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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: July 7, 2000
MORRISON KNUDSEN CORPORATION
Commission File Number 1-12054
A Delaware corporation
IRS Employer Identification No. 35-0565601
MORRISON KNUDSEN PLAZA, BOISE, IDAHO 83729
208/386-5000
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Item 2. Acquisition or Disposition of Assets.
General. On July 7, 2000 (the "Closing Date"), pursuant to a Stock Purchase
Agreement, dated as of April 14, 2000 (the "Stock Purchase Agreement"), among
Raytheon Company ("Raytheon"), Raytheon Engineers & Constructors International,
Inc., a wholly owned subsidiary of Raytheon ("RECI" and, together with Raytheon,
the "Sellers"), and Morrison Knudsen Corporation (the "Corporation"), the
Corporation purchased the capital stock of the subsidiaries of RECI (the "RECI
Subsidiaries") and certain other assets of RECI (the "Acquired RECI Assets") and
assumed certain liabilities of RECI. Prior to such purchase (the "Acquisition"),
RECI provided engineering, design, procurement, construction, operation,
maintenance and other services on a world-wide basis. The term "Purchased
Business" or "REC" refers to the capital stock of the RECI Subsidiaries and the
Acquired RECI Assets. The Stock Purchase Agreement is filed as Exhibit 2.1 to
this current report on Form 8-K and incorporated herein by this reference.
On July 7, 2000, the Corporation issued a press release announcing the
completion of the Acquisition. A copy of the press release is filed as Exhibit
99.1 to this current report on Form 8-K and incorporated herein by this
reference.
The Acquisition. The purchase price and other terms of the Acquisition were
determined by arm's-length negotiations between the Corporation and the other
parties to the Stock Purchase Agreement. The cash purchase price paid at the
closing of the Acquisition ("Closing") for the capital stock and other assets
purchased was $53.0 million, together with the assumption of net liabilities of
approximately $450.0 million. The cash purchase price paid at Closing was
calculated based upon the estimated amount of the April 30, 2000 Adjusted Non-
Current Net Assets and Adjusted Net Working Capital (as such terms are defined
in the Stock Purchase Agreement) acquired by the Corporation. The respective
amounts of Adjusted Non-Current Net Assets and Adjusted Net Working Capital are
subject to post-Closing finalization and related adjustments to the price paid
at Closing. In addition, if the net amount of cash advanced or paid by the
Sellers for the use or benefit of the Purchased Business between April 30, 2000
and Closing is greater than or less than the amount of cash transferred by the
Purchased Business for the use or benefit of the Sellers during such period, the
Corporation will pay the Sellers an amount equal to such excess or the Sellers
will pay the Corporation an amount equal to such deficiency, as applicable.
The Stock Purchase Agreement provided that RECI would retain all non-
restricted cash and cash equivalents held by RECI and the RECI Subsidiaries as
of the close of business on April 30, 2000 ("Cut-Off Date Cash Balances"). At
Closing, for purposes of administrative convenience, the RECI Subsidiaries
retained all cash held by them and the Company paid to the Sellers approximately
$30.8 million, which amount is subject to post-Closing verification by the
Company and adjustment in the event such amount is not equal to the Cut-Off Date
Cash Balances held by RECI Subsidiaries.
RECI retained, among other assets, all of RECI's interest in and rights
with respect to specified contracts. In addition, with respect to four
specified construction projects, the Stock Purchase Agreement contemplated that
the contracts relating to such projects would be transferred to RECI and the
Sellers and the RECI Subsidiaries party thereto would enter into subcontracts
pursuant to which the RECI Subsidiaries would perform, on a cost-reimbursed
basis, all of RECI's obligations under such contracts. Because the customer
consents required to transfer such contracts to RECI had not been received as of
Closing, such RECI Subsidiaries remain the contract party and continue to be
directly obligated to the customers and other third parties under the contracts
relating to such four projects. However, at Closing, the Corporation, the
Sellers and certain of the RECI Subsidiaries entered into agreements intended to
transfer the benefits and burdens of such contracts to the Sellers, to make the
Sellers the real parties in interest with respect to those contracts and to
otherwise effect the arrangements contemplated by the Stock Purchase Agreement.
Under the agreements entered into at Closing, the Corporation has agreed to
cause the RECI Subsidiaries to complete the four specified projects for the
Sellers' account following Closing, and the Sellers have agreed to reimburse the
costs incurred by the Corporation and the RECI Subsidiaries in doing so and to
share equally with the Corporation any positive variance between actual costs
and estimated costs. The Sellers have agreed to indemnify the Corporation
against any losses, claims or liabilities under the contracts relating to such
projects, except losses, claims or liabilities resulting from the gross
negligence or willful misconduct of the Corporation (against which the
Corporation will indemnify the Sellers).
The Corporation intends to continue to use the property and equipment of
the RECI Subsidiaries and the Acquired RECI Assets as they were used by the
Sellers in the conduct of the Purchased Business. The Corporation estimates
approximately $25.0 million will be spent for systems integration over the next
three years.
Acquisition Financing. In order to finance the Acquisition, refinance the
Corporation's existing bank credit facilities, fund working capital requirements
and pay related fees and expenses, the Corporation (i) obtained new senior
secured credit facilities with Credit Suisse First Boston, New York branch, as
the sole administrative agent, book manager and lead arranger, Bank of Montreal,
as exclusive syndication agent, and Bank of America, N.A. and U.S. Bank National
Association, as co-documentation agents, providing for an aggregate of $1.0
billion of term
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loans and revolving borrowing capacity (the "New Credit Facilities") and (ii)
issued and sold $300.0 million aggregate principal amount of 11% Senior Notes
due July 1, 2010 (the "Senior Notes"). The terms of the New Credit Facilities
and the Senior Notes are briefly summarized below.
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New Credit Facilities....... The New Credit Facilities provide for, on the
terms and subject to the conditions thereof, (i)
two senior secured term loan facilities in an
aggregate principal amount of up to $500.0 million
(including a multi-draw Tranche A term loan
facility in an aggregate principal amount of
$100.0 million that will mature five years after
Closing and a Tranche B term loan facility in an
aggregate principal amount of $400.0 million that
will mature seven years after Closing) and (ii) a
five-year senior secured revolving credit facility
in an aggregate principal amount of up to $500.0
million, all of which will also be available in
the form of letters of credit. The credit
agreement under which the New Credit Facilities
were made available contains affirmative, negative
and financial covenants and specifies events of
default which are typical for a credit agreement
governing credit facilities of the size, type and
tenor of the New Credit Facilities. This summary
of the New Credit Facilities is qualified in its
entirety by reference to the credit agreement, a
copy of which is filed as Exhibit 10.1 to this
current report on Form 8-K and incorporated herein
by this reference.
Senior Notes................ The Senior Notes are unsecured senior obligations
of the Corporation that mature on July 1, 2010.
Interest on the Senior Notes accrues at the rate
of 11% per annum and is payable semiannually in
arrears on January 1 and July 1, commencing
January 1, 2001. The Senior Notes rank equally
with the Corporation's existing and future senior
unsecured indebtedness. The Senior Notes
effectively rank junior to all of the
Corporation's secured indebtedness and to all
liabilities of the subsidiaries of the Corporation
that are not guarantors of the Senior Notes. The
Senior Notes rank senior to any future
subordinated indebtedness of the Corporation. The
Senior Notes are guaranteed on a senior basis by
certain subsidiaries of the Corporation (the
"Subsidiary Guarantors"). The indenture, dated as
of July 1, 2000 (the "Indenture"), between the
Corporation and United States Trust Company of New
York, as trustee, under which the Senior Notes
were issued contains affirmative, restrictive and
financial covenants and specifies events of
default which are typical for an indenture
governing an issue of high-yield senior unsecured
notes. The Senior Notes were sold to Credit Suisse
First Boston Corporation ("CSFB"), BMO Nesbitt
Burns Corp. ("BMO Nesbitt Burns") and U.S.
Bancorp Libra, a division of U.S. Bancorp
Investments Inc. ("U.S. Bancorp Libra"), as the
initial purchasers, pursuant to a purchase
agreement, dated as of June 28, 2000, as amended
(the "Purchase Agreement"), among the Corporation,
the Subsidiary Guarantors, CSFB, BMO Nesbitt Burns
and U.S. Bancorp Libra. The Senior Notes are
subject to registration with the Securities and
Exchange Commission on the terms and subject to
the conditions of a registration rights agreement,
dated June 28, 2000, as amended (the "Registration
Rights Agreement"), among the Corporation, the
Subsidiary Guarantors, CSFB, BMO Nesbitt Burns,
and U.S. Bancorp Libra. This summary of the Senior
Notes is qualified in its entirety by reference
to the Indenture, the Purchase Agreement and the
Registration Rights Agreement, copies of which
are filed as Exhibit 4.1, Exhibit 1.1 and Exhibit
10.2, respectively, to this current report on Form
8-K and incorporated herein by this reference.
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Sources and Uses. The following table sets forth the sources and uses of
funds in connection with the Acquisition (in millions).
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Sources:
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Revolving credit facilities(1)................................. $ --
Bank Term Loan A(2)............................................ --
Bank Term Loan B............................................... 400.0
Senior Notes................................................... 300.0
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Total Sources............................................. $700.0
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Uses:
Cash consideration for the Purchased Business.................. $ 53.0
Payment for Cut-Off Date Cash Balances......................... 30.8
Fund working capital(3)........................................ 481.0
Refinance existing bank indebtedness........................... 96.5
Fees, expenses and discount on Senior Notes ................... 38.7
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Total Uses............................................... $700.0
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(1) Total commitment of $500.0 million. The Corporation expects to issue
approximately $350.0 million in letters of credit to replace outstanding
letters of credit of the Corporation and the Purchased Business. The
letters of credit are primarily performance letters of credit.
(2) Total commitment of $100.0 million.
(3) Approximately $250.0 million will be used to fund customer advance payments
as projects are performed, approximately $200.0 million will be used to
replace proceeds from the sale of accounts receivable by the Purchased
Business, which proceeds were retained by Raytheon, and approximately $31.0
million will be used for general corporate purposes.
Item 5. Other Matters.
In June 2000, the Corporation's Board of Directors approved a reduction in
the number of members of the Board to seven, effective as of Closing. The
reduction followed the resignation from the Board of Directors of Thomas H.
Zarges who wishes to devote his attentions to his duties as President and Chief
Executive Officer of the Industrial/Process operating unit. Mr. Zarges will
continue as an Executive Vice President of the Corporation.
In addition, the Board of Directors approved, effective as of Closing, the
elections of David L. Myers and Robert C. Wiesel as Executive Vice Presidents of
the Corporation, in addition to their positions as President of the
Corporation's Power operating unit and President of its Petroleum & Chemicals
operating unit, respectively.
The Board of Directors also approved the change of the Corporation's name
to "Washington Group International, Inc.," subject to stockholder approval. The
Corporation expects to present the name change for stockholder approval at a
special meeting to be held for such purpose in September or October, 2000.
Assuming stockholder approval, the name change will become effective upon the
filing of a certificate of amendment to the Corporation's certificate of
incorporation with the Delaware Secretary of State. In the meantime, the
Corporation intends to operate under the name "Washington Group" to the fullest
extent permitted by law.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired. The financial statements
and accountants' report required to be filed by Item 7(a) of Form 8-K
are filed as Exhibit 99.2 to this current report on Form 8-K and
incorporated herein by this reference.
(b) Pro Forma Financial Information. The pro forma financial information
required to be filed by Item 7(b) of Form 8-K is filed as Exhibit 99.3
to this current report on Form 8-K and incorporated herein by this
reference.
(c) Exhibits.
1.1 Purchase Agreement, dated as of June 28, 2000, as amended, among
the Corporation, the Subsidiary Guarantors, CSFB, BMO Nesbitt
Burns and U.S. Bancorp Libra
2.1 Stock Purchase Agreement, dated as of April 14, 2000, among the
Corporation, Raytheon and RECI (incorporated herein by reference
to Exhibit 2 to the Corporation's Quarterly Report on Form 10-Q
for the quarter ended March 3, 2000)
4.1 Indenture, dated as of July 1, 2000, between the Corporation and
United States Trust Company of New York, as Trustee
10.1 Credit Agreement, dated as of July 7, 2000, among the
Corporation, the lenders named therein, Credit Suisse First
Boston, New York branch, as administrative agent, collateral
agent and an issuing bank and as arranger, Bank of Montreal, as
syndication agent, and Bank of America, N.A. and U.S. Bank
National Association, as documentation agents
10.2 Registration Rights Agreement, dated as of June 28, 2000, as
amended, among the Corporation, the Subsidiary Guarantors, CSFB,
BMO Nesbitt Burns and U.S. Bancorp Libra
23 Consent of Independent Accountants
99.1 Press release, dated July 7, 2000, issued by the Corporation
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99.2 Audited consolidated balance sheets of RECI at
December 31, 1999 and 1998, and related
consolidated statements of operations, parent
company investment and cash flows for each of the
three years ended December 31, 1997, 1998 and 1999,
and unaudited consolidated balance sheets of RECI
at April 4, 1999, December 31, 1999 and April 2,
2000, and related consolidated statements of
operations, parent company investment and cash
flows for the three months ended April 4, 1999 and
April 2, 2000
99.3 Unaudited pro forma condensed combined statements
of operations of the Corporation for the year ended
December 3, 1999 and the quarter ended March 3,
2000, and unaudited pro forma condensed combined
balance sheet of the Corporation as of March 3,
2000
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Signature
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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
By: /s/ Craig G. Taylor
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Craig G. Taylor
Secretary
July 13, 2000
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Index to Exhibits
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Exhibit
No. Exhibit
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1.1 Purchase Agreement, dated as of June 28, 2000, as amended, among the
Corporation, the Subsidiary Guarantors, CSFB, BMO Nesbitt Burns and
U.S. Bancorp Libra
2.1 Stock Purchase Agreement, dated as of April 14, 2000, among the
Corporation, Raytheon and RECI (incorporated herein by reference to
Exhibit 2 to the Corporation's Quarterly Report on Form 10-Q for the
quarter ended March 3, 2000)
4.1 Indenture, dated as of July 1, 2000, between the Corporation and
United States Trust Company of New York, as Trustee
10.1 Credit Agreement, dated as of July 7, 2000, among the Corporation,
the lenders named therein, Credit Suisse First Boston, New York
branch, as administrative agent, collateral agent and an issuing
bank and as arranger, Bank of Montreal, as syndication agent, and
Bank of America, N.A. and U.S. Bank National Association, as
documentation agents
10.2 Registration Rights Agreement, dated as of June 28, 2000, as
amended, among the Corporation, the Subsidiary Guarantors, CSFB, BMO
Nesbitt Burns and U.S. Bancorp Libra
23 Consent of Independent Accountants
99.1 Press release, dated July 7, 2000, issued by the Corporation
99.2 Audited consolidated balance sheets of RECI at December 31, 1999 and
1998, and related consolidated statements of operations, parent
company investment and cash flows for each of the three years ended
December 31, 1997, 1998 and 1999, and unaudited consolidated balance
sheets of RECI at April 4, 1999, December 31, 1999 and April 2,
2000, and related consolidated statements of operations, parent
company investment and cash flows for the three months ended April
4, 1999 and April 2, 2000
99.3 Unaudited pro forma condensed combined statements of operations of
the Corporation for the year ended December 3, 1999 and the quarter
ended March 3, 2000, and unaudited pro forma condensed combined
balance sheet of the Corporation as of March 3, 2000
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