cash equivalents at beginning of period 3,191 458 3,445
- ------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 4,281 $ 3,191 $ 458
- ------------------------------------------------------------------------------------
</TABLE>
The Notes to the Combined Financial Statements are an integral part of these
financial statements.
<PAGE>
GESCO BUSINESSES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS
The GESCO Businesses (the Company), comprises certain businesses of CBS
Corporation's (CBS) Government and Environmental Services Division (GESCO)
operations which are to be acquired by Morrison Knudsen Corporation subject to
an asset purchase agreement dated June 25, 1998. The Company provides
management services for certain government-owned facilities under contracts with
the Department of Energy (DOE) and the Department of Defense (DOD), management
of a chemical agent destruction program for the DOD, and engineering services
and products to government and commercial customers.
The Company manages three government-owned facilities under contracts with the
DOE: the Savannah River site, the West Valley Demonstration Project, and the
Waste Isolation Pilot Plant. These contracts typically have a five-year term,
including a five-year renewal option at the discretion of the DOE. The
contracts for the West Valley Demonstration Project, Waste Isolation Pilot Plant
and Savannah River are up for renewal in 2001, 2000, and 2001, respectively. In
addition, an entity in which the Company owns a 65% interest, Safe Sites of
Colorado, LLC, performs environmental cleanup and nuclear waste management
services under a major subcontract with Kaiser-Hill at the DOE Rocky Flats
facility. This subcontract was awarded in May 1995 and has a three-year term
with two one-year renewal options. The first one-year renewal option has been
exercised. The principal mission of these sites is waste management, environment
cleanup and the safe management of the nation's nuclear materials inventory.
In March 1996, the Company was awarded a nine-year DOD contract to destroy
chemical weapons at the Anniston Chemical Agent Disposal Facility in Anniston,
Alabama.
The federal government reserves the right to terminate these contracts for
convenience. In the event the federal government terminates a contract for
convenience, the Company has no legal recourse against the federal government
but would be reimbursed for its outstanding and unreimbursed expenses through
the effective date of the termination of the contract.
The Company also provides canisters to store fissile material, chemical agents
and spent nuclear fuel through its EPD Containers business and provides
engineering and maintenance services to government facilities through its
Government Technology Systems Division. And, in late 1997, the Company
established the Safety Management Solutions Division that provides hazard and
facility safety analysis for nuclear, commercial, and chemical processing
plants.
In addition, its Electro-Mechanical Division (EMD) designs and manufactures
pumps, generators, and propulsion units for U.S. Navy applications. EMD also
provides products for commercial nuclear utilities.
In general, the Company's contracts with the federal government and its agencies
cannot be assigned to another party without the federal government's approval.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined financial statements of the Company include the assets
and liabilities, results of operations, and cash flows of the Company.
Additionally, the combined statements include allocations from CBS of certain
assets, liabilities and expenses directly related to the business.
Unless otherwise indicated, all dollar amounts in these financial statements are
presented in thousands. All material intercompany accounts and transactions have
been eliminated in combination.
REVENUE RECOGNITION
Revenues recognized under government contracts consist of management fees that
may be a combination of fixed fees and award fees, which are recognized ratably
over the year, cost improvement fees, and performance-based incentive fees.
Cost improvement and performance-based incentive fees are recognized upon
receipt of written acceptance from the customer. Reimbursable costs incurred in
delivering these goods and services are not recognized as cost of goods sold.
They are netted against revenues and only the resulting net amount is recognized
as revenue in the combined statement of income. A new contract to manage the
DOE's Savannah River site was awarded to a CBS-led team of companies in 1996.
Effective in 1997, the Company recognizes as revenues all earnings under that
contract with payments to subcontractors recognized as cost of goods sold.
<PAGE>
Revenues for EMD and the Company's other manufacturing and engineering services
businesses are recognized as products are shipped or when services are rendered.
In addition, EMD recognizes revenue for long-term U.S. Navy contracts on a
percentage of completion methodology based on the attainment of contract
milestones.
Bid and proposal costs for all contracts are expensed as incurred.
ENVIRONMENTAL COSTS
Environmental expenditures that do not extend the service lives of assets or
otherwise benefit future years are expensed. The Company records liabilities
when environmental assessments or remedial efforts are probable, and the costs
can be reasonably estimated. Such estimates are adjusted, if necessary, as new
remediation requirements are defined or as more information becomes available.
INCOME TAXES
Historically, the results of the Company's operations have been included in the
consolidated federal income tax return of CBS. The income tax-related
information in these financial statements is based on the effect of the
Company's revenues, costs, and expenses on the consolidated tax returns of CBS
and affiliates. The recognition and measurement of income tax expense and
deferred income taxes requires certain assumptions, allocations and significant
estimates. The Company's income tax expense is determined in accordance with the
asset and liability method of accounting for income taxes.
For purposes of these financial statements, any current income tax liabilities
are considered to have been paid by CBS and are recorded through the invested
equity account with CBS.
CASH AND CASH EQUIVALENTS
The Company considers all investment securities with a maturity of three months
or less when acquired to be cash equivalents. All cash and temporary investments
are placed with high credit quality financial institutions, and the amount of
credit exposure to any one financial institution is limited. At December 31,
1998 and 1997, substantially all cash and cash equivalents were restricted to
use for specific contracts.
INVENTORIES
Inventories are stated at the lower of cost, which approximates actual cost on a
first-in, first-out (FIFO) basis, or market. The elements of cost included in
inventories are direct labor, direct material, and certain overheads, including
factory depreciation.
PLANT AND EQUIPMENT
Plant and equipment assets are recorded at cost and depreciated over their
estimated useful lives. Depreciation is generally computed on the straight-line
method based on useful lives of 27.5 to 60 years for buildings, 20 years for
land improvements, 3 to 10 years for office equipment, and 3 to 12 years for
machinery and transportation equipment. Expenditures for additions and
improvements are capitalized, and costs for repairs and maintenance are charged
to operations as incurred.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. On an ongoing basis,
management reviews its estimates, including those related to rate adjustments,
product warranty, contract costs, and income taxes, based on currently available
information. Changes in facts and circumstances may result in revised estimates.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
During the first quarter of 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." In the 1996 combined
statement of income an impairment charge of $8,988 was reported in restructuring
and other matters.
Subsequent to the acquisition of an intangible or other long-lived asset, the
Company continually evaluates whether later events and circumstances indicate
the remaining estimated useful life of that asset may warrant revision or that
the remaining carrying value of such an asset may not be recoverable. If
definitive cash flows are not available for a specific intangible or other long-
lived asset, the Company evaluates recoverability of the specific business to
which the asset relates. When factors indicate that an intangible or other long-
lived asset should be evaluated for possible impairment, the Company uses an
<PAGE>
estimate of the related asset's undiscounted future cash flows over the
remaining life of that asset in measuring recoverability. If such an analysis
indicates that impairment has in fact occurred, the Company writes down the book
value of the intangible or other long-lived asset to its fair value.
NOTE 3: RELATED PARTY TRANSACTIONS
The Company is charged directly for the cost of certain services that CBS, or
its affiliates, provide to its business units and subsidiaries. These services
can include information systems support and certain other functions, such as
transaction processing, legal services, environmental affairs, marketing and
human resources. CBS centrally develops, negotiates, and administers the
Company's insurance programs. The insurance includes broad all-risk coverage for
real and personal property and third party liability coverage, employer's
liability coverage, automobile liability, general product liability, and other
standard liability coverage. CBS also maintains a program of self-insurance for
workers' compensation in the United States. CBS charges its business units for
all of the centrally administered insurance programs based in part on claims
history. Specific liabilities for general and product liability, automobile and
workers' compensation claims are included in the Company's financial statements.
All of the charges for the corporate services described above are based on costs
that directly relate to the Company or on a pro rata portion of CBS's total
costs for the services provided, on a basis that management believes is
reasonable. However, management believes it is possible that the costs of these
transactions may differ from those that would result from transactions among
unrelated parties. For the years ended December 31, 1998, 1997, and 1996,
charges for such services were approximately $8,836, $5,566, and $5,786,
respectively.
Employees of the Company also participate in various CBS-sponsored employee
benefit plans (see note 4).
In the normal course of business, the Company enters into transactions with
other CBS entities. Such transactions primarily include related party sales and
purchases. Total sales to and purchases from affiliates were approximately
$1,406 and $966, respectively, for the year ended December 31, 1998, $1,867 and
$1,450, respectively, for the year ended December 31, 1997, and $853 and $1,706,
respectively for the year ended December 31, 1996.
CBS does not charge its divisions for the carrying costs related to its
investment in such units (invested equity). Therefore, the Company's results of
operations for each of the periods presented do not include any allocated
interest charges from CBS, and no portion of CBS's debt is specifically related
to the operations of the Company. In addition, CBS does not charge its
divisions for most corporate overhead functions, including tax and treasury.
NOTE 4: EMPLOYEE BENEFIT PLANS
Certain of the Company's employees are covered by various pension plans
sponsored by CBS. Most pension plan benefits are based on either years of
service and compensation levels at the time of retirement, a formula based on
career earnings or a final average compensation amount. Pension benefits
generally are paid from trusts funded by contributions from employees and/or
CBS. The pension funding policy is consistent with funding requirements of U.S.
federal and other governmental laws and regulations. Certain employees are also
covered by postretirement benefit arrangements sponsored by CBS consisting of
various retiree medical, dental and life insurance arrangements.
The Company has accounted for these plans as multi-employer plans.
Consequently, the liabilities for the plan obligations are not reflected as a
liability in the combined balance sheet. The Company's allocated expense under
benefit plans sponsored by CBS was as follows:
<TABLE>
<CAPTION>
Year ended December 31 1998 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Pension plan cost $8,764 $8,927 $6,850
Postretirement benefit plan cost 3,336 4,708 4,392
</TABLE>
<PAGE>
NOTE 5: INCOME TAXES
The components of income tax expense at December 31, 1998, 1997, and 1996 are as
follows:
Components of Income Tax Expense
<TABLE>
<CAPTION>
Year ended December 31 1998 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $15,120 $ 8,832 $10,079
State 3,280 1,949 1,992
- ------------------------------------------------------------------------
Total current income tax expense 18,400 10,781 12,071
- ------------------------------------------------------------------------
Deferred:
Federal 1,043 1,641 (4,193)
State 184 290 (740)
- ------------------------------------------------------------------------
Total deferred income tax expense (benefit) 1,227 1,931 (4,933)
- ------------------------------------------------------------------------
Total income tax expense $19,627 $12,712 $ 7,138
- ------------------------------------------------------------------------
</TABLE>
The actual income tax expense for each year differs from the "expected" income
tax expense, based upon a 35% federal statutory income tax rate, due primarily
to the impact of state taxes.
Deferred income taxes result from U. S. temporary differences in the financial
bases and tax bases of assets and liabilities. The types of differences that
give rise to significant portions of deferred income tax assets and liabilities
are shown in the following table:
<TABLE>
<CAPTION>
Deferred Income Taxes by Source
At December 31 1998 1997
- -------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Provisions for expenses and losses $14,360 $15,617
Employee benefit obligations 632 632
- -------------------------------------------------------------------------
Total deferred tax assets 14,992 16,249
Total deferred tax liabilities (538) (568)
- -------------------------------------------------------------------------
Net deferred tax asset $14,454 $15,681
- -------------------------------------------------------------------------
</TABLE>
NOTE 6: CUSTOMER RECEIVABLES
Customer receivables at December 31, 1998 included $31,318 consisting of revenue
recognized on contracts for which billings have not been presented to the
customers. Such amounts are generally billed and collected within one year.
Because the Company's primary customers are the U.S. government or its agencies
and large utility companies, there is no material allowance for doubtful
accounts.
<PAGE>
NOTE 7: INVENTORIES AND COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
Inventories
At December 31 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 1,165 $ 2,018
Work in process 25,613 29,008
Finished goods 345 534
- --------------------------------------------------------------------------------------------------------------------------
27,123 31,560
Long-term contracts in process 2,452 3,472
Progress payments to subcontractors (4) 47
Recoverable engineering and development costs 4,068 1,594
Inventoried costs related to contracts with progress
billing terms (25,753) (22,725)
- --------------------------------------------------------------------------------------------------------------------------
Inventories $ 7,886 $ 13,948
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Costs, estimated earnings and billings on uncompleted contracts comprise the
following:
<TABLE>
<CAPTION>
At December 31 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Costs included in inventories $ 19,820 $ 21,506
Progress billings on contracts (11,534) (10,415)
- --------------------------------------------------------------------------------------------------------------------------
Costs and estimated earnings over billings
on uncompleted contracts $ 8,286 $ 11,091
- --------------------------------------------------------------------------------------------------------------------------
Progress billings on contracts $ 20,231 $ 18,282
Costs included in inventories (5,933) (1,219)
- --------------------------------------------------------------------------------------------------------------------------
Billings over costs and estimated earnings
on uncompleted contracts $ 14,298 $ 17,063
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Inventories other than those related to long-term contracts are generally
realized within one year.
NOTE 8: PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Plant and Equipment
At December 31 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land and buildings $ 15,198 $ 15,250
Machinery and equipment 71,747 71,730
Construction in progress 1,609 1,071
- --------------------------------------------------------------------------------------------------------------------------
Plant and equipment, at cost 88,554 88,051
Accumulated depreciation (64,855) (61,871)
- --------------------------------------------------------------------------------------------------------------------------
Plant and equipment, net $ 23,699 $ 26,180
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
For the years ended December 31, 1998, 1997, and 1997, depreciation expense
totaled $4,740, $4,933, and $5,171, respectively.
<PAGE>
NOTE 9: OTHER CURRENT AND NONCURRENT LIABILITIES
<TABLE>
<CAPTION>
Other Current Liabilities
At December 31 1998 1997
- -------------------------------------------------------------
<S> <C> <C>
Environmental liabilities $ 855 $ 1,841
Accrued insurance 4,413 4,601
Accrued employee compensation 16,111 14,596
Accrued product warranty 3,849 3,523
Accrued restructuring costs -- 1,557
Reserve for rate adjustments and other 16,649 15,592
- -------------------------------------------------------------
Other current liabilities $41,877 $41,710
- -------------------------------------------------------------
</TABLE>
The reserve for rate adjustments and other includes reserves for estimated
unrecoverable general and administrative costs for current and prior periods.
<TABLE>
<CAPTION>
Other Noncurrent Liabilities
At December 31 1998 1997
- --------------------------------------------------------------
<S> <C> <C>
Accrued insurance $ 2,783 $ 2,984
Decommissioning 2,444 2,554
Other 2,327 2,669
- --------------------------------------------------------------
Other noncurrent liabilities $ 7,554 $ 8,207
- --------------------------------------------------------------
</TABLE>
NOTE 10: INVESTED EQUITY
Changes in Invested Equity
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 28,477 $ 23,162 $ 58,879
Net income 26,542 16,060 8,036
Disbursements to CBS, net (34,930) (10,745) (43,753)
- --------------------------------------------------------------
Balance at end of year $ 20,089 $ 28,477 $ 23,162
- --------------------------------------------------------------
</TABLE>
NOTE 11: COMMITMENTS AND CONTINGENCIES
LEGAL
The Company is involved in various litigation matters in the ordinary course of
business. In the opinion of management, the ultimate resolution of such matters
will not result in judgments which, in the aggregate, would materially affect
the Company's combined financial position or results of operations.
In May 1997, the Company was notified that it received an unfavorable verdict
from the U.S. Court of Federal Claims regarding a contractual dispute related to
reimbursement of employee moving expenses at the Savannah River site. The
Company reimbursed employees for non-deductible federal and state taxes related
to moving expenses. The government claimed that the cost for this gross-up was
not reimbursable unless specifically allowable under the contract. As a result,
the Company paid $13,921 to the government and recorded the amount as an expense
in 1997.
ENVIRONMENTAL
Compliance with federal, state, and local laws and regulations relating to the
discharge of pollutants into the environment, the disposal of hazardous wastes,
and other related activities affecting the environment have had and will
continue to have an impact on the Company. It is difficult to estimate the
timing and ultimate costs to be incurred in the future due to uncertainties
about the status of laws, regulations, and technology; the adequacy of
information available for individual sites; the extended time periods over which
site remediation occurs; and the identification of new sites. The Company has,
however, recognized an estimated liability, measured in current dollars, for
Company owned sites where it is probable that a loss has been incurred and the
amount of the loss can be reasonably estimated. The Company recognizes changes
in estimates as new remediation requirements are defined or as more information
becomes available.
<PAGE>
During 1996, the Company and its external consultants completed a study to
evaluate the Company's remediation strategy. Based on the costs associated with
the most probable alternative remediation strategy for each of the Company's
sites, the Company recognized a charge of $3,000 in 1996, the majority of which
has been spent over the past two years.
For government-owned facilities that the Company manages, the Company is not
responsible for costs associated with environmental liabilities, including
environmental cleanup costs, except under certain circumstances associated with
the willful misconduct or lack of good faith of its managers or their failure to
exercise prudent business judgment. There are currently no material claims for
which the Company believes it is responsible.
The Company has or will have responsibilities for environmental closure
activities or decommissioning of nuclear licensed sites. The Company has
entered into an agreement with the U.S. Navy for one particular site, whereby
the U.S. Navy will be responsible for 75 percent of the cost of decommissioning
which is estimated to be $11 million. At December 31, 1998, the Company had
accrued approximately $2,400 for their share of the decommissioning costs.
FINANCING COMMITMENTS
At December 31, 1998, the Company had $17,028 outstanding under letters of
credit related to Nuclear Regulatory Commission financial assurance requirements
and a subcontractor arrangement .
NOTE 12: LEASES
The Company has commitments under operating leases for certain machinery,
equipment and facilities used in various operations. Rental expense in 1998,
1997 and 1996 was $2,441, $840, and $524, respectively. These amounts include
immaterial amounts for contingent rentals and sublease income.
Minimum Rental Payments
<TABLE>
<CAPTION>
At December 31, 1998 Lease Obligations
- -------------------------------------------------------------------------------
<S> <C>
1999 2,339
2000 1,915
2001 1,064
2002 297
2003 267
After 2003 268
- -------------------------------------------------------------------------------
Minimum rental payments 6,150
- -------------------------------------------------------------------------------
</TABLE>
NOTE 13: RESTRUCTURING
In 1998, 1997 and 1996, the Company recorded a charge to operating profit to
downsize its business. The restructuring charge in 1997 is for the separation of
administrative employees. The restructuring charge in 1996 is for the separation
of employees at Savannah River and EMD. The charge in 1998 represents
additional separation costs for the employees included in the 1997 and 1996
restructuring plans.
Costs for restructuring activities are limited to incremental costs that
directly result from the restructuring plan and that provide no future benefit
to the Company. Generally, separated employees receive benefits such as layoff
income benefits, permanent job separation benefits, retraining and/or
outplacement assistance. The amount included for these benefits in the
restructuring charge represents the incremental cost of such benefits over those
amounts previously accrued under SFAS No. 112, "Employers' Accounting for
Postemployment Benefits."
Based on the Company's current estimates, summarized below are the restructuring
charges to operations and the number of employee separations for 1998, 1997 and
1996, respectively:
<PAGE>
<TABLE>
<CAPTION>
Restructuring Costs and Employee Separations
Year Ended December 31 1998 1997 1996
- --------------------------------------------------------------------
<S> <C> <C> <C>
Number of employee separations -- 4 75
- --------------------------------------------------------------------
Total restructuring charge to operations $ 171 $ 896 $5,960
- --------------------------------------------------------------------
</TABLE>
Employee separation costs generally are paid over a period of up to two years
following their separation. The majority of the 1996 plan separations were
completed in 1997.
The following is a reconciliation of the restructuring liability:
<TABLE>
<CAPTION>
Reconciliation of Restructuring Liability
1998 1997
- --------------------------------------------------------------------
<S> <C> <C>
Balance at January 1 $ 1,557 $ 5,660
Provision for restructuring 171 896
Cash expenditures (1,728) (4,999)
- --------------------------------------------------------------------
Balance at December 31 $ -- $ 1,557
- --------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 99.2
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma financial statements give effect to the
acquisition of the GESCO Businesses using the purchase method of accounting. The
unaudited pro forma financial statements are based on historical audited and
unaudited financial statements of the Corporation, the historical audited
financial statements of the GESCO Businesses presented in Exhibit 99.1 and
unaudited financial records of the GESCO Businesses. This exhibit includes the
following unaudited pro forma information:
1) Unaudited Pro Forma Combined Condensed Consolidated Balance Sheet of
the Corporation and the GESCO Businesses as of February 26, 1999.
2) Unaudited Pro Forma Combined Condensed Consolidated Statements of
Income of the Corporation and the GESCO Businesses for the three
months ended February 26, 1999 and the year ended November 30, 1998.
3) Related notes thereto.
The unaudited Pro Forma Combined Condensed Consolidated Balance Sheet gives
effect to the acquisition by the Corporation, through WGS and WGES, of the GESCO
Businesses and related financing transactions (collectively, the "Transactions")
as though the Transactions had been consummated on February 26, 1999. The
Unaudited Pro Forma Combined Condensed Consolidated Statements of Income give
effect to the Transactions as though the Transactions had been consummated on
December 1, 1997.
The unaudited pro forma financial statements are presented for illustrative
purposes only and are not necessarily indicative of the consolidated financial
position or results of operations that would have been reported by the
Corporation had the Transactions actually been consummated on the dates
indicated above (rather than on March 22, 1999) or of the consolidated financial
position or results of operations that may be reported by the Corporation in the
future. In addition, the historical results of operations for periods less than
a full year are not necessarily indicative of the results to be expected for the
full year. The unaudited pro forma financial statements, including the
accompanying notes thereto, should be read in conjunction with the historical
consolidated financial statements of the Corporation and the GESCO Businesses,
including the notes thereto, and the other information contained in the reports
filed by the Corporation with the Securities and Exchange Commission.
<PAGE>
UNAUDITED PROFORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET
FEBRUARY 26, 1999
(In thousands)
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments
---------------------- ---------------------------- Corporation
Corporation GESCO Debit Credit Pro Forma
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 28,823 $ 4,281 $120,000 (a) $124,290 (b) $ 28,814
Accounts receivable 156,714 53,463 210,177
Unbilled receivables 89,846 8,286 98,132
Deferred income taxes and other tax assets 27,522 12,721 22,210 (c) 12,721 (d) 49,732
Investments in and advances to
construction joint ventures 82,748 82,748
Inventories 7,886 2,989 (d) 10,875
Other 9,606 792 10,398
- -----------------------------------------------------------------------------------------------------------------------------------
Total current assets 395,259 87,429 145,199 137,011 490,876
Investments and other assets 69,530 6 8,400 (d) 77,936
Investments in mining ventures 65,783 65,783
Deferred income taxes 30,068 1,733 27,790 (c) 1,733 (d) 57,858
Cost in excess of net assets acquired, net 112,240 295,026 (d) 50,000 (c) 367,266
Property and equipment, net 79,098 23,699 2,500 (d) 105,297
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $751,978 $112,867 $478,915 $188,744 $1,155,016
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 44,135 $ 26,225 $ 70,360
Subcontracts payable 46,378 46,378
Billings in excess of cost and estimated
earnings on uncompleted contracts 40,757 14,298 55,055
Estimated costs to complete long-term contracts 40,890 24,911 65,801
Accrued salaries, wages and benefits 54,761 16,111 70,872
Other accrued liabilities 33,984 855 34,839
- -----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 260,905 82,400 343,305
Non-current liabilities
Long-term debt $120,000 (a) 120,000
Postretirement benefit obligation 54,486 27,000 (d) 81,486
Accrued workers' compensation 39,550 2,783 42,333
Pension and deferred compensation liabilities 17,543 80,400 (d) 97,943
Environmental remediation obligations 4,589 4,771 9,360
- -----------------------------------------------------------------------------------------------------------------------------------
Total non-current liabilities 116,168 7,554 227,400 351,122
Minority interests 2,824 82,860 (d) 85,684
Stockholders' equity
Common stock and capital in excess of par 249,069 249,069
Retained earnings 140,302 140,302
Other stockholders' equity (14,466) (14,466)
Invested equity 20,089 $ 20,089 (d)
- -----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 374,905 20,089 20,089 374,905
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $751,978 $112,867 $ 20,089 $310,260 $1,155,016
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial
Statements.
<PAGE>
UNAUDITED PROFORMA COMBINED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
QUARTER ENDED FEBRUARY 26, 1999
(In thousands except share data)
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments
---------------------- ------------------------ Corporation
Corporation GESCO Debit Credit Pro Forma
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 421,310 $ 38,022 $41,634 (a) $ 500,966
Cost of revenue (400,525) (36,824) $41,634 (a) (479,139)
156 (b)
- ----------------------------------------------------------------------------------------------------------------
Gross profit 20,785 1,198 41,790 41,634 21,827
General and administrative expense (7,974) (7,974)
Goodwill amortization (766) 3,688 (c) 323 (d) (4,131)
- ----------------------------------------------------------------------------------------------------------------
Operating income 12,045 1,198 45,478 41,957 9,722
Investment income 1,092 1,092
Interest expense (167) 1,881 (e) (2,048)
Other income (expense) 2,227 2,227
- ----------------------------------------------------------------------------------------------------------------
Income before income tax expense
and minority interests 15,197 1,198 47,359 41,957 10,993
Income tax expense (6,306) (475) 2,213 (f) (4,568)
- ----------------------------------------------------------------------------------------------------------------
Net income before minority interests 8,891 723 47,359 44,170 6,425
Minority interests (239) 356 (f) 1,154 (g) 559
- ----------------------------------------------------------------------------------------------------------------
Net income $ 8,891 $ 484 $47,715 $45,324 $ 6,984
- ----------------------------------------------------------------------------------------------------------------
Income per share
Basic $ 0.17 $ 0.13
Diluted 0.17 0.13
Common shares used to compute income per share
Basic 53,239,651 53,239,651
Diluted 53,377,448 53,377,448
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial
Statements.
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PROFORMA COMBINED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED NOVEMBER 30, 1998
(In thousands except share data)
Historical Pro Forma Adjustments
----------------------- -------------------------- Corporation
Corporation GESCO Debit Credit Pro Forma
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 1,862,174 $ 226,533 $251,541 (a) $ 2,340,248
Cost of revenue (1,775,632) (177,049) $251,541 (a) (2,207,836)
2,989 (b)
625 (b)
Gross profit 86,542 49,484 255,155 251,541 132,412
General and administrative expense (24,202) (24,202)
Goodwill amortization (3,597) 14,751 (c) 1,290 (d) (17,058)
- --------------------------------------------------------------------------------------------------------------------
Operating income 58,743 49,484 269,906 252,831 91,152
Investment income 5,774 5,774
Interest expense (869) 7,800 (e) (8,669)
Other income (expense) 3,757 3,757
- --------------------------------------------------------------------------------------------------------------------
Income before income tax expense
and minority interests 67,405 49,484 277,706 252,831 92,014
Income tax expense (29,852) (19,627) 10,459 (g) (39,020)
- --------------------------------------------------------------------------------------------------------------------
Net income before minority interests 37,553 29,857 277,706 263,290 52,994
Minority interests (3,315) 11,122 (f) 5,616 (g) (8,821)
- --------------------------------------------------------------------------------------------------------------------
Net income $ 37,553 $ 26,542 $288,828 $268,906 $ 44,173
- --------------------------------------------------------------------------------------------------------------------
Income per share
Basic $ 0.70 $ 0.82
Diluted 0.69 0.82
Common shares used to compute income per share
Basic 53,891,191 53,891,191
Diluted 54,136,295 54,136,295
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial
Statements.
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(In thousands)
1. General
On March 22, 1999, the Corporation, through WGS and WGES, acquired the GESCO
Businesses from CBS Corporation (formerly known as Westinghouse Electric
Corporation) pursuant to an Asset Purchase Agreement dated June 25, 1998. The
respective rights and obligations of the Corporation and BNFL with respect to
WGS, WGES and the GESCO Businesses are set forth in the Amended and Restated
Consortium Agreement (the "Consortium Agreement"), dated March 19, 1999 (a copy
of which is filed as Exhibit 10.3 to the Corporation's Quarterly Report on Form
10-Q for its fiscal quarter ended February 26, 1999), and in certain other
documents referred to therein. Pursuant to the Consortium Agreement and such
other documents, 60% of the profits, losses and cash flows of the GESCO
Businesses are allocated to the Corporation and 40% of the profits, losses and
cash flows are allocated to BNFL.
The acquisition of the GESCO Businesses will be accounted for as a purchase
business combination. The accompanying unaudited pro forma combined condensed
consolidated financial statements reflect an estimated aggregate purchase price
for the GESCO Businesses (after giving effect to certain adjustments provided
for in the Asset Purchase Agreement) of $207,150, consisting of cash paid to CBS
Corporation plus costs directly related to the acquisition paid by the
Corporation and BNFL.
<TABLE>
<CAPTION>
<S> <C>
Cash paid to CBS Corporation $198,812
Legal, accounting, consulting and other
professional fees and expenses 7,202
Other costs related to the acquisition 1,136
--------
Total purchase price $207,150
========
</TABLE>
The Corporation's share of the aggregate purchase price was $124,290, and was
funded primarily through borrowings from the Corporation's bank credit
facilities.
For purposes of the accompanying Unaudited Pro Forma Combined Condensed
Consolidated Balance Sheet, the aggregate purchase price has been allocated to
the net assets acquired, with the remainder recorded as excess cost over net
assets acquired on the basis of preliminary estimates of fair values. These
preliminary estimates of fair values were determined by the Corporation's
management based primarily on information furnished by CBS Corporation and the
management of the GESCO Businesses. The final allocation of the purchase price
will be based on a complete evaluation of the assets and liabilities of the
GESCO Businesses. Finalization of these matters could have a material effect on
the purchase price allocation and, with respect to certain employee benefit
obligations, could take more than a year to complete.
2. Unaudited Pro Forma Combined Condensed Consolidated Balance Sheet
The accompanying Unaudited Pro Forma Combined Condensed Consolidated Balance
Sheet gives effect to the Transactions as though they were consummated on
February 26, 1999, and combines the Corporation's unaudited February 26, 1999
consolidated balance sheet and the GESCO Businesses' audited December 31, 1998
balance sheet. The December 31, 1998 balance sheet of the GESCO Businesses is
considered the most recent reliable balance sheet available for purposes of pro
forma presentation. In the opinion of the management of the GESCO Businesses,
the financial position did not change materially from December 31, 1998 to
February 26, 1999. The following pro forma adjustments are reflected:
(a) To reflect borrowings under the Corporation's line of credit to fund its
share of the aggregate purchase price.
(b) To record the aggregate cost of the acquisition described in Note 1
above.
(c) To record a reduction of the valuation allowance of the Corporation's
deferred tax assets and related reduction of goodwill associated with
the acquisition of Old MK. The reduction is based on the Corporation's
evaluation of estimated future taxable income and the likelihood of the
future realization of deductible temporary differences and net operating
loss carryforwards of Old MK
<PAGE>
(d) To record the allocation of the purchase price for the acquisition to the
assets acquired and liabilities assumed as follows:
<TABLE>
<CAPTION>
<S> <C>
Working capital $ (4,703)
Investments and other assets 8,406
Property plant and equipment 26,199
Postretirement benefit obligations (27,000)
Pension liabilities (80,400)
Other non-current liabilities and
minority interest (10,378)
Excess cost over net assets
acquired 295,026
--------
Total acquisition costs $207,150
========
Corporation's share of purchase price $124,290
BNFL's share of purchase price 82,860
--------
$207,150
========
</TABLE>
3. Unaudited Pro Forma Combined Condensed Consolidated Statements of Income
The accompanying Unaudited Pro Forma Combined Condensed Consolidated Statements
of Income give effect to the Transactions as though they were consummated on
December 1, 1997, and combine the Corporation's unaudited statement of income
for the quarter ended February 26, 1999 and audited statement of income for the
year ended November 30, 1998, respectively, with the GESCO Businesses' unaudited
statement of income for the period of January 1, 1999 through March 22, 1999
(the date of acquisition) and the GESCO Businesses' audited statement of income
for the year ended December 31, 1998, respectively. The pro forma statements of
income reflect the following adjustments:
(a) To record additional revenue and cost of revenue to conform to the
Corporation's revenue recognition policy. Revenues on certain contracts
were recorded by CBS Corporation on a net fee basis. The Corporation's
revenue recognition policy is to record revenue and cost of revenue for
such contracts reflecting an "at-risk" rather than an agency relationship
for these contracts.
(b) To record additional depreciation expense associated with the fair value
adjustment of property and equipment having an estimated remaining useful
life of four years, and to record additional cost of revenue associated
with the fair value adjustment of inventory for the year ended November
30, 1998.
(c) To record amortization of excess cost over net assets acquired over a
twenty-year period.
(d) To record a reduction in amortization expense associated with the
reductions in the excess cost over net assets acquired in the acquisition
of Old MK and a reduction in the valuation allowance of the Corporation's
deferred tax assets.
(e) To record interest expense on borrowings under the Corporation's bank
credit facilities used to fund the Corporation's share of the purchase
price.
(f) To record BNFL's minority interest in the income and results of
operations of the GESCO Businesses.
(g) To record income tax expense and benefit related to the purchase
accounting, interest expense and minority interest adjustments.
