<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended
December 3, 1999
Commission File Number 1-12054
[LOGO OF MORRISON KNUDSEN CORPORATION APPEARS HERE]
A Delaware Corporation
IRS Employer Identification No. 33-0565601
MORRISON KNUDSEN PLAZA, BOISE, IDAHO 38729
208 / 386-5000
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SECURITIES REGISTERED & NUMBER OF REGISTRANT'S COMMON STOCK OUTSTANDING
At January 28, 2000, 52,349,840 shares of the registrant's $.01 par value common
stock were outstanding. Such common stock and warrants to purchase an aggregate
of 2,757,537 shares of such common stock are listed on the New York Stock
Exchange and registered under Section 12(b) of the Securities Exchange Act. The
registrant has no securities registered under Section 12(g) of the Securities
Exchange Act.
COMPLIANCE WITH REPORTING REQUIREMENTS
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
DISCLOSURE PURSUANT TO ITEM 405 OF REGULATION S-K
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in part III of this Form 10-K or any amendment to this Form 10-K.
[X] Yes [_] No
AGGREGATE MARKET VALUE OF COMMON STOCK HELD BY NONAFFILIATES
At January 28, 2000, the aggregate market value of the registrant's common stock
held by nonaffiliates of the registrant, based on the New York Stock Exchange
closing price on January 28, 2000, was approximately $248,620,426. Shares having
an aggregate market value of $157,090,834 are assumed to be held by affiliates
of the registrant for purposes of this calculation.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for its annual meeting
of stockholders to be held on April 14, 2000, which is expected to be filed with
the Securities and Exchange Commission not later than March 31, 2000, are
incorporated by reference into Part III of this Annual Report on Form 10-K. In
the event such proxy statement is not so filed by March 31, 2000, the required
information will be filed as an amendment to this Annual Report on Form 10-K no
later than such date.
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MORRISON KNUDSEN CORPORATION
Annual Report on Form 10-K
For the Year Ended December 3, 1999
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business I-1
Item 2. Properties I-8
Item 3. Legal Proceedings I-9
Item 4. Submission of Matters to a Vote of Security Holders I-9
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters II-1
Item 6. Selected Financial Data II-2
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations II-3
Item 7A. Quantitative and Qualitative Disclosure About Market Risk II-12
Item 8. Financial Statements and Supplementary Data II-13
Item 9. Change in and Disagreements with Accountants on Accounting
and Financial Disclosure II-43
PART III
Item 10. Directors and Executive Officers of the Registrant III-1
Item 11. Executive Compensation III-1
Item 12. Security Ownership of Certain Beneficial Owners and
Management III-1
Item 13. Certain Relationships and Related Transactions III-1
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on
Form 8-K IV-1
SIGNATURES
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NOTE REGARDING FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K and other reports and statements filed by
Morrison Knudsen Corporation (the "Corporation") from time to time with the
Securities and Exchange Commission (collectively, "SEC Filings") contain or may
contain forward-looking statements. When used in SEC Filings, the words "may,"
"will," "anticipate," "believe," "estimate," "expect," "future," "intend,"
"plan," "could," "should," "potential" or "continue" or the negative or other
variations thereof, as well as other statements regarding matters that are not
historical fact, are or may constitute forward-looking statements. Such forward-
looking statements are necessarily based on various assumptions and estimates
and are inherently subject to various risks and uncertainties including, in
addition to any risks and uncertainties disclosed in the text surrounding such
statements or elsewhere in the SEC Filings, risks and uncertainties relating to
the possible invalidity of the underlying assumptions and estimates and possible
changes or developments in social, economic, business, industry, market, legal
and regulatory circumstances and conditions and actions taken or omitted to be
taken by third parties, including the Corporation's customers, suppliers,
business partners and competitors and legislative, regulatory, judicial and
other governmental authorities and officials. Should the Corporation's
assumptions or estimates prove to be incorrect, or should one or more of these
risks or uncertainties materialize, actual amounts, results, events and
circumstances may vary significantly from those reflected in such forward-
looking statements.
PART I
ITEM 1. BUSINESS
Unless the context otherwise requires, references to 1999 are references to
the Corporation's fiscal year ended December 3, 1999, and references to 1998 and
1997 are references to the Corporation's fiscal years ended November 30, 1998
and 1997, respectively.
GENERAL
The Corporation, together with its subsidiaries ("the Corporation"), is an
international provider of a broad range of design, engineering, construction,
construction management, facilities and operations management, environmental
remediation and mining services to diverse public and private sector clients.
The Corporation:
. Provides design, construction, construction management and renovation
services for plants and facilities in the general manufacturing, chemical,
petrochemical, food and beverage, pharmaceuticals, high-technology and
institutional buildings markets;
. Provides a full range of engineering and construction services to power
generation utilities, including construction of new plants, retrofitting of
existing plants and decommissioning and decontamination of nuclear plants
that have reached the end of their operating lives;
. Provides total facilities management to industrial clients, including
maintenance, engineering and construction, and operations and logistics
management at manufacturing plants and related facilities and at toll
roads;
. Provides facilities management and environmental remediation services to
governmental agencies, such as the Department of Energy and the Department
of Defense and performs complex tasks in nuclear-related segments of the
U.S. government defense program;
. Provides design, engineering, construction and construction management
services for infrastructure projects in the transportation, marine and
water resources markets, including highway, bridge, railroad, airport,
marine port and water distribution and storage facilities projects; and
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. Provides contract mining services in the fossil fuel and industrial
minerals markets, together with technical and engineering services such as
resource evaluation, geologic modeling, mine planning and development,
equipment selection and remediation.
In providing its services, the Corporation enters into three basic types of
contracts:
. Fixed-price or lump-sum contracts providing for a fixed price for all work
to be performed;
. Unit-price contracts providing for a fixed price for each unit of work
performed; and
. Cost-type contracts providing for reimbursement of costs plus a fee.
Both anticipated income and economic risk are greater under fixed-price and
unit-price contracts than under cost-type contracts. Engineering, construction
management and environmental and hazardous substance remediation contracts are
typically awarded on a cost-plus-fee basis. See "Risk Factors The Corporation's
fixed-price and unit-price contracts place the risk of increased project costs
on the Corporation."
The Corporation frequently participates, as sponsor and manager, in
construction joint ventures that are formed for the purpose of bidding,
negotiating and completing specific projects. In addition, the Corporation
participates in the following mining ventures: Westmoreland Resources, Inc., a
coal mining company in Montana, and MIBRAG mbH, a company that operates lignite
coal mines and power plants in Germany. See Note 5. "Ventures" of Notes to
Consolidated Financial Statements in Part II of this report.
The Corporation was originally formed in Delaware on April 28, 1993 under the
name Kasler Holding Company to become the parent company of WCG Holdings, Inc.
("WCG") and Kasler Corporation ("Kasler"). These companies were active in the
infrastructure, contract mining, environmental remediation, commercial
construction and construction materials markets. In April 1996, the name of the
Corporation was changed from Kasler Holding Company to Washington Construction
Group, Inc.
On September 11, 1996, the Corporation acquired the net assets and the
engineering and construction operations of Morrison Knudsen Corporation, a
Delaware corporation ("Old MK"), in a transaction structured as a merger of Old
MK with and into the Corporation, 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 (the "Plan") filed
by Old MK in the United States Bankruptcy Court for the District of Delaware
(the "Bankruptcy Court"). The Plan was confirmed by the Bankruptcy Court on
August 26, 1996, and became effective concurrently with the merger on September
11, 1996. The Corporation has no remaining obligations under the Plan. Old MK,
founded in Boise, Idaho, in 1912 by Harry W. Morrison and Morris Hans Knudsen,
has left the MK hallmark of skill, responsibility and integrity on thousands of
engineering, construction and manufacturing projects of virtually every type and
size, in more than 80 countries around the world, and in every state of the
United States.
On March 22, 1999, the Corporation acquired a majority economic interest in
the government and environmental services businesses of CBS Corporation
(formerly known as Westinghouse Electric Corporation). See "Operating Units
Government Services Group" in Item 1 of this report and Note 3. "Acquisition of
GESCO Businesses" of Notes to Consolidated Financial Statements in Item 8 of
this report.
The Corporation's executive offices are located at Morrison Knudsen Plaza,
Boise, Idaho 83729, and its telephone number is (208) 386-5000.
OPERATING UNITS
The Corporation's operations are conducted through three market-driven
operating units, each of which comprises a separate business segment: The MK
Engineers & Constructors Group based in Cleveland, Ohio; the
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MK Government Services Group based in Aiken, South Carolina and the Morrison
Knudsen Contractors Group based in Boise, Idaho. The information set forth in
Note 11. "Operating Segment, Geographic and Customer Information" of Notes to
Consolidated Financial Statements in Item 8 of this report is incorporated by
reference in response to this Item 1.
MK Engineers & Constructors Group:
The MK Engineers & Constructors Group ("Engineers & Constructors Group"),
which is the most diverse of the Corporation's operating groups, is comprised
of:
. Industrial/Process which targets Fortune 100 clients and provides
engineering, design, procurement and construction services for new
construction or renovations of plants and facilities in the general
manufacturing, chemical, refining, food and beverage, pharmaceuticals,
high-technology and institutional-buildings markets. Industrial/Process
also performs private-sector environmental remediation work.
. Energy which offers a full range of engineering and construction services
to power generation utilities. These services include construction of power
plants, installation of flue-gas scrubber systems and plant retrofit
projects such as the replacement of steam generators in nuclear power
plants, a specialty. Energy also performs decommissioning and
decontamination of nuclear power plants that have reached the end of their
operating lives and demilitarization, with services directed toward weapons
reduction in former states of the Soviet Union.
. Operations and Maintenance which provides total facilities management
services to industrial clients. These services include maintenance,
engineering and construction and operations and logistics management at
manufacturing plants and related facilities and at toll roads. Clients
typically outsource these services to focus on their core businesses and
competencies, enhancing internal capabilities and reducing cost.
MK Government Services Group
The MK Government Services Group ("Government Services Group") provides a
complete range of technical services to the U.S. Departments of Energy and
Defense and is comprised of the Westinghouse Government Services Group and
Federal Projects.
. Westinghouse Government Services Group ("WGSG"): In March of 1999, Morrison
Knudsen acquired a majority economic interest in the government and
environmental services businesses of CBS Corporation (formerly known as
Westinghouse Electric Corporation) with its joint venture partner, BNFL
Nuclear Services, Inc. ("BNFL"). WGSG operates through the Westinghouse
Government Services Company LLC and the Westinghouse Government Environmental
Services Company LLC.
. Westinghouse Government Services Company LLC:
. Provides defense program contract services to the U.S. Department of
Energy and U.S. Department of Defense;
. Provides safety analysis and documentation, conduct of operations,
radiology criticality and related engineering services to the U.S.
Government, the Canadian government, commercial chemical companies and
commercial utilities;
. Provides tritium processing, high level waste solidification and nuclear
clean up services for the U.S. Department of Energy; and
. Supplies pumps, valves, generators and propulsion units for naval
applications.
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. Westinghouse Government Environmental Services Company LLC:
. Performs support service subcontracts at U.S. national laboratories;
. Designs multi-purpose canisters used to ship and store spent nuclear
fuel;
. Is currently constructing, and will operate and eventually decommission,
the Anniston chemical agent disposal facility;
. Converts highly radioactive nuclear waste into stabilized materials for
disposal;
. Handles and disposes of plutonium contaminated waste from the U.S.
weapons program; and
. Manages a hazardous waste storage facility.
. Federal Projects specializes in the operation and environmental remediation of
government facilities, primarily for the U.S. Departments of Energy and
Defense.
Morrison Knudsen Contractors Group
The Morrison Knudsen Contractors Group ("Contractors Group") is comprised of:
. Heavy Civil which provides services both as a general contractor and in a
design-build capacity. Heavy Civil targets infrastructure projects in the
transportation, marine and water resources markets. It also provides site
development at mine, industrial, commercial and recreational sites.
. Mining which is an international provider of contract mining services for
the fossil fuel and industrial minerals markets. In addition, Mining offers
a full range of technical and engineering services, including resource
evaluation, geologic modeling, mine planning and development, environmental
permitting, equipment selection and remediation.
. Transportation which operates as "MK Centennial," specializes in
engineering, design and construction management of highway, bridge,
railroad, airport and water resource infrastructure projects.
. International Infrastructure which constructs infrastructure projects
internationally, is presently focused on water resource, waste water
management and telecommunication projects in the Middle East.
GOVERNMENT CONTRACTS AND BACKLOG
Government contracts are a significant part of the Corporation's business. See
"Risk Factors The government can audit and potentially disallow costs claimed
for compensation under the Corporation's government contracts, and can terminate
such contracts without cause."
Backlog consists of uncompleted portions of engineering and construction
contracts, including all backlog of WGSG, the Corporation's proportionate share
of construction joint-venture contracts and its share of the uncompleted
portions of mining service contracts and ventures for the next five years. The
backlog for government contracts includes only two years' worth of the portions
of such contracts that are currently funded or which management is highly
confident will be funded. Backlog at December 3, 1999 totaled $3.3 billion
compared with November 30, 1998 backlog of $2.7 billion. Approximately $732
million of the backlog at December 3, 1999 was comprised of U.S. government
contracts which are subject to termination by the government, $297 million of
which had not been funded. Terminations for the convenience of the government
generally provide for recovery of contract costs and related earnings.
Approximately $1.9 billion or 57% of backlog at December 3, 1999 is expected to
be recognized as revenue in 2000.
Although backlog reflects business which is considered to be firm,
cancellations or scope adjustments may occur. Backlog has been adjusted to
reflect known project cancellations, deferrals and revisions in scope and cost,
both upward and downward. There is no assurance that future contract
cancellations or modifications will not reduce backlog and future revenues.
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<TABLE>
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Composition of year end backlog
(In thousands of dollars)
Year ending 1999 % 1998 %
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<S> <C> <C> <C> <C>
Fee-type contracts $1,413,400 42% $ 901,000 34%
Fixed-price and unit-price contracts 1,915,000 58% 1,779,100 66%
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Total backlog $3,328,400 100% $2,680,100 100%
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EMPLOYEES
The Corporation's total worldwide employment varies widely with the volume,
type and scope of operations under way at any given time and other factors.
At December 3, 1999, the Corporation employed approximately 22,000 employees,
including 3,400 employees covered by collective bargaining agreements. Included
in the employee total at December 3, 1999 were approximately 12,300 employees
associated with government-owned facilities.
RAW MATERIALS
Raw materials and components necessary for the conduct of the Corporation's
businesses are generally available from numerous sources. The Corporation does
not foresee any unavailability of raw materials and components which would have
a material adverse effect on its business in the near term.
COMPETITION
The Corporation is engaged in highly competitive businesses in which customer
contracts are typically awarded through competitive bidding processes. The
Corporation competes based primarily on price, reputation and reliability with
other general and specialty contractors, both foreign and domestic. Success or
failure in the Corporation's lines of business is, in large measure, based upon
the ability to compete successfully for contracts and to provide the
engineering, planning, procurement, management and project financing skills
required to complete them in a timely and cost-efficient manner. See "Risk
Factors The Corporation is engaged in highly competitive businesses and must bid
against competitors to obtain engineering, construction and service contracts"
in Item 1 of this report.
ENVIRONMENTAL MATTERS
The Corporation's environmental and hazardous substance remediation and
contract mining services involve risks of liability under federal, state and
local environmental laws and regulations, including the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA"). The
Corporation performs environmental remediation at Superfund sites as a response
action contractor for the Environmental Protection Agency (the "EPA") and, in
such capacity, is exempt from liability under any federal law, including CERCLA,
unless its conduct was negligent; moreover, the Corporation may be entitled to
indemnification from the United States against liability arising out of
negligent performance of work in such capacity. A determination that the
Corporation is liable under environmental laws and regulations for the cost of
environmental remediation due to its performance of contract mining or
environmental remediation could have a material adverse effect on the financial
position, results of operations and cash flows of the Corporation. Amendments
to, or more stringent implementation of, current environmental laws and
regulations also could have such adverse effects.
For additional information regarding environmental matters, see "Summitville
environmental matters" and "Other environmental matters" in Note 12.
"Contingencies and Commitments" of Notes to Consolidated Financial Statements in
Item 8 of this report. See also "Risk Factors The Corporation could be subject
to liability under environmental laws."
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RISK FACTORS
The Corporation and its businesses are subject to a number of risks, including
those enumerated below. Any or all such risks could have a material adverse
effect on the business, financial condition, results of operations and cash
flows of the Corporation and on the market price of the Corporation's
securities. See also "Note Regarding Forward-Looking Information."
The Corporation is engaged in highly competitive businesses and must typically
bid against competitors to obtain engineering, construction and service
contracts:
The Corporation is engaged in highly competitive businesses in which customer
contracts are typically awarded through competitive bidding processes. The
Corporation competes with other general and specialty contractors, both foreign
and domestic, including large international contractors and small local
contractors. Certain competitors have greater financial and other resources than
the Corporation which, in some instances, could give them a competitive
advantage over the Corporation.
Economic downturns and reductions in government funding could have a negative
impact on the Corporation's businesses:
Demand for the services offered by the Corporation has been, and is expected
to continue to be, subject to significant fluctuations due to a variety of
factors beyond its control, including economic conditions. During economic
downturns, the ability of both private and governmental entities in targeted
markets to make capital expenditures on infrastructure improvement may decline
significantly. There can be no assurance that economic or political conditions
generally will be favorable or that there will not be significant fluctuations
adversely affecting the industry as a whole or key markets targeted by the
Corporation. In addition, the Corporation's operations are in part dependent
upon governmental funding of infrastructure and environmental projects.
Significant changes in the level of government funding of these projects could
have an unfavorable impact on the operating results of the Corporation.
The Corporation's fixed-price and unit-price contracts place the risk of
increased project costs on the Corporation:
The Corporation's fixed-price and unit-price contracts involve risks relating
to the inability of the Corporation to receive additional compensation in the
event that the costs of performing such contracts prove to be greater than
anticipated. The Corporation's costs of performing such contracts may be greater
than anticipated due to uncertainties inherent in estimating contract completion
costs, contract modifications by customers, failure of subcontractors and joint-
venture partners to perform and other unforeseen events and conditions. Any one
or more of these risks could result in reduced profits or increased losses on a
particular contract or contracts.
The government can audit and potentially disallow costs claimed for compensation
under the Corporation's government contracts, and can terminate such contracts
without cause:
Government contracts are a significant part of the Corporation's business. In
addition to other significant government contracts, contracts and subcontracts
with the United States Departments of Energy and Defense accounted for
approximately 22% and 11%, respectively, of the Corporation's revenues for the
year ended December 3, 1999. See Note 11. "Operating Segment, Geographic and
Customer Information" of Notes to Consolidated Financial Statements in Item 8 of
this report. The Corporation has a number of cost-type contracts with various
agencies of the U.S. government. Allowable costs under these contracts are
subject to audit by the U.S. government. To the extent that such audits result
in determinations that costs claimed as reimbursable are not allowable costs or
were not allocated in accordance with federal government regulations, the
Corporation could be required to reimburse the U.S. government for amounts
previously paid. See "Government Contracts and Backlog" in Item 1 of this report
for the relative significance of U.S. government contracts included in 1999
backlog and related risks. See also Note 12. "Contingencies and Commitments
Contract related matters" of Notes to Consolidated Financial Statements in Item
8 of this report.
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The Corporation has a number of contracts and subcontracts with various
agencies of the U.S. government, principally for environmental remediation and
restoration work, which extend beyond one year and for which government funding
has not yet been approved. There can be no assurance that such funding will be
approved. All contracts with agencies of the U.S. government and some commercial
and foreign contracts are subject to unilateral termination at the option of the
customer. In the event of a termination, the Corporation would not receive
projected revenues or profits associated with the terminated portion of such
contracts.
The Corporation's businesses involve many project-related and contract-related
risks:
The Corporation's business is subject to a variety of project-related risks,
including changes in political and other circumstances, particularly since
contracts for major projects are performed over extended periods of time. These
risks include the failure of applicable governing authorities to take certain
necessary actions, opposition by third parties to particular projects and the
failure to obtain adequate financing for particular projects. Due to these
factors, losses on a particular contract or contracts could occur, and the
Corporation could experience significant changes in operating results on a
quarterly or annual basis.
Because of the size and complexity of major infrastructure projects, a
relatively small number of projects may provide a significant percentage of the
Corporation's revenue in a given year. The loss of one or more major contracts
or the inability of the Corporation to perform profitably under one or more
major contracts could have a material adverse effect on the Corporation's
financial condition, results of operations and cash flows.
The Corporation may also be adversely affected by various risks and hazards,
including industrial accidents, labor disputes, geological conditions,
environmental hazards, weather and other natural phenomena such as earthquakes
and floods.
The Corporation's success depends on attracting and retaining qualified
personnel in a competitive environment:
The Corporation is dependent upon its ability to attract and retain highly
qualified managerial, technical and business development personnel. Competition
for such personnel is intense. There can be no assurance that the Corporation
can retain its key managerial, technical and business development personnel or
that it can attract, assimilate or retain such personnel in the future.
The Corporation's international operations involve special risks:
The Corporation pursues project opportunities throughout the world through
foreign and domestic subsidiaries as well as agreements with foreign joint-
venture partners. These foreign operations are subject to special risks,
including:
. Uncertain political and economic environments;
. Potential incompatibility with foreign joint-venture partners;
. Foreign currency controls and fluctuations;
. Civil disturbances; and
. Labor strikes.
Events outside of the Corporation's control may limit or disrupt operations,
restrict the movement of funds, result in deprivation of contract rights,
increase foreign taxation or limit repatriation of earnings. In addition, in
certain cases applicable law and joint-venture or other agreements may provide
that each joint-venture partner is
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jointly and severally liable for all liabilities of the venture. See Note 11.
"Operating Segment, Geographic and Customer Information" of Notes to
Consolidated Financial Statements in Item 8 of this report.
The Corporation could be subject to liability under environmental laws:
The Corporation is subject to a variety of environmental laws and regulations
governing, among other things, discharges to air and water, the handling,
storage, and disposal of hazardous or solid waste materials and the remediation
of contamination associated with releases of hazardous substances. Such laws and
regulations and the risk of attendant litigation can cause significant delays to
a project and add significantly to its costs. Violations of these environmental
laws and regulations could subject the Corporation and its management to civil
and criminal penalties and other liabilities. There can be no assurance that
such laws and regulations will not become more stringent, or be implemented more
stringently in the future.
Various federal, state and local environmental laws and regulations, as well
as common law, may impose liability for property damage and costs of
investigation and cleanup of hazardous or toxic substances on property currently
or previously owned by the Corporation or arising out of the Corporation's waste
management activities. Such laws may impose responsibility and liability without
regard to knowledge of or causation of the presence of the contaminants, and the
liability under such laws is joint and several. The Corporation has potential
liabilities associated with its past waste management and contract mining
activities and with its current and prior ownership of certain property. See
"Environmental Matters" in Item 1 of this report and "Summitville environmental
matters" and "Other environmental matters" in Note 12. "Contingencies and
Commitments" of Notes to Consolidated Financial Statements in Item 8 of this
report.
One shareholder's large ownership interest in the Corporation, provisions of
Delaware law and the Corporation's organizational documents could inhibit a
takeover of the Corporation:
As of December 3, 1999, Dennis R. Washington, the Chairman of the Board of
Directors, President and Chief Executive Officer of the Corporation,
beneficially owned 38.67% of the 52,349,840 shares of outstanding common stock
of the Corporation. Mr. Washington's substantial ownership interest and certain
provisions of the Delaware General Corporation Law, the Corporation's
Certificate of Incorporation and Bylaws and certain agreements to which the
Corporation is a party, may have the effect of delaying, deterring or preventing
a change in control of the Corporation. In addition, the Certificate of
Incorporation authorizes the issuance of up to 100,000,000 shares of common
stock and 10,000,000 shares of preferred stock of the Corporation. The Board of
Directors has the power to determine the price and terms under which any such
additional capital stock may be issued and to fix the terms of such preferred
stock, and existing stockholders of the Corporation will not have preemptive
rights with respect thereto.
ITEM 2. PROPERTIES
(In thousands of dollars)
At December 3, 1999, the Corporation owned more than 3,900 units of heavy and
light mobile construction, environmental remediation and contract mining
equipment.
The Corporation's headquarters are located in Boise, Idaho, with regional
offices and other facilities located throughout the United States. The
Corporation considers that its properties are generally in good condition, well
maintained, suitable and adequate to carry on its business. The principal
facilities of the Corporation and its subsidiaries or operating units are as
follows:
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<TABLE>
<CAPTION>
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Property location Facility Sq.Ft. Owned/Leased Segment* Usage
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<S> <C> <C> <C> <C>
Aiken, SC 34,800 Leased 2 Office/engineering
Arvada, CO 23,189 Leased 3 Warehouse
Boise, ID 214,709 Leased 2, 3 & 4 Corporate/group headquarters
Carlsbad, NM 124,600 Leased 2 Office/container fabrication
Cheswick, PA 594,075 Owned 2 Office/manufacturing/engineering
Cleveland, OH 246,600 Leased 1 & 2 Group headquarters/engineering
Highland, CA 17,400 Owned 3 Regional office/equipment yard
Littleton, CO 71,255 Leased 2 & 3 Office/engineering
Petaluma, CA 43,800 Owned 3 Office/precast concrete fabrication
St. Louis, MO 30,055 Leased 1 Regional office/engineering
San Antonio, TX 32,492 Leased 3 Office
San Francisco, CA 31,754 Leased 1 Regional office/engineering
Troy, MI 12,869 Leased 1 Regional office/engineering
Washington, DC 2,750 Leased 4 Office
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</TABLE>
* Segment: 1 - Engineers & Constructors Group
2 - Government Services Group
3 - Contractors Group
4 - Corporate Administration
A large part of the operations of the Government Services Group is conducted
at client-owned facilities.
Rental and lease payments for real estate and equipment during the year ended
December 3, 1999 aggregated $58,763. See Note 12. "Contingencies and Commitments
Long-term leases" of Notes to Consolidated Financial Statements in Item 8 of
this report.
ITEM 3. LEGAL PROCEEDINGS
Information regarding legal proceedings set forth under the caption "Other" in
Note 12. "Contingencies and Commitments" of Notes to Consolidated Financial
Statements in Item 8 of this report is incorporated by reference in response to
this Item 3.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Corporation did not submit any matters to a vote of security holders
during the fourth quarter of 1999.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Market information:
The Corporation's common stock is traded on the New York Stock Exchange
under the symbol "MK." At the close of business on January 28, 2000, the
Corporation had 52,349,840 shares of common stock issued and outstanding.
The New York Stock Exchange composite high and low sales prices of the
Corporation's common stock traded on the New York Stock Exchange for each
quarterly period within the two most recent fiscal years are set forth under the
caption "Quarterly Financial Data" in Item 7 of this report and are incorporated
by reference in response to this Item 5.
Holders:
The number of record holders of the Corporation's voting common stock at
January 28, 2000 was approximately 1,339 and does not include beneficial owners
of the Corporation's common stock held in the name of nominees.
Dividends:
The Corporation has not paid a cash dividend since the first quarter of
fiscal 1994 and does not anticipate payment of dividends in the near term. The
Corporation's credit facilities place restrictions on dividend payments. See
Note 7. "Credit Facilities" of Notes to Consolidated Financial Statements in
Item 8 of this report.
II-1
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(In thousands except per share data)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
OPERATIONS SUMMARY 1999(a) 1998 1997 1996(b) 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $2,248,228 $1,862,174 $1,677,301 $659,100 $228,537
Gross profit 118,231 86,542 79,315 33,344 24,113
Operating income (loss) 79,656 58,743 52,827 (8,594) 7,926
Net income (loss) 48,285 37,553 32,031 (4,780) 8,165
Income (loss) per common share - basic .92 .70 .59 (.14) .28
Shares used to compute basic income per
common share 52,736 53,891 54,044 34,790 29,454
- -------------------------------------------------------------------------------------------------------
FINANCIAL POSITION SUMMARY
- -------------------------------------------------------------------------------------------------------
Current assets $ 531,963 $ 427,722 $ 405,014 $459,249 $ 85,721
Total assets 1,196,023 788,151 770,244 839,637 185,301
Current liabilities 385,095 303,024 299,895 400,604 42,188
Long-term debt 100,000 5,042
Minority interests 84,840
Redeemable preferred stock 18,000 18,000
Stockholders' equity 403,090 370,903 343,131 312,004 128,951
Stockholders' equity per common share 7.70 6.95 6.33 5.80 4.37
- -------------------------------------------------------------------------------------------------------
</TABLE>
(a) On March 22, 1999, the Corporation acquired a majority economic interest in
the government and environmental services businesses of CBS Corporation
(formerly known as Westinghouse Electric Corporation) in a transaction accounted
for as a purchase. See Item 1 of this report and Note 3. "Acquisition of GESCO
Businesses" of Notes to Consolidated Financial Statements in Item 8 of this
report.
(b) On September 11, 1996, the Corporation acquired Old MK in a transaction
accounted for as a purchase. See Item 1 of this report.
II-2
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Quarter ended Year ended
----------------------------- ------------------------------------------
December 3, November 30, December 3, November 30, November 30,
(In millions) 1999 1998 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $663.7 $543.3 $2,248.2 $1,862.2 $1,677.3
Gross profit 41.3 24.1 118.2 86.5 79.3
General and administrative
expenses (6.9) (6.5) (26.0) (24.2) (22.9)
Goodwill amortization (4.2) (.9) (12.6) (3.6) (3.6)
Investment income .7 1.1 3.4 5.8 9.1
Interest expense (2.9) (.2) (7.6) (.9) (.9)
Other income (expense), net (.7) 1.5 9.7 3.8 (1.1)
Income tax expense (10.1) (8.5) (31.6) (29.9)` (27.9)
Minority interests (3.9) (5.2)
Net income 13.3 10.7 48.3 37.6 32.0
- -------------------------------------------------------------------------------------------------------------
</TABLE>
1999 COMPARED TO 1998
Revenue and gross profit:
Revenue for the fourth quarter and year ended December 3, 1999 increased
22% to $663.7 million and 21% to $2,248.2 million, respectively, compared to
$543.3 million and $1,862.2 million for the comparable periods in 1998. These
increases were principally due to the acquisition of the government and
environmental services businesses ("GESCO businesses") of CBS Corporation
(formerly known as Westinghouse Electric Corporation) and the concurrent
formation of WGSG in March 1999.
Gross profit for the fourth quarter and year ended December 3, 1999
increased $17.2 million and $31.7 million, respectively, over the comparable
periods of 1998. The increase in gross profit was primarily due to the inclusion
of the earnings of WGSG in the Corporation's consolidated results of operations
beginning March 1999. Gross profit as a percent of revenue was 6.2% and 5.3%,
respectively, for the quarter and year ended December 3, 1999 compared to 4.4%
and 4.6% for the comparable periods of 1998. The gross profit percentage
increase in 1999 over 1998 was primarily due to WGSG whose operations generally
have relatively higher profit margins. In addition, the gross margins for the
fourth quarter of 1999 include significant performance-based incentive and award
fees earned on WGSG contracts.
The Corporation's gross margins often vary between periods due to inherent
risks and rewards on fixed-price contracts causing unexpected gains and losses
on contracts. Gross margins may also vary between periods due to changes in the
mix and timing of contracts executed by the Corporation, which contain various
risk and profit profiles and are subject to uncertainties inherent in the
estimation process.
At December 3, 1999, backlog of $3,328 million was comprised of $1,413
million (42%) of revenue from fee-type contracts and $1,915 million (58%) of
revenue from fixed-price contracts and the Corporation's share of revenue from
mining ventures.
II-3
<PAGE>
General and administrative expenses:
General and administrative expense for the year ended December 3, 1999
increased $1.8 million compared to 1998 due to additional compensation expenses
related to a key executive retirement, a key executive recruitment and increased
information system costs.
Goodwill amortization:
Amortization of cost in excess of net assets acquired ("goodwill") for the
fourth quarter and year ended December 3, 1999 increased $3.3 million and $9.0
million, respectively, over the comparable periods of 1998 due to the
amortization (over a period of 20 years) of goodwill arising from the GESCO
acquisition. Annual amortization of the GESCO goodwill is currently estimated at
$15.0 million, subject to possible adjustments to the recorded amount of GESCO
goodwill related to the final allocation of the purchase price to the fair value
of the net assets acquired.
In connection with the acquisition of Old MK, 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. During the fourth quarter of 1998, management reevaluated
the likelihood of the future realization of the tax benefits of deductible
temporary differences and net operating loss ("NOL") carryforwards relating to
Old MK and concluded, based on available evidence, that it is more likely than
not that a portion of the tax benefits previously reserved would be realized.
This conclusion resulted in a $20 million increase in deferred tax assets and a
corresponding decrease in recorded goodwill at November 30, 1998. The decrease
in goodwill reduced annual goodwill amortization by $.5 million. As a result of
the GESCO acquisition in the second quarter of 1999 and related projections of
additional future income, management reevaluated the likelihood of the future
realization of the tax benefits relating to Old MK. This reevaluation resulted
in an additional $50 million increase in deferred tax assets and a corresponding
decrease in recorded goodwill. The 1999 adjustment to goodwill reduces annual
goodwill amortization by $1.3 million.
Investment income:
Investment income for the quarter and year ended December 3, 1999 declined
as a result of there being less cash available for investment in the corporate
short-term asset management account due primarily to working capital
requirements. Additionally, investment income for the year ended November 30,
1998 included interest recognized on claims for U.S. federal income tax refunds
received in January 1998.
Interest expense:
Interest expense for the fourth quarter and year ended December 3, 1999
increased $2.7 million and $6.7 million, respectively, over the comparable
periods of 1998 resulting from interest expense incurred and amortization of
prepaid bank fees associated with the Corporation's revolving credit facilities
which were primarily used to fund the GESCO acquisition in March 1999. In
addition, $1.0 million of prepaid loan fees associated with the Corporation's
previous credit facility was written off in the second quarter of 1999.
Other income (expense), net:
Other income (expense) of $(.7) million for the quarter ended December 3,
1999 includes a provision of $1.2 million to settle various government contract
claims. Other income (expense) of $9.7 million for the year ended December 3,
1999 includes $8.7 million of gain from the sale of two non-core subsidiaries.
In addition, $2.2 million of gain was recognized on the settlement of contingent
issues relating to the sale of a former subsidiary of Old MK.
Other income (expense) for the fourth quarter and year ended November 30,
1998 of $1.5 million and $3.8 million, respectively, reflects the recognition of
$1.1 million and $3.2 million of income, respectively, associated with the
settlement of the Corporation's defined benefit pension plan obligation.
II-4
<PAGE>
Income tax expense:
The effective tax rate for the fourth quarter and year ended December 3,
1999 was 37% compared to 44% in the comparable periods of 1998. These reductions
resulted from the GESCO acquisition and the resulting (i) reduction of non-
deductible goodwill amortization expense relating to the acquisition of Old MK,
(ii) ability to use foreign tax credits from prior years, and (iii) additional
pretax income resulting in a lower proportion of non-deductible expenses to
pretax income. The effective tax rate is higher than the U.S. federal statutory
rate of 35% because of state income taxes and non-deductible expenses.
Minority interests:
Minority interests in the income of consolidated subsidiaries of $3.9
million and $5.2 million, respectively, for the quarter and year ended December
3, 1999 consist of BNFL's 40% minority interest in the earnings of the GESCO
businesses and a third party's 35% minority interest in the earnings of Safe
Sites of Colorado LLC, a subsidiary included in WGSG.
1998 COMPARED TO 1997
Revenue and gross profit:
Revenue for the year ended November 30, 1998 increased $184.9 million to
$1,862.2 million compared to $1,677.3 million for the comparable period in 1997
primarily due to an increase in the volume of industrial/process, operations and
maintenance and energy project work executed by the Engineers & Constructors
Group. Revenue of the Contractors Group decreased slightly for the year ended
November 30, 1998 due to a lower demand for coal production and power generation
from the MIBRAG mbH mining venture in Germany. Additionally, a significant long-
term contract was completed in the third quarter of 1997.
Gross profit for the year ended November 30, 1998 increased $7.2 million to
$86.5 million compared to $79.3 million for the comparable period of 1997 due to
an increase in volume of work performed. The increase in gross profit also
includes a $5.7 million positive settlement on an environmental contract. These
increases were partially offset by a $5.4 million loss related to the write-off
of an investment in a solvent extraction facility and a related contract to
treat contaminated soil and by lower demand for coal production and power
generation from the MIBRAG mbH mining venture. The change in gross profit was
also impacted by earnings from a significant long-term mining contract completed
in the third quarter of 1997, by provisions for losses at completion for
contracts in progress of $9.5 million and a $3.9 million pretax loss on a large,
fixed-price joint-venture contract included in gross profit for the year ended
November 30, 1997.
Gross profit as a percentage of revenue for the year ended November 30,
1998 was 4.6% compared to 4.7% for the comparable period of 1997.
At November 30, 1998, backlog of $2,680 million was comprised of $901
million (34%) of revenue from fee-type contracts and $1,779 million (66%) of
revenue from fixed-price contracts and the Corporation's share of revenue from
mining ventures.
General and administrative expenses:
General and administrative expenses for the year ended November 30, 1998
increased $1.3 million compared to the comparable period of 1997. The increase
was attributable to an increase in implementation costs of new computer
information systems for financial, human resource and payroll functions and the
reengineering of the Corporation's financial processes.
II-5
<PAGE>
Goodwill amortization:
Goodwill amortization for the year ended November 30, 1998 was $3.6
million, principally reflecting the amortization of the $124.1 million of
goodwill initially recorded in connection with the acquisition of Old MK. 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. Resolution and revaluation of
certain preacquisition contingencies and tax law changes extending the NOL
carryforward period from 15 to 20 years resulted in a net adjustment to goodwill
of $1.0 million in 1997.
Investment income:
Investment income for the year ended November 30, 1998 decreased $3.3
million from 1997 due to a decrease in interest income recognized in 1997 from
U.S. federal income tax refunds received in January 1998 and a note receivable
collected in October 1997. The reductions in investment income were partially
offset by increased interest income as a result of larger available cash
balances to invest in short-term asset management accounts.
Interest expense:
Interest expense for the year ended November 30, 1998 of $.9 million was
comparable to interest expense incurred for 1997. Interest expense consisted
primarily of periodic amortization of prepaid underwriting fees and quarterly
commitment fees in connection with a five-year, $200 million revolving loan and
letter of credit facility obtained in the fourth quarter of 1996.
Other income (expense), net:
Other income (expense) for the year ended November 30, 1998 of $3.8 million
reflects the recognition of $3.2 million of income associated with the
settlement of the Corporation's defined benefit pension plan obligation.
Other income (expense) for 1997 of $(1.1) included (i) a $1.7 million
income adjustment of the accrued pension benefit obligation reflecting the
estimate of termination benefits to be settled with cash proceeds from
liquidation of plan assets, (ii) a $.6 million gain on adjustment of insurance
premiums paid in prior periods, (iii) $1.9 million of expensed acquisition costs
associated with the Corporation's cancellation of the proposed acquisition of
Montana Resources, Inc, and (iv) an $.8 million loss on the sale of an equity
investment in a foreign bank.
Income tax expense:
The effective tax rate for the year ended November 30, 1998 was 44%,
compared to 47% in 1997, principally due to a decrease in foreign tax expense
and a lower proportion of non-deductible expenses to pretax income. The
effective tax rate is higher than the U.S. federal statutory rate of 35% because
of state income taxes, foreign income taxes not currently eligible for use as
credits against U.S. federal income taxes and non-deductible expenses.
II-6
<PAGE>
<TABLE>
<CAPTION>
OPERATING SEGMENT RESULTS
(In millions)
- ----------------------------------------------------------------------------------------------
Revenue
Year ended December 3, 1999 November 30, 1998 November 30, 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Engineers & Constructors Group $ 690.6 $ 781.7 $ 595.0
Government Services Group 760.9 355.5 346.6
Contractors Group 798.5 727.6 739.2
Intersegment eliminations (1.8) (2.6) (3.5)
- ----------------------------------------------------------------------------------------------
Total revenue $2,248.2 $1,862.2 $1,677.3
==============================================================================================
- ----------------------------------------------------------------------------------------------
Operating income
Year ended December 3, 1999 November 30, 1998 November 30, 1997
- ----------------------------------------------------------------------------------------------
Engineers & Constructors Group $ 16.6 $ 9.4 $ 7.9
Government Services Group 46.8 23.2 15.4
Contractors Group 43.4 51.2 48.6
Intersegment and other (1.1) (.9) 3.8
- ----------------------------------------------------------------------------------------------
Total segment operating income 105.7 82.9 75.7
- ----------------------------------------------------------------------------------------------
General and administrative expense (26.0) (24.2) (22.9)
- ----------------------------------------------------------------------------------------------
Total operating income $ 79.7 $ 58.7 $ 52.8
==============================================================================================
</TABLE>
1999 COMPARED TO 1998
Engineers & Constructors Group
Revenue decreased $91.1 million or 12% to $690.6 million in 1999 from
$781.7 million in 1998 primarily due to the completion of several large
Industrial/Process and Operations and Maintenance contracts in 1999. Operating
income increased from the favorable performance on Industrial/Process contracts
during 1999 and reduced overhead costs in 1999 as a result of streamlining and
cost reduction efforts.
Government Services Group
Government Services Group recognized revenue and operating income during
1999 of $760.9 million and $46.8 million, respectively, an increase of $405.4
million and $23.6 million, respectively, over the previous year due to the GESCO
acquisition. Operating income from environmental remediation contracts increased
substantially in 1999 compared to 1998 due to the strong performance on the
fixed-price portion of a project. In addition, operating income increased due to
losses incurred and the $5.4 million write-off of an investment in a solvent
extraction facility and a related contract to treat contaminated soil which
occurred in 1998. These losses in 1998 were partially offset by a $5.7 million
gain recognized on the settlement of an environmental contract. Operating income
in 1999 includes $10.4 million of goodwill amortization related to the GESCO
acquisition.
Contractors Group
Revenue for the year ended December 3, 1999 increased 10% to $798.5 million
from $727.6 million in 1998 due to a significant increase in activity in
International Infrastructure projects, the execution of new mining contracts in
the Powder River Basin and increased production on several existing mining
contracts and an increase in revenue in Heavy Civil construction work performed
on new contracts. Operating income decreased $7.8 million to $43.4 million in
1999 due to lower margin contracts on Heavy Civil work and additional costs
incurred in pursuing design-build projects. These reductions in operating income
in 1999 compared to 1998 were partially offset by an increase in operating
income in Mining contracts due to increased volume of work performed. In
addition, a loss was recognized in the second quarter of 1998 related to start-
up difficulties with a fixed-price contract.
II-7
<PAGE>
Intersegment and other
Intersegment and other operating income for 1999 and 1998 include $2.1
million and $3.6 million, respectively, of goodwill amortization related to the
acquisition of Old MK.
1998 COMPARED TO 1997
Engineers & Constructors Group
Revenue increased $186.7 million or 31% to $781.7 million in 1998 from
$595.0 million in 1997 due to an increase in the volume of work performed.
Operating income increased to $9.4 million in 1998 from $7.9 million in 1997.
Revenue and operating income increased as a result of increased volume of work
performed on Industrial/Process and Operations and Maintenance contracts.
Government Services Group
Revenue increased $8.9 million to $355.5 million, while operating income
increased $7.8 million to $23.2 million in 1998 compared to 1997. Operating
income increased as a result of a gain of $5.7 million recognized on the
settlement of an environmental contract. Also in 1997, an environmental contract
for the construction of a solvent extraction facility and the treatment of
contaminated soil required a loss provision of $7.0 million. The increase in
operating income was offset by a decrease in volume and profit on a large
project and a loss recognized on a contract during 1998.
Contractors Group
Revenues for the Contractors Group decreased $11.6 million to $727.6
million in 1998 compared to $739.2 million in 1997. Operating income increased
slightly to $51.2 million in 1998 from $48.6 million in 1997. Revenue declined
because of a lower demand for coal production and power generation from the
MIBRAG mbH mining venture in Germany and the completion of a significant long-
term mining contract in the third quarter of 1997. The Contractors Group also
experienced a decline in work produced on Transportation contracts during 1998.
These decreases in revenue were partially offset by an increase in volume of
work on Heavy Civil construction and International Infrastructure contracts.
Operating income increased due to improved profitability on Heavy Civil and
International Infrastructure contracts. A milestone achievement for initial
profit recognition was reached on a large, profitable fixed-price contract
during 1998. In 1997, a $3.9 million loss was recognized on a large, fixed-price
joint-venture contract on which the Group assumed sponsorship. The increase in
operating income was offset by the impact of lower demand from MIBRAG mbH mining
venture and the completion of a long-term mining contract in the third quarter
of 1997.
Intersegment and other
Intersegment and other operating income for 1998 and 1997 included $3.6
million of goodwill amortization related to the acquisition of Old MK. In
addition, in 1997, the Corporation recognized income of $4.0 million from the
resolution of an environmental issue and a $2.5 million resolution of a
corporate bad debt reserve, both of which were not allocated to the operating
segments.
II-8
<PAGE>
SEGMENT NEW WORK
New work for each operating segment is presented below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
(In millions)
Year ended December 3, 1999 November 30, 1998 November 30, 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Engineers & Constructors Group $ 801 $ 851 $ 771
Government Services Group 580 179 284
Contractors Group 881 754 807
- ----------------------------------------------------------------------------------------
Total new work $2,262 $1,784 $1,862
========================================================================================
</TABLE>
FINANCIAL CONDITION AND LIQUIDITY
The Corporation has three principal sources of near-term liquidity: (1)
existing cash and cash equivalents; (2) cash generated by its operations; and
(3) revolving loan borrowings under its credit facilities. 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.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Liquidity and capital resources December 3, November 30,
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents
Beginning of period $ 67,054 $ 53,215
End of period 29,640 67,054
- ---------------------------------------------------------------------------------------
Year ended
December 3, November 30,
1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Net cash provided (used) by:
Operating activities $ 35,491 $ 71,728
Investing activities (148,709) (28,155)
Financing activities 75,804 (29,734)
</TABLE>
Cash and cash equivalents decreased $37.4 million during the year ended
December 3, 1999 to $29.6 million at December 3, 1999. This decrease reflects
net cash provided by operating activities and financing activities of $35.5
million and $75.8 million, respectively, offset by cash used in investing
activities of $148.7 million. Cash flow from operating activities in 1999
decreased $36.2 million compared to 1998 due primarily to an increase in
receivables during 1999 and the collection in 1998 of $25.2 million from an
income tax refund and related interest. Cash provided or used by operating
activities from period to period is affected to a large degree by the mix,
timing, state of completion and commercial terms of the Corporation's contracts,
which are reflected in changes in net operating assets and liabilities.
Net cash provided by financing activities included $100 million of net
borrowings under the Corporation's credit facilities, which were partially
offset by $10.2 million used to repurchase 1.027 million shares of the
Corporation's common stock for treasury, $10.5 million of distributions to
minority interests from the operations of WGSG and $3.6 million of other
financing uses, primarily for the payment of fees paid in connection with the
procurement of new revolving credit facilities.
The Corporation received authorization in January 1998 to repurchase, in
open market transactions, block trades or otherwise, up to 2 million shares of
the Corporation's outstanding common stock and up to 2.765 million of its
warrants to purchase common stock. As of June 1999, all 2 million shares of
common stock had been repurchased. In July 1999, the Corporation received
authorization to repurchase an additional 2 million shares of the Corporation's
outstanding common stock. As of December 3, 1999, the Corporation has not
repurchased any
II-9
<PAGE>
shares under the new authorization. Subject to market conditions and other
factors, purchases of shares may be commenced, discontinued and resumed from
time to time without prior notice.
The Corporation anticipates capital expenditures for major construction
equipment of approximately $33 million during 2000 for normal replacement and to
meet equipment requirements of its expanding business.
On March 19, 1999, the Corporation replaced its existing $200 million bank
credit facility with new uncollateralized revolving credit facilities providing
an aggregate borrowing capacity of $250 million. On May 21, 1999, borrowing
capacity under the new credit facilities was increased to $325 million,
consisting of a $195 million five-year facility which provides for both
revolving borrowings and the issuance of letters of credit and a $130 million
one-year facility that provides for revolving borrowings which may be extended
in one-year increments by mutual agreement of the banks and the Corporation or
converted, at the Corporation's option, into a term loan maturing one year after
the then current expiration date of such facility. The Corporation has requested
a one-year extension of the one-year facility from the bank. If the extension is
not provided, the Corporation will exercise its option to convert the one-year
facility to a one-year term loan. Depending on conditions in capital markets and
other factors, the Corporation may, from time to time, consider the possible
issuance of other long-term debt or securities.
The Corporation is subject to foreign currency translation and exchange
issues, primarily with regard to its mining venture, MIBRAG mbH, in Germany. At
December 3, 1999, the cumulative adjustments for translation losses net of
related income tax benefits was $9.5 million. The Corporation realized a pretax
gain on foreign currency exchange transactions of $533 thousand for the year
ended December 3, 1999. The Corporation endeavors to enter into contracts with
foreign customers with repayment terms in U.S. currency in order to mitigate
foreign exchange risk.
The Corporation may, from time to time, pursue opportunities to complement
existing operations through business combinations and participation in ventures,
which may require additional financing and utilization of the Corporation's
capital resources.
THE YEAR 2000 ISSUE
The Corporation has not experienced any significant malfunctions or errors
in its information technology ("IT") systems or non-IT devices as a result of
the transition from 1999 to 2000. However, the impact of the Year 2000 issue,
which results from computer programs and electronic circuitry that use two
digits rather than four to define calendar years, may not yet have been fully
realized. Year 2000 or related issues, such as the leap year rollover which will
occur on February 29, 2000, could have effects throughout 2000, particularly in
connection with monthly, quarterly and year-end business processing. Based on
the operation of the Corporation's IT systems and non-IT devices since January
1, 2000, the Corporation does not expect any Year 2000 or related issues that
may arise in the future to significantly disrupt its business.
The Corporation could be negatively impacted if its clients, vendors,
subcontractors or joint-venture partners are adversely affected by Year 2000 or
related issues. The Corporation is currently not aware of any significant Year
2000 or related issues affecting the ability of any clients, vendors,
subcontractors or joint-venture partners to conduct business.
The total cost of the Corporation's activities to achieve Year 2000
readiness through December 3, 1999 was approximately $57 million. Of that
amount, $38 million was attributable to WGSG's Year 2000 readiness efforts and
was substantially funded by the federal government. The Corporation does not
expect to incur significant additional costs in connection with Year 2000
readiness activities.
The foregoing disclosure is based upon the Corporation's current
expectations, which could prove to be inaccurate. Because of uncertainties and
circumstances beyond the Corporation's control, such as the effect of Year 2000
and related issues on third parties with which the Corporation has
relationships, the future effects of
II-10
<PAGE>
these issues on the Corporation may be different than the foregoing assessment.
See "Note Regarding Forward-Looking Information."
ENVIRONMENTAL CONTINGENCY
From July 1985 to June 1989, Industrial Constructors Corp. ("ICC"), a
subsidiary of the Corporation, performed certain contract mining and
construction services at the Summitville mine near Del Norte, Colorado. In 1996,
the EPA and the State of Colorado (the "State") commenced an action under CERCLA
in the United States District Court for the District of Colorado against Mr.
Robert Friedland to recover the response costs incurred and to be incurred at
the Summitville Mine Superfund Site (the "Site"). No other parties were named as
defendants in the original complaints. On April 30, 1999, Mr. Friedland filed a
third-party complaint in this action naming ICC and nine other defendants,
alleging that such defendants are jointly and severally liable for such costs
and requesting that the same be equitably allocated. On October 1, 1999, the EPA
and the State filed amended complaints, naming ICC and six other parties as
defendants in addition to Mr. Friedland. On August 10, 1999, ICC filed an answer
to Mr. Friedland's third-party complaint and, on December 23, 1999, ICC filed
answers to the EPA's and the State's amended complaints, in each case denying
the allegations set forth in the complaints.
The EPA and the State have estimated that the total response costs incurred
and to be incurred at the Site will approximate $150 million. ICC is not a party
to any agreement regarding the allocation of responsibility, and neither the EPA
nor the State have made an allocation of responsibility among the defendants.
ICC'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 ICC or other defendants,
the efficacy of any defenses that ICC or such other defendants may have to any
assertion of liability, the willingness and ability of such other defendants to
discharge such liability as may be allocated to them and the outcome of any
negotiations or settlement discussions between ICC and the EPA, the State and/or
such other defendants. Accordingly, no response costs have been accrued at
December 3, 1999.
Management believes that ICC has sound factual and legal defenses to
liability in this matter. However, the ultimate resolution of this matter could
have a material adverse effect on ICC's financial position and could materially
and adversely affect its results of operations and cash flows in one or more
periods. Because ICC's financial position and results of operations are
consolidated with that of the Corporation, 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.
RECENTLY ISSUED ACCOUNTING STANDARDS
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-5 Reporting on the Costs of Start-Up
Activities. The SOP provides guidance on the financial reporting of start-up
costs and organization costs and requires costs of start-up activities and
organization costs to be expensed as incurred. The SOP also amends the Audit and
Accounting Guide Construction Contractors by requiring pre-contract costs that
are start-up costs to be expensed as incurred. Implementation of SOP 98-5 is
effective for the Corporation in the first quarter of 2000. At December 3, 1999,
the Corporation had no capitalized start-up costs.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 Accounting for Derivative Instruments and Hedging Activities ("SFAS No.
133"). SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. The statement requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
Corporation is currently evaluating the effect SFAS No. 133 will have on future
results of operations and financial position. Implementation of SFAS No. 133 is
required commencing with the first quarter of 2001.
II-11
<PAGE>
QUARTERLY FINANCIAL DATA
(In thousands except per share data)
- --------------------------------------------------------------------------------
Selected quarterly financial data for the years ended December 3, 1999 and
November 30, 1998 are presented below. Income per share is computed separately
for each quarterly and annual period presented.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1999 Quarters ended February 26 May 28 August 27 December 3
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $421,310 $567,826 $595,414 $663,678
Gross profit 20,785 24,360 31,749 41,337
Net income 8,891 13,791 12,270 13,333
Income per share
Basic $ .17 $ .26 $ .23 $ .26
Diluted .17 .26 .23 .25
- --------------------------------------------------------------------------------
Market price
High $ 11.44 $ 11.38 $ 11.13 $ 10.94
Low 9.19 9.06 9.63 8.19
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1998 Quarters ended February 28 May 31 August 31 November 30
- --------------------------------------------------------------------------------
Revenue $385,041 $436,069 $497,795 $543,269
Gross profit 18,976 22,121 21,307 24,138
Net income 8,222 9,084 9,579 10,668
Income per share
Basic $ .15 $ .17 $ .18 $ .20
Diluted .15 .17 .18 .20
- --------------------------------------------------------------------------------
Market price
High $ 12.44 $ 12.25 $ 14.94 $ 11.88
Low 9.06 10.88 11.06 8.75
- --------------------------------------------------------------------------------
</TABLE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
(In thousands of dollars)
The Corporation's exposure to market risk for changes in interest rates
relates primarily to the Corporation's short- and long-term investment portfolio
and debt obligations. The Corporation's short-term investment portfolio consists
primarily of highly liquid instruments with maturities of one month or less. The
Corporation's long-term investment portfolio consists primarily of high-quality
debt instruments with maturities under 10 years and an average maturity of 3.5
years. These long-term instruments are held to fund potential workers
compensation, general liability and auto liability obligations of the
Corporation. The Corporation seeks to match the maturities of these instruments
as closely as possible with its anticipated workers compensation obligations and
to hold these instruments to maturity in order to minimize market risk exposure,
but may sell such securities in response to market rates, needs for liquidity or
changes in availability of and the yield on alternative investments. As of
December 3, 1999, the Corporation had $7,056 of short-term investments
classified as cash equivalents and $41,640 in its long-term investment
portfolio.
The Corporation may, from time to time, effect borrowings under its bank
credit facilities for general corporate purposes, including working capital
requirements, capital expenditures and acquisitions. Borrowings under the bank
credit facilities of $100,000 at December 3, 1999 bear interest at the
applicable LIBOR or base rate plus an additional margin and, therefore, the
Corporation is subject to fluctuations in interest rates.
II-12
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
MORRISON KNUDSEN CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements and Financial Statement Schedule
as of December 3, 1999 and November 30, 1998, and for each of the
three years in the period ended December 3, 1999
PAGE(S)
Report of Independent Accountants II-14
Consolidated Statements of Income II-15
Consolidated Statements of Comprehensive Income II-15
Consolidated Balance Sheets II-16
Consolidated Statements of Cash Flows II-18
Consolidated Statements of Stockholders' Equity II-19
Notes to Consolidated Financial Statements II-20 to II-42
Schedule II Valuation, Qualifying and Reserve Accounts S-1
II-13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Morrison Knudsen Corporation
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Morrison Knudsen Corporation and its subsidiaries (the
"Corporation") at December 3, 1999 and November 30, 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 3, 1999 in conformity with accounting principles generally
accepted in the United States. In addition, in our opinion, the financial
statement schedule listed in the accompanying index presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and the financial statement schedule are the responsibility of the Corporation's
management; our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 12 to the consolidated financial statements, a
subsidiary of the Corporation has been named as a defendant in litigation
regarding the Summitville Mine Superfund Site. The outcome of the litigation is
not presently determinable and, accordingly, response costs have not been
accrued in the accompanying financial statements.
/s/ PricewaterhouseCoopers
Boise, Idaho
January 28, 2000
II-14
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
December 3, November 30, November 30,
Year ended 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 2,248,228 $ 1,862,174 $ 1,677,301
Cost of revenue (2,129,997) (1,775,632) (1,597,986)
- --------------------------------------------------------------------------------------------------------------
Gross profit 118,231 86,542 79,315
General and administrative expenses (25,999) (24,202) (22,910)
Goodwill amortization (12,576) (3,597) (3,578)
- --------------------------------------------------------------------------------------------------------------
Operating income 79,656 58,743 52,827
Investment income 3,429 5,774 9,075
Interest expense (7,642) (869) (890)
Other income (expense), net 9,681 3,757 (1,116)
- --------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interests
in income of consolidated subsidiaries 85,124 67,405 59,896
Income tax expense (31,633) (29,852) (27,865)
Minority interests in income of consolidated subsidiaries (5,206) - -
- --------------------------------------------------------------------------------------------------------------
Net income $ 48,285 $ 37,553 $ 32,031
==============================================================================================================
Income per share
Basic $.92 $.70 $.59
Diluted .91 .69 .59
- --------------------------------------------------------------------------------------------------------------
Common shares used to compute income per share
Basic 52,736 53,891 54,044
Diluted 52,885 54,136 54,181
- --------------------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
December 3, November 30, November 30,
Year ended 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 48,285 $ 37,553 $ 32,031
- --------------------------------------------------------------------------------------------------------------
Other comprehensive income, net of tax:
Foreign currency translation adjustments (6,426) 2,462 (5,358)
Unrealized gains (losses) on marketable securities:
Unrealized net holding gains (losses) arising during period (567) 241 (23)
Less: Reclassification adjustment for net gains (losses)
realized in net income 36 5 (6)
Minimum pension liability adjustment 581 (670) -
- --------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss), net of tax (6,376) 2,038 (5,387)
- --------------------------------------------------------------------------------------------------------------
Comprehensive income $ 41,909 $ 39,591 $ 26,644
==============================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-15
<PAGE>
CONSOLIDATED BALANCE SHEETS
(In thousands except per share data)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
December 3, November 30,
1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- -------------------------------------------------------------------------------------------------------
Current assets
Cash and cash equivalents $ 29,640 $ 67,054
Accounts receivable, including retentions of $19,704 and $18,627 215,523 175,513
Unbilled receivables 124,793 74,552
Inventories, net of progress payments of $21,926 20,096 -
Refundable income taxes 3,055 780
Investments in and advances to construction joint ventures 82,551 70,855
Deferred income taxes 41,043 26,489
Other 15,262 12,479
- -------------------------------------------------------------------------------------------------------
Total current assets 531,963 427,722
- -------------------------------------------------------------------------------------------------------
Investments and other assets
Securities available for sale, at fair value 41,640 45,985
Investments in mining ventures 69,063 67,967
Assets held for sale - 14,169
Cost in excess of net assets acquired, net of accumulated amortization
of $21,906 and $9,330 351,869 112,994
Deferred income taxes 48,606 30,965
Other 21,114 8,077
- -------------------------------------------------------------------------------------------------------
Total investments and other assets 532,292 280,157
- -------------------------------------------------------------------------------------------------------
Property and equipment, at cost
Construction equipment 183,806 179,337
Land and improvements 7,970 6,993
Buildings and improvements 17,154 6,341
Equipment and fixtures 81,694 63,534
- -------------------------------------------------------------------------------------------------------
Total property and equipment 290,624 256,205
Less accumulated depreciation (158,856) (175,933)
- -------------------------------------------------------------------------------------------------------
Property and equipment, net 131,768 80,272
- -------------------------------------------------------------------------------------------------------
Total assets $1,196,023 $ 788,151
=======================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-16
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
December 3, November 30,
1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------
Current liabilities
Accounts payable $ 105,007 $ 56,388
Subcontracts payable, including retentions of $18,469 and $22,843 42,624 59,857
Billings in excess of cost and estimated earnings on uncompleted contracts 53,739 40,959
Estimated costs to complete long-term contracts 72,815 49,228
Accrued salaries, wages and benefits, including compensated absences
of $24,721 and $14,698 65,759 58,939
Income taxes payable 1,079 1,535
Other accrued liabilities 44,072 36,118
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 385,095 303,024
- ------------------------------------------------------------------------------------------------------------
Non-current liabilities
Long-term debt 100,000 -
Postretirement benefit obligation 80,685 53,456
Accrued workers' compensation 36,181 39,625
Pension and deferred compensation liabilities 100,116 16,390
Environmental remediation obligations 6,016 4,753
- ------------------------------------------------------------------------------------------------------------
Total non-current liabilities 322,998 114,224
- ------------------------------------------------------------------------------------------------------------
Contingencies and commitments (Note 12)
- ------------------------------------------------------------------------------------------------------------
Minority interests 84,840 -
- ------------------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock, par value $.01, 10,000 shares authorized - -
Common stock, par value $.01, authorized 100,000 shares;
issued 54,359 and 54,335 544 544
Capital in excess of par value 248,720 248,277
Stock purchase warrants 6,554 6,555
Retained earnings 179,696 131,411
Treasury stock, 2,009 and 982 shares, at cost (23,124) (12,960)
Accumulated other comprehensive income (loss) (9,300) (2,924)
- ------------------------------------------------------------------------------------------------------------
Total stockholders' equity 403,090 370,903
- ------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,196,023 $788,151
============================================================================================================
</TABLE>
II-17
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
December 3, November 30, November 30,
Year ended 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 48,285 $ 37,553 $ 32,031
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation of property and equipment 24,903 20,522 22,808
Amortization of goodwill 12,576 3,597 3,578
Amortization of prepaid loan fees 534 - -
Provision for losses on uncompleted contracts, net change 867 (9,580) (11,516)
Deferred income taxes 17,805 23,902 20,974
Minority interests in net income of consolidated subsidiaries 8,535 - -
Equity in net income of mining ventures less dividends received (10,662) (7,157) (9,502)
Accrued workers' compensation (6,239) 5,537 6,799
Gain on sale of assets, net (8,771) (716) (1,602)
Other 1,922 (2,707) (4,850)
Changes in other assets and liabilities, net of effects of
business combinations:
Accounts receivable and unbilled receivables (46,226) 11,762 63,580
Investments in and advances to construction joint ventures (11,696) (41,297) (9,388)
Inventories 3,471 - -
Other assets (2,140) 751 1,199
Accounts payable, accrued salaries, other accrued liabilities
and subcontracts payable 13,430 18,816 (62,908)
Billings in excess of cost and estimated earnings (5,111) 11,393 (26,743)
Estimated costs to complete long-term contracts (7,292) (14,428) (8,054)
Income taxes 1,300 13,780 (7,116)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 35,491 71,728 9,290
- -----------------------------------------------------------------------------------------------------------------
Investing activities
Property and equipment acquisitions (48,417) (25,493) (19,700)
Property and equipment disposals 3,604 5,017 6,675
Purchases of securities available for sale (19,714) (19,293) (22,191)
Sales and maturities of securities available for sale 23,144 13,377 13,387
Purchase of businesses, net of cash acquired (132,094) (4,037) -
Sales of businesses 25,914 2,758 -
Collection of notes receivable - - 8,087
Other investing activities (1,146) (484) 6,255
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (148,709) (28,155) (7,487)
- -----------------------------------------------------------------------------------------------------------------
Financing activities
Net proceeds from long-term revolving line of credit 100,000 - -
Purchase of treasury stock (10,164) (12,848) -
Distributions to minority interests (10,473) - -
Redemption of preferred stock, Series A - (18,000) -
Other financing activities (3,559) 1,114 3,102
- -----------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 75,804 (29,734) 3,102
- -----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (37,414) 13,839 4,905
Cash and cash equivalents at beginning of period 67,054 53,215 48,310
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 29,640 $ 67,054 $ 53,215
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Supplemental disclosure of cash flow information (Note 13)
The accompanying notes are an integral part of the financial statements.
II-18
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
- ------------------------------------------------------------------------------------------------------------
Year ended December 3, 1999 November 30, 1998 November 30, 1997
Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common stock
Balance at beginning of year 54,335 $ 544 54,299 $ 543 53,809 $ 538
Shares issued under stock award plan 24 - 33 1 487 5
Stock purchase warrants converted to shares
of common stock - - 3 - 3 -
- ------------------------------------------------------------------------------------------------------------
Balance at end of year 54,359 $ 544 54,335 $ 544 54,299 $ 543
============================================================================================================
Capital in excess of par value
Balance at beginning of year $248,277 $247,820 $242,669
Shares issued under stock award plan 219 221 4,725
Stock purchase warrants converted to shares
of common stock 4 17 32
Compensation related to stock plans 220 219 394
- ------------------------------------------------------------------------------------------------------------
Balance at end of year $248,720 $248,277 $247,820
============================================================================================================
Stock purchase warrants
Balance at beginning of year $ 6,555 $ 6,557 $ 6,564
Stock purchase warrants converted to shares
of common stock (1) (2) (7)
- ------------------------------------------------------------------------------------------------------------
Balance at end of year $ 6,554 $ 6,555 $ 6,557
============================================================================================================
Retained earnings
Balance at beginning of year $131,411 $ 93,858 $ 61,827
Net income 48,285 37,553 32,031
- ------------------------------------------------------------------------------------------------------------
Balance at end of year $179,696 $131,411 $ 93,858
============================================================================================================
Treasury stock
Balance at beginning of year (982) $(12,960) (58) $ (685) $
Shares issued under (acquired for) stock
award plan - - 49 573 (58) (685)
Treasury stock acquisitions (1,027) (10,164) (973) (12,848)
- ------------------------------------------------------------------------------------------------------------
Balance at end of year (2,009) $(23,124) (982) $(12,960) (58) $ (685)
============================================================================================================
Unearned compensation restricted stock
Balance at beginning of year $ - $ - $ (19)
Shares issued under stock award plan - - 19
- ------------------------------------------------------------------------------------------------------------
Balance at end of year $ - $ - $ -
============================================================================================================
Accumulated other comprehensive income
Balance at beginning of year $ (2,924) $ (4,962) $ 425
Foreign currency translation adjustments, net (6,426) 2,462 (5,358)
Change in unrealized gain on securities
available for sale, net (531) 246 (29)
Minimum pension liability adjustment, net 581 (670) -
- ------------------------------------------------------------------------------------------------------------
Balance at end of year $ (9,300) $ (2,924) $ (4,962)
============================================================================================================
</TABLE>
II-19
<PAGE>
MORRISON KNUDSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars except per share data)
The term "Corporation" as used in this Annual Report includes Morrison
Knudsen Corporation and its consolidated subsidiaries unless otherwise
indicated.
1. SIGNIFICANT ACCOUNTING POLICIES
Business:
The Corporation is an international provider of a broad range of design,
engineering, construction, construction management, facilities and operations
management, environmental remediation and mining services to diverse public and
private sector clients, including (i) engineering, construction and construction
management services to industrial companies, electric utilities and public
agencies, (ii) diverse heavy construction and construction management services
for the highway, airport, water resource, railway, mining and commercial
buildings industries and (iii) comprehensive nuclear and other environmental and
hazardous substance remediation services to governmental and private-sector
clients. In providing such services, the Corporation enters into three basic
types of contracts: fixed-price or lump-sum contracts providing for a fixed
price for all work to be performed, unit-price contracts providing for a fixed
price for each unit of work performed, and cost-type contracts providing for
reimbursement of costs plus a fee. Both anticipated income and economic risk are
greater under fixed-price and unit-price contracts than under cost-type
contracts. Engineering, construction management and environmental and hazardous
substance remediation contracts are typically awarded on a cost-plus-fee basis.
The Corporation participates in construction joint ventures, often as
sponsor and manager of projects, which are formed for the sole purpose of
bidding, negotiating and completing specific projects. The Corporation
participates in two mining ventures: Westmoreland Resources, Inc., a coal mining
company in Montana, and MIBRAG mbH, a company that operates lignite coal mines
and power plants in Germany. In addition, on March 22, 1999, the Corporation and
BNFL Nuclear Services, Inc. ("BNFL") acquired the government and environmental
services businesses of CBS Corporation (formerly known as Westinghouse Electric
Corporation). See Note 3. "Acquisition of GESCO Businesses" of Notes to
Consolidated Financial Statements.
Basis of presentation:
The consolidated financial statements include the accounts of the
Corporation and all of its majority-owned subsidiaries (including Westinghouse
Government Services Company LLC and Westinghouse Government Environmental
Services Company LLC, which were formed to acquire the GESCO businesses).
Investments in mining ventures and all construction joint 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 income. Intercompany
accounts and transactions have been eliminated.
The Corporation's fiscal year has historically ended on November 30.
Effective December 1, 1998, the Corporation adopted a 52/53 week fiscal year
ending on the Friday closest to November 30. The change in reporting period has
not materially affected comparability between the reporting periods presented.
Revenue recognition:
Revenue is generally recognized on the percentage-of-completion method.
Completion on contracts is generally measured based on the proportion of costs
incurred to total estimated contract costs. For certain long-term contracts
involving mining, environmental and hazardous substance remediation, completion
is measured on estimated physical completion or units of production.
II-20
<PAGE>
Revenue recognition on certain fixed-price construction contracts begins
when progress is sufficient to estimate the probable outcome, or on the
completed contract method if the probable outcome cannot be reasonably
estimated. The cumulative effect of revisions to contract revenue and completion
costs, including incentive awards, penalties, change orders and anticipated
losses, is recorded in the accounting period in which the amounts are known and
can be reasonably estimated. Such revisions could occur at any time, and the
effects could be material. Revenue from claims are recorded, to the extent that
contract costs have been incurred, when it is probable that the claim will
result in additional contract revenue and it can be reliably estimated.
The Corporation has a number of contracts and subcontracts with various
agencies of the U.S. government, principally for environmental remediation and
restoration work, which extend beyond one year and for which government funding
has not yet been approved. All contracts with agencies of the U.S. government
and some commercial and foreign contracts are subject to unilateral termination
at the option of the customer. In the event of a termination, the Corporation
would not receive projected revenues associated with the terminated portion of
such contracts.
The Corporation has a history of making reasonably dependable estimates of
the extent of progress towards completion, contract revenue and contract
completion costs on its long-term engineering and construction contracts.
However, due to uncertainties inherent in the estimation process, it is possible
that actual completion costs may vary from estimates.
Use of estimates:
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 date and the reported amounts of revenue and costs during the
reporting periods. Actual results could differ from those estimates. On an
ongoing basis, management reviews its estimates based on information that is
currently available. Changes in facts and circumstances may result in revised
estimates.
Unbilled receivables:
Unbilled receivables at December 3, 1999 represent costs incurred under
contracts in process which have not yet been invoiced to customers, and arise
from the use of the percentage-of-completion method of accounting, cost
reimbursement-type contracts and the timing of billings. Substantially all
unbilled receivables at December 3, 1999 are expected to be billed and collected
within one 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 December 3, 1999 include approximately $4,133 of contract
retentions which are not expected to be collected within one year. At December
3, 1999, accounts receivable include $1,320 of short-term marketable securities
jointly held with customers as contract retentions, the market value of which
approximated the carrying amounts. The Corporation recognizes interest income
from marketable securities as earned. Advances from customers are non-interest
bearing.
Cash equivalents:
Cash equivalents consist of liquid securities with original maturities of
three months or less that are readily convertible into known amounts of cash.
II-21
<PAGE>
Inventories:
Inventories are stated at the lower of cost or market on a first-in, first-
out (FIFO) basis and consist of inventoried costs relating to long-term
contracts. The elements of cost included in inventories are direct labor, direct
material and certain overheads.
Credit risk concentration:
The Corporation, by policy, limits the amount of credit exposure to any one
financial institution and places investments with financial institutions
evaluated as highly creditworthy. Concentrations of credit risk with respect to
accounts receivable and unbilled receivables are believed to be limited due to
the number, diversification and character of the obligors and the Corporation's
credit evaluation process. Typically, the Corporation has not required
collateral for such obligations, but can place liens against property, plant or
equipment constructed if a default occurs. Historically, the Corporation has not
incurred any material credit-related losses.
Cost in excess of net assets acquired:
Cost in excess of net assets acquired in business combinations ("goodwill")
is amortized using the straight-line method over 20 to 40 years. The carrying
value of goodwill or other long-lived assets is reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. If impairment is indicated by the facts and circumstances, an
impairment loss will be recognized based on a comparison of the carrying value
of the long-lived assets and associated goodwill with the undiscounted cash flow
of such assets. The carrying amount of the goodwill identifiable with such
assets will be eliminated before recognition of impairment of the related long-
lived tangible and identifiable intangible assets.
Property and equipment:
Property and equipment is stated at cost. Major renewals and improvements
are capitalized, while maintenance and repairs are expensed when incurred.
Depreciation of construction equipment is provided on straight-line and
accelerated methods, after an allowance for estimated salvage value, over
estimated lives of 2 to 10 years. Depreciation of buildings is provided on the
straight-line method over estimated lives of 10 to 40 years, and improvements
are amortized over the shorter of the asset life or lease term. Depreciation of
equipment is provided under the straight-line method over estimated lives of 3
to 12 years. Upon disposition, cost and related accumulated depreciation of
property and equipment are removed from the accounts and the gain or loss is
reflected in results of operations.
Foreign currency translation:
The functional currency for foreign operations is generally the local
currency. Translation of assets and liabilities to U.S. dollars is based on
exchange rates at the balance sheet date. Translation of revenue and expenses to
U.S. dollars is based on a weighted-average rate during the period. Translation
gains or losses, net of income tax effects, are reported as a component of other
comprehensive income. Because of the short-term duration of construction and
engineering projects, related translation gains or losses are recognized
currently. Gains or losses from foreign currency transactions are included in
the results of operations of the period in which the transaction is completed.
Environmental liabilities:
Accruals for estimated costs of response actions for environmental matters
are recorded when it is probable that a liability has been incurred and the
amount of the liability can be reasonably estimated. On a quarterly basis, the
Corporation reviews estimates of costs of response actions at various sites,
including sites in respect of which government agencies have designated the
Corporation as a potentially responsible party ("PRP"). Accrued liabilities may
be discounted and are exclusive of claims for recovery, if any. However, due to
uncertainties inherent in the estimation process, it is possible that actual
results may vary from estimates.
II-22
<PAGE>
Income taxes:
Deferred income tax assets and liabilities are recognized for the effects
of temporary differences between the carrying amounts and the income tax basis
of assets and liabilities using enacted tax rates. A valuation allowance is
established when it is more likely than not that net deferred tax assets will
not be realized. Tax credits are generally recognized in the year they arise.
Income per share:
Basic income per share is calculated on the weighted-average number of
outstanding common shares during the applicable period. Diluted income per share
is based on the weighted-average number of outstanding common shares plus the
weighted-average number of potential outstanding common shares. The additional
weighted-average number of potential outstanding common shares for purposes of
computing diluted earnings per share consisted solely of stock options for all
periods presented. Stock purchase warrants were not included in the computation
of diluted earnings per share because the exercise price was greater than the
average market price of the warrants and, therefore, the effect would be
antidilutive. Income per share is computed separately for each period presented.
Recently issued accounting standards:
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-5 Reporting on the Costs of Start-Up
Activities. The SOP provides guidance on the financial reporting of start-up
costs and organization costs and requires costs of start-up activities and
organization costs to be expensed as incurred. The SOP also amends the Audit and
Accounting Guide Construction Contractors by requiring pre-contract costs that
are start-up costs to be expensed as incurred. Implementation of SOP 98-5 is
effective for the Corporation in the first quarter of 2000. At December 3, 1999,
the Corporation had no capitalized start-up costs.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 Accounting for Derivative Instruments and Hedging Activities ("SFAS No.
133"). SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. The statement requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
Corporation is currently evaluating the effect SFAS No. 133 will have on future
results of operations and financial position. Implementation of SFAS No. 133 is
required commencing with the first quarter of 2001.
2. ADOPTION OF ACCOUNTING PRINCIPLES
During 1999, the Corporation adopted Financial Accounting Standards Board
Statement No. 130 Reporting Comprehensive Income ("SFAS No. 130"). SFAS No. 130
establishes standards for the reporting and display of comprehensive income but
does not effect the current principles of measurement of revenue. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from non-owner
sources.
During 1999, the Corporation adopted Financial Accounting Standards Board
Statement No. 131 Disclosures about Segments of an Enterprise and Related
Information ("SFAS No. 131"). SFAS No. 131 requires publicly-held companies to
report segment and other financial information which is utilized by the chief
operating decision maker and to reconcile the segment information to financial
statement amounts.
The Corporation also adopted Financial Accounting Standards Board Statement
No. 132 Employers' Disclosure about Pensions and Other Postretirement Benefits -
an amendment of FASB Statements No. 87, 88 and 106 ("SFAS No. 132"). SFAS No.
132 revises and standardizes the disclosure requirements for pensions and other
postretirement benefits, requires additional information on changes in the
benefit obligations and fair values of plan assets and eliminates certain
disclosures previously required. SFAS No. 132 does not change the measurement or
recognition of those plans.
II-23
<PAGE>
3. ACQUISITION OF GESCO BUSINESSES
On March 22, 1999, the Corporation and BNFL acquired the GESCO businesses
from CBS Corporation (formerly known as Westinghouse Electric Corporation)
pursuant to an Asset Purchase Agreement dated June 25, 1998 (the "GESCO
acquisition"). The GESCO businesses provide a wide range of products, services
and technologies in the government services and nuclear industries throughout
the world.
Concurrent with the GESCO acquisition, the following two separate companies
were formed to acquire the operations of the GESCO businesses:
. Westinghouse Government Services Company LLC ("WGS"), a limited
liability company that provides defense-related operations and
management services for the U.S. Departments of Energy and Defense,
including the production of tritium for national weapons programs and
high-level waste solidification (also known as "vitrification"), and
employs over 11,200 employees.
. Westinghouse Government Environmental Services Company LLC ("WGES"), a
limited liability company that provides non-defense related
governmental and environmental services, including environmental
remediation and waste management services, and employs approximately
2,500 employees.
The respective rights and obligations of the Corporation and BNFL with
respect to WGS and WGES are set forth in the Amended and Restated Consortium
Agreement (the "Consortium Agreement") dated March 19, 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 WGS and WGES are
allocated to the Corporation and 40% of the profits, losses and cash flows are
allocated to BNFL. WGS and WGES constitute the Corporation's Westinghouse
Government Services Group ("WGSG").
The estimated aggregate purchase price of the GESCO businesses was
approximately $212,741 (subject to the resolution of certain adjustments
provided for in the Asset Purchase Agreement) consisting of cash paid to CBS of
approximately $201,060 and acquisition costs of approximately $11,681. The
Corporation's share of the estimated aggregate purchase price, $127,645, was
funded primarily through borrowings under the Corporation's bank credit
facilities. The acquisition of the GESCO businesses is being accounted for as a
purchase business combination. The Corporation's results of operations,
financial position and cash flows include WGSG on a consolidated basis and
reflect BNFL's 40% minority interest in WGSG and a third party's 35% minority
interest in Safe Sites of Colorado LLC, a subsidiary of WGSG.
The aggregate purchase price has been allocated to the net assets acquired,
with the remainder recorded as cost in excess of net assets acquired, on the
basis of estimates of fair values, as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Working capital $ (2,279)
Investments and other assets 8,405
Property, plant and equipment 25,496
Postretirement benefit obligation (27,000)
Pension liabilities (80,400)
Other non-current liabilities and minority interests (11,349)
Cost in excess of net assets acquired 299,868
- --------------------------------------------------------------------------------
Total acquisition costs $ 212,741
================================================================================
- --------------------------------------------------------------------------------
Corporation's share of purchase price $ 127,645
BNFL's share of purchase price 85,096
- --------------------------------------------------------------------------------
$ 212,741
================================================================================
</TABLE>
II-24
<PAGE>
The allocation of the purchase price to the net assets acquired includes
preliminary estimates of certain employee benefit obligations based primarily on
limited information provided by CBS Corporation and the management of the GESCO
businesses. The information necessary to complete the allocation includes
detailed participant data, and agreement and settlement of assets to be
transferred by CBS Corporation to the benefit plans, both of which could have a
material effect on the purchase price allocation. Final allocation of the
purchase price relating to benefit plan assets and liabilities assumed in the
GESCO acquisition is expected to be completed by the Corporation's second
quarter ending June 2, 2000. See Note 9. "Benefit Plans" of Notes to
Consolidated Financial Statements.
The following unaudited pro forma information presents the consolidated
results of operations of the Corporation as if the GESCO acquisition had taken
place on December 1, 1997, after giving effect to certain adjustments, including
amortization of goodwill on a straight-line basis over twenty years,
depreciation expense, interest expense, amortization of new credit facility fees
and related tax effects. These pro forma results of operations have been
prepared for illustrative purposes only and do not purport to be indicative of
operating results that would have resulted had the GESCO acquisition occurred on
the dates indicated, or of future operating results.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year ended December 3, 1999 November 30, 1998
<S> <C> <C>
Revenue $ 2,327,884 $ 2,340,248
Net income 46,333 44,076
Basic income per share .88 .82
Diluted income per share .88 .81
- --------------------------------------------------------------------------------
</TABLE>
4. SECURITIES AVAILABLE FOR SALE
Securities available for sale are reported at fair value and consist
primarily of debt securities at December 3, 1999. Gross unrealized gains are
$805 and losses are $375 at December 3, 1999. Gross unrealized gains were $1,459
and losses were $157 at November 30, 1998. Unrealized gains and losses, net of
income tax effects, are reported as a component of other comprehensive income.
Cost is determined using the specific identification method for purposes of
calculating realized gains and losses. Securities available for sale are held in
a captive insurance subsidiary which insures workers' compensation, general and
auto liability risks of the Corporation. Securities available for sale having a
fair value of $3,000 at December 3, 1999 are pledged as collateral for the
Corporation's reimbursement obligations in respect of letters of credit issued
at the Corporation's request by third parties. Maturities, fair value and cost
of securities held for sale were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Maturities of securities Fair value Cost
<S> <C> <C>
2000 $ 14,435 $ 14,241
2001-2002 19,203 19,034
2003-2006 8,002 7,935
- --------------------------------------------------------------------------------
Total at December 3, 1999 $ 41,640 $ 41,210
================================================================================
Total at November 30, 1998 $ 45,985 $ 44,683
================================================================================
</TABLE>
5. VENTURES
Construction joint ventures:
The Corporation participates in joint ventures, generally as sponsor and
manager of the projects, which are formed to bid, negotiate and complete
specific projects. The size, scope and duration of joint-venture projects vary
among periods.
II-25
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Combined financial position of construction joint ventures December 3, 1999 November 30, 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets $ 372,772 $ 407,790
Property and equipment, net 39,524 52,698
Current liabilities (232,416) (269,813)
- --------------------------------------------------------------------------------------------------------------------
Net assets $ 179,880 $ 190,675
====================================================================================================================
- --------------------------------------------------------------------------------------------------------------------
Combined results of operations of construction joint ventures
Year ended December 3, 1999 November 30, 1998 November 30, 1997
- --------------------------------------------------------------------------------------------------------------------
Revenue $ 1,128,477 $ 1,219,951 $ 793,555
Cost of revenue (1,053,437) (1,058,715) (715,492)
- --------------------------------------------------------------------------------------------------------------------
Gross profit (excludes indirect overhead cost) $ 75,040 $ 161,236 $ 78,063
====================================================================================================================
- --------------------------------------------------------------------------------------------------------------------
Corporation's share of results of operations of construction joint ventures
Year ended December 3, 1999 November 30, 1998 November 30, 1997
Revenue $ 446,894 $ 436,407 $ 331,940
Cost of revenue (420,213) (384,549) (299,701)
- --------------------------------------------------------------------------------------------------------------------
Gross profit (excludes indirect overhead cost) $ 26,681 $ 51,858 $ 32,239
====================================================================================================================
</TABLE>
Mining ventures:
At December 3, 1999, the Corporation had ownership interests in two mining
ventures, MIBRAG mbH (33%) and Westmoreland Resources, Inc. ("Westmoreland
Resources") (20%). The Corporation provides contract mining services to these
ventures.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Combined financial position of mining ventures December 3, 1999 November 30, 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets $ 215,424 $ 313,607
Non-current assets 100,808 123,286
Property and equipment, net 612,714 594,916
Current liabilities (68,198) (87,824)
Long-term debt (320,113) (356,767)
Other non-current liabilities (320,104) (369,823)
- --------------------------------------------------------------------------------------------------------------------
Net assets $ 220,531 $ 217,395
====================================================================================================================
- --------------------------------------------------------------------------------------------------------------------
Combined results of operations of mining ventures
Year ended December 3, 1999 November 30, 1998 November 30, 1997
- --------------------------------------------------------------------------------------------------------------------
Revenue $ 334,090 $ 291,918 $ 364,425
Cost of revenue (294,576) (267,397) (331,502)
- --------------------------------------------------------------------------------------------------------------------
Gross profit (excludes indirect overhead cost) $ 39,514 $ 24,521 $ 32,923
====================================================================================================================
- --------------------------------------------------------------------------------------------------------------------
Corporation's share of results of operations of mining ventures
Year ended December 3, 1999 November 30, 1998 November 30, 1997
- --------------------------------------------------------------------------------------------------------------------
Revenue $ 103,724 $ 93,568 $ 115,412
Cost of revenue (91,290) (85,775) (105,108)
- --------------------------------------------------------------------------------------------------------------------
Gross profit (excludes indirect overhead cost) $ 12,434 $ 7,793 $ 10,304
====================================================================================================================
</TABLE>
Undistributed earnings from mining ventures totaled $29,957 at December 3,
1999.
II-26
<PAGE>
6. SALES OF BUSINESSES
During the year ended December 3, 1999, the Corporation sold a foreign non-
core subsidiary of Old MK and a domestic subsidiary engaged in the concrete and
aggregate business. The $8,730 pretax gain on the sale of these businesses was
recognized as other income. Operations of the subsidiaries resulted in revenue
of $11,985, $20,200 and $5,300 and net losses of $481, $12 and $937 for 1999,
1998 and 1997, respectively. Proceeds from the sales of both businesses totaled
$25,914. During 1998, land held for sale was sold at approximate book value of
$2,758. During 1997, a 29.5% stock ownership interest in a foreign bank which
had a carrying amount of $5,244 at November 30, 1996 was sold at a loss of $833.
7. CREDIT FACILITIES
On March 19, 1999, the Corporation replaced its existing bank credit
facility with new uncollateralized revolving credit facilities providing an
aggregate borrowing capacity of $250,000 in order to acquire the GESCO
businesses, to provide for general corporate purposes, to support working
capital requirements, and to support letters of credit and other potential
acquisitions. On May 21, 1999, the new credit facilities were increased to
$325,000 consisting of a $195,000 five-year facility, which provides for both
revolving borrowings and the issuance of letters of credit, and a $130,000 one-
year facility, which provides for revolving borrowings. The one-year facility
may be extended in one-year increments by mutual agreement of the banks and the
Corporation or converted, at the Corporation's option, to a term loan having a
maturity of one year after the then current expiration of such facility. The
facilities' covenants require the maintenance of financial ratios, and place
limitations on guarantees, liens, investments, dividends and other matters. At
December 3, 1999, $55,000 and $45,000 were outstanding on the one-year and five-
year facilities, respectively. The Corporation has requested a one-year
extension of the one-year facility from the banks. If the extension is not
provided, the Corporation will exercise its option to convert the one-year
facility to a one-year term loan.
The facilities provide for interest on loans, payable at the conclusion of
each interest commitment period not to exceed quarterly, at the applicable LIBOR
rate or the base rate, as defined, plus an additional margin. The additional
margin ranges from 1.25% to 2.00% for the LIBOR rate and 0.25% to 1.00% for the
base rate, based on the ratio of earnings before interest, taxes, depreciation
and amortization to the Corporation's funded debt. The effective interest rate
at December 3, 1999 was 6.98%. On March 19, 1999, the Corporation paid $3,700 in
underwriting fees to the banks and is required to pay quarterly commitment and
letter of credit fees. Commitment fees are based on the unused portion of the
facilities. Letter of credit fees are based on a percentage of the letter of
credit amount.
8. TAXES ON INCOME
The components of the U.S. federal, state and foreign income tax expense
(benefit) were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Year ended December 3, 1999 November 30, 1998 November 30, 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable (refundable)
U.S. federal $ 3,279 $ 1,601 $ (2,699)
State 716 761 871
Foreign 3,885 4,437 3,535
- ---------------------------------------------------------------------------------------------------------
Current 7,880 6,799 1,707
- ---------------------------------------------------------------------------------------------------------
Deferred
U.S. federal 18,062 21,128 22,585
State 4,614 3,604 3,043
Foreign 1,077 (1,679) 530
- ---------------------------------------------------------------------------------------------------------
Deferred 23,753 23,053 26,158
- ---------------------------------------------------------------------------------------------------------
Income tax expense $ 31,633 $ 29,852 $ 27,865
=========================================================================================================
</TABLE>
II-27
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Deferred tax assets and liabilities December 3, 1999 November 30, 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Employee benefit plans $ 35,917 $ 34,177
Estimated loss accruals 22,439 38,643
Revenue recognition 1,488 1,413
Minimum tax credits 15,339 13,731
Foreign tax credits 9,035 -
Joint ventures 224 -
Self-insurance accruals 27,520 34,612
Loss carryforwards 76,147 85,911
Valuation allowance (41,987) (91,987)
- ---------------------------------------------------------------------------------------------------------
Total deferred tax assets 146,122 116,500
- ---------------------------------------------------------------------------------------------------------
Deferred tax liabilities
Depreciation (10,809) (11,483)
Basis difference in affiliates (20,870) (20,314)
Joint ventures - (5,581)
Other, net (24,794) (21,668)
- ---------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (56,473) (59,046)
- ---------------------------------------------------------------------------------------------------------
Total deferred tax assets, net $ 89,649 $ 57,454
=========================================================================================================
</TABLE>
At December 3, 1999, the Corporation had consolidated regular tax net
operating loss ("NOL") carryforwards for federal, state and foreign tax purposes
of approximately $177,013, $214,504 and $3,775, respectively. The federal NOL's
expire in years 2009 through 2012, the state NOL's expire in years 2000 through
2012, and the foreign NOL's expire in 2002. In addition, the Corporation had
$15,339 of federal minimum tax credits at December 3, 1999 which carry forward
indefinitely and $9,035 of foreign tax credits, of which $3,547 expire in 2003
and $5,488 currently have no expiration date. The $41,987 valuation allowance
reduces the deferred tax asset associated with these NOL carryforwards and other
deferred tax assets to a level which management believes will, more likely than
not, be realized based on estimated future taxable income. The net decrease of
$50,000 in the valuation allowance at December 3, 1999 resulted from an
evaluation of the likelihood of the future realization of deductible temporary
differences and utilization of NOL carryforwards of Old MK. The reduction in the
valuation allowance was recorded as a reduction of goodwill related to the
acquisition of Old MK. Any future reduction in the valuation allowance related
to tax assets acquired at September 11, 1996 will result in a reduction of
goodwill. The valuation allowance may be increased based on the occurrence of
future events, and any such increase could be material. Years prior to 1994 are
closed to examination for federal tax purposes. Management believes that
adequate provision has been made for probable tax assessments.
Income tax expense (benefit) differed from income taxes at the U.S. federal
statutory tax rate of 35% as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Year ended December 3, 1999 November 30, 1998 November 30, 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax expense at 35% U.S. federal statutory rate $ 29,793 $ 23,592 $ 20,964
State income tax, net of federal benefit 3,465 2,837 2,544
Foreign income tax (benefit), net of federal benefit (2,810) 1,793 2,642
Nondeductible expenses (nontaxable income), net 1,298 1,867 1,643
Other (113) (237) 72
- --------------------------------------------------------------------------------------------------------------------
Income tax expense $ 31,633 $ 29,852 $ 27,865
====================================================================================================================
</TABLE>
Nondeductible expenses (nontaxable income), net was comprised principally
of nondeductible goodwill amortization and the nondeductible portion of meals
and entertainment expenses.
II-28
<PAGE>
Income before income taxes was comprised of domestic source income of
$56,411 and foreign source income of $28,713 in 1999, domestic source income of
$40,366 and foreign source income of $27,039 in 1998 and domestic source income
of $28,725 and foreign source income of $31,171 in 1997.
9. BENEFIT PLANS
Pension plans:
With the GESCO acquisition, the Corporation assumed sponsorship of
contributory defined benefit pension plans which cover employees of WGSG. The
Corporation makes actuarially computed contributions as necessary to adequately
fund benefits for these plans. At December 3, 1999, plan assets were invested in
a CBS master pension trust, primarily in publicly traded common stocks, bonds,
government securities and cash equivalents.
The Corporation terminated a defined benefit pension plan in 1997. During
1998, a settlement of the plan's accumulated vested termination benefit
obligation was effected through a combination of lump-sum cash payments and the
purchase of a nonparticipating group annuity contract. Other income of $3,161
and $1,700 was recognized during 1998 and 1997, respectively, as a result of the
termination of the defined benefit pension plan. All excess plan assets
remaining in trust were distributed equally after payment of final plan expenses
to eligible plan participants during 1999.
Supplemental retirement plans:
The Corporation has assumed the nonqualified pension liabilities to
approximately 70 employees and former employees of Old MK. Participants do not
accrue any service cost under the plans. The Corporation also has an unfunded
supplemental retirement plan for key executives of WGSG providing for periodic
payments upon retirement. Benefits from this plan are based on salary and years
of service and are reduced by benefits earned from certain other pension plans
in which the executives participate.
In addition, the Corporation has an unfunded pension liability for former
non-employee directors of Old MK. There was no interest expense associated with
the pension liability for former non-employee directors in 1999, 1998 and 1997,
as the full, undiscounted liability is included in the benefit obligation.
Postretirement health care plans:
The Corporation succeeded Old MK as sponsor of an unfunded plan to provide
certain health care benefits for employees of Old MK who retired before July 1,
1993, including their surviving spouses and dependent children. Employees who
retired after July 1, 1993 are not eligible for subsidized postretirement health
care benefits. The plan was amended in past years, and the Corporation reserves
the right to amend or terminate the postretirement health care benefits
currently provided under the plan and may increase retirees' cash contributions
at any time. The unrecognized prior service cost is being amortized to periodic
health care expense over the 13-year average future expected lifetime of
retirees and their surviving spouses beginning in 1997, the date of the last
plan change.
In addition, the Corporation provides benefits under company sponsored
retiree health care and life insurance plans for substantially all employees of
WGSG. The retiree health care plan requires retiree contributions and contains
other cost sharing features. The retiree life insurance plan provides basic
coverage on a noncontributory basis.
II-29
<PAGE>
The actuarial assumptions used to determine costs and benefit obligations
for the plans are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Pension benefits Postretirement benefits
December 3, November 30, November 30, December 3, November 30, November 30,
Year ended 1999 1998 1997 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.5% 6.5% 7.0% 7.5% 6.5% 7.0%
Compensation increases 4.0% - - - - -
Expected return on assets 8.0% - - - - -
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Experience gains and losses, as well as the effects of changes in actuarial
assumptions and plan provisions, are amortized over the average future service
period of employees.
The components of net pension and postretirement costs are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Pension benefits Postretirement benefits
December 3, November 30, November 30, December 3, November 30, November 30,
Year ended 1999 1998 1997 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 3,458 $ - $ - $ 265 $ - $ -
Interest cost 8,608 928 955 3,425 2,924 3,522
Expected return on assets (3,189) - - - - -
Recognized net actuarial
gain (loss) - - - (479) (127) -
Amortization of prior
service cost (credit) - - - (383) (383) (383)
Settlement - (3,161) (1,700) - - -
- ----------------------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 8,877 $(2,233) $ (745) $2,828 $2,414 $ 3,139
======================================================================================================================
</TABLE>
Reconciliation of beginning and ending balances of benefit obligations and
fair value of plan assets and the funded status of the plan are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Pension benefits Postretirement benefits
December 3, November 30, December 3, November 30,
Year ended 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Benefit obligation at beginning of period $ 14,357 $14,549 $39,545 $43,250
Service cost 3,458 - 265 -
Interest cost 8,608 928 3,425 2,924
Participant contributions 400 - - -
Benefit payments (4,658) (1,377) (3,964) (2,647)
Actuarial (gain) loss (17,755) 257 (7,109) (3,982)
Acquisitions 155,933 - 28,322 -
- ----------------------------------------------------------------------------------------------------
Benefit obligation at end of period $160,343 $14,357 $60,484 $39,545
====================================================================================================
</TABLE>
II-30
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Pension benefits Postretirement benefits
December 3, November 30, December 3, November 30,
Year ended 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fair value of plan assets at beginning of period $ - $ - $ - $ -
Actual return on plan assets 4,970 - - -
Company contributions 9,892 1,377 3,964 2,647
Participant contributions 400 - - -
Benefit payments (4,658) (1,377) (3,964) (2,647)
Acquisitions 74,886 - - -
- ----------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of period $85,490 $ - $ - $ -
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Amounts recognized in the balance sheet are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Pension benefits Postretirement benefits
December 3, November 30, December 3, November 30,
Year ended 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Funded status (obligations-fair value assets) $(74,853) $(14,357) $(60,484) $(39,545)
Unrecognized net actuarial (gain) loss (18,365) 1,096 (16,292) (9,700)
Unrecognized prior service credit - - (3,909) (4,211)
Unrecognized net transition amount 402 (1,096) - -
- ----------------------------------------------------------------------------------------------------------------------
Accrued benefit cost $(92,816) $(14,357) $(80,685) $(53,456)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 3, 1999, the benefit obligation for each pension and
postretirement benefit plan disclosed above exceeded the fair value of plan
assets.
An annual rate increase of 8% in the per capita cost of health care benefits
was assumed, gradually declining to 5.5% in the year 2005 and continuing
thereafter at that rate over the projected payout period of the benefits. The
health care cost trend rate assumption has a significant effect on the APBO. The
effect of a 1% change in this assumption would be as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Postretirement benefits
December 3, November 30,
Year ended 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest cost
1% point increase $ 456 $ 294
1% point decrease (392) (267)
Effect on APBO
1% point increase 4,943 3,837
1% point decrease (4,302) (3,498)
- ----------------------------------------------------------------------------
</TABLE>
The accrued benefit cost at December 3, 1999 for pension benefits and
postretirement benefits includes $80,028 and $27,051, respectively, related to
WGSG. In addition, for the year ended December 3, 1999, periodic pension cost
for pension benefits and postretirement benefits of $7,891 and $1,204,
respectively, relate to WGSG. Such amounts are based on preliminary estimates
used in the purchase price allocation with respect to benefit plan liabilities.
The Corporation has worked closely with CBS Corporation to resolve issues and to
obtain detailed and accurate information to enable management to develop final
estimates for the benefit plans. Final adjustments are subject to the resolution
of several matters including:
. The Corporation has not received all the asset allocation information
required by ERISA for a plan spun off by CBS to the WGSG pension plan. In
addition, the asset allocation is subject to adjustments upon audit and
negotiation by various agencies of the U.S. government.
II-31
<PAGE>
. The Corporation has not received detailed historical payroll or plan
participant data for any of the plans.
. The Corporation has not received information regarding possible pension plan
offsets that might reduce the overall liability of the pension plans.
During 1999 and subsequent to the GESCO acquisition, CBS Corporation made
$8,000 of contributions to the WGSG pension plan. A payable to CBS Corporation
of $8,000 to repay these contributions is reflected in other accrued liabilities
at December 3, 1999 and was repaid in January 2000.
Other assets at December 3, 1999 include a $8,400 discounted receivable from
CBS Corporation to reimburse the Corporation for a portion of postretirement
benefit costs pursuant to the Asset Purchase Agreement. CBS is to make payments
periodically, subject to predetermined annual limits.
In addition to the foregoing plans, the Corporation has the following
benefit plan obligations:
Deferred compensation plans:
The Corporation adopted a deferred compensation plan effective January 1,
1998 for the benefit of executive officers and key employees. The unfunded plan
allows participants to elect to defer salary and bonus subject to certain
limits. The net cost of this plan was $221 in 1999 and $137 in 1998.
Other retirement plans:
The Corporation sponsors a number of defined contribution retirement plans.
Participation in these plans is available to substantially all salaried
employees and to certain groups of hourly employees. The Corporation's cash
contributions to these plans are based on either a percentage of employee
contributions or on a specified amount per hour depending on the provisions of
each plan. The net cost of these plans was $13,767 in 1999, $12,219 in 1998 and
$12,354 in 1997.
Multiemployer pension plans:
The Corporation participates in and makes contributions to numerous
construction-industry multiemployer pension plans. Generally, the plans provide
defined benefits to substantially all employees covered by collective bargaining
agreements. Under the Employee Retirement Income Security Act, a contributor to
a multiemployer plan is liable, upon termination or withdrawal from a plan, for
its proportionate share of a plan's unfunded vested liability. The Corporation
currently has no intention of withdrawing from any of the multiemployer pension
plans in which it participates. The net cost of these plans was $18,874 in 1999,
$18,871 in 1998 and $16,098 in 1997.
10. TRANSACTIONS WITH AFFILIATES
The Corporation purchased goods and services from and participated in joint
ventures with affiliates of a principal stockholder who is also Chairman of the
Board of Directors, President and Chief Executive Officer of the Corporation as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Year ended December 3, 1999 November 30, 1998 November 30, 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital expenditures $4,428 $ 193 $1,444
Lease and maintenance of corporate aircraft 3,308 669 931
Parts, rentals, overhauls and repairs 6,487 1,943 4,565
Administrative support services 1,227 1,411 1,066
Revenue recognized from joint ventures 500 3,203 4,798
Profit recognition from joint ventures 236 1,264 1,522
Corporation's investment in joint ventures - 1,843 1,648
- -------------------------------------------------------------------------------------------------------
</TABLE>
II-32
<PAGE>
The Corporation performed construction services, mined and sold ballast and
realized gains (losses) on sales of equipment to affiliates of a principal
stockholder who is also Chairman of the Board of Directors, President and Chief
Executive Officer of the Corporation as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Year ended December 3, 1999 November 30, 1998 November 30, 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Construction services $ 171 $1,789 $ 29
Ballast sales 1,328 - -
Gain (loss) on sales of equipment, net 12 (37) (63)
- -------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation purchased insurance, surety bonds and financial advisory
services from firms owned by or affiliated with current members of the Board of
Directors of the Corporation as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Year ended December 3, 1999 November 30, 1998 November 30, 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insurance premiums paid, net $9,350 $9,266 $9,401
Insurance fees 1,250 1,150 1,280
Financial advisory services 567 301 154
- ----------------------------------------------------------------------------------------
</TABLE>
In January 1998, the Corporation and an insurance brokerage firm owned by a
member of the Board of Directors approved a new agreement for insurance and bond
services supplied to the Corporation. The agreement is effective January 1, 1998
and expires December 31, 2000, with automatic renewal annually for 12-month
terms thereafter, unless canceled by either party prior to the annual date.
Pursuant to the agreement, the brokerage firm receives an annual fixed fee of
$1,150, which is paid in equal quarterly installments. All insurance commissions
earned on policies purchased for the Corporation are credited 100% against the
fee. The insurance brokerage firm retains 50% of all surety commissions in
excess of $250 during each calendar year. In 1999, the Board of Directors of the
Corporation approved an amendment to the agreement to increase the annual fee
payable to the brokerage firm to $1,250, effective January 1, 1999.
11. OPERATING SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION
The Corporation operates through three operating units, each of which
comprises a separate reportable business segment: Engineers & Constructors
Group, Government Services Group and Contractors Group. The reportable segments
are separately managed, serve different markets and customers, and differ in
their expertise, technology and resources to perform their services.
The Engineers & Constructors Group provides engineering, design, procurement
and construction services for new construction or renovation of plants and
facilities; engineering, construction, decommissioning and decontamination
services for power generation utilities; and total facilities management to
industrial clients. The group performs private-sector environmental remediation
work as well as demilitarization services directed towards weapons reduction in
former states of the Soviet Union.
The Government Services Group provides a complete range of technical
services to the U.S. Departments of Energy and Defense, including defense-
related operations and management services, the production of tritium for
national weapons programs and high-level waste solidification, or vitrification.
In addition, Government Services Group provides non-defense related governmental
and environmental services, including environmental and waste management
services and the operation and environmental remediation of government
facilities.
The Contractors Group provides diverse engineering and construction and
construction management services on infrastructure projects in the
transportation, marine, water resource, industrial, railway, mining and
commercial building markets. The group also provides services on infrastructure
projects internationally, currently focusing on water resource and
telecommunication projects in the Middle East.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Corporation evaluates
performance and allocates resources based on segment operating
II-33
<PAGE>
income. Segment operating income is total segment revenue reduced by segment
cost of revenue and goodwill amortization identifiable to the segment. Goodwill
amortization related to the acquisition of Old MK is not allocated to the
segments. Corporate and other operating income (loss) consists principally of
general and administrative expense and, in 1997, income relating to non-core
subsidiaries of Old MK of $6,096.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Revenue
Year ended December 3, 1999 November 30, 1998 November 30, 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Engineers & Constructors
External $ 689,812 $ 779,879 $ 592,027
Intersegment 811 1,865 2,968
Government Services
External 760,870 355,469 346,641
Intersegment - - -
Contractors
External 797,546 726,826 738,633
Intersegment 1,017 763 537
Corporate and other
External - - -
Intersegment - - -
- ----------------------------------------------------------------------------------------------------------
Total segments 2,250,056 1,864,802 1,680,806
Elimination of intersegment (1,828) (2,628) (3,505)
- ----------------------------------------------------------------------------------------------------------
Total consolidated net revenues $2,248,228 $1,862,174 $1,677,301
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Operating income
Year ended December 3, 1999 November 30, 1998 November 30, 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross profit (loss)
Engineers & Constructors $ 16,557 $ 9,455 $ 7,898
Government Services 57,200 23,231 15,472
Contractors 43,488 51,246 48,557
Corporate and other 986 2,610 7,388
- ----------------------------------------------------------------------------------------------------------
Total gross profit 118,231 86,542 79,315
- ----------------------------------------------------------------------------------------------------------
Corporate general and administrative expense (25,999) (24,202) (22,910)
- ----------------------------------------------------------------------------------------------------------
Goodwill amortization
Engineers & Constructors - (28) -
Government Services (10,363) - -
Contractors (118) (23) -
Corporate and other (2,095) (3,546) (3,578)
- ----------------------------------------------------------------------------------------------------------
Total goodwill amortization (12,576) (3,597) (3,578)
- ----------------------------------------------------------------------------------------------------------
Operating income (loss)
Engineers & Constructors 16,557 9,427 7,898
Government Services 46,837 23,231 15,472
Contractors 43,370 51,223 48,557
Corporate and other (27,108) (25,138) (19,100)
- ----------------------------------------------------------------------------------------------------------
Total operating income $ 79,656 $ 58,743 $ 52,827
- ----------------------------------------------------------------------------------------------------------
</TABLE>
II-34
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Assets
As of December 3, 1999 November 30, 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Engineers & Constructors $ 141,636 $162,978
Government Services 503,376 40,077
Contractors 326,236 303,276
Corporate and other 224,775 281,820
- ----------------------------------------------------------------------------------------------------------
Total assets $1,196,023 $788,151
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Corporate assets include cash and cash equivalents, refundable income taxes,
deferred tax assets, securities available for sale, assets held for sale and
cost in excess of net assets acquired.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Capital expenditures
Year ended December 3, 1999 November 30, 1998 November 30, 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Engineers & Constructors $ 3,568 $ 7,566 $ 4,509
Government Services 7,306 2,254 1,127
Contractors 29,212 6,175 12,008
Corporate and other 8,331 9,498 2,056
- ---------------------------------------------------------------------------------------------------
Total capital expenditures $48,417 $25,493 $19,700
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Depreciation and amortization
Year ended December 3, 1999 November 30, 1998 November 30, 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Engineers & Constructors $ 4,845 $ 4,189 $ 3,062
Government Services 14,080 562 883
Contractors 13,415 12,592 15,585
Corporate and other 5,139 6,776 6,856
- ---------------------------------------------------------------------------------------------------
Total depreciation and amortization $37,479 $24,119 $26,386
- ---------------------------------------------------------------------------------------------------
</TABLE>
Investment in equity method investees:
At December 3, 1999 and November 30, 1998, the Corporation had $69,063 and
$67,967, respectively, in investments accounted for by the equity method. The
Corporation recorded earnings totaling $12,434, $7,793 and $10,304 in 1999, 1998
and 1997, respectively. These investments were held and reported as part of the
Contractors Group segment.
Geographic areas:
Geographic data regarding the Corporation's revenue and long-lived assets
are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Geographic data
Year ended December 3, 1999 November 30, 1998 November 30, 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
United States $1,948,132 $1,595,463 $1,474,831
International 300,096 266,711 202,470
- ---------------------------------------------------------------------------------------------------
Total revenue $2,248,228 $1,862,174 $1,677,301
- ---------------------------------------------------------------------------------------------------
As of December 3, 1999 November 30, 1998
- ---------------------------------------------------------------------------------------------------
Long-lived assets
United States $ 501,663 $ 214,759
Europe 62,545 61,589
Other countries 4,170 3,903
- ---------------------------------------------------------------------------------------------------
Total assets $ 568,378 $ 280,251
- ---------------------------------------------------------------------------------------------------
</TABLE>
II-35
<PAGE>
Revenue from international operations in 1999, 1998 and 1997 were in
numerous geographic areas without significant concentration.
Major customers:
Ten percent or more of the Corporation's revenues for one or more of the
three years in the period ended December 3, 1999 were derived from contracts and
subcontracts performed by the Government Services and Engineers & Constructors
Groups with the following customers:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Year ended December 3, 1999 November 30, 1998 November 30, 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States Department of Energy $493,856 $266,859 $289,288
United States Department of Defense 250,155 119,287 63,932
- ---------------------------------------------------------------------------------------------
</TABLE>
12. CONTINGENCIES AND COMMITMENTS
Summitville environmental matters:
From July 1985 to June 1989, Industrial Constructors Corp. ("ICC"), a
subsidiary of the Corporation, performed certain contract mining and
construction services at the Summitville mine near Del Norte, Colorado. In 1996,
the EPA and the State of Colorado (the "State") commenced an action under CERCLA
in the United States District Court for the District of Colorado against Mr.
Robert Friedland to recover the response costs incurred and to be incurred at
the Summitville Mine Superfund Site (the "Site"). No other parties were named as
defendants in the original complaints in this action. On April 30, 1999, Mr.
Friedland filed a third-party complaint naming ICC and nine other defendants,
alleging that such defendants are jointly and severally liable for such costs
and requesting that the same be equitably allocated. On October 1, 1999, the EPA
and the State filed amended complaints, naming ICC and six other parties as
defendants in addition to Mr. Friedland. On August 10, 1999, ICC filed an answer
to Mr. Friedland's third-party complaint and, on December 23, 1999, ICC filed
answers to the EPA's and the State's amended complaints, in each case denying
the allegations set forth in the complaints.
The EPA and the State have estimated that the total response costs incurred
and to be incurred at the Site will approximate $150,000. ICC is not a party to
any agreement regarding the allocation of responsibility, and neither the EPA
nor the State have made an allocation of responsibility among the defendants.
ICC'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 ICC or other defendants,
the efficacy of any defenses that ICC or such other defendants may have to any
assertion of liability, the willingness and ability of such other defendants to
discharge such liability as may be allocated to them and the outcome of any
negotiations or settlement discussions between ICC and the EPA, the State and/or
such other defendants. Accordingly, no response costs have been accrued at
December 3, 1999.
Management believes that ICC has sound factual and legal defenses to
liability in this matter. However, the ultimate resolution of this matter could
have a material adverse effect on ICC's financial position and could materially
and adversely affect its results of operations and cash flows in one or more
periods. Because ICC's financial position and results of operations are
consolidated with that of the Corporation, 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 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 has therefore accrued $3,000. Management believes that the
ultimate outcome of the matter will not have a material adverse effect on the
Corporation's financial position, results of operations or cash flows.
II-36
<PAGE>
The Corporation has responsibility for decommissioning a nuclear licensed
site. The Corporation has entered into an agreement with the U.S. Navy whereby
the U.S. Navy will be responsible for 75% of the cost of decommissioning. At
December 3, 1999, the Corporation had accrued approximately $1,800 for its share
of the decommissioning costs.
Contract related matters:
In the fourth quarter of 1997, the Corporation assumed sponsorship of a
large, fixed-price joint-venture contract due to the bankruptcy of the previous
sponsor and recorded a $3,900 pretax loss due to uncertainties on the project,
including unpaid client-directed change orders and potential project claims.
Mediation of these change orders and claims has resulted in an agreement to
settle, subject to approval by the client's Board of Directors. Although the
ultimate outcome cannot be currently determined with certainty, no material loss
is expected from the proposed settlement.
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
and negotiation by various agencies of the U.S. government. Audits and
negotiations of indirect costs are substantially complete through 1997. Audits
of 1998 indirect costs are in progress. The Corporation is also in the process
of preparing cost impact statements as required under U.S. Cost Accounting
Standards for 1989 through 1995, which are subject to audit and negotiation.
Management believes that the results of the cost impact statements will not
result in a material change to the Corporation's financial position, results of
operations or cash flows.
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 December
3, 1999 and November 30, 1998, $47,586 and $37,157, respectively, in face amount
of such letters of credit were outstanding. The Corporation has pledged
securities available for sale as collateral for its reimbursement obligations
with respect to $3,000 in face amount of certain letters of credit that were
outstanding at December 3, 1999.
In connection with a 1989 sale of Old MK's ownership interest in a
shipbuilding subsidiary, the Corporation assumed a guarantee of port facility
bonds of $21,000 through 2002. The former subsidiary has collateralized the
bonds with certain assets and has established a sinking fund of $5,400 for the
bonds. Management believes a loss on the guarantee is not probable and,
accordingly, no accrual has been made.
Long-term leases:
Total rental and long-term lease payments for real estate and equipment
charged to operations in 1999, 1998 and 1997 were $58,763, $52,067 and $36,575,
respectively. Future minimum rental payments under operating leases, some of
which contain renewal or escalation clauses, with remaining noncancelable terms
in excess of one year at December 3, 1999 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Year ending Real estate Equipment Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
December 1, 2000 $15,348 $ 6,721 $22,069
November 30, 2001 11,895 3,041 14,936
November 29, 2002 10,438 1,721 12,159
November 28, 2003 9,140 781 9,921
December 3, 2004 5,907 506 6,413
Thereafter 31,328 - 31,328
- -----------------------------------------------------------------------------
Totals $84,056 $12,770 $96,826
- -----------------------------------------------------------------------------
</TABLE>
II-37
<PAGE>
Administrative and engineering facilities in Boise, Idaho, and Cleveland,
Ohio, are leased under long-term, non-cancelable leases expiring in 2003 and
2010, respectively, with aggregate lease obligations of $9,661 and $54,806 for
the Boise facility and Cleveland facility, respectively.
Other:
In May 1998, Leucadia National Corporation filed an action against the
Corporation and certain officers and directors in the United States District
Court for the District of Utah. The complaint alleges fraud in the sale of
shares of MK Gold Corporation by Old MK to Leucadia and seeks rescission of the
sale and restitution of $22,500. Leucadia contends that the Corporation knew or
believed that a non-competition agreement between the Corporation and MK Gold
was unenforceable and failed to disclose that belief to Leucadia. The non-
competition agreement is the subject of separate litigation between MK Gold and
the Corporation. MK Gold is seeking alleged damages of up to $10,000. On January
5, 1999, the two cases were consolidated for trial. The cases are scheduled for
trial beginning April 2, 2001.
Certain current and former officers, employees and directors of the
Corporation were named defendants in an action filed in the United States
District Court for the District of Idaho. The complaint alleges, among other
things, that the defendants breached certain fiduciary duties. On November 16,
1999, the Court granted summary judgment as to all claims against all individual
persons named in the original complaint. Motions for summary judgment on behalf
of all remaining defendants are pending.
Although the ultimate outcome of these matters cannot be predicted with
certainty, management believes that the outcome of these actions, individually
or collectively, will not have a material adverse impact on the Corporation's
financial position, results of operations or cash flows.
In addition to the foregoing, 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.
13. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Year ended December 3, 1999 November 30, 1998 November 30, 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental cash flow information
Interest paid $ 4,934 $ 944 $ 890
Income taxes paid (refunds received), net 9,379 (6,718) 12,796
- ------------------------------------------------------------------------------------------------------------------
Supplemental noncash investing activities
Investment in foreign subsidiaries adjusted for
cumulative translation adjustments, net of
income tax benefit $ (6,426) $ 2,462 $ (5,512)
- ------------------------------------------------------------------------------------------------------------------
Business combinations:
Fair value of assets $ 415,074 $ - $(15,538)
Liabilities assumed (282,980) - 15,538
- ------------------------------------------------------------------------------------------------------------------
Total cash paid, including acquisition cost of $5,025 $ 132,094 $ - $ -
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
14. COMPREHENSIVE INCOME
Effective December 1, 1998, the Corporation adopted Statement of Financial
Standards No. 130 Reporting Comprehensive Income which establishes standards for
the reporting and display of comprehensive income. Comprehensive income for the
years ended December 3, 1999, November 30, 1998 and November 30, 1997 was as
follows:
II_38
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Before-tax Tax (expense) Net-of-tax
For year ended December 3, 1999 amount or benefit amount
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign currency translation adjustments $(10,485) $ 4,059 $(6,426)
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized gains (losses) on marketable securities:
Unrealized net holding gains (losses) arising during period (930) 363 (567)
Less: Reclassification adjustment for net (gains) losses
realized in net income 60 (24) 36
- ----------------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) (870) 339 (531)
- ----------------------------------------------------------------------------------------------------------------------------------
Minimum pension liability adjustment 950 (369) 581
- ----------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) $(10,405) $ 4,029 $(6,376)
==================================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
Before-tax Tax (expense) Net-of-tax
For year ended November 30, 1998 amount or benefit amount
- ----------------------------------------------------------------------------------------------------------------------------------
Foreign currency translation adjustments $ 3,782 $(1,320) $ 2,462
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized gains (losses) on marketable securities:
Unrealized net holding gains (losses) arising during period 744 (503) 241
Less: Reclassification adjustment for net (gains) losses
realized in net income 8 (3) 5
- ----------------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) 752 (506) 246
- ----------------------------------------------------------------------------------------------------------------------------------
Minimum pension liability adjustment (1,096) 426 (670)
- ----------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) $ 3,438 $ (1,400) $ 2,038
==================================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
Before-tax Tax (expense) Net-of-tax
For year ended November 30, 1997 amount or benefit amount
- ----------------------------------------------------------------------------------------------------------------------------------
Foreign currency translation adjustments $ (8,651) $ 3,293 $(5,358)
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized gains (losses) on marketable securities:
Unrealized net holding losses arising during period (23) - (23)
Less: Reclassification adjustment for net (gains) losses
realized in net income (6) - (6)
- ----------------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) (29) - (29)
- ----------------------------------------------------------------------------------------------------------------------------------
Minimum pension liability adjustment - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) $ (8,680) $ 3,293 $(5,387)
==================================================================================================================================
</TABLE>
The accumulated balances related to each component of other comprehensive
income were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulated
Foreign Unrealized Minimum other
currency gains on pension liability comprehensive
items securities adjustment income
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at November 30, 1996 $ (154) $ 579 $ - $ 425
Other comprehensive income (loss) (5,358) (29) - (5,387)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at November 30, 1997 (5,512) 550 - (4,962)
Other comprehensive income (loss) 2,462 246 (670) 2,038
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at November 30, 1998 (3,050) 796 (670) (2,924)
Other comprehensive income (loss) (6,426) (531) 581 (6,376)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 3, 1999 $ (9,476) $ 265 $ (89) $(9,300)
==================================================================================================================================
</TABLE>
II_39
<PAGE>
15. REDEEMABLE PREFERRED STOCK
On September 11, 1996, the Corporation issued 1,800 shares of Series A
preferred stock in connection with the acquisition of Old MK. On April 15, 1998,
all of the Series A preferred stock was redeemed, in accordance with its terms,
with $18,000 of federal income tax refunds received by the Corporation in
January 1998.
16. CAPITAL STOCK, STOCK PURCHASE WARRANTS AND STOCK COMPENSATION PLAN
Capital stock:
Pursuant to its Certificate of Incorporation, the Corporation has the
authority to issue 100,000 shares of common stock and 10,000 shares of preferred
stock. Preferred stock may be issued at any time or from time to time in one or
more series with such designations, powers, preferences and rights,
qualifications, limitations or restrictions thereof as determined by the Board
of Directors of the Corporation.
Stock purchase warrants:
At December 3, 1999, the Corporation had outstanding stock purchase warrants
giving rights to acquire 2,945 shares of the Corporation's common stock at an
exercise price of $12.00 per share. Of such warrants, 2,865 expire in March
2003, and 80 expire in September 2001.
Stock repurchase program:
In January 1998, the Board of Directors authorized the purchase, from time to
time, of up to 2,000 shares of the Corporation's common stock and up to 2,765 of
its stock purchase warrants. As of June 1999, 2,000 shares had been repurchased.
In July 1999, the Board of Directors authorized the purchase of an additional
2,000 shares of the Corporation's common stock. As of December 3, 1999, no
shares have been repurchased under the new authorization. Subject to market
conditions and other factors, purchase of shares may be commenced, discontinued
and resumed from time to time without prior notice.
Stock compensation plan:
The Corporation has a stock compensation plan for employees and non-employee
directors (the "1994 plan") which provides for grants in the form of
nonqualified stock options or incentive stock options ("ISOs") and restricted
stock awards. Additional shares of common stock available each year for grants
under the 1994 plan are equal to 3% of the outstanding shares as of the first
day of such year. Exercise prices for nonqualified stock options are determined
by the Board of Directors. Exercise prices for ISOs are equal to the fair market
value of the Corporation's common stock at the date of grant. Stock options
extend for and vest over periods of up to ten years as determined by the Board.
The Board may accelerate the vesting period after award of an option. The number
of shares available for grant of ISOs may not exceed 2,900 shares, and no
individual shall be granted stock options or restricted stock awards for more
than 5,000 shares over any three-year period.
Non-employee directors may elect to forego receipt in cash of certain fees
earned during any year in return for an option with a grant price equal to 80%
of the fair market value of the Corporation's common stock, vesting quarterly
during the year with a term period of up to ten years as determined by the
Board. Non-employee directors elected options for 83, 88 and 96 shares in lieu
of fees earned in 1999, 1998 and 1997, respectively.
On April 11, 1997, the Corporation's stockholders adopted the 1997 Stock
Option and Incentive Plan for Non-employee Directors (the "1997 plan") which
provides for grants in the form of nonqualified stock options and restricted
stock awards. Grant prices per share for stock options are at fair market value
at the date of grant. The number of shares available for grant as options and
restricted stock awards is 500, of which no more than 100 may be awarded as
restricted. Grants of nonqualified stock options and restricted stock awards to
the non-employee directors under the 1997 plan do not preclude grants under the
1994 plan. Options are subject to terms
II-40
<PAGE>
and conditions determined by the Board of Directors and have a term not
exceeding 10 years from the date of grant. Option activity under the
Corporation's stock plans is summarized as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
December 3, 1999 November 30, 1998 November 30, 1997
Weighted- Weighted- Weighted-
Number average Number average Number average
of options option price of options option price of options option price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 2,084 $ 9.15 1,776 $9.12 1,108 $ 6.33
Granted 3,054 10.20 525 9.19 1,398 10.02
Canceled (290) 9.86 (134) 9.69 (87) 8.96
Exercised (24) 8.49 (83) 7.91 (643) 6.30
- ----------------------------------------------------------------------------------------------------------------------
Outstanding at
end of year 4,824 $ 9.78 2,084 $9.15 1,776 $ 9.12
- ----------------------------------------------------------------------------------------------------------------------
Exercisable at end
of year 1,234 $ 8.46 768 $7.76 370 $ 6.41
Shares available
for grant 3,404 - 1,377 - 1,768 -
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The terms and conditions of restricted stock awards issued to key employees
are determined by the Board. Upon termination of employment, shares that remain
subject to restriction are forfeited. At December 3, 1999, there were no
restricted shares outstanding. No restricted stock awards were made in 1999,
1998 and 1997.
Stock-based compensation:
The Corporation has adopted the disclosure-only provisions of the Financial
Accounting Standards Board Statement No. 123 Accounting for Stock-Based
Compensation ("SFAS No. 123") issued in October 1995. Accordingly, compensation
cost has been recorded based only on the intrinsic value of the options granted.
The Corporation recognized $219, $219 and $477 of compensation cost in 1999,
1998 and 1997, respectively, for stock-based compensation awards. If the
Corporation had elected to recognize compensation cost based on the fair value
of the options granted at grant date as prescribed by SFAS No. 123, net income
and earnings per share would have been reduced to the pro forma amounts as
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
December 3, 1999 November 30, 1998 November 30, 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income
As reported $48,285 $37,553 $32,031
Pro forma 46,161 36,362 30,925
Net income per share
As reported - basic .92 .70 .59
- diluted .91 .69 .59
Pro forma - basic .88 .67 .57
- diluted .87 .67 .57
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The pro forma amounts set forth above reflect the portion of the estimated
fair value of awards earned in 1999, 1998 and 1997 based on the vesting period
of the options. The pro forma effects disclosed above are not likely to be
representative of the pro forma disclosures of future years because SFAS No. 123
is applicable only to options granted subsequent to November 30, 1995, the
effect of which is not fully reflected until 1999.
The Black-Scholes option valuation model was used to estimate the fair value
of the options for purposes of the pro forma presentation set forth above.
II_41
<PAGE>
The following assumptions were used in the valuation and no dividends were
assumed:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average expected life (years) 5 5 5
Expected volatility 35.7% 38.5% 30.7%
Risk-free interest rate 5.5% 5.4% 6.4%
Weighted-average fair value:
Exercise price equal to market price at grant $10.26 $9.47 $10.23
Exercise price less than market price at grant 8.30 7.80 7.20
- ------------------------------------------------------------------------------------------------------
</TABLE>
The assumptions used in the Black-Scholes option valuation model are highly
subjective, particularly as to stock price volatility of the underlying stock,
and can materially affect the resulting valuation. In management's opinion, the
model does not provide a reliable single measure of the fair value of the
employee stock options.
The following table summarizes information regarding options that were
outstanding at December 3, 1999:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Options outstanding Options exercisable
---------------------------------------------- ------------------------------
Weighted-average
Weighted-average remaining Weighted-average
Price range Number exercise price contractual life Number exercise price
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Below $9.88 1,987 $ 8.78 7.30 1,157 $ 8.19
$9.88 $10.81 2,646 10.33 5.55 - -
Above $10.81 191 12.44 7.54 77 12.41
- -------------------------------------------------------------------------------------------------
</TABLE>
17. FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments at December 3, 1999 have
been determined by the Corporation, using available market information and
valuation methodologies believed to be appropriate. However, judgment is
necessary in interpreting market data to develop the estimates of fair values.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that the Corporation could realize in a current market exchange. The
use of different market assumptions and/or estimation methodologies could have a
material effect on the estimated fair value amounts.
The carrying amounts and estimated fair values of certain financial
instruments at December 3, 1999 and November 30, 1998 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
December 3, 1999 November 30, 1998
- --------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
amount value amount value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets
Customer retentions $19,704 $19,031 $18,627 $17,728
Financial liabilities
Subcontract retentions 18,469 17,838 22,843 22,169
Advances from customers 6,083 5,875 8,506 8,255
- --------------------------------------------------------------------------------------------
</TABLE>
The fair value of other financial instruments was comprised of (i) cash and
cash equivalents, accounts receivable excluding customer retentions, unbilled
receivables and accounts and subcontracts payable excluding retentions which
approximate cost because of the immediate or short-term maturity, (ii)
securities available for sale based on quoted market prices of the securities at
the balance sheet date, (iii) customer retentions, subcontract retentions and
customer advances estimated by discounting expected cash flows at rates
currently available to the Corporation for instruments with similar risks and
maturities and (iv) long-term debt which approximates fair value due to frequent
repricing at market rates.
II-42
<PAGE>
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no changes in, or disagreements with, accountants on
accounting and financial disclosure.
II-43
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this Item will be set forth under the captions
"Directors" and "Executive Officers" in the Corporation's definitive proxy
statement for its annual meeting of stockholders, to be filed not later than
March 31, 2000, and is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item will be set forth under the caption
"Report of the Compensation Committee on Executive Compensation for 1999" in the
Corporation's definitive proxy statement for its annual meeting of stockholders,
to be filed not later than March 31, 2000, and is incorporated herein by this
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this Item will be set forth under the caption
"Voting Securities and Principal Holders Thereof" in the Corporation's
definitive proxy statement for its annual meeting of stockholders, to be filed
not later than March 31, 2000, and is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this Item will be set forth under the caption
"Certain Relationships and Related Transactions" in the Corporation's definitive
proxy statement for its annual meeting of stockholders, to be filed not later
than March 31, 2000, and is incorporated herein by this reference.
III-1
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this Annual Report of Form 10-K.
<TABLE>
<CAPTION>
PAGE(S)
<S> <C>
1. The Consolidated Financial Statements, together with the report thereon of
PricewaterhouseCoopers LLP dated January 28, 2000, is included in Part II
Item 8 of this report.
Report of Independent Accountants II-14
Consolidated Statements of Income and Consolidated Statements of
Comprehensive Income for each of the three years in the
period ended December 3, 1999 II-15
Consolidated Balance Sheets at December 3, 1999 and November 30, 1998 II-16, II-17
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 3, 1999 II-18
Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended December 3, 1999 II-19
Notes to Consolidated Financial Statements II-20 to II-42
2. Financial Statement Schedule as of December 3, 1999 S-I
</TABLE>
Valuation, Qualifying and Reserve Accounts
Financial statement schedules not listed above are omitted because they
are not required or are not applicable, or the required information is
given in the financial statements including the notes thereto. Captions
and column headings have been omitted where not applicable.
3. Exhibits
The exhibits to this report are listed in the Exhibit Index contained
elsewhere in this report.
(b) Reports on Form 8-K.
The Corporation filed a current report on Form 8-K dated September 9,
1999 to announce that Leo A. Giacometto was named as a principle officer
of the Corporation to the office of vice president of government affairs.
IV-1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Corporation has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized on
February 18, 2000.
Morrison Knudsen Corporation
By /s/ A. S. Cleberg
- ---------------------------------------------------------------------
A. S. Cleberg, Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report on Form 10-K has been signed below on February 18, 2000 by the following
persons on behalf of the Corporation in the capacities indicated.
<TABLE>
<S> <C>
President and Chief Executive Officer and Director
/s/ D. R. Washington* (Principal Executive Officer)
- -------------------------------
Executive Vice President and Chief Financial Officer
/s/ A. S. Cleberg (Principal Financial Officer)
- -------------------------------
Vice President and Controller
/s/ R. N. Brimhall (Principal Accounting Officer)
- -------------------------------
/s/ D. H. Batchelder* Director
- -------------------------------
/s/ L. R. Judd* Director
- -------------------------------
/s/ R. S. Miller* Director
- -------------------------------
/s/ D. Parkinson* Director
- -------------------------------
/s/ T. W. Payne* Director
- -------------------------------
/s/ J. D. Roach* Director
- -------------------------------
/s/ T. H. Zarges* Executive Vice President and Director
- -------------------------------
</TABLE>
*S. G. Hanks, by signing his name hereto, does hereby sign this Annual Report on
Form 10-K on behalf of each of the above-named officers and directors of
Morrison Knudsen Corporation, pursuant to powers of attorney executed on behalf
of each such officer and director.
By /s/ S. G. Hanks
- ---------------------------------------------------------------------
S. G. Hanks, Attorney-in-fact
<PAGE>
MORRISON KNUDSEN CORPORATION
SCHEDULE II. VALUATION, QUALIFYING AND RESERVE ACCOUNTS
For the Year Ended December 3, 1999
(In thousands)
Allowance for Doubtful Accounts Receivables Deducted in the Balance Sheet from
Accounts Receivable
<TABLE>
<CAPTION>
Balance at Provisions Balance at
Beginning Charged to End of
Year Ended of Year Operations Other Deductions Year
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
November 30, 1997 $(7,885) $ (978) $ - $4,124 $(4,739)
November 30, 1998 (4,739) (3,849) (141) 1,198 (7,531)
December 3, 1999 (7,531) (100) (171) 2,669 (5,133)
</TABLE>
Deferred Income Tax Asset Valuation Allowance Deducted in the Balance Sheet
from Deferred Income Tax Asset
<TABLE>
<CAPTION>
Balance at Provisions Balance at
Beginning Charged to End of
Year Ended of Year Operations Other Deductions Year
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
November 30, 1997 $(126,878) $ - $(4,797) (1) $19,688 (2) $(111,987)
November 30, 1998 (111,987) - - 20,000 (3) (91,987)
December 3, 1999 (91,987) - - 50,000 (3) (41,987)
</TABLE>
Estimated Costs to Complete Long-Term Contracts Reflected in Balance Sheet
<TABLE>
<CAPTION>
Balance at Provisions Balance at
Beginning Charged to End of
Year Ended of Year Operations Other Deductions Year
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
November 30, 1997 $(100,832) $(56,861) $ - $84,590 $(73,103)
November 30, 1998 (73,103) (15,993) - 39,868 (49,228)
December 3, 1999 (49,228) (28,914) (28,956) (4) 34,283 (72,815)
</TABLE>
____________________
(1) Adjustment due to change in deferred taxes for preacquisition
contingencies.
(2) Adjustment due to extension of federal net operating loss carryforward
period.
(3) Change in estimation of the future realization of deductible temporary
differences.
(4) Estimated costs to complete long-term contracts arising from GESCO
acquisition.
S-1
<PAGE>
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
3.1 The registrant's Restated Certificate of Incorporation (filed as
Exhibit 3.1 to the registrant's Form 10-K Annual Report for fiscal year
ended November 30, 1998 and incorporated herein by reference).
3.2 The registrant's Restated and Amended Bylaws (filed as Exhibit 3.2 to
the registrant's Form 10-K Annual Report for fiscal year ended
November 30, 1998 and incorporated herein by reference).
4.1 Specimen certificate for the registrant's Common Stock (filed as
Exhibit 4.1 to the registrant's Form 10-K Annual Report for fiscal year
ended November 30, 1996 and incorporated herein by reference).
4.2 Specimen certificate for the registrant's Warrants to expire on
March 11, 2003 (filed as Exhibit 4.2 to the registrant's Form 10-Q
Quarterly Report for quarter ended August 31, 1996 and incorporated
herein by reference).
4.3 Warrant Agreement dated September 11, 1996 by and between the
registrant and Norwest Bank Minnesota, N.A. (filed as Exhibit 4.4 to
the registrant's Form 10-Q Quarterly Report for quarter ended
August 31, 1996 and incorporated herein by reference).
4.4.1 Warrant Agreement dated September 11, 1996 among the registrant,
Batchelder & Partners, Inc. and Schroder Wertheim & Co. Incorporated,
including the form of certificate attached thereto as Exhibit A for
certain registrant Warrants to expire on September 11, 2001 (filed as
Exhibit 4.6 to the registrant's Form 10-Q Quarterly Report for quarter
ended August 31, 1996 and incorporated herein by reference).
4.4.2 * Description of an amendment to the Warrant Agreement dated
September 11, 1996 among the registrant, Batchelder & Partners, Inc.
and Schroder Wertheim & Co. Incorporated.
4.5 Registration Rights Agreement dated September 11, 1996 among the
registrant, Batchelder & Partners, Inc. and Schroder Wertheim & Co.
Incorporated (filed as Exhibit 4.7 to the registrant's Form 10-Q
Quarterly Report for quarter ended August 31, 1996 and incorporated
herein by reference).
10.1.1 Five-Year Credit Agreement dated as of March 19, 1999 among the
registrant, Bank of Montreal and NationsBanc Montgomery Securities,
Inc., Bank of America National Trust and Savings Association and the
Lenders which are or may become parties thereto (filed as Exhibit 10.1
to the registrant's Form 10-Q Quarterly Report for quarter ended
February 26, 1999 and incorporated herein by reference).
10.1.2 First Amendment dated as of May 5, 1999 to the Five-Year Credit
Agreement dated as of March 19, 1999 among the registrant, Bank of
Montreal and NationsBanc Montgomery Securities, Inc., Bank of America
National Trust and Savings Association and the Lenders which are or may
E-1
<PAGE>
become parties thereto (filed as Exhibit 10.1 to the registrant's Form
10-Q Quarterly Report for quarter ended May 28, 1999 and incorporated
herein by reference).
10.2.1 364-Day Credit Agreement dated as of March 19, 1999 among the
registrant, Bank of Montreal and NationsBanc Montgomery Securities,
Inc., Bank of America National Trust and Savings Association and the
Lenders which are or may become parties thereto (filed as Exhibit 10.2
to the registrant's Form 10-Q Quarterly Report for quarter ended
February 26, 1999 and incorporated herein by reference).
10.2.2 First Amendment dated as of May 5, 1999 to the 364-Day Credit Agreement
dated as of March 19, 1999 among the registrant, Bank of Montreal and
NationsBanc Montgomery Securities, Inc., Bank of America National Trust
and Savings Association and the Lenders which are or may become parties
thereto (filed as Exhibit 10.1 to the registrant's Form 10-Q Quarterly
Report for quarter ended May 28, 1999 and incorporated herein by
reference).
10.3 The registrant's Environmental Indemnification Agreement with
Washington Corporations dated July 8, 1993 (filed as Exhibit 10.5 to
the registrant's Form 10-K Annual Report for fiscal year ended
November 30, 1996 and incorporated herein by reference).
10.4 Shareholders Agreement dated December 18, 1993 among Morrison Knudsen
BV, a wholly-owned subsidiary of the registrant, Lambique Beheer BV and
Ergon Overseas Holdings Limited (filed as Exhibit 10.6 to the
registrant's Form 10-K Annual Report for fiscal year ended November 30,
1997 and incorporated herein by reference).
10.5 Form of Guaranty by Old MK, as Guarantor, in favor of Morgan Guaranty
Trust Company of New York, as Trustee (filed as Exhibit 4.2 to
Amendment No. 1 to Old MK's Form S-3 Registration Statement No.
33-50046 filed on October 30, 1992 and incorporated herein by
reference).
10.6 Form of Indenture of Trust between the City of San Diego and Morgan
Guaranty Trust Company of New York, as Trustee (filed as Exhibit 4.3 to
Amendment No. 1 to Old MK's Form S-3 Registration Statement No.
33-50046 filed on October 30, 1992 and incorporated herein by
reference).
10.7 Form of Loan Agreement between the City of San Diego and National Steel
and Shipbuilding Company (filed as Exhibit 4.4 Amendment No. 1 to Old
MK's Form S-3 Registration Statement No. 33-50046 filed on October 30,
1992 and incorporated herein by reference).
10.8 Asset Purchase Agreement dated as of June 25, 1998 between CBS
Corporation and WGNH Acquisition, LLC related to the acquisition of the
Westinghouse Energy Systems Business Unit from CBS Corporation (filed
as Exhibit 10.10 to the registrant's Form 10-K Annual Report for fiscal
year ended November 30, 1998 and incorporated herein by reference).
10.9 Asset Purchase Agreement dated as of June 25, 1998 between CBS
Corporation and WGNH Acquisition, LLC related to the acquisition of the
Westinghouse Government and Environmental Services Company business
from CBS Corporation (filed as Exhibit 10.11 to the registrant's Form
10-K Annual Report for fiscal year ended November 30, 1998 and
incorporated herein by reference).
10.10 Amended and Restated Consortium Agreement between the registrant's
wholly-owned subsidiary, Morrison Knudsen Corporation, an Ohio
corporation, and BNFL USA Group, Inc. (filed as Exhibit 10.13 to the
registrant's Form 10-K Annual Report for fiscal year ended November 30,
1998 and incorporated herein by reference).
E-2
<PAGE>
Items 10.11.1 through 10.41 below constitute management contracts or
compensatory plans or arrangements which are separately identified in accordance
with Item 14(a)(3) of Form 10-K.
10.11.1 The registrant's Amended and Restated Stock Option Plan (filed as
Exhibit 10.10 to the registrant's Form 10-K Annual Report for fiscal
year ended November 30, 1996 and incorporated herein by reference).
10.11.2 Amendment No. 1 dated October 30, 1998 to the registrant's Amended and
Restated Stock Option Plan (filed as Exhibit 10.14 to the registrant's
Form 10-K Annual Report for fiscal year ended November 30, 1998 and
incorporated herein by reference).
10.11.3 * Amendment No. 2 dated April 8, 1999 to the registrant's Amended and
Restated Stock Option Plan.
10.12 The registrant's 1997 Stock Option and Incentive Plan for Non-Employee
Directors (filed as Exhibit 10.11 to the registrant's Form 10-K Annual
Report for fiscal year ended November 30, 1996 and incorporated herein
by reference).
10.13 The registrant's Long-Term Incentive Compensation Plan (filed as
Exhibit 10.3 to the registrant's Form 10-Q Quarterly Report for
quarter ended May 28, 1999 and incorporated herein by reference).
10.14 The registrant's Deferred Compensation Plan (filed as Exhibit 10.12 to
the registrant's Form 10-K Annual Report for fiscal year ended
November 30, 1997 and incorporated herein by reference).
10.15 A description of the registrant's Cash Bonus Program (filed as Exhibit
10.13 to the registrant's Form 10-K Annual Report for fiscal year
ended November 30, 1997 and incorporated herein by reference).
10.16 The registrant's Key Executive Disability Insurance Plan (filed as
Exhibit 10.12 to Old MK's Form 10-K Annual Report for year ended
December 31, 1992 and incorporated herein by reference).
10.17 The registrant's Key Executive Life Insurance Plan (filed as Exhibit
10.13 to Old MK's Form 10-K Annual Report for year ended December 31,
1992 and incorporated herein by reference).
10.18 * Form of 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 directors and officers with whom the registrant has
entered into such agreements is filed herewith.]
10.19 The registrant's Nonqualified Stock Option Plan Agreement with Dennis
R. Washington dated as of March 22, 1999 (filed as Exhibit 10.4 to the
registrant's Form 10-Q Quarterly Report for quarter ended May 28, 1999
and incorporated herein by reference).
10.20 The registrant's Nonqualified Stock Option Plan Agreement with Dennis
R. Washington dated as of April 8, 1999 (filed as Exhibit 10.5 to the
registrant's Form 10-Q Quarterly Report for quarter ended May 28, 1999
and incorporated herein by reference).
10.21 The registrant's employment agreement with Robert A. Tinstman dated as
of January 1, 1993, and Amendment thereto dated April 22, 1996 (filed
as Exhibit 10.21 to the registrant's Form 10-K Annual Report for
fiscal year ended November 30, 1996 and incorporated herein by
reference).
10.22 The registrant's Nonqualified Stock Option Agreement with Robert A.
Tinstman dated as of January 10, 1997 (filed as Exhibit 10.22 to the
registrant's Form 10-K Annual Report for fiscal year ended
November 30, 1996 and incorporated herein by reference).
E-3
<PAGE>
10.23 The registrant's Nonqualified Stock Option Agreement with Robert A.
Tinstman dated as of January 14, 1998 (filed as Exhibit 10.22 to the
registrant's Form 10-K Annual Report for fiscal year ended November 30,
1997 and incorporated herein by reference).
10.24 The registrant's Nonqualified Stock Option Agreement with Robert A.
Tinstman dated as of January 20, 1999 (filed as Exhibit 10.26 to the
registrant's Form 10-K Annual Report for fiscal year ended November 30,
1998 and incorporated herein by reference).
10.25 The registrant's Supplemental Retirement Benefit Agreement with Robert
A. Tinstman dated as of August 3, 1990 (filed as Exhibit 10.23 to the
registrant's Form 10-K Annual Report for fiscal year ended November 30,
1996 and incorporated herein by reference).
10.26 The registrant's Severance Agreement with Robert A. Tinstman (filed as
Exhibit 10.6 to the registrant's Form 10-Q Quarterly Report for quarter
ended May 28, 1999 and incorporated herein by reference).
10.27.1 The registrant's employment agreement with Stephen G. Hanks dated as of
January 1, 1993 (filed as Exhibit 10.24 to the registrant's Form 10-K
Annual Report for fiscal year ended November 30, 1996 and incorporated
herein by reference).
10.27.2 Amendment dated as of August 9, 1993 to the registrant's employment
agreement with Stephen G. Hanks dated as of January 1, 1993 (filed as
Exhibit 10.24 to the registrant's Form 10-K Annual Report for fiscal
year ended November 30, 1996 and incorporated herein by reference).
10.27.3 Amendment dated as of April 22, 1996 to the registrant's employment
agreement with Stephen G. Hanks dated as of January 1, 1993, as amended
(filed as Exhibit 10.24 to the registrant's Form 10-K Annual Report for
fiscal year ended November 30, 1996 and incorporated herein by
reference).
10.27.4 Description of an amendment effective as of March 31, 1999 to the
registrant's employment agreement with Stephen G. Hanks dated as of
January 1, 1993, as amended (filed as Exhibit 10.7 to the registrant's
Form 10-Q Quarterly Report for quarter ended May 28, 1999 and
incorporated herein by reference).
10.28 The registrant's Nonqualified Stock Option Agreement with Stephen G.
Hanks dated as of January 10, 1997 (filed as Exhibit 10.25 to the
registrant's Form 10-K Annual Report for fiscal year ended November 30,
1996 and incorporated herein by reference).
10.29 The registrant's Nonqualified Stock Option Agreement with Stephen G.
Hanks dated as of January 14, 1998 (filed as Exhibit 10.26 to the
registrant's Form 10-K Annual Report for fiscal year ended November 30,
1997 and incorporated herein by reference).
10.30 The registrant's Nonqualified Stock Option Agreement with Stephen G.
Hanks dated as of January 20, 1999 (filed as Exhibit 10.31 to the
registrant's Form 10-K Annual Report for fiscal year ended November 30,
1998 and incorporated herein by reference).
10.31 * The registrant's Nonqualified Stock Option Agreement with Stephen G.
Hanks dated as of January 31, 2000.
10.32.1 The registrant's employment agreement with Thomas H. Zarges dated as of
January 1, 1994 (filed as Exhibit 10.26 to the registrant's Form 10-K
Annual Report for fiscal year ended November 30, 1996 and incorporated
herein by reference).
E-4
<PAGE>
10.32.2 Description of an amendment dated as of March 31, 1999 to the
registrant's employment agreement with Thomas H. Zarges dated as of
January 1, 1994 (filed as Exhibit 10.7 to the registrant's Form 10-Q
Quarterly Report for quarter ended May 28, 1999 and incorporated
herein by reference).
10.33 The registrant's Nonqualified Stock Option Agreement with Thomas H.
Zarges dated as of January 10, 1997 (filed as Exhibit 10.27 to the
registrant's Form 10-K Annual Report for fiscal year ended
November 30, 1996 and incorporated herein by reference).
10.34 The registrant's Nonqualified Stock Option Agreement with Thomas H.
Zarges dated as of January 14, 1998 (filed as Exhibit 10.29 to the
registrant's Form 10-K Annual Report for fiscal year ended
November 30, 1997 and incorporated herein by reference).
10.35 The registrant's Nonqualified Stock Option Agreement with Thomas H.
Zarges dated as of January 20, 1999 (filed as Exhibit 10.35 to the
registrant's Form 10-K Annual Report for fiscal year ended
November 30, 1998 and incorporated herein by reference).
10.36 * The registrant's Nonqualified Stock Option Agreement with Thomas H.
Zarges dated as of January 31, 2000.
10.37 The registrant's employment agreement with Alvia L. Henderson dated as
of April 26, 1996 (filed as Exhibit 10.29 to the registrant's
Form 10-K Annual Report for fiscal year ended November 30, 1996 and
incorporated herein by reference).
10.38 The registrant's employment agreement with A. S. Cleberg dated as of
April 11, 1997 (filed as Exhibit 10.1 to the registrant's Form 10-Q
Quarterly Report for quarter ended May 31, 1997 and incorporated
herein by reference).
10.39 The registrant's employment agreement with Roger J. Ludlam dated as of
January 11, 1999 (filed as Exhibit 10.40 to the registrant's Form 10-K
Annual Report for fiscal year ended November 30, 1998 and incorporated
herein by reference).
10.40.1 * The registrant's employment agreement with Ambrose L. Schwallie dated
as of August 18, 1999.
10.40.2 * Amendment dated as of October 5, 1999 to registrant's employment
agreement with Ambrose L. Schwallie dated as of August 18, 1999.
10.41 * The registrant's employment agreement with Leo A. Giacometto dated as
of September 7, 1999.
21. * Subsidiaries of the registrant.
23. * Consent of PricewaterhouseCoopers LLP.
24. * Powers of Attorney
27.* Financial Data Schedule.
E-5
<PAGE>
EXHIBIT 4.4.2
The Company agreed to amend those certain Warrant Certificates covering 107,727
shares of common stock of the Company previously issued to certain principals of
Batchelder and Partners, Inc. pursuant to a Warrant Agreement dated as of
September 11, 1996 to (i) extend the Exercise Period to March 11, 2003 and (ii)
register for resale such Warrants in connection with the filing of the Company's
next available registration statement.
<PAGE>
EXHIBIT 10.11.3
AMENDMENT NO. 2 TO THE
MORRISON KNUDSEN CORPORATION
AMENDED AND RESTATED STOCK OPTION PLAN
WHEREAS, the Board of Directors of Morrison Knudsen Corporation (the
"Company") has heretofore established the Morrison Knudsen Corporation Amended
and Restated Stock Option Plan (the "Plan"), for the benefit of its eligible
employees and directors; and
WHEREAS, the Board of Directors of the Company has the authority under
Section 9.2 of the Plan to amend the Plan.
WHEREAS, the Board of Directors desires to amend the Plan to give the Board
of Directors discretion to extend the period of time for an Optionee to exercise
a Non-Qualified Stock Option following the Optionee's termination of employment
or termination of directorship with the Company;
NOW, THEREFORE, the Plan shall be amended as follows:
1.
A new paragraph (c) is hereby added to Section 4.5 of the Plan to read as
follows:
(c) Notwithstanding the above, the Board may, in its sole discretion,
extend the period for exercising a Non-Qualified Stock Option
following an Optionee's Termination of Employment or Termination of
Directorship to a date not later than the earlier of (i) twelve (12)
months from the date of the Optionee's Termination of Employment or
Termination of Directorship and (ii) the Option's Expiration Date.
2.
Except as amended herein, the Plan shall continue in full force and effect.
IN WITNESS, WHEREOF, the Board of Directors has caused this Amendment to be
executed by an officer of the Company duly authorized on this 8th day of April,
---
1999.
MORRISON KNUDSEN CORPORATION
By: /s/ Stephen G. Hanks
---------------------------------
_________________________________
_________________________________
1
<PAGE>
SCHEDULE TO EXHIBIT 10.18
MORRISON KNUDSEN CORPORATION
INDEMNIFICATION AGREEMENTS
Name Date of Agreement
---- -----------------
David H. Batchelder September 12, 1996
Reed N. Brimhall April 19, 1999
Anthony S. Cleberg May 5, 1997
Frank S. Finlayson July 29, 1997
Leo A. Giacometto September 20, 1999
Stephen G. Hanks September 12, 1996
Alvia L. Henderson September 12, 1996
Leonard R. Judd September 12, 1996
Roger J. Ludlam February 1, 1999
Robert S. Miller, Jr. September 12, 1996
Dorn Parkinson September 12, 1996
Richard D. Parry September 12, 1996
Terry W. Payne September 12, 1996
John D. Roach September 12, 1996
Jonathan M. Robertson September 12, 1996
Lisa H. Ross September 12, 1996
Ambrose L. Schwallie August 6, 1999
Craig G. Taylor April 10, 1997
Dennis R. Washington September 12, 1996
Thomas H. Zarges September 12, 1996
<PAGE>
EXHIBIT 10.31
MORRISON KNUDSEN CORPORATION
AMENDED AND RESTATED STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT (this "Agreement"), dated as of January 31, 2000, is made by
and between Morrison Knudsen Corporation, a Delaware corporation hereinafter
referred to as "Company," and Stephen G. Hanks, an employee of the Company or
Subsidiary of the Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its $.01 par value Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (as hereinafter defined),
the terms of which are hereby incorporated herein by reference and made a part
hereof; and
WHEREAS, the execution of a Nonqualified Stock Option Agreement in the form
hereof has been duly authorized by a resolution of the Board of Directors of the
Company duly adopted on January 31, 2000, and incorporated herein by reference;
and
WHEREAS, this Option is intended to be a nonqualified stock option and
shall not be treated as an "incentive stock option" within the meaning of that
term under Section 422 of the Code;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Wherever the following terms are used in this Agreement with initial
capital letters, they shall have the meanings specified in the Plan unless the
context clearly indicates otherwise.
Section 1.1 - Beneficiary
Section 1.2 - Code
Section 1.3 - Common Stock
Section 1.4 - Company
Section 1.5 - Employee
Section 1.6 - Exchange Act
Section 1.7 - Fair Market Value
Section 1.8 - Subsidiary
Section 1.9 - Termination of Employment
1
<PAGE>
Wherever the following terms are used in this Agreement with initial
capital letters, they shall have the meanings specified below unless the context
clearly indicates otherwise. The masculine pronoun shall include the feminine
and neuter, and the singular the plural, where the context so indicates.
Section 1.10 - Board
- ------------ -----
"Board" shall mean the Board of Directors of the Company and shall include
any committee to which the Board of Directors may have delegated its authority
pursuant to Section 8.1 of the Plan.
Section 1.11 - Optionee
- ------------ --------
"Optionee" shall mean the Employee named above to whom an Option is awarded
under this Agreement and the Plan.
Section 1.12 - Plan
- ------------ ----
"Plan" shall mean The Morrison Knudsen Corporation Amended and Restated
Stock Option Plan, as amended and restated as of January 10, 1997, and as the
same may be further amended or restated.
Section 1.13 - Secretary
- ------------ ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.14 - Securities Act
- ------------ --------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
ARTICLE II
AWARD OF OPTION
Section 2.1 - Grant of Award
- ----------- --------------
In consideration of the Optionee's execution of this Agreement and for
other good and valuable consideration, on the date hereof the Company
irrevocably awards to the Optionee the option to purchase any part or all of an
aggregate of 100,000 shares of its $.01 par value Common Stock upon the terms
and subject to the conditions set forth in the Plan and in this Agreement.
2
<PAGE>
Section 2.2 - Purchase Price
- ----------- --------------
The purchase price of the shares of stock covered by the Option shall be
$7.375 per share without commission or other charge.
Section 2.3 - Consideration to Company
- ----------- ------------------------
In consideration of the awarding of this Option by the Company, the
Optionee agrees to render faithful and efficient services to the Company or a
Subsidiary, with such duties and responsibilities as the Company shall from time
to time prescribe, for a period of at least one (1) year from the date this
Option is awarded. Nothing in this Agreement or in the Plan shall confer upon
the Optionee any right to continue in the employ of the Company or any
Subsidiary, or shall interfere with or restrict in any way the rights of the
Company and its Subsidiaries, which are hereby expressly reserved, to discharge
the Optionee at any time for any reason whatsoever, with or without cause.
Section 2.4 - Adjustments in Option
- ----------- ---------------------
The Board may make or provide for such adjustments in the (a) number of
shares of Common Stock covered by outstanding Options awarded hereunder, (b)
prices per share applicable to such Options, and (c) kind of shares (including
shares of another issuer) covered thereby, as the Board in its sole discretion
may in good faith determine to be equitably required in order to prevent
dilution or enlargement of the rights of Optionees, that otherwise would result
from (x) any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company, (y)
any merger, consolidation, spin-off, split-off, split-up, reorganization,
partial or complete liquidation or other distribution of assets, issuance of
rights or warrants to purchase securities or (z) any other corporate transaction
or event having an effect similar to any of the foregoing. In the event of any
such transaction or event, the Board may provide in substitution for any or all
outstanding awards under this Agreement such alternative consideration as it may
in good faith determine to be equitable under the circumstances and may require
in connection therewith the surrender of all awards so replaced.
ARTICLE III
PERIOD OF EXERCISABILITY
Section 3.1 - Commencement of Exercisability
- ----------- ------------------------------
(a) This Option shall become exercisable in four (4) cumulative installments as
follows:
(i) The first installment shall consist of one-fourth (1/4) of the shares
covered by the Option and shall become exercisable on the date that is
one year from the date the Option was awarded.
3
<PAGE>
(ii) The second installment shall consist of one-fourth (1/4) of the
shares covered by the Option and shall become exercisable on the date
that is two years from the date the Option was awarded.
(iii) The third installment shall consist of one-fourth (1/4) of the shares
covered by the Option and shall become exercisable on the date that
is three years from the date the Option was awarded.
(iv) The fourth installment shall consist of one-fourth (1/4) of the
shares covered by the Option and shall become exercisable on the date
that is four years from the date the Option was awarded.
(b) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
Section 3.2 - Duration of Exercisability
- ----------- --------------------------
The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 - Expiration of Option
- ----------- --------------------
(a) The Option may not be exercised to any extent by anyone after the first to
occur of the following events:
(i) The expiration of ten (10) years from the date the Option was
awarded; or
(ii) Except as set forth in 3.3(a) (iii) and (iv), the expiration of three
(3) months after the Optionee's Termination of Employment; or
(iii) The expiration of twelve (12) months from the date of the Optionee's
Termination of Employment by reason of permanent and total disability
(within the meaning of Section 22(e) (3) of the Code) or by reason of
retirement at or after age 65; or
(iv) If the Optionee dies while the Option is exercisable, the expiration
of twelve (12) months from the date of the Optionee's death.
(b) This Agreement shall amend that certain Employment Agreement dated as of
January 1, 1993 between the Optionee and the Company (the "Employment
Agreement"), in that, notwithstanding Article 4 of the Employment
Agreement, no portion of this Option that is unvested as of the date the
Optionee's employment with the Company is terminated for any reason shall
be exercisable.
4
<PAGE>
ARTICLE IV
EXERCISE OF OPTION
Section 4.1 - Person Eligible to Exercise
- ----------- ---------------------------
During the lifetime of the Optionee, only he or his guardian or legal
representative may exercise the Option or any portion thereof. After the death
of the Optionee, any exercisable portion of the Option may, prior to the time
when the Option becomes unexercisable under Section 3.3, be exercised by his
personal representative or by any person empowered to do so under the Optionee's
will or under the then applicable laws of descent and distribution.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if then wholly
exercisable, may be exercised in whole or in part at any time prior to the time
when the Option or portion thereof becomes unexercisable under Section 3.3;
provided, however, that each partial exercise shall be for not less than one
hundred (100) shares and shall be for whole shares only.
Section 4.3 - Manner of Exercise
- ----------- ------------------
The Option or any exercisable portion thereof, may be exercised solely by
delivery to the Secretary or his office of all of the following prior to the
time when the Option or such portion becomes unexercisable under Section 3.3:
(a) Notice in writing signed by the Optionee or the other person then entitled
to exercise the Option or portion, stating that the Option or portion is
thereby exercised, such notice complying with all applicable rules
established by the Board; and
(b) Full payment for the shares with respect to which such option or portion is
exercised, which payment shall be (i) in cash, (ii) through the delivery of
shares of Common Stock owned by the Optionee for at least six months, duly
endorsed for transfer to the Company with a Fair Market Value on the date
of delivery equal to the aggregate exercise price of the Option or
exercised portion thereof, or (iii) subject to the timing requirements of
Section 5.3 of the Plan, through any combination of the consideration
provided in the foregoing subparagraphs (i) or (ii); and
(c) Such representations and documents as the Board deems necessary or
advisable to effect compliance with all applicable provisions of the
Securities Act of 1933, as amended, and any other federal or state
securities laws or regulations. The Board may also take whatever
additional actions it deems appropriate to effect such compliance including
(without limitation) placing legends on share certificates and issuing
stop-transfer notices to agents and registrars;
5
<PAGE>
(d) Full payment to the Company (or other employer corporation) of all amounts
which under federal, state or local tax law, it is required to withhold
upon exercise of the Option; provided, however, the Company may permit the
-----------------
Optionee, upon delivery of a written election to the Secretary of the
Company (or to such other person who may be designated by the Board) to
elect to have the Company withhold shares of Common Stock otherwise
issuable upon the exercise of the Option. Shares of Common Stock so
withheld will be credited against this tax obligation at their Fair Market
Value; and
(e) In the event the Option or portion shall be exercised pursuant to Section
4.1 by any person or persons other than the Optionee, appropriate proof of
the right of such person or persons to exercise the Option.
Section 4.4 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or any
portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been repurchased by the Company. Such shares
shall be fully paid and non-assessable. The Company shall not be required to
issue or deliver any certificate or certificates for shares of stock purchased
upon the exercise of the Option or portion thereof prior to fulfillment of all
of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on which
such class of stock is then listed; and
(b) The completion of any registration or other qualification of such shares
under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory
body, which the Board shall deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any state or federal
governmental agency which the Board shall determine to be necessary or
advisable; and
(d) The payment to the Company (or other employer corporation) of all amounts
which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the exercise of the
Option as the Board may from time to time establish for reasons of
administrative convenience.
Section 4.5 - Rights as Shareholder
- ----------- ---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
6
<PAGE>
ARTICLE V
OTHER PROVISIONS
Section 5.1 - Administration
- ----------- --------------
The Board shall have the power to interpret the Plan and this Agreement and
to adopt such rules for the administration, interpretation and application of
the Plan as are consistent therewith and to interpret, amend or revoke any such
rules. All actions taken and all interpretations and determinations made by the
Board in good faith shall be final and binding upon the Optionee, the Company
and all other interested persons. No member of the Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan or the Option.
Section 5.2 - Option Not Transferable
- ----------- -----------------------
Options under the Plan may not be sold, pledged, assigned or transferred in
any manner other than by will or the laws of descent and distribution; provided,
---------
however, an Optionee may designate a Beneficiary to exercise his Option or other
- -------
rights under the Plan after his death. Neither the Option nor any interest or
right therein or part thereof shall be liable for the debts, contracts or
engagements of the Optionee or his successors in interest or shall be subject to
disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment, garnishment or
any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect; provided,
---------
however, that this Section 5.2 shall not prevent transfers by will or by the
- -------
applicable laws of descent and distribution. An Option shall be exercised
during the Optionee's lifetime only by the Optionee or his guardian or legal
representative.
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
The Company shall at all times during the term of the Option reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of this Agreement.
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary, and any notice to be
given to the Optionee shall be addressed to him at the address given beneath his
signature hereto. By a notice given pursuant to this Section 5.4, either party
may hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to the Optionee shall, if the Optionee is
then deceased, be given to the Optionee's personal representative if such
representative has previously informed the Company of his status and address by
written notice under this Section 5.4. Any notice shall be deemed duly given
when enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
deposited (with postage prepaid) in a post office or branch post office
regularly maintained by the United States Postal Service.
7
<PAGE>
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
Section 5.6 - Construction
- ----------- ------------
This Agreement shall be administered, interpreted and enforced under the
internal substantive laws of the State of Delaware.
Section 5.7 - Conformity to Securities Laws
- ----------- -----------------------------
The Optionee acknowledges that the Plan is intended to conform to the
extent necessary with all applicable federal and state laws, rules and
regulations, including provisions of the Securities Act and the Exchange Act and
any and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including without limitation Rule 16b-3 under the
Exchange Act. Notwithstanding anything herein to the contrary, the Plan shall
be administered, and the Option is awarded and may be exercised, only in such a
manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, the Plan and this Agreement shall be deemed amended
to the extent necessary to conform to such laws, rules and regulations.
8
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
MORRISON KNUDSEN CORPORATION
By: ____________________________________
Alvia L. Henderson
Vice President - Human Resources
OPTIONEE
___________________________________________
Stephen G. Hanks
Spousal Consent
---------------
The undersigned has read and is familiar with the preceding Agreement and
the Plan and hereby consents and agrees to be bound by all the terms of the
Agreement and the Plan. Without limiting the foregoing, the undersigned
specifically agrees that the Company may rely on any authorization, instruction
or election made under the Agreement by the Optionee alone and that all of his
or her right, title or interest, if any, in the shares of Common Stock purchased
by the Optionee under the Agreement, whether arising by operation of community
property law, by property settlement or otherwise, shall be subject to all of
such terms.
___________________________________________
___________________________________________
Printed Name
Exhibit A: Copy of the Plan
9
<PAGE>
EXHIBIT 10.36
MORRISON KNUDSEN CORPORATION
AMENDED AND RESTATED STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT (this "Agreement"), dated as of January 31, 2000, is made by
and between Morrison Knudsen Corporation, a Delaware corporation hereinafter
referred to as "Company," and Thomas H. Zarges, an employee of the Company or
Subsidiary of the Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its $.01 par value Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (as hereinafter defined),
the terms of which are hereby incorporated herein by reference and made a part
hereof; and
WHEREAS, the execution of a Nonqualified Stock Option Agreement in the form
hereof has been duly authorized by a resolution of the Board of Directors of the
Company duly adopted on January 31, 2000, and incorporated herein by reference;
and
WHEREAS, this Option is intended to be a nonqualified stock option and
shall not be treated as an "incentive stock option" within the meaning of that
term under Section 422 of the Code;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Wherever the following terms are used in this Agreement with initial
capital letters, they shall have the meanings specified in the Plan unless the
context clearly indicates otherwise.
Section 1.1 - Beneficiary
Section 1.2 - Code
Section 1.3 - Common Stock
Section 1.4 - Company
Section 1.5 - Employee
Section 1.6 - Exchange Act
Section 1.7 - Fair Market Value
Section 1.8 - Subsidiary
Section 1.9 - Termination of Employment
1
<PAGE>
Wherever the following terms are used in this Agreement with initial
capital letters, they shall have the meanings specified below unless the context
clearly indicates otherwise. The masculine pronoun shall include the feminine
and neuter, and the singular the plural, where the context so indicates.
Section 1.10 - Board
- ------------ -----
"Board" shall mean the Board of Directors of the Company and shall include
any committee to which the Board of Directors may have delegated its authority
pursuant to Section 8.1 of the Plan.
Section 1.11 - Optionee
- ------------ --------
"Optionee" shall mean the Employee named above to whom an Option is awarded
under this Agreement and the Plan.
Section 1.12 - Plan
- ------------ ----
"Plan" shall mean The Morrison Knudsen Corporation Amended and Restated
Stock Option Plan, as amended and restated as of January 10, 1997, and as the
same may be further amended or restated.
Section 1.13 - Secretary
- ------------ ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.14 - Securities Act
- ------------ --------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
ARTICLE II
AWARD OF OPTION
Section 2.1 - Grant of Award
- ----------- --------------
In consideration of the Optionee's execution of this Agreement and for
other good and valuable consideration, on the date hereof the Company
irrevocably awards to the Optionee the option to purchase any part or all of an
aggregate of 60,000 shares of its $.01 par value Common Stock upon the terms and
subject to the conditions set forth in the Plan and in this Agreement.
2
<PAGE>
Section 2.2 - Purchase Price
- ----------- --------------
The purchase price of the shares of stock covered by the Option shall be
$7.375 per share without commission or other charge.
Section 2.3 - Consideration to Company
- ----------- ------------------------
In consideration of the awarding of this Option by the Company, the
Optionee agrees to render faithful and efficient services to the Company or a
Subsidiary, with such duties and responsibilities as the Company shall from time
to time prescribe, for a period of at least one (1) year from the date this
Option is awarded. Nothing in this Agreement or in the Plan shall confer upon
the Optionee any right to continue in the employ of the Company or any
Subsidiary, or shall interfere with or restrict in any way the rights of the
Company and its Subsidiaries, which are hereby expressly reserved, to discharge
the Optionee at any time for any reason whatsoever, with or without cause.
Section 2.4 - Adjustments in Option
- ----------- ---------------------
The Board may make or provide for such adjustments in the (a) number of
shares of Common Stock covered by outstanding Options awarded hereunder, (b)
prices per share applicable to such Options, and (c) kind of shares (including
shares of another issuer) covered thereby, as the Board in its sole discretion
may in good faith determine to be equitably required in order to prevent
dilution or enlargement of the rights of Optionees, that otherwise would result
from (x) any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company, (y)
any merger, consolidation, spin-off, split-off, split-up, reorganization,
partial or complete liquidation or other distribution of assets, issuance of
rights or warrants to purchase securities or (z) any other corporate transaction
or event having an effect similar to any of the foregoing. In the event of any
such transaction or event, the Board may provide in substitution for any or all
outstanding awards under this Agreement such alternative consideration as it may
in good faith determine to be equitable under the circumstances and may require
in connection therewith the surrender of all awards so replaced.
ARTICLE III
PERIOD OF EXERCISABILITY
Section 3.1 - Commencement of Exercisability
- ----------- ------------------------------
(a) This Option shall become exercisable in four (4) cumulative installments as
follows:
(i) The first installment shall consist of one-fourth (1/4) of the shares
covered by the Option and shall become exercisable on the date that
is one year from the date the Option was awarded.
3
<PAGE>
(ii) The second installment shall consist of one-fourth (1/4) of the
shares covered by the Option and shall become exercisable on the date
that is two years from the date the Option was awarded.
(iii) The third installment shall consist of one-fourth (1/4) of the shares
covered by the Option and shall become exercisable on the date that
is three years from the date the Option was awarded.
(iv) The fourth installment shall consist of one-fourth (1/4) of the
shares covered by the Option and shall become exercisable on the date
that is four years from the date the Option was awarded.
(b) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
Section 3.2 - Duration of Exercisability
- ----------- --------------------------
The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 - Expiration of Option
- ----------- --------------------
(a) The Option may not be exercised to any extent by anyone after the first to
occur of the following events:
(i) The expiration of ten (10) years from the date the Option was
awarded; or
(ii) Except as set forth in 3.3(a) (iii) and (iv), the expiration of three
(3) months after the Optionee's Termination of Employment; or
(iii) The expiration of twelve (12) months from the date of the Optionee's
Termination of Employment by reason of permanent and total disability
(within the meaning of Section 22(e) (3) of the Code) or by reason of
retirement at or after age 65; or
(iv) If the Optionee dies while the Option is exercisable, the expiration
of twelve (12) months from the date of the Optionee's death.
(b) This Agreement shall amend that certain Employment Agreement dated as of
January 1, 1994 between the Optionee and the Company (the "Employment
Agreement"), in that, notwithstanding Article 4 of the Employment
Agreement, no portion of this Option that is unvested as of the date the
Optionee's employment with the Company is terminated for any reason shall
be exercisable.
4
<PAGE>
ARTICLE IV
EXERCISE OF OPTION
Section 4.1 - Person Eligible to Exercise
- ----------- ---------------------------
During the lifetime of the Optionee, only he or his guardian or legal
representative may exercise the Option or any portion thereof. After the death
of the Optionee, any exercisable portion of the Option may, prior to the time
when the Option becomes unexercisable under Section 3.3, be exercised by his
personal representative or by any person empowered to do so under the Optionee's
will or under the then applicable laws of descent and distribution.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if then wholly
exercisable, may be exercised in whole or in part at any time prior to the time
when the Option or portion thereof becomes unexercisable under Section 3.3;
provided, however, that each partial exercise shall be for not less than one
hundred (100) shares and shall be for whole shares only.
Section 4.3 - Manner of Exercise
- ----------- ------------------
The Option or any exercisable portion thereof, may be exercised solely by
delivery to the Secretary or his office of all of the following prior to the
time when the Option or such portion becomes unexercisable under Section 3.3:
(a) Notice in writing signed by the Optionee or the other person then entitled
to exercise the Option or portion, stating that the Option or portion is
thereby exercised, such notice complying with all applicable rules
established by the Board; and
(b) Full payment for the shares with respect to which such option or portion is
exercised, which payment shall be (i) in cash, (ii) through the delivery of
shares of Common Stock owned by the Optionee for at least six months, duly
endorsed for transfer to the Company with a Fair Market Value on the date
of delivery equal to the aggregate exercise price of the Option or
exercised portion thereof, or (iii) subject to the timing requirements of
Section 5.3 of the Plan, through any combination of the consideration
provided in the foregoing subparagraphs (i) or (ii); and
(c) Such representations and documents as the Board deems necessary or
advisable to effect compliance with all applicable provisions of the
Securities Act of 1933, as amended, and any other federal or state
securities laws or regulations. The Board may also take whatever
additional actions it deems appropriate to effect such compliance including
(without limitation) placing legends on share certificates and issuing
stop-transfer notices to agents and registrars;
5
<PAGE>
(d) Full payment to the Company (or other employer corporation) of all amounts
which under federal, state or local tax law, it is required to withhold
upon exercise of the Option; provided, however, the Company may permit the
-----------------
Optionee, upon delivery of a written election to the Secretary of the
Company (or to such other person who may be designated by the Board) to
elect to have the Company withhold shares of Common Stock otherwise
issuable upon the exercise of the Option. Shares of Common Stock so
withheld will be credited against this tax obligation at their Fair Market
Value; and
(e) In the event the Option or portion shall be exercised pursuant to Section
4.1 by any person or persons other than the Optionee, appropriate proof of
the right of such person or persons to exercise the Option.
Section 4.4 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or any
portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been repurchased by the Company. Such shares shall
be fully paid and non-assessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the Option or portion thereof prior to fulfillment of all of the
following conditions:
(a) The admission of such shares to listing on all stock exchanges on which
such class of stock is then listed; and
(b) The completion of any registration or other qualification of such shares
under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory
body, which the Board shall deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any state or federal
governmental agency which the Board shall determine to be necessary or
advisable; and
(d) The payment to the Company (or other employer corporation) of all amounts
which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the exercise of the
Option as the Board may from time to time establish for reasons of
administrative convenience.
Section 4.5 - Rights as Shareholder
- ----------- ---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
6
<PAGE>
ARTICLE V
OTHER PROVISIONS
Section 5.1 - Administration
- ----------- --------------
The Board shall have the power to interpret the Plan and this Agreement and
to adopt such rules for the administration, interpretation and application of
the Plan as are consistent therewith and to interpret, amend or revoke any such
rules. All actions taken and all interpretations and determinations made by the
Board in good faith shall be final and binding upon the Optionee, the Company
and all other interested persons. No member of the Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan or the Option.
Section 5.2 - Option Not Transferable
- ----------- -----------------------
Options under the Plan may not be sold, pledged, assigned or transferred in
any manner other than by will or the laws of descent and distribution; provided,
---------
however, an Optionee may designate a Beneficiary to exercise his Option or other
- -------
rights under the Plan after his death. Neither the Option nor any interest or
right therein or part thereof shall be liable for the debts, contracts or
engagements of the Optionee or his successors in interest or shall be subject to
disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment, garnishment or
any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect; provided,
---------
however, that this Section 5.2 shall not prevent transfers by will or by the
- -------
applicable laws of descent and distribution. An Option shall be exercised
during the Optionee's lifetime only by the Optionee or his guardian or legal
representative.
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
The Company shall at all times during the term of the Option reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of this Agreement.
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary, and any notice to be
given to the Optionee shall be addressed to him at the address given beneath his
signature hereto. By a notice given pursuant to this Section 5.4, either party
may hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to the Optionee shall, if the Optionee is
then deceased, be given to the Optionee's personal representative if such
representative has previously informed the Company of his status and address by
written notice under this Section 5.4. Any notice shall be deemed duly given
when enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
deposited (with postage prepaid) in a post office or branch post office
regularly maintained by the United States Postal Service.
7
<PAGE>
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
Section 5.6 - Construction
- ----------- ------------
This Agreement shall be administered, interpreted and enforced under the
internal substantive laws of the State of Delaware.
Section 5.7 - Conformity to Securities Laws
- ----------- -----------------------------
The Optionee acknowledges that the Plan is intended to conform to the
extent necessary with all applicable federal and state laws, rules and
regulations, including provisions of the Securities Act and the Exchange Act and
any and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including without limitation Rule 16b-3 under the
Exchange Act. Notwithstanding anything herein to the contrary, the Plan shall be
administered, and the Option is awarded and may be exercised, only in such a
manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, the Plan and this Agreement shall be deemed amended
to the extent necessary to conform to such laws, rules and regulations.
8
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
MORRISON KNUDSEN CORPORATION
By: --------------------------------------------
Alvia L. Henderson
Vice President - Human Resources
OPTIONEE
--------------------------------------------------
Thomas H. Zarges
Spousal Consent
---------------
The undersigned has read and is familiar with the preceding Agreement and
the Plan and hereby consents and agrees to be bound by all the terms of the
Agreement and the Plan. Without limiting the foregoing, the undersigned
specifically agrees that the Company may rely on any authorization, instruction
or election made under the Agreement by the Optionee alone and that all of his
or her right, title or interest, if any, in the shares of Common Stock purchased
by the Optionee under the Agreement, whether arising by operation of community
property law, by property settlement or otherwise, shall be subject to all of
such terms.
--------------------------------------------------
--------------------------------------------------
Printed Name
Exhibit A: Copy of the Plan
9
<PAGE>
EXHIBIT 10.40.1
Westinghouse
Government Services Group
Morrison Knudsen Corporation
1500 West 3/rd/ Street
Cleveland, OHIO 44113-1406
Phone: (216) 523-3777
Thomas H. Zarges
Chairman
August 18, 1999
CONFIDENTIAL AND PROPRIETARY
Mr. Ambrose L. Schwallie
Westinghouse Savannah River Company
Building 703-A
Aiken, SC 29808
Re: Employment Letter Agreement
Dear Ambrose:
This letter agreement (the "Employment Agreement," or the "Agreement")
documents the terms of your employment. The Employment Agreement is made
between you and Westinghouse Government Services Company LLC and is effective as
of August 1, 1999. The Agreement covers the general terms of your employment as
well as special retention incentives related to the sale of the Westinghouse
businesses.
For purposes of this Employment Agreement, the following terms have
specific meanings. "Westinghouse" refers to the CBS Corporation operating unit
that contained the government and environmental services business (GESCO),
including the Westinghouse Savannah River Company, as it existed before the
Closing Date. This operating unit, which is now primarily contained in
Westinghouse Government Services Company LLC, is referred to in this letter as
"WGS," and the Westinghouse Savannah River Company LLC is referred to as "WSRC."
"MK" refers to Morrison Knudsen Corporation and its affiliates. "Related
Entity" refers to WGS, WSRC, MK, any at least 50%-owned subsidiaries of WGS or
MK and to Westinghouse Government Environmental Services Company LLC and
Westinghouse Electric Company LLC and any at least 50%-owned subsidiaries of
those entities. "WGSG" refers collectively to WGS, Westinghouse Government
Environmental Services Company LLC and any at least 50%-owned subsidiaries of
those entities. "Common Stock" refers to the common stock of MK, par value of
$.01 per share. "Closing Date" means March 22, 1999, the date of the closing
formalizing the transfer of the Westinghouse assets from CBS Corporation to WGS.
<PAGE>
Mr. Ambrose Schwallie
August 20, 1999
Page 2
1. Position and Duties. From August 1, 1999, through August 31, 1999, you
will be employed as the President of WSRC. During that period, you will be the
senior executive of the Department of Energy Savannah River site and will be
accountable to the President of WGS.
After August 31, 1999, you will be employed as an Executive Vice President
of MK and as Chief Executive Officer and President of WGSG. In that capacity,
you will be accountable to the Chairman of the Board of WGS.
During the term of this Agreement, you agree to devote your full attention
and time during normal business hours to the business and affairs of WSRC and/or
WGSG, as the case may be, and to use your reasonable best efforts to perform
faithfully and efficiently such responsibilities.
2. Term. This Employment Agreement will have a term commencing August 1,
1999 and expiring March 31, 2000, except as otherwise mutually agreed by you and
WGS.
3. Compensation and Incentive Arrangements.
a. Base Salary. Effective August 1, 1999, you will be entitled to a Base
Salary at the rate of $325,000 per year, payable monthly. (Although the increase
in Base Salary rate will be effective as of August 1, 1999, actual payment of
the increased rate will commence after August 31, 1999.) Your Base Salary will
be subject to periodic review and adjustment by WGS.
b. Retention Bonus. You will receive a retention bonus in the amount of
$191,500 upon the first anniversary of the Closing Date, conditioned upon your
continued employment through such anniversary and upon the satisfactory
performance of your job duties as determined by the Chairman of the WGS Board.
c. Annual Incentive. You will receive Annual Incentive compensation
pursuant to a plan established by WGS. Your initial award will be based on the
percentage of the annual Business Plan target that WGSG meets for the fiscal
year ending November 30, 1999. Your award will be determined based on the
following chart (employing straight-line interpolation for the percentages not
shown on the chart):
Percentage of Target Achieved Award Amount
----------------------------- ------------
80% $ 48,750
100% $162,500 (target award)
130% $284,375
<PAGE>
Mr. Ambrose Schwallie
August 20, 1999
Page 3
WGS may adjust the target award amount from time to time at its discretion,
including for the purpose of taking into account events beyond your control.
All awards are subject to final WGS Board approval.
d. Stock Options. In connection with your election as an Executive Vice
President of MK, you will be granted options to purchase 50,000 shares of Common
Stock of MK at a price equal to the per share closing price of MK's Common Stock
as of the date of grant. The option will be granted under, and be subject to,
the terms and conditions of the Morrison Knudsen Corporation Amended Restated
Stock Option Plan and will vest 25% each year for four years. The option will
be granted in lieu of your participation in the Long-Term Incentive Compensation
Plan established by WGS.
4. Other Benefits and Perquisites.
a. Other Benefits. From August 1, 1999, through August 31, 1999, you will
be eligible for the benefit arrangements offered to WSRC executives generally,
including the pension plan, executive pension plan, 401(k) plan, annual
vacation, relocation allowance, and medical and dental, group life, accidental
death and dismemberment, business travel, and disability income coverages.
After August 31, 1999, you will be eligible for the benefit arrangements offered
to WGSG executives generally, including the pension plan, executive pension
plan, 401(k) plan, annual vacation, relocation allowance, and medical/and
dental, group life, accidental death and dismemberment, business travel, and
disability income coverages.
b. Perquisites. You will receive an annual lump sum perquisite allowance
of $8,000. This lump sum allowance is in lieu of all specific reimbursements,
except that we will provide you with certain AYCO Company financial planning
services, including estate planning, insurance planning, cash flow analysis,
income tax position planning, retirement planning, and capital planning.
c. Relocation Allowance. If you are required to relocate during the term
of this Agreement to a job location more than 50 miles from your current job
location, you will receive a relocation allowance of $50,000 in addition to any
relocation allowance under the regular relocation program. In return for
receiving this special relocation allowance, you agree to waive any severance
benefits to which you might otherwise become entitled by virtue of the
relocation.
5. Termination. Your employment is "at will" and may be terminated by
either you or WGS at any time and for any reason. Upon your termination, you
will be entitled to the benefits described below.
<PAGE>
Mr. Ambrose Schwallie
August 20, 1999
Page 4
a. Benefits Upon Involuntary Separation. You will receive certain
benefits upon your Involuntary Separation from employment prior to the first
anniversary of the Closing Date. An Involuntary Separation occurs if your
employment is terminated by WSRC or WGS without Cause.
"Cause" means any of the following: (1) misappropriating or embezzling
assets or committing an act of fraud or other dishonesty; (2) being convicted in
a court of law of, or entering a plea of nolo contendere to, (a) a felony or (b)
a crime involving moral turpitude; (3) engaging in any conduct that has caused
or may cause demonstrable and material injury or public embarrassment to WGS or
to its reputation, as determined by the WGS Board of Directors in its sole
discretion; (4) a significant or material failure to carry out your duties other
than by reason of incapacity; (5) intentionally violating in a material manner
any of the policies and/or procedures of WGS; (6) having and continuing to
maintain a conflict of interest with WGS which is not disclosed to WGS and
waived by the WGS Board of Directors; or (7) breaching your obligations under or
in connection with this Employment Agreement.
If an Involuntary Separation occurs prior to the first anniversary of the
Closing Date, you will continue to receive your Base Salary for 12 months;
receive the target Annual Incentive award for the year of separation; receive
the retention bonus described in paragraph 3b but the retention bonus will be
prorated to reflect the portion of the one-year period after the Closing Date
that you were employed by WSRC and/or WGSG ; receive outplacement services
during the 12 months following such an Involuntary Separation; and be entitled
to purchase continued medical coverage for 12 months at your employee
contribution rate at the time of your Involuntary Separation. Notwithstanding
the foregoing, any of the amounts or other benefits described in the preceding
sentence will be offset by any separation payments and other benefits received
from CBS Corporation as a result of such Involuntary Separation, and your rights
to such amounts or other benefits described in the preceding sentence arise only
to the extent that you have first exhausted the payments and other benefits
provided by CBS Corporation.
Other than the payments and benefits described in this paragraph, no
additional severance or similar payments will be made to you. Notwithstanding
the previous paragraphs, no payments or benefits will be provided upon an
Involuntary Separation unless you sign a waiver and release with respect to all
claims that you might make against WGS or any Related Entity.
b. Benefits Upon Other Termination of Employment. If you terminate
employment but paragraph 5a above does not apply, (e.g., you have an Involuntary
Separation after the first anniversary of the Closing Date, you voluntarily
terminate employment, or you are terminated for Cause), you will be entitled to
any earned but unpaid Base Salary.
<PAGE>
Mr. Ambrose Schwallie
August 20, 1999
Page 5
c. Benefits upon Death or Disability. If your employment terminates
because of your permanent disability or death, you or your estate or designated
beneficiary will be entitled to any earned but unpaid Base Salary.
6. Restrictive Covenants. You agree to comply with the following
restrictive covenants during the term of this Agreement and thereafter for the
terms described below. All payments and contributions for benefits provided for
in this Employment Agreement are made in consideration of, and are subject to,
among other things, your compliance with the following provision.
a. Noncompetition. During the term of this Agreement and for a period of
18 months after your voluntary termination of employment, you must not (1)
acquire an ownership interest exceeding five percent in or (2) become employed
by, enter into a consulting arrangement with, or otherwise agree to perform
personal services for any business organization which is engaged in or intends
to become engaged in any business activity with respect to which you were
engaged in the course of your employment with Westinghouse, WSRC and WGSG
(including activities of any Related Entity).
b. Nonsolicitation. During the term of this Agreement and for a period of
18 months after your voluntary termination of employment, you must not solicit
or endeavor to entice away from WGS or any Related Entity (1) any person who
is employed by WSRC or any Related Entity; (2) any customer or client of WGS or
any Related Entity, unless (a) the person is no longer a customer or client of
WGS or such Related Entity at the time of the solicitation, or (b) the business
activity for which you are soliciting the business of a customer or client does
not compete to any extent with the business activity of WGS or any Related
Entity or in any manner interfere with the business activity of WGS or any
Related Entity or in any manner interfere with the business relationship between
the customer or client and WGS or such Related Entity.
c. Assistance in Litigation. You will, upon reasonable notice and at our
expense, furnish such information and proper assistance to WGS or any Related
Entity as we reasonably may require in connection with any litigation in which
we or any of our affiliates are, or may become, a party (other than litigation
in which you and we (or our affiliates) are opposing parties). Notwithstanding
any other provision of this Employment Agreement, the obligation described in
this paragraph 6c continues at all times during and after the term of this
Agreement.
d. Confidentiality. You must not knowingly disclose or reveal to any
unauthorized person, or make personal use of, any confidential information or
other trade secret relating to WGS or any Related Entity. Such confidential
information includes, but is not limited to, financial information about WGS or
any Related Entity, contract terms with vendors, suppliers, and other parties,
customer and supplier lists and data, trade secrets, books, records, plans,
designs, systems, methods, programs, procedures, and other competitively-
<PAGE>
Mr. Ambrose Schwallie
August 20, 1999
Page 6
sensitive information and any notes or analyses related thereto, including
without limitation information and documentation prepared or developed by you.
Upon your termination of employment, you agree to return any such confidential
information in your possession. However, you are not prohibited from disclosing
any information that is reasonably necessary in the performance of your duties
for WSRC or WGSG nor shall you be prohibited from disclosing information that
is requested by an order of a court or administrative agency if, in the opinion
of counsel, you are required to do so. Notwithstanding any other provision of
this Employment Agreement, the obligation described in this paragraph 6d
continues at all times during and after the term of this Agreement.
7. Miscellaneous.
a. Agreement Interpretation and Amendment. This Agreement is governed by
and construed in accordance with the laws of the State of Delaware without
reference to any jurisdiction's choice of law principles. This Agreement
constitutes the entire agreement between the parties and supersedes all prior
proposals and agreements, written or oral, and all other communications between
the parties related to the express subject matter of this Agreement. The
headings in this Agreement are for convenience only and are not part of the
provisions of the Agreement and have no force or effect. The invalidity or
unenforceability of any provision or portion of any provision of this Agreement
shall not affect the validity or enforceability of the remaining part of such
provision or of any other provision of this Agreement. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties to this Agreement or their respective successors and legal
representatives.
b. Notice. All notices and other communications required under this
Agreement must be made in writing and given by hand delivery to the other party
or sent by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to you:
---------
Ambrose L. Schwallie
Building 703-A
Aiken, SC 29808
If to WGS:
---------
Craig G. Taylor
Morrison Knudsen Corporation
P.O. Box 73
720 Park Blvd.
Boise, ID 83729
<PAGE>
Mr. Ambrose Schwallie
August 20, 1999
Page 7
With copy to:
------------
Alvia L. Henderson
Morrison Knudsen Corporation
P.O. Box 73
720 Park Blvd.
Boise, ID 83729
or to such other person or address as may be designated by either party in
writing in accordance with the provisions of this paragraph. Notice will be
effective when actually received by the addressee.
c. Waiver. The failure of WGS to insist upon strict compliance with any
of the provisions of this Agreement shall not be deemed to be a waiver of such
provision, nor shall WGS's waiver of a right under this Agreement at any
particular time be deemed to be a waiver of such right at any other time.
d. Assignment; Successors. This Agreement shall be binding upon and inure
to the benefit of you, WGS, and their respective heirs, executors,
administrators, and any permitted assigns. This Agreement may not be assigned
in whole or in part by either party without the consent of the other, except
that WGS may assign this Agreement, without your consent, to any corporation,
general partnership, limited partnership, limited liability company, or limited
liability partnership, into which or with which it shall merge or consolidate or
to which it shall transfer substantially all of its assets.
*****
If the Agreement is acceptable to you, please sign the original copy of the
Agreement and return it to Craig G. Taylor at Morrison Knudsen Corporation, P.O.
Box 73, 720 Park Blvd., Boise, ID 83729. You should keep a copy of this
Agreement for your records. By signing and returning the unmodified original
copy of the Agreement, you acknowledge that you understand and accept the terms
and conditions set forth above.
Regards,
Westinghouse Government Services Company LLC
By: /s/ Tom Zarges
-----------------------------
Thomas H. Zarges
Chairman
Date: August 19, 1999
<PAGE>
Mr. Ambrose Schwallie
August 20, 1999
Page 8
ACCEPTANCE
I acknowledge that I have read, understand, and agree to the terms and
conditions stated in this Agreement. By my signature, I acknowledge that the
consideration set forth in the Agreement is adequate compensation for all of the
obligations set forth in the Agreement, that I have had the opportunity to
consult with counsel of my own choosing regarding the Agreement, and that in
signing the Agreement, I intend to be legally bound by it.
/s/ A. L. Schwallie August 30, 1999
_______________________________ ___________________________
Ambrose L. Schwallie Date
<PAGE>
Exhibit 10.40.2
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment) is made as of this
5/th/ day of October, 1999 by and between Morrison Knudsen Corporation, a
Delaware corporation (the "Company") and Ambrose L. Schwallie, an executive
employee of the Company ("Executive").
WHEREAS, the Company and Executive are parties to a certain Employment
Agreement made as of August 1, 1999 (the "Agreement"); and
WHEREAS, under the Agreement, if Executive is required to relocate to a job
location more than 50 miles from his current job location prior to March 31,
2000, Executive is entitled to receive a Relocation Allowance of $50,000 in
addition to any relocation allowance under the Company's regular relocation
program; and
WHEREAS, the Company has agreed that the Agreement should be amended to
extend the term of the Relocation Allowance portion of the Agreement to March
31, 2001;
NOW, THEREFORE, the Agreement is hereby amended by deleting paragraph c of
Section 4 in its entirety and replacing it with the following:
c. Relocation Allowance. If you are required to relocate on or
before March 31, 2001 to a job location more than 50 miles from your
current job location, you will receive a relocation allowance of $50,000 in
addition to any relocation allowance under the regular relocation program.
In return for receiving this special relocation allowance, you agree to
waive any severance benefits to which you might otherwise become entitled
by virtue of the relocation.
Except for the foregoing, the Agreement remains unamended and in full force
and effect.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Amendment this 5th day of October, 1999.
MORRISON KNUDSEN CORPORATION
By: /s/ S. G. Hanks
---------------------------------
Stephen G. Hanks
Executive Vice President
EXECUTIVE
/s/ Ambrose L. Schwallie
------------------------------------
Ambrose L. Schwallie
10/24/99
<PAGE>
EXHIBIT 10.40.2
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment) is made as of this
5th day of October, 1999 by and between Morrison Knudsen Corporation, a Delaware
corporation (the "Company") and Ambrose L. Schwallie, an executive employee of
the Company ("Executive").
WHEREAS, the Company and Executive are parties to a certain Employment
Agreement made as of August 1, 1999 (the "Agreement"); and
WHEREAS, under the Agreement, if Executive is required to relocate to a job
location more than 50 miles from his current job location prior to March 31,
2000, Executive is entitled to receive a Relocation Allowance of $50,000 in
addition to any relocation allowance under the Company's regular relocation
program; and
WHEREAS, the Company has agreed that the Agreement should be amended to
extend the term of the Relocation Allowance portion of the Agreement to March
31, 2001;
NOW, THEREFORE, the Agreement is hereby amended by deleting paragraph c of
Section 4 in its entirety and replacing it with the following:
c. Relocation Allowance. If you are required to relocate on or before
March 31, 2001 to a job location more than 50 miles from your current job
location, you will receive a relocation allowance of $50,000 in addition to
any relocation allowance under the regular relocation program. In return
for receiving this special relocation allowance, you agree to waive any
severance benefits to which you might otherwise become entitled by virtue
of the relocation.
Except for the foregoing, the Agreement remains unamended and in full force
and effect.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Amendment this 5th day of October, 1999.
MORRISON KNUDSEN CORPORATION
By: /s/ S. G. Hanks
-----------------------------------
Stephen G. Hanks
Executive Vice President
EXECUTIVE
/s/ Ambrose L. Schwallie
-----------------------------------
Ambrose L. Schwallie
10/24/99
<PAGE>
EXHIBIT 10.41
MORRISON KNUDSEN CORPORATION
Morrison Knudsen Plaza
P. O. Box 73
Boise, Idaho, U.S.A. 83729
STEPHEN G. HANKS
Executive Vice President
and Chief Legal Officer
September 7, 1999
Mr. Leo Giacometto
6907 Highland Street
Springfield, VA 22150
RE: OFFER OF EMPLOYMENT
Dear Leo:
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.
1. Position and Services to be Rendered. The Company hereby agrees to employ
------------------------------------
you as Vice President -- Government Affairs, beginning on or about
September 20, 1999. 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 Executive Vice President & Chief Legal
Officer. Your actual first date of active employment with the Company
(whether September 20, 1999, or some other date) will hereafter be referred
to as the "Effective Date".
2. Salary. You will receive an annual base salary of $200,000 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, a Corporate Officer, and you will be assigned a Grade
Level of 23. The Company will review your base salary annually to
determine any increase.
3. Annual Cash Bonus. You will be considered for a 25% 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. Any bonus
paid for 1999 performance will be prorated based on your start date with
the Company.
<PAGE>
Leo Giscometto
September 7, 1999
Page 2
4. Stock Options. You will be granted options to purchase 20,000 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 25% each year for four 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.
5. Fringe Benefits. You will be entitled to the Company's 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.
. Subject to the approval of the Compensation Committee of the Board of
Directors, the company will pay for your initial membership and annual
dues to either a country club or business club. Any usage of this
membership for personal services will be at your expense.
6. Contingencies. This employment offer must be contingent upon the following
-------------
contingencies:
1. The results of the company's background investigation and reference
checks findings are consistent with those expected for an incumbent in
the Vice President Government Affairs position.
b. 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.
c. 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.
<PAGE>
Leo Giacometto
September 7, 1999
Page 3
. 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 and
return this letter if you have any questions, please do not hesitate to contact
me.
Sincerely,
/s/ Stephen G. Hanks
Stephen G. Hanks
Agreed and Accepted:
/s/ Leo A. Giacometto
___________________________________
Date:
9 Sept 99
___________________________________
<PAGE>
EXHIBIT 21
Morrison Knudsen Corporation
(a Delaware corporation)
Consolidated subsidiaries of the registrant *
<TABLE>
<CAPTION>
Company Name Formation/Incorporation Jurisdiction
------------ ------------------------------------
<S> <C>
Broadway Insurance Company, Ltd. Bermuda
Morrison Knudsen B.V. Netherlands
Morrison Knudsen Corporation Ohio
Morrison Knudsen Corporation (Montana) Montana
Westinghouse Government Services Company LLC Delaware
Westinghouse Government Environmental Services Company LLC Delaware
Westinghouse Savannah River Company LLC Delaware
West Valley Nuclear Services Company LLC Delaware
</TABLE>
* The names of particular subsidiaries have been excluded because when
considered in the aggregate as a single subsidiary, as of December 3, 1999,
they would not constitute a significant subsidiary under Rule 1-02 of
Regulation S-X.
<PAGE>
EXHIBIT 23
PricewaterhouseCoopers LLP
Consent of Independent Accountants
We hereby consent to incorporation by reference in the Registration Statements
of Morrison Knudsen Corporation on Form S-8, as amended, (File No. 033-81038,
333-32511 and 333-39351) of our report, which includes an emphasis of a matter
paragraph regarding an environmental contingency, dated January 28, 2000, on our
audits of the consolidated financial statements and financial statement schedule
of Morrison Knudsen Corporation as of December 3, 1999 and November 30, 1998,
and for each of the three years in the period ended December 3, 1999, which
appears in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
February 16, 1999
Boise, Idaho
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints Stephen G. Hanks and Anthony S. Cleberg, and each of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign on his behalf as a director or officer or both, as the case
may be, of Morrison Knudsen Corporation, a Delaware corporation, Form 10-K
Annual Report for fiscal year ended December 3, 1999, and any and all amendments
thereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as each of them
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 15th day of February, 2000.
/s/
------------------------------------------
Dennis R. Washington, Chairman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints Dennis R. Washington, Stephen G. Hanks and Anthony S. Cleberg, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign on his behalf as a director or officer or both,
as the case may be, of Morrison Knudsen Corporation, a Delaware corporation,
Form 10-K Annual Report for fiscal year ended December 3, 1999, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 15th day of February, 2000.
/s/
------------------------------------------
David H. Batchelder
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints Dennis R. Washington, Stephen G. Hanks and Anthony S. Cleberg, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign on his behalf as a director or officer or both,
as the case may be, of Morrison Knudsen Corporation, a Delaware corporation,
Form 10-K Annual Report for fiscal year ended December 3, 1999, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 15th day of February, 2000.
/s/
--------------------------------------
Leonard R. Judd
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints Dennis R. Washington, Stephen G. Hanks and Anthony S. Cleberg, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign on his behalf as a director or officer or both,
as the case may be, of Morrison Knudsen Corporation, a Delaware corporation,
Form 10-K Annual Report for fiscal year ended December 3, 1999, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 15th day of February, 2000.
/s/
--------------------------------------
Robert S. Miller, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints Dennis R. Washington, Stephen G. Hanks and Anthony S. Cleberg, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign on his behalf as a director or officer or both,
as the case may be, of Morrison Knudsen Corporation, a Delaware corporation,
Form 10-K Annual Report for fiscal year ended December 3, 1999, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 15th day of February, 2000.
/s/
--------------------------------------
Dorn Parkinson
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints Dennis R. Washington, Stephen G. Hanks and Anthony S. Cleberg, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign on his behalf as a director or officer or both,
as the case may be, of Morrison Knudsen Corporation, a Delaware corporation,
Form 10-K Annual Report for fiscal year ended December 3, 1999, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 15th day of February, 2000.
/s/
--------------------------------------
Terry W. Payne
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints Dennis R. Washington, Stephen G. Hanks and Anthony S. Cleberg, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign on his behalf as a director or officer or both,
as the case may be, of Morrison Knudsen Corporation, a Delaware corporation,
Form 10-K Annual Report for fiscal year ended December 3, 1999, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 15th day of February, 2000.
/s/
--------------------------------------
John D. Roach
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints Dennis R. Washington, Stephen G. Hanks and Anthony S. Cleberg, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign on his behalf as a director or officer or both,
as the case may be, of Morrison Knudsen Corporation, a Delaware corporation,
Form 10-K Annual Report for fiscal year ended December 3, 1999, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 15th day of February, 2000.
/s/
--------------------------------------
Thomas H. Zarges
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT FOOTNOTES
OF MORRISON KNUDSEN CORPORATION AT DECEMBER 3, 1999 AND FOR THE YEAR ENDED, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS AND FINANCIAL FOOTNOTES:
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-03-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> DEC-03-1999
<CASH> 29,640
<SECURITIES> 0
<RECEIVABLES> 215,523
<ALLOWANCES> (5,133)
<INVENTORY> 20,096
<CURRENT-ASSETS> 531,963
<PP&E> 290,624
<DEPRECIATION> (158,856)
<TOTAL-ASSETS> 1,196,023
<CURRENT-LIABILITIES> 385,095
<BONDS> 100,000
0
0
<COMMON> 544
<OTHER-SE> 402,546
<TOTAL-LIABILITY-AND-EQUITY> 1,196,023
<SALES> 0
<TOTAL-REVENUES> 2,248,228
<CGS> 0
<TOTAL-COSTS> (2,129,997)
<OTHER-EXPENSES> 9,681
<LOSS-PROVISION> (100)
<INTEREST-EXPENSE> (7,642)
<INCOME-PRETAX> 85,124
<INCOME-TAX> (31,633)
<INCOME-CONTINUING> 48,285
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,285
<EPS-BASIC> .92
<EPS-DILUTED> .91
</TABLE>
