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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 Commission File
December 31, 1994 Number 0-15658
PETER KIEWIT SONS', INC.
(Exact name of registrant as specified in its charter)
Delaware 47-0210602
(State of Incorporation) (I.R.S. Employer
Identification No.)
1000 Kiewit Plaza, Omaha, Nebraska 68131
(Address of principal executive offices) (Zip Code)
(402) 342-2052
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Class B Construction & Mining Group Nonvoting Restricted Redeemable
Convertible Exchangeable
Common Stock, par value $.0625
Class C Construction & Mining Group Restricted Redeemable
Convertible Exchangeable
Common Stock, par value $.0625
Class D Diversified Group Convertible Exchangeable
Common Stock, par value $.0625
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
Indicate by check mark if 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]
The registrant's stock is not publicly traded, and therefore
there is no ascertainable aggregate market value of voting stock
held by nonaffiliates.
As of March 31, 1995, the number of shares outstanding of each
class of the Company's common stock was:
Class B - 884,400 shares
Class C - 13,006,455 shares
Class D - 21,251,591 shares
Portions of the Company's definitive Proxy Statement for the 1995
Annual Meeting of Stockholders are incorporated by reference into
Part III of this Form 10-K.
PART I
ITEM 1. BUSINESS.
Peter Kiewit Sons', Inc. (the "Company") was incorporated in
1941 to continue a construction business founded in Omaha, Nebraska
in 1884. The Company entered the coal mining business in 1943 and
the telecommunications business in 1988. The Company is a holding
company with three wholly-owned first-tier subsidiaries: Kiewit
Construction Group Inc. ("KCG"), Kiewit Mining Group Inc. ("KMG"),
and Kiewit Diversified Group Inc. ("KDG"). KDG has four primary
second-tier subsidiaries: two wholly-owned subsidiaries, Kiewit
Energy Group Inc. and PKS Information Services, Inc., and two
partially-owned subsidiaries, MFS Communications Company, Inc. and
RCN Corporation. Kiewit Energy Group Inc. is the parent of Kiewit
Coal Properties Inc. ("KCP") and Kiewit Energy Company ("KEC"),
which partially-owns California Energy Company, Inc. ("CECI"). RCN
Corporation partially-owns C-TEC Corporation ("C-TEC"). MFS, CECI,
and C-TEC are publicly traded companies and additional information
about them is contained in their separate Forms 10-K.
The Company reports financial information about three business
segments: construction, mining, and telecommunications. This
financial information, as well as certain geographical information,
is contained in Note 18 to the Company's financial statements.
Financial information about the construction segment reflects the
assets and operations of KCG. Financial information about the
telecommunications segment is a combination of information about
MFS and C-TEC. Financial information about the mining segment is
a combination of information about KMG and KCP.
CONSTRUCTION
The construction business is conducted by operating
subsidiaries of Kiewit Construction Group Inc., a wholly-owned
subsidiary of the Company (collectively, "KCG"). KCG and its joint
ventures perform construction services for a broad range of public
and private customers primarily in North America. New contract
awards during 1994 were distributed among the following
construction markets: transportation, including highways, bridges,
airports and railroads (48%), power (18%), oil and gas (12%),
commercial buildings (8%), sewer and waste disposal (5%), and
residential (4%), with smaller awards in the water supply systems,
dams and reservoirs, marine, and mining markets. In February 1994,
KCG acquired for $49 million APAC-Arizona, Inc. which has
construction operations and produces ready-mixed concrete and
asphalt.
As general contractors, KCG's operating subsidiaries are
responsible for the overall direction and management of
construction projects and for completion of each contract in
accordance with terms, plans, and specifications. KCG plans and
schedules the projects, procures materials, hires workers as
needed, and awards subcontracts. KCG generally requires
performance and payment bonds or other assurances of operational
capability and financial capacity from its subcontractors.
KCG's construction contracts generally provide for the payment
of a fixed price for the work performed. Profit is realized by the
difference between the contract price and the actual cost of
construction, and the contractor bears the risk that it may not be
able to perform all the work for the specified amount. The
contracts generally provide for progress payments as work is
completed, with a retainage to be paid when performance is
substantially complete. Construction contracts frequently contain
penalties or liquidated damages for late completion and
infrequently provide bonuses for early completion. KCG also
provides services under "cost plus" contracts. The contractor is
reimbursed for its costs and also receives a flat fee or a fee
based on a percentage of its costs.
Government Contracts. Public contracts accounted for 67% of
the combined prices of contracts awarded to KCG during 1994. Most
of these contracts were awarded by government and quasi-government
units after competitive bidding. Most public contracts are subject
to termination at the election of the government. In the event of
termination, the contractor is entitled to receive the contract
price on completed work and payment of termination related costs.
The volume of available government work is affected by budgetary
and political considerations. A significant decrease in the amount
of new government contracts, for whatever reasons, would have a
material adverse effect on KCG.
Demand. The volume and profitability of KCG's construction
work depends to a significant extent upon the general state of the
economies of the United States and Canada, and the volume of work
available to contractors. Fluctuating demand cycles are typical of
the industry, and such cycles determine to a large extent the
degree of competition for available projects. KCG's construction
operations could be adversely affected by labor stoppages or
shortages, adverse weather conditions, shortages of supplies, or
governmental action.
Joint Ventures. KCG enters into joint ventures to
efficiently allocate expertise and resources among the venturers
and to spread risks associated with particular projects. In most
joint ventures, if one venturer is financially unable to bear its
share of costs and expenses, the other venturers may be required to
pay those costs and expenses. KCG prefers to act as the sponsor of
joint ventures. KCG was the sponsor of 50 of its 62 joint venture
bids submitted in 1994. KCG's share of joint venture revenue
accounted for 24% of its 1994 total revenue.
Locations. KCG structures its construction operations around
19 principal operating offices located throughout the U.S. and
Canada, with headquarters in Omaha, Nebraska. Through its
decentralized system of management, KCG has been able to quickly
respond to changes in the local markets. Outside North America,
KCG participates in the construction of a tunnel under Denmark's
Great Belt Channel and a geothermal power plant in the Philippines.
Backlog. At the end of 1994, KCG had a backlog (work
contracted for but not yet completed) of $2.2 billion. Of this
amount, $350 million is not expected to be completed during 1995.
Backlog was $2.1 billion at the end of 1993.
Competition. A substantial portion of KCG's business
involves construction contracts obtained through competitive
bidding. A contractor's competitive position is based primarily on
its prices for construction services and its reputation for
quality, reliability and timeliness. The construction industry is
highly competitive and lacks firms with dominant market power. In
1994, Engineering News Record ranked KCG as the 18th largest
contractor in the United States. It ranked KCG 2nd in the
transportation market and 6th in the domestic heavy construction
market. These rankings were based on the dollar volume of
contracts awarded in 1993. The U.S. Department of Commerce reports
that the total value of construction put in place in 1994 was $520
billion. KCG's U.S. revenues for the same period were $2.1
billion, or 0.4% of the total market. In 1994 KCG was low bidder
on 281 contracts, five of which had a contract price exceeding $50
million; the average contract price was $6.3 million.
Properties. KCG has 19 district offices, of which 14 are in
owned facilities and 5 are leased. KCG owns or leases numerous
shops, equipment yards, storage facilities, warehouses, and
construction material quarries. Since construction projects are
inherently temporary and location-specific, KCG owns approximately
800 portable offices, shops, and transport trailers. KCG has a
large equipment fleet, including approximately 3,000 trucks,
pickups, and automobiles, and 1,500 heavy construction vehicles,
such as graders, scrapers, backhoes, and cranes.
MINING
The Company is engaged in coal mining through its
subsidiaries, Kiewit Mining Group Inc. ("KMG") and Kiewit Coal
Properties Inc. ("KCP"). KCP has a 50% interest in three mines,
which are operated by KMG. Decker Coal Company ("Decker") is a
joint venture with Western Minerals, Inc., a subsidiary of The RTZ
Corporation PLC. Black Butte Coal Company ("Black Butte") is a
joint venture with Bitter Creek Coal Company, a subsidiary of Union
Pacific Corporation. Walnut Creek Mining Company ("Walnut Creek")
is a general partnership with Phillips Coal Company, a subsidiary
of Phillips Petroleum Company. The Decker Mine is located in
southeastern Montana, the Black Butte Mine is in southwestern
Wyoming, and the Walnut Creek Mine is in east-central Texas. Kiewit
also has interests in two smaller coal mines, a precious metals
mine, and several construction aggregate quarries.
Production and Distribution. The coal mines use the surface
mining method. During surface mining operations, topsoil is
removed and stored for later use in land reclamation. After
removal of topsoil, overburden in varying thicknesses is stripped
from above coal seams. Stripping operations are usually conducted
by means of large, earth-moving machines called draglines, or by
fleets of trucks, scrapers and power shovels. The exposed coal is
fractured by blasting and is loaded into haul trucks or onto
overland conveyors for transportation to processing and loading
facilities. Coal delivered by rail from Decker originates on the
Burlington Northern Railroad. Coal delivered by rail from Black
Butte originates on the Union Pacific Railroad. Coal is also
hauled by trucks from Black Butte to the nearby Jim Bridger Power
Plant. Coal is delivered by trucks from Walnut Creek to the
adjacent facilities of the Texas-New Mexico Power Company.
Customers. The coal is sold primarily to electric utilities,
which burn coal in order to generate steam to produce electricity.
Approximately 89% of sales are made under long-term contracts, and
the remainder are made on the spot market. Approximately 71, 84,
and 55 percent of KCP's revenues in 1994, 1993, and 1992,
respectively, were derived from long-term contracts with
Commonwealth Edison Company (with Decker and Black Butte) and The
Detroit Edison Company (with Decker). The sole customer of Walnut
Creek is the Texas-New Mexico Power Company.
Contracts. Customers enter into long-term contracts for coal
primarily to secure a reliable source of supply at a predictable
price. KCP's major long-term contracts have remaining terms
ranging from 5 to 34 years. A majority of KCP's long-term
contracts provide for periodic price adjustments. The price is
typically adjusted through the use of various indices for items
such as materials, supplies, and labor. Other portions of the
price are adjusted for changes in production taxes, royalties, and
changes in cost due to new legislation or regulation, and in most
cases, such cost items are passed through directly to the customer
as incurred. In most cases the price is also adjusted based on the
heating content of the coal. Beginning in 1993 the amended
contract between Commonwealth Edison Company and Black Butte Coal
Company provides that Commonwealth's delivery commitments will be
satisfied, not with coal produced from the Black Butte mine, but
with coal purchased from two unaffiliated mines in the Powder River
Basin of Wyoming and Decker.
Coal Production. Coal production commenced at the Decker,
Black Butte, and Walnut Creek mines in 1972, 1979, and 1989,
respectively. KCP's share of coal mined in 1994 at the Decker,
Black Butte, and Walnut Creek mines was 5.4, 2.0, and 1.0 million
tons, respectively.
Revenue. KCP's total revenue in 1994 was $225 million.
Revenue attributable to the Decker, Black Butte, and Walnut Creek
entities, and other mining operations was $101 million, $103
million, $20 million, and $1 million, respectively.
Backlog. At the end of 1994, the backlog of coal sold under
KCP's long-term contracts was approximately $1.8 billion, based on
December 1994 market prices. Of this amount, $213 million is
expected to be sold in 1995.
Reserves. At the end of 1994, KCP's share of assigned coal
reserves at Decker, Black Butte, and Walnut Creek was 179, 58, and
89 million tons, respectively. Of these amounts, KCP's share of
the committed reserves of Decker, Black Butte, and Walnut Creek was
65.4, 4.8, and 21.4 million tons, respectively. Assigned reserves
represent coal which can be mined using KCP's current mining
practices. Committed reserves (excluding alternate source coal)
represent KCP's maximum contractual amounts. These coal reserve
estimates represent total proved and probable reserves.
Leases. The coal reserves and deposits of the mines are held
pursuant to leases with the federal government through the Bureau
of Land Management, with two state governments (Montana and
Wyoming), and with numerous private parties.
Competition. The coal industry is highly competitive. KCP
competes not only with other domestic and foreign coal suppliers,
some of whom are larger and have greater capital resources than
KCP, but also with alternative methods of generating electricity
and alternative energy sources. In 1993, KCP's production
represented 1.6% of total U.S. coal production.
Demand for KCP's coal is affected by economic, political and
regulatory factors. For example, recent "clean air" laws may
stimulate demand for low sulphur coal. KCP's western coal reserves
generally have a low sulfur content (less than one percent) and are
currently useful principally as fuel for coal-fired steam-electric
generating units. KCP's sales of its western coal, like sales by
other western coal producers, typically provide for delivery to
customers at the mine. A significant portion of the customer's
delivered cost of coal is attributable to transportation costs.
Most of the coal sold from KCP's western mines is currently shipped
by rail to utilities outside Montana and Wyoming. The Decker and
Black Butte mines are each served by a single railroad. Many of
their western coal competitors are served by two railroads and such
competitors' customers often benefit from lower transportation
costs because of competition between railroads for coal hauling
business. Other western coal producers, particularly those in the
Powder River Basin of Wyoming, have lower stripping ratios (i.e.
the amount of overburden that must be removed in proportion to the
amount of mineable coal) than the Black Butte and Decker mines,
often resulting in lower comparative costs of production.
Environmental Regulation. Kiewit is required to comply with
various federal, state and local laws and regulations concerning
protection of the environment. KCP's share of land reclamation
expenses in 1994 was $5.2 million. KCP's share of accrued
estimated reclamation costs was $103 million at the end of 1994.
Kiewit does not expect to make significant capital expenditures for
environmental compliance in 1995. Kiewit believes its compliance
with environmental protection and land restoration laws will not
affect its competitive position since its competitors in the
industry are similarly affected by such laws.
TELECOMMUNICATIONS
The Company provides telecommunication services through two
partially-owned subsidiaries, MFS Communications Company, Inc. and
C-TEC Corporation.
MFS COMMUNICATIONS COMPANY, INC.
The Company owns 67% of the common stock of MFS Communications
Company, Inc. ("MFS"). The remaining shares are publicly-owned and
are traded on the NASDAQ National Market System. Formed in 1987,
MFS has headquarters in Omaha, Nebraska. MFS operates, through its
subsidiaries, in two business segments: telecommunications
services and network systems integration. MFS deploys its own
networks and facilities and leases network capacity from other
service providers in order to provide a broad array of high quality
voice, data and other services specifically designed to meet the
requirements of its business and government customers.
MFS Network. At the end of 1993, MFS had fiber optic
networks in operation or under development in 22 major metropolitan
areas. As of March 1995, MFS provides services on its networks, or
through the resale of services, or has network operations under
development in 46 major metropolitan areas in the United States and
Europe. MFS' networks consist of fiber optic cables, local and
long distance switches, advanced electronics, asynchronous transfer
mode switching equipment, and associated wiring and equipment.
These metropolitan area networks are linked to each other with
leased high capacity fiber lines. Since 1993, circuits in service
have increased from 947,391 to 1,713,430, the number of buildings
connected has increased from 1,583 to 2,754, and the number of
switches installed has increased from one to 12.
Telecommunications Services to Large Businesses and
Government. MFS Telecom, Inc. ("MFS Telecom") provides dedicated
unswitched high capacity access services to large businesses and
government telecommunications users. MFS Telecom has historically
focused on providing dedicated special assess and local private
line services, which consist of both primary circuits and back-up
protection. While long distance carriers represent a valued
portion of MFS Telecom's customer base, MFS Telecom's focus is on
the needs of end-user customers. Circuits that have an MFS end
user at one or both ends are now the source of approximately 80% of
MFS Telecom's revenues.
Integrated Telecommunications Services. MFS Intelenet, Inc.
("MFS Intelenet") provides a single source for integrated local and
long distance telecommunications services and facilities management
to small and medium sized businesses. MFS Intelenet provides these
services utilizing both MFS Intelenet's network and switching
platforms as well as facilities and services provided by others.
In 1994, MFS Intelenet acquired Centex Telemanagement, Inc.
("Centex"), the nation's largest telemanagement company, for $273
million, and RealCom Office Communications, Inc. ("RealCom"), the
nation's second largest shared tenant service provider, for $90
million.
Data Transmission Services. MFS Datanet, Inc. ("MFS Datanet")
provides high-speed data communications over an asynchronous
transfer mode network. Among the services offered by MFS Datanet
is the connection of local area networks across town or across the
country at the same native speed and protocol as that at which the
local area networks operate. During 1994, MFS Datanet acquired
Cylix Communications Corporation, a wide area networking company
providing network connectivity for IBM compatible computers at
sites throughout North America, for $14 million.
International Services. MFS International, Inc. ("MFS
International") was created to provide services to MFS' existing
customer base of multinational companies and to new customers.
During 1994, MFS International began offering services in London,
Paris, and Frankfurt, Germany. MFS International anticipates
constructing a network and offering services in Stockholm during
mid-1995.
Network Systems Integration. Initially created to design and
build the MFS networks, MFS Network Technologies, Inc. ("MFS-NT")
also provides development, design and engineering, project
management, construction and support of communications networks and
systems to a range of third-party customers. Prominent among its
recent projects is a three-year, turnkey, design-through-
construction project to create a high-speed communications network
for the State of Iowa. Substantially completed in 1994, the
network connects schools, government office buildings, and
healthcare facilities throughout Iowa and is being used for
distance learning and certain of the state government's
communications needs. Texas Instruments and MFS-NT have co-
developed an automatic vehicle identification system intended to
allow electronic toll collection on toll roads, bridges, and
tunnels. MFS-NT had a third-party backlog of approximately $127
million at the end of 1994, an increase of 16% from the previous
year. Approximately $70 million of such backlog is not expected to
be completed in 1995. A substantial portion of the backlog is
related to federal, state or local government contracts which
extend over multiple years.
Customers. The telecommunications services customers of MFS
include large corporations, financial services companies,
governmental departments and agencies, and academic, scientific and
other major institutions, as well as medium and small businesses
and long distance carriers. MFS-NT's third party customers include
major local and long distance telecommunications carriers, public
utilities, cable television operators, agencies of federal, state
and local government, and large corporations. MFS-NT's revenues
are and may continue to be dependent upon a small number of large
projects. Accordingly, these revenues are likely to vary
significantly from period to period.
Competition. In each of its markets, MFS Telecom faces
significant competition for its special access and private line
telecommunications services from local telephone companies, which
currently dominate their local telecommunications markets. MFS
Telecom also faces competition in most markets in which it operates
from one or more competitive access providers that operate
independent fiber optic networks. In addition, potential
competitors capable of offering private line, special access, and
switched services include cable television companies, electric
utilities, long distance carriers, microwave carriers, wireless
telephone system operators and private networks built by large end
users. MFS Intelenet competes with the local telephone companies,
certain competitive access providers, equipment vendors and
installers, long distance providers and telecommunications
management companies. MFS-NT's primary network systems integration
and facilities management competitors are the regional Bell
operating companies, long distance carriers, equipment
manufacturers and major independent telephone companies.
Regulation. MFS' services are subject to varying degrees of
federal, state, local, and foreign regulation. The Federal
Communications Commission ("FCC") exercises jurisdiction over all
facilities of, and services offered by, telecommunications common
carriers to the extent those facilities are used to provide,
originate or terminate interstate or international communications.
The state regulatory commissions retain jurisdiction over the same
facilities and services to the extent they are used to originate or
terminate intrastate communications. MFS actively seeks to
initiate regulatory reform at the federal and state levels to open
additional telecommunications markets to competition.
Possible Spin-off of MFS. The Company's management has asked
the Internal Revenue Service to issue a ruling (the "Ruling") that
would permit the Company to make a tax-free distribution of its
entire ownership interest in MFS to the Company's Class D
stockholders (the "Spin-off"). The Company's management intends to
propose a plan (the "Plan") to implement the Spin-off to the
Company's Board of Directors during the second quarter of 1995. If
the Board of Directors approves the Plan, and the Internal Revenue
Service issues the Ruling, the Company could complete the Spin-off
as early as the third quarter of 1995.
The Spin-off might not occur. For example, the Company might
not receive the Ruling or the board might not adopt the Plan. In
addition, the issuance of the MFS Preferred Stock necessary to
obtain the Ruling (as described below), would require a favorable
vote from a majority of the common stockholders of MFS, other than
KDG, present and voting in person or by proxy at a special MFS
stockholders meeting. If the favorable vote is not received, MFS
would not be able to issue the MFS Preferred Stock and the Company
would not be able to complete the Spin-off. Also, the Spin-off is
subject to receipt of certain other approvals, some of which might
not be received. Finally, if the Company's board of directors
adopts the Plan, it would reserve the right to abandon, defer or
modify the Spin-off at any time.
MFS has agreed in principle to issue to KDG a special class of
high-vote convertible preferred stock (the "MFS Preferred Stock")
designed to permit the Company to satisfy certain requirements for
receiving the Ruling. MFS would issue the Preferred Stock to the
Company in exchange for the transfer by the Company to MFS of
approximately 3.0-3.5 million of the shares of MFS common stock
currently held by the Company. The Company anticipates that the
MFS Preferred Stock (i) would have a face value of approximately
$15-$25 million, (ii) would be convertible into MFS common stock at
any time after the first anniversary of the date the MFS Preferred
Stock is issued, (iii) would have a dividend rate and a conversion
premium determined by market conditions at the time that the MFS
Preferred Stock is issued, (iv) would be redeemable at par value
six years after the date of issuance, and (v) would be
nontransferable for six years after the date of issuance, except
under certain limited circumstances. At the option of MFS,
dividends on the MFS Preferred Stock could be paid either in cash
or in shares of MFS Common Stock. Each share of MFS Preferred
Stock would have approximately five votes per share in any election
of MFS directors. If the Spin-off occurs, the Company would
distribute to Class D stockholders both the MFS Preferred Stock and
all of the common stock of MFS then held by the Company. If the
Spin-off does not occur, MFS would not issue the MFS Preferred
Stock to the Company.
The Plan would provide for an exchange offer (the "Exchange
Offer") by the Company for Class C Stock, to be completed before
the Spin-off. Under an Exchange Offer, the Company would offer to
exchange Class D Stock for some or all of its outstanding Class C
Stock on terms similar to those upon which Class C Stock can be
converted into Class D Stock during the annual conversion period
provided in the Company's Certificate of Incorporation. As a
result, Class C Stockholders wanting to convert Class C Stock to
Class D Stock would not be disadvantaged if the Spin-off were to be
completed before the next regular conversion period (October 15,
1995 through December 15, 1995). If an Exchange Offer could not be
completed during 1995, the Company probably would defer any
Spin-off until the first quarter of 1996.
C-TEC CORPORATION
In October 1993, the Company purchased a controlling interest
in C-TEC Corporation ("C-TEC") for $208 million. In a December
1994 rights offering, the Company purchased additional C-TEC shares
for $153 million. Through subsidiaries, the Company now owns 44%
of the outstanding shares of C-TEC common stock and 60% of the
C-TEC Class B common stock. Holders of common stock are entitled to
one vote per share; holders of Class B stock are entitled to 15
votes per share. The Company thus owns 49% of the outstanding
shares, but is entitled to 58% of the available votes. C-TEC
common stock is traded on the NASDAQ National Market System, and
the Class B Stock is quoted on NASDAQ and traded over the counter.
C-TEC has its principal office in Wilkes-Barre, Pennsylvania.
C-TEC currently has four operating groups. The Telephone Group
consists of a Pennsylvania public utility providing local telephone
service to a 19 county, 5,067 square mile service territory in
Pennsylvania. The Telephone Group services 219,000 main access
lines, of which 171,000 are residential and 48,000 are business
related. In February 1995, C-TEC agreed to acquire Buffalo Valley
Telephone Company, adding 17,300 access lines in central
Pennsylvania, for $55 million, payable in cash and convertible
preferred stock of C-TEC.
The Cable Group is a cable television operator with cable
television systems located in New York, New Jersey, Michigan and
Delaware. The Cable Group owns and operates cable television
systems serving approximately 236,000 customers and manages cable
television systems with an additional 36,000 customers, ranking it
among the top 30 multiple system operators in the United States.
C-TEC has agreed to acquire Twin County TransVideo Inc. in a
transaction which is expected to close in the second quarter of
1995. Twin County serves 74,000 subscribers in eastern
Pennsylvania. The aggregate consideration will be approximately
$103.5 million of cash, a note, and convertible preferred stock of
C-TEC. In January 1995, C-TEC purchased the assets of a cable
company in Northern Michigan for $4.4 million, adding 3200
subscribers. Also in January 1995, C-TEC purchased a 40% equity
position in Megacable, S.A. de C.V., Mexico's second largest cable
television operator, currently serving 174,000 subscribers in 12
cities. The aggregate consideration for the purchase was $84.1
million, subject to exchange rate adjustments.
The Long Distance Group sells long distance telephone services
in the local service area of the Telephone Group and resells
services elsewhere in Pennsylvania. The Communications Group
provides telecommunications-related engineering and technical
services in the northeastern U.S. A fifth operating group, Mobile
Services, was discontinued in 1994. C-TEC's cellular operations
were sold in September 1994 for approximately $190 million. C-TEC
sold its telephone answering service operations in December 1994
and expects to complete the sale of its paging business in mid-
1995.
Regulation. The Telephone and Long Distance Groups are
subject to FCC regulation. Commonwealth Telephone Company is
subject to extensive regulation by the Pennsylvania Public Utility
Commission, including its rate-making process. Consequently, the
ability of Commonwealth Telephone Company to generate increased
income is largely dependent on its ability to increase its
subscriber base, obtain higher message volume, and control its
expenses. C-TEC's cable television operations are regulated by
local and state franchise authorities and by the FCC. The Cable
Group has restructured rates and channel offerings to comply with
the basic rate regulations and to minimize the revenue impact of
the federal Cable Television Consumer Protection and Competition
Act of 1992.
OTHER OPERATIONS
CALIFORNIA ENERGY COMPANY, INC.
California Energy Company, Inc. ("CECI") is engaged in the
exploration for, and development and operation of, environmentally
responsible independent power production facilities worldwide
utilizing geothermal resources or other energy sources, such as
hydroelectric, natural gas, oil and coal. In January 1995, CECI
acquired 51% of the outstanding shares of common stock of Magma
Power Company through a cash tender offer and in February 1995
acquired the remaining shares through a merger, using proceeds
derived from a public offering of CECI shares and secured bank
loans.
After the Magma acquisition, CECI is the largest independent
geothermal power producer in the world (based on CECI's estimate of
the aggregate megawatts ("MW") of electric generating capacity in
operation and under construction). CECI has an aggregate net
ownership interest of 354 MW of electric generating capacity in
power production facilities in the United States, having an
aggregate net capacity of 571 MW. All of these facilities are
managed and operated by CECI and are principally located in
California. In addition to the electricity sales revenue earned
from its net ownership position in such facilities, CECI receives
significant fee and royalty income from operating such plants and
managing production from the geothermal reservoirs for such
facilities. CECI and KDG have an aggregate net ownership interest
of 409 MW and 74 MW, respectively, of electric generating capacity
in three geothermal power projects in the Philippines; the projects
have an aggregate net capacity of 500 MW; the projects are financed
and under construction. CECI is also developing eight additional
projects with executed or awarded power sales contracts in the
Philippines, Indonesia, and the United States. CECI and KDG have
an approximate potential net ownership interest of 935 MW and 328
MW, respectively, in these development projects; the projects have
an aggregate net capacity of 1,589 MW of potential electric
generating capacity.
Kiewit Energy Company ("KEC"), a Company subsidiary, owns 22%
(10.6 million shares, including 1.5 million shares purchased in
February 1995) of the outstanding common stock of CECI. CECI
common stock is traded on the New York, Pacific, and London Stock
Exchanges. KEC has options to purchase 5.8 million common shares,
at exercise prices below the current market price. In 1991, KEC
purchased $50 million of CECI voting convertible preferred stock,
on which dividends are payable in kind at an 8.125% rate. In March
1995, CECI exchanged the preferred stock for $64.85 million of
nonvoting 9.5% convertible subordinated debentures. If its options
were exercised and its debentures were converted, KEC would own
approximately 34% of CECI's common stock. A 1991 agreement
provides for three KEC representatives on the CECI board of
directors and prohibits KEC from acquiring more than 49% of CECI's
voting stock before March 1996. CECI has headquarters in Omaha,
Nebraska.
In 1993, KDG and KCG (together "Kiewit") and CECI signed a
joint venture agreement concerning their international activities,
which provides that if both Kiewit and CECI agree to participate in
a project, they will share all development costs equally. Each of
Kiewit and CECI will provide 50% of the equity required for
financing a project developed by the joint venture and CECI will
operate and manage such project. The agreement creates a joint
development structure under which, on a project by project basis,
CECI will be the development manager, managing partner and/or
project operator, an equal equity participant with Kiewit and a
preferred participant in the construction consortium and Kiewit
will be an equal equity participant and the preferred turnkey
construction contractor. The joint venture agreement may be
terminated by either party on 15 days written notice, provided that
such termination cannot affect the pre-existing contractual
obligations of either party.
PKS INFORMATION SERVICES, INC.
PKS Information Services, Inc. ("PKSIS") provides remote
computing services, or "computer outsourcing", to large scale
computing customers on a nationwide basis under long-term
contracts. PKSIS provides its services to firms that desire to
focus resources on their core businesses while avoiding the capital
and overhead costs of operating their own computer centers. Voice
and data telecommunications services and professional services
practices are in place to support existing and prospective
customers. In 1994, 67 percent of PKSIS' revenue was from external
customers, and the remainder was from the Company and its
subsidiaries. PKSIS' operations and computing equipment are
located in a specially designed 89,000 square foot computer center
in Omaha, Nebraska.
GENERAL INFORMATION
Environmental Protection. Compliance with federal, state,
and local provisions regulating the discharge of materials into the
environment, or otherwise relating to the protection of the
environment, has not and is not expected to have a material effect
upon the capital expenditures, earnings, or competitive position of
the Company and its subsidiaries.
Employees. At the end of 1994, the Company and its
majority-owned subsidiaries employed approximately 14,000 people --
7,100 in Construction, 2,000 in Mining, 4,400 in
Telecommunications, 200 in Information Services, and 200 in
Diversified and corporate positions.
ITEM 2. PROPERTIES.
The properties used in the construction segment are described
under a separate heading in Item 1 above. Properties relating to
the Company's mining and telecommunications segments are described
as part of the general business descriptions of those segments in
Item 1 above. The Company considers its properties to be adequate
for its present and foreseeable requirements.
ITEM 3. LEGAL PROCEEDINGS.
General. The Company and its subsidiaries are parties to
many pending legal proceedings. Management believes that any
resulting liabilities for legal proceedings, beyond amounts
reserved, will not materially affect the Company's financial
condition or results of operations.
Environmental Proceedings. In a large number of proceedings,
the Company, its subsidiaries, or their predecessors are among
numerous defendants who may be "potentially responsible parties"
liable for the cleanup of hazardous substances deposited in
landfills or other sites. Management believes that any resulting
liabilities for environmental legal proceedings, beyond amounts
reserved, will not materially affect the Company's financial
condition or results of operations.
Whitney Litigation. In 1974, a subsidiary of the Company
("Kiewit"), entered into a lease with Whitney Benefits, Inc., a
Wyoming charitable corporation ("Whitney"). Whitney is the owner,
and Kiewit is the lessee, of a coal deposit underlying a 1,300 acre
tract in Sheridan County, Wyoming. The coal was rendered
unmineable by the Surface Mining Control and Reclamation Act of
1977 ("SMCRA"), which prohibited surface mining of coal in certain
alluvial valley floors significant to farming. In 1983, Kiewit and
Whitney filed an action, now titled Whitney Benefits, Inc. and
Peter Kiewit Sons' Co. v. The United States, in the U.S. Court of
Federal Claims ("Claims Court"), alleging that the enactment of
SMCRA constituted a taking of their coal without just compensation.
In 1989, the Claims Court ruled that a taking had occurred and
awarded plaintiffs the 1977 fair market value of the property ($60
million) plus interest. In 1991, the U.S. Court of Appeals for the
Federal Circuit affirmed the decision of the Claims Court and the
U.S. Supreme Court denied certiorari. In February 1994, the Claims
Court issued an opinion which provided that the $60 million
judgment would bear interest compounded annually from 1977 until
payment. Kiewit has calculated the interest for the 1977-1994
period to be $249 million. By agreement, Kiewit will receive 67.5
percent of any award and Whitney will receive the remainder. At
year-end 1994, Kiewit and Whitney would be entitled to $209 million
and $100 million, respectively. Any payments received by Kiewit
will be the property of Peter Kiewit Sons' Co., a subsidiary of
KDG.
The government filed two post-trial motions in the Claims
Court during 1992. The government requested a new trial to
redetermine the 1977 value of the property. The government also
filed a motion to reopen and set aside the 1989 judgment as void
and to dismiss plaintiffs' complaint for lack of jurisdiction. In
May 1994, the Claims Court entered an order denying both motions.
The government appealed that order, as well as the order regarding
compound interest. A hearing on these appeals was held on February
10, 1995. It is not presently known when these proceedings will be
concluded, what amount Kiewit will ultimately receive, nor when
payment will occur.
MFS Litigation. In March 1994, several former stockholders
of MFS Telecom filed a lawsuit against MFS, KDG, and the chief
executive officer of MFS, in the United States District Court for
the Northern District of Illinois, Case No. 94C-1381. These
shareholders sold shares of MFS Telecom to MFS in September 1992.
MFS completed an initial public offering in May 1993. Plaintiffs
allege that MFS fraudulently concealed material information about
its plans from them, causing them to sell their shares at an
inadequate price. Plaintiffs have alleged damages of at least $100
million. Defendants have meritorious defenses and have vigorously
contested this lawsuit. Defendants expect that a trial will be held
in summer 1995. Prior to the initial public offering, KDG agreed
to indemnify MFS against any liabilities arising from the September
1992 sale; if MFS is deemed to be liable to plaintiffs, KDG will be
required to satisfy MFS's liabilities in accordance with the
indemnification agreement. If the Spin-off is approved by the
Company's Board of Directors and is consummated, KDG would remain
obligated to satisfy these liabilities. If KDG does make payments
as a result of this litigation, the Company's earnings and
stockholders' equity will not immediately decline, because such
payments will be recorded in the financial statements as an
increase to the original purchase price of the MFS Telecom shares,
resulting in goodwill which will be amortized against earnings in
future periods.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during
the fourth quarter of 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT.
The table below shows information as of March 31, 1995 about
each executive officer of the Company, including his business
experience during the past five years (1990-1995). The Company
considers its executive officers to be its directors who are
employed by the Company or one of its subsidiaries. The Company's
directors and officers are elected annually and each was elected on
June 4, 1994 to serve until his successor is elected and qualified
or until his death, resignation or removal.
Name Business Experience (1990-1995) Age
Walter Scott, Jr. Chairman of the Board and President 63
William L. Grewcock Vice Chairman 69
Robert E. Julian Executive Vice President-Chief Financial 55
Officer (since 1991); Vice President-
Chief Financial Officer (1990-1991);
Treasurer (1990-1993)
Kenneth E. Stinson Executive Vice President (since 1991) 52
Vice President (1990-1991)
Richard Geary Executive Vice President, KCG; President, 60
Kiewit Pacific Co.
Leonard W. Kearney Vice President, KCG; President, Kiewit 54
Construction Company and Kiewit Western Co.
James Q. Crowe Chairman and Chief Executive Officer 45
of MFS
Richard R. Jaros Executive Vice President (since 1993); 43
Vice President (1990-1992); Chairman
(since 1993), President and CEO
(1992-1993) of CECI; Vice President,
KDG (1989-1990)
George B. Toll, Jr. Executive Vice President, KCG (1994); 58
Vice President, Kiewit Pacific Co.
(1990-1994)
Richard W. Colf Vice President, Kiewit Pacific Co. 51
Bruce E. Grewcock President (since 1992), Sr. Vice 41
President (1991-1992), Vice President
(1989-1991), Kiewit Mining Group Inc.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Market Information. There is no established public trading
market for the Company's common stock. Under the Company's
Restated Certificate of Incorporation effective January 1992, the
Company now has three classes of common stock: Class B
Construction & Mining Group Nonvoting Restricted Redeemable
Convertible Exchangeable Common Stock ("Class B"), Class C
Construction & Mining Group Restricted Redeemable Convertible
Exchangeable Common Stock ("Class C"), and Class D Diversified
Group Convertible Exchangeable Common Stock ("Class D"). New Class
B and Class C shares can be issued only to Company employees and
can be resold only to the Company at a formula price based on the
year-end book value of the Construction & Mining Group. The
Company is generally required to repurchase Class B and Class C
shares for cash upon stockholder demand. Class D shares have a
formula price based on the year-end book value of the Diversified
Group. The Company must generally repurchase Class D shares for
cash upon stockholder demand at the formula price, unless the Class
D shares become publicly traded. Although almost all of the Class
D shares are owned by employees and former employees, such shares
are not subject to ownership or transfer restrictions.
The formula price of the Class D Stock is based on the book
value of Kiewit Diversified Group Inc.("KDG") and its subsidiaries,
plus one-half of the book value, on a stand-alone basis, of the
parent company, Peter Kiewit Sons', Inc. ("PKS"). The formula
price of the Class B and Class C Stock is based on the combined
book value of Kiewit Mining Group Inc. ("KMG") and Kiewit
Construction Group Inc. ("KCG") and their subsidiaries, plus one-
half of the book value of the unconsolidated PKS. A significant
element of the latter formula price is the subtraction of the book
value of property, plant and equipment used in construction
activities ($92 million in 1994). A significant annual
intercompany transaction reduces the value of the Class D Stock and
increases the value of the Class B and Class C Stock. The primary
assets of the Company's mining segment are coal mining leases and
long-term coal contracts owned by Kiewit Coal Properties, Inc.
("KCP"), a subsidiary of KDG. However, the coal mining properties
are managed and operated by KMG. KCP paid mine management fees of
$29 million to KMG in 1994.
Dividends. During 1993 and 1994 the Company declared the
following dividends on its common stock:
Dividends. During 1993 and 1994 the Company declared the
following dividends on its common stock:
Date Declared Date Paid Dividend Per Share Class
March 19, 1993 May 1, 1993 0.30 B&C
March 19, 1993 May 1, 1993 0.35 D
March 19, 1993 June 1, 1993 0.15 D
October 29, 1993 January 6, 1994 0.40 B&C
April 22, 1994 May 1, 1994 0.45 B&C
October 21, 1994 January 5, 1995 0.45 B&C
The Board of Directors announced in August 1993 that the Company
did not intend to pay dividends on Class D shares in the
foreseeable future.
Stockholders. On March 31, 1995, the Company had the
following number of stockholders for each class of its common
stock: Class B--4, Class C--1129, and Class D--1536.
ITEM 6. SELECTED FINANCIAL DATA.
PETER KIEWIT SONS', INC.
SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Financial Data of Peter Kiewit Sons', Inc. ("PKS"),
the Kiewit Construction & Mining Group ("B&C Stock") and the Kiewit
Diversified Group ("D Stock") appear below and on the next five
pages. The consolidated data of PKS are presented below with the
exception of per common share data which is presented in the
Selected Financial Data of the respective groups.
(dollars in millions, Fiscal Year Ended
except per share amounts) 1994 1993 1992 1991 1990
__________________________________________________________________
Results of Operations:
Revenue (1) $ 2,991 $ 2,191 $ 2,027 $ 2,086 $ 1,917
Earnings from
continuing operations
before cumulative
effect of change
in accounting
principle (2) 110 261 150 49 108
Net earnings (2) 110 261 181 441 80
Financial Position:
Total assets (1) 4,504 3,634 2,549 2,632 2,966
Current portion
of long-term debt (1) 33 15 3 15 31
Long-term debt, less
current portion (1) 908 462 30 110 269
Stockholders' equity (3) 1,736 1,671 1,458 1,396 1,185
___________________________________________________________________
PETER KIEWIT SONS', INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(continued)
(1) In October 1993, the Company acquired 35% of the
outstanding shares of C-TEC Corporation that have 57% of
the available voting rights. In December 1994, the Company
increased its ownership to 49% and 58%, respectively.
In January 1994, MFS Communications Company, Inc. ("MFS"),
issued $500 million of 9.375% Senior Discount Notes.
(2) In 1993, through two public offerings, the Company sold 29%
of its subsidiary, MFS, resulting in a $137 million
after-tax gain. In 1994, additional MFS stock transactions
resulted in a $35 million after-tax gain to the Company and
reduced its ownership in MFS to 67%.
(3) The aggregate redemption value of common stock at December
31, 1994 was $1.6 billion.
KIEWIT CONSTRUCTION & MINING GROUP
SELECTED FINANCIAL DATA
The following selected financial data for each of the years in the
period 1990 to 1994 have been derived from audited financial
statements. The historical financial information for the Kiewit
Construction & Mining and Kiewit Diversified Groups supplements the
consolidated financial information of PKS and, taken together,
includes all accounts which comprise the corresponding consolidated
financial information of PKS.
(dollars in millions, Fiscal Year Ended
except per share amounts) 1994 1993 1992 1991 1990
__________________________________________________________________
Results of Operations:
Revenue $ 2,175 $ 1,783 $ 1,675 $ 1,834 $ 1,671
Earnings before
cumulative effect
of change in
accounting principle 77 80 69 23 57
Net earnings 77 80 82 23 57
Per Common Share (1):
Earnings before
cumulative effect
of change in
accounting principle 4.92 4.63 3.79 1.12 2.47
Net earnings 4.92 4.63 4.48 1.12 2.47
Dividends (2) 0.90 0.70 0.70 0.30 0.25
Stock price (3) 25.55 22.35 18.70 14.40 10.35
Book value 31.39 27.43 23.31 19.25 14.99
Financial Position:
Total assets 967 889 862 849 762
Current portion of
long-term debt 3 4 2 7 15
Long-term debt, less
current portion 9 10 12 13 14
Stockholders' equity (4) 505 480 437 400 350
Formula value (3) 411 391 351 299 249
__________________________________________________________________
PETER KIEWIT SONS', INC.
KIEWIT CONSTRUCTION & MINING GROUP
SELECTED FINANCIAL DATA
(continued)
(1) In connection with the January 8, 1992 reorganization, each
share of previous Class B and Class C Stock was exchanged
for one share of new Class B&C Stock and one share of new
Class D Stock. Therefore, for purposes of computing Class
B&C Stock per share data, the number of shares for years
1990 and 1991 are assumed to be the same as the
corresponding number of shares of previous Class B and Class
C Stock. Fully diluted earnings per share have not been
presented because it is not materially different from
earnings per share.
(2) The 1994, 1993 and 1992 dividends include $.45, $.40 and
$.30 for dividends declared in 1994, 1993 and 1992,
respectively, but paid in January of the subsequent year.
Years 1990 and 1991 reflect dividends paid by PKS on its
previous Class B and Class C Stock that have been attributed
to Kiewit Construction & Mining Group and Kiewit Diversified
Group based upon the relative formula values of each group
which were determined at the end of each preceding year.
Accordingly, the dividends may bear no relationship to the
dividends that would have been declared by the Board in such
years had the new Class B&C Stock and the Class D Stock been
outstanding.
(3) Pursuant to the Restated Certificate of Incorporation, the
stock price and formula value calculations are computed
annually at the end of the fiscal year.
(4) Ownership of the Class B&C Stock is restricted to certain
employees conditioned upon the execution of repurchase
agreements which restrict the employees from transferring
the stock. PKS is generally committed to purchase all Class
B&C Stock at the amount computed, when put to PKS by a
stockholder, pursuant to the Restated Certificate of
Incorporation. The aggregate redemption value of the B&C
Stock at December 31, 1994 was $411 million.
PETER KIEWIT SONS', INC.
KIEWIT DIVERSIFIED GROUP
SELECTED FINANCIAL DATA
The following selected financial data for each of the years in the
period 1990 to 1994 have been derived from audited financial
statements. The historical financial information for the Kiewit
Diversified and Kiewit Construction & Mining Groups supplements the
consolidated financial information of PKS and, taken together,
includes all accounts which comprise the corresponding consolidated
financial information of PKS.
(dollars in millions Fiscal Year Ended
except per share amounts) 1994 1993 1992 1991 1990
__________________________________________________________________
Results of Operations:
Revenue (1) $ 821 $ 408 $ 352 $ 252 $ 246
Earnings from continuing
operations before
cumulative effect of
change in accounting
principle (2) 33 181 81 26 51
Net earnings (2) 33 181 99 418 23
Per Common Share (3):
Earnings from continuing
operations before
cumulative effect of
change in accounting
principle 1.63 9.08 4.00 1.26 2.20
Net earnings 1.63 9.08 4.92 20.30 1.03
Dividends (4) - 0.50 1.95 0.70 0.70
Stock price (5) 60.25 59.40 50.65 47.85 35.00
Book value 60.36 59.52 50.75 47.93 35.75
Financial Position:
Total assets (1) 3,549 2,759 1,709 1,801 2,204
Current portion of
long-term debt (1) 30 11 1 8 16
Long-term debt,
less current
portion (1) 899 452 18 97 255
Stockholders' equity (6) 1,231 1,191 1,021 996 835
Formula value (5) 1,231 1,191 1,021 996 835
__________________________________________________________________
PETER KIEWIT SONS', INC.
KIEWIT DIVERSIFIED GROUP
SELECTED FINANCIAL DATA
(continued)
(1) In October 1993, the Group acquired 35% of the outstanding
shares of C-TEC Corporation that have 57% of the available
voting rights. In December 1994, the Group increased its
ownership to 49% and 58%, respectively.
In January, 1994, MFS Communications Company, Inc. ("MFS"),
issued $500 million of 9.375% Senior Discount Notes.
(2) In 1993, through two public offerings, the Group sold 29% of
MFS Communications Company, Inc., resulting in a $137
million after-tax gain. In 1994, additional MFS stock
transactions resulted in a $35 million after-tax gain to the
Group and reduced its ownership in MFS to 67%.
(3) In connection with the January 8, 1992 reorganization, each
share of previous Class B and Class C Stock was exchanged
for one share of new Class B&C Stock and one share of new
Class D Stock. Therefore, for purposes of computing Class D
Stock per share data, the number of shares for years 1990
and 1991 are assumed to be the same as the corresponding
number of shares of previous Class B and Class C Stock.
Fully diluted earnings per share have not been presented
because it is not materially different from earnings per
share.
(4) The 1992 dividends include $.35 for dividends declared in
1992 but paid January, 1993. Years 1990 and 1991 reflect
dividends paid by PKS on its previous Class B and Class C
Stock that have been attributed to Kiewit Diversified Group
and Kiewit Construction & Mining Group based upon the
relative formula values of each group which were determined
at the end of each preceding year. Accordingly, the
dividends may bear no relationship to the dividends that
would have been declared by the Board in such years had the
new Class D Stock and the new Class B&C Stock been
outstanding.
(5) Pursuant to the Restated Certificate of Incorporation, the
stock price and formula value calculations are computed
annually at the end of the fiscal year.
(6) Unless Class D Stock becomes publically traded, PKS is
generally committed to purchase all Class D Stock at the
amount computed, in accordance with the Restated Certificate
of Incorporation, when put to PKS by a stockholder. The
aggregate redemption value of the Class D Stock at December
31, 1994 was $1.2 billion.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
_________________________________________________
Separate management's discussion and analysis of financial
condition and results of operations for the Kiewit Construction &
Mining Group and the Kiewit Diversified Group have been filed as
Exhibits 99.A and 99.B to this report. The Company will furnish
without charge a copy of such exhibits upon the written request of
a stockholder addressed to Stock Registrar, Peter Kiewit Sons',
Inc., 1000 Kiewit Plaza, Omaha, Nebraska 68131.
Revenue from each of the Company's business segments was (in
millions):
1994 1993 1992
________ ________ ________
Construction $ 2,143 $ 1,757 $ 1,659
Mining 246 230 246
Telecommunications 578 189 109
Other Operations 24 15 13
_______ _______ _______
$ 2,991 $ 2,191 $ 2,027
======= ======= =======
General
_______
Additional financial information about the Company's industry
segments, including operating earnings, identifiable assets,
capital expenditures and depreciation, depletion and amortization,
as well as geographic information, is contained in Note 18 to the
Company's consolidated financial statements.
Results of Operations 1994 vs. 1993
___________________________________
Construction
____________
Construction revenue increased by $386 million or 22% in 1994.
The Company's share of joint venture revenue also rose 22% in 1994
and accounted for 24% of total construction revenue in 1994
and 1993. Several large contracts awarded in 1992 and early 1993
contributed to the overall increase in revenues, the largest of
which was the San Joaquin Toll Road Joint Venture ("San Joaquin").
Also contributing to the increase were revenues generated from the
APAC acquisition. Contract backlog at December 31, 1994 was $2.2
billion, of which 16% is attributable to foreign operations,
principally, Canada and the Philippines. Projects on the west
coast account for 40% of the total backlog, $333 million
pertaining to San Joaquin. San Joaquin is scheduled for
completion in 1997.
PETER KIEWIT SONS', INC.
Results of Operations 1994 vs. 1993 (continued)
_______________________________________________
Construction (continued)
________________________
Direct costs associated with construction contracts increased
$404 million or 26% to $2.0 billion in 1994. Costs as a
percentage of revenue were approximately 92% and 89% for 1994 and
1993.
In 1994, the margins were adversely affected by cost
overruns and a more competitive market environment. A $20 million
reduction of reserves previously established for the Denmark tunnel
project favorably impacted 1993 margins.
Mining
______
Mining revenue increased $16 million or 7% in 1994. This
increase is primarily due to an increase in spot sales. Mining
gross profits were 46% in 1994 and 47% in 1993.
Alternate source coal sales by Black Butte and Decker in 1994
were consistent with 1993. Alternate source coal consists of
coal purchased from unaffiliated mines located in the Powder River
Basin area of Wyoming and from a mine in which the Company has a
50% interest. In 1994, alternate source coal sales accounted for
30% of revenues and 47% of gross profits compared to 31% and 51%
in 1993.
See "Legal Proceedings" with respect to the Whitney Benefits
case.
Telecommunications
__________________
In 1994 telecommunications revenues increased 205% from 1993.
MFS and C-TEC each generated 50% of the revenues and were
responsible for 38% and 62% of the increase.
Telecommunications services revenue for MFS increased 227%
from $70 million in 1993 to $229 million in 1994. Over 70% of the
increase relates to the acquisition of Centex, RealCom and Cylix
during 1994. The remaining increase resulted from additional
market penetration in all other telecommunication services.
PETER KIEWIT SONS', INC.
Results of Operations 1994 vs. 1993 (continued)
_______________________________________________
Telecommunications (continued)
_____________________________
MFS' network systems integration services group refocused
its attention in 1994 to the design and construction of MFS' own
networks. The completion of the Iowa project and increased
emphasis on affiliated work contributed to a decline in third party
revenues to $58 million in 1994 from $71 million in 1993. Had the
group been allowed to recognize the MFS network construction
revenues, total revenues would have been $156 million and $116
million in 1994 and 1993.
C-TEC generated revenues for the Company of $291 million and
$48 million in 1994 and 1993. The 1993 figures represent activity
from the acquisition date. C-TEC's Telephone group, Cable group
and Long Distance group had revenues of $122 million, $95 million
and $30 million in 1994. The cellular group, sold in 1994, and
communications services group generated the balance.
Telecommunications cost of revenue increased 202% in 1994. Of
the total increase in costs, MFS accounted for 59% of the increase
and incurred 64% of the costs while C-TEC accounted for 41% of
the increase and incurred 36% of the total costs.
Costs associated with the MFS' telecommunications revenues
totaled $294 million and $80 million in 1994 and 1993. In addition
to the acquisitions, higher costs associated with the expansion of
Intelenet, Datanet and international businesses and the direct
costs associated with operating additional networks were
responsible for the increase. Also contributing to the increase
was additional depreciation of the MFS' networks and the
amortization of goodwill resulting from the acquisitions.
Network systems integration services operating expenses
decreased from $55 million in 1993 to $48 million in 1994. The
change is primarily due to a decrease in the level of services
provided to third parties, particularly the State of Iowa.
The cost of revenue for C-TEC included in the Company's
results was $189 million and $42 million in 1994 and 1993. The
costs in 1994 are primarily attributable to the Telephone group -
$57 million, the Cable group - $71 million and the Long Distance
group - $23 million.
PETER KIEWIT SONS', INC.
Results of Operations 1994 vs. 1993 (continued)
_______________________________________________
General and Administrative Expenses
___________________________________
General and administrative expenses in 1994 exceeded those of
1993 by 61%. The telecommunications segment generated the majority
of the increase with C-TEC and MFS accounting for 63% and 37% of
the increase.
The inclusion of a full year of operations is responsible
for C-TEC's increase. Overall, C-TEC's general and administrative
expenses remained fairly consistent in 1994. The increase in MFS
is primarily due to their acquisitions in 1994 and higher costs
associated with expanding the domestic and international
operations. MFS expects to incur significant expenses in 1995 to
further develop its integrated, single source telecommunications,
high speed data communications and international services.
Gain on Subsidiary's Stock Issuances, net
________________________________________
In 1994, the Company settled a contingent purchase price
adjustment resulting from MFS' 1990 purchase of Chicago Fiber
Optic Corporation ("CFO"). The former shareholders of CFO
accepted MFS stock previously held by the Company, valued at
market prices, as payment of the obligation. This transaction,
along with the MFS issuance of stock for the Cylix and RealCom
acquisitions and MFS employee stock options, resulted in a $54
million pre-tax gain to the Company. Deferred taxes have been
provided on these gains.
Investment Income, net
______________________
The improvement in investment income is directly attributable
to a decline of $37 million in losses from the sale and
writedown of derivative and other securities, and a $15 million
increase in interest income. Partially offsetting these items
was the recognition of $4 million of developmental expenses
associated with the international energy projects being jointly
developed by the Company and CECI.
PETER KIEWIT SONS', INC.
Results of Operations 1994 vs. 1993 (continued)
_______________________________________________
Interest Expense, net
_____________________
Interest expense increased significantly in 1994. The
interest associated with the debt issuance by MFS in early 1994,
$41 million, net of capitalized interest, and the interest on the
debt recorded in the C-TEC acquisition, $33 million, are primarily
responsible for the increase.
Other, net
__________
Debt prepayment penalties incurred by C-TEC ($6 million) are
primarily responsible for the decline.
Income Taxes
____________
The effective income tax rate for earning from continuing
operations is 31% in 1994 and 30% in 1993. Unutilized tax
benefits due to net operating losses incurred by MFS were primarily
offset by adjustments to prior year tax provisions. Dividend
exclusions and mineral depletion deductions contributed to the
lower overall effective rate.
Results of Operations 1993 vs. 1992
___________________________________
Construction
____________
Construction revenue increased by $98 million or 6% in 1993.
The Company's share of joint venture revenue rose by 60% and
accounted for 24% of total construction revenue for the period as
compared to 16% for 1992. Several large contracts awarded in 1992
and early 1993 contributed to the overall increase. The increase
in joint venture revenue was partially offset by a small decrease
in sole contract revenue due to a decrease in the average size of
sole contracts awarded. Contract backlog at December 31, 1993 was
$2.1 billion, of which 6% was attributable to foreign operations,
principally, Canada. Projects on the west coast comprised 50% of
the total backlog of which San Joaquin accounted for $435 million.
Direct costs associated with construction contracts increased
$66 million or 4% to $1.6 billion in 1993. The increase is net
of a $20 million reduction in reserves previously established for
the non-sponsored Denmark tunnel project. The overall rise in
costs is directly attributable to the increase in volume. Costs as
PETER KIEWIT SONS', INC.
Results of Operations 1993 vs. 1992 (continued)
_______________________________________________
Construction (continued)
_______________________
a percentage of revenue, excluding the reduction in reserves,
approximated 90% and 91% for 1993 and 1992, respectively.
Management of the non-sponsored Denmark tunnel project completed
a cost estimate which indicated a favorable variance in the
estimated costs of the project. As a result of this revised cost
estimate and negotiations with the owner, management reduced
reserves maintained to provide for the Company's share of estimated
losses on the project. This reduction contributed to the increase
in gross margin to 11% in 1993 from 9% in 1992.
Mining
_______
Mining revenue decreased 6.5% in 1993. The renegotiation of
the agreements with Commonwealth Edison Company ("Commonwealth"),
ceased sales of undivided interests in coal reserves. Such sales
accounted for approximately $40 million or 16% of the total mining
revenue recognized in 1992. The absence of the sale of undivided
interests to Commonwealth in 1993, was partially offset by a $9
million increase in precious metal sales, a rise in tonnage shipped
and an approximate $4 increase in the average price per ton of coal
shipped. The sales of precious metals increased in 1993 due to
improved market conditions.
Alternate source coal sales by the Black Butte mine produced
the increase in the average price per ton of coal shipped.
Alternate source coal consists of coal purchased from two
unaffiliated mines located in the Powder River Basin area of
Wyoming and from a mine in which the Company has a 50% interest.
The purchased coal is sold to Commonwealth under terms of the
renegotiated agreements. Alternate source coal sales in 1993
comprised 31% of 1993 mining revenue.
The gross margin on mining revenue increased to 47% in 1993
from 43% in 1992. Alternate source coal sales, which result in
larger margins than mined coal, led to the increase.
PETER KIEWIT SONS', INC.
Results of Operations 1993 vs. 1992 (continued)
_______________________________________________
Telecommunications
__________________
In 1993, the components of telecommunications revenue were as
follows: 37% - MFS Communications Company, Inc. ("MFS")
telecommunications services; 38% - MFS network systems integration
and facilities management services; and 25% - C-TEC operations (two
months). In 1992, revenue was comprised of 44% telecommunications
services and 56% network systems integration and facilities
management services.
MFS telecommunications revenue increased from $48 million to
$70 million, an increase of 46%. The majority of the increase in
revenue resulted from sales of additional services to existing
customers and, to a lesser extent, further market penetration. The
growth of services in New York City, the expansion of networks in
Boston, Chicago and the Washington, D.C. metropolitan area, and new
services provided by MFS Datanet and MFS Intelenet also contributed
to the revenue increase.
Third party revenue from services offered by the MFS network
systems integration and facilities management segment increased
from $61 million in 1992 to $71 million in 1993, a 16% increase.
The increase primarily resulted from network systems integration
projects in the United Kingdom and for the State of Iowa. MFS
purchased the other 50% interest in a partnership providing network
systems integration services to customers in the United Kingdom,
thereby increasing revenue from that country. The network systems
integration and facilities management services segment had third
party backlog of $110 million at December 31, 1993.
Two months of C-TEC activity accounted for $48 million of
telecommunications revenues. The telephone and cable television
groups generated the majority of the revenues.
Telecommunications operating expenses increased 78% in 1993.
Components of 1993 operating expenses were: 45% - MFS
telecommunications services; 32% - MFS network systems
integration and facilities management services; and 23% - C-TEC
operating expenses. In 1992, operating expenses were 51% MFS
telecommunications services and 49% MFS network systems integration
and facilities management services.
MFS telecommunications operating expenses increased from $48
million to $80 million in 1993, a 67% increase. The increase
reflects operating costs associated with MFS Datanet and MFS
Intelenet services and higher costs associated with the new and
expanded networks. Increased depreciation of existing networks
accounted for nearly 41% of the increase.
PETER KIEWIT SONS', INC.
Results of Operations 1993 vs. 1992 (continued)
_______________________________________________
Telecommunications (continued)
_____________________________
MFS network systems integration and facilities management
services operating expenses increased from $49 million to $55
million in 1993, a 12% increase. The increase directly relates to
increased activity on several network systems integration projects,
primarily direct costs associated with the projects in the United
Kingdom and for the State of Iowa.
Two months of C-TEC activity accounted for $42 million of
telecommunications operating expenses. The telephone and cable
television groups generated the majority of these costs.
Progress on the network systems integration project for the
State of Iowa was delayed in June and July 1993 by significant
rainfall and flooding. The additional costs resulting from the
floods did not materially impact the Company's telecommunications
operations.
General and Administrative Expenses
___________________________________
Selling and administrative expenses increased 12% or $21
million in 1993. Costs incurred in developing MFS Datanet and MFS
Intelenet account for a large portion of the increase. Increased
legal costs, primarily reserves established for environmental
matters (see "Legal Proceedings"), also contributed to the
increase.
Gain on Subsidiary's Stock Issuances, net
_________________________________________
In May 1993, MFS sold 12.7 million shares of common stock to
the public at an initial offering price of $20 per share for $233
million, net of certain transaction costs. An additional 4.6
million shares were sold to the public on September 15, 1993 at a
price of $50 per share for $218 million, net of certain transaction
costs. These transactions reduced the Company's ownership interest
in MFS to 71% at December 31, 1993. Substantially all of the net
proceeds from the offerings funded MFS' growth. Prior to the
initial public offering, MFS was a wholly-owned subsidiary of
the Company.
As a result of the above transactions, the Company recognized
a pre-tax gain of $211 million representing the increase in the
Company's equity in the underlying net assets of MFS. Deferred
income taxes have been provided on this gain.
PETER KIEWIT SONS', INC.
Results of Operations 1993 vs. 1992 (continued)
_______________________________________________
Investment Income, net
______________________
Investment income decreased from $98 million in 1992 to $26
million in 1993, a decrease of 73%. The decline primarily relates
to a $40 million increase in realized losses and permanent
valuation adjustments on marketable securities, including certain
derivative securities. Interest income declined by $20 million due
to lower interest rates and to a change in portfolio mix. Dividend
income decreased by $10 million due to dividends accrued in 1992 on
an investment in United States Can Company preferred stock redeemed
in March of 1993. Slight increases in equity earnings and
miscellaneous income partially offset the declines noted above.
Interest Expense
________________
Interest expense increased by $3 million or 27% in 1993. The
increase is due to the C-TEC debt assumed in the acquisition.
Interest on C-TEC debt during the last two months approximated $6
million. The extinguishment of significant debt in 1992 partially
offset C-TEC interest.
Income Taxes
____________
The effective income tax rate for earnings from continuing
operations is 30% in 1993 and 32% in 1992. The decrease in rates
is due to adjustments to prior year tax provisions which more than
offset the effects of the increase in 1993 Federal income tax
rates. In both years, dividend exclusions and mineral depletion
expenses also reduced the overall effective rate.
PETER KIEWIT SONS', INC.
Financial Condition - December 31, 1994
_______________________________________
The Company's working capital decreased $63 million or 5% during
1994. For the year, the Company generated $165 million of cash
from operating activities, a decrease of 42% from 1993.
Cash used in investing activities includes $513 million of capital
expenditures (71% for MFS networks), $207 for MFS acquisitions, $47
million for the purchase of APAC, $29 million for the purchase
of CECI stock and $49 million in deferred development costs.
Partially offsetting these uses were $182 million of proceeds from
the sale of C-TEC's cellular properties and $158 million of net
proceeds from marketable securities activity.
Net financing activities generated $431 million during 1994, the
majority of which related to MFS and C-TEC. MFS' debt issuance
resulted in net proceeds of approximately $482 million and C-TEC
borrowings, primarily for refinancing, totalled $148 million.
C-TEC also raised $217 million, $153 from PKS, in a December
rights offering. Long-term debt paid off by C-TEC totalled $284
million.
In addition to the C-TEC and MFS activities described below,
the Company anticipates investing between $45 and $85 million
annually in its construction and mining businesses, making
significant investments in its energy businesses - including its
joint venture agreement with California Energy covering
international power project development activities - and searching
for opportunities to acquire capital intensive businesses which
provide for long-term growth. Other long-term liquidity uses
include payment of income taxes and repurchases of common stock.
The Company's current financial condition should be sufficient
for these cash requirements and future investing activities.
The funds generated from the rights issuance and the cellular sale
enabled C-TEC to fund the Megacable acquisition, pursue the Twin
County and Buffalo Valley purchases, prepay certain indebtedness
and meet its current working capital requirements. C-TEC intends
to utilize its available cash balance to develop full service
networks using certain existing cable and telephone systems, and
pursue additional acquisitions, joint ventures or similar
strategic investments in the telecommunications industry.
MFS requires significant capital to fund future building
expansion and acquisition of communications networks in major
metropolitan areas. As part of a 3-5 year $1 billion expansion
plan announced in 1993, MFS intends to invest up to $400 million
for network construction & equipment purchases in 1995.
PETER KIEWIT SONS', INC.
Financial Condition - December 31, 1994 (continued)
___________________________________________________
To continue the funding of the 1993 expansion plan, MFS expects to
finalize arrangements for a $250 million secured revolving credit
facility ("Credit Facility") with a syndicate of commercial banks
in the second quarter of 1995. MFS anticipates that the Credit
Facility, together with cash on hand and internally generated
funds, will be sufficient to fund its anticipated operating losses,
working capital needs and the remaining capital spending
requirements necessary to complete its expansion. MFS may,
however, obtain vendor financing as an alternative to utilization
of all or a portion of the Credit Facility.
MFS intends to issue approximately $250 million on mandatorily
convertible preferred stock in the second quarter of 1995 to
provide the capital necessary to fund certain opportunities
arising from recent regulatory, legislative, and competitive
developments. MFS will continue to consider other opportunities
to sell equity or debt securities in the public or private
markets to maintain the financial flexibility to react to
opportunities while cost-effectively funding the capital
investments required to implement its expansion plan.
MFS, from time to time, evaluates acquisitions in pursuit of
its business strategy, either as an alternative to constructing
networks or introducing services that complement existing and/or
planned services. Such acquisitions may be significant in size
and could use a substantial portion of MFS available cash. As
discussed above, MFS may fund future activity through additional
debt or equity financing.
MFS has also had discussions with other communications entities
concerning the establishment of possible strategic relationships,
including transactions involving acquisitions, combinations and
equity investments in MFS or one of its subsidiaries. MFS intends
to consider appropriate opportunities to establish strategic
relationships.
The Company's management has asked the Internal Revenue Service
to issue a ruling (the "Ruling") that would permit the Company
to make a tax-free distribution of its entire ownership interest
in MFS to the Company's Class D stockholders (the "Spin-off").
The Company's management intends to propose a plan (the "Plan")
to implement the Spin-off to the Company's Board of Directors
during the second quarter of 1995. If the Board of Directors
approves the Plan, and the Internal Revenue Service issues the
Ruling, the Company could complete the Spin-off as early as the
third quarter of 1995.
The Spin-off might not occur. For example, the Company might
not receive the Ruling or the Board might not adopt the plan. In
PETER KIEWIT SONS', INC.
Financial Condition - December 31, 1994 (continued)
___________________________________________________
addition, the issuance of the MFS Preferred Stock necessary to
obtain the Ruling (as described below), would require a favorable
vote from a majority of the minority common stockholders of MFS,
other than KDG, present and voting in person or by proxy at a
special MFS stockholders meeting. If the favorable vote is not
received, MFS would not be able to issue the MFS preferred stock
and the Company would not be able to complete the spin-off.
Also, the spin-off is subject to receipt of certain other
approvals, some of which might not be received. Finally, if
the Company's Board of Directors adopts the plan, it would
reserve the right to abandon, defer or modify the spin-off at
any time.
MFS has agreed in principle to issue KDG a special class of
high-vote convertible preferred stock (the "MFS Preferred Stock")
designed to permit the Company to satisfy certain requirements for
receiving the Ruling. MFS would issue the Preferred Stock to the
Company in exchange for the transfer by the Company to MFS of
approximately 3.0-3.5 million of the shares of MFS common
stock currently held by the Company. The Company anticipates
that the MFS Preferred Stock (i) would have a face value of
approximately $15-25 million, (ii) would be convertible into MFS
common stock at any time after the first anniversary of the date
the MFS Preferred Stock is issued, (iii) would have dividend rate
and a conversion premium determined by market conditions at the
time that the MFS Preferred Stock is issued, (iv) would be
redeemable at par six years after the date of issuance, and (v)
would be non transferable for six years after the date of
issuance except under certain limited circumstances. At the
option of MFS, dividends on the MFS Preferred Stock could be paid
either in cash or in shares of MFS Common Stock. Each share of
MFS Preferred Stock would have approximately five votes per share
in any election of MFS directors. If the Spin-off occurs, the
Company would distribute to Class D stockholders both the
MFS Preferred Stock and all of the common stock of MFS then held
by the Company. If the Spin-off does not occur, MFS would
not issue the MFS Preferred Stock to the Company.
The Plan would provide for an exchange offer (the "Exchange Offer")
by the Company for Class C Stock, to be completed before the
Spin-off. Under an Exchange Offer, the Company would offer to
exchange Class D Stock for some or all of its outstanding Class C
Stock on terms similar to those upon which Class C Stock can be
converted into Class D Stock during the annual conversion period
provided in the Company's Certificate of Incorporation. As a
result, Class C Stockholders wanting to convert Class C Stock to
Class D Stock would not be disadvantaged if the Spin-off were
to be completed before the next conversion permitted by the
Certificate of Incorporation. If an Exchange Offer could not be
PETER KIEWIT SONS', INC.
Financial Condition - December 31, 1994 (continued)
___________________________________________________
completed prior to the next conversion under the Certificate
of Incorporation, the Company probably would defer any Spin-off
until the first quarter of 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements and supplementary financial information
for Peter Kiewit Sons', Inc. and Subsidiaries begin on page P1.
Separate financial statements and financial statement schedules for
the Kiewit Construction & Mining Group and the Kiewit Diversified
Group have been filed as Exhibits 99.A and 99.B to this report. The
Company will furnish without charge a copy of such exhibits upon
the written request of a stockholder addressed to Stock Registrar,
Peter Kiewit Sons', Inc., 1000 Kiewit Plaza, Omaha, Nebraska 68131.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Part III is incorporated by
reference from the Company's definitive proxy statement for the
Annual Meeting of Stockholders to be held on June 10, 1995.
However, certain information is set forth under the caption
"Executive Officers of the Registrant" following Item 4 above.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
(a) Financial statements and financial statement schedules
required to be filed for the registrant under Items 8 or 14 are set
forth following the index page at page P1.
Exhibits filed as a part of this report are listed below.
Exhibits incorporated by reference are indicated in parentheses.
Exhibit
Number Description
3.1 Restated Certificate of Incorporation, effective
January 8, 1992
(Exhibit 3.1 to Company's Form 10-K for 1991).
3.4 By-laws, composite copy, including all amendments, as
of March 19, 1993
(Exhibit 3.4 to Company's Form 10-K for 1992).
10.11 Kiewit Construction and Mining Long-Term Incentive
Plan, Construction and Mining Appreciation Rights
(Exhibit 10.11 to Company's Form 10-K for 1988).
10.12 Kiewit Long-Term Incentive Plan, Stock Appreciation
Rights
(Exhibit 10.12 to Company's Form 10-K for 1988).
21 List of subsidiaries of the Company.
99.A Kiewit Construction & Mining Group Financial
Statements and Financial Statement Schedules and
Management's Discussion and Analysis of Financial
Condition and Results of Operations.
99.B Kiewit Diversified Group Financial Statements and
Financial Statement Schedules and Management's
Discussion and Analysis of Financial Condition
and Results of Operations.
(b) No Form 8-K was filed during the fourth quarter of
1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 31st day of March, 1995.
PETER KIEWIT SONS', INC.
By: /s/ R. E. Julian
Robert E. Julian
Executive Vice President -
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated on the
31st day of March, 1995.
/s/ Walter Scott, Jr. Chairman of the Board
Walter Scott, Jr. and President (principal
executive officer)
/s/ R. E. Julian Director, Executive Vice
Robert E. Julian President-Chief Financial
Officer (principal financial
officer)
/s/ Eric J. Mortensen Controller
Eric J. Mortensen (principal accounting officer)
/s/ Richard W. Colf
Richard W. Colf, Director Charles M. Harper, Director
/s/ James Q. Crowe /s/ Richard R. Jaros
James Q. Crowe, Director Richard R. Jaros, Director
/s/ Leonard W. Kearney
Robert B. Daugherty, Director Leonard W. Kearney, Director
/s/ Richard Geary
Richard Geary, Director Peter Kiewit, Jr., Director
/s/ Bruce E. Grewcock /s/ Kenneth E. Stinson
Bruce E. Grewcock, Director Kenneth E. Stinson, Director
/s/ W. L. Grewcock /s/ George B. Toll, Jr.
William L. Grewcock, Director George B. Toll, Jr., Director
PETER KIEWIT SONS', INC.
AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit
21 List of Subsidiaries of the Company.
99.A Kiewit Construction & Mining Group
Financial Statements and Financial
Statement Schedules and Management's
Discussion and Analysis of Financial
Condition and Results of Operations.
99.B Kiewit Diversified Group Financial
Statements and Financial Statement
Schedules and Management's Discussion
and Analysis of Financial Condition
and Results of Operations.
LIST OF SUBSIDIARIES*
OF
PETER KIEWIT SONS', INC.
DECEMBER 31, 1994
Peter Kiewit Sons', Inc. (Delaware)
Kiewit Construction Group Inc. (Delaware)
Kiewit Pacific Co. (Delaware)
Kiewit Mining Group Inc. (Delaware)
Kiewit Diversified Group Inc. (Delaware)
Continental Holdings Inc. (Wyoming)
CCC Canada Holding, Inc. (Delaware)
Continental Kiewit Inc. (Delaware)
Kiewit Energy Group Inc.
Kiewit Coal Properties Inc. (Delaware)
Black Butte Coal Company (50%) (joint venture)
Decker Coal Company (50%) (joint venture)
Kiewit Energy Company (Delaware)
California Energy Company, Inc.(34%) (Delaware)
MFS Communications Company, Inc. (67%) (Delaware)
MFS Datanet, Inc. (Delaware)
MFS Intelenet, Inc. (Delaware)
Centex Telemanagement, Inc. (Delaware)
MFS International, Inc. (Delaware)
MFS Telecom, Inc. (Delaware)
RCN Corporation (90%)(Delaware)
RCN Holdings, Inc. (Delaware)
C-TEC Corporation (49%)(Pennsylvania)
Commonwealth Telephone Company
(Pennsylvania)
* Only "significant" subsidiaries as defined in Rule 1-02 of
Regulation S-X are listed.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Index to Financial Statements and Financial Statement Schedules
Pages
_____
Report of Independent Accountants
Consolidated Financial Statements as of December 31,
1994 and December 25, 1993 and for the three years
ended December 31, 1994:
Consolidated Statements of Earnings
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in
Stockholders' Equity
Notes to Consolidated Financial Statements
Consolidated Financial Statement Schedule for the
three years ended December 31, 1994:
II--Valuation and Qualifying Accounts and Reserves
_________________________________________________________________
Schedules not indicated above have been omitted because of the
absence of the conditions under which they are required or because
the information called for is shown in the consolidated financial
statements or in the notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Peter Kiewit Sons', Inc.
We have audited the consolidated financial statements and the
financial statement schedule of Peter Kiewit Sons', Inc. and
Subsidiaries as listed in the index on the preceding page of this
Form 10-K. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Peter Kiewit Sons', Inc. and Subsidiaries as of
December 31, 1994 and December 25, 1993, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994 in conformity
with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information
required to be included therein.
As discussed in Note 1 to the financial statements, the Company has
changed its method of accounting for income taxes in 1992, and its
method of accounting for certain investments in debt and equity
securities in 1993.
COOPERS & LYBRAND L.L.P
Omaha, Nebraska
March 20, 1995
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
For the three years ended December 31, 1994
(dollars in millions) 1994 1993 1992
__________________________________________________________________
Revenue $ 2,991 $ 2,191 $ 2,027
Cost of Revenue (2,650) (1,876) (1,746)
________ ________ ________
341 315 281
General and Administrative
Expenses (311) (193) (172)
________ ________ ________
Operating Earnings 30 122 109
Other Income (Expense):
Gain on Subsidiary's Stock
Transactions, net 54 211 -
Investment Income, net 67 26 98
Interest Expense, net (79) (14) (11)
Other, net 15 24 23
________ ________ ________
57 247 110
________ ________ ________
Earnings from Continuing
Operations Before Income
Taxes, Minority Interest
and Cumulative Effect of
Change in Accounting
Principle 87 369 219
Provision for Income Taxes (27) (111) (69)
Minority Interest in Loss
of Subsidiaries 50 3 -
________ ________ ________
Earnings from Continuing
Operations Before
Cumulative Effect of
Change in Accounting
Principle 110 261 150
Cumulative Effect of
Change in Accounting
Principle - - 12
________ ________ ________
Earnings from Continuing
Operations 110 261 162
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
For the three years ended December 31, 1994
(continued)
(dollars in millions) 1994 1993 1992
__________________________________________________________________
Discontinued Operations:
Earnings from discontinued
operations net of income tax
of $- in 1992 - - 1
Gain on disposal of discontinued
operations net of income tax
benefit of $19 in 1992 - - 18
________ _______ _______
Net Earnings $ 110 $ 261 $ 181
======== ======= =======
__________________________________________________________________
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
For the three years ended December 31, 1994
(continued)
(dollars in millions,
except per share data) 1994 1993 1992
__________________________________________________________________
Earnings Attributable to Class
B&C Stock:
Earnings Before Cumulative
Effect of Change in Accounting
Principle $ 77 $ 80 $ 69
Cumulative Effect of Change in
Accounting Principle - - 13
_____ ______ ______
Net Earnings $ 77 $ 80 $ 82
===== ====== ======
Earnings Attributable to Class
D Stock:
Earnings from Continuing
Operations Before Cumulative
Effect of Change in Accounting
Principle $ 33 $ 181 $ 81
Cumulative Effect of Change in
Accounting Principle - - (1)
_____ ______ ______
Earnings from Continuing
Operations 33 181 80
Discontinued Operations:
Earnings - - 1
Gain on Disposal - - 18
_____ ______ ______
Net Earnings $ 33 $ 181 $ 99
===== ====== ======
Earnings Per Common and Common
Equivalent Share:
Class B&C:
Earnings Before Cumulative
Effect of Change in
Accounting Principle $ 4.92 $ 4.63 $ 3.79
Cumulative Effect of Change in
Accounting Principle - - .69
______ ______ ______
Net Earnings $ 4.92 $ 4.63 $ 4.48
====== ====== ======
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
For the three years ended December 31, 1994
(continued)
(dollars in millions,
except per share data) 1994 1993 1992
__________________________________________________________________
Class D:
Continuing Operations:
Earnings from Continuing
Operations Before Cumulative
Effect of Change in
Accounting Principle $ 1.63 $ 9.08 $ 4.00
Cumulative Effect of Change
in Accounting Principle - - (.05)
______ ______ ______
Earnings from Continuing
Operations 1.63 9.08 3.95
Discontinued Operations:
Earnings - - .04
Gain on Disposal - - .93
______ ______ ______
Net Earnings $ 1.63 $ 9.08 $ 4.92
====== ====== ======
_________________________________________________________________
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1994 and December 25, 1993
(dollars in millions) 1994 1993
__________________________________________________________________
Assets
Current Assets:
Cash and cash equivalents $ 400 $ 296
Marketable securities 910 1,082
Receivables, less allowance of $9 and $7 414 291
Note receivable from sale of discontinued
operations 29 5
Costs and earnings in excess of billings
on uncompleted contracts 126 79
Investment in construction joint ventures 69 81
Deferred income taxes 74 66
Other 93 54
_______ _______
Total Current Assets 2,115 1,954
Property, Plant and Equipment, at cost:
Land 30 29
Buildings 206 200
Equipment 1,739 1,251
_______ _______
1,975 1,480
Less accumulated depreciation and
amortization (731) (636)
_______ _______
Net Property, Plant and Equipment 1,244 844
Note Receivable from Sale of
Discontinued Operations - 29
Investments 298 288
Intangible Assets, net 749 427
Other Assets 98 92
_______ _______
$ 4,504 $ 3,634
======= =======
__________________________________________________________________
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1994 and December 25, 1993
(dollars in millions, except share data) 1994 1993
__________________________________________________________________
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 344 $ 260
Current portion of long-term debt:
Telecommunications 26 7
Other 7 8
Accrued costs and billings in excess of
revenue on uncompleted contracts 143 107
Accrued insurance costs 75 67
Other 218 140
_____ _______
Total Current Liabilities 813 589
Long-Term Debt, less current portion:
Telecommunications 827 420
Other 81 42
Deferred Income Taxes 302 335
Retirement Benefits 67 71
Accrued Reclamation Costs 103 99
Other Liabilities 127 109
Minority Interest 448 298
Stockholders' Equity:
Preferred stock, no par value, authorized
250,000 shares: no shares outstanding in
1994 and 1993 - -
Common stock, $.0625 par value, $1.6 billion
aggregate redemption value:
Class B, authorized 8,000,000 shares:
1,000,400 outstanding in 1994 and
1,180,400 outstanding in 1993 - -
Class C, authorized 125,000,000 shares:
15,087,028 outstanding in 1994 and
16,316,070 outstanding in 1993 1 1
Class D, authorized 50,000,000 shares:
20,391,568 outstanding in 1994 and
20,010,696 outstanding in 1993 1 1
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1994 and December 25, 1993
(dollars in millions, except share data) 1994 1993
__________________________________________________________________
Additional paid-in capital 182 164
Foreign currency adjustment (7) (3)
Net unrealized holding gain(loss) (8) 9
Retained earnings 1,567 1,499
_______ _______
Total Stockholders' Equity 1,736 1,671
_______ _______
$ 4,504 $ 3,634
======= =======
__________________________________________________________________
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three years ended December 31, 1994
(dollars in millions) 1994 1993 1992
__________________________________________________________________
Cash flows from operations:
Earnings from continuing
operations $ 110 $ 261 $ 162
Adjustments to reconcile
earnings from continuing
operations to net cash
provided by continuing
operations:
Cumulative effect of change
in accounting principle - - (12)
Depreciation, depletion and
amortization 217 99 86
(Gain) loss on sale of
property, plant and
equipment, and other
investments 5 23 (18)
Gain on sale of
subsidiary's stock (54) (211) -
Noncash interest expense 40 - -
Minority interest in losses (50) (3) -
Decline in market value of
investments - 21 12
Retirement benefits paid (6) (17) (8)
Deferred income taxes (42) 49 (4)
Change in working capital items:
Receivables (49) 9 (16)
Other current assets (67) (48) 18
Payables 42 47 (12)
Other liabilities 19 13 (33)
Other - 43 25
_______ _______ _______
Net cash provided by continuing
operations 165 286 200
Cash flows from investing
activities:
Proceeds from sales and
maturities of marketable
securities 1,876 4,927 6,542
Purchases of marketable
securities (1,718) (5,231) (6,629)
Acquisitions, excluding cash
acquired (254) (146) -
Proceeds from sale of
cellular properties 182 - -
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three years ended December 31, 1994
(continued)
(dollars in millions) 1994 1993 1992
__________________________________________________________________
Proceeds from sale of property,
plant and equipment, and
other investments 20 38 31
Capital expenditures (513) (192) (129)
Investments in affiliates (34) (14) (42)
Acquisition of minority
interest (6) (2) (27)
Deferred development costs
and other (49) (35) 6
_______ _______ _______
Net cash used in investing
activities (496) (655) (248)
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three years ended December 31, 1994
(continued)
(dollars in millions) 1994 1993 1992
__________________________________________________________________
Cash flows from financing
activities:
Long-term debt borrowings 693 21 3
Payments on long-term debt,
including current portion (309) (8) (98)
Net change in short-term
borrowings - (80) 80
Issuances of common stock 21 24 24
Issuances of subsidiaries' stock 70 458 -
Repurchases of common stock (31) (54) (85)
Dividends paid (13) (27) (40)
Other - - (1)
_______ _______ _______
Net cash provided by (used in)
financing activities 431 334 (117)
Cash flows from discontinued
packaging operations:
Proceeds from sales of
discontinued packaging
operations 5 110 163
Other cash provided by
(used in) discontinued
packaging operations - 20 (34)
_______ _______ _______
Net cash provided by
discontinued packaging
operations 5 130 129
Effect of exchange rates
on cash (1) (2) (4)
_______ _______ _______
Net increase (decrease) in
cash and cash equivalents 104 93 (40)
Cash and cash equivalents at
beginning of year 296 203 243
_______ _______ _______
Cash and cash equivalents at
end of year $ 400 $ 296 $ 203
======= ======= =======
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three years ended December 31, 1994
(continued)
(dollars in millions) 1994 1993 1992
__________________________________________________________________
Supplemental disclosure of cash
flow information for continuing
and discontinued operations:
Taxes $ 115 $ 83 $ 183
Interest 41 7 14
Noncash investing activities:
Issuance of MFS stock for
acquisitions $ 71 $ - $ -
MFS stock transactions to
settle contingent purchase
price adjustment 25 - -
__________________________________________________________________
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the three years ended December 31, 1994
(dollars in millions)
Class Class Net
B & C D Additional Foreign Unrealized
Common Common Paid-in Currency Holding Retained
Stock Stock Capital Adjustment Gain(Loss) Earnings Total
_____________________________________________________________________________
Balance at
December
28, 1991 $ 1 $ 1 $ 128 $ 9 $ - $1,257 $ 1,396
Issuances
of stock - - 24 - - - 24
Repurchases
of stock - - (7) - - (78) (85)
Foreign
currency
adjustment - - - (6) - - (6)
Net earnings - - - - - 181 181
Dividends:(a)
Class B&C
($.70 per
common
share) - - - - - (13) (13)
Class D
($1.95
per
common
share) - - - - - (39) (39)
Balance at
December ____ ____ _____ ____ ____ _____ _______
26, 1992 $ 1 $ 1 $ 145 $ 3 $ - $ 1,308 $ 1,458
_____________________________________________________________________________
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the three years ended December 31, 1994
(dollars in millions)
(continued)
Class Class Net
B & C D Additional Foreign Unrealized
Common Common Paid-in Currency Holding Retained
Stock Stock Capital Adjustment Gain(Loss) Earnings Total
_____________________________________________________________________________
Balance at
December
26, 1992 $ 1 $ 1 $ 145 $ 3 $ - $1,308 $ 1,458
Issuances
of stock - - 24 - - - 24
Repurchases
of stock - - (5) - - (49) (54)
Foreign
currency
adjustment - - - (6) - - (6)
Net
unrealized
holding
gain - - - - 9 - 9
Net earnings - - - - - 261 261
Dividends:(b)
Class B&C
($.70 per
common
share) - - - - - (11) (11)
Class D
($.50 per
common
share) - - - - - (10) (10)
Balance at
December ____ ____ _____ ____ ____ _______ _______
25, 1993 $ 1 $ 1 $ 164 $ (3) $ 9 $ 1,499 $ 1,671
____________________________________________________________________________
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the three years ended December 31, 1994
(dollars in millions)
(continued)
Class Class Net
B & C D Additional Foreign Unrealized
Common Common Paid-in Currency Holding Retained
Stock Stock Capital Adjustment Gain(Loss) Earnings Total
____________________________________________________________________________
Balance at
December
25, 1993 $ 1 $ 1 $ 164 $ (3) $ 9 $1,499 $ 1,671
Issuances
of stock - - 21 - - - 21
Repurchases
of stock - - (3) - - (28) (31)
Foreign
currency
adjustment - - - (4) - - (4)
Net change in
unrealized
holding
gain (loss) - - - - (17) - (17)
Net earnings - - - - - 110 110
Dividends:(c)
Class B&C
($.90 per
common
share) - - - - - (14) (14)
Balance at
December ____ ____ _____ ____ ____ _______ _______
31, 1994 $ 1 $ 1 $ 182 $ (7) $ (8) $ 1,567 $ 1,736
==== ==== ===== ==== ==== ======= =======
_____________________________________________________________________________
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the three years ended December 31, 1994
(dollars in millions)
(continued)
(a) Includes $.30 and $.35 per share for dividends on Class B&C
Stock and Class D Stock, respectively, declared in 1992 but
paid in January 1993.
(b) Includes $.40 per share for dividends on Class B&C Stock
declared in 1993 but paid in January 1994.
(c) Includes $.45 per share for dividends on Class B&C Stock
declared in 1994 but paid in January 1995.
_________________________________________________________________
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
__________________________________________
Principles of Consolidation
___________________________
The consolidated financial statements include the accounts of
Peter Kiewit Sons', Inc. and subsidiaries in which it owns
more than 50% of the voting stock ("PKS" or "the Company"),
which are engaged in enterprises primarily related to
construction, mining, telecommunications and data management
services. See Note 2 with respect to discontinued packaging
operations. Fifty-percent-owned mining joint ventures are
consolidated on a pro rata basis. All significant
intercompany accounts and transactions have been eliminated.
Investments in other companies in which the Company exercises
significant influence over operating and financial policies
and construction joint ventures are accounted for by the
equity method. The Company accounts for its share of the
operations of the construction joint ventures on a pro rata
basis in the consolidated statements of earnings.
Construction Contracts
______________________
The Company operates generally within North America as a
general contractor and engages in various types of
construction projects for both public and private owners.
Credit risk is minimal with public (government) owners since
the Company ascertains that funds have been appropriated by
the governmental project owner prior to commencing work on
public projects. Most public contracts are subject to
termination at the election of the government. In the event
of termination, the Company is entitled to receive the
contract price on completed work and reimbursement of
termination related costs. Credit risk with private owners is
minimized because of statutory mechanics liens, which give the
Company high priority in the event of lien foreclosures
following financial difficulties of private owners.
The Company recognizes revenue on long-term construction
contracts and joint ventures on the percentage-of-completion
method based upon engineering estimates of the work performed
on individual contracts. Provisions for losses are recognized
on uncompleted contracts when they become known. Claims for
additional revenue are recognized in the period when allowed.
Assets and liabilities arising from construction activities,
the operating cycle of which extends over several years, are
classified as current in the financial statements. A one-year
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(1) Summary of Accounting Policies (continued)
__________________________________________
time period is used as the basis for classification of all
other current assets and liabilities.
Coal Sales Contracts
____________________
The Company and its mining ventures have entered into various
agreements with its customers which stipulate delivery and
payment terms for the sale of coal. Prior to 1993, one of the
primary customers deferred receipt of certain commitments by
purchasing undivided fractional interests in coal reserves of
the Company and the mining ventures. Under the arrangements,
revenue was recognized when cash was received. The agreements
with this customer were renegotiated in 1992. In accordance
with the renegotiated agreements, there were no sales of
interests in coal reserves subsequent to January 1, 1993. The
Company has the obligation to deliver the coal reserves to the
customer in the future if the customer exercises its option.
If the option is exercised, the Company presently intends to
deliver coal from unaffiliated mines and a mine in which the
Company has a 50% interest. In the opinion of management, the
Company has sufficient coal reserves to cover the above sales
commitments.
The Company's coal sales contracts are with several electric
utility and industrial companies. In the event that these
customers do not fulfill contractual responsibilities, the
Company would pursue the available legal remedies.
Telecommunications Revenues
___________________________
MFS Communications Company, Inc. ("MFS") provides a variety
of telecommunications services through a number of
subsidiaries. MFS Telecom, Inc. provides dedicated circuits
for critical telecommunications needs of large business
and government customers. MFS Intelenet, Inc. provides
a single source integrated local and long distance
telecommunications services and facilities management,
primarily for medium and small businesses. MFS Network
Technologies Inc. designs, engineers, develops and installs
telecommunications networks and systems and also provides
facilities management services. MFS recognizes revenue on
telecommunications services in the month the related service
is provided. Network systems integration revenue is
recognized on the percentage-of-completion method of
accounting.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(1) Summary of Accounting Policies (continued)
__________________________________________
Telecommunications Revenues (continued)
______________________________________
C-TEC Corporation's ("C-TEC"), most significant operating
groups are its local telephone service and cable system
operations. C-TEC's telephone network access revenues are
derived from net access charges, toll rates and settlement
arrangements for traffic that originates or terminates within
C-TEC's local telephone company. Revenues from basic and
premium cable programming services are recorded in the month
the service is provided.
Concentration of credit risk with respect to accounts
receivable are limited due to the dispersion of customer base
among different industries and geographic areas and remedies
provided by terms of contracts and statutes.
Depreciation and Amortization
_____________________________
Property, plant and equipment are recorded at cost.
Depreciation and amortization for the majority of the
Company's property, plant and equipment are computed on
accelerated and straight-line methods. Depletion of mineral
properties is provided primarily on a units-of-extraction
basis determined in relation to estimated reserves.
In accordance with industry practice, certain telephone plant
owned by C-TEC valued at $232 million is depreciated based on
the estimated remaining lives of the various classes of
depreciable property and straight-line composite rates. When
property is retired, the original cost, plus cost of removal,
less salvage, is charged to accumulated depreciation.
Intangible Assets
_________________
Intangible assets consist of amounts allocated upon purchase
of existing operations and development costs. These assets are
amortized on a straight-line basis over the expected period of
benefit, which does not exceed 40 years.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(1) Summary of Accounting Policies (continued)
__________________________________________
Intangible Assets (continued)
_____________________________
The Company reviews the carrying amount of goodwill for
impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.
Measurement of any impairment would include a comparison of
estimated future operating cash flows anticipated to be
generated during the remaining life of the goodwill to the net
carrying value of the goodwill.
Pension Plans
_____________
The Company maintains defined benefit plans primarily for
retired packaging employees. Benefits paid under the plans
are based on years of service for hourly employees and years
of service and rates of pay for salaried employees.
Substantially all of C-TEC's employees are included in a
trusteed noncontributory defined benefit plan. Upon
retirement, employees are provided a monthly pension based on
length of service and compensation.
The plans are funded in accordance with the requirements of
the Employee Retirement Income Security Act of 1974.
Reserves for Reclamation
________________________
The Company follows the policy of providing an accrual for
reclamation of mined properties, based on the estimated cost
of restoration of such properties, in compliance with laws
governing strip mining.
Foreign Currencies
__________________
The local currencies of foreign subsidiaries are the
functional currencies for financial reporting purposes.
Assets and liabilities are translated into U.S. dollars at
year-end exchange rates. Revenue and expenses are translated
using average exchange rates prevailing during the year.
Gains or losses resulting from currency translation are
recorded as adjustments to stockholders' equity.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(1) Summary of Accounting Policies (continued)
__________________________________________
Subsidiary Stock Sales and Issuances
____________________________________
The Company recognizes gains and losses from the sales and
issuances of stock by its subsidiaries.
Earnings Per Share
__________________
Primary earnings per share of common stock have been computed
using the weighted average number of shares outstanding during
each year. Fully diluted earnings per share have not been
presented because it is not materially different from primary
earnings per share. The number of shares used in computing
earnings per share was as follows:
1994 1993 1992
__________ __________ __________
Class B&C 15,697,724 17,290,971 18,262,680
Class D 20,438,806 19,941,885 20,126,768
Marketable Securities and Investments
_____________________________________
On December 25, 1993, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," which
addresses the accounting and reporting of investments in
equity securities with readily determinable fair values and
all investments in debt securities. The statement does not
apply to investments in equity securities accounted for under
the equity method nor to investments in consolidated
subsidiaries.
Income Taxes
____________
In 1992, the Company adopted SFAS No. 109, "Accounting for
Income Taxes," which requires recognition of deferred tax
liabilities and assets for the expected future tax
consequences of events that have been included in the
financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on
the difference between the financial and tax basis for assets
and liabilities using enacted tax rates in effect for the year
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(1) Summary of Accounting Policies (continued)
__________________________________________
Income Taxes (continued)
_______________________
in which the differences are expected to reverse. In 1992,
the Company recorded income of $12 million which represented
the decrease in the net deferred tax liabilities as a result
of the accounting change. This amount has been reflected in
the consolidated statements of earnings as a cumulative effect
of a change in accounting principle.
Reclassifications
_________________
Where appropriate, items within the consolidated financial
statements and notes thereto have been reclassified from
previous years to conform to current year presentation.
Fiscal Year
___________
The Company's fiscal year ends on the last Saturday in
December. There were 53 weeks in fiscal 1994 and 52 weeks in
the fiscal years 1993 and 1992.
MFS and C-TEC's fiscal years end on December 31.
(2) Discontinued Operations
_______________________
In 1990, the Company's management authorized the disposition
of its packaging businesses. As a result, the consolidated
financial statements reflect the packaging businesses as
discontinued operations.
Discontinued Packaging Operations for the year ended December
26, 1992 reflect the equity earnings of the Company's
investment in a plastics joint venture, net of tax at the
statutory rate.
(3) Acquisitions
____________
During 1994 and 1993, the Company and its subsidiaries
acquired the entities described below. The Company has
accounted for the transactions as purchases and
consolidated the operating results since the acquisition
dates. Purchase prices in excess of the fair market values
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(3) Acquisitions (continued)
________________________
of net assets acquired have been recorded as goodwill.
On February 28, 1994, the Company acquired APAC-Arizona, Inc.
("APAC"), a contracting and construction materials business,
from Ashland Oil Company, Inc. for $47 million. APAC's
operations have been integrated into various construction
subsidiaries. APAC's 1993 and 1994 operating results prior
to the acquisition were not significant relative to the
Company's results.
The $17 million of goodwill from the APAC acquisition is
being amortized on a straight-line basis over 20 years.
On May 18, 1994, MFS acquired Centex Telemanagement, Inc.
("Centex") for $273 million, comprised of $202 million cash
and $71 million of assumed liabilities. Centex provides
telecommunications management services for small and
medium-sized businesses. Centex operations have been
integrated into MFS' subsidiary MFS Intelenet.
On November 1, 1994, MFS acquired Cylix Communications
Corporation ("Cylix") for $14 million, comprised of $2
million cash, $6 million MFS stock and $6 million of assumed
liabilities. Cylix's data communications services provide
connectivity from IBM compatible hosts to remote sites.
Cylix operations have been integrated into MFS' subsidiary MFS
Datanet.
On November 14, 1994, MFS acquired RealCom Office
Communications, Inc. ("RealCom") for $90 million, comprised
of $7 million cash, $53 million MFS stock and $30
million of assumed liabilities. RealCom, a provider of
telecommunications services, including long distance,
equipment and outsourcing, has been integrated into MFS
Intelenet.
Goodwill of $188 resulting from the above MFS purchases is
being amortized on a straight-line basis over a 40 year life.
In October of 1993, the Company acquired 35% and 57%
of C-TEC's outstanding shares and voting rights for $208
million. In September of 1994, C-TEC sold certain
cellular businesses for approximately $190 million. At
that time, the Company reallocated the original purchase
price, assigning the cellular businesses a fair value
equal to C-TEC's sale proceeds. The cellular results of
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(3) Acquisitions (continued)
________________________
operations for the period prior to the sale have been
consolidated and are insignificant to the Company's
operating results.
In December of 1994, through its participation in the
C-TEC rights offering ($153 million), the Company increased
its ownership in C-TEC to 49% and 58% of the outstanding
shares and voting rights. The difference between the
investment and the increase in the Company's proportionate
share of C-TEC's equity has been recorded as goodwill.
The $177 million of goodwill from the C-TEC purchases is
being amortized on a straight-line basis over lives of
30-40 years.
The following unaudited pro forma information shows the
results of the Company as though the C-TEC acquisition
occurred at the beginning of 1992 and the MFS acquisitions
occurred at the beginning of 1993. These results include
certain adjustments, primarily increased amortization, and
do not necessarily indicate future results, nor the results
of historical operations had the acquisitions actually
occurred on the assumed dates.
(in millions, except per share data)
1994 1993 1992
_______ _______ _______
Revenue $ 3,126 $ 2,686 $ 2,284
Net Earnings 93 227 175
Earnings Per Share
of Class D Stock 0.78 7.37 4.63
(4) Gain on Subsidiary's Stock Transactions, net
____________________________________________
In May 1993, MFS sold 12.7 million shares of common stock to
the public at an initial offering price of $20 per share for
$233 million, net of certain transaction costs. An additional
4.6 million shares were sold to the public in September 1993,
at a price of $50 per share for $218 million, net of certain
transaction costs. Substantially all of the net proceeds from
the offerings funded MFS' growth.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(4) Gain on Subsidiary's Stock Transactions, net (continued)
_______________________________________________________
In 1994, the Company settled a contingent purchase price
adjustment resulting from MFS' 1990 purchase of Chicago Fiber
Optic Corporation ("CFO"). The former shareholders of CFO
accepted MFS stock previously held by the Company, valued at
current market prices, as payment of the obligation.
The above transactions, along with the Cylix, RealCom and
other MFS transactions (including issuances for employee stock
options), reduced the Company's ownership in MFS to 67% and
71% at the end of 1994 and 1993. As a result, the Company
recognized gains of $54 million and $211 million in 1994 and
1993 representing the increase in its proportionate share of
MFS equity. Deferred income taxes have been provided on these
gains. The outside ownership interest has been included in
minority interest.
(5) Disposal of Packaging Businesses
________________________________
In July 1992, the Company sold its equity investment in a
plastics joint venture to Ball Corporation for $7 million. No
significant gain or loss was recognized as a result of this
transaction. The gain on disposal of discontinued operations
in 1992 resulted from a $19 million adjustment to prior year
tax estimates and an $8 million sales adjustment payment, net
of tax, and a $1 million accrual, net of tax, relating to
additional sales proceeds from the 1990 sale of Continental
PET Technologies, Inc. This gain was partially offset by
miscellaneous sales adjustments related to the 1991 and 1990
sales of certain discontinued packaging operations.
(6) Disclosures about Fair Value of Financial Instruments
_____________________________________________________
The following methods and assumptions were used to determine
classification and fair values of financial instruments:
Cash and Cash Equivalents
_________________________
Cash equivalents generally consist of highly liquid
instruments purchased with an original maturity of three
months or less. The securities are stated at cost, which
approximates fair value.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(6) Disclosures about Fair Value of Financial Instruments
(continued)
_____________________________________________________
Marketable Securities and Non-current Investments
_________________________________________________
The Company has classified all marketable securities and
non-current investments not accounted for under the equity
method as available-for-sale. The amortized cost of the
securities used in computing unrealized and realized gains and
losses are determined by specific identification. Fair values
are estimated based on quoted market prices for the securities
on hand or for similar investments. Fair values of
certificates of deposit approximate cost. Net unrealized
holding gains and losses are reported as a separate component
of stockholders' equity, net of tax.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(6) Disclosures about Fair Value of Financial Instruments
(continued)
_____________________________________________________
The following summarizes the cost, unrealized holding gains
and losses, and estimated fair values of marketable securities
and non-current investments at December 31, 1994 and December
25, 1993.
Unrealized Unrealized
Amortized Holding Holding Fair
1994 Cost Gains Losses Value
____ _________ __________ __________ _____
Kiewit Mutual
Fund:
Short-term
government $ 69 $ - $ 1 $ 68
Intermediate
term bond 232 - 5 227
Tax exempt 39 - 1 38
Equity securities 4 - 1 3
U.S. debt securities 322 - 3 319
Federal agency
securities 77 - - 77
Municipal
debt securities 15 - - 15
Corporate debt
securities 145 - 2 143
Collateralized
mortgage
obligations 12 1 3 10
Certificates of
deposit 10 - - 10
_____ ___ ____ _____
$ 925 $ 1 $ 16 $ 910
===== === ==== =====
Non-current
Investments:
Equity
securities $ 59 $ 5 $ 2 $ 62
===== === ==== =====
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(6) Disclosures about Fair Value of Financial Instruments
(continued)
_____________________________________________________
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
_________ __________ __________ _____
1993
____
Marketable
Securities:
Equity
securities $ 79 $ 2 $ 2 $ 79
U.S. debt
securities 536 - - 536
Municipal
debt
securities 136 1 - 137
Foreign
government
debt
securities 84 - - 84
Corporate debt
securities 204 - 1 203
Collateralized
mortgage
obligations 27 - - 27
Certificates
of deposit 16 - - 16
______ ______ ______ ______
$1,082 $ 3 $ 3 $1,082
====== ====== ====== ======
Non-current
Investments:
Equity
securities $ 80 $ 13 $ - $ 93
====== ====== ====== ======
For debt securities, amortized costs do not vary significantly
from principal amounts. Realized gains and losses on sales of
marketable securities were $2 million and $18 million,
respectively, in 1994, and $31 million and $64 million in
1993.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(6) Disclosures about Fair Value of Financial Instruments
(continued)
_____________________________________________________
At December 31, 1994 the contractual maturities of the debt
securities are as follows:
Amortized Cost Fair Value
______________ __________
U.S. debt securities:
less than 1 year $ 297 $ 294
1-5 years 25 25
______ ______
$ 322 $ 319
====== ======
Federal agency securities
less than 1 year $ 77 $ 77
====== ======
Municipal debt securities:
1-5 years $ 14 $ 14
5-10 years - -
over 10 years 1 1
______ ______
$ 15 $ 15
====== ======
Corporate debt securities:
less than 1 year $ 117 $ 116
1-5 years 23 22
5-10 years 1 1
over 10 years 4 4
______ ______
$ 145 $ 143
====== ======
Certificates of deposit:
less than 1 year $ 4 $ 4
1-5 years 6 6
______ ______
$ 10 $ 10
====== ======
Maturities for the mutual fund and collateralized mortgage
obligations have not been presented as they do not have a
single maturity date.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(6) Disclosures about Fair Value of Financial Instruments
(continued)
_____________________________________________________
Note Receivable from Sale of Discontinued Operations:
____________________________________________________
The carrying amount approximates fair value due to the
interest rate provided in the note.
Long-term Debt:
_______________
The fair value of debt was estimated using the incremental
borrowing rates of the Company for debt of the same remaining
maturities.
(7) Retainage on Construction Contracts
___________________________________
Marketable securities at December 31, 1994 and December 25,
1993 include approximately $61 million and $56 million,
respectively, of investments which are being held by the
owners of various construction projects in lieu of retainage.
Receivables at December 31, 1994 and December 25, 1993 include
approximately $48 million and $37 million of retainage on
uncompleted projects, the majority of which is expected to be
collected within one year.
(8) Investment in Construction Joint Ventures
_________________________________________
The Company has entered into a number of construction joint
venture arrangements. Under these arrangements, if one
venturer is financially unable to bear its share of the costs,
the other venturers will be required to pay those costs.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(8) Investment in Construction Joint Ventures (continued)
____________________________________________________
Summary joint venture financial information follows:
Financial Position (dollars in millions) 1994 1993
_____________________________________________________________
Total Joint Ventures
Current assets $ 563 $ 563
Other assets (principally
construction equipment) 50 71
______ ______
613 634
Current liabilities (503) (481)
______ ______
Net assets $ 110 $ 153
====== ======
Company's Share
Equity in net assets $ 67 $ 80
Receivable from joint ventures 2 1
______ ______
Investment in construction joint
ventures $ 69 $ 81
====== ======
Operations (dollars in millions) 1994 1993 1992
_____________________________________________________________
Total Joint Ventures
Revenue $ 1,034 $ 906 $ 575
Costs 937 841 522
_______ ______ ______
Operating income $ 97 $ 65 $ 53
======= ====== ======
Company's Share
Revenue $ 523 $ 430 $ 269
Costs 473 372 243
_______ ______ ______
Operating income $ 50 $ 58 $ 26
======= ====== ======
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(8) Investment in Construction Joint Ventures (continued)
____________________________________________________
Management of the nonsponsored Denmark tunnel project
completed a cost estimate in 1993 which indicated a favorable
variance in the estimated costs of the project. As a result of
this cost estimate and negotiations with the owner, the
Company's management reduced reserves by $20 million which had
been maintained to provide for the Company's share of
estimated losses on the project. Based on 1994 estimates,
management believes that the resolution of the uncertainties
in completing the tunnel, primarily due to adverse soil
conditions, should not materially affect the Company's
financial position or results of operations.
(9) Investments
___________
During 1994, the Company purchased additional shares of
California Energy Company, Inc. ("CECI") common stock for $29
million. These purchases, along with stock repurchases by
CECI, increased the Company's ownership interest to 29%. The
cumulative investment in common stock, accounted for on the
equity method, totals $113 million, $62 million in excess of
the Company's proportionate share of CECI's equity. The
excess investment is being amortized over 20 years. Equity
earnings, net of goodwill amortization were $5 million, $7
million and $4 million in 1994, 1993 and 1992. CECI common
stock is traded on the New York Stock Exchange. On December
31, 1994, the market value of the Company's investment in CECI
common stock was $140 million.
In 1994, 1993 and 1992, the Company also recorded dividends in
kind, of $5 million, $5 million and $4 million declared by
CECI consisting of voting convertible preferred stock. The
stock dividends brought the Company's total investment in
convertible preferred stock to $64 million at December 31,
1994. On March 15, 1995, CECI exchanged the preferred stock
for 9.5% Convertible Subordinated Debentures (the
"Debentures").
In addition to the Debentures, the Company has 5.8 million
options to purchase additional CECI shares.
In 1994, a $3 million purchase increased the Company's
interest in an electrical contracting business to 42%. The
cumulative investment in common stock, accounted for on the
equity method, totals $24 million, $3 million in excess of the
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(9) Investments (continued)
_______________________
Company's share of equity. The excess investment is being
amortized over 5 years. The contracting business is not
publicly traded and does not have a readily determinable
market value. The Company is committed to acquire 80%
ownership by 1997.
Investments also include equity securities classified as
non-current and carried at the fair value of $62 million.
(10) Intangible Assets
_________________
Intangible assets consist of the following at December 31,
1994 and December 25, 1993 (dollars in millions):
1994 1993
_____ _____
Goodwill $ 483 $ 229
Franchise and subscriber lists 145 107
Licenses and right-of-way 15 11
Noncompete agreements 15 22
Deferred development costs 65 35
Toll road franchise costs 75 40
Deferred financing costs 19 -
_____ _____
817 444
Less accumulated amortization (68) (17)
_____ _____
$ 749 $ 427
===== =====
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(11) Long-Term Debt and Unutilized Borrowing Arrangements
____________________________________________________
At December 31, 1994 and December 25, 1993, long-term debt was
as follows:
(dollars in millions) 1994 1993
_____________________________________________________________
Telecommunications:
MFS Long-term Debt (with recourse only to MFS):
9.375% Senior Discount Notes, Due 2004,
with semi-annual interest payments
1999-2004 $ 549 $ -
Notes Payable, Due 1995, (Prime plus 1.5%) 16 -
C-TEC Long-term Debt (with recourse only
to C-TEC):
Credit Agreement - National Bank for
Cooperatives (7.63% due 1999) 128 -
Mortgage notes payable to the United
States of America -
Rural Telephone Bank
5% - 6.05% - 64
6.5% - 7% - 58
Federal Financing Bank
7.69% - 8.36% - 14
Senior Secured Notes -
9.65%, with annual principal payments
1996 through 1999 (includes
unamortized premium of $6 and $7
based on imputed rate of 6.12%) 156 157
9.52% (includes unamortized premium
of $4 based on imputed rate of
6.93%) - 104
Revolving Credit Agreements and Other 4 30
______ ______
853 427
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(11) Long-Term Debt and Unutilized Borrowing Arrangements
(continued)
____________________________________________________
(dollars in millions) 1994 1993
_____________________________________________________________
Other PKS Long-term Debt:
6.5% to 11.1% Notes to former stockholders
due 1995-2001 12 16
6.25% to 10.5% Convertible debentures
due 2000-2004 8 7
Construction loans and other 68 27
______ ______
88 50
______ ______
941 477
Less current portion (33) (15)
______ _____
$ 908 $ 462
====== =====
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(11) Long-term Debt and Unutilized Borrowing Arrangements
(continued)
____________________________________________________
MFS issued the Senior Discount Notes ("Notes") in January
of 1994. The Notes are accruing to the principal amount
of $788 million through January 1999. Commencing July 15,
1999 cash interest will be payable semi-annually.
On or after January 15, 1999, the notes will be redeemable at
the option of MFS, in whole or in part, as stipulated in the
note agreement. In addition, under certain conditions related
to a change in control, MFS may be required to repurchase all
or any part of the notes as stipulated in the note agreement.
The notes are senior unsecured obligations of MFS and are
subordinated to all current and future indebtedness of MFS'
subsidiaries, including trade payables. The notes contain
certain covenants which, among other things, restrict MFS'
ability to incur additional debt, create liens, enter into
sale and leaseback transactions, pay dividends, make certain
restricted payments, enter into transactions with affiliates,
and sell assets to or merge with another company.
Notes payable consist of three notes assumed in 1994 MFS
acquisitions. The notes accrue interest at prime plus 1.5%
(10% at December 31, 1994) and mature in the first three
months of 1995. The notes are collateralized by certain
equipment of an MFS subsidiary.
In March 1994, C-TEC's Telephone Group entered into a $135
million Credit Agreement with the National Bank for
Cooperatives ("National"). The funds were used to prepay
outstanding borrowings with the United States of America.
The Senior Secured notes are collateralized by pledges of the
stock of C-TEC's cable group. The notes contain restrictive
covenants which require, among other things, specific debt to
cash flow ratios.
C-TEC's Revolving Credit agreements are collateralized by a
pledge of the stock of C-TEC's cable group subsidiaries.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(11) Long-term Debt and Unutilized Borrowing Arrangements
(continued)
____________________________________________________
The convertible debentures are convertible during October of
the fifth year preceding their maturity date. Each annual
series may be redeemed in its entirety prior to the due date
except during the conversion period. Debentures were
converted into 12,594, 14,322 and 10,468 shares of Class C
and Class D common stock in 1994, 1993 and 1992.
At December 31, 1994, 309,654 shares of Class C common stock
and 69,010 shares of Class D common stock are reserved for
future conversions.
Other PKS debt consists primarily of construction
financing of a privately owned toll road which will be
converted to term debt upon completion of the project.
Variable interest rates on this debt ranged from 5% to 10% at
December 31, 1994.
The Company capitalized $7 million of interest in 1994.
With the exception of MFS, the fair value of debt
approximates the carrying amount. The MFS debt has
a fair market value of $496 million at December 31, 1994.
Scheduled maturities of long-term debt through 1999 are as
follows (in millions): 1995 - $33; 1996 - $39; 1997 - $56
1998 - $59 and $62 in 1999.
The Company has the following unutilized borrowing
arrangements at December 31, 1994:
C-TEC's telephone group's agreement with National provides
for an additional $7 million of borrowings. The agreement
requires C-TEC to invest in Rural Telephone Bank stock for
approximately 5% of the available amount.
C-TEC's Revolving Credit agreements provide for an additional
$22 million of borrowings collateralized by stock pledges from
the cable group. The total commitments are reduced on a
quarterly basis through maturity in September 1996.
C-TEC also has an unused line of credit for $13 million under
which unsecured borrowings may be made. Unused lines are
cancelable at the option of the lenders.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(12) Income Taxes
____________
An analysis of the provision for income taxes related to
continuing operations before minority interest and cumulative
effect of change in accounting principle for the three years
ended December 31, 1994 follows:
(dollars in millions) 1994 1993 1992
_____________________________________________________________
Current:
U.S. federal $ 54 $ 52 $ 62
Foreign 10 2 5
State 5 8 6
_____ _____ _____
69 62 73
Deferred:
U.S. federal (29) 51 (2)
Foreign (5) (1) (4)
State (8) (1) 2
_____ _____ _____
(42) 49 (4)
_____ _____ _____
$ 27 $ 111 $ 69
===== ===== =====
The United States and foreign components of earnings, for tax
reporting purposes, from continuing operations before minority
interest, income taxes and cumulative effect of change in
accounting principle follow:
(dollars in millions) 1994 1993 1992
_____________________________________________________________
United States $ 71 $ 362 $ 215
Foreign 16 7 4
_____ _____ _____
$ 87 $ 369 $ 219
===== ===== =====
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(12) Income Taxes (continued)
_______________________
A reconciliation of the actual provision for income taxes and
the tax computed by applying the U.S. federal rate (35% in
1994 and 1993 and 34% in 1992) to the earnings from continuing
operations before minority interest, income taxes and
cumulative effect of change in accounting principle for the
three years ended December 31, 1994 follows:
(dollars in millions) 1994 1993 1992
_____________________________________________________________
Computed tax at statutory rate $ 30 $ 129 $ 74
State income taxes 3 4 5
Depletion (4) (4) (4)
Dividend exclusion (3) (4) (3)
Tax exempt interest (4) - -
Equity earnings - - (3)
Prior year tax adjustments (54) (13) -
Unutilized tax benefits due to
net operating loss of MFS 50 - -
Goodwill amortization 4 - -
Other 5 (1) -
_____ _____ _____
$ 27 $ 111 $ 69
===== ===== =====
The Company files a consolidated federal income tax return
including its domestic subsidiaries as allowed by the
Internal Revenue Code. Possible taxes, beyond those provided,
on remittances of undistributed earnings of foreign
subsidiaries are not expected to be material.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(12) Income Taxes (continued)
_______________________
The components of the net deferred tax liabilities for the
years ended December 31, 1994 and December 25, 1993 were as
follows:
(dollars in millions) 1994 1993
_____________________________________________________________
Deferred tax liabilities:
Investments in joint ventures $ 69 $ 78
Investments in subsidiaries 101 84
Asset bases - accumulated depreciation 200 196
Deferred coal sales 11 26
Other 32 34
_____ _____
Total deferred tax liabilities 413 418
_____ _____
Deferred tax assets:
Construction accounts 12 16
Insurance claims 39 20
Compensation - retirement benefits 21 22
Provision for estimated expenses 10 8
Net operating losses of subsidiaries 84 52
Alternative minimum tax credits
of subsidiary 13 11
Other 58 37
Valuation allowance (52) (17)
_____ _____
Total deferred tax assets 185 149
_____ _____
Net deferred tax liabilities $ 228 $ 269
===== =====
The Company's subsidiaries have federal income tax net
operating loss carryforwards of approximately $225 million
which begin to expire in 1997.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(13) Employee Benefit Plans
______________________
The Company makes contributions, based on collective
bargaining agreements related to its construction operations,
to several multi-employer union pension plans. These
contributions are included in the cost of revenue. Under
federal law, the Company may be liable for a portion of plan
deficiencies; however, there are no known deficiencies.
The Company's defined benefit pension plans cover primarily
packaging employees who retired prior to the disposition of
the packaging operations. The expense related to these plans
was approximately $1 million in 1994, $7 million in 1993 and
$1 million in 1992.
C-TEC maintains a separate defined benefit plan for
substantially all of its employees. The prepaid pension cost
and income related to this plan is not significant at December
31, 1994 or at December 25, 1993.
The Company also has a long-term incentive plan, consisting of
stock appreciation rights, for certain employees. The expense
related to this plan was $2 million, $3 million, and $6
million in 1994, 1993 and 1992.
Substantially all employees of the Company, with the exception
of stockholders and MFS and C-TEC employees, are covered under
the Company's profit sharing plans. The expense related to
these plans was $2 million, $2 million and $3 million in 1994,
1993 and 1992.
(14) Postretirement Benefits
_______________________
In addition to providing pension and other supplemental
benefits, the Company provides certain health care and life
insurance benefits primarily for packaging employees who
retired prior to the disposition of certain packaging
operations and C-TEC employees. Employees become eligible for
these benefits if they meet minimum age and service
requirements or if they agree to contribute a portion of the
cost. These benefits have not been funded.
The net periodic costs for health care benefits were $1
million in 1994 and $4 million in 1993 and 1992. The net
periodic costs for life insurance benefits were $1 million, $2
million, and $2 million in 1994, 1993, and 1992. In all
years, the costs related primarily to interest on accumulated
benefits.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(14) Postretirement Benefits (continued)
___________________________________
The accrued postretirement benefit liability as of December
31, 1994 was as follows:
Health Life
(dollars in millions) Insurance Insurance
__________________________________________________________
Retirees $ 31 $ 15
Fully eligible active plan
participants - -
Other active plan participants 1 _
______ ______
Total accumulated postretirement
benefit obligation 32 15
Unrecognized prior service cost 21 1
Unrecognized net loss (5) (1)
______ ______
Accrued postretirement benefit
liability $ 48 $ 15
====== ======
The unrecognized prior service cost resulted from certain
modifications to the postretirement benefit plan which reduced
the accumulated postretirement benefit obligation. The
Company may make additional modifications in the future.
A 7.7% increase in the cost of covered health care benefits
was assumed for fiscal 1994. This rate is assumed to
gradually decline to 6.2% in the year 2020 and remain at that
level thereafter. A 1% increase in the health care trend rate
would increase the accumulated postretirement benefit
obligation ("APBO") by less than $1 million at year-end 1994.
The weighted average discount rate used in determining the
APBO was 8.0%.
(15) Stockholders' Equity
____________________
Under the Company's Restated Certificate of Incorporation,
effective January 8, 1992, the Company now has three classes
of common stock: Class B Construction and Mining Group
Nonvoting Restricted Redeemable Convertible exchangeable
Common Stock ("Class B"), Class C Construction and Mining
Group Restricted Redeemable Convertible Exchangeable Common
Stock ("Class C"), and Class D Diversified Group Convertible
Exchangeable Common Stock ("Class D"). In connection with a
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(15) Stockholders' Equity (continued)
_______________________________
reclassification in January 1992, each "old" Class B share was
exchanged for one "new" Class B share and one Class D share,
and each "old" Class C share was exchanged for one "new" Class
C share and one Class D share.
New Class B and Class C shares can be issued only to Company
employees and can be resold only to the Company at a formula
price based on the book value of the Construction & Mining
Group. The Company is generally required to repurchase Class
B and Class C shares for cash upon stockholder demand. Class
D shares have a formula price based on the book value of the
Diversified Group. The Company must generally repurchase
Class D shares for cash upon stockholder demand at the formula
price, unless the Class D shares become publicly traded.
Although almost all the Class D shares are owned by employees
and former employees, such shares are not subject to ownership
or transfer restrictions.
In the event of liquidation, after the holders of any
preferred stock have been paid the par value and any accrued
and unpaid dividends, the Board of Directors will establish
two liquidation accounts, the "B&C Liquidation Account" and
the "D Liquidation Account." The assets of the liquidation
accounts will be distributed as follows: first, Class B&C
stockholders will receive an amount equal to $1.00 per share,
reducing the B&C Liquidation Account; second, Class D
stockholders will receive an amount equal to $2.00 per share,
reducing the D Liquidation Account; and third, any amount
remaining in the B&C Liquidation Account shall be distributed
pro rata to the Class B&C stockholders, and any amount
remaining in the D Liquidation Account shall be distributed
pro rata to the Class D stockholders.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(15) Stockholders' Equity (continued)
_______________________________
For the three years ended December 31, 1994, issuances and
repurchases of common shares, including conversions, were as
follows:
Class B Class C Class D
Common Common Common
Stock Stock Stock
_____________________________________________________________
Shares issued in 1992 - 2,886,418 1,019,553
Shares repurchased in 1992 137,000 4,765,161 1,693,353
Shares issued in 1993 - 1,027,657 748,026
Shares repurchased in 1993 76,600 2,217,122 841,808
Shares issued in 1994 - 1,018,144 777,556
Shares repurchased in 1994 180,000 2,247,186 396,684
(16) Investment Income, net
______________________
Investment income includes interest income of $69 million,
$54 million and $74 million in 1994, 1993 and 1992, gains and
losses on the sales of securities, equity earnings and
dividend income. Partially offsetting interest income was
$16 million, $53 million and $14 million in losses on the
sales of securities and the permanent writedown of certain
derivative and other securities in 1994, 1993 and 1992.
(17) Other, net
__________
Other is primarily gains and losses on sales of property,
plant and equipment and other assets. In 1994, 1993
and 1992 the net gain on the sales of these assets was $15
million, $12 million and $14 million. Also, included in
1994 was a $6 million loss on the early extinguishment of
debt.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(18) Industry and Geographic Data
____________________________
The Company operates primarily in three reportable segments:
construction, mining and telecommunications.
A summary of the Company's operations by geographic area and
industry follows:
Geographic Data (dollars in millions) 1994 1993 1992
_____________________________________________________________
Revenue:
United States $ 2,676 $ 1,942 $ 1,815
Canada 233 175 182
Other 82 74 30
_______ _______ _______
$ 2,991 $ 2,191 $ 2,027
======= ======= =======
Operating earnings:
United States $ 17 $ 97 $ 112
Canada 14 3 (3)
Other (1) 22 -
_______ _______ _______
$ 30 $ 122 $ 109
======= ======= =======
Identifiable assets:
United States $ 3,611 $ 2,628 $ 1,316
Canada 105 82 90
Other areas 27 29 21
Corporate (1) 761 895 1,122
_______ _______ _______
$ 4,504 $ 3,634 $ 2,549
======= ======= =======
(1) Principally cash, cash equivalents, marketable securities,
notes receivable from sales of discontinued operations and
investments in all years.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(18) Industry and Geographic Data (continued)
________________________________________
Industry Data (dollars in millions) 1994 1993 1992
_____________________________________________________________
Revenue:
Construction $ 2,143 $ 1,757 $ 1,659
Mining 246 230 246
Telecommunications 578 189 109
Other 24 15 13
_______ _______ _______
$ 2,991 $ 2,191 $ 2,027
======= ======= =======
Operating earnings:
Construction $ 55 $ 85 $ 57
Mining 106 98 96
Telecommunications (109) (24) (11)
Other (22) (37) (33)
_______ _______ _______
$ 30 $ 122 $ 109
======= ======= =======
Identifiable assets:
Construction $ 895 $ 816 $ 852
Mining 162 167 175
Telecommunications 2,575 1,682 363
Other 111 74 37
Corporate (1) 761 895 1,122
_______ _______ _______
$ 4,504 $ 3,634 $ 2,549
======= ======= =======
Capital expenditures:
Construction $ 61 $ 48 $ 37
Mining 3 5 8
Telecommunications 426 127 80
Other 12 5 -
Corporate 11 7 4
_______ _______ _______
$ 513 $ 192 $ 129
======= ======= =======
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(18) Industry and Geographic Data (continued)
________________________________________
Industry Data (dollars in millions) 1994 1993 1992
_____________________________________________________________
Depreciation, depletion and
amortization:
Construction $ 49 $ 43 $ 45
Mining 11 13 12
Telecommunications 149 35 21
Other 6 6 6
Corporate 2 2 2
_______ ______ ______
$ 217 $ 99 $ 86
======= ====== ======
(1) Principally cash, cash equivalents, marketable securities,
notes receivable from sales of discontinued operations and
investments in all years.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(19) Summarized Financial Information
________________________________
Holders of Class B&C Stock (Construction & Mining Group) and
Class D Stock (Diversified Group) are stockholders of PKS.
The Construction & Mining Group contains the Company's
traditional construction and materials operations performed by
Kiewit Construction Group Inc. and certain mining services,
performed by Kiewit Mining Group Inc. The Diversified Group
contains coal mining properties owned by Kiewit Coal
Properties Inc., communications companies owned by MFS and
C-TEC, a data management services company, a minority interest
in CECI and miscellaneous investments. Corporate assets and
liabilities which are not separately identified with the
ongoing operations of the Construction & Mining Group or the
Diversified Group are allocated equally between the groups.
A summary of the results of operations and financial position
for the Construction & Mining Group and the Diversified Group
follows. These summaries were derived from the audited
financial statements of the respective groups which are
exhibits to this Annual Report.
All significant intercompany accounts and transactions, except
those directly between the Construction & Mining Group and the
Diversified Group, have been eliminated.
Construction & Mining Group:
1994 1993 1992
____________________________________________________________
Results of Operations:
Revenue $ 2,175 $ 1,783 $ 1,675
======= ======= =======
Earnings before cumulative
effect of change in
accounting principle $ 77 $ 80 $ 69
Cumulative effect of change in
accounting principle - - 13
_______ _______ ______
Net Earnings $ 77 $ 80 $ 82
======= ======= ======
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(19) Summarized Financial Information (continued)
____________________________________________
Earnings per Share:
Earnings before cumulative
effect of change in
accounting principle $ 4.92 $ 4.63 $ 3.79
Cumulative effect of change in
accounting principle - - .69
_______ _______ _______
Net Earnings $ 4.92 $ 4.63 $ 4.48
======= ======= =======
Financial Position:
Working capital $ 333 $ 372 $ 342
Total assets 967 889 862
Long-term debt, less current
portion 9 10 12
Stockholders' equity 505 480 437
Included within earnings before income taxes is mine service
income from the Diversified Group of $19 million, after-tax,
in 1994, 1993 and 1992.
Diversified Group:
1994 1993 1992
____________________________________________________________
Results of Operations:
Revenue $ 821 $ 408 $ 352
======= ======= =======
Earnings from continuing
operations before cumulative
effect of change in accounting
principle $ 33 $ 181 $ 81
Cumulative effect of change in
accounting principle - - (1)
Discontinued operations - - 19
_______ _______ _______
Net Earnings $ 33 $ 181 $ 99
======= ======= =======
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(19) Summarized Financial Information (continued)
____________________________________________
Earnings per Share:
Earnings from continuing
operations before cumulative
effect of change in
accounting principle $ 1.63 $ 9.08 $ 4.00
Cumulative effect of change in
accounting principle - - (.05)
Discontinued operations - - .97
_______ _______ ______
Net Earnings $ 1.63 $ 9.08 $ 4.92
======= ======= ======
Financial Position:
Working capital $ 969 $ 993 $ 796
Total assets 3,549 2,759 1,709
Long-term debt, less current
portion 899 452 18
Stockholders' equity 1,231 1,191 1,021
Included within earnings from continuing operations before
income taxes is mine management fees paid to the Kiewit
Construction & Mining Group of $19 million, after-tax, in
1994, 1993 and 1992.
(20) Other Matters
_____________
The Company's management has asked the Internal Revenue
Service to issue a ruling (the "Ruling") that would permit the
Company to make a tax-free distribution of its entire
ownership interest in MFS to the Company's Class D
stockholders (the "Spin-off"). The Company's management
intends to propose a plan (the "Plan") to implement the
Spin-off to the Company's Board of Directors during the second
quarter of 1995. If the Board of Directors approves the Plan,
and the Internal Revenue Service issues the Ruling, the
Company could complete the Spin-off as early as the third
quarter of 1995.
The Spin-off might not occur. For example, the Company might
not receive the Ruling or the Board might not adopt the plan.
In addition, the issuance of the MFS Preferred Stock necessary
to obtain the Ruling (as described below), would require a
favorable vote from a majority of the minority common
stockholders of MFS, other than KDG, present and voting in
person or by proxy at a special MFS stockholders meeting. If
the favorable vote is not received, MFS would not be able to
issue the MFS preferred stock and the Company would not be
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(20) Other Matters (continued)
_________________________
able to complete the spin-off. Also, the spin-off is subject
to receipt of certain other approvals, some of which might not
be received. Finally, if the Company's Board of Directors
adopts the plan, it would reserve the right to abandon, defer
or modify the spin-off at any time.
MFS has agreed in principle to issue KDG a special class of
high-vote convertible preferred stock (the "MFS Preferred
Stock") designed to permit the Company to satisfy certain
requirements for receiving the Ruling. MFS would issue the
Preferred Stock to the Company in exchange for the transfer by
the Company to MFS of approximately 3.0-3.5 million of the
shares of MFS common stock currently held by the Company. The
Company anticipates that the MFS Preferred Stock (i) would
have a face value of approximately $15-25 million, (ii) would
be convertible into MFS common stock at any time after the
first anniversary of the date the MFS Preferred Stock is
issued, (iii) would have dividend rate and a conversion
premium determined by market conditions at the time that the
MFS Preferred Stock is issued, (iv) would be redeemable at par
six years after the date of issuance, and (v) would be non
transferable for six years after the date of issuance except
under certain limited circumstances. At the option of MFS,
dividends on the MFS Preferred Stock could be paid either in
cash or in shares of MFS Common Stock. Each share of MFS
Preferred Stock would have approximately five votes per share
in any election of MFS directors. If the Spin-off occurs, the
Company would distribute to Class D stockholders both the
MFS Preferred Stock and all of the common stock of MFS then
held by the Company. If the Spin-off does not occur, MFS
would not issue the MFS Preferred Stock to the Company.
The Plan would provide for an exchange offer (the "Exchange
Offer") by the Company for Class C Stock, to be completed
before the Spin-off. Under an Exchange Offer, the Company
would offer to exchange Class D Stock for some or all of its
outstanding Class C Stock on terms similar to those upon which
Class C Stock can be converted into Class D Stock during the
annual conversion period provided in the Company's Certificate
of Incorporation. As a result, Class C Stockholders wanting
to convert Class C Stock to Class D Stock would not be
disadvantaged if the Spin-off were to be completed before the
next conversion permitted by the Certificate of Incorporation.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(20) Other Matters (continued)
_________________________
If an Exchange Offer could not be completed prior to the next
conversion under the Certificate of Incorporation, the Company
probably would defer any Spin-off until the first quarter of
1996.
The Company is involved in various lawsuits, claims and
regulatory proceedings incidental to its business. Management
believes that any resulting liability, beyond that provided,
should not materially affect the Company's financial position
or results of operations.
In many pending proceedings, the Company is one of numerous
defendants who may be "potentially responsible parties" liable
for the cleanup of hazardous substances deposited in landfills
or other sites. The Company has established reserves to cover
its probable liabilities for environmental cases and believes
that any additional liabilities will not materially affect the
Company's financial condition or results of operations.
In 1994, several former stockholders of an MFS subsidiary
filed a lawsuit against MFS, Kiewit Diversified Group, Inc.
("KDG") and the chief executive officer of MFS, in the United
States District Court for the Northern District of Illinois,
Case No. 94C-1381. These shareholders sold shares of the
subsidiary to MFS in September 1992. MFS completed an
initial public offering in May 1993. Plaintiffs allege that
MFS fraudulently concealed material information about its
plans from them, causing them to sell their shares at an
inadequate price. Plaintiffs have alleged damages of at least
$100 million. Defendants have meritorious defenses and intend
to vigorously contest this lawsuit. Defendants expect that
a trial will be held in the summer of 1995. Prior to the
initial public offering, KDG agreed to indemnify MFS against
any liabilities arising from the September 1992 sale; if MFS
is deemed to be liable to plaintiffs, KDG will be required to
satisfy MFS' liabilities pursuant to the indemnity agreement.
If the spin-off is approved by the Company's Board of
Directors and is consummated, KDG would remain obligated to
satisfy these liabilities. Any settlement amount would be
treated as an adjustment of the original purchase price and
recorded as additional goodwill.
It is customary in the Company's industries to use various
financial instruments in the normal course of business. These
instruments include items such as letters of credit. Letters
of credit are conditional commitments issued on behalf of the
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(20) Other Matters (continued)
_________________________
Company in accordance with specified terms and conditions. As
of December 31, 1994, the Company had outstanding letters of
credit of approximately $124 million.
A subsidiary of the Company, Continental Holdings Inc. remains
contingently liable as a guarantor of $103 million of debt
relating to various businesses which have been sold.
The Company leases various buildings and equipment under both
operating and capital leases. Minimum rental payments on
buildings and equipment subject to noncancelable operating
leases during the next 16 years aggregate $238 million.
In 1974, a subsidiary of the Company ("Kiewit"), entered into
a lease agreement with Whitney Benefits, Inc., a Wyoming
charitable corporation ("Whitney"). Whitney is the owner, and
Kiewit is the lessee, of a coal deposit underlying
approximately a 1,300 acre tract in Sheridan County, Wyoming.
The coal was rendered unmineable by the Surface Mining Control
and Reclamation Act of 1977 ("SMCRA"), which prohibited
surface mining of coal in certain alluvial valley floors
significant to farming. In 1983, Whitney and Kiewit filed an
action now titled Whitney Benefits, Inc. and Peter Kiewit
Sons', Co. v. The United States, in the U.S. Court of Federal
Claims ("Claims Court") alleging that the enactment of SMCRA
constituted a taking of their coal without just compensation.
In 1989, the Claims Court ruled that a taking had occurred and
awarded plaintiffs the 1977 fair market value of the property
($60 million) plus interest. In 1991, the U.S. Court of
Appeals for the Federal Circuit affirmed the decision of the
Claims Court and the U.S. Supreme Court denied certiorari.
In February 1994, the Claims Court issued an opinion which
provided that the $60 million judgement would bear interest
compounded annually from 1977 until payment. Interest for the
1977-1994 period is $249 million. Kiewit and Whitney have
agreed that Kiewit and Whitney will receive 67.5 and 32.5
percent, respectively, of any award. Any payments received
by Kiewit will be the property of Peter Kiewit Sons', Co.,
a subsidiary of KDG.
The government filed two post-trial motions in the Claims
Court during 1992. The government requested a new trial
to redetermine the 1977 value of the property. The
government also filed a motion to reopen and set aside
the 1989 judgement as void and to dismiss plaintiff's
complaint for lack of jurisdiction. In May 1994, the
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(20) Other Matters (continued)
_________________________
Claims Court entered an order denying both motions. The
government appealed that order, as well as the order
regarding compound interest. A hearing on these appeals
was held on February 10, 1995. It is not presently known
when these proceedings will be concluded, what amount Kiewit
will ultimately receive, nor when payment will occur.
(21) Subsequent Events
_________________
In February 1995, CECI completed the purchase of Magma
Power Company. The cash transaction, valued at $950
million was partially financed by the sale of 17 million
shares of common stock at $17 per share. As part of this
transaction, the Company purchased 1.5 million shares,
effectively reducing its ownership percentage of common stock
in CECI to 22%.
C-TEC entered into a merger agreement with Twin County Trans
Video, Inc. ("Twin County") and its shareholders. Twin County
provides cable television service to 74,000 subscribers in
eastern Pennsylvania. The transaction, subject to regulatory
approval and other conditions, is expected to close in
the second quarter of 1995. In consideration for all
the capital stock of Twin County, C-TEC will pay $48
million in cash, issue a $4 million note and issue $52
million in exchangeable preferred stock of its
subsidiary, C-TEC Cable Systems, Inc. The preferred stock
will be exchangeable in C-TEC common stock under certain
conditions.
In January 1995, C-TEC entered into an agreement to purchase
Buffalo Valley Telephone Company. The aggregate
consideration for the purchase ($55 million) will be a
combination of cash and convertible preferred stock in the
Telephone Group. The transaction is expected to close in
the third quarter of 1995. Buffalo Valley Telephone
Company provides local telephone service to 17,300 access
lines in central Pennsylvania.
Also in January 1995, C-TEC purchased, for $84 million in
cash, a forty percent equity position in Megacable, S.A.
De C.V., Mexico's second largest cable television operator
with 174,000 subscribers in twelve cities. The purchase
price is subject to adjustments based on fourth quarter
1995 exchange rates.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(21) Subsequent Events (continued)
____________________________
In March 1995 the Company settled its liability with
respect to certain postretirement life insurance benefits.
The Company has purchased insurance coverage from a third
party insurance company for approximately $14 million to be
paid over the next seven years.
The postretirement life insurance benefits were provided for
packaging employees who retired prior to the disposition of
certain packaging operations. The settlement will not have a
material impact on the Company's financial position or
results of operations.
SCHEDULE II
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Additions Amounts
Balance, Charged to Charged Balance
(dollars Beginning Costs and to End of
in millions) of Period Expenses Reserves Other Period
__________________________________________________________________
Year ended
December
31, 1994
__________
Allowance
for doubtful
trade
accounts $ 7 $ 5 $ (3) $ - $ 9
Reserves:
Insurance
claims 67 19 (11) - 75
Retirement
benefits 71 2 (6) - 67
Year ended
December
25, 1993
__________
Allowance
for doubtful
trade
accounts $ 7 $ 5 $ (6) $ 1 $ 7
Reserves:
Insurance
claims 66 14 (13) - 67
Retirement
benefits 74 12 (17) 2 71
SCHEDULE II
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
(continued)
Additions Amounts
Balance, Charged to Charged Balance
(dollars Beginning Costs and to End of
in millions) of Period Expenses Reserves Other Period
__________________________________________________________________
Year ended
December
26, 1992
__________
Allowance
for doubtful
trade
accounts $ 7 $ 1 $ (1) $ - $ 7
Reserves:
Insurance
claims 61 20 (15) - 66
Retirement
benefits 58 8 (8) 16 (a) 74
__________________________________________________________________
(a) In 1992, adjustments made in accordance with SFAS No. 109 to
adjust remaining retirement benefits, acquired in prior
business acquisitions, recorded net of tax, to their pre-tax
amounts.
[ARTICLE] 5
[LEGEND]
This schedule contains summary financial information extracted from the Form
10-K for the period ending December 31, 1994 and is qualified in its entirety by
reference to such financial statements
[/LEGEND]
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1994
[PERIOD-END] DEC-31-1994
[CASH] 400
[SECURITIES] 910
[RECEIVABLES] 443
[ALLOWANCES] 9
[INVENTORY] 0
[CURRENT-ASSETS] 2,115
[PP&E] 1,975
[DEPRECIATION] 731
[TOTAL-ASSETS] 4,504
[CURRENT-LIABILITIES] 813
[BONDS] 908
[COMMON] 2
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 1,734
[TOTAL-LIABILITY-AND-EQUITY] 4,504
[SALES] 2,392
[TOTAL-REVENUES] 2,991
[CGS] 2,108
[TOTAL-COSTS] 2,650
[OTHER-EXPENSES] 311
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 79
[INCOME-PRETAX] 87
[INCOME-TAX] 27
[INCOME-CONTINUING] 110
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 110
[EPS-PRIMARY] $4.92
[EPS-DILUTED] $4.92
$4.92 represents Class C Stock earnings per share. Class "D" stock earnings
per share; $1.63.
EXHIBIT 99.A
KIEWIT CONSTRUCTION & MINING GROUP
Index to Financial Statements
and Financial Statement Schedules and
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Pages
_____
Report of Independent Accountants
Financial Statements as of December 31, 1994 and
December 25, 1993 and for the three years ended
December 31, 1994:
Statements of Earnings
Balance Sheets
Statements of Cash Flows
Statements of Changes in Stockholders' Equity
Notes to Financial Statements
Financial Statement Schedule for the three years
ended December 31, 1994:
II--Valuation and Qualifying Accounts and Reserves
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Schedules not indicated above have been omitted because of the
absence of the conditions under which they are required or because
the information called for is shown in the financial statements or
in the notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Peter Kiewit Sons', Inc.
We have audited the financial statements and the financial
statement schedule of Kiewit Construction & Mining Group, a
business group of Peter Kiewit Sons', Inc. (as defined in Note 1 to
these financial statements) as listed in the index on the preceding
page of this exhibit to Form 10-K. These financial statements and
financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, when
read in conjunction with the consolidated financial statements of
Peter Kiewit Sons', Inc. and Subsidiaries, present fairly, in all
material respects, the financial position of Kiewit Construction &
Mining Group as of December 31, 1994 and December 25, 1993, and the
results of its operations and its cash flows for each of the three
years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles. In addition, in
our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the
information required to be included therein.
As discussed in Note 2 to the financial statements, the Group has
changed its method of accounting for income taxes in 1992, and its
method of accounting for certain investments in debt and equity
securities in 1993.
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
March 20, 1995
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Earnings
For the three years ended December 31, 1994
(dollars in millions, except per
share data) 1994 1993 1992
__________________________________________________________________
Revenue $ 2,175 $ 1,783 $ 1,675
Cost of Revenue (1,995) (1,588) (1,516)
________ ________ ________
180 195 159
General and Administrative
Expenses (121) (113) (111)
________ ________ ________
Operating Earnings 59 82 48
Other Income (Expense):
Investment Income (Loss) 13 (1) 20
Interest Expense (2) (3) (2)
Other, net 46 40 46
________ ________ ________
57 36 64
________ ________ ________
Earnings Before Income
Taxes and Cumulative
Effect of Change in
Accounting Principle 116 118 112
Provision for Income Taxes (39) (38) (43)
________ ________ ________
Earnings Before Cumulative
Effect of Change in
Accounting Principle 77 80 69
Cumulative Effect of Change in
Accounting Principle - - 13
________ ________ ________
Net Earnings $ 77 $ 80 $ 82
======== ======== ========
Net Earnings Per Common and
Common Equivalent Share:
Earnings Before Cumulative
Effect of Change in
Accounting Principle $ 4.92 $ 4.63 $ 3.79
Cumulative Effect of Change
in Accounting Principle - - .69
________ ________ ________
$ 4.92 $ 4.63 $ 4.48
======== ======== ========
__________________________________________________________________
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Balance Sheets
December 31, 1994 and December 25, 1993
(dollars in millions) 1994 1993
__________________________________________________________________
Assets
Current Assets:
Cash and cash equivalents $ 70 $ 99
Marketable securities 156 183
Receivables, less allowance of $7 and $5 260 215
Costs and earnings in excess of billings on
uncompleted construction contracts 101 75
Investment in construction joint ventures 69 81
Deferred income taxes 59 48
Other 23 18
______ ______
Total Current Assets 738 719
Property, Plant and Equipment, at cost:
Land 15 14
Buildings 36 28
Equipment 484 449
______ ______
535 491
Less accumulated depreciation and
amortization (395) (384)
______ ______
Net Property, Plant and Equipment 140 107
Deferred Income Taxes 4 9
Other Assets 85 54
______ ______
$ 967 $ 889
====== ======
__________________________________________________________________
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Balance Sheets
December 31, 1994 and December 25, 1993
(dollars in millions) 1994 1993
__________________________________________________________________
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, including retainage of
$41 and $37 $ 179 $ 148
Current portion of long-term debt 3 4
Accrued construction costs and billings in
excess of revenue on uncompleted contracts 106 87
Accrued insurance costs 73 65
Other 44 43
_____ _____
Total Current Liabilities 405 347
Long-Term Debt, less current portion 9 10
Other Liabilities 48 52
Stockholders' Equity (Redeemable Common
Stock, $411 million aggregate redemption
value)
Common equity 513 483
Foreign currency adjustment (7) (3)
Unrealized holding loss (1) -
_____ _____
Total Stockholders' Equity 505 480
_____ _____
$ 967 $ 889
===== =====
________________________________________________________________
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Cash Flows
For the three years ended December 31, 1994
(dollars in millions) 1994 1993 1992
__________________________________________________________________
Cash flows from operations:
Net earnings $ 77 $ 80 $ 82
Adjustments to reconcile net
earnings to net cash provided
by operations:
Cumulative effect of change
in accounting principle - - (13)
Depreciation and amortization 52 48 47
(Gain) loss on sale of property,
plant and equipment, and other
assets (11) 15 (11)
Change in other noncurrent
liabilities 5 7 16
Deferred income taxes (3) 4 (12)
Change in working capital items:
Receivables (21) 5 (9)
Costs and earnings in excess of
billings on uncompleted
construction contracts (26) (22) 18
Investment in construction joint
ventures 12 (33) (3)
Other current assets (5) 7 1
Accounts payable 19 (9) (9)
Accrued construction costs and
billings in excess of revenue
on uncompleted contracts 19 (8) (21)
Other liabilities (3) 3 (6)
Other (19) (10) 11
_____ ______ ______
Net cash provided by operations 96 87 91
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Cash Flows
For the three years ended December 31, 1994
(continued)
(dollars in millions) 1994 1993 1992
__________________________________________________________________
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 266 773 931
Purchases of marketable securities (245) (741) (983)
Proceeds from sale of property, plant
and equipment 26 14 19
Capital expenditures (76) (54) (40)
APAC Arizona, Inc. acquisition (47) - -
Investment in affiliates (1) (9) (16)
Other - (3) (5)
_____ _____ _____
Net cash used in investing activities (77) (20) (94)
__________________________________________________________________
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Cash Flows
For the three years ended December 31, 1994
(continued)
(dollars in millions) 1994 1993 1992
__________________________________________________________________
Cash flows from financing activities:
Long-term debt borrowings $ 2 $ 2 $ 2
Payments on long-term debt,
including current portion (4) (2) (9)
Issuances of common stock 20 16 24
Repurchases of common stock (11) (14) (21)
Dividends paid (13) (10) (7)
Exchange of Class B&C Stock for
Class D Stock, net (42) (26) (32)
Other 1 - -
______ ______ ______
Net cash used in financing activities (47) (34) (43)
Effect of exchange rates on cash (1) (2) (4)
______ ______ ______
Net increase (decrease) in cash
and cash equivalents (29) 31 (50)
Cash and cash equivalents at
beginning of year 99 68 118
______ ______ ______
Cash and cash equivalents at
end of year $ 70 $ 99 $ 68
====== ====== ======
Supplemental disclosures of cash
flow information:
Taxes $ 49 $ 54 $ 66
Interest 2 3 3
__________________________________________________________________
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Changes in Stockholders' Equity
For three years ended December 31, 1994
(dollars in millions, except per
share data) 1994 1993 1992
__________________________________________________________________
Common equity:
Balance at beginning of year $ 483 $ 438 $ 398
Issuances of stock 20 16 24
Repurchases of stock (11) (14) (21)
Exchange of Class B&C Stock for
Class D Stock, net (42) (26) (32)
Net earnings 77 80 82
Dividends (per share: $ .90 in
1994, $.70 in 1993, and $.70
in 1992) (a) (14) (11) (13)
______ ______ ______
Balance at end of year $ 513 $ 483 $ 438
====== ====== ======
Other equity adjustments:
Balance at beginning of year $ (3) $ (1) $ 2
Foreign currency adjustment (4) (2) (3)
Unrealized Holding Loss (1) - -
______ ______ ______
Balance at end of year $ (8) $ (3) $ (1)
====== ====== ======
Total stockholders' equity $ 505 $ 480 $ 437
====== ====== ======
__________________________________________________________________
(a) Dividends include $.45, $.40, and $.30 for dividends declared
in 1994, 1993 and 1992 but paid in January of the subsequent
year.
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(1) Basis of Presentation
_____________________
The Class B&C Stock and the Class D Stock are designed to
provide stockholders with separate securities reflecting the
performance of Peter Kiewit Sons', Inc.'s ("PKS") construction
business and certain mining services ("Construction & Mining
Group") and its other businesses ("Diversified Group"),
respectively. Dividends on the Class B&C Stock are limited to
the legally available funds of PKS less the Class D formula
value which is to be reduced by any dividends on Class D Stock
declared during the current year. Subject to this limitation,
the Board of Directors intends to declare and pay dividends
on the Class B&C Stock based primarily on the Construction &
Mining Group's separately reported financial condition and
results of operations.
The financial statements of the Construction & Mining Group
include the financial position, results of operations and cash
flows for PKS' construction business and certain mining
service businesses held by wholly-owned subsidiaries, Kiewit
Construction Group Inc. and Kiewit Mining Group Inc.,
respectively, and a portion of the PKS corporate assets and
liabilities and related transactions which are not separately
identified with the ongoing operations of the Construction &
Mining Group or the Diversified Group. These financial
statements have been prepared using the historical amounts
included in the PKS consolidated financial statements.
Corporate amounts reflected in these financial statements are
determined based upon methods which management believes to be
reasonable.
Although the financial statements of PKS' Construction &
Mining Group and Diversified Group separately report the
assets, liabilities and stockholders' equity of PKS attributed
to each such group, legal title to such assets and
responsibility for such liabilities will not be affected by
such attribution. Holders of Class B&C Stock and Class D Stock
are stockholders of PKS. Accordingly, the PKS consolidated
financial statements and related notes should be read in
conjunction with these financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies
__________________________________________
Principles of Group Presentation
________________________________
These financial statements include the accounts of the
Construction & Mining Group ("the Group"). The Group's and
Diversified Group's financial statements, taken together,
comprise all the accounts included in the PKS consolidated
financial statements. All significant intercompany accounts
and transactions, except those directly between the Group and
the Diversified Group, have been eliminated. Investments in
construction joint ventures and other companies in which the
Group exercises significant influence over operating and
financial policies are accounted for by the equity method.
The Group accounts for its share of the operations of the
construction joint ventures on a pro rata basis in the
statements of earnings.
Construction Contracts
______________________
The Group operates generally within the United States and
Canada as a general contractor and engages in various types of
construction projects for both public and private owners.
Credit risk is minimal with public (government) owners since
the Group ascertains that funds have been appropriated by the
governmental project owner prior to commencing work on public
projects. Most public contracts are subject to termination at
the election of the government. In the event of termination,
the Group is entitled to receive the contract price on
completed work and reimbursement of termination related costs.
Credit risk with private owners is minimized because of
statutory mechanics liens, which give the Group high priority
in the event of lien foreclosures following financial
difficulties of private owners.
The Group recognizes revenue on long-term construction
contracts and joint ventures on the percentage-of-completion
method based upon engineering estimates of the work performed
on individual contracts. Provisions for losses are recognized
on uncompleted contracts when they become known. Claims for
additional revenue are recognized in the period when allowed.
Assets and liabilities arising from construction activities,
the operating cycle of which extends over several years, are
classified as current in the financial statements. A one-year
time period is used as the basis for classification of all
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies (continued)
______________________________________________________
Construction Contracts (continued)
__________________________________
other current assets and liabilities.
The costs to repair equipment used on construction contracts
are charged against such contracts and included in cost of
revenue.
Depreciation and Amortization
_____________________________
Property, plant and equipment are recorded at cost.
Depreciation and amortization are computed on accelerated and
straight-line methods.
Foreign Currencies
__________________
The local currencies of foreign subsidiaries are the
functional currencies for financial reporting purposes.
Assets and liabilities are translated into U.S. dollars at
year-end exchange rates. Revenue and expenses are translated
using average exchange rates prevailing during the year.
Gains or losses resulting from currency translation are
recorded as adjustments to stockholders' equity.
Earnings Per Share
__________________
Primary earnings per share of Class B&C Stock have been
computed using the weighted average number of shares
outstanding during each year. The number of shares used in
computing primary earnings per share was 15,697,724 in 1994,
17,290,971 in 1993 and 18,262,680 in 1992. Fully diluted
earnings per share have not been presented because it is not
significantly different from primary earnings per share.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies (continued)
______________________________________________________
Marketable Securities
_____________________
On December 25, 1993, the Group adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which addresses
the accounting and reporting of investments in equity
securities with readily determinable fair values and all
investments in debt securities. The statement does not apply
to investments in equity securities accounted for under the
equity method nor to investments in consolidated subsidiaries.
No significant impact resulted from adopting SFAS No. 115.
Income Taxes
____________
At the beginning of 1992, the Group adopted Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes," which requires recognition of deferred tax
liabilities and assets for the expected future tax
consequences of events that have been included in the
financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on
the difference between the financial and tax basis of assets
and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. In 1992, the
Group recorded income of $13 million, which represented the
increase in the net deferred tax assets, as a result of the
accounting change. This amount has been reflected in the
statements of earnings as a cumulative effect of change in
accounting principle.
Reclassifications
_________________
Where appropriate, items within the financial statements and
notes thereto have been reclassified from previous years to
conform to current year presentation.
Fiscal Year
___________
The Group's fiscal year ends on the last Saturday in December.
There were 53 weeks in fiscal 1994 and 52 weeks in the fiscal
years 1993 and 1992.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(3) Corporate Activities
____________________
Financial Structure
___________________
Cash, cash equivalents and marketable securities were
allocated to the Group and the Diversified Group based on the
desired capital structure of the two groups at December 28,
1991. Financial statement impacts of dividends paid to holders
of Class B&C Stock and repurchases and issuances of Class B&C
Stock in 1994, 1993 and 1992 were reflected in their entirety
in the Group's financial statements.
The desired capital structure at December 28, 1991 for the
Group was stockholders' equity of $400 million. It was
determined by PKS management that this was the appropriate
level of equity at December 28, 1991 necessary for the Group
to continue its traditional construction and mining service
businesses, based upon certain factors such as contract
volume, prequalification requirements to bid on projects,
bonding requirements of its outside insurance company, and
working capital requirements. The capital structure of the
Diversified Group consisted of the remaining equity of PKS and
provided the equity and liquidity to allow the Diversified
Group the opportunity to invest in capital intensive
businesses, a primary objective of the reorganization.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(3) Corporate Activities (continued)
________________________________
Financial Structure (continued)
_______________________________
PKS has corporate assets, liabilities and related income and
expense which are not separately identified with the ongoing
operations of the Group or the Diversified Group. The Group's
50% portion is as follows (in millions):
1994 1993
_____ _____
Cash and cash equivalents $ 25 $ 47
Marketable securities 15 11
Property, plant and equipment, net 5 12
Other assets 16 11
_____ _____
Total Assets $ 61 $ 81
===== =====
Accounts payable $ 30 $ 27
Convertible debentures 1 2
Notes to former stockholders 6 8
Liability for stock appreciation rights 1 2
Other liabilities 1 5
_____ _____
Total Liabilities $ 39 $ 44
===== =====
1994 1993 1992
_____ _____ _____
Net investment income
(expense) $ 1 $ (1) $ 3
Other income (expense) (2) 1 1
Corporate General and Administrative Costs
__________________________________________
A portion of corporate general and administrative costs has
been allocated to the Group based upon certain measures of
business activities, such as employment, investments and
sales, which method management believes to be reasonable. The
allocations were $21 million, $26 million, and $27 million in
1994, 1993 and 1992.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(3) Corporate Activities (continued)
________________________________
Income Taxes
____________
All domestic members of the PKS affiliated group are included
in the consolidated U.S. income tax return filed by PKS as
allowed by the Internal Revenue Code. Accordingly, the
provision for income taxes and the related payments or refunds
of tax are determined on a consolidated basis.
The financial statement provision and actual cash tax payments
have been reflected in the Group's and the Diversified Group's
financial statements in accordance with PKS' tax allocation
policy for such groups. In general, such policy provides that
the consolidated tax provision and related cash flows and
balance sheet amounts are allocated between the Group and the
Diversified Group, for group financial statement purposes,
based principally upon the financial income, taxable income,
credits, preferences and other amounts directly related to
the respective groups. The provision for estimated United
States income taxes for the Group does not differ materially
from that which would have been determined on a separate
return basis.
(4) Acquisitions
____________
On February 28, 1994, the Group acquired APAC-Arizona, Inc.
("APAC"), a contracting and construction materials business,
from Ashland Oil Company, Inc. for $47 million. APAC's
operations have been integrated into various construction
subsidiaries. APAC's 1993 and 1994 operating results
prior to the acquisition were not significant relative to
the Group's results.
The $17 million of goodwill from the APAC acquisition is
being amortized on a straight-line basis over 20 years.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(5) Disclosures about Fair Value of Financial Instruments
_____________________________________________________
The following methods and assumptions were used to determine
classification and fair values of financial instruments:
Cash and Cash Equivalents
_________________________
Cash equivalents generally consist of highly liquid
instruments purchased with an original maturity of three
months or less. The securities are stated at cost, which
approximates fair value.
Marketable Securities
_____________________
The Group has classified all marketable securities as
available-for-sale. The amortized cost of the securities used
in computing unrealized and realized gains and losses are
determined by specific identification. Fair values are
estimated based on quoted market prices for the securities on
hand or for similar investments. Fair values of certificates
of deposit approximate cost. Net unrealized holding gains and
losses, if any, are reported as a separate component of
stockholders' equity, net of tax.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(5) Disclosures about Fair Value of Financial Instruments
(continued)
_____________________________________________________
The following summarizes the cost, unrealized holding gains
and losses, and estimated fair values of marketable securities
and other investments at December 31, 1994 and December 25,
1993.
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
_________ __________ __________ _____
1994
____
Kiewit Mutual
Fund:
Short-term
government $ 27 $ - $ - $ 27
Intermediate
term bond 30 - 1 29
Tax exempt 34 - 1 33
U.S. debt
securities 46 - - 46
Municipal debt
securities 11 - - 11
Certificates of
deposit 10 - - 10
_____ ___ ____ _____
$ 158 $ - $ 2 $ 156
===== === ==== =====
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(5) Disclosures about Fair Value of Financial Instruments
(continued)
_____________________________________________________
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
_________ __________ __________ _____
1993
____
Equity securities $ 29 $ - $ - $ 29
U.S. debt securities 40 - - 40
Municipal debt
securities 48 1 - 49
Corporate debt
securities 49 - 1 48
Collateralized
mortgage
obligations 2 - - 2
Certificates
of deposit 15 - - 15
_____ ___ ___ _____
$ 183 $ 1 $ 1 $ 183
===== === === =====
For debt securities, amortized costs do not vary significantly
from principal amounts. Realized gains and losses on sales of
marketable securities were less than $1 million and $2 million
in 1994 and $2 million and $25 million in 1993.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(5) Disclosures about Fair Value of Financial Instruments
(continued)
_____________________________________________________
The contractual maturities of the debt securities are as
follows:
Amortized Cost Fair Value
______________ __________
U.S. debt securities:
less than 1 year $ 23 $ 23
1-5 years 23 23
_____ _____
$ 46 $ 46
===== =====
Municipal debt securities:
less than 1 year $ - $ -
1-5 years 10 10
5-10 years - -
over 10 years 1 1
_____ _____
$ 11 $ 11
===== =====
Certificates of deposit:
less than 1 year $ 4 $ 4
1-5 years 6 6
_____ _____
$ 10 $ 10
===== =====
Maturities for the mutual fund have not been presented as
it does not have a single maturity date.
Long-term Debt
______________
The fair value of debt was estimated using the incremental
borrowing rates of the Group for debt of the same remaining
maturities and approximates the carrying amount.
(6) Retainage on Construction Contracts
___________________________________
Marketable securities at December 31, 1994 and December 25,
1993 include approximately $61 million and $56 million,
of investments which are being held by the owners of various
construction projects in lieu of retainage.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(6) Retainage on Construction Contracts (continued)
______________________________________________
Receivables at December 31, 1994 and December 25, 1993 include
approximately $48 million and $37 million, of retainage on
uncompleted projects, the majority of which is expected to be
collected within one year.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(7) Investment in Construction Joint Ventures
_________________________________________
The Group has entered into a number of construction joint
venture arrangements. Under these arrangements, if one
venturer is financially unable to bear its share of the costs,
the other venturers will be required to pay those costs.
Summary joint venture financial information follows:
Financial Position (dollars in millions) 1994 1993
_____________________________________________________________
Total Joint Ventures
Current assets $ 563 $ 563
Other assets (principally
construction equipment) 50 71
______ ______
613 634
Current liabilities (503) (481)
______ ______
Net assets $ 110 $ 153
====== ======
Group's Share
_____________
Equity in net assets $ 67 $ 80
Receivable from joint ventures 2 1
______ ______
Investment in construction joint
ventures $ 69 $ 81
====== ======
Operations (dollars in millions) 1994 1993 1992
_____________________________________________________________
Total Joint Ventures
____________________
Revenue $ 1,034 $ 906 $ 575
Costs 937 841 522
_______ ______ ______
Operating income $ 97 $ 65 $ 53
======= ====== ======
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(7) Investment in Construction Joint Ventures (continued)
_____________________________________________________
Operations (dollars in millions) 1994 1993 1992
_____________________________________________________________
Group's Share
_____________
Revenue $ 523 $ 430 $ 269
Costs 473 372 243
______ ______ ______
Operating income $ 50 $ 58 $ 26
====== ====== ======
Management of the nonsponsored Denmark tunnel project
completed a cost estimate in 1993 which indicated a favorable
variance in the estimated costs of the project. As a result
of this cost estimate and negotiations with the owner, the
Group's management reduced reserves by $20 million which
had been maintained to provide for the Group's share of
estimated losses on the project. Based on 1994 estimates,
management believes that the resolution of the uncertainties
in completing the tunnel, primarily due to adverse soil
conditions, should not materially affect the Group's financial
position or results of operations.
(8) Other Assets
____________
Other assets includes the Group's equity method investments,
investment in partnerships and the net goodwill recognized in
the APAC acquisition. In 1994, a $3 million purchase increased
the Group's interest in ME Holdings, Inc, an electrical
contracting business, to 42%. The cumulative investment in
common stock, accounted for on the equity method, totals $24
million, $3 million in excess of the Group's share of equity.
The excess investment is being amortized over 5 years. The
contracting business is not publicly traded and does not have
a readily determinable market value. The Group is committed
to acquire 80% ownership by 1997.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(9) Long-Term Debt
______________
At December 31, 1994 and December 25, 1993, long-term debt
consisting of a portion of PKS' notes to former stockholders
and convertible debentures which have been allocated to the
Group and the Diversified Group, and specifically attributed
debt was as follows:
(dollars in millions) 1994 1993
_____________________________________________________________
6.5%-11.1% Notes to former stockholders,
1995-2001 $ 6 $ 8
6.25%-10.50% Convertible debentures,
2000-2004 6 3
Other - 3
____ ____
12 14
Less current portion (3) (4)
____ ____
$ 9 $ 10
==== ====
The convertible debentures are convertible during October of
the fifth year preceding their maturity date. Each annual
series may be redeemed in its entirety prior to the due date
except during the conversion period. Debentures were
converted into 12,594, 14,322 and 10,468 shares of Class C
common stock in 1994, 1993 and 1992. At December 25, 1994,
309,654 shares of Class C common stock are reserved for future
conversions.
Scheduled maturities of long-term through 1999 are as follows
(in millions): 1995 - $3; 1996 - $2; 1997 - $1, 1998 - $1 and
1999 - $3.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(10) Income Taxes
____________
An analysis of the provision (benefit) for income taxes
relating to earnings before cumulative effect of change in
accounting principle for the three years ended December 31,
1994 follows:
(dollars in millions) 1994 1993 1992
_____________________________________________________________
Current:
U.S. federal $ 33 $ 28 $ 47
Foreign 8 2 5
State 1 4 3
_____ _____ _____
42 34 55
_____ _____ _____
Deferred:
U.S. federal - 4 (10)
Foreign (1) 1 (4)
State (2) (1) 2
_____ _____ _____
(3) 4 (12)
_____ _____ _____
$ 39 $ 38 $ 43
===== ===== =====
The United States and foreign components of earnings for tax
reporting purposes, before income taxes and cumulative effect
of change in accounting principle follow:
(dollars in millions) 1994 1993 1992
_____________________________________________________________
United States $ 101 $ 111 $ 110
Foreign 15 7 2
_____ _____ _____
$ 116 $ 118 $ 112
===== ===== =====
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(10) Income Taxes (continued)
________________________
A reconciliation of the actual provision for income taxes and
the tax computed by applying the U.S. federal rate (35% in
1994 and 1993 and 34% in 1992) to the earnings before income
taxes and cumulative effect of change in accounting principle
for the three years ended December 31, 1994 follows:
(dollars in millions) 1994 1993 1992
_____________________________________________________________
Computed tax at statutory rate $ 41 $ 41 $ 38
State income taxes 3 1 3
Prior year tax adjustments (3) - -
Other (2) (2) 2
Effect of federal income tax
rate change - (2) -
_____ _____ _____
$ 39 $ 38 $ 43
===== ===== =====
Possible taxes, beyond those provided, on remittances of
undistributed earnings of foreign subsidiaries are not
expected to be material.
The components of the net deferred tax assets as of December
31, 1994 and December 25, 1993 were as follows:
(dollars in millions) 1994 1993
_____________________________________________________________
Deferred tax assets:
Construction accounts $ 12 $ 16
Investments in construction joint
ventures 14 13
Insurance claims 29 24
Compensation 6 6
Other 14 11
_____ _____
Total deferred tax assets 75 70
Deferred tax liabilities:
Other (12) (13)
_____ _____
Total deferred tax liabilities (12) (13)
_____ ______
Net deferred tax assets $ 63 $ 57
===== ======
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(11) Employee Benefit Plans
______________________
The Group makes contributions, based on collective bargaining
agreements related to its construction operations, to several
multi-employer union pension plans. These contributions are
included in construction contract costs. Under federal law,
the Group may be liable for a portion of future plan
deficiencies; however, there are no known deficiencies.
The Group also has a long-term incentive plan, stock
appreciation rights, for certain employees. The expense
related to this plan was $1 million in 1994, $2 million in
1993 and $4 million in 1992. Substantially all employees of
the Group, with the exception of stockholders, are covered
under the Group's profit sharing plans. The expense related to
these plans was $1 million in 1994, 1993 and 1992.
(12) Stockholders' Equity
____________________
Ownership of the Class B&C Stock is restricted to certain
employees conditioned upon the execution of repurchase
agreements which restrict the employees from transferring the
stock. PKS is generally committed to purchase all Class B&C
Stock at the amount computed pursuant to the Restated
Certificate of Incorporation. Issuances and repurchases of
common shares, including conversions, for the three years
ended December 31, 1994 were as follows:
____________________________________________________________
B&C
Stock
_________
Shares issued in 1992 2,886,418
Shares repurchased in 1992 4,902,161
Shares issued in 1993 1,027,657
Shares repurchased in 1993 2,293,722
Shares issued in 1994 1,018,144
Shares repurchased in 1994 2,427,186
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(13) Investment Income, net
______________________
Investment income is comprised of interest income of $12
million, $13 million and $17 million for 1994, 1993 and
1992, dividend income, gains and losses on the sale and
writedown of securities and equity earnings.
(14) Other, net
__________
Other is principally mine service income of $29 million in
1994, 1993 and 1992 from the Diversified Group and gains and
losses from the sale and disposition of property, plant and
equipment and other miscellaneous assets.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(15) Industry and Geographic Data
____________________________
The Group's operations are primarily conducted in one business
segment; construction contracting.The following is derived
from geographic information in the PKS consolidated financial
statements as it relates to the Group.
Geographic Data (dollars in millions) 1994 1993 1992
_____________________________________________________________
Revenue:
United States $ 1,896 $ 1,556 $ 1,470
Canada 233 175 182
Other 46 52 23
_______ _______ _______
$ 2,175 $ 1,783 $ 1,675
======= ======= =======
Operating earnings:
United States $ 45 $ 57 $ 51
Canada 14 3 (3)
Other - 22 -
_______ _______ ______
$ 59 $ 82 $ 48
======= ======= ======
Identifiable assets:
United States $ 787 $ 713 $ 682
Canada 105 82 90
Other areas 14 13 9
Corporate (1) 61 81 81
_______ _______ ______
$ 967 $ 889 $ 862
======= ======= ======
_________________________________________________________________
(1) 50% of PKS corporate assets not identifiable to a specific
group.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(16) Other Matters
_____________
PKS's management has asked the Internal Revenue Service to
issue a ruling (the "Ruling") that would permit PKS to make a
tax-free distribution of its entire ownership interest in MFS
to PKS's Class D stockholders (the "Spin-off"). PKS's
management intends to propose a plan (the "Plan") to implement
the Spin-off to PKS's Board of Directors during the second
quarter of 1995. If the Board of Directors approves the Plan,
and the Internal Revenue Service issues the Ruling, PKS
could complete the Spin-off as early as the third quarter of
1995.
The Spin-off might not occur. For example, PKS might not
receive the Ruling or the Board might not adopt the plan.
In addition, the issuance of the MFS Preferred Stock necessary
to obtain the Ruling (as described below), would require a
favorable vote from a majority of the minority common
stockholders of MFS, other than KDG, present and voting in
person or by proxy at a special MFS stockholders meeting. If
the favorable vote is not received, MFS would not be able to
issue the MFS preferred stock and PKS would not be able to
complete the spin-off. Also, the spin-off is subject
to receipt of certain other approvals, some of which might not
be received. Finally, if PKS's Board of Directors
adopts the plan, it would reserve the right to abandon, defer
or modify the spin-off at any time.
MFS has agreed in principle to issue KDG a special class of
high-vote convertible preferred stock (the "MFS Preferred
Stock") designed to permit PKS to satisfy certain
requirements for receiving the Ruling. MFS would issue the
Preferred Stock to KDG in exchange for the transfer by
KDG to MFS of approximately 3.0-3.5 million of the
shares of MFS common stock currently held by KDG. PKS
anticipates that the MFS Preferred Stock (i) would
have a face value of approximately $15-25 million, (ii) would
be convertible into MFS common stock at any time after the
first anniversary of the date the MFS Preferred Stock is
issued, (iii) would have dividend rate and a conversion
premium determined by market conditions at the time that the
MFS Preferred Stock is issued, (iv) would be redeemable at par
six years after the date of issuance, and (v) would be non
transferable for six years after the date of issuance except
under certain limited circumstances. At the option of MFS,
dividends on the MFS Preferred Stock could be paid either in
cash or in shares of MFS Common Stock. Each share of MFS
Preferred Stock would have approximately five votes per share
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(16) Other Matters (continued)
_________________________
in any election of MFS directors. If the Spin-off occurs,
PKS would distribute to Class D stockholders both the
MFS Preferred Stock and all of the common stock of MFS then
held by KDG. If the Spin-off does not occur, MFS
would not issue the MFS Preferred Stock to KDG.
The Plan would provide for an exchange offer (the "Exchange
Offer") by PKS for Class C Stock, to be completed
before the Spin-off. Under an Exchange Offer, PKS would offer
to exchange Class D Stock for some or all of its outstanding
Class C Stock on terms similar to those upon which Class C
Stock can be converted into Class D Stock during the annual
conversion period provided in PKS's Certificate of
Incorporation. As a result, Class C Stockholders wanting
to convert Class C Stock to Class D Stock would not be
disadvantaged if the Spin-off were to be completed before the
next conversion permitted by the Certificate of Incorporation.
If an Exchange Offer could not be completed prior to the next
conversion under the Certificate of Incorporation, the Company
probably would defer any Spin-off until the first quarter of
1996.
The Group is involved in various lawsuits and claims
incidental to its business. Management believes that any
resulting liability, beyond that provided, should not
materially affect the Group's financial position or results
of operations.
The Group leases various buildings and equipment under both
operating and capital leases. Minimum rental payments on
buildings and equipment subject to noncancellable operating
leases during the next 16 years aggregate $11 million.
It is customary in the Group's industry to use various
financial instruments in the normal course of business. These
instruments include items such as letters of credit. Letters
of credit are conditional commitments issued on behalf of the
Group in accordance with specified terms and conditions. As
of December 31, 1994, the Group had outstanding letters of
credit of approximately $84 million.
SCHEDULE II
KIEWIT CONSTRUCTION & MINING GROUP
Valuation and Qualifying Accounts and Reserves
Additions Amounts
Balance Charged to Charged Balance
Beginning Costs and to End of
(dollars in millions) of Period Expenses Reserves Other Period
___________________________________________________________________
Year ended
December 31,
1994
______________
Allowance for
doubtful trade
accounts $ 5 $ 4 $ (2) $ - $ 7
Reserves:
Insurance claims 65 19 (11) - 73
Year ended
December 25,
1993
______________
Allowance for
doubtful trade
accounts $ 2 $ 4 $ (1) $ - $ 5
Reserves:
Insurance claims 66 13 (13) (1) 65
Year ended
December 26,
1992
______________
Allowance for
doubtful trade
accounts $ 2 $ 1 $ (1) $ - $ 2
Reserves:
Insurance claims 61 20 (15) - 66
KIEWIT CONSTRUCTION & MINING GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
___________________________________________________________
The financial statements of the Construction & Mining Group
(the "Group") include the financial position, results of operations
and cash flows for the construction business and certain mining
services of Peter Kiewit Sons', Inc. ("PKS") and a portion of the
corporate assets and liabilities and related transactions which are
not separately identified with ongoing operations of the
Construction & Mining Group or the Diversified Group. The Group's
share of corporate assets and liabilities and related transactions
includes amounts to reflect certain financial activities, corporate
general and administrative costs and income taxes. See Notes 1 and
3 to the Group's financial statements.
Revenue from each of the Group's business segments was (in
millions):
1994 1993 1992
_______ _______ _______
Construction $ 2,148 $ 1,757 $ 1,659
Other 27 26 16
_______ _______ _______
$ 2,175 $ 1,783 $ 1,675
======= ======= =======
Results of Operations - 1994 vs. 1993
_____________________________________
Construction
____________
Construction revenue increased by $391 million or 22% in 1994.
The Group's share of joint venture revenue also rose by 22% in 1994
and accounted for 24% of total construction revenue in 1994 and
1993. Several large contracts awarded in 1992 and early 1993
contributed to the overall increase in revenue, the largest of
which was the San Joaquin Toll Road Joint Venture ("San Joaquin").
Also contributing to the increase were revenues generated from the
APAC acquisition. Contract backlog at December 31, 1994 was $2.2
billion, of which 16% is attributable to foreign operations,
principally, Canada and the Philippines. Projects on the west
coast account for 40% of the total backlog which includes San
Joaquin revenues of $333 million. San Joaquin is scheduled for
completion in 1997.
Direct costs associated with construction contracts increased
$409 million or 26% to $2.0 billion in 1994. Costs as a
percentage of revenue were approximated 92% and 89% for 1994 and
1993, respectively.
KIEWIT CONSTRUCTION & MINING GROUP
Results of Operations - 1994 vs. 1993 (continued)
________________________________________________
Construction (continued)
________________________
In 1994, the margins were adversely affected by cost
overruns and a more competitive market environment. A $20 million
reduction of reserves previously established for the Denmark tunnel
project favorably impacted 1993 margins.
General and Administrative Expenses
___________________________________
Moderate increases in professional services fees, insurance costs
and other administrative departments were primarily responsible
for the 7% increase in general and administrative costs.
Investment Income (Loss)
________________________
Investment income increased to $13 million in 1994 from a $1
million loss in 1993. The improvement is directly attributable to
the decline in losses from the sale and writedown of derivative and
other securities from $18 million in 1993 to $2 million in 1994.
Other, net
__________
Significantly higher equipment sales led to an increase in the
gains recognized on the sale of property, plant and equipment in
1994 to $13 million from $8 million in 1993.
Income Taxes
____________
The effective income tax rates of 34% and 32% in 1994 and 1993
differ from the statutory rates primarily because of prior year tax
adjustments in 1994 and the effect of the Federal income tax rate
change on deferred tax assets in 1993.
Results of Operations - 1993 vs. 1992
_____________________________________
Construction
____________
Construction revenue increased by $98 million or 6% in 1993.
The Group's share of joint venture revenue rose by 60% and
accounted for 24% of the total construction revenue for the period
as compared to 16% for 1992. Several large contracts awarded in
1992 and early 1993 contributed to the overall increase. The
KIEWIT CONSTRUCTION & MINING GROUP
Results of Operations - 1993 vs. 1992 (continued)
________________________________________________
Construction (continued)
________________________
increase in joint venture revenue was partially offset by a small
decrease in sole contract revenue recognized due to a decrease in
the average size of sole contracts awarded. Contract backlog at
December 25, 1993 was $2.1 billion, of which 6% is attributable to
foreign operations, principally, Canada. Projects on the west coast
comprised 50% of the total backlog of which San Joaquin accounted
for $435 million.
Direct costs associated with construction contracts increased
$66 million or 4% to $1.6 billion in 1993. The increase is net
of a $20 million reduction in reserves previously established for
the non-sponsored Denmark tunnel project. The overall rise in
costs was directly attributable to the increase in volume. Costs
as a percentage of revenue, excluding the reduction in reserves,
approximated 90% and 91% for 1993 and 1992, respectively.
Management of the non-sponsored Denmark tunnel project
completed a cost estimate which indicated a favorable variance in
the estimated costs of the project. As a result of this revised
cost estimate and negotiations with the owner, management reduced
reserves maintained to provide for the Group's share of estimated
losses on the project. This reduction contributed to the increase
in gross margin to 11% in 1993 from 9% in 1992.
General and Administrative Expenses
___________________________________
General and administrative expenses increased 2% in 1993 as
a result of moderate increases in several of the Group's operating
districts.
Investment Income (Loss)
________________________
The realization of losses on the sale of and valuation
adjustments to certain derivative instruments and a decline in
interest income resulted in the change in investment income.
Other, net
__________
Slight increases in miscellaneous income partially offset
a $4 million decline in the net gains on disposition of assets.
KIEWIT CONSTRUCTION & MINING GROUP
Results of Operations - 1993 vs. 1992 (continued)
________________________________________________
Income Taxes
____________
The effective income tax rates are 32% in 1993 and 38% in
1992. The rates differ from the statutory rates principally
because of the effect of the Federal income tax rate change on
deferred tax assets in 1993 and state income taxes in 1992.
KIEWIT CONSTRUCTION & MINING GROUP
Financial Condition - December 31, 1994
_______________________________________
In 1994, the Group's working capital decreased $39 million or
10% to $333 million. For the year, the Group generated $96 million
of cash from operating activities, an increase of 10% from the
prior year.
The Group's 1994 net investing activities used $77 million.
The $47 million acquisition of APAC and capital expenditures of $76
exceeded net proceeds from sales and maturities of marketable
securities of $21 million and proceeds from sales of fixed assets
of $26 million. Future investing activity includes purchasing
additional shares of an electrical contractor - the Group is
committed to acquire 80% ownership by 1997 - and investing between
$40 and $75 million annually in the construction business.
Financing activities reduced cash during 1994 and consisted
of net conversions of Class B&C stock for Class D stock of $42
million, stock repurchases of $11 million and dividends of $13
million. Stock issuances and long-term debt borrowings generated
cash of $20 million and $2 million, respectively, in 1994. Stock
conversions and repurchases, dividends ($7 million paid in January
of 1995), and stock issuances will continue as the Group's major
financing activities.
The Group's existing cash and cash equivalents, marketable
securities and operating cash flows, along with existing borrowing
capacity, should suffice for 1995 working capital and capital
expenditure requirements and provide adequate liquidity for the
expenditures discussed above.
PKS's management has asked the Internal Revenue
Service to issue a ruling (the "Ruling") that would permit
PKS to make a tax-free distribution of its entire ownership
interest in MFS to PKS's Class D stockholders (the "Spin-off").
PKS's management intends to propose a plan (the "Plan") to
implement the Spin-off to PKS's Board of Directors during the
second quarter of 1995. If the Board of Directors approves the
Plan, and the Internal Revenue Service issues the Ruling,
PKS could complete the Spin-off as early as the third
quarter of 1995.
The Spin-off might not occur. For example, PKS might
not receive the Ruling or the Board might not adopt the plan.
In addition, the issuance of the MFS Preferred Stock necessary
to obtain the Ruling (as described below), would require a
favorable vote from a majority of the minority common
stockholders of MFS, other than KDG, present and voting in
person or by proxy at a special MFS stockholders meeting. If
KIEWIT CONSTRUCTION & MINING GROUP
Financial Condition - December 31, 1994 (continued)
___________________________________________________
the favorable vote is not received, MFS would not be able to
issue the MFS preferred stock and PKS would not be
able to complete the spin-off. Also, the spin-off is subject
to receipt of certain other approvals, some of which might not
be received. Finally, if PKS's Board of Directors
adopts the plan, it would reserve the right to abandon, defer
or modify the spin-off at any time.
MFS has agreed in principle to issue KDG a special class of
high-vote convertible preferred stock (the "MFS Preferred
Stock") designed to permit PKS to satisfy certain
requirements for receiving the Ruling. MFS would issue the
Preferred Stock to KDG in exchange for the transfer by
KDG to MFS of approximately 3.0-3.5 million of the shares of MFS
common stock currently held by the Company. PKS anticipates that
the MFS Preferred Stock (i) would have a face value of
approximately $15-25 million, (ii) would be convertible into MFS
common stock at any time after the first anniversary of the date
the MFS Preferred Stock is issued, (iii) would have dividend rate
and a conversion premium determined by market conditions at the
time that the MFS Preferred Stock is issued, (iv) would be
redeemable at par six years after the date of issuance, and (v)
would be non transferable for six years after the date of issuance
except under certain limited circumstances. At the option of MFS,
dividends on the MFS Preferred Stock could be paid either in
cash or in shares of MFS Common Stock. Each share of MFS
Preferred Stock would have approximately five votes per share
in any election of MFS directors. If the Spin-off occurs,
PKS would distribute to Class D stockholders both the
MFS Preferred Stock and all of the common stock of MFS then
held by KDG. If the Spin-off does not occur, MFS would not issue
the MFS Preferred Stock to KDG.
The Plan would provide for an exchange offer (the "Exchange
Offer") by PKS for Class C Stock, to be completed before the
Spin-off. Under an Exchange Offer, PKS would offer to exchange
Class D Stock for some or all of its outstanding Class C Stock on
terms similar to those upon which Class C Stock can be converted
into Class D Stock during the annual conversion period provided in
the Company's Certificate of Incorporation. As a result, Class C
Stockholders wanting to convert Class C Stock to Class D Stock
would not be disadvantaged if the Spin-off were to be completed
before the next conversion permitted by the Certificate of
Incorporation. If an Exchange Offer could not be completed prior to
the next conversion under the Certificate of Incorporation, PKS
probably would defer any Spin-off until the first quarter of
1996.
EXHIBIT 99.B
KIEWIT DIVERSIFIED GROUP
Index to Financial Statements
and Financial Statement Schedules and
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Pages
__________________________________________________________________
Report of Independent Accountants
Financial Statements as of December 31, 1994
and December 25, 1993 and for the three years
ended December 31, 1994:
Statements of Earnings
Balance Sheets
Statements of Cash Flows
Statements of Changes in Stockholders' Equity
Notes to Financial Statements
Financial Statement Schedule for the three years
ended December 31, 1994:
II--Valuation and Qualifying Accounts and Reserves
Management's Discussion and Analysis of Financial
Condition and Results of Operations
_________________________________________________________________
Schedules not indicated above have been omitted because of the
absence of the conditions under which they are required or because
the information called for is shown in the financial statements or
in the notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Peter Kiewit Sons', Inc.
We have audited the financial statements and the financial
statement schedule of Kiewit Diversified Group, a business group
of Peter Kiewit Sons', Inc. (as defined in Note 1 to these
financial statements) as listed in the index on the preceding page
of this exhibit to Form 10-K. These financial statements and
financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, when
read in conjunction with the consolidated financial statements of
Peter Kiewit Sons', Inc. and Subsidiaries, present fairly, in all
material respects, the financial position of Kiewit Diversified
Group as of December 31, 1994 and December 25, 1993 and the results
of its operations and its cash flows for each of the three years in
the period ended December 31, 1994 in conformity with generally
accepted accounting principles. In addition, in our opinion the
financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects, the information required
to be included therein.
As discussed in Note 2 to the financial statements, the Group
changed its method of accounting for income taxes in 1992, and its
method of accounting for certain investments in debt and equity
securities in 1993.
COOPERS & LYBRAND L.L.P
Omaha, Nebraska
March 20, 1995
KIEWIT DIVERSIFIED GROUP
Statements of Earnings
For the three years ended December 31, 1994
(dollars in millions) 1994 1993 1992
__________________________________________________________________
Revenue $ 821 $ 408 $ 352
Cost of Revenue (660) (288) (230)
_______ _______ _______
161 120 122
General and Administrative
Expenses (219) (109) (90)
_______ _______ _______
Operating Earnings (Loss) (58) 11 32
Other Income (Expense):
Gain on Subsidiary's Stock
Transactions, net 54 211 -
Investment Income, net 54 27 78
Interest Expense, net (77) (11) (9)
Other, net (2) 13 6
_______ _______ _______
29 240 75
_______ _______ _______
Earnings (Loss) from Continuing
Operations Before Income
Taxes, Minority Interest
and Cumulative Effect of
Change in Accounting Principle (29) 251 107
Benefit (Provision) for
Incomes Taxes 12 (73) (26)
Minority Interest in Loss
of Subsidiaries 50 3 -
_______ _______ _______
Earnings from Continuing
Operations Before
Cumulative Effect of Change
in Accounting Principle 33 181 81
Cumulative Effect of Change in
Accounting Principle - - (1)
_______ ________ _______
Earnings from Continuing
Operations 33 181 80
KIEWIT DIVERSIFIED GROUP
Statements of Earnings
For the three years ended December 31, 1994
(continued)
(dollars in millions) 1994 1993 1992
__________________________________________________________________
Discontinued Operations:
Earnings from discontinued
operations net of income tax
provision of $- in 1992 - - 1
Gain on disposal of discontinued
operations net of income tax
benefit of $19 in 1992 - - 18
_______ _______ _______
Net Earnings $ 33 $ 181 $ 99
======= ======= =======
__________________________________________________________________
See accompanying notes to financial statements.
KIEWIT DIVERSIFIED GROUP
Statements of Earnings
For the three years ended December 31, 1994
(continued)
(dollars in millions,
except per share data) 1994 1993 1992
__________________________________________________________________
Earnings Per Common and Common
Equivalent Share:
Continuing Operations:
Earnings Before Cumulative
Effect of Change in
Accounting Principle $ 1.63 $ 9.08 $ 4.00
Cumulative Effect of Change
in Accounting Principle - - (.05)
_______ _______ _______
Earnings from Continuing
Operations 1.63 9.08 3.95
Discontinued Operations:
Earnings - - .04
Gain on disposal - - .93
_______ _______ _______
Net Earnings $ 1.63 $ 9.08 $ 4.92
======= ======= =======
__________________________________________________________________
See accompanying notes to financial statements.
KIEWIT DIVERSIFIED GROUP
Balance Sheets
December 31, 1994 and December 25, 1993
(dollars in millions) 1994 1993
__________________________________________________________________
Assets
Current Assets:
Cash and cash equivalents $ 330 $ 197
Marketable securities 754 899
Receivables, less allowance of $2 and $2 157 81
Note receivable from sale of discontinued
operations 29 5
Deferred income taxes 15 18
Other 95 40
_______ _______
Total Current Assets 1,380 1,240
Property, Plant and Equipment, at cost:
Land 15 15
Buildings 171 172
Equipment 1,254 802
_______ _______
1,440 989
Less accumulated depreciation and
amortization (336) (252)
_______ _______
Net Property, Plant and Equipment 1,104 737
Note Receivable from Sale of
Discontinued Operations - 29
Investments 243 233
Intangible Assets, net 733 427
Other Assets 89 93
_______ _______
$ 3,549 $ 2,759
======= =======
__________________________________________________________________
See accompanying notes to financial statements.
KIEWIT DIVERSIFIED GROUP
Balance Sheets
December 31, 1994 and December 25, 1993
(dollars in millions) 1994 1993
__________________________________________________________________
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 165 $ 113
Current portion of long-term debt:
Telecommunications 26 7
Other 4 4
Accrued costs and billings in excess of
revenue on uncompleted contracts 37 20
Accrued reclamation and other mining costs 20 23
Other 159 80
_______ _______
Total Current Liabilities 411 247
Long-Term Debt, less current portion:
Telecommunications 827 420
Other 72 32
Deferred Income Taxes 306 344
Retirement Benefits 67 71
Accrued Reclamation Costs 102 99
Other Liabilities 85 57
Minority Interest 448 298
Stockholders' Equity (Redeemable Common
Stock, $1.2 billion aggregate
redemption value)
Common equity 1,238 1,182
Net unrealized holding gain (loss) (7) 9
_______ _______
Total Stockholders' Equity 1,231 1,191
_______ _______
$ 3,549 $ 2,759
======= =======
_________________________________________________________________
See accompanying notes to financial statements.
KIEWIT DIVERSIFIED GROUP
Statements of Cash Flows
For the three years ended December 31, 1994
(dollars in millions) 1994 1993 1992
__________________________________________________________________
Cash flows from operations:
Earnings from continuing
operations $ 33 $ 181 $ 80
Adjustments to reconcile earnings
from continuing operations to
net cash provided by continuing
operations:
Depreciation, depletion and
amortization 165 51 39
(Gain) loss on sale of
property, plant and
equipment, and other
investments 16 8 (7)
Gain on subsidiary's stock
transactions, net (54) (211) -
Non-cash interest expense 40 - -
Minority interest in losses (50) (3) -
Decline in market value of
investments - 25 12
Retirement benefits paid (6) (17) (8)
Deferred income taxes (39) 45 8
Change in working capital items:
Receivables (28) 8 (14)
Other current assets (48) - 16
Payables 23 51 13
Other liabilities (2) 36 (29)
Other 19 22 (1)
______ ______ ______
Net cash provided by continuing
operations 69 196 109
Cash flows from investing activities:
Proceeds from sales and maturities
of marketable securities 1,610 4,155 5,611
Purchases of marketable securities (1,473) (4,490) (5,646)
Acquisitions, excluding cash
acquired (207) (146) -
Proceeds from sale of cellular
properties 182 - -
Proceeds from sale of property,
plant and equipment, and other
investments 7 25 12
Capital expenditures (450) (139) (89)
Investments in affiliates (33) (3) (26)
Acquisition of minority interest (6) - (27)
KIEWIT DIVERSIFIED GROUP
Statements of Cash Flows
For the three years ended December 31, 1994
(continued)
(dollars in millions) 1994 1993 1992
__________________________________________________________________
Deferred development costs and
other (49) (36) 11
______ ______ ______
Net cash used in investing
activities (419) (634) (154)
Cash flows from financing
activities:
Long-term debt borrowings 691 19 1
Payments on long-term debt,
including current portion (305) (7) (89)
Net change in short-term
borrowings - (80) 80
Issuances of common stock 1 8 -
Issuances of subsidiaries'
stock 70 458 -
Repurchases of common stock (20) (40) (64)
Dividends paid - (17) (33)
Exchange of B&C Stock for Class
D Stock, net 42 26 32
Other (1) 3 (1)
______ ______ ______
Net cash provided by (used in)
financing activities 478 370 (74)
Cash flows from discontinued
packaging operations:
Proceeds from sales of discontinued
packaging operations 5 110 163
Other cash provided by (used in)
discontinued packaging operations - 20 (34)
______ ______ ______
Net cash provided by discontinued
packaging operations 5 130 129
______ ______ ______
Net increase in cash and cash
equivalents 133 62 10
Cash and cash equivalents at
beginning of year 197 135 125
______ ______ ______
Cash and cash equivalents at end
of year $ 330 $ 197 $ 135
====== ====== ======
KIEWIT DIVERSIFIED GROUP
Statements of Cash Flows
For the three years ended December 31, 1994
(continued)
(dollars in millions) 1994 1993 1992
__________________________________________________________________
Supplemental disclosure of cash flow
information for continuing and
discontinued operations:
Taxes $ 66 $ 29 $ 117
Interest 39 4 11
Noncash investing activities:
Issuances of MFS stock for
acquisitions $ 71 $ - $ -
MFS stock transactions to
settle contingent purchase
price adjustment 25 - -
__________________________________________________________________
See accompanying notes to financial statements.
KIEWIT DIVERSIFIED GROUP
Statements of Changes in Stockholders' Equity
For the three years ended December 31, 1994
(dollars in millions,
except per share data) 1994 1993 1992
__________________________________________________________________
Common equity:
Balance at beginning of year $ 1,182 $ 1,017 $ 989
Issuances of stock 1 8 -
Repurchases of stock (20) (40) (64)
Exchange of Class B&C Stock for
Class D Stock, net 42 26 32
Net earnings 33 181 99
Dividends (per share: $.50 in
1993, $1.95 in 1992 (a)) - (10) (39)
_______ _______ _______
Balance at end of year $ 1,238 $ 1,182 $ 1,017
======= ======= =======
Other equity adjustments:
Balance at beginning of year $ 9 $ 4 $ 7
Foreign currency adjustment - (4) (3)
Net unrealized holding
gain (loss) (16) 9 -
_______ _______ _______
Balance at end of year $ (7) $ 9 $ 4
======= ======= =======
Total stockholders' equity $ 1,231 $ 1,191 $ 1,021
======= ======= =======
(a) Includes $.35 per share for dividends declared in 1992 but
paid in 1993.
__________________________________________________________________
See accompanying notes to financial statements.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(1) Basis of Presentation
_____________________
The Class B&C Stock and the Class D Stock are designed to
provide stockholders with separate securities reflecting the
performance of Peter Kiewit Sons', Inc.'s ("PKS") construction
business and certain mining services ("Construction & Mining
Group") and its other businesses ("Diversified Group").
The financial statements of the Diversified Group include the
financial position, results of operations and cash flows for
PKS' businesses other than its Construction & Mining Group
businesses, held by a wholly-owned subsidiary, Kiewit
Diversified Group Inc. ("KDG") and a portion of the PKS
corporate assets and liabilities and related transactions
which are not separately identified with the ongoing
operations of the Diversified Group or the Construction &
Mining Group. These financial statements have been prepared
using the historical amounts included in the PKS consolidated
financial statements. Corporate amounts reflected in these
financial statements are determined based upon methods which
management believes to be reasonable.
Although the financial statements of PKS' Diversified Group
and Construction & Mining Group separately report the assets,
liabilities and stockholders' equity of PKS attributed to each
such group, legal title to such assets and responsibility for
such liabilities will not be affected by such attribution.
Holders of Class D Stock and Class B&C Stock are stockholders
of PKS. Accordingly, the PKS consolidated financial
statements and related notes should be read in conjunction
with these financial statements.
(2) Summary of Significant Accounting Policies
__________________________________________
Principles of Group Presentation
________________________________
These financial statements include the accounts of the
Diversified Group ("the Group"). The Group's and Construction
& Mining Group's financial statements, taken together,
comprise all of the accounts included in the PKS consolidated
financial statements. The Group's enterprises include coal
mining, telecommunications, data management services, energy
production and timberland sales. The Group's only reportable
segments are coal mining and telecommunications.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies (continued)
______________________________________________________
Principles of Group Presentation (continued)
___________________________________________
See Note 4 with respect to discontinued packaging operations.
Fifty-percent-owned mining joint ventures are consolidated on
a pro rata basis. All significant intercompany accounts and
transactions, except those directly between the Group and the
Construction & Mining Group, have been eliminated. Investments
in other companies in which the Group exercises significant
influence over operating and financial policies are accounted
for by the equity method.
Coal Sales Contracts
____________________
The Group and its mining ventures have entered into various
agreements with its customers which stipulate delivery and
payment terms for the sale of coal. Prior to 1993, one of the
primary customers deferred receipt of certain commitments by
purchasing undivided fractional interests in coal reserves of
the Group and the mining ventures. Under these arrangements
revenue was recognized when cash was received. The agreements
with this customer were renegotiated in 1992. In accordance
with the renegotiated agreements, there were no sales of
interests in coal reserves subsequent to January 1, 1993.
The Group has the obligation to deliver the coal reserves to
the customer in the future if the customer exercises its
option. If the option is exercised, the Group intends to
deliver coal from an unaffiliated mine and a mine in which the
Group has a 50% interest. In the opinion of management, the
Group has sufficient coal reserves to cover the above sales
commitments.
The Group's coal sales contracts are with several electric
utility and industrial companies. In the event that these
customers do not fulfill contractual responsibilities, the
Group would pursue the available legal remedies.
Telecommunications Revenues
___________________________
MFS Communications Company, Inc. ("MFS") provides a variety
of telecommunications services through a number of
subsidiaries. MFS Telecom, Inc. provides dedicated circuits
for critical telecommunications needs of large business and
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies (continued)
______________________________________________________
Telecommunications Revenues (continued)
_______________________________________
government customers. MFS Intelenet, Inc. provides
single source integrated local and long distance
telecommunications services and facilities management,
primarily for medium and small businesses. MFS Network
Technologies, Inc. designs, engineers, develops and
installs telecommunications networks and systems and also
provides facilities management services. Telecommunications
services revenue is recognized in the month the related
service is provided. Network systems integration revenue is
recognized on the percentage-of-completion method of
accounting.
C-TEC Corporation's, ("C-TEC"), most significant operating
groups are its local telephone service and cable system
operations. C-TEC's telephone network access revenues are
derived from net access charges, toll rates and settlement
arrangements for traffic that originates or terminates within
C-TEC's local telephone company. Revenues from basic and
premium cable programming services are recorded in the month
service is provided.
Concentration of credit risk with respect to accounts
receivable are limited due to the dispersion of customer base
among different industries and geographic areas and remedies
provided by the terms of contracts and statutes.
Depreciation and Amortization
_____________________________
Property, plant and equipment are recorded at cost.
Depreciation and amortization for the majority of the Group's
property, plant and equipment are computed on accelerated and
straight-line methods. Depletion of mineral properties is
provided primarily on a unit-of-extraction basis determined
in relation to estimated reserves.
In accordance with industry practice, certain telephone plant
owned by C-TEC valued at $232 million is depreciated based on
the estimated remaining lives of the various classes of
depreciable property and straight-line composite rates. At the
time property is retired, the original cost, plus cost of
removal, less salvage, is charged to accumulated depreciation.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies (continued)
______________________________________________________
Intangible Assets
_________________
Intangible assets consist of amounts allocated upon purchase
of existing operations and development costs. These assets
are amortized on a straight-line basis over the expected
period of benefit, which does not exceed 40 years.
The Group reviews the carrying amount of goodwill for
impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.
Measurement of any impairment would include a comparison
of estimated future operating cash flows anticipated to be
generated during the remaining life of the goodwill to the
net carrying value of the goodwill.
Pension Plans
_____________
The Group maintains defined benefit plans primarily for
retired packaging employees. Benefits paid under the plans
are based on years of service for hourly employees and years
of service and rates of pay for salaried employees.
Substantially all of C-TEC's employees are included in a
trusteed noncontributory defined benefit plan. Upon
retirement, employees are provided a monthly pension based on
length of service and compensation.
The plans are funded in accordance with the requirements of
the Employee Retirement Income Security Act of 1974.
Reserves for Reclamation
________________________
The Group follows the policy of providing an accrual for
reclamation of mined properties, based on the estimated cost
of restoration of such properties, in compliance with laws
governing strip mining.
Foreign Currencies
__________________
The local currencies of foreign subsidiaries are the
functional currencies for financial reporting purposes.
Assets and liabilities are translated into U.S. dollars at
year-end exchange rates. Revenue and expenses are translated
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies (continued)
______________________________________________________
Foreign Currencies (continued)
_____________________________
using average exchange rates prevailing during the year.
Gains or losses resulting from currency translation are
recorded as adjustments to stockholders' equity.
Subsidiary Stock Sales and Issuances
____________________________________
The Group recognizes gains and losses from the sales and
issuances of stock by its subsidiaries.
Earnings Per Share
__________________
Primary earnings per share of Class D Stock have been computed
using the weighted average number of shares outstanding during
each year. The number of shares used in computing primary
earnings per share was 20,438,806 in 1994, 19,941,885 in 1993
and 20,126,768 in 1992. Fully diluted earnings per share have
not been presented because it is not significantly different
from primary earnings per share.
Marketable Securities and Investments
_____________________________________
On December 25, 1993, the Group adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which addresses
the accounting and reporting of investments in equity
securities with readily determinable fair values and all
investments in debt securities. The statement does not apply
to investments in equity securities accounted for under the
equity method nor to investments in consolidated subsidiaries.
Income Taxes
____________
At the beginning of 1992, the Group adopted Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes," which requires recognition of deferred tax
liabilities and assets for the expected future tax
consequences of events that have been included in the
financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on
the difference between the financial and tax basis for assets
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies (continued)
______________________________________________________
Income Taxes (continued)
____________
and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. In 1992,
the Group recorded expense of $1 million, which represented
the increase in the net deferred tax liabilities as a result
of the accounting change. This amount has been reflected in
the statements of earnings as a cumulative effect of a change
in accounting principle.
Reclassifications
_________________
Where appropriate, items within the financial statements and
notes thereto have been reclassified from previous years to
conform to current year presentation.
Fiscal Year
___________
The Group's fiscal year ends on the last Saturday in December.
There were 53 weeks in the 1994 fiscal year and 52 weeks each
in the fiscal years 1993 and 1992.
MFS and C-TEC's fiscal years end on December 31.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(3) Corporate Activities
____________________
Financial Structure
___________________
Cash, cash equivalents and marketable securities were
allocated to the Group and the Construction & Mining Group
based upon the desired capital structure of the two at
December 28, 1991. Financial statement impacts of dividends
paid to holders of Class D Stock and repurchases and issuances
of Class D Stock in 1994, 1993 and 1992 were reflected in
their entirety in the Diversified Group's financial
statements.
The desired capital structure at December 28, 1991 for the
Construction & Mining Group was stockholders' equity of $400
million. It was determined by PKS management that this was
the appropriate level of equity at December 28, 1991 necessary
for the Construction & Mining Group to continue its
traditional construction and mining service businesses, based
upon certain factors such as contract volume, prequalification
requirements to bid on projects, bonding requirements of its
outside insurance company, and working capital requirements.
The capital structure of the Group consisted of the remaining
equity of PKS and provided equity and liquidity to allow the
Group the opportunity to invest in capital intensive
businesses, a primary objective of the Reorganization.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(3) Corporate Activities (continued)
_______________________________
Financial Structure
___________________
PKS has corporate assets, liabilities and related income and
expense which are not separately identified with the ongoing
operations of the Group or the Construction & Mining Group.
The Group's 50% portion is as follows (in millions):
1994 1993
____ ____
Cash and cash equivalents $ 25 $ 47
Marketable securities 15 11
Property, plant and equipment, net 5 12
Other assets 16 11
____ ____
Total Assets $ 61 $ 81
==== ====
Accounts Payable $ 30 $ 27
Convertible debentures 1 2
Notes to former stockholders 6 8
Liability for stock appreciation rights 1 2
Other liabilities 1 5
____ ____
Total Liabilities $ 39 $ 44
==== ====
1994 1993 1992
____ ____ ____
Net investment income (expense) $ 1 $ (1) $ 3
Other income (expense) (2) 1 1
Corporate General and Administrative Costs
__________________________________________
A portion of corporate general and administrative costs has
been allocated to the Group based upon certain measures of
business activities, such as employment, investments and
sales, which method management believes to be reasonable.
These allocations were $8 million, $10 million and $13
million in 1994, 1993 and 1992.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(3) Corporate Activities (continued)
_______________________________
Income Taxes
____________
All domestic members of the PKS affiliated group, with the
exception of MFS and C-TEC, are included in the consolidated
U.S. income tax return filed by PKS. Accordingly, the
provision for income taxes and the related payments or refunds
of tax are determined on a consolidated basis. The financial
statement provision and actual cash tax payments have been
reflected in the Group's and Construction & Mining Group's
financial statements in accordance with PKS' tax allocation
policy for such groups. In general, such policy provides that
the consolidated tax provision and related cash flows and
balance sheet amounts are allocated between the Group and the
Construction & Mining Group, for group financial statement
purposes, based principally upon the financial income, taxable
income, credits, preferences and other amounts directly
related to the respective groups. The provision for estimated
United States income taxes for the Group does not differ
materially from that which would have been determined on a
separate return basis.
(4) Discontinued Operations
_______________________
In 1990, the Group's management authorized the disposition of
its packaging businesses. As a result, the financial
statements reflect the packaging businesses as discontinued
operations.
Discontinued Packaging Operations for the year ended
December 26, 1992 reflect the equity earnings of the Group's
investment in a plastics joint venture, net of tax at the
Group's statutory rate.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(5) Acquisitions
____________
During 1994 and 1993, the Group and its subsidiaries acquired
the entities described below. The Group has accounted for
the transactions as purchases and consolidated the operating
results since the acquisition dates. Purchase prices in
excess of the fair market values of net assets acquired have
been recorded as goodwill.
On May 18, 1994, MFS acquired Centex Telemanagement, Inc.
("Centex") for $273 million, comprised of $202 million cash
and $71 million of assumed liabilities. Centex provides
telecommunications management services for small and
medium-sized businesses. Centex operations have been
integrated into MFS' subsidiary MFS Intelenet.
On November 1, 1994, MFS acquired Cylix Communications
Corporation ("Cylix") for $14 million, comprised of $2
million cash, $6 million MFS stock and $6 million of
assumed liabilities. Cylix's data communications services
provide connectivity from IBM compatible hosts to remote
sites. Cylix operations have been integrated into MFS'
subsidiary MFS Datanet.
On November 14, 1994, MFS acquired RealCom Office
Communications, Inc. ("RealCom") for $90 million, comprised
of $7 million cash, $53 million MFS stock and $30 million
of assumed liabilities. RealCom, a provider of
telecommunications services, including long distance,
equipment, and outsourcing, has been integrated into MFS
Intelenet.
Goodwill of $188 million resulting from the above purchases
is being amortized on a straight-line basis over a 40 year
life.
In October 1993, the Group acquired 35% of the outstanding
shares of C-TEC that have 57% of the available voting
rights for $208 million. In September of 1994, C-TEC sold
certain cellular businesses for approximately $190 million.
At that time, the Group reallocated the original purchase
price, assigning the cellular businesses a fair value equal
to C-TEC's sale proceeds. The cellular results of
operations for the period prior to the sale have been
consolidated and are insignificant to the Group's operating
results.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(5) Acquisitions (continued)
______________________
In December of 1994, through its participation in the C-TEC
rights offering ($153 million), the Group increased its
ownership in C-TEC to 49% and 58% of the outstanding shares
and voting rights. The difference between the investment and
the increase in the Group's proportionate share of C-TEC's
equity has been recorded as goodwill.
The $177 million of goodwill from the C-TEC purchases is
being amortized on a straight-line basis over lives of
30-40 years.
The following unaudited pro forma information shows the
results of the Group as though the C-TEC acquisition
occurred at the beginning of 1992 and the MFS acquisitions
occurred at the beginning of 1993. These results include
certain adjustments, primarily increased amortization, and
do not necessarily indicate future results, nor the results
of historical operations had the acquisitions actually
occurred on the assumed dates.
1994 1993 1992
_____ _____ _____
(in millions, except per share
data)
Revenue $ 956 $ 903 $ 609
Net earnings 16 147 93
Earnings per "D" share 0.78 7.37 4.63
(6) Gain on Subsidiary's Stock Transactions, net
____________________________________________
In May 1993, MFS sold 12.7 million shares of common stock to
the public at an initial offering price of $20 per share for
$233 million, net of certain transaction costs. An additional
4.6 million shares were sold to the public in September 1993
at a price of $50 per share for $218 million, net of certain
transaction costs. Substantially all of the net proceeds from
the offerings funded MFS' growth.
In 1994, the Group settled a contingent purchase price
adjustment resulting from MFS' 1990 purchase of Chicago Fiber
Optic Corporation ("CFO"). The former shareholders of CFO
accepted MFS stock previously held by the Group, valued at
current market prices, as payment of the obligation.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(6) Gain on Subsidiary's Stock Transactions, net
____________________________________________
The above transactions, along with the Cylix, RealCom,
and other MFS transactions (including issuances for
employee stock options) reduced the Group's ownership in
MFS to 67% and 71% at the end of 1994 and 1993. As a
result, the Group recognized gains of $54 million and $211
million in 1994 and 1993 representing the increase in the
Group's proportionate share of MFS equity. Deferred income
taxes have been provided on these gains. The outside
ownership has been included in minority interest.
(7) Disposal of Packaging Businesses
________________________________
In July 1992, the Group sold its equity investment in a
plastics joint venture to Ball Corporation for $7 million. No
significant gain or loss was recognized as a result of this
transaction. The gain on disposal of discontinued operations
in 1992 resulted from a $19 million adjustment to prior year
tax estimates and an $8 million payment, net of tax, and a $1
million accrual, net of tax, relating to additional sales
proceeds from the sale of Continental PET Technologies, Inc.
This gain was partially offset by miscellaneous sales
adjustments related to the 1991 and 1990 sales of certain
discontinued packaging operations.
(8) Disclosures about Fair Value of Financial Instruments
_____________________________________________________
The following methods and assumptions were used to determine
classification and fair values of financial instruments:
Cash and Cash Equivalents
_________________________
Cash equivalents generally consist of highly liquid
instruments purchased with an original maturity of three
months or less. The securities are stated at cost, which
approximates fair value.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(8) Disclosures about Fair Value of Financial Instruments
(continued)
_____________________________________________________
Marketable Securities and Non-current Investments
_________________________________________________
The Group has classified all marketable securities and
non-current investments not accounted for under the equity
method as available-for-sale. The amortized cost of the
securities used in computing unrealized and realized holding
gains and losses are determined by specific identification.
Fair values are estimated based on quoted market prices for
the securities on hand or for similar investments. Net
unrealized holding gains and losses are reported as a
separate component of stockholders' equity, net of tax.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(8) Disclosures about Fair Value of Financial Instruments
(continued)
_____________________________________________________
At December 31, 1994 and December 25, 1993 the cost,
unrealized holding gains and losses and estimated fair values
of marketable securities and noncurrent investments were
as follows:
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
_____________________________________________________________
1994:
Kiewit Mutual Fund:
Short-term
government $ 42 $ - $ 1 $ 41
Intermediate
term bond 202 - 4 198
Tax exempt 5 - - 5
Equity securities 4 - 1 3
U.S. debt securities 275 - 3 272
Federal agency
securities 77 - - 77
Municipal debt
securities 5 - - 5
Corporate debt
securities 145 - 2 143
Collateralized
mortgage obligations 12 1 3 10
_____ _____ _____ _____
$ 767 $ 1 $ 14 $ 754
===== ===== ===== =====
Non-current Investments:
Equity securities $ 59 $ 5 $ 2 $ 62
===== ===== ===== =====
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(8) Disclosures about Fair Value of Financial Instruments
(continued)
_____________________________________________________
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
_____________________________________________________________
1993:
Marketable securities:
Equity securities $ 50 $ 2 $ 2 $ 50
U.S. debt securities 496 - - 496
Municipal debt
securities 88 - - 88
Foreign government
debt securities 84 - - 84
Corporate debt
securities 155 - - 155
Collateralized
mortgage
obligations
and other 26 - - 26
____ ____ ____ ____
$899 $ 2 $ 2 $899
==== ==== ==== ====
Non-current investments:
Equity securities $ 80 $ 13 $ - $ 93
==== ==== ==== ====
For debt securities, amortized costs do not vary significantly
from principal amounts. Realized gains and losses on sales of
marketable securities were $2 million and $16 million in 1994
and $29 million and $39 million in 1993.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(8) Disclosures about Fair Value of Financial Instruments
(continued)
_____________________________________________________
The contractual maturities of the debt securities are as
follows:
Amortized Cost Fair Value
______________ __________
U.S. debt securities:
less than 1 year $ 273 $ 270
1-5 years 2 2
_____ _____
$ 275 $ 272
===== =====
Federal agency
securities:
less than 1 year $ 77 $ 77
===== =====
Municipal debt
securities:
1-5 years $ 4 $ 4
over 10 years 1 1
_____ _____
$ 5 $ 5
===== =====
Corporate debt
securities:
less than 1 year $ 117 $ 116
1-5 years 23 22
5-10 years 1 1
over 10 years 4 4
_____ _____
$ 145 $ 143
===== =====
Maturities for the mutual fund and collateralized mortgage
obligations have not been presented as they do not have a
single maturity date.
Note Receivable from Sale of Discontinued Operations:
____________________________________________________
The carrying amount approximates fair value due to the
interest rate provided in the note.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(8) Disclosures about Fair Value of Financial Instruments
(continued)
_____________________________________________________
Long-term Debt
______________
The fair value of debt was estimated using the incremental
borrowing rates of the Group for debt of the same remaining
maturities.
(9) Investments
___________
During 1994, the Group purchased additional shares of
California Energy Company, Inc. ("CECI") common stock for $29
million. The purchases, along with stock repurchases by CECI,
increased the Group's ownership to 29%. The cumulative
investment in common stock, accounted for on the equity
method, totals $113 million, $62 million in excess of the
Group's proportionate share of CECI's equity. The excess
investment is being amortized over 20 years. Equity earnings,
net of goodwill amortization, were $5 million, $7 million and
$4 million in 1994, 1993 and 1992. CECI common stock is
traded on the New York Stock Exchange. On December 31, 1994,
the market value of the Group's investment in California
Energy common stock was $140 million.
In 1994, 1993, and 1992, the Group also recorded dividends in
kind of $5 million, $5 million and $4 million declared by CECI
consisting of voting convertible preferred stock. The stock
dividends brought the Group's total investment in convertible
preferred stock to $64 million at December, 31, 1994. On
March 15, 1995 CECI exchanged the preferred stock for 9.5%
convertible subordinated debentures (the "Debentures").
In addition to the Debentures, the Group has 5.8 million
options to purchase additional CECI shares.
Investments also include equity securities classified as
non-current and carried at the fair value of $62 million.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(10) Intangible Assets
_________________
Intangible assets consist of the following at December 31,
1994 and December 25, 1993 (dollars in millions):
1994 1993
_____ _____
Goodwill $ 466 $ 229
Franchise and subscriber lists 145 107
Noncompete agreements 15 11
Licenses and rights-of-ways 15 22
Deferred development costs 65 35
Toll road franchise costs 75 40
Deferred financing costs 19 -
_____ _____
800 444
Less accumulated amortization (67) (17)
_____ _____
$ 733 $ 427
===== =====
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(11) Long-Term Debt and Unutilized Borrowing Arrangements
____________________________________________________
At December 31, 1994 and December 25, 1993, long-term debt
consisting of a portion of PKS' notes to former stockholders
and convertible debentures which have been allocated to the
Group and the Construction & Mining Group, and specifically
attributed debt was as follows:
(dollars in millions) 1994 1993
_____________________________________________________________
Telecommunications:
MFS Long-term Debt (with recourse only to MFS):
9.375% Senior Discount Notes, Due 2004,
with semi-annual interest payments
1999-2004 $ 549 $ -
Notes Payable, Due 1995, (Prime plus 1.5%) 16 -
C-TEC Long-term Debt (with recourse only
to C-TEC):
Credit Agreement - National Bank for
Cooperatives (7.63% due 1999) 128 -
Mortgage notes payable to the United
States of America -
Rural Telephone Bank
5% - 6.05% - 64
6.5% - 7% - 58
Federal Financing Bank
7.69% - 8.36% - 14
Senior Secured Notes -
9.65%, with annual principal payments
1996 through 1999 (includes
unamortized premium of $6 and $7
based on imputed rate of 6.12%) 156 157
9.52% (includes unamortized premium
of $4 based on imputed rate of
6.93%) - 104
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(11) Long-Term Debt and Unutilized Borrowing Arrangements
(continued)
____________________________________________________
(dollars in millions) 1994 1993
_____________________________________________________________
Revolving Credit Agreements and Other 4 30
______ ______
853 427
Other Long-term Debt:
6.5% to 11.1% Notes to former
stockholders due 1995-2001 6 8
6.25% to 10.5% Convertible debentures
due 2000-2004 2 4
Construction loans & other 68 24
______ ______
929 463
Less current portion (30) (11)
______ _____
$ 899 $ 452
====== =====
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(11) Long-Term Debt and Unutilized Borrowing Arrangements
(continued)
____________________________________________________
MFS issued the Senior Discount Notes ("Notes") in January
of 1994. The Notes are accruing to the principal amount
of $788 million through January 1999. Commencing July 15,
1999 cash interest will be payable semi-annually.
On or after January 15, 1999, the notes will be redeemable at
the option of MFS, in whole or in part, as stipulated in the
note agreement. In addition, under certain conditions related
to a change in control, MFS may be required to repurchase all
or any part of the notes as stipulated in the note agreement.
The notes are senior unsecured obligations of MFS and are
subordinated to all current and future indebtedness of MFS'
subsidiaries, including trade payables. The notes contain
certain covenants which, among other things, restrict MFS'
ability to incur additional debt, create liens, enter into
sale and leaseback transactions, pay dividends, make certain
restricted payments, enter into transactions with affiliates,
and sell assets to or merge with another company.
Notes payable consist of three notes assumed in 1994 MFS
acquisitions. The notes accrue interest at prime plus 1.5%
(10% at December 31, 1994) and mature in the first three
months of 1995. The notes are collateralized by certain
equipment of an MFS subsidiary.
In March 1994, C-TEC's Telephone Group entered into a $135
million Credit Agreement with the National Bank for
Cooperatives ("National"). The funds were used to prepay
outstanding borrowings with the United States of America.
The Senior Secured notes are collateralized by pledges of the
stock of C-TEC's cable group. The notes contain restrictive
covenants which require, among other things, specific debt to
cash flow ratios.
C-TEC's Revolving Credit agreements are collateralized by a
pledge of the stock of C-TEC's cable group subsidiaries.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(11) Long-Term Debt and Unutilized Borrowing Arrangements
(continued)
____________________________________________________
The convertible debentures are convertible during October of
the fifth year preceding their maturity date. Each annual
series may be redeemed in its entirety prior to the due date
except during the conversion period. Debentures were
converted into 12,594, 14,322 and 10,468 shares of Class D
common stock in 1994, 1993 and 1992. At December 31, 1994,
69,010 shares of Class D common stock are reserved for future
conversions.
Other long-term debt consists primarily of construction
financing of a privately owned toll road which will be
converted to term debt upon completion of the project.
Variable interest rates on this debt ranged from 5% to 10%
at December 31, 1994.
The Group capitalized $7 million of interest in 1994.
With the exception of MFS, the fair value of debt
approximates the carrying amount. MFS debt has a fair market
value of $496 million at December 31, 1994.
Scheduled maturities of long-term debt through 1999 are as
follows (in millions): 1995 - $30; 1996 - $36; 1997 - $55;
1998 - $58 and $58 in 1999.
The Group has the following unutilized borrowing arrangements
at December 31, 1994:
C-TEC's telephone group's agreement with National provides for
an additional $7 million of borrowings. The agreement
requires C-TEC to invest in Rural Telephone Bank stock for
approximately 5% of the available amount.
C-TEC's Revolving Credit agreements provide for an additional
$22 million of borrowings collateralized by stock pledges from
the cable group. The total commitments are reduced on a
quarterly basis through maturity in September 1996.
C-TEC also has an unused line of credit for $13 million under
which unsecured borrowings may be made. Unused lines are
cancelable at the option of the lenders.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(12) Income Taxes
____________
An analysis of the (benefit) provision for income taxes
related to continuing operations before minority interest and
cumulative effect of change in accounting principle for the
three years ended December 31, 1994 follows:
(dollars in millions) 1994 1993 1992
_____________________________________________________________
Current:
U.S. federal $ 21 $ 24 $ 15
Foreign 2 - -
State 4 4 3
____ ____ ____
27 28 18
Deferred:
U.S. federal (29) 45 8
Foreign (4) - -
State (6) - -
____ ____ ____
(39) 45 8
____ ____ ____
$(12) $ 73 $ 26
==== ==== ====
The United States and foreign components of earnings (loss)
for tax reporting purposes from continuing operations before
minority interest, income taxes and cumulative effect of
change in accounting principle follow:
(dollars in millions) 1994 1993 1992
_____________________________________________________________
United States $ (30) $ 251 $ 105
Foreign 1 - 2
_____ _____ _____
$ (29) $ 251 $ 107
===== ===== =====
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(12) Income Taxes (continued)
_______________________
A reconciliation of the actual provision for income taxes and
the tax computed by applying the U.S. federal rate (35% in
1994 and 1993, and 34% in 1992) to the earnings from
continuing operations before minority interest, income taxes
and cumulative effect of change in accounting principle for
the three years ended December 31, 1994 follows:
(dollars in millions) 1994 1993 1992
_____________________________________________________________
Computed tax at statutory
rate $(10) $ 88 $ 36
State income taxes - 3 2
Depletion (3) (3) (4)
Dividend exclusion (2) (3) (3)
Tax exempt interest (3) - -
Equity earnings - - (2)
Prior year tax adjustments (51) (12) -
Unutilized tax benefit due
to net operating loss 50 - -
Goodwill amortization 4 - -
Other 3 - (3)
____ ____ ____
$(12) $ 73 $ 26
===== ==== ====
_____________________________________________________________
PKS files a consolidated federal income tax return including
its domestic subsidiaries as allowed by the Internal
Revenue Code. Possible taxes, beyond those provided, on
remittances of undistributed earnings of foreign subsidiaries
are not expected to be material.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(12) Income Taxes (continued)
_______________________
The components of the net deferred tax liabilities as of
December 31, 1994 and December 25, 1993 were as follows:
(dollars in millions) 1994 1993
____________________________________________________________
Deferred tax liabilities:
Investments in joint ventures $ 83 $ 92
Asset bases - accumulated
depreciation 196 196
Investment in subsidiaries 101 84
Deferred coal sales 11 12
Other 24 38
______ ______
Total deferred tax liabilities 415 422
______ ______
Deferred tax assets:
Compensation - retirement benefits 16 16
Net operating losses realizable by
subsidiaries 84 52
Alternative minimum tax credits of
subsidiary 13 11
Provision for estimated expenses 10 8
Insurance claims 10 (4)
Other 43 30
Valuation allowances (52) (17)
______ ______
Total deferred tax assets 124 96
______ ______
Net deferred tax liabilities $ 291 $ 326
====== ======
The Group's subsidiaries have federal income tax net operating
loss carryforwards of approximately $225 million which begin
to expire in 1997.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(13) Employee Benefit Plans
______________________
The Group's defined benefit pension plans cover primarily
packaging employees who retired prior to the disposition of
the packaging operations. The expense related to these plans
was approximately $1 million in 1994, $7 million in 1993
and $1 million in 1992.
C-TEC maintains a separate defined benefit plan for
substantially all of its employees. The prepaid cost and
income related to this plan is not significant at December 31,
1994 or December 25, 1993.
Substantially all employees of the Group, with the exception
of stockholders and MFS and C-TEC employees, are covered under
the Group's profit sharing plans. The expense related to
these plans was $1 million in each of the last three years.
(14) Postretirement Benefits
_______________________
In addition to providing pension and other supplemental
benefits, the Group provides certain health care and life
insurance benefits primarily for packaging employees who
retired prior to the disposition of certain packaging
operations and C-TEC employees. Employees become eligible for
these benefits if they meet minimum age and service
requirements or if they agree to contribute a portion of the
cost. These benefits have not been funded.
The net periodic costs for health care benefits were $1
million in 1994 and $4 million in 1993 and 1992. The net
periodic costs for life insurance benefits were $1 million, $2
million, and $2 million in 1994, 1993 and 1992. In all years,
the costs related primarily to interest on accumulated
benefits.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(14) Postretirement Benefits (continued)
__________________________________
The accrued postretirement benefit liability as of December
31, 1994 was as follows:
(dollars in millions)
___________________________________________________________
Health Life
Insurance Insurance
_________ _________
Retirees $ 31 $ 15
Fully eligible active plan
participants - -
Other active plan participants 1 -
_____ _____
Total accumulated postretirement
benefit obligation 32 15
Unrecognized prior service cost 21 1
Unrecognized net loss (5) (1)
_____ _____
Accrued postretirement benefit
liability $ 48 $ 15
===== =====
The unrecognized prior service cost resulted from certain
modifications to the postretirement benefit plan which reduced
the accumulated post-retirement benefit obligation. The Group
may make additional modifications in the future.
An 7.7% increase in the cost of covered health care benefits
was assumed for fiscal 1994. This rate is assumed to
gradually decline to 6.2% in the year 2020 and remain at that
level thereafter. A 1% increase in the health care trend rate
would increase the accumulated postretirement benefit
obligation ("APBO") by less than $1 million at year-end 1994.
The weighted average discount rate used in determining the
APBO was 8.0%.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(15) Stockholders' Equity
____________________
PKS is generally committed to purchase all Class D Stock in
accordance with the Restated Certificate of Incorporation.
Issuances and repurchases of common shares, including
conversions, for the three years ended December 31, 1994
were as follows:
D
Stock
_________
Shares issued in 1992 1,019,553
Shares repurchased in 1992 1,693,353
Shares issued in 1993 748,026
Shares repurchased in 1993 841,808
Shares issued in 1994 777,556
Shares repurchased in 1994 396,684
(16) Investment Income, net
______________________
Investment income includes interest income of $57 million,
$41 million, and $57 million in 1994, 1993 and 1992; gains
and losses on the sale of securities; equity earnings; and
dividend income. Net losses on the sales of securities and
permanent writedown of certain derivative and other
securities of $14 million, $35 million, and $13 million
partially offset interest income in 1994, 1993, and 1992.
(17) Other, net
__________
Other, net in 1994 includes $6 million of losses on the early
extinguishment of debt by C-TEC.
(18) Industry and Geographic Data
____________________________
The Diversified Group's continuing operations are conducted
domestically in two reportable business segments: mining and
telecommunications.
In 1994 Commonwealth Edison Company accounted for 14% of the
Group's revenues.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(18) Industry and Geographic Data (continued)
________________________________________
In 1993, Commonwealth Edison Company, Detroit Edison Company
and the Department of General Services - State of Iowa
accounted for 29%, 10%, and 11%, respectively, of revenue. In
1992, these same entities accounted for 26%, 11%, and 13% of
revenue.
The information below summarizes the Diversified Group's
operations in different industries:
Industry Data (dollars in millions) 1994 1993 1992
_____________________________________________________________
Revenue:
Mining $ 225 $ 210 $ 234
Telecommunications 578 189 109
Other 18 9 9
_______ _______ _______
$ 821 $ 408 $ 352
======= ======= =======
Operating earnings (loss):
Mining $ 76 $ 75 $ 76
Telecommunications (109) (24) (11)
Other (25) (40) (33)
_______ _______ _______
$ (58) $ 11 $ 32
======= ======= =======
Identifiable assets:
Mining $ 136 $ 146 $ 159
Telecommunications 2,575 1,682 1,682
Other 111 68 31
Corporate (1) 727 863 1,156
_______ _______ _______
$ 3,549 $ 2,759 $ 2,809
======= ======= =======
Capital Expenditures:
Mining $ 3 $ 5 $ 8
Telecommunications 426 127 80
Other 16 3 -
Corporate 5 4 1
_____ _______ _______
$ 450 $ 139 $ 89
===== ======= =======
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(18) Industry and Geographic Data (continued)
________________________________________
Industry Data (dollars in millions) 1994 1993 1992
_____________________________________________________________
Depreciation, depletion and
amortization:
Mining $ 11 $ 12 $ 12
Telecommunications 149 35 21
Other 4 3 4
Corporate 1 1 2
_____ _____ _____
$ 165 $ 51 $ 39
===== ===== =====
_____________________________________________________________
(1) Principally cash, cash equivalents, marketable
securities, notes receivable from sales of discontinued
operations and investments in all years.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(19) Related Party Transaction
_________________________
The Group receives certain mining services from the
Construction & Mining Group. The expense for these services
was $29 million for each of the last three years.
(20) Other Matters
_____________
PKS's management has asked the Internal Revenue Service to
issue a ruling (the "Ruling") that would permit PKS
to make a tax-free distribution of its entire ownership
interest in MFS to the Class D stockholders (the
"Spin-off"). PKS's management intends to propose a plan (the
"Plan") to implement the Spin-off to PKS's Board of
Directors during the second quarter of 1995. If the Board of
Directors approves the Plan, and the Internal Revenue Service
issues the Ruling, PKS could complete the Spin-off as early as
the third quarter of 1995.
The Spin-off might not occur. For example, PKS might not
receive the Ruling or the Board might not adopt the plan.
In addition, the issuance of the MFS Preferred Stock necessary
to obtain the Ruling (as described below), would require a
favorable vote from a majority of the minority common
stockholders of MFS, other than KDG, present and voting in
person or by proxy at a special MFS stockholders meeting. If
the favorable vote is not received, MFS would not be able to
issue the MFS preferred stock and PKS would not be able to
complete the spin-off. Also, the spin-off is subject
to receipt of certain other approvals, some of which might not
be received. Finally, if PKS's Board of Directors adopts the
plan, it would reserve the right to abandon, defer or modify
the spin-off at any time.
MFS has agreed in principle to issue KDG a special class of
high-vote convertible preferred stock (the "MFS Preferred
Stock") designed to permit PKS to satisfy certain
requirements for receiving the Ruling. MFS would issue the
Preferred Stock to KDG in exchange for the transfer by KDG
to MFS of approximately 3.0-3.5 million of the shares of MFS
common stock currently held by KDG. KDG anticipates that the
MFS Preferred Stock (i) would have a face value of
approximately $15-25 million, (ii) would be convertible into
MFS common stock at any time after the first anniversary of
the date the MFS Preferred Stock is issued, (iii) would have
dividend rate and a conversion premium determined by market
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(20) Other Matters (continued)
_________________________
conditions at the time that the MFS Preferred Stock is issued,
(iv) would be redeemable at par six years after the date of
issuance, and (v) would be non transferable for six years
after the date of issuance except under certain limited
circumstances. At the option of MFS, dividends on the MFS
Preferred Stock could be paid either in cash or in shares of
MFS Common Stock. Each share of MFS Preferred Stock would
have approximately five votes per share in any election of MFS
directors. If the Spin-off occurs, PKS would distribute to
Class D stockholders both the MFS Preferred Stock and all of
the common stock of MFS then held by KDG. If the Spin-off
does not occur, MFS would not issue the MFS Preferred Stock to
KDG.
The Plan would provide for an exchange offer (the "Exchange
Offer") by PKS for Class C Stock, to be completed before the
Spin-off. Under an Exchange Offer, PKS would offer to
exchange Class D Stock for some or all of its outstanding
Class C Stock on terms similar to those upon which Class C
Stock can be converted into Class D Stock during the annual
conversion period provided in the Company's Certificate of
Incorporation. As a result, Class C Stockholders wanting
to convert Class C Stock to Class D Stock would not be
disadvantaged if the Spin-off were to be completed before the
next conversion permitted by the Certificate of Incorporation.
If an Exchange Offer could not be completed prior to the next
conversion under the Certificate of Incorporation, PKS
probably would defer any Spin-off until the first quarter of
1996.
The Group is involved in various lawsuits, claims and
regulatory proceedings incidental to its business. Management
believes that any resulting liability, beyond that provided,
should not materially affect the Group's financial position
or results of operations.
In many pending proceedings, the Group is one of numerous
defendants who may be "potentially responsible parties" liable
for the cleanup of hazardous substances deposited in landfills
or other sites. The Group has established reserves to cover
its probable liabilities for environmental cases and believes
that any additional liabilities will not materially affect the
Group's financial condition or results of operations.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(20) Other Matters (continued)
_________________________
In 1994, several former stockholders of an MFS subsidiary
filed a lawsuit against MFS, KDG and the chief executive
officer of MFS, in the United States District Court for the
Northern District of Illinois, Case No. 94C-1381. These
shareholders sold shares of the subsidiary to MFS in
September 1992. MFS completed an initial public offering in
May 1993. Plaintiffs allege that MFS fraudulently concealed
material information about its plans from them, causing them
to sell their shares at an inadequate price. Plaintiffs have
alleged damages of at least $100 million. Defendants have
meritorious defenses and intend to vigorously contest this
lawsuit. Defendants expect that a trial will be held in
summer 1995. Prior to the initial public offering, KDG agreed
to indemnify MFS against any liabilities arising from the
September 1992 sale; if MFS is deemed to be liable to
plaintiffs, KDG will be required to satisfy MFS' liabilities
pursuant to the indemnity agreement. Any settlement amount
would be treated as an adjustment of the original purchase
price and recorded as additional goodwill.
In 1974, a subsidiary of the Company ("Kiewit"), entered into
a lease agreement with Whitney Benefits, Inc., a Wyoming
charitable corporation ("Whitney"). Whitney is the owner, and
Kiewit is the lessee, of a coal deposit underlying
approximately a 1,300 acre tract in Sheridan County, Wyoming.
The coal was rendered unmineable by the Surface Mining Control
and Reclamation Act of 1977 ("SMCRA"), which prohibited
surface mining of coal in certain alluvial valley floors
significant to farming. In 1983, Whitney and Kiewit filed an
action now titled Whitney Benefits, Inc. and Peter Kiewit
Sons', Co. v. The United States, in the U.S. Court of Federal
Claims ("Claims Court") alleging that the enactment of SMCRA
constituted a taking of their coal without just compensation.
In 1989, the Claims Court ruled that a taking had occurred and
awarded plaintiffs the 1977 fair market value of the property
($60 million) plus interest. In 1991, the U.S. Court of
Appeals for the Federal Circuit Court affirmed the decision of
the claims court. In 1991, the U.S. Supreme Court denied
certiorari. In February 1994, the Claims Court issued an
opinion which provided that the $60 million judgement would
bear interest compounded annually from 1977 until payment.
Interest for the 1977-1994 period is $249 million. Kiewit and
Whitney have agreed that Kiewit and Whitney will receive 67.5
and 32.5 percent, respectively, of any award. Any payments
received by Kiewit will be the property of Peter Kiewit Sons'
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(20) Other Matters (continued)
_________________________
Co., a subsidiary of KDG.
The government filed two-post trial motions in the Claims
Court during 1992. The government requested a new trial to
redetermine the value of the property. The government also
filed a motion to reopen and set aside the 1989 judgement as
void and to dismiss plaintiff's complaint for lack of
jurisdiction. In May 1994, the Claims Court entered an order
denying both motions. The government appealed that order,
as well as the order regarding compound interest. A hearing
on these appeals was held February 10, 1995. It is not
presently known when these proceedings will be concluded, what
amount Kiewit will ultimately receive, nor when payment of
that amount will occur.
A subsidiary of the Group, Continental Holdings Inc., remains
contingently liable as a guarantor of $103 million of debt
relating to various businesses which have been sold.
The Group leases various buildings and equipment under both
operating and capital leases. Minimum rental payments on
buildings and equipment subject to noncancelable operating
leases during next 11 years aggregate $227 million.
It is customary in the Group's industries to use various
financial instruments in the normal course of business. These
instruments include items such as letters of credit. Letters
of credit are conditional commitments issued on behalf of the
Group in accordance with specified terms and conditions. As
of December 31, 1994, the Group had outstanding letters of
credit of approximately $40 million.
(21) Subsequent Event
________________
In February 1995, CECI completed the purchase of Magma
Power Company. The cash transaction, valued at $950
million was partially financed by the sale of 17 million
shares of common stock at $17 per share. As part of this
transaction, the Group purchased 1.5 million shares,
effectively reducing its ownership percentage of common stock
in CECI to 22%.
C-TEC entered into a merger agreement with Twin County Trans
Video, Inc. ("Twin County") and its shareholders. Twin County
provides cable television service to 74,000 subscribers in
eastern Pennsylvania. The transaction, subject to regulatory
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(21) Subsequent Event (continued)
____________________________
approval and other conditions, is expected to close in
the second quarter of 1995. In consideration for all
the capital stock of Twin County, C-TEC will pay $48
million in cash, issue a $4 million note and issue $52
million in exchangeable preferred stock of its
subsidiary, C-TEC Cable Systems, Inc. The preferred stock
will be exchangeable in C-TEC common stock under certain
conditions.
In January 1995, C-TEC entered into an agreement to purchase
Buffalo Valley Telephone Company. The aggregate
consideration for the purchase ($55 million) will be a
combination of cash and convertible preferred stock in the
Telephone Group. The transaction is expected to close in
the third quarter of 1995. Buffalo Valley Telephone
Company provides local telephone service to 17,300 access
lines in central Pennsylvania.
Also in January 1995, C-TEC purchased, for $84 million in
cash, a forty percent equity position in Megacable, S.A.
De C.V., Mexico's second largest cable television operator
with 174,000 subscribers in twelve cities. The purchase
price is subject to adjustments based on fourth quarter
1995 exchange rates.
In March 1995 the Group settled its liability with
respect to certain postretirement life insurance benefits.
The Group has purchased insurance coverage from a third
party insurance company for approximately $14 million to be
paid over the next seven years.
The postretirement life insurance benefits were provided for
packaging employees who retired prior to the disposition of
certain packaging operations. The settlement will not have a
material impact on the Group's financial position or
results of operations.
SCHEDULE II
KIEWIT DIVERSIFIED GROUP
Valuation and Qualifying Accounts and Reserves
Additions
Balance, Charged to Balance
Beginning Costs and End of
of Period Expenses Retirements Other Period
__________________________________________________________________
Year ended
December 31,
1994
______________
Allowance for
doubtful
trade
accounts $ 2 $ 1 $ (1) $ - $ 2
Reserves:
Retirement
benefits $ 71 $ 2 $ (6) $ - $ 67
Year ended
December 25,
1993
______________
Allowance for
doubtful trade
accounts $ 5 $ 1 $ (4) $ - $ 2
Reserves:
Retirement
benefits 74 12 (17) 2 71
Year ended
December 26,
1992
______________
Allowance for
doubtful trade
accounts $ 5 $ - $ - $ - $ 5
Reserves:
Retirement
benefits 58 8 (8) 16(a) 74
(a) In 1992, adjustment made in accordance with SFAS No. 109 to
adjust remaining retirement benefits, acquired in prior
business acquisitions, recorded net of tax, to their pre-tax
amounts.
KIEWIT DIVERSIFIED GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The financial statements of the Diversified Group ("the
Group") include the financial position, results of operations and
cash flows for the businesses of PKS other than its construction
business and certain mining service businesses, and include a
portion of the corporate assets and liabilities and related
transactions which are not separately identified with ongoing
operations of the Group or the Construction & Mining Group. The
Group's share of corporate assets and liabilities and related
transactions includes amounts to reflect certain financial
activities, corporate general and administrative costs, common
stock transactions and income taxes. See Notes 1 and 3 to the
Group's financial statements.
Results of Operations 1994 vs. 1993
___________________________________
Mining
______
Mining revenue rose 7% in 1994 primarily due to an increase in
spot sales. Mining gross profits were 47% in 1994 and 50% 1993.
Alternate source coal sales by Black Butte in 1994 were
consistent with 1993. Alternate source coal consists of
coal purchased from unaffiliated mines located in the Powder River
Basin area of Wyoming and from the Company's 50% owned Decker mine
in Montana. In 1994, alternate source coal sales accounted for 33%
of revenues and 50% of gross profits compared to 34% and 54% in
1993.
See "Legal Proceedings" with respect to the Whitney Benefits
case.
Telecommunications
__________________
In 1994 telecommunications revenues increased 205% from 1993.
MFS and C-TEC each generated 50% of the revenues and were
responsible for 38% and 62% of the increase.
Telecommunications services revenue for MFS increased 227%
from $70 million in 1993 to $229 million in 1994. Over 70% of the
increase relates to the acquisitions of Centex, RealCom and Cylix
during 1994. The remaining increase resulted from additional
market penetration in all other telecommunication services.
KIEWIT DIVERSIFIED GROUP
Results of Operations 1994 vs. 1993 (continued)
_______________________________________________
Telecommunications (continued)
_____________________________
MFS' network systems integration services group refocused
its attention in 1994 to the design and construction of MFS' own
networks. The completion of the Iowa job and increased emphasis
on affiliated work contributed to a decline in third party
revenues to $58 million in 1994 from $71 million in 1993. Had the
group been allowed to recognize the MFS network construction
revenues, total revenues would have been $156 million and $116
million in 1994 and 1993.
C-TEC generated revenues for the Company of $291 million and
$48 million in 1994 and 1993. The 1993 figure represents activity
since the acquisition date. C-TEC's Telephone group, Cable group
and Long Distance group had revenues of $122 million, $95 million
and $30 million in 1994. The cellular group, sold in 1994, and
communications services group generated the balance.
Telecommunications cost of revenue increased 202% in 1994. Of
the total increase in costs, MFS accounted for 59% of the increase
and incurred 64% of the costs while C-TEC accounted for 41% of
the increase and incurred 36% of the total costs.
Costs associated with the MFS' telecommunications revenues
totaled $294 million and $80 million in 1994 and 1993. In addition
to the acquisitions, higher costs associated with the expansion of
Intelenet, Datanet and international businesses and the direct
costs associated with operating additional networks were
responsible for the increase. Also contributing to the increase
was additional depreciation of the MFS' networks and the
amortization of goodwill resulting from the acquisitions.
Network systems integration services operating expenses
decreased from $55 million in 1993 to $48 million in 1994. The
change is primarily due to a decrease in the level of services
provided to third parties, particularly the State of Iowa.
The cost of revenue for C-TEC included in the Company's
results was $189 million and $42 million in 1994 and 1993. The
costs in 1994 are primarily attributable to the Telephone group -
$57 million, the Cable group - $71 million and the Long Distance
group - $23 million.
KIEWIT DIVERSIFIED GROUP
Results of Operations 1994 vs. 1993 (continued)
_______________________________________________
General and Administrative Expenses
___________________________________
General and administrative expenses doubled in 1994. The
telecommunications segment generated the entire increase.
The inclusion of a full year of operations is responsible
for C-TEC's increase. Overall, C-TEC's general and administrative
expenses remained fairly consistent in 1994. The increase in MFS
is primarily due to their acquisitions in 1994 and higher costs
associated with expanding domestic and international
operations. MFS expects to incur significant expenses in 1995 to
further develop its integrated, single source telecommunications,
high-speed data communications and international services.
Gain on Subsidiary's Stock Transactions, net
____________________________________________
In 1994, the Group settled a contingent purchase price
adjustment resulting from MFS' 1990 purchase of Chicago Fiber
Optic Corporation ("CFO"). The former shareholders of CFO
accepted MFS stock previously held by the Group, valued at
market prices, as payment of the obligation. This transaction,
along with the MFS issuance of stock for the Cylix and RealCom
acquisitions and MFS employee stock options, resulted in a $54
million pre-tax gain to the Group. Deferred taxes have been
provided on these gains.
Investment Income, net
______________________
The improvement in investment income is directly attributable
to a decline of $21 million in losses from the sale and
writedown of derivative and other securities, and a $16 million
increase in interest income. Developmental expenses of $4 million
associated with the international energy projects being jointly
developed by the Company and CECI partially offset the above
improvements.
Interest Expense, net
_____________________
Interest expense increased significantly in 1994. The $41
million interest expense associated with the $500 million debt
issuance by MFS in early 1994 and a full year of interest on
C-TEC debt, $33 million, are primarily responsible for the
increase.
KIEWIT DIVERSIFIED GROUP
Results of Operations 1994 vs. 1993 (continued)
_______________________________________________
Other, net
__________
Debt prepayment penalties incurred by C-TEC ($6 million) and
1993 income from miscellaneous price adjustments on packaging sales
($5 million) are primarily responsible for the decline in Other.
Income Taxes
____________
The effective income tax rate for earnings (loss) from
continuing operations is 41% in 1994 and 29% in 1993. Adjustments
to prior year tax provisions offset unutilized tax benefits due to
net operating losses incurred by MFS.
Results of Operations - 1993 vs. 1992
_____________________________________
Mining
______
Mining revenue decreased 10% in 1993. The renegotiation of
agreements with Commonwealth Edison Company ("Commonwealth"),
ceased sales of undivided interests in coal reserves. Such sales
accounted for approximately $40 million or 17% of the total mining
revenue recognized in 1992. The absence of the sale of undivided
interests to Commonwealth in 1993, was partially offset by a rise
in tonnage shipped and an approximate $4 increase in average price
per ton of coal shipped.
Alternate source coal sales by the Black Butte mine produced
the increase in the average price per ton of coal shipped.
Alternate source coal consists of coal purchased from two
unaffiliated mines located in the Powder River Basin area of
Wyoming and from a mine in which the Group has a 50% interest.
The purchased coal is sold to Commonwealth under terms of the
renegotiated agreements. Alternate source coal sales in 1993
comprised 34% of 1993 mining revenue.
The gross margin on mining revenue increased to 50% in 1993
from 44% in 1992. Alternate source coal sales, which result in
larger margins than mined coal, led to the increase.
KIEWIT DIVERSIFIED GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations - 1993 vs. 1992 (continued)
_________________________________________________
Telecommunications
__________________
In 1993, the components of telecommunications revenue were as
follows: 37% - MFS Communications Company, Inc. ("MFS")
telecommunications services; 38% - MFS network systems integration
and facilities management services; and 25% - C-TEC operations. In
1992, revenue was comprised of 44% telecommunications services and
56% network systems integration and facilities management services.
MFS telecommunications revenue increased from $48 million to
$70 million, an increase of 46%. The majority of the increase
resulted from sales of additional services to existing customers
and, to a lesser extent, further market penetration. The growth of
services in New York City, the expansion of networks in Boston,
Chicago and the Washington, D.C. metropolitan area, and new
services provided by MFS Datanet and MFS Intelenet also contributed
to the revenue increase.
Third party revenue from services offered by the Company's
network systems integration and facilities management segment
increased from $61 million in 1992 to $71 million in 1993, a 16%
increase. The increase primarily resulted from network system
integration projects in the United Kingdom and for the State of
Iowa. MFS purchased the other 50% interest in a partnership
providing network systems integration services to customers in the
United Kingdom, thereby increasing revenue from that country. The
network system integration and facilities management services
segment had third party backlog of $110 million at December 31,
1993.
Two months of C-TEC activity accounted for $48 million of
telecommunications revenues. The telephone and cable television
groups generated the majority of the revenues.
Telecommunications operating expenses increased 78% in 1993.
Components of 1993 operating expenses were: 45% - MFS
telecommunications services; 32% - MFS network systems integration
and facilities management services; and 23% - C-TEC operating
expenses. In 1992, operating expenses were 51% MFS
telecommunications services and 49% MFS network systems integration
and facilities management services.
KIEWIT DIVERSIFIED GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations - 1993 vs. 1992 (continued)
_________________________________________________
Telecommunications (continued)
_____________________________
MFS telecommunications operating expenses increased from $48
million to $80 million in 1993, a 67% increase. The increase
reflects operating costs associated with MFS Datanet and MFS
Intelenet services and higher costs associated with the new and
expanded networks. Increased depreciation of existing networks
accounts for nearly 41% of the increase.
MFS network systems integration and facilities management
services operating expenses increased from $49 million to $55
million in 1993, a 12% increase. The increase directly relates to
increased activity on several network systems integration projects,
primarily direct costs associated with the projects in the United
Kingdom and for the State of Iowa.
Two months of C-TEC activity accounted for $42 million of
telecommunications expenses. The telephone and cable television
groups generated the majority of these costs.
Progress on the network systems integration project for the
State of Iowa was delayed in June and July 1993 by significant
rainfall and flooding. The additional cost resulting from the
floods did not materially impact the Group's telecommunications
operations.
General and Administrative Expenses
___________________________________
General and administrative expenses increased 21% in 1993.
Costs incurred in developing MFS Datanet and MFS Intelenet account
for a large portion of the increase. MFS expects to incur
significant expense developing the high-speed data communications
and integrated, single-source telecommunication services in 1994.
Increased legal costs, primarily reserves established for
environmental matters (See "Legal Proceedings"), also contributed
to the increase.
KIEWIT DIVERSIFIED GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations - 1993 vs. 1992 (continued)
_________________________________________________
Gain on Subsidiary's Stock Issuances, net
_________________________________________
In May 1993, MFS sold 12.7 million shares of common stock to
the public at an initial offering price of $20 per share for $233
million, net of certain transaction costs. An additional 4.6
million shares were sold to the public in September 1993 at price
of $50 per share for $218 million, net of certain transaction
costs. These transactions reduced the Group's ownership
interest in MFS to 71% at December 25, 1993. Substantially all of
the net proceeds from the offerings funded MFS' growth. Prior to
the initial public offering, MFS was a wholly-owned subsidiary of
the Group.
As a result of the above transactions, the Group recognized a
pre-tax gain of $211 million representing the increase in the
Group's equity in the underlying net assets of MFS. Deferred
income taxes have been provided on this gain.
Investment Income, net
______________________
Investment income decreased $51 million or 65% in 1993. The
decline primarily relates to a $21 million increase in realized
losses and permanent valuation adjustments on marketable
securities, including certain derivatives. Interest income declined
by $16 million due to lower interest rates and to a change in
portfolio mix. Dividend income decreased by $10 million due to
dividends accrued in 1992 on an investment in United States Can
Company preferred stock redeemed in March of 1993. Slight
increases in equity earnings and miscellaneous income partially
offset the declines noted above.
Interest Expense
________________
Interest expense increased by $2 million or 22% in 1993. The
increase is due to the C-TEC debt assumed in the acquisition.
Interest on C-TEC debt during the last two months approximated $6
million. The extinguishment of significant debt in 1992 partially
offset the additions of C-TEC interest.
Other, net
__________
Other income increased in 1993 due to $5 million of
miscellaneous price adjustments on packaging sales.
KIEWIT DIVERSIFIED GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations - 1993 vs. 1992 (continued)
_________________________________________________
Income Taxes
____________
The effective income tax rate for earnings from continuing
operations is 29% in 1993 and 24% in 1992. An adjustment to prior
year tax provisions significantly impacted the effective rate in
1993. The increase in effective rates from 1992 to 1993 is due to
dividend exclusions, mineral depletion expenses, and equity
earnings being a larger percentage of taxable income in the prior
year. The 1993 Federal Income tax rate change did not have a
material impact on the Group's financial results.
KIEWIT DIVERSIFIED GROUP
Financial Condition - December 31, 1994
_______________________________________
The Group's working capital decreased $24 million or 2% during
1994.
Cash used in investing activities includes $450 million of capital
expenditures (82% for MFS networks), $207 for MFS acquisitions, $35
millon for deferred toll road franchise costs and $29 million for
the purchase of CECI stock. Partially offsetting these uses were
$182 million of proceeds from the sale of C-TEC's cellular
properties and $137 million of net proceeds from marketable
securities activity.
Net financing activities generated $478 million during 1994, the
majority of which related to MFS and C-TEC. MFS' debt issuance
resulted in net proceeds of $482 million and C-TEC borrowings,
primarily for refinancing, totalled $148 million. C-TEC also
raised $217 million, $153 from the Group, in a December rights
offering. Long-term debt paid off by C-TEC totalled $284 million.
Stock transactions also contributed significant cash in 1994. The
exchange of B & C stock for D stock netted $42 million which
exceeded stock repurchases of $20 million.
In addition to the C-TEC and MFS activities described below,
the Group anticipates making significant investments in its energy
businesses - including its joint venture agreement with California
Energy covering international power project development activities
- - - and searching for opportunities to acquire capital intensive
businesses which provide for long-term growth. Other long-term
liquidity uses include payment of income taxes and repurchases of
common stock. The Group's current financial condition and
borrowing capacity should be sufficient for these cash requirements
and investing activities.
The funds generated from the rights issuance and the cellular sale
enabled C-TEC to fund the Megacable acquisition, pursue the Twin
County and Buffalo Valley purchases, prepay cerain indebtedness
and meet its current working capital requirements. C-TEC intends
to utilize its available cash balance to develop full service
networks using certain existing cable and telephone systems, and
pursue additional acquisitions, joint ventures or similar
strategic investments in the telecommunications industry.
MFS requires significant capital to fund future building expansion
and acquisition of communications networks in major
metropolitan areas. As part of a 3-5 year $1 billion expansion
plan announced in 1993, MFS intends to invest up to $400 million
for network construction & equipment purchases in 1995.
KIEWIT DIVERSIFIED GROUP
Financial Condition - December 31, 1994 (continued)
__________________________________________________
To continue the funding of the 1993 expansion plan, MFS expects to
finalize arrangements for a $250 million secured revolving credit
facility ("Credit Facility") with a syndicate of commercial banks
in the second quarter of 1995. MFS anticipates that the Credit
Facility, together with cash on hand and internally generated
funds, will be sufficient to fund its anticipated operating losses,
working capital needs and the remaining capital spending
requirements necessary to complete its expansion. MFS may,
however, obtain vendor financing as an alternative to utilization
of all or a portion of the Credit Facility.
MFS intends to issue approximately $250 million of mandatorily
convertible preferred stock in the second quarter of 1995 to
provide the capital necessary to fund additional expansion
opportunities arising from recent regulatory, legislative, and
competitive developments. MFS will continue to consider other
opportunities to sell equity or debt securities in the public or
private markets to maintain the financial flexibility to react to
opportunities while cost-effectively funding the capital
investments required to implement its expansion plan.
MFS, from time to time, evaluates acquisitions in pursuit of
its business strategy, either as an alternative to constructing
networks or introducing services that complement existing and/or
planned services. Such acquisitions may be significant in size and
could use a substantial portion of MFS' available cash. As
discussed above, MFS may fund future activity through additional
debt or equity financing.
MFS has also had discussions with other communications entities
concerning the establishment of possible strategic relationships,
including transactions involving acquisitions, combinations and
equity investments in MFS or one of its subsidiaries. MFS intends
to consider appropriate opportunities to establish strategic
relationships.
PKS's management has asked the Internal Revenue Service to issue a
ruling (the "Ruling") that would permit PKS to make a tax-free
distribution of its entire ownership interest in MFS to
PKS's Class D stockholders (the "Spin-off"). PKS's management
intends to propose a plan (the "Plan") to implement the
Spin-off to PKS's Board of Directors during the second
quarter of 1995. If the Board of Directors approves the Plan,
and the Internal Revenue Service issues the Ruling, PKS
could complete the Spin-off as early as the third quarter of 1995.
KIEWIT DIVERSIFIED GROUP
Financial Condition - December 31, 1994 (continued)
__________________________________________________
The Spin-off might not occur. For example, PKS might not receive
the Ruling or the Board might not adopt the plan. In addition, the
issuance of the MFS Preferred Stock necessary to obtain the Ruling
(as described below), would require a favorable vote from a
majority of the minority common stockholders of MFS, other than
KDG, present and voting in person or by proxy at a special MFS
stockholders meeting. If the favorable vote is not received, MFS
would not be able to issue the MFS preferred stock and PKS would
not be able to complete the spin-off. Also, the spin-off is
subject to receipt of certain other approvals, some of which might
not be received. Finally, if PKS's Board of Directors adopts the
plan, it would reserve the right to abandon, defer or modify the
spin-off at any time.
MFS has agreed in principle to issue KDG a special class of
high-vote convertible preferred stock (the "MFS Preferred
Stock") designed to permit PKS to satisfy certain requirements for
receiving the Ruling. MFS would issue the Preferred Stock to KDG
in exchange for the transfer by KDG to MFS of approximately 3.0-3.5
million of the shares of MFS common stock currently held by the
KDG. PKS anticipates that the MFS Preferred Stock (i) would
have a face value of approximately $15-25 million, (ii) would
be convertible into MFS common stock at any time after the
first anniversary of the date the MFS Preferred Stock is
issued, (iii) would have dividend rate and a conversion
premium determined by market conditions at the time that the
MFS Preferred Stock is issued, (iv) would be redeemable at par
six years after the date of issuance, and (v) would be non
transferable for six years after the date of issuance except
under certain limited circumstances. At the option of MFS,
dividends on the MFS Preferred Stock could be paid either in
cash or in shares of MFS Common Stock. Each share of MFS
Preferred Stock would have approximately five votes per share
in any election of MFS directors. If the Spin-off occurs,
PKS would distribute to Class D stockholders both the
MFS Preferred Stock and all of the common stock of MFS then
held by KDG. If the Spin-off does not occur, MFS
would not issue the MFS Preferred Stock to KDG.
The Plan would provide for an exchange offer (the "Exchange
Offer") by PKS for Class C Stock, to be completed before the
Spin-off. Under an Exchange Offer, PKS would offer to
exchange Class D Stock for some or all of its outstanding Class C
Stock on terms similar to those upon which Class C Stock can be
converted into Class D Stock during the annual conversion period
provided in the Company's Certificate of Incorporation. As
a result, Class C Stockholders wanting to convert Class C Stock to
Class D Stock would not be disadvantaged if the Spin-off were to
KIEWIT DIVERSIFIED GROUP
Financial Condition - December 31, 1994 (continued)
__________________________________________________
be completed before the next conversion permitted by the
Certificate of Incorporation. If an Exchange Offer could not be
completed prior to the next conversion under the Certificate of
Incorporation, PKS probably would defer any Spin-off until the
first quarter of 1996.