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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 28, 1996 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 C Common Stock, par value $.0625
Class D 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 15, 1997, the number of outstanding shares of each
class of the Company's common stock was:
Class C - 9,262,707
Class D - 24,483,786
Portions of the Company's definitive Proxy Statement for the 1997
Annual Meeting of Stockholders are incorporated by reference into
Part III of this Form 10-K.
TABLE OF CONTENTS
Page
Item 1. Business .................................... 1
Item 2. Properties .....................................
Item 3. Legal Proceedings.................................
Item 4. Submission of Matters to a Vote of Security Holders
Executive Officers of the Registrant....
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.........
Item 6. Selected Financial Data..............................
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....
Item 8. Financial Statements and Supplementary Data..................
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...
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...............
Item 14.Exhibits, Financial Statement Schedules, and Reports on
Form 8-K..............
Index to Financial Statements and Financial Statement Schedules of
Registrant........
PART I
ITEM 1. BUSINESS
Peter Kiewit Sons', Inc. (the "Company") is one of the largest
construction contractors in North America and also owns energy,
telecommunications, and infrastructure businesses. The Company
pursues these activities through two subsidiaries, Kiewit
Construction Group Inc. ("KCG") and Kiewit Diversified Group Inc.
("KDG"). The organizational structure is shown by the following
chart.
Peter Kiewit Sons', Inc.
Kiewit Construction Group Inc.
Construction Operations
Materials Operations
Kiewit Diversified Group Inc.
PKS Information Services, Inc.
Kiewit Energy Group Inc.
Kiewit Coal Properties Inc.
CalEnergy Company, Inc.(30%)
International Energy
C-TEC Corporation (62%)
Infrastructure Projects
The Company has two principal classes of common stock, Class C
Construction & Mining Group stock and Class D Diversified Group
stock. The value of Class C stock is linked to the Company's
construction and materials operations. The value of Class D stock
is linked to the operations of Kiewit Diversified Group, under the
terms of the Company's charter (see Item 5 below). All Class C
shares and most Class D shares are owned by current employees of
the Company; almost all of the remaining Class D shares are owned
by former employees and family members. The Company was
incorporated in Delaware 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. In 1995, the Company distributed to its Class D
stockholders all its shares of MFS Communications Company, Inc.
("MFS") (which later merged into WorldCom Inc.). Through
subsidiaries, the Company owns 62% of the voting stock of another
telecommunications company, C-TEC Corporation ("C-TEC"), and now
owns 30% of the voting stock of CalEnergy Company, Inc.
("CalEnergy"). C-TEC and CalEnergy are publicly traded companies
and more detailed information about each of them is contained in
their separate Forms 10-K.
The Company also files as exhibits to this Form 10-K,
Financial Statements and Other Information for each of the
Construction & Mining Group (Exhibit 99.A) and Diversified Group
(Exhibit 99.B). These exhibits generally follow the format of Form
10-K and consist of separate financial statements for each Group
and excerpts of other information from this Form 10-K pertaining to
each Group.
The Company reports financial information about four business
segments: construction, coal mining, energy generation and
distribution, and telecommunications. Additional financial
information about these segments, including revenue, operating
earnings, equity earnings, identifiable assets, capital
expenditures, and depreciation, depletion and amortization, as well
as foreign operations information, is contained in Note 3 to the
Company's consolidated financial statements.
KIEWIT CONSTRUCTION GROUP
CONSTRUCTION OPERATIONS
The construction business is conducted by operating
subsidiaries of Kiewit Construction Group Inc. (collectively,
"KCG"). KCG and its joint ventures perform construction services
for a broad range of public and private customers primarily in the
United States and Canada. New contract awards during 1996 were
distributed among the following construction markets:
transportation (including highways, bridges, airports, railroads,
and mass transit) -- 45%, dams and reservoirs -- 17%, commercial
buildings -- 16%, sewage and waste disposal -- 12%, power, heat,
cooling - 4%, water supply -- 2%, and mining -- 2%.
As a general contractor, KCG is 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.
Contract Types. KCG's public contracts generally provide for
the payment of a fixed price for the work performed. Profit is
realized on 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. Construction 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's private contracts are of three types: fixed price, guaranteed
maximum, and cost plus. Under a "guaranteed maximum" contract, the
contractor and owner share in savings if costs are less than the
maximum price. Under a "cost plus" contract, 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 79% of
the combined prices of contracts awarded to KCG during 1996. Most
of these contracts were awarded by government and quasi-government
units under fixed price contracts 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.
Backlog. At the end of 1996, KCG had backlog (anticipated
revenue from uncompleted contracts) of $2.3 billion, an increase
from $2.0 billion at the end of 1995. Of current backlog, $700
million is not expected to be completed during 1997. In 1996 KCG
was low bidder on 284 jobs with total contract prices of $1.8
billion, an average price of $6.4 million per job. There were 15
new projects with contract prices over $25 million, accounting for
45% of the successful bid volume.
Competition. A contractor's competitive position is based
primarily on its prices for construction services and its
reputation for quality, timeliness, experience, and financial
strength. The construction industry is highly competitive and
lacks firms with dominant market power. In 1996 Engineering News
Record, a construction trade publication, ranked KCG as the 9th
largest U.S. contractor in terms of 1995 revenue and 11th largest
in terms of 1995 new contract awards. It ranked KCG 1st in the
transportation market and 1st in the heavy construction category,
in terms of 1995 revenue. The U.S. Department of Commerce reports
that the total value of construction put in place in 1996 was $569
billion. KCG's U.S. revenues for the same period were $2.0
billion, or 0.4% of the total domestic market.
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 expenses, the other venturers may be required to pay those
costs. KCG prefers to act as the sponsor of its joint ventures.
The sponsor generally provides the project manager, the majority of
venturer-provided personnel, and accounting and other
administrative support services. The joint venture generally
reimburses the sponsor for such personnel and services on a
negotiated basis. The sponsor is generally allocated a majority of
the venture's profits and losses and usually has a controlling vote
in joint venture decision making. In 1996 KCG derived 75% of its
joint venture revenue from sponsored joint ventures and 25% from
non-sponsored joint ventures. KCG's share of joint venture revenue
accounted for 30% of its 1996 total revenue.
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. 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.
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. At the end of 1996, KCG
had current projects in 32 states and 6 provinces. KCG also
participates in the construction of geothermal power plants in the
Philippines and Indonesia.
Properties. KCG has 19 district offices, of which 15 are in
owned facilities and 4 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.
MATERIALS OPERATIONS
Several KCG subsidiaries, primarily in Arizona and Oregon,
produce construction materials, including ready-mix concrete,
asphalt, sand and gravel. KCG also has quarrying operations in New
Mexico and Wyoming, which produce landscaping materials and
railroad ballast.
KIEWIT DIVERSIFIED GROUP
COAL MINING
KDG is engaged in coal mining through its subsidiary, KCP.
KCP has a 50% interest in three mines, which are operated by KCP.
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 Resources Group
Inc. 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.
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 produce steam to generate electricity.
Approximately 92% of sales are made under long-term contracts, and
the remainder are made on the spot market. Approximately 80%, 80%,
and 71% of KCP's revenues in 1996, 1995, and 1994, respectively,
were derived from long-term contracts with Commonwealth Edison
Company (with Decker and Black Butte) and The Detroit Edison
Company (with Decker). The primary 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 1 to 31 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 directly passed through to the customer
as incurred. In most cases the price is also adjusted based on the
heating content of the coal.
Decker has a sales contract with Detroit Edison Company which
provides for the delivery of a minimum of 42 million tons of low
sulphur coal during the period 1997 through 2005, with annual
shipments ranging from 5.2 million tons in 1997 to 1.7 million tons
in 2005.
KCP and its mining ventures have entered into various
agreements with Commonwealth Edison Company ("Commonwealth") which
stipulate delivery and payment terms for the sale of coal. The
agreements as amended provide for delivery of 100 million tons
during the period 1997 through 2014, with annual shipments ranging
from 1.8 million tons to 13.1 million tons. These deliveries
include 20 million tons of coal reserves previously sold to
Commonwealth. Since 1993, the amended contract between
Commonwealth and Black Butte provides that Commonwealth's delivery
commitments will be satisfied, not with coal produced from the
Black Butte mine, but with coal purchased from three unaffiliated
mines in the Powder River Basin of Wyoming. The contract amendment
allows Black Butte to purchase alternate source coal at a price
below its production costs, and to pass the cost savings through to
Commonwealth while maintaining the profit margins available under
the original contract.
The contract between Walnut Creek and Texas-New Mexico Power
Company provides for delivery of between 42 and 90 million tons of
coal during the period 1989 through 2027. The actual tons provided
will depend on the number of power units constructed and operated
by TNP. The maximum amount KCP is expecting to ship in any one
year is between 1.6 and 3.2 million tons.
KCP also has other sales commitments, including those with
Sierra Pacific, Idaho Power, Solvay Minerals, Pacific Power &
Light, Minnesota Power, and Mississippi Power, that provide for the
delivery of approximately 18 million tons through 2005.
Coal Production. Coal production began at the Decker, Black
Butte, and Walnut Creek mines in 1972, 1979, and 1989,
respectively. KCP's share of coal mined in 1996 at the Decker,
Black Butte, and Walnut Creek mines was 5.5, 0.9, and 1.0 million
tons, respectively.
Revenue. KCP's total revenue in 1996 was $234 million.
Revenue attributable to the Decker, Black Butte, and Walnut Creek
entities was $113 million, $101 million, and $18 million,
respectively.
Under a 1992 mine management agreement, KCP pays a KCG
subsidiary an annual fee equal to 30% of KCP's adjusted operating
income. The fee in 1996 was $37 million.
Backlog. At the end of 1996, the backlog of coal to be sold
under KCP's long-term contracts was approximately $1.6 billion,
based on December 1996 market prices. Of this amount, $206 million
is expected to be sold in 1997.
Reserves. At the end of 1996, KCP's share of assigned coal
reserves at Decker, Black Butte, and Walnut Creek was 118, 40, and
32 million tons, respectively. Of these amounts, KCP's share of
the committed reserves of Decker, Black Butte, and Walnut Creek was
51.9, 3.6, and 23.8 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 1995, KCP's production
represented 1.4% 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
sulphur 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
minable coal) than the Black Butte and Decker mines, often
resulting in lower comparative costs of production. As a result,
KCP's production costs per ton of coal at the Black Butte and
Decker mines can be as much as four and five times greater than
production costs of certain competitors. KCP's production cost
disadvantage has contributed to its agreement to amend its long-
term contract with Commonwealth Edison Company to provide for
delivery of coal from alternate source mines rather than from Black
Butte. Because of these cost disadvantages, KCP does not expect
that it will be able to enter into long-term coal purchase
contracts for Black Butte and Decker production as the current
long-term contracts expire. In addition, these cost disadvantages
may adversely affect KCP's ability to compete for spot sales in the
future.
Environmental Regulation. The Company 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 1996 was $5 million. KCP's share of
accrued estimated reclamation costs was $99 million at the end of
1996. The Company does not expect to make significant capital
expenditures for environmental compliance in 1997. The Company
believes its compliance with environmental protection and land
restoration laws will not affect its competitive position since its
competitors in the mining industry are similarly affected by such
laws.
CALENERGY COMPANY, INC.
CalEnergy develops, owns, and operates electric power
production facilities, particularly those using geothermal
resources, in the United States, the Philippines, and Indonesia.
In December 1996, CalEnergy and KDG acquired Northern Electric plc,
an English electric utility company. CalEnergy is a Delaware
corporation formed in 1971 and has its headquarters in Omaha,
Nebraska. CalEnergy common stock is traded on the New York,
Pacific, and London Stock Exchanges. In 1996, CalEnergy had
revenue of $576 million and net income of $92 million. At the end
of 1996, CalEnergy had total assets of $5.7 billion, debt of $3.0
billion, and stockholders' equity of $881 million.
Kiewit's Share. At the end of 1996, KDG owned approximately
30% of the common stock of CalEnergy. Under generally accepted
accounting principles, an investor owning between 20% and 50% of
a company's equity, generally uses the equity method. Under the
equity method, KDG reports its proportionate share of CalEnergy's
earnings, even though it has received no dividends from
CalEnergy. KDG keeps track of the carrying value of its
CalEnergy investment. "Carrying value" is the purchase price of
the investment, plus the investor's proportionate share of the
investee's earnings, less the amortized portion of goodwill, less
any dividends paid. KDG purchased most of its CalEnergy shares
at a premium over the book value of CalEnergy's underlying net
assets. This premium will be amortized over a period of 20
years. The current carrying value of KDG's CalEnergy shares is
$292 million. KDG owns 19.2 million CalEnergy common shares,
which had a market value of $644 million, based on the 1996 year-
end price of $33.50 per share on the New York Stock Exchange.
During 1996, KDG converted $66 million of CalEnergy
debentures into 3.6 million CalEnergy shares and purchased 4.8
million shares for $53 million (by exercising 1.5 million options
at $9 per share and 3.3 million options at $12 per share). KDG
retains one million options to purchase CalEnergy stock at
$11.625 per share. These options expire in 2001.
Acquisitions. In the last two years, CalEnergy has made
three significant acquisitions, in addition to the recent $1.3
billion acquisition of Northern Electric plc (described below).
In January 1995, CalEnergy acquired Magma Power Company
("Magma"), a publicly-traded United States independent power
producer, for approximately $958 million. The Magma acquisition,
combined with CalEnergy's previously existing assets, made
CalEnergy the largest independent geothermal power producer in
the world today (based on CalEnergy's estimate of electric
generating capacity in operation and under construction). In
April 1996, CalEnergy completed the buy-out for approximately $70
million of its partner's interests in four electric generating
plants in Southern California. In August 1996, CalEnergy
acquired Falcon Seaboard Resources, Inc. for approximately $226
million, thereby acquiring significant ownership in three natural
gas-fired electric cogeneration facilities located in New York,
Texas and Pennsylvania and a related gas transmission pipeline.
Power Generation Projects. Power generation facilities are
measured in terms of megawatts (MW) of net electric generating
capacity. Most of CalEnergy's facilities are co-owned and
CalEnergy's fractional ownership interest can be expressed in
terms of MWs. CalEnergy has projects in three stages:
operational (and managed by CalEnergy), under construction (and
financed), and developmental (with executed and awarded power
sales contracts). CalEnergy owns (I) 1,309 MW in 20 operating
facilities with 3,201 MW of capacity, (ii) 314 MW in 5 projects
under construction, with 564 MW of capacity, and (iii) 573 MW in
6 development stage projects, with 1,260 MW of capacity. KDG has
a separate ownership interest in some of the international
projects. KDG owns (i) 87 MW in the projects in operation, (ii)
159 MW in the projects under construction, and (iii) 458 MW in
the Indonesian development stage projects.
Operations -- U.S. Geothermal Plants. Most of CalEnergy's
operating revenues come from geothermal power plants in Southern
California, three in the Coso area and eight in the Imperial
Valley. CalEnergy has ownership interests of 46%, 48%, and 50% in
the three Coso plants. Following the 1996 acquisition of the
remaining 50% interests in four Imperial Valley projects for $70
million, CalEnergy is now the full owner of the eight Imperial
Valley projects. Operations of the Salton Sea Unit IV in the
Imperial Valley began in 1996, following completion of
construction.
These twelve geothermal plants have certain common features.
CalEnergy is the operator of each plant. Each plant has a long-
term contract to supply electric power to Southern California
Edison Company ("Edison"). The agreements provide for both
capacity payments and energy payments for a term of between 20
and 30 years. During the first ten years, energy payments are
based on a pre-set schedule. Thereafter, while the basis for the
capacity payment remains the same, the required energy is
Edison's then-current published "avoided cost of energy" as
determined by the California Public Utility Commission. The
initial ten-year periods expire beginning in 1996 for the first
plant and in 2000 for the last plant. CalEnergy cannot predict
the likely level of Edison's avoided cost of energy prices at the
expiration of the fixed-price periods, but it is currently
substantially below the current energy prices under CalEnergy's
contracts. For 1996, the time period-weighted average of
Edison's avoided cost of energy was 2.5 cents per kWh, compared
to CalEnergy's comparable selling price for energy of 11.3 cents
per kWh. Thus, the revenue generated by each of CalEnergy's
facilities is likely to decline significantly after the
expiration of the fixed-price period.
CalEnergy also owns and operates two geothermal operating
plants, one each in Utah and Nevada.
Operations -- U.S. Gas-Fired Plants. In August 1996
CalEnergy completed the acquisition of Falcon Seaboard Resources,
Inc., including its ownership interest in three operating gas-
fired cogeneration plants located in New York, Texas and
Pennsylvania and a related natural gas pipeline, also located in
New York, for a cash purchase price of $226 million. The three
cogeneration facilities total 520 MW in capacity and sell power
under long-term power purchase agreements. CalEnergy also owns
and operates a 50 MW gas-fired cogeneration facility in Yuma,
Arizona.
Operations -- Philippines Geothermal.
Upper Mahiao.
Construction of the Upper Mahiao Project was completed in
June 1996. The project operating company is receiving full
capacity payments under the "take or pay" provisions of the
contract pending completion by the national power company of a
full transmission line. The plant is presently delivering up to
40 MW over interim transmission lines.
In 1994, construction began on the Upper Mahiao Project, a
119 gross MW geothermal project on the Philippine island of
Leyte. The project was built by and is owned and operated by CE
Cebu Geothermal Power Company, Inc. ("CE Cebu"), a Philippine
corporation owned by CalEnergy. The project will sell 100% of
its capacity on a "take-or-pay" basis to PNOC-Energy Development
Corporation ("PNOC"), which will in turn sell the power to the
National Power Corporation of the Philippines ("NPC"), for
distribution to the island of Cebu, located 40 miles west of
Leyte. NPC is the government-owned and controlled corporation
that is the primary supplier of electricity in the Philippines.
The project was started by Magma, prior to its acquisition by
CalEnergy. KDG has no separate ownership interest in this
project and KCG was not involved in construction.
The total project cost was $218 million. A consortium of
international banks provided approximately $162 million in
project-financed construction loans, supported by political risk
insurance from the Export-Import Bank of the United States ("Ex-
Im Bank"). The construction loan is expected to be converted to
a term loan promptly after NPC completes the full capacity
transmission line, which is expected to occur in 1997. The
largest portion of the term loan for the project will also be
provided by Ex-Im Bank. CalEnergy's equity contribution to the
project is $56 million. Subject to the pledge of the project
company's stock to the lenders, CalEnergy has arranged for
political risk insurance of its equity investment through
Overseas Private Investment Corporation ("OPIC"). The financing
is collateralized by all the assets of the project.
Under the terms of an energy conversion agreement (the "ECA"),
executed in September 1993, CE Cebu will own and operate the
project for ten years, after which the facility will be transferred
to PNOC at no cost. The project is located on land provided by
PNOC at no cost. CE Cebu will take geothermal steam and fluid,
also provided by PNOC at no cost, and convert its thermal energy
into electrical energy to be sold to PNOC on a "take-or-pay" basis.
Specifically, PNOC will be obligated to pay for the electric
capacity, even if PNOC is unable to accept delivery of the
electricity. PNOC will pay to CE Cebu a capacity fee (which, at
the plant's design capacity, is approximately 95% of total contract
revenues) and an energy fee based on the electricity actually
delivered to PNOC (approximately 5% of total contract revenues).
The capacity fee serves to recover the capital costs of the
project, to recover fixed operating costs, and to cover return on
investment. The energy fee is designed to cover all variable
operating and maintenance costs of the power plant. Payments under
the ECA will be denominated in U.S. dollars, or computed in U.S.
dollars and paid in Philippine pesos at the then-current exchange
rate, except for the energy fee, which will be used to pay
Philippine peso-denominated expenses. Significant portions of the
fees will be indexed to U.S. and Philippine inflation rates.
PNOC's obligations are supported by the Philippine government
through a performance undertaking.
Malitbog.
In 1994, CalEnergy started construction of the Malitbog
Project, a 216 net MW geothermal project consisting of three 72 net
MW units, located on the island of Leyte. The project is being
built, and will be owned and operated by Visayas Geothermal Power
Company ("VGPC"), which is wholly owned by CalEnergy. Unit I of
the Malitbog facility was "deemed complete" by PNOC in July 1996,
meaning that construction of the first 72 net MW unit was completed
on time but the required transmission line was not completed and
provided to VGPC. During deemed completion, PNOC is required to
pay, and in fact has been paying, capacity fees under the "take or
pay" provisions of the contract. VGPC is selling 100% of its
capacity on substantially the same basis as described above for the
Upper Mahiao Project to PNOC, which will in turn sell the power to
NPC. This project was started by Magma, prior to its acquisition
by CalEnergy. KDG has no separate ownership interest in this
project and KCG has not participated in construction.
The Malitbog Project has a total project cost of approximately
$280 million, including interest during construction and project
contingency costs. A consortium of international banks and OPIC
have provided a total of $210 million of construction and term loan
facilities, the $135 million international bank portion of which is
supported by political risk insurance from OPIC. CalEnergy's
equity contribution to VGPC was $70 million. CalEnergy's equity
participation is covered by political risk insurance from OPIC.
Units II and III of the Malitbog Project are being constructed
by Sumitomo Corporation, of Japan, pursuant to a fixed-price, date-
certain, turnkey supply and construction contract. Commercial
operation of Units II and III are scheduled to commence in July
1997. The Malitbog ECA is similar to the Upper Mahiao ECA
described above. All facilities (Units I, II, and III) will be
transferred to PNOC ten years after commercial operations begin on
Unit III.
Operations -- England. See discussion under heading
"International Energy -- Northern Electric Acquisition" below.
Construction -- Philippines and Indonesia. See discussion of
the Mahanagdong, Casecnan, and Dieng projects under the heading
"International Energy" below.
Geothermal power production process. Until 1996, almost all
of CalEnergy's projects were geothermal projects. The following is
a summary of the geothermal power production process. First, the
developer locates suitable geothermal resources, drills test wells,
secures permits, negotiates long-term power contracts with an
electric utility, and arranges financing. Second, the project is
constructed. Third, the facility is operated and maintained.
Project revenues from the sale of electricity are applied to
operating costs, rent or royalties, and principal and interest
payments on debt incurred for acquisition and construction costs.
Geothermal resources suitable for commercial extraction require an
underground water reservoir heated to high temperatures.
Production wells are drilled to release the heated fluid under high
pressure. Wells are usually located within one or two miles of the
power plant. From well heads, fluid flows through pipelines to a
series of separators where it is separated into water, brine, and
steam. The steam is passed through a turbine which drives a
generator to generate electricity. Once the steam has passed
through the turbine, it is then cooled and condensed back into
water which is reinjected through wells back into the geothermal
reservoir. Under proper conditions, the geothermal power is a
renewable energy source, with minimal emissions compared to fossil
fuel power plants. The utilization of geothermal power is
preferred by certain governments in order to minimize the import
(e.g., the Philippines), or maximize the export (e.g., Indonesia)
of hydrocarbons. Geothermal power facilities presently enjoy
federal tax benefits and favorable utility regulatory treatment in
the United States.
INTERNATIONAL ENERGY
KDG is an investor with CalEnergy in power projects in the
Philippines and Indonesia and in an electric utility company in
England. In each case, KDG has a direct equity interest and also
benefits indirectly as a 30% stockholder in CalEnergy.
KDG and CalEnergy have a joint venture agreement regarding
international energy projects. If both KDG and CalEnergy agree to
participate in a project, they will share equally development costs
and equity required for financing the project. On a project by
project basis, CalEnergy will be the development manager, managing
partner and/or project operator. The agreement expires in 2001.
Mahanagdong.
In 1994 construction began on the Mahanagdong Project, a 165
gross MW geothermal project on the Philippine island of Leyte. The
project will be built, owned and operated by CE Luzon Geothermal
Power Company, Inc. ("CE Luzon"), a Philippine corporation that
during construction is owned 50% by CalEnergy and 50% by KDG.
After construction, another industrial company has an option to buy
up to a 10% financial interest in CE Luzon. The project will sell
100% of its capacity on a "take-or-pay" basis to PNOC, which will
in turn sell the power to NPC, for distribution to the island of
Leyte.
The total project cost is $320 million, including interest
during construction, project contingency costs and a debt service
reserve fund. The capital structure consists of a project
financing construction and term loan of $240 million provided by
OPIC, Ex-Im Bank, and a consortium of international banks, and
approximately $80 million in equity contributions. KDG and
CalEnergy must make equity contributions of $40 million each. KDG
and CalEnergy have arranged for political risk insurance on their
equity investments through OPIC. Political risk insurance from Ex-
Im Bank has been obtained for the commercial lenders. The
financing is collateralized by all of the assets of the project.
The project is being constructed by KCG under fixed-price, date-
certain, turnkey supply and construction contracts. Completion of
construction is expected during 1997.
The terms of an energy conversion agreement (the "ECA") are
substantially similar to those of the Upper Mahiao ECA, described
above. The ECA provides for an approximately three-year
construction period and a ten-year operations period. At the end
of the operations period, the facility will be transferred to PNOC
at no cost. All of PNOC's obligations under the Mahanagdong ECA
are supported by the Philippine government through a performance
undertaking. The capacity fees are expected to be approximately
97% of total revenues at the design capacity levels and the energy
fees are expected to be approximately 3% of total revenues.
Casecnan.
In November 1995, CE Casecnan Water and Energy Company, Inc.,
a Philippine corporation ("CE Casecnan") started construction on a
combined irrigation and 150 gross MW hydroelectric power generation
project (the "Casecnan Project") located in the central part of the
Philippine island of Luzon. The project will include diversion
structures in the Casecnan and Denip Rivers that will divert water
into a 14 mile long tunnel. The tunnel will transfer the water
from the Casecnan and Denip Rivers into the Pantabangan Reservoir
for irrigation and hydroelectric use in the Central Luzon area. An
underground powerhouse at the end of the water tunnel will house a
power plant with 150 MW capacity. A two mile long tailrace tunnel
will deliver water from the water tunnel and the new powerhouse to
the Pantabangan Reservoir.
The project is being developed under a project agreement between CE
Casecnan and the National Irrigation Administration ("NIA").
CalEnergy and KDG have minimum and maximum ownership interests in
CE Casecnan of 35% to 50% each. Two other shareholders, who have
no financial commitments and will not participate in construction
or operations, may receive interests of as much as 15% each,
depending on projected returns from the project.
The total project cost is $495 million, funded by bonds issued
by CE Casecnan of $371 million and equity contributions of $62
million each from KDG and CalEnergy. KDG also holds $20 million of
the project bonds. Under the project agreement, CE Casecnan
developed, financed, and is constructing the project over an
originally estimated four-year construction period, and will
thereafter own and operate the project for a 20-year operations
period. During the operating period, NIA is obligated to accept
all deliveries of water and energy, and NIA will pay the CE
Casecnan a guaranteed fee for the delivery of water and a
guaranteed fee for the delivery of electricity, regardless of the
amount of water or electricity actually delivered. In addition,
NIA will pay a fee for all electricity delivered in excess of a
threshold amount. NIA will sell the electric energy it purchases
to NPC. All fees to be paid by NIA to CE Casecnan are payable in
U.S. dollars. The guaranteed fees for the delivery of water and
energy are expected to provide approximately 70% of CE Casecnan's
revenues. At the end of the 20-year period, the project will be
transferred to NIA and NPC for no additional consideration on an
"as is" basis. The Philippine government has provided a
performance undertaking under which NIA's obligations under the
project agreement are guaranteed by the full faith and credit of
the Philippine government.
The Casecnan project is being constructed on a joint and
several basis by Hanbo Corporation and Hanbo Engineering &
Construction Co. Ltd. ("HECC"), (together "Contractor") both of which
are South Korean corporations and are under common ownership and control.
The contractors' obligations under the construction contract are
guaranteed by Hanbo Iron & Steel Company, Ltd. ("Hanbo Steel"), a
large South Korean steel company. In addition, the contractor's
obligations are secured by an unconditional, irrevocable, standby
letter of credit issued by Korea First Bank ("KFB") in the
approximate amount of $118 million. In January 1997, Hanbo
Corporation, HECC and Hanbo Steel each filed to seek bankruptcy
protection in Korea. KFB's credit rating has been
downgraded because of the substantial loans it has made to Hanbo
Steel. Casecnan has recently received confirmation from HECC that
it intends to fully perform its obligations under the contract.
However, although HECC is currently performing the work, there
can be no assurance that it will remain able to perform fully its
obligations under the contract.
KFB has recently reconfirmed to Casecnan that it will honor its
obligations under the letter of credit. Casecnan is presently reviewing
its rights, obligations and potential remedies in respect of the recent
developments regarding the Contractor and KFB and is presently unable
to speculate as to the ultimate effect of such developments on
the Casecnan project.
If the Contractor were to materially fail to perform its
obligations under the contract and if KFB were to fail to honor its
obligations under the letter of credit, such actions could have a
material adverse effect on the Casecnan project. However, based on
information currently available, KDG does not believe its investment
is impaired.
Dieng.
In December 1994, Himpurnia California Energy Ltd. ("HCE")
executed a joint operation contract (the "JOC") for the development
of the geothermal steam field and geothermal power facilities at
the Dieng geothermal field, located in Central Java (the "Dieng
Project") with Pertamina, the Indonesian national oil company, and
executed a "take-or-pay" energy sales contract (the "ESC") with
both Pertamina and PLN, the Indonesian national electric utility.
HCE and an Indonesian partner formed a joint venture to develop the
Dieng Project. CalEnergy, KDG, and the Indonesian partner have
47%, 47%, and 6% interests, respectively, in the Dieng Project.
Pursuant to the JOC and ESC, Pertamina has granted to HCE the
geothermal field and wells and other facilities presently located
thereon and the HCE will build, own, and operate the production
units. HCE will accept the field operation responsibility for
developing and supplying the geothermal steam and fluids required
to operate the plants. The JOC is structured as a build-own-
transfer agreement and will expire (subject to extension by mutual
agreement) on the date which is the later of (i) 42 years following
effectiveness of the JOC and (ii) 30 years following the start of
commercial generation of the final unit completed. Upon the
expiration of the JOC, all facilities will be transferred to
Pertamina at no cost. HCE is required to pay Pertamina a
production allowance equal to three percent of HCE's net operating
income from the Dieng Project, plus a further amount based upon the
negotiated value of existing Pertamina geothermal production
facilities that are expected to be made available by Pertamina.
Pursuant to the ESC, PLN agreed to purchase and pay for all of
the project's capacity and energy output on a "take-or-pay" basis
regardless of PLN's ability to accept such energy made available
from the Dieng Project for a term equal to that of the JOC. The
price paid for electricity includes a base energy price for
electricity the plants deliver or are "capable of delivering,"
whichever is greater. Energy price payments are also subject to
adjustment for inflation. PLN will also pay a capacity payment
based on plant capacity. All such payments are payable in U.S.
dollars.
Construction by KCG and CalEnergy of an initial 55 MW unit
began in 1996 and completion is scheduled for late 1997. The total
project cost of Dieng Unit I is $160 million, including equity
contributed by KDG and CalEnergy of $20 million each. Construction
loan financing of $120 million was closed in October 1996; $86
million from Credit Suisse and $34 million by an entity owned
equally by KDG and CalEnergy. Of the latter amount, KDG and
CalEnergy furnished $5 million each in 1996 and expect to furnish
additional funds in 1997. The Dieng field has been explored
domestically for over 20 years and CalEnergy has been active in the
area for more than five years. Pertamina has drilled a total of 27
wells to date. CalEnergy has a significant amount of data, which
it believes to be reliable as to the production capacity of the
field. However, a number of significant steps, both financial and
operational, must be completed before the Dieng Project can proceed
further. These steps, none of which can be assured, include
completing the drilling of wells and the constructing of the plant
for Dieng Unit I and obtaining required regulatory permits and
approvals, completing the well testing, entering into a
construction agreement and other project contracts, and arranging
financing for the other units at Dieng. Up to three additional
units at Dieng are planned, for which KDG has incurred $16 million
in development costs. It is anticipated that most of the capital
needed to construct and operate the Dieng projects and the
development stage projects described below will be raised by
project-financed debt, i.e. the loans will be repaid from revenues
generated by the output of the plants.
Development Stage Projects.
Patuha. CalEnergy and KDG are co-developing a geothermal
power plant at the Patuha geothermal field in Java, Indonesia.
They intend to proceed on a modular basis similar to the Dieng
Project, with an aggregate capacity of up to 400 MW. The total
cost is estimated to be $1 billion. The Patuha Project remains
subject to a number of significant uncertainties, as described
above in connection with the Dieng Project, and there can be no
assurance that the Patuha Project will proceed or reach commercial
operation.
Bali. CalEnergy and KDG are co-developing geothermal
resources on the island of Bali, Indonesia. They intend to proceed
on a modular basis similar to the Dieng Project, with an aggregate
capacity of up to 400 MW. The total cost of the Bali project is
estimated to be $1 billion. CalEnergy presently intends to begin
well testing and exploration in early 1997 and expects to commence
construction of the first unit in 1998. CalEnergy presently
intends to develop the Bali Project and other possible projects in
Indonesia using a structure similar to that contemplated for the
Dieng Project. The Bali Project remains subject to a number of
significant uncertainties, as described above for the Dieng
Project, and there can be no assurance that the Bali Project will
proceed or reach commercial operation. KDG has already incurred
$17 million in development costs for the Patuha and Bali projects.
Northern Electric Acquisition.
In the fall of 1996, CalEnergy and KDG took the first steps
toward expanding their international power businesses beyond the
power generation business through a tender offer for Northern
Electric plc by CE Electric UK plc, which is 70% owned by
CalEnergy and 30% owned by KDG. In December, CE Electric
acquired majority ownership of Northern Electric. The total
amount expected to be paid for all Northern Electric's shares is
approximately $1.32 billion. CE Electric expects to acquire all
the shares by the end of March 1997. As of March 1997, CalEnergy
and KDG have made equity contributions to CE Electric of $410
million and $176 million, respectively. The remaining funds
necessary to complete the acquisition will be provided under a
term loan and revolving credit facility.
Northern Electric is one of the twelve regional electricity
companies created by the privatization of the electricity
industry in the United Kingdom in 1990. Since the regional
electric companies were privatized, all but one has been acquired
by companies, primarily from the United States, attracted both by
the regional electricity business and the strategic opportunity
to participate in a deregulated electricity market in advance of
the coming deregulation of the electricity distribution markets
in the United States and worldwide. Northern Electric is
primarily engaged in the distribution and supply of electricity
in its authorized franchise area in northeast England. The area
covers 5,560 square miles with a population of 3.2 million
people. The head office is at Newcastle upon Tyne. For its
fiscal year ended March 1996, Northern had net assets of $432
million (pound 276 million) and operating revenue of $1.4 billion
(pound 902 million).
As noted above, CalEnergy and KDG expect to learn much
through Northern Electric about deregulated power markets.
Northern Electric provides expertise in supply, distribution, and
marketing in such markets. These capabilities may provide
CalEnergy and KDG with an early competitive advantage in
preparing for electricity deregulation in the United States and
foreign markets. The acquisition further diversifies CalEnergy
and KDG's energy businesses in terms of location, type, risks,
and earnings streams.
C-TEC CORPORATION
C-TEC is a diversified international telecommunications and
high technology company with interests in local telephone, long-
distance telephone, cable television, and engineering and
communications services. C-TEC is a Pennsylvania corporation and
has its headquarters in Princeton, New Jersey. 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. In 1996 C-
TEC had revenue of $367 million, EBITDA (earnings before,
interest, taxes, depreciation and amortization) of $134 million,
and net income of $8 million. At year-end 1996, C-TEC had total
assets of $917 million, long-term debt of $205 million, and common
stockholders' equity of $377 million. The five operating divisions
of C-TEC and their 1996 revenues are: C-TEC Cable Systems ($160
million), Commonwealth Telephone Company ($139 million),
Commonwealth Long Distance ($35 million), Commonwealth
Communications ($29 million), and RCN Telecom Services ($4
million).
Kiewit's Share. In 1993 KDG purchased a controlling interest
in C-TEC. Through a subsidiary, KDG owns 42% of the outstanding
shares of C-TEC common stock and 66% 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. KDG
thus owns 48% of the outstanding shares, but is entitled to 62% of
the available votes. Since KDG has voting control, KDG must
consolidate C-TEC within its financial statements. On KDG's
balance sheet, each asset and liability of C-TEC is added to the
similar items for the rest of KDG. The 52% of C-TEC that it does
not own is subtracted as a single item ("minority interest") on
KDG's balance sheet. KDG keeps track of the carrying value of its
C-TEC investment. "Carrying value" is the purchase price of shares
plus the investor's proportionate share of the investee's earnings
less the amortized portion of goodwill less any dividends paid.
KDG's investment in C-TEC has a carrying value of $355 million.
The 1996 year-end public market value of KDG's 13.3 million shares
of C-TEC (at $23 5/8 per share of common and Class B stock) was
$315 million.
C-TEC Cable Systems. C-TEC Cable Systems is a cable
television operator with cable television systems located in New
York, New Jersey, Michigan, and Pennsylvania. The company owns and
operates cable television systems serving 338,000 customers and is
the majority owner and manager of cable television systems with an
additional 40,000 customers, ranking it among the top 25 multiple
system operators in the United States. The company must
periodically seek renewal of franchise agreements from local
government authorities. To date, all of Cable Systems' franchises
have been renewed or extended, generally at or prior to their
stated expirations and on acceptable terms. Competition for the
Cable Systems' services traditionally has come from providers of
broadcast television, video rentals, and direct broadcast satellite
received on home dishes. Future competition is expected from
telephone companies.
Commonwealth Telephone Company. Commonwealth Telephone
Company is a Pennsylvania public utility providing local telephone
service to a 19 county, 5,067 square mile service territory in
Pennsylvania. The telephone company services 240,000 main access
lines, an increase of 5.7% over 1995. The company also provides
network access, long distance, and billing and collection services
to interexchange carriers. The telephone company's business
customer base is diverse in size as well as industry, with very
little concentration. The ten largest business customers combined
account for only 2.3% of revenue, with the largest single customer
accounting for only about 0.5%. The telephone company sought and
was granted status as a rural telephone company with respect to the
provisions of the Telecommunications Act of 1996. This status will
afford limited protection to the company's primarily rural customer
base from a rapid transition to local exchange competition. In
January 1997, the Pennsylvania Public Telephone Commission approved
the company's "Petition for Alternative Regulation and Network
Modernization Plan," which will allow the company to move from
traditional rate of return regulation to a price cap formula in
return for a commitment to network modernization.
Commonwealth Long Distance. Commonwealth Long Distance
operates principally in Pennsylvania. The company began operations
in 1990 by servicing the local service area of the Commonwealth
Telephone Company. In 1992 and 1993, sales offices were opened in
other areas of Pennsylvania. During 1996, the company statewide
certification and is also certified now in 47 states. The company
provides switched services, is a reseller of several types of
services, and employs the networks of several long distance
providers on a wholesale basis.
Commonwealth Communications. Commonwealth Communications Inc.
provides telecommunications engineering and facilities management
services to large corporate clients, hospitals and universities
throughout the Northeastern United States and sells, installs and
maintains PBX systems in Pennsylvania and New Jersey. Commonwealth
Communications also provides cable and data network engineering and
project management of network construction. This group is being
combined with Commonwealth Telephone Company and will focus on the
Eastern Pennsylvania market.
RCN Telecom Services. RCN Telecom Services provides local and
long distance telephone service, video programming and internet
access to households located in New York City and Boston. RCN
currently has 417 signed building access agreements which represent
82,733 households located in high density housing such as co-ops,
condominiums and apartment complexes in the Boston and New York
markets. RCN has 36,545 video programming customers, 2,968
telephone customers and 58 Internet customers in these two markets.
RCN also has 4,474 video programming customers at the University of
Delaware.
RCN's New York system operates two cable programming delivery
systems - one that is fiber-based and one that uses a microwave
network acquired from Liberty Cable in New York in March 1996. The
fiber-based customers are served by facilities of MFS. Telephone
service in New York is provisioned on the fiber-based network and
through the resale of the NYNEX network.
RCN's Boston system operates primarily on a fiber-based network
obtained from MFS and provides both telephone and cable programming
over this network. In December, RCN signed an agreement forming a
joint venture with Boston Edison under which the joint venture will
use and expand upon Boston Edison's 200 mile fiber optic network to
reach a market of approximately 650,000 customers throughout the
Greater Boston area. The joint venture will offer bundled
telecommunications services.
RCN New York and the RCN Joint Venture with Boston Edison were
granted Open Video Systems certification from the Federal
Communications Commission ("FCC") in February 1997. This
certification allows RCN to deliver video services in New York City
and Boston based on the Telecommunications Act of 1996. Prior to
this certification, RCN offered video services using MFS' network.
RCN's telephone service is regulated by the States of New York and
Massachusetts and the FCC. In New York, RCN is certified to
provide competitive local exchange services and to resell long
distance services. In Massachusetts, RCN is registered to offer
local exchange carrier services and to resell long distance. RCN
also has authority from the FCC to offer international service.
RCN is a competitor to the incumbent telephone and cable
television companies, primarily NYNEX, Time Warner Cable and
Cablevision Systems.
C-TEC International. 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.
Regulation. The Federal Telecommunications Act of 1996
established a framework for deregulation of the communications
industry. The Act should stimulate growth and competition in
virtually every component of the communications industry. The FCC
and state regulators must work out the specific implementation
process. Companies are permitted to combine historically separate
lines of business into one, and provide combined services in
markets of their own choice. In addition, there will be relief
from the earnings restrictions and price controls that have
governed the local telephone business for many years and were
imposed on the cable industry in 1992 by the Federal Cable
Television Consumer Protection and Competition Act of 1992 (the
"1992 Act"). The rate regulation provisions of the 1992 Act have
not had a materially adverse effect on C-TEC's financial condition
and results of operations. With the passage of the 1996 Act, all
cable systems rates ore deregulated as effective competition enters
the franchise area, or by March 31, 1999, whichever comes sooner.
C-TEC anticipates that certain provisions of the 1992 Act that do
not relate to rate regulation, such as the provisions relating to
retransmission consent and customer service standards, will reduce
future operating margins.
Restructuring Plans. C-TEC pursued a restructuring plan in
1996 that would have involved the sale of its cable television
businesses to a third party, but abandoned that plan when it
could not negotiate an attractive transaction due to the
depressed market for cable TV properties. C-TEC has instead
announced a plan in February 1997 to divide itself into three
separate publicly held companies:
CTCo, containing the Commonwealth Telephone Company and
Commonwealth Communications Inc.;
C-TEC Michigan, containing the cable television operations in
Michigan; and
RCN Corporation, which will consist of RCN Telecom Services;
cable television operations in New York, New Jersey, and
Pennsylvania; and C-TEC International.
C-TEC believes that investors and the market are more likely to
understand and properly value three separate businesses than the
current combined company. The plan is contingent upon receiving
a favorable IRS ruling on the tax-free nature of the spin-offs.
If the reorganization and spin-offs occur, KDG will own less than
50% of the outstanding shares voting rights of each of the three
companies, and will account for each company using the equity
method of accounting. (See Note 20 to the Company's consolidated
financial statements for balance sheets and earnings statements
of the Company presented as if equity method accounting for the
Company's investment in C-TEC had been used in prior years.)
OTHER BUSINESSES
PKS INFORMATION SERVICES, INC.
PKS Information Services, Inc. ("PKSIS"), provides computer
operations outsourcing and systems integration services to
customers on an international basis. PKSIS provides its
outsourcing 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. Systems integration
services help customers define, develop, and implement cost-
effective information systems. PKSIS signed six new computer
outsourcing contracts, and three contract extensions with existing
customers, during 1996. The systems integration business was
awarded several new contracts to develop and support customers'
mainframe and client/server applications, and to convert customers'
source code to make it century date compliant.
PKSIS opened a software engineering center at the National
Technological Park of Limerick, Ireland to undertake large scale
development projects, system conversions, and code restructuring
and software re-engineering. PKSIS also purchased LexiBridge
Corporation of Shelton, Connecticut. LexiBridge's combination of
workbench tools and methodology provides a complete strategy for
converting mainframe-based application systems to client/server
architecture, while ensuring year 2000 compliance. In 1996, 91% of
PKSIS' revenue was from external customers and the remainder was
from affiliates.
SR91 TOLLROAD.
KDG has invested $12 million for a 65% interest in
California Private Transportation Company, L.P. which developed,
financed, and currently operates the 91 Express Lanes, a ten
mile, four lane tollroad in Orange County, California. The fully
automated highway uses an electronic toll collection system and
variable pricing to adjust tolls to demand. Capital costs at
completion were $130 million, $110 million of which was funded
with limited recourse debt. Revenue collected over the 35-year
franchise period is used for operating expenses, debt repayment,
and profit distributions. The tollroad opened in December 1995
and achieved operating break-even in 1996. Over 80,000 customers
have registered to use the tollroad and weekday volumes exceed
26,000 vehicles per weekday.
UNITED INFRASTRUCTURE COMPANY.
UIC is an equal partnership between Kiewit Infrastructure
Corp., a wholly owned subsidiary of KDG, and Bechtel
Infrastructure Enterprises, Inc. UIC was formed in 1993 to
develop North American infrastructure projects. During 1996, UIC
began to focus primarily on water infrastructure projects,
principally through U.S. Water, a partnership formed with United
Utilities PLC, a U.K. company. U.S. Water has acquired the
concession to operate facilities at North Brunswick, New Jersey,
and is actively pursuing similar concessions nationwide. KDG has
invested $8 million through UIC in U.S. Water. KDG has also
invested $3 million through UIC in Airport Group International
Inc. to develop airport privatization projects.
KIEWIT MUTUAL FUND.
Kiewit Mutual Fund, a registered investment company, was
formed in 1994. Initially formed to manage the Company's internal
investments, shares in Kiewit Mutual Fund are now available for
purchase by the general public. The Fund's investors currently
include individuals and unrelated companies, as well as Kiewit-
affiliated joint ventures, pension plans, and subsidiaries. Kiewit
Mutual Fund has six series: Money Market Portfolio, Government
Money Market Portfolio, Short-Term Government Portfolio,
Intermediate-Term Bond Portfolio, Tax-Exempt Portfolio, and the
Equity Portfolio. In February 1997, the Fund adopted a master-
feeder structure. Each of the Portfolios invests in a
corresponding series of the Kiewit Investment Trust, which now
manages the underlying securities holdings. The structure will
allow smaller mutual funds and institutional investors to pool
their assets with Kiewit Investment Trust, providing lower expense
ratios for all participants. The registered investment adviser of
Kiewit Investment Trust is Kiewit Investment Management Corp., a
subsidiary of KDG (60%) and KCG (40%). At the end of 1996, Kiewit
Mutual Fund had net assets of $883 million.
OTHER
In February 1997, KDG purchased an office building in Aurora,
Colorado for $21 million. By investing in real estate, KDG defers
taxes on a portion of the $40 million of taxable gain otherwise
recognizable with respect to the Whitney Benefits litigation
settlement in 1995. KDG may make additional real estate
investments in 1997 with a view toward deferring the balance of
that taxable gain. KDG has also made investments in several
development-stage companies, but does not expect earnings from
these companies in 1997.
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 1996, the Company and its
majority-owned subsidiaries employed approximately 14,000 people --
11,200 in construction and materials operations, 520 by coal mining
companies, 1,900 at C-TEC, 340 at PKSIS, and 30 in corporate
positions. This does not include the 4,400 employees of CalEnergy
and Northern Electric plc.
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 coal mining segment are described as part of the
general business description of the coal mining business. The
properties of the energy generation and distribution segment are
described as part of the general business description of the
CalEnergy and International Energy projects. The properties of the
telecommunications segment include those of C-TEC's Commonwealth
Telephone Company (switching centers, cables and wires connecting
the telephone company to its customers, and other telephone
instruments and equipment), C-TEC Cable Systems (head-end,
distribution and subscriber equipment), and various office and
storage buildings. 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, future results of operations, or future cash flows.
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, future results of operations, or future cash flows.
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 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
The table below shows information as of March 15, 1997 about
each executive officer of the Company, including his business
experience during the past five years (1992-1997). 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 8, 1996 to serve until his successor is elected and qualified
or until his death, resignation or removal.
PKS Director
Name Business Experience (1992-1997) Age Since
Walter Scott, Jr. Chairman of the Board and President,
PKS 65 1964
William L. Grewcock Vice Chairman, PKS 71 1968
Robert E. Julian Chairman, PKSIS (since 1995) 57 1987
Executive Vice President; PKS
(1992-1995) Chief Financial
Officer, PKS (1992-1995)
Treasurer, PKS (1992-1993)
Kenneth E. Stinson Executive Vice President, PKS 54 1987
Chairman (since 1993) and CEO
(since 1992) of KCG
Richard Geary Executive Vice President, KCG; 62 1988
President, Kiewit Pacific Co.
Leonard W. Kearney Vice President, KCG; 56 1989
President, Kiewit Western Co.
President, Kiewit Construction Company
(1992-1996)
Richard R. Jaros Executive Vice President, PKS
(since 1993) 45 1993
Chief Financial Officer, PKS
(since 1995) President, KDG
(since 1996) President and COO
of CE (1992-1993)
Vice President, PKS (1992)
George B. Toll, Jr. Executive Vice President, KCG
(since 1994) 60 1993
Vice President, Kiewit Pacific Co.
(1992-1994)
Richard W. Colf Vice President, Kiewit Pacific Co. 53 1994
Bruce E. Grewcock Executive Vice President, KCG
(since 1996) 43 1994
Chairman, KMG (since 1996)
President, KMG (1992-1996)
Sr. Vice President, KMG (1992)
Tait P. Johnson President (1992-1996) and 47 1995
sole Director (since 1992) of
Gilbert Southern Corp.
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. However, the Company is
generally required to repurchase shares at a formula price upon
demand.
Company Repurchase Duty. Under the Company's Certificate of
Incorporation effective January 1992, the Company 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"). There are no outstanding Class B shares; the last Class B
shares were converted into Class D shares on January 1, 1997.
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 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.
Formula values. The formula price of the Class D shares is
based on the book value of Kiewit Diversified Group Inc. and its
subsidiaries, plus one-half of the book value, on a stand-alone
basis, of the parent company, Peter Kiewit Sons', Inc. The formula
price of the Class C shares is based on the book value of Kiewit
Construction Group Inc. and its subsidiaries, plus one-half of the
book value of the unconsolidated parent company. A significant
element of the Class C formula price is the subtraction of the book
value of property, plant, and equipment used in construction
activities ($106 million in 1996).
Conversion. Under the Company's Certificate of Incorporation,
Class C shares are convertible into Class D shares at the end of
each year. Between October 15 and December 15 of each year a Class
C stockholder may elect to convert some or all of his or her
shares. Conversion occurs on the following January 1. The
conversion ratio is the relative formula prices of Class C and
Class D shares determined as of the last Saturday in December, i.e.
the last day in the Company's fiscal year. Class D shares may be
converted into Class C shares only as part of an annual offering of
Class C shares to employees. Instead of purchasing the offered
shares for cash, an employee owning Class D shares may convert such
shares into Class C shares at the applicable conversion ratio.
Restrictions. Ownership of Class C shares is generally
restricted to active Company employees. Upon retirement,
termination of employment, or death, Class C shares must be resold
to the Company at the applicable formula price, but may be
converted into Class D shares if the terminating event occurs
during the annual conversion period. Class D shares are not
subject to ownership or transfer restrictions.
D Stock Listing. In October 1996, the Company's Board of
Directors directed management to pursue a listing of Class D stock
on a major securities exchange or the NASDAQ National Market as
soon as practical during 1998. The Board does not foresee
circumstances under which the Company would list the Class D stock
prior to 1998. The Board believes that a listing will provide the
Company with a capital structure more suitable for the further
development of KDG's business plan. It would also provide
liquidity for Class D shareholders without impairing the Company's
capital base.
The Board's action does not ensure that a listing of Class D
stock will occur in 1998, or at any time. The Board could delay or
abandon plans to list the stock if it determined that such action
would be in the best interests of all the Company's shareholders.
In addition, the Company's ability to list Class D stock will be
subject to factors beyond its control, including the laws,
regulations, and listing eligibility criteria in effect at the time
a listing is sought, as well as stock market conditions at the
time. Furthermore, the Board might decide to couple the listing of
Class D stock with a public offering of newly-issued Class D shares
in order to raise additional capital for KDG. Such an offering
could delay or alter the listing plan.
Dividends and Prices. During 1995 and 1996 the Company
declared or paid the following dividends on its common stock. The
table also shows the stock price after each dividend payment or
other valuation event.
Dividend
Dividend Dividend Per Price Stock
Declared Paid Share Class Adjusted Price
Oct. 21, 1994 Jan. 5, 1995 $0.45 C Dec. 31, 1994 $25.55
Apr. 28, 1994 May 1, 1995 0.45 C May 1, 1995 25.10
Oct. 27, 1995 Jan. 5, 1996 0.60 C Dec. 30, 1995 32.40
Apr. 26, 1996 May 1, 1996 0.60 C May 1, 1996 31.80
Oct. 25, 1996 Jan. 4, 1997 0.70 C Dec. 28, 1996 40.70
D Dec. 31, 1994 60.25
Sep. 25, 1995* Sep. 30, 1995* 19.85* D Sep. 30, 1995 40.40
Oct. 27, 1995 Jan. 5, 1996 0.50 D Dec. 30, 1995 49.50
Oct. 25, 1996 Jan. 4, 1997 0.50 D Dec. 28, 1996 54.25
* MFS Spin-off (see Note 6 to the Company's consolidated
financial statements).
The Company's current dividend policy is to pay a regular dividend
on Class C shares of about 15% to 20% of the prior year's ordinary
earnings of the Construction & Mining Group, with any special
dividends to be based on extraordinary earnings. Although the
Board of Directors announced in August 1993 that the Company did
not intend to pay regular dividends on Class D shares in the
foreseeable future, the Board declared a special dividend of $0.50
per Class D share in both October 1995 and 1996.
Stockholders. On March 15, 1997, the Company had the
following numbers of stockholders and outstanding shares for each
class of its common stock:
Class Stockholders Shares Outstanding
B 0 0
C 1,120 9,262,707
D 1,846 24,483,786
ITEM 6. SELECTED FINANCIAL DATA.
PETER KIEWIT SONS', INC.
SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Financial Data of Peter Kiewit Sons', Inc., the Kiewit
Construction & Mining Group ("B&C Stock") and the Kiewit Diversified Group
("D Stock") appear below and on the next three 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) 1996 1995 1994 1993 1992
Results of Operations:
Revenue (1) $ 2,904 $ 2,867 $ 2,700 $ 2,050 $ 1,918
Earnings from continuing
operations 221 244 110 261 162
Net earnings (2) 221 244 110 261 181
Financial Position:
Total assets (1) 3,548 3,451 4,504 3,634 2,549
Current portion of
long-term debt (1) 57 42 33 15 3
Long-term debt, less
current portion (1) 332 370 908 462 30
Stockholders' equity (3) 1,819 1,607 1,736 1,671 1,458
(1) In September 1995, the Company dividended its investment in MFS to
Class D shareholders. MFS' results of operations have been classified
as a single line item on the statements of earnings. MFS is
consolidated in the 1992-1994 balance sheets.
In October 1993, the Company acquired 35% of the outstanding shares
of C-TEC Corporation that had 57% of the available voting rights. On
December 28, 1996 the Company owned 48% of the outstanding shares
and 62% of the voting rights.
In January 1994, 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
1995 and 1994, additional MFS stock transactions resulted in $2
million and $35 million after-tax gains to the Company and reduced
its ownership in MFS to 66% and 67%.
(3) The aggregate redemption value of common stock at December 28, 1996 was
$1.7 billion.
KIEWIT CONSTRUCTION & MINING GROUP
SELECTED FINANCIAL DATA
The following selected financial data for each of the years in the period 1992
to 1996 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) 1996 1995 1994 1993 1992
Results of Operations:
Revenue $ 2,286 $ 2,330 $ 2,175 $ 1,783 $ 1,675
Net earnings 108 104 77 80 82
Per Common Share:
Net earnings 10.13 7.78 4.92 4.63 4.48
Dividends (1) 1.30 1.05 0.90 0.70 0.70
Stock price (2) 40.70 32.40 25.55 22.35 18.70
Book value 51.02 42.90 31.39 27.43 23.31
Financial Position:
Total assets 1,036 977 963 889 862
Current portion of
long-term debt - 2 3 4 2
Long-term debt, less
current portion 12 9 9 10 12
Stockholders' equity (3) 562 467 505 480 437
(1) The 1996, 1995, 1994 and 1993 dividends include $.70, $.60, $.45 and
$.40 for dividends declared in 1996, 1995, 1994 and 1993,
respectively, but paid in January of the subsequent year.
(2) Pursuant to the Certificate of Incorporation, the stock price
calculation is computed annually at the end of the fiscal year.
(3) 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 Certificate
of Incorporation. The aggregate redemption value of the B&C Stock at
December 28, 1996 was $456 million.
KIEWIT DIVERSIFIED GROUP
SELECTED FINANCIAL DATA
The following selected financial data for each of the years in the period 1992
to 1996 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) 1996 1995 1994 1993 1992
Results of Operations:
Revenue (1) $ 652 $ 580 $ 537 $ 267 $ 243
Earnings from continuing
operations 113 140 33 181 80
Net earnings (2) 113 140 33 181 99
Per Common Share:
Earnings from continuing
operations 4.85 6.45 1.63 9.08 3.95
Net earnings 4.85 6.45 1.63 9.08 4.92
Dividends (3) .50 .50 - .50 1.95
Stock price (4) 54.25 49.50 60.25 59.40 50.65
Book value 54.23 49.49 60.36 59.52 50.75
Financial Position:
Total assets (1) 2,523 2,488 3,549 2,759 1,709
Current portion of
long-term debt (1) 57 40 30 11 1
Long-term debt,
less current portion (1) 320 361 899 452 18
Stockholders' equity (5) 1,257 1,140 1,231 1,191 1,021
(1) In September 1995, the Group dividended its investment in MFS to
Class D shareholders. MFS' results of operations have been classified
as a single line item on the statements of earnings. MFS is
consolidated in the 1992-1994 balance sheets.
In October 1993, the Group acquired 35% of the outstanding shares of
C-TEC Corporation that had 57% of the available voting rights. At
December 28, 1996, the Group owned 48% of the outstanding shares and
62% of the voting rights.
In January 1994, MFS issued $500 million of 9.375% Senior Discount Notes.
(2) In 1993, through two public offerings, the Group sold 29% of MFS,
resulting in a $137 million after-tax gain. In 1995 and 1994,
additional MFS stock transactions resulted in $2 million and $35
million after-tax gains to the Group and reduced its ownership in
MFS to 66% and 67%.
(3) The 1996, 1995 and 1992 dividends include $.50 for dividends declared
in 1996, 1995 and 1992 but paid in January of the subsequent year.
(4) Pursuant to the Certificate of Incorporation, the stock price
calculation is computed annually at the end of the fiscal year.
(5) Unless Class D Stock becomes publicly traded, PKS is generally committed
to purchase all Class D Stock at the amount computed, in accordance
with the Certificate of Incorporation, when put to PKS by a
stockholder. The aggregate redemption value of the Class D Stock at
December 28, 1996 was $1,269 million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This item contains information about Peter Kiewit Sons', Inc. (the
"Company") as a whole. Separate reports containing 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 Form 10-K. The Company will furnish a copy
of such exhibits without charge upon the written request of a stockholder
addressed to: Stock Registrar, Peter Kiewit Sons', Inc., 1000 Kiewit Plaza,
Omaha, Nebraska 68131.
The following discussion of Results of Operations should be read in
conjunction with the segment information contained in Note 3 of the
Consolidated Financial Statements.
Results of Operations 1996 vs. 1995
Construction. KCG's construction operations can be separated into two
components; construction and materials. Revenue from construction decreased
2% to $2,060 million in 1996. This resulted from the completion of several
major projects during the year, while many new contracts were still in the
start-up phase. KCG's share of joint venture revenue remained at 30% of
total revenues in 1996. Contract backlog at December 28, 1996 was 2.3
billion, of which 4% is attributable to foreign operations, principally
Canada and the Philippines. Projects on the west coast account for 42% of
the total backlog. Revenue from materials increased by less than 1% in
1996. Increased demand for aggregates in the Arizona market was offset by
a decline in precious metal sales. KCG sold its gold and silver operation
in Nevada to Kinross Gold Corporation ("Kinross") and essentially liquidated
its metals inventory in 1995.
Opportunities in the construction and materials industry continue to expand
along with the economy. Because of the increased opportunities, KCG is able to
be selective in the construction projects it pursues. In 1996, gross margins
for construction increased from 8% in 1995 to 10% in 1996. This resulted from
the completion of several large projects and increased efficiencies in all
aspects of the construction process. Gross margins for materials declined from
13% in 1995 to 10% in 1996. The lack of higher margin precious metals sales
in 1996 combined with slightly lower construction materials margins produced
the reduction in operating margin.
Coal Mining. Revenue and net earnings improved primarily due to
increases in alternate source tons sold to Commonwealth Edison
Company in 1996 and the liquidation of a captive insurance company which
insured against black lung disease. Upon liquidation, KDG received
a refund of premiums paid plus interest in excess of reserves established
by KDG for this liability. Since 1993, the amended contract with
Commonwealth provides that delivery commitments will be satisfied
with coal produced by unaffiliated mines in the Powder River Basin in
Wyoming. Excluding the alternate source coal sales, coal produced at
KDG's mines did not change significantly from 1995 levels.
KDG expects a decline in coal revenue and earnings after 1998 as
certain long-term contracts begin to expire.
Telecommunications. Revenue for the telecommunications segment
increased 13% to $367 million for fiscal 1996. C-TEC's
telephone group's $10 million, or 8% increase in sales and C-TEC's
cable group's $33 million or 26% increase were the primary contributors
to the improved results. The increase in telephone group revenue is
due to higher intrastate access revenue from the growth in access
minutes, an increase of 13,000 access lines, and higher internet
access and video conferencing sales. Cable group revenue increased
primarily due to higher average subscribers and the effects of rate
increases in April 1995 and February 1996. Subscriber counts
increased primarily due to the acquisition of Pennsylvania Cable Systems,
in September 1995, formerly Twin County Trans Video, Inc., and the
consolidation of Mercom, Inc. since August 1995. The Pennsylvania
Cable System and Mercom account for $23 million of the increase in
cable revenue in 1996 .
The 1996 operating expenses for the telecommunications business
increased $38 million or 18% compared to 1995. The telephone group
experienced a 9% increase in expenses and the cable group's costs
increased 31%. The increase for the telephone group is primarily
attributable to higher payroll expenses resulting from additional
personnel, wage increases and higher overtime. Also contributing
to the increase, were fees associated with the internet access
services and consulting services for a variety of regulatory and
operational matters. The cable group's increase is due to increased
depreciation, amortization and compensation expenses associated
with the acquisition of the Pennsylvania Cable Systems and the
consolidation of Mercom's operations. Also contributing to the
higher costs were rate increases for existing programming
and the costs for additional programming.
General and Administrative Expenses. General and administrative expenses
declined 6% to $260 million in 1996. Decreases in expenses associated with
legal and environmental matters were partially offset by higher compensation
and travel expenses as well as costs attributable to C-TEC and the opening of
the SR91 toll road. C-TEC's corporate overhead and other costs increased
approximately 13% in 1996. This increase is attributable to the costs
associated with the development of the RCN business in New York and Boston,
the acquisition of Pennsylvania Cable Systems, the consolidation of Mercom
and the investigation of the feasibility of various restructuring
alternatives to increase shareholder value.
Equity Earnings, net. Equity earnings in 1996 improved 50% over 1995.
An increase in KDG's proportionate share of CalEnergy's earnings and
improvements in those earnings, totaling $10 million, along with an
increase in income from KCG's investment in ME Holding, Inc. of $2
million and C-TEC's investment in Megacable S.A. de C.V. of $2 million
contributed to the higher earnings. Partially offsetting those gains
were losses attributable to the Casecnan project and other investments.
The Casecnan loss resulted from the variance in borrowing and investing
interest rates on the funds generated by the project's debt offering
in 1995.
Investment Income, net. Investment income improved $5 million or 7% in
1996 compared to 1995. Gains on the sale of equity securities and a slight
increase in interest income were primarily responsible for the improved
results.
Interest Expense, net. The increase in interest expense in 1996 is
primarily attributable to the CPTC debt that was capitalized through July
1996, C-TEC's redeemable preferred stock, issued in the Pennsylvania cable
acquisition, which began accruing interest in 1996, and the interest on KCG's
short-term borrowings which were repaid in 1996.
Gain on Subsidiary's Stock Transactions, net. The issuance of MFS stock
for acquisitions by MFS and the exercise of MFS employee stock options
resulted in a $3 million net gain to KDG in 1995. KDG recognized gains and
losses from the sale and issuance of stock by MFS on the statements of
earnings. With the Spin-off of MFS, these types of gains are no longer
recognized for MFS transactions.
Other, net. Other income in 1996 primarily relates to the gains on the
disposition of property, plant and equipment and other assets. Other income
in 1995 also included the Whitney Benefits settlement proceeds and the
Kinross transaction gain.
Income Tax (Provision) Benefit. The effective income tax rate for
1996 differs from the statutory rate of 35% primarily because of
adjustments to prior year tax provisions, partially offset by state
taxes and nondeductible costs associated with goodwill amortization.
In 1995, the rate was lower than 35% due primarily to $93 million of
income tax benefits from the reversal of certain deferred tax
liabilities originally recognized on gains from MFS stock transactions
that were no longer required due to the tax-free spin-off of MFS
and adjustments to prior year tax provisions.
Results of Operations 1995 vs. 1994
Construction. Revenue for the Construction Group increased $155
million, or 7%, to $2,330 million in 1995. Revenue for the construction and
materials components increased 6% and 21%, respectively, in 1995.
Construction's improvement was attributable to a 32% increase in joint venture
revenue which comprised 30% of the total revenue in 1995 compared to 24% in
1994. The San Joaquin Toll Road Joint Venture ("San Joaquin") in southern
California contributed $225 million and $111 million to revenue in 1995 and
1994. Contract backlog at December 30, 1995 was $2 billion, of which 10% was
attributable to foreign operations, principally Canada and the Philippines.
Projects on the west coast accounted for 36% of the total backlog which
included San Joaquin backlog of $133 million. San Joaquin is scheduled for
completion in 1997. The inclusion of two additional months of materials
revenue generated by APAC-Arizona ("APAC") companies, which were acquired on
February 28, 1994, was the primary factor resulting in the increased materials
revenue.
Gross margins for KCG increased 13% in 1995. The construction and materials
components each produced similar results. Construction's increased revenue,
primarily from joint ventures, increased operational efficiencies and
substantial claim settlements all contributed to improved results. Materials
benefited from the robust demand for construction materials in Arizona and
also from the operational efficiencies generated by the merger of APAC and
KCG's existing materials business in Arizona. Also contributing to the
higher margins was the liquidation of KCG's precious metal inventory in 1995.
Coal Mining. Mining revenue in 1995 decreased 4% from 1994. Spot
sales were lower in 1995 due to reduced demand in KDG's spot coal markets
because of a mild winter and high hydro-electricity generation in the western
United States. Partially offsetting the decline in spot sales were higher
alternate source coal sales in 1995 due to the acceleration of coal shipments
to the current year from future years and the shifting of certain coal
shipments from mined coal to alternate source coal.
Direct costs, as a percentage of revenue, declined 4% in 1995. The
increase in higher margin additional alternate sales and the decrease in lower
margin spot coal sales contributed to the improved margins.
Telecommunications. With the spin-off of MFS, the telecommunications
segment consists solely of C-TEC. C-TEC's primary operations are telephone
and cable. In 1995 telecommunications revenue increased 12% over 1994.
Sales of the telephone group increased $7 million to $129 million, a 6%
increase over 1994. Increases in access lines for local network service
and rate increases for intrastate access traffic were primarily responsible
for the improvement. Sales for the cable group increased 34% to $127
million in 1995. The acquisition of Twin County Trans Video, Inc. in
September, and the consolidation of Mercom, Inc.'s results since August
contributed $18 million and $6 million to C-TEC's revenue in 1995.
In addition, subscriber increases of approximately 16,000 over 1994 and
rate increases effective in April 1995 accounted for an $8 million increase
in cable revenue. Revenues from other operating groups increased $17
million or 32% compared to 1994 primarily due to the resale of long
distance telephone services to another long distance reseller, improvements
in switched business, 1-800 service sales and third party revenues from
C-TEC's communication services business. The arrangement with the third
party reseller terminated in the second quarter of 1995. Partially
offsetting C-TEC's increase in revenue was the sale of the mobile
services group in 1994 which contributed $23 million in revenue that year.
C-TEC's direct costs increased $30 million or 15% in 1995. The telephone
group's costs of revenue increased primarily because of higher payroll
expenses and higher depreciation expense. The acquisitions of Mercom and
Twin County led to a 37% increase in direct costs for the cable group.
In addition, higher basic programming costs resulting from increased
subscribers, channel additions and rate increases contributed to the
increase. Direct expenses for C-TEC's other operating groups increased
because of costs associated with the resale of long distance services and
communication services work performed for third parties. Partially
offsetting these increases was the elimination of direct costs associated
with the mobile services group which was sold in 1994.
General and Administrative Expenses. General and administrative expenses
increased 25% in 1995. Higher benefit costs attributable to the retired
packaging employees, an increase in expenses for legal and environmental
matters and increases in C-TEC's expenses were partially offset by lower
payroll expenses. C-TEC's 10% increase in costs resulted primarily from
expenses associated with RCN, higher professional fees for evaluation of
strategic alternatives for enhancing shareholder value and higher compensation
expenses.
Equity Earnings, net. The significant improvement in equity earnings in
1995 was primarily attributable to CalEnergy. The successful merger of Magma
Energy's operations in CalEnergy in 1995 was primarily responsible for the $5
million increase in KDG's share of CalEnergy's earnings. Partially offsetting
this increase was an equity loss of $3 million from C-TEC's investment in
Megacable which was purchased in January 1995. Other equity investments
contributed individually insignificant increases in earnings that account for
the remainder of the increase.
Investment Income, net. Investment income increased 91% to $67 million
in 1995. Improvements in interest income and declines in losses on the sales
of securities and international energy project development expenses all
contributed to the increase in investment income. Interest earned on the
Whitney Benefits settlement proceeds contributed to an increase in investment
income. C-TEC's proceeds from its rights offering and the sale of its mobile
services group also contributed to a higher average portfolio balance and
increased interest income.
Interest Expense, net. Interest expense in 1995 decreased 34%
compared to 1994. The decline was primarily due to C-TEC's prepayment
of senior secured notes in December 1994.
Gain on Subsidiary's Stock Transactions, net. The issuance of MFS
stock for acquisitions by MFS and the exercise of MFS employee stock options
resulted in a $3 million net gain to KDG in 1995. In 1994, KDG settled a
contingent purchase price obligation resulting from MFS' 1990 purchase of
Chicago Fiber Optic Corporation ("CFO"). The former shareholders of CFO
accepted MFS stock previously held by KDG, valued at market prices, as payment
of the obligation. This transaction, along with the issuances of stock for
acquisitions and employee stock options, resulted in a $54 million net gain
before taxes.
Other, net. In 1995, other income primarily included a $21 million
gain on the exchange of KDG's gold operations in Nevada for the common stock
of Kinross Gold Corporation and KDG's settlement proceeds of $135 million
from the Whitney Benefits litigation. Other income also included gains and
losses from the disposition of property, plant and equipment and other
assets in 1995 and 1994.
Equity Loss of MFS. The expansion activities announced in 1993 and 1995
required significant initial development and roll out expenses in advance of
anticipated revenues and continued to negatively affect the operating results
of MFS. After September 30, 1995, KDG no longer included MFS' results in its
financial statements.
Income Tax (Provision) Benefit. The effective income tax rate for
1995 differs from the statutory rate of 35% due primarily to $93
million of income tax benefits from the reversal of certain deferred
tax liabilities originally recognized on gains from MFS stock
transactions that were no longer required due to the tax-free spin-off
of MFS and adjustments to prior year tax provisions. In 1994, the rate
is lower than 35% primarily due to adjustments to prior year tax provisions.
Financial Condition - December 28, 1996
Excluding C-TEC, described in a separate paragraph below, the Company's
working capital, decreased $124 million or 14% during 1996. The cash flows
from operations of $243 million partially offset the $384 million used in
investing activities and $36 million used in financing activities.
Investing activities include $102 million of capital expenditures,
including $72 million for construction equipment and $16 million for the
remaining construction costs of the SR91 toll road, and $324 million of
acquisitions and investments. The investments include a $176 million
investment in CE Electric, an exercise of options to purchase CalEnergy
stock for $53 million and $60 million for Philippine and Indonesian
power projects. These capital outlays were partially offset by $32
million of proceeds from the sale of property, plant and equipment and
other assets.
Financing sources include $19 million of long-term debt borrowings for
the construction financing of the SR91 toll road and $27 million from the
sale of the Company's common stock. Financing uses consisted of the
repayment of $45 million of short-term borrowings, $16 million for stock
repurchases and $24 million of dividends.
C-TEC's working capital decreased $92 million or 81% in 1996. Cash
provided by operations of $121 million were partially offset by $53 million
used in investing activities and $41 million used in financing activities.
C-TEC's significant investing activities which reduced working capital,
include $87 million of capital expenditures, $27 million for the
acquisition of Freedom and $74 million of net proceeds from the sale of
short-term investments. It's financing activities include $19 million of
long-term debt borrowings and $55 million of long-term debt payments.
In addition to the real estate activities described below, the Company
anticipates investing between $45 and $85 million annually in its construction
and mining businesses. The Company is also exploring opportunities to acquire
additional businesses. The Company also anticipates making significant
investments in its energy and infrastructure businesses - including its joint
venture agreement with CE 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 repurchasing the Company's stock. The
Company's current financial condition, future cash flows and borrowing
capacity should be sufficient for future operating and investing activities.
In October 1996, the PKS Board of Directors declared dividends of
$.70 and $.50 per share for Class B&C and Class D Stock, payable in
January 1997.
In February 1997, the Company purchased an office building in Aurora,
Colorado for $21 million. By investing in real estate, KDG is able to defer
$40 million of a taxable gain recognized with respect to the Whitney Benefits
settlement. KDG may make additional real estate investments in 1997 to defer
the balance.
In October 1996, the PKS Board of Directors directed management to pursue
a listing of PKS Class D Stock on a major securities exchange or the
NASDAQ National Market as soon as practical during 1998. The Board does
not foresee circumstances under which PKS would list the Class D Stock
prior to 1998. The Board believes that a listing will provide PKS with a
capital structure more suitable for the further development of the
Diversified Group's business plan. It would also provide liquidity for
Class D shareholders without impairing PKS' capital base.
The Board's action does not ensure that a listing of Class D Stock will
occur in 1998, or any time. The Board could delay or abandon plans to list
the stock if it determined that such action would be in the best interests
of all PKS' shareholders. In addition PKS' ability to list Class D Stock
will be subject to factors beyond its control, including the laws,
regulations, and listing eligibility criteria in affect at the time a
listing is sought, as well as stock market conditions at the time.
Furthermore, the Board might decide to couple the listing of Class D Stock
with a public offering of newly-issued Class D shares in order to raise
additional capital for the Diversified Group. Such an offering could
delay or alter the listing plan.
Currently, Class C shareholders are able to convert their shares into
Class D Stock pursuant to the Company's Certificate of Incorporation.
If such listing occurs, Class C shareholders will continue to be able to
convert their shares into Class D Stock. However, the Company will no
longer be obligated to repurchase Class D Stock from Class D shareholders.
In February 1997, C-TEC announced a plan to separate its operations
along business lines into three separate, publicly traded companies:
CTCo, containing the local telephone group and related engineering
business;
C-TEC Michigan, containing the cable television operations in
Michigan; and
RCN Corporation, which will consist of RCN Telecom Services; cable
television operations in New York, New Jersey and Pennsylvania; and
the investment in Megacable S.A. de C.V., a cable operator in Mexico.
RCN Telecom Services is a provider of packaged local and long
distance telephone, video, and internet access services provided over
fiber optic networks to residential customers in Boston and New York
City.
The restructuring will permit investors and the financial
market to better understand and evaluate C-TEC's various businesses.
In addition, the restructuring will allow C-TEC to raise capital
for the future expansion of the RCN business on the most efficient terms.
The plan is contingent upon receipt of a private letter ruling from the
Internal Revenue Service regarding the tax-free nature of the spin-off, the
receipt of other regulatory approvals, and certain other conditions. If the
reorganization and spin-offs occur, KDG will own less than 50% of the
outstanding shares and voting rights of each entity, and will account for each
entity using the equity method.
In March 1997, C-TEC paid the minority shareholders of Freedom
$15 million of the contingent consideration outlined in the original
purchase agreement and $15 million to acquire the remaining minority
interest of Freedom. C-TEC also paid $10 million to terminate a
marketing services agreement with the former minority shareholders
of Freedom.
In March 1997, a KCG sponsored construction joint venture was
awarded a $1.3 billion contract to reconstruct Interstate I-15 through
the Salt Lake City region. The project is being undertaken in
preparation for the 2002 Olympic Games. KCG's share of this project
is approximately $700 million.
In 1995, a KDG and CalEnergy venture ("Casecnan") closed financing
for the construction of a $495 million combined irrigation and 150 MW
hydroelectric power generation facility located on the island of Luzon in
the Philippines, and KDG and CalEnergy have each made $62 million of equity
contributions to the project.
The Casecnan project is being constructed on a joint and several
basis by Hanbo Corporation and Hanbo Engineering & Construction Co. Ltd.
("HECC"), (together, "Contractor"), both of which are South Korean
corporations. Hanbo Corporation and HECC are under common ownership. The
contractor's obligations under the construction contract are guaranteed by
Hanbo Iron & Steel Company, Ltd. ("Hanbo Steel"), a large South Korean
steel company. In addition, the contractor's obligations are secured by an
unconditional, irrevocable standby letter of credit issued by Korea First
Bank ("KFB") in the approximate amount of $118 million. Hanbo Corporation,
HECC and Hanbo Steel have each filed to seek bankruptcy protection in Korea
and KFB's credit rating has been downgraded because of the substantial loans
it has made to Hanbo Steel.
Casecnan has recently received confirmation from HECC that it
intends to fully perform its obligations under the contract. However,
although HECC is currently performing the work, there can be no assumption
that it will remain able to perform fully its obligations under the contract.
KFB has recently reconfirmed to Casecnan that it will honor its
obligations under the letter of credit.
Casecnan is presently reviewing its rights, obligations and
potential remedies in respect of the recent development regarding the
Contractor and KFB and is presently unable to speculate as to the ultimate
effect of such developments on the Casecnan project.
If Contractor were to materially fail to perform its obligations
under the contract and if KFB were to fail to honor its obligations under the
Casecnan letter of credit, such actions could have a material adverse effect
on the Casecnan project. However, based on information available, KDG does
not currently believe its investment is impaired.
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 other information pertaining to
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 a copy of such exhibits without charge 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 7, 1997. 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).
11 Statement regarding computation of per share earnings.
21 List of subsidiaries of the Company.
27 Financial data schedules.
99.A Kiewit Construction & Mining Group Financial Statements and
Other Information.
99.B Kiewit Diversified Group Financial Statements and Other
Information.
(b) A Form 8-K was filed by the Company on October 31, 1996 to
report a tender offer for shares of Northern Electric plc by the Company's
affiliate, CE Electric plc.
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 28th day of March, 1997.
PETER KIEWIT SONS', INC.
By: /s/ Richard R. Jaros
Richard R. Jaros
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
28th day of March, 1997.
/s/ Walter Scott, Jr. Chairman of the Board and President
Walter Scott, Jr. (principal executive officer)
/s/ Richard R. Jaros Director, Executive Vice President-
Richard R. Jaros 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
/s/ James Q. Crowe /s/ Tait P. Johnson
James Q. Crowe, Director Tait P. Johnson, Director
/s/ Robert B. Daugherty /s/ Robert E. Julian
Robert B. Daugherty, Director Robert E. Julian, Director
/s/ Richard Geary /s/ Leonard W. Kearney
Richard Geary, Director Leonard W. Kearney, Director
/s/ Bruce E. Grewcock /s/ Peter Kiewit, Jr.
Bruce E. Grewcock, Director Peter Kiewit, Jr., Director
/s/ William L. Grewcock /s/ Kenneth E. Stinson
William L. Grewcock, Director Kenneth E. Stinson, Director
/s/ Charles M. Harper /s/ George B. Toll, Jr.
Charles M. Harper, Director George B. Toll, Jr., Director
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Index to Financial Statements and Financial Statement Schedule
Report of Independent Accountants
Consolidated Financial Statements as of December 28, 1996
and December 30, 1995 and for the three years ended
December 28, 1996:
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 28, 1996:
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 the 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 present fairly, in
all material respects, the consolidated financial position of Peter Kiewit
Sons', Inc. and Subsidiaries as of December 28, 1996 and December 30, 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 28, 1996 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.
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
March 14, 1997, except for Note 20, as
to which the date is March 26, 1997.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
For the three years ended December 28, 1996
(dollars in millions, except per share data) 1996 1995 1994
Revenue $ 2,904 $ 2,867 $ 2,700
Cost of Revenue (2,412) (2,426) (2,310)
------- -------- -------
492 441 390
General and Administrative Expenses (260) (277) (221)
------- ------- ------
Operating Earnings 232 164 169
Other Income (Expense):
Equity Earnings, net 12 8 3
Investment Income, net 72 67 35
Interest Expense, net (37) (25) (38)
Gain on Subsidiary's Stock Transactions, net - 3 54
Other, net 26 159 17
------ ------ ------
73 212 71
Equity Loss in MFS - (131) (102)
------ ------ ------
Earnings Before Income Taxes and Minority Interest 305 245 138
Income Tax (Provision) Benefit (84) 11 (29)
Minority Interest in Net (Income) Loss of Subsidiaries - (12) 1
----- ------ ------
Net Earnings $ 221 $ 244 $ 110
====== ====== ======
Net Earnings Attributable to Class B&C Stock $ 108 $ 104 $ 77
====== ====== ======
Net Earnings Attributable to Class D Stock $ 113 $ 140 $ 33
====== ====== ======
Net Earnings Per Common and Common Equivalent Share:
Class B&C Stock $10.13 $ 7.78 $ 4.92
====== ====== ======
Class D Stock $ 4.85 $ 6.45 $ 1.63
====== ====== ======
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 28, 1996 and December 30, 1995
(dollars in millions, except per share data) 1996 1995
Assets
Current Assets:
Cash and cash equivalents $ 320 $ 457
Marketable securities 426 502
Restricted securities 25 30
Receivables, less allowance of $20 and $12 357 390
Costs and earnings in excess of billings on
uncompleted contracts 80 78
Investment in construction joint ventures 91 73
Deferred income taxes 59 66
Other 46 47
------ ------
Total Current Assets 1,404 1,643
Property, Plant and Equipment, at cost:
Land 32 33
Buildings and leasehold improvements 196 189
Equipment 1,353 1,246
------ ------
1,581 1,468
Less accumulated depreciation and amortization (774) (710)
------ ------
Net Property, Plant and Equipment 807 758
Investments 897 549
Intangible Assets, net 368 387
Other Assets 72 114
------- -------
$ 3,548 $ 3,451
======= =======
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 28, 1996 and December 30, 1995
(continued)
(dollars in millions, except per share data) 1996 1995
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 235 $ 240
Short-term borrowings - 45
Current portion of long-term debt:
Telecommunications 55 36
Other 2 6
Accrued costs and billings in excess of revenue on
uncompleted contracts 124 121
Accrued insurance costs 81 79
Other 134 127
------- -----
Total Current Liabilities 631 654
Long-Term Debt, less current portion:
Telecommunications 207 264
Other 125 106
Deferred Income Taxes 163 236
Retirement Benefits 48 54
Accrued Reclamation Costs 99 100
Other Liabilities 238 216
Minority Interest 218 214
Stockholders' Equity:
Preferred stock, no par value, authorized 250,000 shares:
no shares outstanding in 1996 and 1995 - -
Common stock, $.0625 par value, $1.7 billion
aggregate redemption value:
Class B, authorized 8,000,000 shares: 263,468
outstanding in 1996 and in 1995 - -
Class C, authorized 125,000,000 shares:
10,743,173 outstanding in 1996 and 10,616,901
outstanding in 1995 1 1
Class D, authorized 50,000,000 shares:
23,180,243 outstanding in 1996 and 23,024,974
outstanding in 1995 1 1
Additional paid-in capital 235 210
Foreign currency adjustment (7) (6)
Net unrealized holding gain 23 17
Retained earnings 1,566 1,384
------ ------
Total Stockholders' Equity 1,819 1,607
------ ------
$3,548 $3,451
====== ======
See accompanying notes to consolidated financial statements
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three years ended December 28, 1996
(dollars in millions) 1996 1995 1994
Cash flows from continuing operations:
Net earnings $ 221 $ 244 $ 110
Adjustments to reconcile net earnings
to net cash provided by continuing operations:
Depreciation, depletion and amortization 193 152 217
(Gain) loss on sale of property, plant and
equipment, and other investments (20) (40) 5
Gain on subsidiary's stock transactions, net - (3) (54)
Equity (earnings) loss, net (12) 116 (10)
Noncash interest expense - - 40
Minority interest in subsidiaries - 12 (50)
Retirement benefits paid (6) (2) (6)
Deferred income taxes (68) (147) (40)
Change in working capital items:
Receivables 28 2 (53)
Other current assets (11) 19 (67)
Payables (1) - 42
Other liabilities 43 80 19
Other (3) - 8
------ ------ ------
Net cash provided by continuing operations 364 433 161
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 538 465 1,743
Purchases of marketable securities (468) (482) (1,551)
Decrease (increase) in restricted cash 6 19 (39)
Acquisitions, excluding cash acquired (301) (229) (254)
Proceeds from sale of cellular properties - - 182
Proceeds from sale of property, plant and
equipment, and other investments 32 29 20
Capital expenditures (189) (197) (548)
Investments in affiliates (53) (31) (34)
Acquisition of minority interest - - (6)
Other 11 (2) (14)
------ ------ ------
Net cash used in investing activities $ (424) $ (428) $(501)
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three years ended December 28, 1996
(continued)
(dollars in millions) 1996 1995 1994
Cash flows from financing activities:
Long-term debt borrowings $ 41 $ 52 $ 693
Payments on long-term debt,
including current portion (61) (52) (309)
Net change in short-term borrowings (45) 45 -
Issuances of common stock 27 25 21
Issuances of subsidiaries' stock 1 - 70
Repurchases of common stock (16) (6) (31)
Dividends paid (24) (13) (13)
------ ------ -----
Net cash (used in) provided by
financing activities (77) 51 431
Proceeds from sales of discontinued
packaging operations - 29 5
Cash and cash equivalents of MFS at
beginning of year - (22) -
Effect of exchange rates on cash - 3 (1)
------ ------ -----
Net change in cash and cash equivalents (137) 66 95
Cash and cash equivalents at beginning of year 457 391 296
------ ------ -----
Cash and cash equivalents at end of year $ 320 $ 457 $ 391
====== ====== =====
Supplemental disclosure of cash flow information:
Taxes $ 133 $ 201 $ 115
Interest 40 35 41
Noncash investing and financing activities:
Conversion of CalEnergy convertible
debentures to common stock $ 66 $ - $ -
Dividend of investment in MFS - 399 -
Issuance of C-TEC redeemable preferred
stock for acquisition - 39 -
Disposition of gold operations in exchange for
Kinross common stock, net - 21 -
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 28, 1996
Class Class Net
B&C D Additional Foreign Unrealized
Common Common Paid-in Currency Holding Retained
(dollars in millions) Stock Stock Capital Adjustment Gain (Loss) Earnings Total
Balance at
December 26, 1993 $ 1 $ 1 $ 164 $ (3) $ 9 $1,499 $1,671
Issuances of stock - - 21 - - - 21
Repurchases of stock - - (3) - - (28) (31)
Foreign currency
adjustment - - - (4) - - (4)
Net unrealized
holding (loss) - - - - (17) - (17)
Net earnings - - - - - 110 110
Dividends:(a)
Class B&C ($.90
per common share) - - - - - (14) (14)
------ ---- ---- ----- ---- ------ -----
Balance at
December 31, 1994 1 1 182 (7) (8) 1,567 1,736
Issuances of stock - - 29 - - - 29
Repurchases of stock - - (1) - - (5) (6)
Foreign currency
adjustment - - - 1 - - 1
Net unrealized
holding gain - - - - 25 - 25
Net earnings - - - - - 244 244
Dividends:(b)
Class B&C ($1.05
per common share) - - - - - (12) (12)
Class D ($.50 per
common share) - - - - - (11) (11)
MFS Dividend - - - - - (399) (399)
----- ---- ---- ---- ---- ------ -----
Balance at
December 30, 1995 $ 1 $ 1 $210 $ (6) $ 17 $1,384 $1,607
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 28,1996
(continued)
Class Class Net
B&C D Additional Foreign Unrealized
Common Common Paid-in Currency Holding Retained
(dollars in millions) Stock Stock Capital Adjustment Gain (Loss) Earnings Total
Balance at
December 30, 1995 $ 1 $ 1 $ 210 $ (6) $ 17 $ 1,384 $1,607
Issuances of stock - - 27 - - - 27
Repurchases of stock - - (2) - - (14) (16)
Foreign currency
adjustment - - - (1) - - (1)
Net unrealized
holding gain - - - - 6 - 6
Net earnings - - - - - 221 221
Dividends: (c)
Class B&C ($1.30
per common share) - - - - - (13) (13)
Class D ($.50 per
common share) - - - - - (12) (12)
----- ---- ----- ---- ----- ------ ------
Balance at
December 28, 1996 $ 1 $ 1 $ 235 $ (7) $ 23 $1,566 $1,819
===== ==== ===== ==== ===== ====== ======
(a) Includes $.45 per share for dividends on Class B&C Stock declared in 1994
but paid in January 1995.
(b) Includes $.60 and $.50 per share for dividends on Class B&C and Class
D Stock, respectively, declared in 1995 but paid in January 1996.
(c) Includes $.70 and $.50 per share for dividends on Class B&C and Class D
Stock, respectively, declared in 1996 put paid in January 1997.
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 has control ("PKS" or
"the Company"), which are engaged in enterprises primarily related to
construction, coal mining, energy generation and distribution, and
telecommunications. The Company consolidates C-TEC Corporation
("C-TEC") because it controls more than 50% of its voting rights.
Fifty-percent-owned mining joint ventures are consolidated on a pro
rata basis. Investments in other companies in which the Company
exercises significant influence over operating and financial policies,
including energy investments 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. All significant
intercompany accounts and transactions have been eliminated.
The results of operations of MFS Communications Company, Inc. ("MFS"),
(which later merged into WorldCom Inc.) have been classified as a
single line item on the statements of earnings. MFS is consolidated in
the 1994 statement of cash flows (See Note 6).
The Company invests in the portfolios of the Kiewit Mutual Fund,
("KMF"), a registered investment company. KMF is not consolidated in
the Company's financial statements.
Description of Business Groups
Holders of Class B&C Stock ("Construction & Mining Group") and Class D
Stock (Diversified Group) are stockholders of PKS. The Construction &
Mining Group ("KCG") contains the Company's traditional construction
and materials operations performed by Kiewit Construction Group Inc.
The Diversified Group ("KDG") contains coal mining properties owned by
Kiewit Coal Properties Inc., energy investments, including 30%
interests in CalEnergy Company Inc. ("CalEnergy") and CE Electric UK
plc ("CE Electric"), investments in international energy projects,
telecommunications companies owned by C-TEC, as well as other assets.
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.
Construction Contracts
KCG 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 KCG 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, KCG 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 KCG high
priority in the event of lien foreclosures following financial
difficulties of private owners.
The construction industry is highly competitive and lacks firms with
dominant market power. A substantial portion of KCG's business
involves construction contracts obtained through competitive bidding.
The volume and profitability of KCG's construction work depends to
a significant extent upon the general state of the economies in which
it operates and the volume of work available to contractors. KCG's
construction operations could be adversely affected by labor stoppages
or shortages, adverse weather conditions, shortages of supplies, or
other governmental action.
KCG 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. It is at least reasonably possible that engineering estimates
of the work performed on individual contracts will be revised in the
near term.
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 other current assets and
liabilities.
Coal Sales Contracts
KDG's coal is sold primarily under long-term contracts with electric
utilities, which burn coal in order to generate steam to produce
electricity. A substantial portion of KDG's coal sales were made under
long-term contracts during 1996, 1995 and 1994. The remainder of KDG's
sales are made on the spot market where prices are substantially lower
than those in the long-term contracts. As the long-term contracts
expire, a higher proportion of KDG's sales will occur on the spot
market.
The coal industry is highly competitive. KDG competes not only with
other domestic and foreign coal suppliers, some of whom are larger and
have greater capital resources than KDG, but also with alternative
methods of generating electricity and alternative energy sources. Many
of KDG's competitors are served by two railroads and, due to the
competition, often benefit from lower transportation costs than KDG
which is served by a single railroad. Additionally, many competitors
have lower stripping ratios than KDG, often resulting in lower
comparative costs of production.
KDG is also required to comply with various federal, state and local
laws concerning protection of the environment. KDG believes its
compliance with environmental protection and land restoration laws will
not affect its competitive position since its competitors are similarly
affected by such laws.
KDG 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 KDG 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. KDG 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, KDG presently intends
to deliver coal from unaffiliated mines. In the opinion of management, KDG
has sufficient coal reserves to cover the above sales commitments.
KDG's coal sales contracts are with several electric utility and
industrial companies. In the event that these customers do not fulfill
contractual responsibilities, KDG would pursue the available legal
remedies.
Telecommunications Revenue
C-TEC's 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 telephone services and basic
and premium cable programming services are recorded in the month the
service is provided.
The telecommunications industry is subject to local, state and federal
regulation. Consequently, the ability of the telephone and cable
groups to generate increased volume and profits is largely
dependent upon regulatory approval to expand customer bases, increase
prices and limit expenses.
Competition for the cable group's services traditionally has come from
broadcast television, video rentals and direct broadcast satellite
received on home dishes. Future competition is expected from telephone
companies.
Concentration of credit risk with respect to accounts receivable are
limited due to the dispersion of customer base among geographic areas
and remedies provided by terms of contracts and statutes.
Energy Generation and Distribution
KDG engages in the development, generation, distribution and supply of
electricity to customers throughout the world. The international power
markets are characterized by numerous strong and capable competitors,
many of which have more extensive and more diversified developmental or
operating experience and greater financial resources than KDG.
The successful development, construction and operation of international power
projects is contingent upon, among other things, negotiation on terms
satisfactory to KDG of financing, engineering, construction, fuel supply
and power sales contracts with other project participants, receipt of
governmental permits and consents and timely implementation of
construction. The future growth of KDG is dependent, in large part,
upon the demand for additional electrical generating capacity and its
ability to obtain contracts to supply portions of this capacity. There
can be no assurance that developmental efforts on any particular project
will be successful.
The financing and development of international projects entail
significant political and financial risks against which KDG may not be
able to insure. The uncertainty of the legal environment in certain
foreign countries could make it more difficult for KDG to enforce its
rights under agreements relating to the projects. KDG's international
projects may, in certain cases, be terminated by the applicable foreign
governments.
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 an
units-of-extraction basis determined in relation to estimated reserves.
In accordance with industry practice, certain telephone plant owned by
C-TEC valued at $238 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 primarily include amounts allocated upon purchase of
existing operations, franchises and subscriber lists. These assets are
amortized on a straight-line basis over the expected period of benefit,
which does not exceed 40 years.
The Company adopted statement of financial accounting standards No. 121
("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of", in 1996. The Company reviews
the carrying amount of intangible assets 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 asset to the net carrying
value of the asset. No impairment losses have been recognized by the
Company pursuant to SFAS 121.
Pension Plans
KDG maintains defined benefit plans primarily for packaging employees
who retired prior to the disposition of the packaging operations.
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.
Through December 31, 1996, 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
KDG 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. It is at
least reasonably possible that the estimated cost of restoration will
be revised in the near-term.
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.
Subsidiary Stock Sales and Issuances
The Company recognizes gains and losses from the sale and issuance 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 after
giving effect to Class D stock options considered to be dilutive common
stock equivalents. 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
were as follows:
1996 1995 1994
Class B&C 10,655,886 13,384,434 15,697,724
Class D 23,263,688 21,718,792 20,438,806
Income Taxes
Deferred income taxes are provided for the temporary differences
between the financial reporting basis and tax basis of the Company's assets
and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
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 52 weeks in fiscal years 1996 and 1995 and 53 weeks in the fiscal
year 1994.
C-TEC has a calendar fiscal year.
(2) Summarized Financial Information
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. Included within the results of
operations are mine management fees paid by the Diversified Group to the
Construction and Mining Group of $24 million, after-tax, in 1996 and $19
million, after-tax, in 1995 and 1994.
(dollars in millions, except per share data) 1996 1995 1994
Construction & Mining Group:
Results of Operations:
Revenue $ 2,286 $ 2,330 $ 2,175
Net earnings 108 104 77
Earnings per share 10.13 7.78 4.92
Financial Position:
Working capital $ 374 $ 248 $ 333
Total assets 1,036 977 963
Long-term debt, less current portion 12 9 9
Stockholders' equity 562 467 505
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(2) Summarized Financial Information (cont.)
(dollars in millions, except per share data) 1996 1995 1994
Diversified Group:
Results of Operations:
Revenue $ 652 $ 580 $ 537
Net earnings 113 140 33
Earnings per share 4.85 6.45 1.63
Financial Position:
Working capital $ 399 $ 741 $ 969
Total assets 2,523 2,488 3,537
Long-term debt, less current portion 320 361 899
Stockholders' equity 1,257 1,140 1,231
(3) Industry and Geographic Data
The Company operates primarily in four reportable segments:
construction, coal mining, energy generation and distribution, and
telecommunications. Other primarily includes KDG's information services
business, California Private Transportation Company L.P., ("CPTC"), the owner-
operator of the SR91 toll road in Southern California, corporate
expenses not attributable to a specific segment, and marketable
securities. MFS is included in the 1994 telecommunications identifiable
assets, capital expenditures and depreciation and amortization balances.
Equity earnings is included due to the significant equity investments in
the energy generation and distribution businesses.
A summary of the Company's operations by industry and geographic region
is as follows:
KCG KDG
--------- -------------------------------
Industry Data Construc- Coal Telecom- Elimi- Consoli-
(dollars in millions) tion Mining Energy munications Other nations dated
1996
Revenue $ 2,286 $ 234 $ - $ 367 $ 51 $ (34) $2,904
Operating Earnings 105 94 (2) 31 (35) 39 232
Equity Earnings, net 8 - 14 (1) (9) - 12
Identifiable Assets 1,036 387 649 1,100 387 (11) 3,548
Capital Expenditures 72 2 - 87 28 - 189
Depreciation, Depletion
& Amortization 61 12 - 106 14 - 193
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(3) Industry and Geographic Data (cont.)
KCG KDG
--------- ------------------------------
Industry Data Construc- Coal Telecom- Elimi- Consoli-
(dollars in millions) tion Mining Energy munications Other nations dated
1995
Revenue $ 2,330 $ 216 $ - $ 325 $ 39 $ (43) $ 2,867
Operating Earnings 87 77 (2) 37 (67) 32 164
Equity Earnings, net 3 - 10 (3) (2) - 8
Identifiable Assets 977 368 356 1,143 621 (14) 3,451
Capital Expenditures 79 4 - 72 42 - 197
Depreciation, Depletion
& Amortization 56 7 - 81 8 - 152
1994
Revenue $ 2,175 $ 225 $ - $ 291 $ 21 $ (12) $ 2,700
Operating Earnings 59 76 - 27 (22) 29 169
Equity Earnings, net 2 - 5 - (4) - 3
Identifiable Assets 963 407 219 2,575 347 (7) 4,504
Capital Expenditures 76 3 - 426 56 (13) 548
Depreciation, Depletion
& Amortization 52 11 - 149 5 - 217
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(3) Industry and Geographic Data (cont.)
KCG KDG
--------- -------------------------------
Geographical Data Construc- Coal Telecom- Elimi- Consoli-
(dollars in millions) tion Mining Energy munications Other nations dated
1996
Revenue
United States $ 2,000 $ 234 $ - $ 367 $ 51 $ (4) $ 2,648
Canada 175 - - - - - 175
Other 111 - - - - (30) 81
------- ------ --- ------ ----- ----- -------
$ 2,286 $ 234 $ - $ 367 $ 51 $ (34) $ 2,904
======= ====== === ====== ===== ===== =======
Operating Earnings
United States $ 84 $ 94 $(3) $ 31 $ (35) $ 39 $ 210
Canada 7 - - - - - 7
Other 14 - 1 - - - 15
------ ------ ---- ------ ----- ----- -------
$ 105 $ 94 $(2) $ 31 $(35) $ 39 $ 232
====== ====== === ====== ==== ===== =======
Identifiable Assets
United States $ 924 $ 387 $323 $1,100 $387 $ (11) $ 3,110
Canada 90 - - - - - 90
Other 22 - 326 - - - 348
------ ------ ---- ------ ---- ----- -------
$1,036 $ 387 $649 $1,100 $387 $ (11) $ 3,548
====== ====== ==== ====== ==== ===== =======
1995
Revenue
United States $ 2,007 $ 216 $ - $ 325 $ 39 $ (8) $ 2,579
Canada 237 - - - - - 237
Other 86 - - - - (35) 51
------- ------ ---- ------ ----- ----- -------
$ 2,330 $ 216 $ - $ 325 $ 39 $ (43) $ 2,867
======= ======= ==== ====== ===== ===== =======
Operating Earnings
United States $ 70 $ 77 $ - $ 37 $ (67) $ 32 $ 149
Canada 7 - - - - - 7
Other 10 - (2) - - - 8
------- ------- ---- ----- ----- ----- -------
$ 87 $ 77 $ (2) $ 37 $ (67) $ 32 $ 164
======= ======= ==== ===== ===== ===== =======
Identifiable Assets
United States $ 867 $ 368 $ 260 $1,143 $ 621 $ (14) $ 3,245
Canada 90 - - - - - 90
Other 20 - 96 - - - 116
------- ------- ---- ------ ----- ----- -------
$ 977 $ 368 $ 356 $1,143 $ 621 $ (14) $ 3,451
======= ======= ===== ====== ===== ===== =======
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(3) Industry and Geographic Data (cont.)
KCG KDG
-------- ------------------------------
Geographical Data
Construc- Coal Telecom- Elimi- Consoli-
(dollars in millions) tion Mining Energy munications Other nations dated
1994
Revenue
United States $ 1,915 $ 225 $ - $ 291 $ 21 $ (8) $ 2,444
Canada 214 - - - - - 214
Other 46 - - - - (4) 42
------- ----- ---- -------- ----- ----- --------
$ 2,175 $ 225 $ - $ 291 $ 21 $ (12) $ 2,700
======= ===== ==== ======== ===== ===== =======
Operating Earnings
United States $ 45 $ 76 $ - $ 27 $ (22) $ 29 $ 155
Canada 14 - - - - - 14
------- ----- ---- ------- ----- ---- -------
$ 59 $ 76 $ - $ 27 $ (22) $ 29 $ 169
======= ===== ==== ======= ===== ==== =======
Identifiable Assets
United States $ 834 $ 407 $219 $ 2,575 $ 347 $ (7) $ 4,375
Canada 102 - - - - - 102
Other 27 - - - - - 27
------- ----- ----- ------- ----- ---- -------
$ 963 $ 407 $ 219 $ 2,575 $ 347 $ (7) $ 4,504
======= ===== ===== ======= ===== ==== =======
(4) Investments
Investments consist of the following at December 28, 1996 and December 30, 1995:
(dollars in millions) 1996 1995
KDG
CalEnergy Company Inc. $ 292 $ 218
CE Electric UK, plc (Note 5) 176 -
International energy projects 149 96
Equity securities (Note 8) 75 59
C-TEC investments:
Megacable S.A. de C.V. 74 77
Other 12 10
Other 28 10
KCG
ME Holding Inc. 33 29
Equity securities of Kinross Gold
Corporation (Note 8) 28 30
Other 30 20
------ -----
$ 897 $ 549
====== =====
In 1996, KDG exercised 1.5 million CalEnergy options at a price of $9
per share and 3.3 million CalEnergy options at a price of $12 per share.
In addition, KDG converted its $66 million of 9.5% Convertible
Subordinated Debentures into 3.6 million shares of CalEnergy common
stock. At December 28, 1996, KDG owns 19.2 million shares or 30% of
CalEnergy's outstanding common stock and has a cumulative investment in
CalEnergy common stock of $292 million, $25 million in excess of KDG's
proportionate share of CalEnergy's equity. The excess investment is
being amortized over 20 years. Equity earnings, net of goodwill
amortization, were $20 million, $10 million and $5 million in 1996, 1995
and 1994. KDG also recognized investment income from CalEnergy debt
securities of $4 million, $6 million and $5 million in 1996, 1995 and
1994. CalEnergy common stock is traded on the New York Stock
Exchange. On December 28, 1996, the market value of KDG's
investment in CalEnergy common stock was $644 million.
KDG has 1 million options to purchase additional CalEnergy stock at a
price of $11.625 per share which expire in 2001.
The following is summarized financial information of CalEnergy Company,
Inc.:
Financial Position (dollars in millions) 1996 1995
Current assets $ 945 $ 418
Other assets 4,768 2,236
-------- --------
Total assets 5,713 2,654
Current liabilities 1,232 162
Other liabilities 3,301 1,948
Minority interest 299 -
------- -------
Total liabilities 4,832 2,110
------- -------
Net assets $ 881 $ 544
======= =======
KDG's Share
Equity in net assets $ 267 $ 116
Goodwill 25 37
Convertible debentures - 65
------- -------
Investment in CalEnergy $ 292 $ 218
======= =======
Operations (dollars in millions) 1996 1995 1994
Revenue $ 576 $ 399 $ 186
Net income available to common stockholders 92 62 32
KDG's Share
Net Income 22 13 7
Goodwill Amortization (2) (3) (2)
------ ------ -----
Equity in net income of CalEnergy $ 20 $ 10 $ 5
====== ====== =====
In 1993, KDG and CalEnergy formed a venture to develop power projects
outside of the United States. Since 1993, construction has begun on the
Mahanagdong, Casecnan and Dieng power projects. The Mahanagdong
project is a 165 MW geothermal power facility located on the
Philippine island of Leyte. The Casecnan project is a combined
irrigation and 150 MW hydroelectric power generation facility
located on the island of Luzon in the Philippines. Dieng Unit I is a 55
MW geothermal facility on the Indonesian island of Java. Up to
three additional facilities at Dieng are in development. The
venture also has conducted significant additional development drilling
at the Patuha and Bali sites in Indonesia, and continues to pursue power
project opportunities around the world. In 1996, KDG and CalEnergy
agreed to extend the power project venture for another five years.
KCG is currently constructing the Mahanagdong and Dieng facilities.
Generally, costs associated with the development, financing and
construction of the international energy projects have been capitalized
by each of the projects and will be amortized over the life of each
project.
The following is summarized financial information for the International
energy projects:
Financial Position
(dollars in millions) Mahanagdong Casecnan Dieng Other Total
1996
Current Assets $ 1 $ 441 $ 15 $ 10 $ 467
Other Assets 239 51 118 36 444
-------- -------- ------ ------- ------
Total Assets 240 492 133 46 911
Current Liabilities 15 9 24 11 59
Other Liabilities 153 372 35 - 560
-------- -------- ----- ------ -----
Total Liabilities
(with recourse only
to the projects) 168 381 59 11 619
-------- -------- ----- ------ -----
Net Assets $ 72 $ 111 $ 74 $ 35 $ 292
======== ======== ===== ====== =====
KDG's Share
Equity in Net Assets $ 36 $ 55 $ 36 $ 17 $ 144
Loan to Project - - 5 - 5
-------- -------- ----- ------ -----
$ 36 $ 55 $ 41 $ 17 $ 149
======== ======== ===== ====== =====
Financial Position
(dollars in millions) Mahanagdong Casecnan Dieng Other Total
1995
Current Assets $ - $ 493 $ 3 $ 1 $ 497
Other Assets 148 8 18 3 177
--------- -------- ----- ------ -----
Total Assets 148 501 21 4 674
Current Liabilities 15 7 6 1 29
Other Liabilities 79 371 - - 450
--------- -------- ------ ----- -----
Total Liabilities
(with recourse only
to the projects) 94 378 6 1 479
--------- -------- ------ ----- -----
Net Assets $ 54 $ 123 $ 15 $ 3 $ 195
========= ======== ====== ===== =====
KDG's Share
Equity in Net Assets $ 27 $ 61 $ 7 $ 1 $ 96
========= ======== ===== ===== =====
In late 1995, the Casecnan joint venture closed financing for the
construction of the project with bonds issued by the project company.
The difference between the interest expense on the debt and the interest
earned on the unused funds prior to payment of construction costs
resulted in a loss to the venture of $12 million and to KDG of $6 million
in 1996. No income or losses were incurred by the international
projects in 1994 or 1995.
The Casecnan project is being constructed on a joint and several basis
by Hanbo Corporation and Hanbo Engineering & Construction Co. Ltd.
("HECC"),(together "Contractor") both of which are South Korean corporations.
Hanbo Corporation and HECC are under common ownership. The
contractors' obligations under the construction contract are guaranteed
by Hanbo Iron & Steel Company, Ltd. ("Hanbo Steel"), a large South
Korean steel company. In addition, the contractor's obligations are
secured by an unconditional, irrevocable standby letter of credit issued
by Korea First Bank ("KFB") in the approximate amount of $118 million.
Hanbo Corporation, HECC and Hanbo Steel have each filed to seek bankruptcy
protection in Korea and KFB's credit rating has been downgraded
because of the substantial loans it has made to Hanbo Steel.
Casecnan has recently received confirmation from HECC that it intends to fully
perform its obligations under the contract. However, although HECC
is currently performing the work, there can be no assumption that it will
remain able to perform fully its obligations under the contract.
KFB has recently reconfirmed to Casecnan that it will honor its obligations
under the letter of credit.
Casecnan is presently reviewing its rights, obligations and potential
remedies in respect of the recent developments regarding the Contractor
and KFB and is presently unable to speculate as to the ultimate effect of
such developments on the Casecnan project.
If Contractor were to materially fail to perform its obligations under the
contract and if KFB were to fail to honor its obligations under the
Casecnan letter of credit, such actions could have a material adverse
effect on the Casecnan project. However, based on information available,
KDG does not currently believe its investment is impaired.
Investments also include C-TEC's 40% interest in Megacable S.A. de C.V.,
Mexico's second largest cable television operator, and KCG's investment
in the electrical contractor, ME Holding Inc., both accounted for using
the equity method.
(5) Acquisitions
In 1996, CE Electric made an unsolicited $1.3 billion offer to acquire
Northern Electric plc ("Northern"), a regional electricity distribution
and supply company in the United Kingdom. CE Electric is owned 70% by
CalEnergy and 30% by KDG. As of December 24, CE Electric had acquired a
majority of Northern's shares. At December 28, 1996 KDG had invested
$176 million in CE Electric. The remaining funds necessary for CE Electric
to complete the acquisition will be provided under a term loan and revolving
credit facility.
CE Electric has accounted for the transaction as a purchase and recorded
goodwill of $397 million representing the purchase price in excess of
the fair market value of the assets acquired. The goodwill is being
amortized over a 40 year period.
The following is summarized financial information of CE Electric as
of December 31, 1996:
Financial Position (dollars in millions) 1996
Current assets $ 583
Other assets 1,772
-------
Total assets 2,355
Current liabilities 785
Other liabilities 718
Preferred stock 153
Minority interest 112
-------
Total liabilities 1,768
-------
Net assets $ 587
=======
KDG's equity in net assets $ 176
=======
In March 1996, Kiewit Telecom Holding Inc. ("KTH"), a subsidiary of
Kiewit Diversified Group Inc., entered into an asset purchase agreement,
along with other ancillary agreements, with Liberty Cable Company, Inc.
to purchase an 80% interest in Freedom New York, L.L.C. ("Freedom") for $27
million.Freedom provides subscription television services using microwave
frequencies in New York City and selected areas of New Jersey. In
conjunction with its decision to close discussions concerning the sale
of its cable television unit and favorable regulatory conditions due to
the Telecommunications Act of 1996, C-TEC purchased Freedom from KTH in
August 1996 essentially at KTH's cost. The purchase price was allocated
on the basis of the fair value of property, plant and equipment and
identifiable intangible assets acquired and liabilities assumed. C-
TEC is also liable for up to $15 million of additional purchase price
if Freedom attains specified subscriber levels. The contingent
consideration is not included in the original purchase price or the
fair value adjustments and is accrued as it is earned.
CE Electric and Freedom's combined 1995 and 1996 operating results
prior to the acquisitions were not significant relative to the
Company's or KDG's results after giving effect to certain pro-forma
adjustments related to the acquisitions, primarily increased
amortization and interest expense.
(6) MFS Spin-off
In September 1995, the PKS Board of Directors approved a plan to make a
tax-free distribution of its entire ownership interest in MFS, to the
Class D stockholders (the "Spin-off") effective on September 30, 1995.
PKS completed an exchange offer prior to the Spin-off whereby 4,000,000
shares of Class B Stock and Class C Stock ("Class B&C") were exchanged
for 1,666,384 shares of Class D Stock on terms similar to those under
which Class B&C Stock can be converted into Class D Stock during the
annual conversion period provided for in the Company's Certificate of
Incorporation.
The conversion ratio used in the exchange was calculated using final
1994 stock prices adjusted for 1995 dividends.
After the exchange offer discussed above, shares were distributed on
the basis of approximately 1.741 shares of MFS Common Stock and
approximately .651 shares of MFS Preferred Stock for each share of
outstanding Class D Stock.
The net investment in MFS distributed on September 30, 1995 was
approximately $399 million.
Operating results of MFS through September 30, 1995 and for fiscal 1994
are summarized as follows:
(dollars in millions) 1995 1994
Revenue $ 412 $ 287
Loss from operations (176) (136)
Net loss (196) (151)
KDG's share of loss in MFS (131) (102)
Included in the income tax benefit on the consolidated statement of
earnings for the year ended December 30, 1995, is $93 million of tax
benefits from the reversal of certain deferred tax liabilities,
recognized on gains from previous MFS stock transactions, that were not
taxed due to the Spin-off.
(7) Gain on Subsidiary's Stock Transactions, net
In 1994, KDG 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
KDG, valued at current market prices, as payment of the obligation.
The above transaction, along with the stock issuances by MFS for
acquisitions and employee stock options, reduced KDG's ownership in MFS
to 67% and 66% at the end of 1994 and at September 30, 1995. As a
result, KDG recognized gains of $54 million and $3 million in 1994 and
1995 representing the increase in its proportionate share of MFS'
equity. Deferred income taxes had been established on these gains
prior to the Spin-off.
(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 funds invested in the Kiewit
Mutual Fund-Money Market Portfolio and 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, Restricted Securities and Non-current
Investments
The Company has classified all marketable securities, restricted
securities and marketable non-current investments not accounted for
under the equity method as available-for-sale. Restricted securities
primarily include investments in various portfolios of the Kiewit Mutual
Fund that are restricted by agreement to fund equity contributions to
international energy projects and certain reclamation liabilities of its
coal mining ventures. The amortized cost of the securities used in
computing unrealized and realized gains and losses is 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.
The following summarizes the amortized cost, unrealized holding gains
and losses, and estimated fair values of marketable securities,
restricted securities and marketable non-current investments at
December 28, 1996 and December 30, 1995.
Unrealized Unrealized
Amortized Holding Holding Fair
(dollars in millions) Cost Gains Losses Value
1996
Kiewit Mutual Fund:
Short-term government $ 122 $ - $ - $ 122
Intermediate term bond 75 2 - 77
Tax exempt 135 2 - 137
Equity 5 2 - 7
U.S. debt securities 13 - - 13
Corporate debt securities
(held by C-TEC) 47 - - 47
Collateralized mortgage
obligations - 1 - 1
Other securities 20 2 - 22
-------- ------- ------ ------
$ 417 $ 9 $ - $ 426
======== ======= ====== ======
Restricted Securities:
Kiewit Mutual Fund:
Short-term government $ 8 $ - $ - $ 8
Intermediate term bond 8 - - 8
Equity 7 2 - 9
-------- ------- ------ ------
$ 23 $ 2 $ - $ 25
======== ======= ====== ======
Non-current Investments:
Equity securities $ 79 $ 26 $ (2) $ 103
======== ======= ====== ======
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(8) Disclosures about Fair Value of Financial Instruments (cont.)
Unrealized Unrealized
Amortized Holding Holding Fair
(dollars in millions) Cost Gains Losses Value
1995
Kiewit Mutual Fund:
Short-term government $ 106 $ 2 $ - $ 108
Intermediate term bond 82 5 - 87
Tax exempt 138 4 - 142
Equity 4 1 - 5
U.S. debt securities 15 - - 15
Federal agency securities
(held by C-TEC) 8 - - 8
Municipal debt securities 1 - - 1
Corporate debt securities
(held by C-TEC) 113 - - 113
Collateralized mortgage
obligations - 2 - 2
Other securities 21 - - 21
------ ------ ------- -----
$ 488 $ 14 $ - $ 502
====== ====== ======= =====
Restricted Securities:
Kiewit Mutual Fund:
Short-term government $ 15 $ - $ - $ 15
Intermediate term bond 7 - - 7
Equity 6 1 - 7
Municipal debt securities 1 - - 1
------ ------ ------- -----
$ 29 $ 1 $ - $ 30
====== ====== ======= =====
Non-current Investments:
Equity securities $ 76 $ 13 $ - $ 89
====== ====== ======== =====
Other securities primarily include bonds issued by the Casecnan project
and purchased by KDG.
For debt securities, amortized costs do not vary significantly
from principal amounts. Realized gains and losses on sales of
marketable and equity securities were $3 million and $- million in
1996, $1 million and $3 million in 1995 and $2 million and $18 million
in 1994.
At December 28, 1996 the contractual maturities of the debt securities
are as follows:
(dollars in millions) Amortized Cost Fair Value
U.S. debt securities:
Less than 1 year $ 2 $ 2
1-5 years 11 11
-------- ------
$ 13 $ 13
======== ======
Corporate debt securities:
1-5 years $ 47 $ 47
======== ======
Other securities:
5-10 years $ 20 $ 22
======== ======
Maturities for the mutual fund, equity securities and collateralized
mortgage obligations have not been presented as they do not have a
single maturity date.
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. With
the exception of C-TEC, the fair value of debt approximates the carrying
amount. C-TEC's Senior Secured Notes and the Credit Agreement with
National Bank for Cooperatives have an aggregate fair value of $251
million (See Note 12).
(9) Retainage on Construction Contracts
Receivables at December 28, 1996 and December 30, 1995 include
approximately $139 million and $111 million of retainage on uncompleted
projects, the majority of which is expected to be collected within one
year. Included in the retainage amounts are $53 million and $61 million
of securities which are being held by the owners of various construction
projects in lieu of retainage. These securities are carried at fair
value which is determined based on quoted market prices for the
securities on hand or for similar investments. Net unrealized holding
gains and losses, if any, are included as a separate component of
stockholders' equity, net of tax.
(10) Investment in Construction Joint Ventures
KCG 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) 1996 1995
Total Joint Ventures
Current assets $ 435 $ 655
Other assets (principally construction equipment) 47 52
------- -------
482 707
Current liabilities (347) (584)
------- -------
Net assets $ 135 $ 123
======= =======
KCG's Share
Equity in net assets $ 73 $ 67
Receivable from joint ventures 18 6
------- -------
Investment in construction joint ventures $ 91 $ 73
======= =======
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(10) Investment in Construction Joint Ventures (cont.)
Operations (dollars in millions) 1996 1995 1994
Total Joint Ventures
Revenue $ 1,370 $ 1,211 $ 1,034
Costs 1,201 1,108 937
-------- -------- --------
Operating income $ 169 $ 103 $ 97
======== ======== ========
KCG's Share
Revenue $ 689 $ 691 $ 523
Costs 619 622 473
-------- -------- --------
Operating income $ 70 $ 69 $ 50
======== ======== ========
(11) Intangible Assets
Intangible assets consist of the following at December 28, 1996 and
December 30, 1995:
(dollars in millions) 1996 1995
C-TEC:
Goodwill $ 198 $ 199
Franchises and subscriber lists 229 224
Other 34 96
CPTC intangibles and other 40 39
------ -------
501 558
Less accumulated amortization (133) (171)
------- -------
$ 368 $ 387
======= =======
(12) Long-Term Debt
At December 28, 1996 and December 30, 1995, long-term debt was as follows:
(dollars in millions) 1996 1995
Telecommunications
C-TEC Long-term Debt (with recourse only to C-TEC):
Credit Agreement - National Bank for Cooperatives
(7.51% due 2009) $ 110 $ 119
Senior Secured Notes
(9.65% due 1999) 134 150
Term Credit Agreement - Morgan Guaranty Trust Company
(7% due 2002) 18 19
Promissory Note - Twin County Acquisition - 4
Revolving Credit Agreements and Other - 8
------- ------
262 300
Other
CPTC Long-term Debt (with recourse only to CPTC):
Bank Note
(7.7% due 2008) 65 51
Institutional Note
(9.45% due 2017) 35 35
OCTA Debt
(9.0% due 2006) 6 6
Subordinated Debt
(9.5% No Maturity) 2 -
-------- ------
108 92
Other Long-term Debt:
9.6% to 11.1% Notes to former stockholders
due 1999-2001 3 6
6.25% to 8.75% Convertible debentures
due 2002-2006 10 8
Other 6 6
-------- ------
19 20
-------- ------
389 412
Less current portion (57) (42)
-------- ------
$ 332 $ 370
======== ======
Telecommunications.
In March 1994, C-TEC's telephone group entered into a $135 million
Credit Agreement with the National Bank for Cooperatives. The funds
were used to prepay outstanding borrowings with various agencies of the
U.S. government. Substantially all the assets of C-TEC's telephone
group are subject to liens under this Credit Agreement. In addition,
the telephone group is restricted from paying dividends in excess of the
prior years net income.
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.
Mercom, a consolidated subsidiary of C-TEC, has pledged the common stock
of its operating subsidiaries as collateral for the Term Credit
Agreement ("Agreement") with Morgan Guaranty Trust Company ("Morgan").
In addition, a first lien on certain material assets of Mercom and its
subsidiaries has been granted to Morgan. The Agreement contains a
restrictive covenant which requires Mercom to maintain a specified debt
to cash flow ratio.
In connection with the acquisition of Twin County Trans Video, Inc. in
1995, C-TEC Cable Systems, Inc., a wholly owned subsidiary of C-TEC,
issued a $4 million 5% promissory note. The note was unsecured. In
September 1996, the note was cancelled in settlement of certain purchase
price adjustments.
C-TEC's cable group had Revolving Credit agreements which were
collateralized by a pledge of the stock of the cable group subsidiaries
which expired in December 1996.
Other.
In August 1996, CPTC converted its construction financing note into a
term note with a consortium of banks (Bank Debt). The interest rate on
the Bank Debt is based on LIBOR plus a varying rate with interest
payable quarterly. Upon completion of the toll road, CPTC entered into
an interest rate swap arrangement with the same parties. The swap
expires in January 2004 and has an underlying interest rate of 6.96%.
The institutional note is with Connecticut General Life Insurance
Company, a subsidiary of CIGNA Corporation. The note converted into a
term loan upon completion of the toll road.
Substantially all the assets of CPTC and the partners' equity interest
in CPTC secure the term debt.
Orange County Transportation Authority holds $6 million of subordinated
debt which is due in varying amounts over 10 years. Interest accrues at
9% and is payable quarterly beginning in 2000.
The remaining subordinated debt was incurred in July 1996 to facilitate
the completion of the project. The debt is payable to the partners and
is generally subordinated to all other debt of CPTC. Interest on the
subordinated debt compounds annually at 9.5% and is payable only as CPTC
generates excess cash flows.
CPTC capitalized interest of $5 million, $7 million and $4 million in
1996, 1995 and 1994.
The PKS 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 59,935 and 12,594
shares of Class C common stock and 69,022 and 12,594 shares of Class D
common stock in 1995 and 1994. As part of the exchange offer completed
prior to the MFS Spin-off, all holders of 1991 debentures and 1993
Class D debentures converted their debentures into Class C and Class D
common stock. At December 28, 1996, 436,833 shares of Class C common
stock are reserved for future conversions.
Scheduled maturities of long-term debt through 2001 are as follows (in
millions): 1997 - $57; 1998 - $60; 1999 - $62; 2000 - $18 and $19 in
2001.
(13) Income Taxes
An analysis of the income tax (provision) benefit before minority
interest for the three years ended December 28, 1996 follows:
(dollars in millions) 1996 1995 1994
Current:
U.S. federal $ (126) $ (127) $ (54)
Foreign (9) - (10)
State (17) ( 9) (5)
------- ------ ------
(152) (136) (69)
Deferred:
U.S. federal 68 146 27
Foreign (3) (4) 5
State 3 5 8
------- ----- -----
68 147 40
------- ----- -----
$ (84) $ 11 $ (29)
======= ===== =====
The United States and foreign components of earnings, for tax reporting
purposes, before equity loss in MFS (recorded net of tax), minority interest
and income taxes follows:
(dollars in millions) 1996 1995 1994
United States $ 284 $ 370 $ 224
Foreign 21 6 16
------- ------ ------
$ 305 $ 376 $ 240
======= ====== ======
A reconciliation of the actual income tax (provision) benefit and the
tax computed by applying the U.S. federal rate (35%) to the earnings
before equity loss in MFS (recorded net of tax), minority interest and
income taxes for the three years ended December 28, 1996 follows:
(dollars in millions) 1996 1995 1994
Computed tax at statutory rate $ (107) $ (132) $ (84)
State income taxes (9) (8) (3)
Depletion 4 3 4
Dividend exclusion 3 - 3
Tax exempt interest 2 3 4
Prior year tax adjustments 40 56 54
MFS deferred tax - 93 -
Goodwill amortization (5) (4) (2)
Taxes on foreign operations (5) - -
Other (7) - (5)
------ ------- ------
$ (84) $ 11 $ (29)
====== ======= ======
During the three years ended December 28, 1996, the Company settled a
number of disputed issues related to prior years that have been included
in prior year tax adjustments.
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.
The components of the net deferred tax liabilities for the years
ended December 28, 1996 and December 30, 1995 were as follows:
(dollars in millions) 1996 1995
Deferred tax liabilities:
Investments in securities $ 19 $ 15
Investments in joint ventures 16 25
Investments in subsidiaries 15 10
Asset bases - accumulated depreciation 226 257
Coal sales 15 42
Other 26 21
------- ------
Total deferred tax liabilities 317 370
Deferred tax assets:
Construction accounting 15 3
Insurance claims 34 33
Compensation - retirement benefits 35 32
Provision for estimated expenses 28 24
Net operating losses of subsidiaries 8 5
Foreign and general business tax credits 61 59
Alternative minimum tax credits 16 20
Other 24 30
Valuation allowance (8) (6)
------ -----
Total deferred tax assets 213 200
------ -----
Net deferred tax liabilities $ 104 $ 170
====== =====
(14) 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.
KDG's defined benefit pension plans cover primarily packaging employees
who retired prior to the disposition of the packaging operations. The
income (expense) related to these plans was approximately $1 million,
($7) million and ($1) million in 1996, 1995 and 1994. The accrued
pension liability associated with the plan is not significant at
December 28, 1996 and December 30, 1995.
C-TEC maintains a separate defined benefit plan for substantially all of
its employees. The prepaid pension cost and expense related to this
plan is not significant at December 28, 1996 and December 30, 1995, and
for the three years ended December 28, 1996.
Effective December 31, 1996, C-TEC will no longer accrue benefits under
the defined benefit pension plan for employees other than those
consisting primarily of the telephone group. The employees will become
fully vested in their benefit accrued through that date. C-TEC
recognized a curtailment gain of approximately $4 million which
primarily resulted from the reduction of the projected benefit
obligation.
The Company also had a long-term incentive plan, consisting of stock
appreciation rights, for certain employees. This plan concluded in
1994. The expense related to this plan was $2 million in 1994.
Substantially all employees of the Company, with the exception of C-TEC
employees, are covered under the Company's profit sharing plans. The
expense related to these plans were $3 million in 1996 and 1995 and $2
million in 1994.
(15) Postretirement Benefits
In addition to providing pension and other supplemental benefits, KDG
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 who retired prior to 1993.
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.
In March 1995, KDG settled its liability with respect to certain
postretirement life insurance benefits. The Company purchased insurance
coverage from a third party insurance company for approximately $14
million to be paid over seven years. The settlement did not have a
material impact on KDG's financial position, results of operations or
cash flows.
The net periodic costs for health care benefits were less than $1
million in 1996 and 1995 and $1 million in 1994. In all years, the
costs related primarily to interest on accumulated benefits.
The accrued postretirement benefit liability, primarily for packaging
employees who retired prior to the disposition of the packaging
operations, as of December 28, 1996 was as follows:
Health
(dollars in millions) Insurance
Retirees $ 30
Fully eligible active plan participants -
Other active plan participants -
------
Total accumulated postretirement benefit obligation 30
Unrecognized prior service cost 17
Unrecognized net loss (5)
------
Accrued postretirement benefit liability $ 42
======
The unrecognized prior service cost resulted from certain modifications to the
postretirement benefit plan for packaging employees which reduced the
accumulated postretirement benefit obligation. KDG may make additional
modifications in the future.
A 7.7% increase in the cost of covered health care benefits was assumed
for fiscal 1997. 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 $1 million at year-end 1996. The weighted
average discount rate used in determining the APBO was 7.5%.
(16) Stockholders' Equity
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.
Class D shares are not subject to ownership or transfer restrictions.
However, almost all Class D shares are held by employees and former employees.
For the three years ended December 28, 1996, 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 1994 - 1,018,144 777,556
Shares repurchased in 1994 180,000 2,247,186 396,684
Shares issued in 1995 - 1,021,875 2,675,553
Shares repurchased in 1995 736,932 5,492,002 42,147
Shares issued in 1996 - 896,640 410,485
Shares repurchased in 1996 - 770,368 255,216
(17) Class D Stock Plan
Under the 1995 Class D Stock Plan ("the Plan"), the Company may grant
stock options, stock appreciation rights or other benefits of up to 1
million shares of Class D Common Stock ("Shares") during the ten year
term of the plan. The Company may not grant more than 500,000 Shares in
any two year period and may not grant any one participant more than
200,000 Shares. Stock options must have an exercise price that is not
less than the fair market value of the Shares on the grant date and
become exercisable at a rate of 20% per year over a five year period.
Stock options expire if not exercised within ten years from the date of
grant. Grants of 1995 options were conditioned upon approval of the Plan by
PKS shareholders which was obtained in June 1996.
Transactions involving stock options granted under the Plan are
summarized as follows:
Option Price Weighted Avg
Shares Per Share Option Price
Balance December 31, 1994 - $ - $ -
Options Granted 268,000 40.40 40.40
Options Cancelled - - -
Options Exercised - - -
-------
Balance December 30, 1995 268,000 $ 40.40 $ 40.40
======= =======
Options Granted 179,000 $ 49.50 $ 49.50
Options Cancelled (3,000) 40.40 40.40
Options Exercised - - -
-------
Balance December 28, 1996 444,000 $40.40 - $49.50 $ 44.07
======= =============== ========
Options exercisable
December 30, 1995 - $ - $ -
December 28, 1996 53,000 40.40 40.40
The weighted average remaining life for the 444,000 options outstanding on
December 28, 1996 is 9.4 years.
The Company has elected to adopt only the required disclosure provisions
and not the optional expense recognition provisions under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", that established a fair value method of accounting for
stock options and other equity instruments. The compensation cost for
1996 and 1995 that would have been recognized in the consolidated
statements of earnings if the fair value based method had been applied
to the grants of options made in 1996 and 1995 is not material.
(18) Fair Value of Financial Instruments.
The estimated fair value of the Company's financial instruments are as
follows:
(dollars in millions) 1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and cash equivalents (Note 8) $ 320 $ 320 $ 457 $ 457
Marketable securities (Note 8) 426 426 502 502
Restricted securities (Note 8) 25 25 30 30
Escrowed securities in lieu of
retainage (Note 9) 53 53 61 61
Investment in equity securities
including CalEnergy (Notes 4 and 8) 395 747 242 300
CalEnergy convertible debenture - - 65 65
Long-term debt (Notes 8 and 12) 389 396 412 428
(19) Other Matters
In October 1996, the PKS Board of Directors directed management to
pursue a listing of PKS Class D Stock on a major securities exchange or
the NASDAQ National Market as soon as practical during 1998. The Board
does not foresee circumstances under which PKS would list the Class D
Stock prior to 1998. The Board believes that a listing will provide PKS
with a capital structure more suitable for the further development of
KDG's business plan. It would also provide liquidity for Class D
shareholders without impairing PKS' capital base.
The Board's action does not ensure that a listing of Class D Stock will
occur in 1998, or any time. The Board could delay or abandon plans to
list the stock if it determined that such action would be in the best
interests of all PKS' shareholders. In addition, PKS' ability to list
Class D Stock will be subject to factors beyond its control, including
the laws, regulations, and listing eligibility criteria in affect at the
time a listing is sought, as well as stock market conditions at the
time. Furthermore, the Board might decide to couple the listing of
Class D Stock with a public offering of newly-issued Class D shares in
order to raise additional capital for KDG. Such an offering could delay
or alter the listing plan.
Class C shareholders are currently able to convert their shares into
Class D Stock pursuant to the Company's Certificate of Incorporation.
If such listing occurs, Class C shareholders will continue to be able
to convert their shares into Class D Stock. However, the Company will
not be obligated to repurchase Class D shares.
In 1994, several former shareholders of a subsidiary of MFS 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. Plaintiffs allege that MFS fraudulently concealed
material information from them, causing them to sell their shares of the
subsidiary to MFS at an inadequate price. The lawsuit was settled in
July, 1996. KDG had previously agreed to indemnify MFS and the chief
executive officer against any liabilities arising from this lawsuit.
The settlement, net of reserves established, did not materially affect
KDG's financial position, results of operations or cash flows.
In June 1995, KCG exchanged its interest in a wholly-owned subsidiary
involved in gold mining activities for 4,000,000 common shares of
Kinross Gold Corporation, a publicly traded corporation.
KCG recognized a $21 million pre-tax gain on the exchange based on the
difference between the book value of the subsidiary and the fair market
value of the Kinross stock on the date of the transaction. This gain is
included in other income on the consolidated statements of earnings.
In May 1995, the lawsuit titled Whitney Benefits, Inc. and Peter Kiewit
Sons' Co. v. The United States was settled. In 1983, plaintiffs alleged
that the enactment of the Surface Mining Control and Reclamation Act of
1977 had prevented the mining of their Wyoming coal deposits and
constituted a government taking without just compensation. In
settlement of all claims, plaintiffs agreed to deed the coal deposits to
the government and the government agreed to pay plaintiffs $200 million,
of which Peter Kiewit Sons' Co., a KDG subsidiary, received
approximately $135 million in June 1995 and recorded it in other income
on the consolidated statements of earnings.
The Company is involved in various other 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, future results of operations or future
cash flows.
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, future results of operations or future cash flows.
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 Company in accordance with specified
terms and conditions. As of December 28, 1996, the Company had
outstanding letters of credit of approximately $125 million.
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 24 years
aggregate $68 million.
(20) Subsequent Events
In January 1997, approximately 1.7 million shares of Class B&C Stock,
with a redemption value of $71 million, were converted into 1.3 million
shares of Class D Stock.
In February 1997, KDG purchased an office building in Aurora, Colorado
for $21 million. By investing in real estate, the Company is able to
defer $40 million of the taxable gain with respect to the Whitney
Benefits settlement. KDG may make additional real estate investments in
1997 to defer the balance.
Also in February 1997, C-TEC announced a plan to separate its
operations along business lines into three separate, publicly traded
companies:
CTCo, containing the local telephone group and related engineering
business;
C-TEC Michigan, containing the cable television operations in
Michigan; and
RCN Corporation, which will consist of RCN Telecom Services; cable
television operations in New York, New Jersey, and Pennsylvania;
and the investment in Megacable S.A. de C.V., a cable operator in
Mexico. RCN Telecom Services is a provider of packaged local and
long distance telephone, video, and internet access services
provided over fiber optic networks to residential customers in
Boston and New York City.
The restructuring will permit investors and the financial market to better
understand and evaluate C-TEC's various businesses. In addition, the
restructuring will allow C-TEC to raise capital for the future expansion of
the RCN business on more efficient terms.
The plan is contingent upon receipt of a private letter ruling from the
Internal Revenue Service regarding the tax-free nature of the spin-off,
the receipt of other regulatory approvals, and certain other conditions.
If the reorganization and spin-offs occur, KDG will own less than 50% of
the outstanding shares and voting rights of each entity and will account
for each entity using the equity method.
The following is financial information of PKS had C-TEC been accounted
for utilizing the equity method in the consolidated financial
statements as of December 28, 1996 and December 30, 1995 and for the
three years ended December 28, 1996.
(dollars in millions) 1996 1995
Assets
Current Assets:
Cash and cash equivalents $ 244 $ 408
Marketable securities 379 382
Restricted securities 25 30
Receivables, less allowance of $17 and $10 315 343
Costs and earnings in excess of billings
on uncompleted contracts 80 78
Investment in construction joint ventures 91 73
Deferred income taxes 49 57
Other 32 33
------- -------
Total Current Assets 1,215 1,404
Property, Plant and Equipment, net 339 328
Investments 1,166 823
Intangible Assets, net 38 38
Other Assets 47 76
------- -------
$ 2,805 $ 2,669
======= =======
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 197 $ 212
Short-term borrowings - 45
Current portion of long-term debt 2 6
Accrued costs and billings in excess of revenue
on uncompleted contracts 112 111
Accrued insurance costs 81 79
Other 71 75
------- --------
Total Current Liabilities 463 528
Long-Term Debt, less current portion 125 106
Deferred Income Taxes 62 125
Retirement Benefits 45 51
Accrued Reclamation Costs 99 100
Other Liabilities 188 144
Minority Interest 4 8
Total Stockholders' Equity 1,819 1,607
------- -------
$ 2,805 $ 2,669
======= =======
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(20) Subsequent Events (cont.)
(dollars in millions) 1996 1995 1994
Revenue $ 2,567 $ 2,577 $ 2,413
Cost of Revenue (2,192) (2,249) (2,119)
--------- -------- --------
375 328 294
General and Administrative Expenses (174) (201) (152)
--------- -------- -------
Operating Earnings 201 127 142
Other Income (Expense):
Equity Earnings, net 8 20 (4)
Investment Income, net 58 52 28
Interest Expense, net (9) (3) (5)
Gain on Subsidiary's Stock Transactions, net - 3 54
Other, net 31 154 21
--------- -------- -------
88 226 94
Equity Loss in MFS - (131) (102)
--------- -------- -------
Earnings Before Income Taxes and
Minority Interest 289 222 134
Income Tax (Provision) Benefit (70) 22 (24)
Minority Interest in Net Loss of Subsidiaries 2 - -
--------- -------- -------
Net Earnings $ 221 $ 244 $ 110
========= ======== =======
On March 21, C-TEC paid the minority shareholders of Freedom $15 million
for the contingent consideration outlined in the original purchase agreement
(Note 5) and $15 million to acquire the remaining minority interest of
Freedom. These amounts will be allocated to goodwill and are expected to
be amortized over a period of approximately 6 years. C-TEC also paid $10
million to terminate a marketing services agreement with the former
minority shareholders of Freedom. C-TEC will charge this amount to
operations for the quarter ended March 31, 1997.
On March 26, 1997, a KCG sponsored construction joint venture was awarded a
$1.3 billion contract to reconstruct Interstate I-15 through the Salt Lake
City region. The project is being undertaken in preparation for the 2002
Olympic Games. KCG's share of this project is approximately $700 million.
SCHEDULE II
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
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 28, 1996
Allowance for doubtful
trade accounts $ 12 $ 13 $ (5) $ - $ 20
Reserves:
Insurance claims 79 22 (20) - 81
Retirement benefits 54 - (6) - 48
Year ended December 30, 1995
Allowance for doubtful
trade accounts $ 9 $ 5 $ (2) $ - $ 12
Reserves:
Insurance claims 75 18 (14) - 79
Retirement benefits 67 3 (2) (14)(a) 54
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
(a) The Company settled its liability with respect to certain
postretirement life insurance benefits by purchasing insurance coverage
from a third party insurance company.