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UNITED STATES
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 number
December 25, 1999 000-23943
PETER KIEWIT SONS', INC.
(Exact name of registrant as specified in its charter)
Delaware 91-1842817
(State of Incorporation) (I.R.S. Employer Identification No.)
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:
Common Stock, par value $0.01
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. [ ]
The registrant's stock is not publicly traded, and
therefore, there is no ascertainable market value of voting stock
held by non-affiliates.
31,943,578 shares of the registrant's $0.01 par value Common
Stock were issued and outstanding on March 14, 2000.
Portions of the registrant's definitive proxy statement for
its 2000 Annual Meeting of Stockholders are incorporated by
reference into Part III of this Form 10-K.
TABLE OF CONTENTS
Page
Part I
Item 1. Business 1
Item 2. Properties 4
Item 3. Legal Proceedings 4
Item 4. Submissions of Matters to a Vote of
Security Holders 4
Item 4A. Executive Officers of the Registrant 5
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 6
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 11
Item 8. Financial Statements and Supplementary Data 12
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 37
Part III
Item 10. Directors and Executive Officers of the Registrant 37
Item 11. Executive Compensation 37
Item 12. Security Ownership of Certain Beneficial Owners
and Management 37
Item 13. Certain Relationships and Related Transactions 37
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 37
PART I
Item 1. Business.
Forward Looking Statements. This document contains forward
looking statements and information that are based on the beliefs
of management as well as assumptions made by and information
currently available to the Company. When used in this document,
the words "anticipate," "believe," "estimate," "expect"
and similar expressions, as they relate to the Company or its
management, are intended to identify forward-looking statements.
Such statements reflect the current views of the Company with
respect to future events and are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those
described in this document.
General. Peter Kiewit Sons', Inc. and its subsidiaries
("PKS" or the "Company") is one of the largest construction
contractors in North America. The Company was incorporated in
Delaware in 1997 to continue a construction business founded in
Omaha, Nebraska in 1884.
On March 31, 1998, the Company's former parent, Level 3
Communications, Inc. ("Level 3") transferred all of the issued
and outstanding shares of common stock of Kiewit Construction
Group Inc. ("KCG"), as well as certain other assets and
liabilities related to Level 3's construction and materials
businesses, which together with such common stock comprised all
of the construction and materials businesses of Level 3 (the
"Construction and Materials Businesses"), to the Company in
exchange for all of the Company's then outstanding shares of
$0.01 par value common stock ("Common Stock"). Level 3 then
distributed all of such Common Stock to the holders of Level 3's
Class C Construction & Mining Group Restricted Redeemable
Convertible Exchangeable Common Stock ("Class C Stock"), in
exchange for such shares of Class C Stock. As a result of such
transactions (collectively, the "Transaction"), the Company is
now owned by the former holders of Level 3's Class C Stock, and
now conducts the Construction and Materials Businesses. In
connection with the Transaction, the Company's name was changed
from "PKS Holdings, Inc." to "Peter Kiewit Sons', Inc." and
Level 3's name was changed from "Peter Kiewit Sons', Inc." to
"Level 3 Communications, Inc."
The Company is organized into two business segments, the
Construction Business and the Materials Business. Information
about the Company's business segments for the years ended
December 25, 1999, December 26, 1998 and December 27, 1997 is
included in Note 10 of the "Notes to the Consolidated Financial
Statements," located on page 32 of this Annual Report on Form 10-
K.
The Company has filed various documents with the Securities
and Exchange Commission pursuant to which the Company is
proposing to spin-off the Materials Business to its shareholders
in a transaction that is intended to be tax-free for U.S. Federal
income tax purposes.
The Construction Business. The Construction Business is
conducted by operating subsidiaries of Kiewit Construction Group
Inc. ("KCG"). The Company, its joint ventures and partnerships
perform construction services for a broad range of public and
private customers primarily in the United States and Canada. New
contract awards during 1999 were distributed among the following
construction markets (approximately, by number): power, heat,
cooling -- 34%; transportation (including highways, bridges,
airports, railroads, and mass transit) -- 33%; commercial
buildings -- 27%; water supply/dams -- 3%; oil and gas -- 2%; and
other markets -- 1%.
The Company primarily performs its services as a general
contractor. As a general contractor, the Company is responsible
for the overall direction and management of construction projects
and for completion of each contract in accordance with its terms,
plans, and specifications. The Company plans and schedules the
projects, procures materials, hires workers as needed, and awards
subcontracts. The Company generally requires performance and
payment bonds or other assurances of operational capability and
financial capacity from its subcontractors.
Contract Types. The Company performs its construction
work under various types of contracts, including fixed unit or
lump-sum price, guaranteed maximum price, and cost-reimbursable
contracts. Contracts are either competitively bid and awarded or
negotiated. The Company's public contracts generally provide for
the payment of a fixed price for the work performed. Profit on a
fixed-price contract 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.
Government Contracts. Public contracts accounted for
approximately 76% of the combined prices of contracts awarded to
the Company during 1999. 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.
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 1999, Engineering News
Record, a construction trade publication, ranked the Company as
the eighth largest United States contractor in terms of 1998
revenue and 14th largest in terms of 1998 new contract awards. It
ranked the Company first in the transportation market in terms of
1998 revenue.
Demand. The volume and profitability of the Company'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. The Company'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 reason,
would have a material adverse effect on the Company.
Backlog. At the end of 1999, the Company had backlog
(anticipated revenue from uncompleted contracts) of approximately
$4 billion, a decrease from approximately $4.9 billion at the end
of 1998. Of current backlog, approximately $1 billion is not
expected to be completed during 2000. In 1999, the Company was
low bidder on 168 jobs with total contract prices of
approximately $1.5 billion, an average price of approximately
$9.1 million per job. There were 19 new projects with contract
prices over $20 million, accounting for approximately 63% of the
successful bid volume.
Joint Ventures. The Company frequently 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. The Company 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 1999, the Company derived
approximately 62% of its joint venture revenue from sponsored
joint ventures and approximately 38% from non-sponsored joint
ventures. The Company's share of joint venture revenue accounted
for approximately 25% of its 1999 total construction revenue.
Significant Customer. During 1999, the Company earned
21.7% of revenues from a single customer.
Locations. The Company structures its construction
operations around 20 principal operating offices located
throughout North America, including its headquarters located in
Omaha, Nebraska. Through its decentralized system of management,
the Company has been able to quickly respond to changes in the
local markets. At the end of 1999, the Company had current
projects in 47 states, Puerto Rico, Washington, D.C. and 8
Canadian provinces.
Financial information about geographic areas for the years
ended December 25, 1999, December 26, 1998 and December 27, 1997
is included in Note 10 of the "Notes to the Consolidated
Financial Statements," located on page 32 of this Annual Report
on Form 10-K.
The Materials Business. The Materials Business is conducted
by operating subsidiaries of Kiewit Materials Company ("KMC").
KMC operations consist of aggregate, ready mix and asphalt
products. Aggregate products are used as highway construction
materials, railroad ballast, decorative landscape rock, roofing
aggregate and building stone. In 1999, KMC produced in excess of
28 million tons of construction materials and generated
approximately $432 million of revenue.
Locations. KMC operates in Arizona, Washington, Oregon,
California, Wyoming, Utah and New Mexico, with primary operations
in Arizona, centered in the Phoenix and Tucson metropolitan areas
and in the Pacific Northwest, centered in the Vancouver,
Washington and Portland, Oregon metropolitan areas. KMC also
provides construction services in and around Yuma, Arizona,
focusing mainly on paving and related projects.
Financial information about geographic areas for the
years ended December 25, 1999, December 26, 1998 and December 27,
1997 is included in Note 10 of the "Notes to the Consolidated
Financial Statements," located on page 32 of this Annual Report
on Form 10-K.
Products.
Aggregates. KMC primarily sells to third parties
and utilizes internally various types of aggregate products. The
production of these products typically involves extracting the
material, crushing and sizing the material and shipping it to the
customer using either trucks or rail. Approximately 37% of the
aggregates produced in 1999 were used internally in the
production of value-added concrete and asphalt products.
Ready-mix Concrete. KMC produces ready-mix
concrete by combining aggregates, cement, water and additives.
The additives allow KMC to customize the product to customer
specifications for overall strength, drying speed and other
properties. Product ingredients are combined at a batch plant
site and loaded into a mixer truck for delivery to the customer's
location.
Asphalt. KMC also produces and sells asphalt
products. Asphalt is a mixture of aggregates and asphalt oil. The
asphalt oil is heated and combined at a plant site and then
loaded into dump trucks for transit to the customer's location.
Customer specifications can require the use of certain types or
sizes of aggregates and/or varying proportions of aggregates and
asphalt oil.
Customers. KMC markets to a wide variety of customers
including street and highway contractors, industrial and
residential contractors, public works contractors, wholesalers
and retailers of decorative rock products, interstate railroads
and manufacturers of concrete block products. A substantial
amount of produced material is used in publicly funded projects,
but no single customer accounts for more than 3% of sales.
Competition. Due to the high cost of transportation,
the construction materials business is highly dependent on the
availability of high quality aggregates proximate to customers
and production facilities. While price is an important factor in
the customer's purchase decision, qualitative factors such as
response time, reliability and product quality influence the
purchase decision as well. With much of the industry consisting
of small to medium sized independent firms, economies of scale,
good site locations and technical knowledge will often provide a
competitive advantage. While KMC believes it possesses these
attributes in the markets it serves, in certain segments of those
markets it competes directly with integrated materials companies
that have greater financial resources. It is also possible that
competitors with a lower cost structure or a willingness to
accept lower margins than KMC may have an advantage on price
sensitive projects.
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 1999, the Company and its majority-
owned subsidiaries employed approximately 20,300 people,
approximately 2,300 of which were employed in the Materials
Business. The Company considers relations with its employees to
be good.
Item 2. Properties.
Construction Business. The Company's headquarters facilities
are located in Omaha, Nebraska and are owned by the Company. The
Company also has 19 principal district offices located in
Arizona, California, Colorado, Georgia, Massachusetts, Nebraska,
New Jersey, Texas, Washington, Alberta and Quebec, 15 of which
are located in owned facilities and 4 of which operate from
leased facilities. The Company also has 14 area offices located
in Alaska, California, Colorado, Florida, Hawaii, Illinois,
Maryland, Nebraska, Nevada, New Mexico, Utah, British Columbia
and Ontario, 2 of which are owned facilities and 12 of which are
leased facilities. The Company owns or leases numerous shops,
equipment yards, storage facilities, warehouses, and construction
material quarries. Since construction projects are inherently
temporary and location-specific, the Company owns approximately
1,000 portable offices, shops and transport trailers. The Company
has a large equipment fleet, including approximately 5,100
trucks, pickups and automobiles and 3,800 heavy construction
vehicles, such as graders, scrapers, backhoes and cranes. Joint
ventures in which the Company is a participant own approximately
100 of portable offices, shops and transport trailers, 600
trucks, pickups and automobiles and 1,000 heavy construction
vehicles.
Materials Business. KMC's headquarters are located in the
Company's headquarters facilities in Omaha, Nebraska. KMC also
has three principal district offices located in Arizona and
Washington. KMC operates 60 ready-mix batch plants or asphalt
plants at 21 locations in Arizona, Oregon and Washington. Its
aggregates operations are located in Arizona, California, New
Mexico, Utah, Washington and Wyoming. KMC has a truck fleet of
approximately 1,000 vehicles, 900 of which are owned and 100 of
which are either leased on a long-term basis or managed on a day-
to-day rental basis.
Reserves. KMC estimates that its total recoverable
aggregates reserves are in excess of 550 million tons. The yield
from the mining of these reserves is based on an estimate of
volume that can be economically extracted to meet current market
and product applications. KMC's mining plans are developed by
experienced mining engineers and operating personnel using
drilling and geological studies in conjunction with mine planning
software. In certain instances, reserve extraction is limited to
phases or yearly amounts. Various properties also have reserves
under lease that have not been included in a mining permit. These
reserves have been excluded from KMC's recoverable reserve
estimate. KMC owns about 170 million tons of aggregates reserves
and leases another 380 million tons of aggregates reserves. KMC's
leases usually require royalty payments based on either revenue
derived from the location or an amount for each ton of materials
removed and sold from a site and have terms ranging from one year
to 27 years. Most of its long-term leases also provide an option
for the lease to be renewed.
Item 3. Legal Proceedings.
The Company and its subsidiaries are parties to many pending
legal proceedings incidental to the business of such entities. It
is not believed that any resulting liabilities for legal
proceedings, beyond amounts reserved, will materially affect the
financial condition, future results of operation, or future cash
flows of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
None during the three months ended December 25, 1999.
Item 4A. Executive Officers of the Registrant.
The table below shows information as of March 17, 2000,
about each executive officer of the Company, including his
business experience during the past five years. The Company's
executive officers are elected annually to serve until their
successors are elected and qualified or until their death,
resignation or removal.
Name Business Experience Age
John B. Chapman Mr. Chapman has been Vice President 54
of Human Resources and Administration
of the Company since August 1997. Mr.
Chapman was Vice President of Human
Resources for KCG for more than five
years prior to August 1997.
Roy L. Cline Mr. Cline has been an Executive Vice 62
President of the Company since June
1999. Mr. Cline is also a director of
the Company and is a member of the
Executive Committee of the Company.
Mr. Cline was the President of Kiewit
Industrial Co., a subsidiary of the
Company, from March 1992 until June 1999.
Richard W. Colf Mr. Colf has been an Executive Vice 56
President of the Company since July
1998. Mr. Colf is also a director of
the Company and is a member of the
Executive Committee of the Company.
Mr. Colf has been an Executive Vice
President of Kiewit Pacific Co., a
subsidiary of the Company, since September
1998, was a Senior Vice President of Kiewit
Pacific Co. from October 1995 to September
1998 and was a Vice President of Kiewit
Pacific Co. for more than five years prior
to October 1995.
Bruce E. Grewcock Mr. Grewcock has been an Executive Vice 46
President of the Company since August
1997. Mr. Grewcock is also a director
of the Company and is a member of the
Executive Committee of the Company. Mr.
Grewcock has been the President of Kiewit
Western Co., a subsidiary of the Company,
since July 1997. Mr. Grewcock was an
Executive Vice President of KCG from July
1996 to June 1998, and President of KMG from
January 1992 to July 1996. Mr. Grewcock
is currently also a director of Kinross
Gold Corporation.
Kenneth M. Jantz Mr. Jantz has been a Vice President and 57
Treasurer of the Company since August
1997. Mr. Jantz was a Vice President of
KCG from May 1994 to June 1998.
Allan K. Kirkwood Mr. Kirkwood has been an Executive Vice 56
President of the Company since July 1998.
Mr. Kirkwood is also a director of the
Company and is a member of the Executive
Committee and the Audit Committee of the
Company. Mr. Kirkwood has been an Executive
Vice President of Kiewit Pacific Co. since
September 1998, was a Senior Vice President
of Kiewit Pacific Co. from October 1995 to
September 1998 and was a Vice President of
Kiewit Pacific Co. for more than five years
prior to October 1995.
Ben E. Muraskin Mr. Muraskin has been a Vice President of 36
the Company since January 2000. Mr.
Muraskin was a partner of Alston & Bird
LLP from January 1999 to December 1999,
and an associate at that firm from May
1992 to January 1999.
Gerald S. Pfeffer Mr. Pfeffer has been a Vice President 54
of the Company since April 1998. Mr.
Pfeffer was a Vice President of KCG from
December 1997 to June 1998. Mr. Pfeffer
was Vice President of Kiewit SR91 Corp.,
a subsidiary of Level 3, from January 1993
to December 1997.
Rodney K. Rosenthal Mr. Rosenthal has been the Controller of 46
the Company since March 1998. Mr.
Rosenthal was Controller of KCG from
October 1995 to June 1998. Mr. Rosenthal
was Corporate Accounting Manager of KCG
from April 1991 to October 1995.
Tobin A. Schropp Mr. Schropp has been a Vice President, 38
General Counsel and Secretary of the
Company since September 1998. Mr. Schropp
was Director of Taxes of the Company from
March 1998 to September 1998. Mr. Schropp
was Director of Taxes of Level 3 from August
1996 to March 1998, and Director of Research,
Planning and Audit of Level 3 from September
1993 to August 1996.
Stephen A. Sharpe Mr. Sharpe has been a Vice President of 48
the Company since August 1997. Mr. Sharpe
was a Vice President of KCG from October
1996 to June 1998. Mr. Sharpe was a Vice
President of U.S. Generating Company for
more than five years prior to October 1996.
Kenneth E. Stinson Mr. Stinson has been President of the 57
Company since August 1997 and Chairman
and Chief Executive Officer of the Company
since March 1998. Mr. Stinson is also a
director of the Company and is the Chairman
of the Executive Committee of the Company.
Mr. Stinson has been the Chairman and Chief
Executive Officer of KCG for more than the
last five years. Mr. Stinson was Executive
Vice President of Level 3 from June 1991 to
August 1997. Mr. Stinson is also currently a
director of ConAgra, Inc., Valmont
Industries, Inc. and Level 3.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
Market Information. As of December 25 1999, the Common Stock
is not listed on any national securities exchange or the NASDAQ
National Market and there is no established public trading market
for the Common Stock.
Company Repurchase Obligation. Pursuant to the terms of the
Company's Restated Certificate of Incorporation
("Certificate"), the Company is generally required to
repurchase shares of Common Stock at a formula price upon demand.
Common Stock can be issued only to employees of the Company and
its subsidiaries and can be resold only to the Company at a
formula price based on the year-end book value of the Company.
Formula Price. The formula price of the Common Stock is
based on the book value of the Company. A significant element of
the Common Stock formula price is the subtraction of the book
value of property, plant, and equipment used in the Company's
construction activities (approximately $109 million in 1999).
Restrictions. Ownership of Common Stock is generally
restricted to active Company employees. Upon retirement,
termination of employment, or death, Common Stock must be resold
to the Company at the applicable formula price.
Stockholders. On March 14, 2000, the Company had the
following numbers of stockholders and outstanding shares:
Class of Stock Stockholders Outstanding Shares
Common Stock 1,314 31,943,578
Dividends and Prices. As a result of the Transaction, the
Construction and Materials Businesses were distributed to the
Company. Level 3's former Class C Stock was linked to the
performance of the Construction and Materials Businesses.
Consequently, for presentation purposes, the chart below sets
forth the dividends declared or paid on Level 3's Class C Stock
and the Common Stock during 1998 and 1999, respectively, and the
stock price after each dividend payment, in each case adjusted
retroactively to reflect a dividend of 3 shares of Common Stock
for each outstanding share of Common Stock effected on January
15, 1999.
Dividend
Dividend Declared Dividend Paid Per Share Price Adjusted Stock Price
October 22, 1997 January 5, 1998 $0.20 December 28, 1997 $12.80
April 24, 1998 May 1, 1998 $0.20 April 25, 1998 $12.60
October 30, 1998 January 6, 1999 $0.225 December 27, 1998 $15.90
April 30, 1999 May 1, 1999 $0.25 May 1, 1999 $15.65
October 29, 1999 January 5, 2000 $0.27 December 26, 1999 $20.63
The Company's current dividend policy is to pay a regular
dividend on Common Stock based on a percentage of the prior
year's ordinary earnings, with any special dividends to be based
on extraordinary earnings.
Sales of Unregistered Securities. The Company's former
parent, Level 3, acquired 100 shares of Common Stock on November
1, 1997 for $1.00. Such shares of Common Stock were acquired
without registration based upon reliance of Section 4(2) of the
Securities Act of 1933, as a transaction by an issuer not
involving a public offering. On March 31, 1998, in connection
with the Transaction, Level 3 transferred the Construction and
Materials Businesses to the Company in exchange for 30,711,680
shares of Common Stock. Such shares of Common Stock were acquired
without registration based upon reliance of Section 4(2) of the
Securities Act of 1933, as a transaction by an issuer not
involving a public offering.
Item 6. Selected Financial Data.
The following table presents selected historical financial
data of the Company as of and for the fiscal years ended 1995
through 1999, and is derived from the Company's historical
consolidated financial statements and the notes to those
financial statements included elsewhere herein.
Fiscal Year Ended
1999 1998 1997 1996 1995
(dollars in millions, except per share amounts)
Results of Operations:
Revenue $4,013 $3,379 $2,742 $2,303 $2,330
Net earnings 165 136 155 108 104
Per Common Share:
Net earnings
Basic 4.81 4.07 4.00 2.53 1.95
Diluted 4.71 4.02 3.84 2.44 1.91
Dividends(1) .52 .43 .38 .33 .26
Formula price(2) 20.63 15.90 12.80 10.18 8.10
Book value 24.01 19.35 16.10 12.76 10.73
Financial Position:
Total assets 1,599 1,379 1,342 1,039 978
Current portion of
long-term debt 4 8 5 - 2
Long-term debt, net of
current portion 18 13 22 12 9
Redeemable Common Stock(3) 837 691 652 562 467
(1) The 1999, 1998, 1997, 1996 and 1995 dividends include $.27,
$.225, $.20, $.175, and $.15 for dividends declared in 1999,
1998, 1997, 1996 and 1995 respectively, but paid in January
of the subsequent year.
(2) Pursuant to the Certificate, the formula price calculation
is computed annually at the end of the fiscal year, except
that adjustments to reflect dividends are made when
declared.
(3) Ownership of the Common Stock is restricted to certain
employees conditioned upon the execution of repurchase
agreements which restrict the employees from transferring
the stock. The Company is generally required to purchase all
Common Stock at the formula price. The aggregate redemption
value of Common Stock at December 25, 1999 was $720 million.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations 1999 vs. 1998
Revenue from each of the Company's segments was (in millions):
1999 1998
Construction $3,594 $3,057
Materials 419 322
------ ------
$4,013 $3,379
====== ======
Construction. Revenues for the construction business
increased $537 million or 18% from the same time period in 1998.
The increase is due to favorable market conditions in the
business sectors that the Company operates.
Contract backlog at December 25, 1999 was nearly $4 billion,
of which 6% was attributable to foreign operations located
primarily in Canada. Domestic projects are spread geographically
throughout the U.S.
Margins on construction projects as a percentage of revenue
for the twelve months ended December 25, 1999 were consistent
with margins in the same period in 1998, increasing from 8.6% to
8.7%.
Materials. Revenues for the materials business increased
$97 million or 30% from the same time period in 1998. A
continued strong market for materials products in the Southwest
that resulted in additional unit sales of ready mix concrete,
asphalt and aggregates accounted for part of the increase.
Additional ballast sales at quarries located in Utah and Wyoming
plus the consolidation of Pacific Rock Products L.L.C. ("Pacific
Rock") due to the increase in ownership from 40% to 100%, which
contributed revenues of $54 million, account for the balance of
the increase.
Margins increased from 7% to 11% when compared to the same
time period last year. Increased volumes, the consolidation of
Pacific Rock and the elimination of losses taken in 1998 for the
Oak Mountain coal operations contributed to the increase.
General and Administrative Expenses. General and
administrative expenses for the twelve months ended December 25,
1999 were consistent with 1998, increasing from $142 million to
$144 million.
Investment Income and Equity Earnings, Net. During 1999, the
Company determined that the decline in market value of an
investment security was other-than-temporary. This investment
was written down to market value and a loss of $18 million was
recognized in the Statement of Earnings. This investment had
previously been carried at market value and the write-down had
been recorded as an unrealized loss as a separate component of
other comprehensive income. As a result, this write-down had no
effect on total comprehensive income or total redeemable common
stock. Subsequent changes in the market value of the security
will be included as a separate component of comprehensive income.
Other, Net. Other income is primarily comprised of mine
management fee income from Level 3 and gains and losses on the
disposition of property, plant and equipment and other assets.
The Company manages certain coal mines for Level 3. Fees
for these services were $33 million in 1999 and $34 million in
1998. The Company's fee is a percentage of adjusted operating
earnings of the coal mines, as defined. The mines managed by the
Company for Level 3 earn the majority of their revenues under
long-term contracts. The remainder of the mines' sales are made
on the spot market where prices are substantially lower than
those of the long-term contracts. After a significant long-term
contract expires next year, adjusted operating earnings at the
mines will decrease substantially, thereby similarly decreasing
the management fee earned by the Company.
Additionally, the Minerals Management Service and Montana
Department of Revenue have issued assessments to the Level 3
mines for the underpayment of royalties and production taxes.
Level 3 is vigorously contesting the assessments. If Level 3
pays these assessments, the payments could materially decrease
future mine management fees, but will not affect fees previously
received.
Provision for Income Taxes. The effective income tax rates
in 1999 and 1998 differ from the federal statutory rate of 35%
due primarily to state income taxes.
Results of Operations 1998 vs. 1997
Revenue from the Company's segments for the twelve months
ended December 26, 1998 and December 27, 1997 was (in millions):
1998 1997
Construction $3,057 $2,474
Materials 322 268
------ ------
$3,379 $2,742
====== ======
Construction. Revenues for the construction business
increased $583 million or 23.6% from the same time period in
1997. $210 million of the increase in revenues resulted from
several new domestic cogeneration facilities. Joint ventures
performing electrical work on railway systems contributed another
$82 million. Another major factor was the "I-15" project, a
$1.4 billion (the Company's share is $780 million) design build
joint venture to reconstruct 16 miles of interstate through the
Salt Lake City, Utah area which contributed $135 million to the
increase. Several new projects account for the remainder of the
increase.
Contract backlog at December 26, 1998 was nearly $5 billion,
of which 3.5% was attributable to foreign operations located
primarily in Canada. Domestic projects are spread geographically
throughout the U.S.
Margins on construction projects as a percentage of revenue
for the twelve months ended December 26, 1998 decreased to 8.6%
from 13% for the same time period in 1997. Favorable resolutions
of project uncertainties, change order settlements and bonuses
for cost savings and early completion increased margins for the
twelve months ended December 27, 1997. Margins in 1996 and 1995
were 9.6% and 7.7%, respectively.
Materials. Revenues for the materials business were up 20%,
from $268 million to $322 million, for the twelve months ended
December 26, 1998 as compared to the same time period in 1997.
Greater sales volume and higher average selling prices for
aggregates, ready mix concrete and asphalt products resulted in a
27% increase which was offset by the decrease in revenues from
the Oak Mountain Coal operations. The investment in Oak Mountain
was sold on June 9, 1998. The Oak Mountain investment was
previously written off as an impaired asset in December 1997. In
1998, the Company realized operating losses of $3 million.
Margins from materials sales as a percentage of revenue for
the twelve months ended December 26, 1998 increased from 4% in
1997 to 6.5% in 1998. The increase in margins was attributable to
higher average selling prices and improvements in the performance
of recent acquisitions. Also contributing to the increase was
the reduction of losses from the Oak Mountain Coal operations.
General and Administrative Expenses. General and
administrative expenses decreased in 1998. General and
administrative expenses, as a percent of revenue, decreased from
5.4% in 1997 to 4.2% in 1998, as a proportionate increase in
administration costs were not necessary to support the Company's
revenue growth.
Investment Income and Equity Earnings, Net. Net investment
income and equity earnings decreased by $5 million. The decrease
was partially due to the increased interest expense on long-term
debt and gains on sales of marketable securities in 1997 which
were nonrecurring items.
Other, Net. Other income is primarily comprised of mine
management fee income from Level 3 and gains and losses on the
disposition of property, plant and equipment and other assets.
The mine management fee increased by $2 million while a decrease
in the amount of equipment sold during 1998 resulted in a $3
million decrease in gains from sales.
The Company manages certain coal mines for Level 3. Fees
for these services were $34 million in 1998 and $32 million in
1997. The Company's fee is a percentage of adjusted operating
earnings of the coal mines, as defined. The mines managed by the
Company for Level 3 earn the majority of their revenues under
long-term contracts. The remainder of the mines' sales are made
on the spot market where prices are substantially lower than
those of the long-term contracts. As the long-term contracts
expire in two years, adjusted operating earnings at the mines
will decrease substantially, thereby similarly decreasing the
management fee earned by the Company.
Additionally, the Minerals Management Service and Montana
Department of Revenue have issued assessments to the Level 3
mines for the underpayment of royalties and production taxes.
Level 3 is vigorously contesting the assessments. If Level 3
pays these assessments, the payments could materially decrease
future mine management fees, but will not affect fees previously
received.
Provision for Income Taxes. The effective income tax rates
in 1998 and 1997 differ from the expected rate of 35% primarily
due to state income taxes and prior year tax adjustments.
Financial Condition - December 25, 1999
The Company's working capital increased $93 million or 19%
during 1999. Sources of cash primarily included $192 million of
cash provided by operations, $32 million in proceeds from the
sale of property, plant and equipment and $25 million from the
issuance of Common Stock. Uses of cash primarily included stock
repurchases of $39 million, dividends of $16 million, purchases
of marketable securities of $7 million, net repayment of debt of
$17 million, $36 million for the acquisition of materials
operations and $75 million for the purchase of property, plant
and equipment. The Company anticipates investing between $50 and
$100 million annually in its construction and materials
businesses. The Company continues to explore opportunities to
acquire additional businesses. Other long-term liquidity uses
include the payment of income taxes and the payment of dividends.
The Company's current financial condition and borrowing capacity,
together with anticipated cash flows from operations, should be
sufficient for immediate cash requirements and future investing
activities.
New Accounting Pronouncement. In June 1998, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities,"
which establishes accounting and reporting standards for
derivative instruments and for hedging activities. This
statement is effective for all fiscal years beginning after June
15, 2000. Management does not expect adoption of this statement
to materially affect the Company's financial statements as the
Company has no significant derivative instruments or hedging
activities.
Year 2000 Update
The Company's Year 2000 effort, which was comprised of
internal updating and replacement of computer systems and
external coordination with its customers was completed on
schedule. The Company has not experienced any material Year 2000
related difficulties.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company does not believe that its business is subject to
significant market risks arising from interest rates, foreign
exchange rates or equity prices.
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Peter Kiewit Sons', Inc.
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of earnings, of changes in
redeemable common stock and comprehensive income, and of cash
flows present fairly, in all material respects, the consolidated
financial position of Peter Kiewit Sons', Inc. and Subsidiaries
at December 25, 1999, and December 26, 1998, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended December 25, 1999, in conformity
with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted
our audits of these financial statements in accordance with
auditing standards generally accepted in the United States which
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Omaha, Nebraska
March 17, 2000
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
For the three years ended December 25, 1999
(dollars in millions, except per share data)
1999 1998 1997
Revenue $ 4,013 $ 3,379 $ 2,742
Cost of revenue (3,655) (3,095) (2,408)
------- ------- -------
358 284 334
General and administrative expenses (144) (142) (148)
------- ------- -------
Operating earnings 214 142 186
Other income (expense):
Investment income and equity earnings - 17 20
Interest expense (4) (5) (3)
Other, net 56 61 61
------ ------ -------
52 73 78
------ ------ -------
Earnings before income taxes and
minority interest 266 215 264
Minority interest in net earnings
of subsidiaries (1) (1) (2)
Provision for income taxes (100) (78) (107)
------ ------ ------
Net earnings $ 165 $ 136 $ 155
====== ====== ======
Net earnings per share:
Basic $ 4.81 $ 4.07 $ 4.00
====== ====== ======
Diluted $ 4.71 $ 4.02 $ 3.84
====== ====== ======
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 25, 1999 and December 26, 1998
(dollars in millions) 1999 1998
Assets
Current assets:
Cash and cash equivalents $ 338 $ 227
Marketable securities 12 9
Receivables, less allowance of $7 and $5 507 457
Unbilled contract revenue 73 88
Contract costs in excess of related revenue 31 26
Investment in construction joint ventures 197 190
Deferred income taxes 60 64
Other 21 15
------ ------
Total current assets 1,239 1,076
Property, plant and equipment, at cost:
Land 40 19
Buildings 51 42
Equipment 660 640
------ ------
751 701
Less accumulated depreciation and
amortization (508) (489)
------ ------
Net property, plant and equipment 243 212
Other assets 117 91
------ ------
$1,599 $1,379
====== ======
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 25, 1999 and December 26, 1998
(dollars in millions) 1999 1998
Liabilities and Redeemable Common Stock
Current liabilities:
Accounts payable, including retainage of
$50 and $47 $ 270 $ 183
Current portion of long-term debt 4 8
Accrued costs on construction contracts 120 125
Billings in excess of related costs
and earnings 122 132
Accrued insurance costs 84 81
Other 62 63
------ ------
Total current liabilities 662 592
Long-term debt, less current portion 18 13
Deferred income taxes 2 1
Other liabilities 67 70
Minority interest 13 12
Preferred stock, no par value, 250,000 shares
authorized, no shares outstanding - -
Redeemable common stock ($720 million aggregate
Redemption value):
Common stock, $.01 par value, 125 million
shares authorized 34,876,718 and 35,692,820
outstanding - -
Additional paid-in capital 175 161
Accumulated other comprehensive income (10) (22)
Retained earnings 672 552
------ ------
Total redeemable common stock 837 691
------ ------
$1,599 $1,379
====== ======
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three years ended December 25, 1999
(dollars in millions) 1999 1998 1997
Cash flows from operations:
Net earnings $ 165 $ 136 $ 155
Adjustments to reconcile net earnings
to net cash provided by operations:
Depreciation and amortization 73 71 67
Gain on sale of property, plant and
equipment and other investments, net (2) (20) (24)
Equity (earnings) loss, net of
distributions (13) - 11
Change in other noncurrent liabilities - (7) 18
Deferred income taxes (1) 6 -
Change in working capital items:
Receivables (41) (6) (114)
Unbilled contract revenue and contract
costs in excess of related revenue 10 5 (39)
Investment in construction joint ventures (8) (13) (82)
Other current assets 9 - 7
Accounts payable 42 (6) 10
Accrued construction costs and billings
in excess of revenue on uncompleted
contracts (16) 28 102
Other liabilities (8) 5 23
Other (18) (3) 8
------ ------ ------
Net cash provided by operations 192 196 142
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 3 24 73
Purchases of marketable securities (7) (7) (39)
Proceeds from sale of property, plant
and equipment 32 25 36
Capital expenditures (75) (87) (107)
Investments and acquisitions, net of
cash acquired (36) (13) (21)
Additions to notes receivable (2) (20) -
Payments received on notes receivable 5 5 -
------ ------ ------
Net cash used in investing activities (80) (73) (58)
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three years ended December 25, 1999
(dollars in millions) 1999 1998 1997
Cash flows from financing activities:
Long-term debt borrowings $ 5 $ 4 $ 12
Short-term debt borrowings, net - (5) -
Payments on long-term debt (22) - -
Issuances of common stock 25 67 34
Repurchases of common stock (39) (35) (2)
Dividends paid (16) (13) (12)
Exchange of Class C Stock for Level 3's
Class D Stock, net - (122) (72)
Change in outstanding checks in excess of
funds on deposit 43 (21) 17
----- ----- -----
Net cash used in financing activities (4) (125) (23)
Effect of exchange rates on cash 3 (3) (2)
----- ----- -----
Net change in cash and cash equivalents 111 (5) 59
Cash and cash equivalents at beginning
of year 227 232 173
----- ----- -----
Cash and cash equivalents at end of year $ 338 $ 227 $ 232
====== ====== ======
Supplemental disclosures of cash flow information:
Taxes paid $ 95 $ 91 $ 94
Interest paid 4 5 2
Non-cash financing activities:
Conversion of convertible debentures to
common stock $ - $ (10)$ -
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Redeemable Common Stock and
Comprehensive Income
For the three years ended December 25, 1999
Accumulated Total
Redeemable Additional Other Redeemable
Common Paid-in Comprehensive Retained Common
Stock Capital Income Earnings Stock
Balance at December 28, 1996 $ 1 $ 100 $ (6) $ 467 $ 562
Dividends (a) - - - (13) (13)
Issuance of stock - 34 - - 34
Repurchase of stock - - - (2) (2)
Exchange of Class C Stock for
Class D stock, net - (17) - (55) (72)
Comprehensive income:
Net earnings - - - 155 155
Other comprehensive income:
Foreign currency adjustment - - (2) - (2)
Change in unrealized holding
loss, net of tax - - (10) - (10)
-----
Total other comprehensive income (12)
-----
Total comprehensive income 143
----- ----- ----- ----- -----
Balance at December 27, 1997 1 117 (18) 552 652
----- ----- ----- ----- -----
Dividends (a) - - - (13) (13)
Issuance of stock - 77 - - 77
Repurchase of stock - (7) - (28) (35)
Exchange of class C stock for
Class D stock, net - (27) - (95) (122)
Change in par value of
common stock (1) 1 - - -
Comprehensive income:
Net earnings - - - 136 136
Other comprehensive income:
Foreign currency adjustment - - (1) - (1)
Change in unrealized holding
loss, net of tax - - (3) - (3)
-----
Total other comprehensive income (4)
-----
Total comprehensive income 132
----- ----- ----- ----- -----
Balance at December 26, 1998 - 161 (22) 552 691
----- ----- ----- ----- -----
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Redeemable Common Stock and
Comprehensive Income
For the three years ended December 25, 1999
Accumulated Total
Redeemable Additional Other Redeemable
Common Paid-in Comprehensive Retained Common
Stock Capital Income Earnings Stock
Dividends (a) - - - (17) (17)
Issuance of stock - 25 - - 25
Repurchase of stock - (11) - (28) (39)
Comprehensive income:
Net earnings - - - 165 165
Other comprehensive income:
Foreign currency adjustment - - 1 - 1
Change in unrealized holding
loss, net of tax - - 11 - 11
---
Total other comprehensive income 12
---
Total comprehensive income 177
----- ----- ----- ----- ---
Balance at
December 25, 1999 $ - $ 175 $ (10) $ 672 $ 837
===== ===== ===== ===== =====
(a) Dividends include $.27, $.225 and $.20 for dividends
declared in 1999, 1998 and 1997 but paid in January of the
following year
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation:
Peter Kiewit Sons', Inc. (the "Company") was formed by its
former parent, Level 3 Communications, Inc. (formerly Peter
Kiewit Sons', Inc.) ("Level 3"), in connection with a
transaction (the "Transaction") intended to separate the
Construction and Materials Businesses and the diversified
business of Level 3 into two independent companies. On March 31,
1998, pursuant to the terms of a Separation Agreement between the
Company, Level 3 and certain other parties (the "Separation
Agreement"), Level 3 consummated the Transaction by: (i)
transferring 100 shares of the $100 par value common stock ("KCG
Stock") of Kiewit Construction Group Inc. ("KCG"),
representing all of the issued and outstanding shares of KCG
Stock, as well as certain other assets and liabilities related to
the construction and materials businesses which together
comprised the Construction and Mining Group (the "Construction &
Mining Group"), to the Company in exchange for 30,711,680 shares
of the $.01 par value common stock of the Company ("Common
Stock") (125 million shares authorized) and (ii) distributing
100% of its shares of the Common Stock to the holders of Level
3's $0.0625 par value Class C Construction & Mining Group
Restricted Redeemable Convertible Exchangeable Common Stock
("Class C Stock") as of March 31, 1998, in exchange for such
shares of Class C Stock. Prior to the Transaction, the Company
was a wholly-owned subsidiary of Level 3. As a result of the
Transaction, the Company became owned by the former holders of
Level 3's Class C Stock. Prior to consummation of the
Transaction, Level 3's Class C Common stock was convertible to
Level 3's Class D Common Stock ("Class D Stock"). As the
Construction & Mining Group comprised all of the net assets and
operations of the Company at the time of the Transaction, the
Construction & Mining Group is the Company's predecessor. Thus,
the term "the Company", as used herein, refers to Peter Kiewit
Sons', Inc., its predecessor, and its consolidated subsidiaries.
2. Summary of Significant Accounting Policies:
Principles of Consolidation:
The consolidated financial statements include the accounts of the
Company and subsidiaries in which it has control, which are
engaged in enterprises primarily related to construction and
materials. Investments in construction joint ventures and
partnerships in which the Company exercises significant influence
over operating and financial policies are accounted for by the
equity method in the consolidated balance sheet. The Company
accounts for its share of the operations of the construction
joint ventures and partnerships on a pro rata basis in the
consolidated statements of earnings. Investments in materials
limited liability companies in which the Company exercises
significant influence over operations and financial policies are
accounted for by the equity method. The Company accounts for its
share of a materials joint venture on a pro rata basis. All
significant intercompany accounts and transactions have been
eliminated.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Summary of Significant Accounting Policies, Continued:
Construction Contracts:
The Company operates as a general contractor throughout North
America and engages in various types of construction projects for
both public and private owners. Credit risk is minimal with
public (government) owners since the Company ascertains that
funds have been appropriated by the governmental project owner
prior to commencing work on public projects. Most public
contracts are subject to termination at the election of the
government. However, in the event of termination, the Company is
entitled to receive the contract price on completed work and
reimbursement of termination-related costs. Credit risk with
private owners is minimized because of statutory mechanics liens,
which give the Company high priority in the event of lien
foreclosures following financial difficulties of private owners.
The construction industry is highly competitive and lacks firms
with dominant market power. A substantial portion of the
Company's business involves construction contracts obtained
through competitive bidding. The volume and profitability of the
Company's construction work depends to a significant extent upon
the general state of the economies of North America and the
volume of work available to contractors. The Company's
construction operations could be adversely affected by labor
stoppages or shortages, adverse weather conditions, shortages of
supplies or other governmental action.
The Company uses the percentage of completion method of
accounting on long-term construction contracts and joint
ventures. Under the percentage of completion method, an
estimated percentage for each contract, as determined by the
Company's engineering estimate based on the amount of work
performed, is applied to total estimated revenue. Provision is
made for the entire amount of future estimated losses on
contracts and joint ventures in progress; claims for additional
contract compensation, however, are not reflected in the accounts
until the year in which such claims are allowed. Revisions in
cost and profit estimates during the course of the work are
reflected in the accounting period in which the facts which
require the revision become known. It is at least reasonably
possible that cost and profit estimates will be revised in the
near-term.
In accordance with industry practice, amounts realizable and
payable under contracts which may extend beyond one year are
included in current assets and liabilities.
Depreciation:
Property, plant and equipment are recorded at cost. Depreciation
for the majority of the Company's property, plant and equipment
is calculated using accelerated methods.
Intangible Assets:
Intangible assets primarily consist of amounts allocated upon
purchase of existing operations. Those assets are amortized on a
straight-line basis over the expected period of benefit, which
does not exceed 20 years.
Long-Lived Assets:
The Company reviews the carrying amount of long-lived 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 the present value of
the estimated future operating cash flows anticipated to be
generated during the remaining life of the assets to the net
carrying value of the assets.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Summary of Significant Accounting Policies, Continued:
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 accumulated other comprehensive income.
Earnings Per Share:
Basic earnings per share have been computed using the weighted
average number of shares outstanding during each period. Diluted
earnings per share give effect to convertible debentures
considered to be dilutive common stock equivalents. The
potentially dilutive convertible debentures are calculated in
accordance with the "if converted" method. This method assumes
that the after-tax interest expense associated with the
debentures is an addition to income and the debentures are
converted into equity with the resulting common shares being
aggregated with the weighted average shares outstanding.
1999 1998 1997
Net earnings available to common
stockholders (in millions) $ 165 $ 136 $ 155
Add: Interest expense, net of tax effect,
associated with convertible debentures * * 1
------ ------ ------
Net earnings for diluted shares $ 165 $ 136 $ 156
====== ====== ======
Total number of weighted average shares
outstanding used to compute basic
earnings per share (in thousands) 34,299 33,396 38,912
Additional dilutive shares assuming
conversion of convertible debentures 753 432 1,764
------ ------ ------
Total number of shares used to compute
diluted earnings per share 35,052 33,828 40,676
====== ====== ======
Net earnings
Basic earnings per share $ 4.81 $ 4.07 $ 4.00
====== ====== ======
Diluted earnings per share $ 4.71 $ 4.02 $ 3.84
====== ====== ======
* Interest expense attributable to convertible debentures was
less than $.5 million.
Income Taxes:
Deferred income taxes are provided for the temporary differences
between the financial reporting basis and the 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.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Summary of Significant Accounting Policies, Continued:
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.
Recent Pronouncements:
In June 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", which establishes accounting and reporting
standards for derivative instruments and for hedging activities.
This statement is effective for all fiscal years beginning after
June 15, 2000. Management does not expect adoption of this
statement to materially affect the Company's financial statements
as the Company has no significant derivative instruments or
hedging activities.
Stock Split:
On January 11, 1999, the Company declared a four-for-one stock
split in the form of a stock dividend of three shares of Common
Stock for each share issued and outstanding, payable on January
15, 1999. All share and per share amounts for all periods
presented have been retroactively restated to reflect the stock
split.
Fiscal Year:
The Company has a 52-53 week fiscal year which ends on the last
Saturday in December. 1999, 1998 and 1997 were all 52 week
years.
Reclassifications:
When appropriate, items within the consolidated financial
statements have been reclassified in the previous periods to
conform to current year presentation. Additionally, the 1998 and
1997 financial statements differ from those originally issued
because of certain reclassifications related to the presentation
of operating results of materials limited liability companies.
Such reclassifications had no impact on redeemable common stock
or net earnings.
3. Disclosures about Fair Value of Financial Instruments:
The following methods and assumptions were used to determine
classification and fair values of financial instruments:
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. Disclosures about Fair Value of Financial Instruments,
Continued:
Cash and Cash Equivalents:
Cash equivalents generally consist of funds invested in
Wilmington Trust-Money Market Portfolio and highly liquid
instruments purchased with original maturities of three months or
less. The securities are stated at cost, which approximates fair
value.
Outstanding checks in excess of funds on deposit in the amount of
$100 million and $57 million at December 25, 1999 and December
26, 1998 have been reclassified to accounts payable.
Marketable Securities and Non-current Investments:
The Company has classified all marketable securities and
marketable non-current investments not accounted for under the
equity method as available-for-sale. The amortized cost of the
securities used in computing unrealized and realized gains and
losses 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 accumulated
other comprehensive income, net of tax.
The following summarizes the amortized cost, unrealized holding
gains and losses, and estimated fair values of marketable
securities and marketable non-current investments at December 25,
1999 and December 26, 1998:
Unrealized Unrealized
Amortized Holding Holding Fair
(dollars in millions) Cost Gains Losses Value
1999
Marketable securities:
U.S. debt securities $ 12 $ - $ - $ 12
===== ===== ===== =====
Non-current investments:
Equity securities $ 12 $ - $ (4) $ 8
===== ===== ===== =====
1998
Marketable securities:
U.S. debt securities $ 9 $ - $ - $ 9
===== ===== ===== =====
Non-current investments:
Equity securities $ 30 $ - $ (21) $ 9
===== ===== ===== =====
For debt securities, amortized costs do not vary significantly
from principal amounts. Realized gains and losses on sales of
marketable securities were each less than $1 million in 1999,
1998 and 1997.
The contractual maturities of the debt securities are from one to
five years.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. Disclosures about Fair Value of Financial Instruments,
Continued:
During 1999, the Company determined that the decline in market
value of an investment security was other-than-temporary. This
investment was written down to market value and a loss of $18
million was recognized in the Statement of Earnings. This
investment had previously been carried at market value and the
write-down had been recorded as an unrealized loss as a separate
component of other comprehensive income. As a result, this
write-down had no effect on total comprehensive income or total
redeemable common stock. Subsequent changes in the market value
of the security will be included as a separate component of
comprehensive income.
Retainage on Construction Contracts:
Receivables at December 25, 1999 and December 26, 1998 include
approximately $90 million and $86 million of retainage on
uncompleted projects, the majority of which is expected to be
collected within one year. Included in the retainage amounts are
$29 million and $26 million, respectively, of securities which
are being held by the owners of various construction projects in
lieu of retainage. Also included in accounts receivable are $15
million and $15 million, respectively, of securities held by the
owners which are now due as the contracts are completed. 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 reported as a separate component of accumulated other
comprehensive income, net of tax.
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 and approximates the carrying amount.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Investment in Construction Joint Ventures and Partnership:
The Company has entered into a number of construction joint
venture arrangements and owns a 49% interest in a partnership,
Aker-Gulf Marine. The partnership engages in the engineering,
construction, fabrication and installation of steel and concrete
structures. 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 and partnership financial information
follows:
Financial Position (dollars in millions) 1999 1998
Total Joint Ventures and Partnership
Current assets $ 866 $ 917
Other assets (principally construction
equipment) 105 145
------ ------
971 1,062
Current liabilities (600) (703)
------ ------
Net assets $ 371 $ 359
====== ======
Company's Share
Equity in net assets $ 192 $ 199
Receivable from joint ventures and
Partnership 52 15
------ ------
244 214
Less: Construction partnership (note 5) (47) (24)
------ ------
Investment in construction joint ventures $ 197 $ 190
====== ======
- -----------------------------------------------------------------
Operations (dollars in millions) 1999 1998 1997
Total Joint Ventures and Partnership
Revenue $1,841 $2,237 $1,635
Costs 1,692 2,082 1,461
------ ------ ------
Operating income $ 149 $ 155 $ 174
====== ====== ======
Company's Share
Revenue $ 908 $1,116 $ 857
Costs 833 1,024 753
------ ------ ------
Operating income $ 75 $ 92 $ 104
====== ====== ======
Depreciation is computed by the joint ventures and partnership
using straight-line and declining balance methods over the
estimated useful lives of the assets which range from 2 to 20
years.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Other Assets:
Other assets consist of the following at December 25, 1999 and
December 26, 1998:
(dollars in millions) 1999 1998
Marketable securities (note 3) $ 8 $ 9
Equity method investments 5 14
Construction partnership (note 4) 47 24
Goodwill, net of accumulated amortization
of $15 and $12 40 26
Land option 2 -
Notes receivable 15 18
----- -----
$ 117 $ 91
===== =====
The marketable securities are an investment in a publicly traded
company.
The notes receivable are primarily non-interest bearing employee
notes.
The equity method investments consists of a 33% interest in a
concrete products business that is not publicly traded and does
not have a readily determinable market value and a 40% interest
in Pacific Rock Products, L.L.C. and a 40% interest in Pacific
Rock Products Trucking, L.L.C. (formerly River City Machinery,
L.L.C.) (collectively "Pacific Rock") in 1998 and 1997. In
1999, Pacific Rock became a wholly-owned subsidiary. Pacific
Rock is engaged in the mining of rock products.
Financial data relating to the equity method investments are
summarized below:
(dollars in millions) 1999 1998 1997
Current assets $ 11 $ 28
Property, plant and equipment, net 6 38
Other noncurrent assets - 1
----- -----
17 67
----- -----
Current liabilities (4) (11)
Noncurrent liabilities - (13)
----- -----
Net assets $ 13 $ 43
===== =====
Equity in net assets $ 5 $ 14
===== =====
Revenue $ 37 $ 80 $ 81
===== ===== =====
Gross margin $ 7 $ 21 $ 19
===== ===== =====
Net earnings $ 3 $ 16 $ 13
===== ===== =====
Equity in net earnings $ 1 $ 6 $ 5
===== ===== =====
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Long-Term Debt:
At December 25, 1999 and December 26, 1998, long-term debt
consisted of the following:
(dollars in millions) 1999 1998
7.35% - 8.03% Convertible debentures, 2007-2009 $ 14 $ 8
BICC Cables Corp. note - 6
Stockholder notes and other 8 7
----- -----
22 21
Less current portion 4 8
----- -----
$ 18 $ 13
===== =====
The convertible debentures are convertible during October of the
fifth year preceding their maturity date. Each annual series may
be redeemed in its entirety prior to the due date except during
the conversion period. At December 25, 1999, 1,032,069 shares of
stock were reserved for future conversions.
In 1997, the Company borrowed $6 million from BICC Cables Corp.
("BICC"). BICC is affiliated with a joint venture partner of
the Company. The note was paid in full in 1999 and required
quarterly interest payments at a rate equal to one month LIBOR.
The proceeds from the note were used for working capital
requirements.
In 1998, $9 million of convertible debentures were converted to
common stock.
Scheduled maturities of long-term debt are as follows (in
millions): 2000 - $4; 2001 - $1; 2002 - $1; 2003 - $0; 2004 - $0
and 2005 and thereafter - $16.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Income Taxes:
An analysis of the income tax (provision) benefit relating to
earnings for the three years ended December 25, 1999 follows:
(dollars in millions) 1999 1998 1997
Current:
U.S. federal $ (85) $ (55) $ (88)
Foreign (4) (5) (9)
State (12) (12) (10)
------ ------ ------
(101) (72) (107)
Deferred:
U.S. federal 5 (8) 1
Foreign (2) 2 (1)
State (2) - -
------ ------ ------
1 (6) -
------ ------ ------
$ (100) $ (78) $ (107)
====== ====== ======
The United States and foreign components of earnings, for tax
reporting purposes, before minority interest and income taxes
follows:
(dollars in millions) 1999 1998 1997
United States $ 267 $ 213 $ 228
Foreign (1) 2 36
------ ------ ------
$ 266 $ 215 $ 264
====== ====== ======
A reconciliation of the actual (provision) benefit for income
taxes and the tax computed by applying the U.S. federal rate
(35%) to the earnings before minority interest and income taxes
for the three years ended December 25, 1999 follows:
(dollars in millions) 1999 1998 1997
Computed tax at statutory rate $ (93) $ (75) $ (92)
State income taxes (9) (7) (8)
Prior year tax adjustments 2 - (5)
Other - 4 (2)
------ ------ ------
$ (100) $ (78) $ (107)
======= ====== ======
Possible taxes, beyond those provided, on remittances of
undistributed earnings of foreign subsidiaries, are not expected
to be material.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Income Taxes, Continued:
The components of the net deferred tax assets for the years ended
December 25, 1999 and December 26, 1998 were as follows:
(dollars in millions) 1999 1998
Deferred tax assets:
Construction accounting $ 26 $ 27
Investments in construction
joint ventures 24 27
Insurance claims 34 33
Compensation - retirement benefits 2 8
Other 9 2
------ ------
Total deferred tax assets 95 97
Deferred tax liabilities:
Asset bases/accumulated depreciation 15 14
Other 22 20
------ ------
Total deferred tax liabilities 37 34
------ ------
Net deferred tax assets $ 58 $ 63
====== ======
8. 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 future plan deficiencies; however,
there are no known deficiencies.
Approximately 16% of the employees of the Company are covered
under the Company's profit sharing plan. The expense related to
the profit sharing plan was $4 million in 1999, $3 million in
1998 and $5 million in 1997.
9. Redeemable Common Stock:
Ownership of Common Stock is restricted to certain employees
conditioned upon the execution of repurchase agreements which
restrict the employees from transferring the Common Stock. The
Company is generally committed to purchase all stock at the
amount computed pursuant to its Restated Certificate of
Incorporation. Issuances and repurchases of Common Stock,
including conversions, for the three years ended December 25,
1999, were as follows:
Balance at December 28, 1996 44,026,564
Shares issued in 1997 3,575,696
Shares repurchased in 1997 (7,072,888)
-----------
Balance at December 27, 1997 40,529,372
Shares issued in 1998 6,852,196
Shares repurchased in 1998 (11,688,748)
-----------
Balance at December 26, 1998 35,692,820
Shares issued in 1999 1,622,550
Shares repurchased in 1999 (2,438,652)
-----------
Balance at December 25, 1999 34,876,718
===========
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10. Segment and Geographic Data:
The Company is managed and operated in two segments, Construction
and Materials. The Construction segment performs services for a
broad range of public and private customers primarily in North
America. Construction services are performed in the following
construction markets: transportation (including highways,
bridges, airports, railroads and mass transit), commercial
buildings, water supply, sewage and waste disposal, dams, mining,
power, heat and cooling, and oil and gas. The Materials segment
primarily operates in the Southwest and Northwest portions of the
United States. This segment produces construction materials
including ready-mix concrete, asphalt and sand and gravel,
landscaping materials and railroad ballast.
Intersegment sales are recorded at cost. Operating earnings is
comprised of net sales less all identifiable operating expenses,
allocated general and administrative expenses, depreciation and
amortization. Interest income, interest expense and income taxes
have been excluded from segment operations. The management fee
earned by the Company as described in Note 11 is excluded from
the segment information that follows as it is included in other
income on the Statement of Earnings and not included in operating
earnings. Segment asset information has not been presented as it
is not reported to or reviewed by the chief operating decision
maker.
Segment Data 1999 1998 1997
(dollars in millions) Construction Materials Construction Materials Construction Materials
Revenue
External customers $3,594 $422 $3,057 $346 $2,474 $290
Intersegment - 10 - 6 - 8
------ ------ ------ ------ ------ ------
Total revenues 3,594 432 3,057 352 2,474 298
Equity earnings
adjustment (1) - (3) - (24) - (22)
Elimination of intersegment
revenues - (10) - (6) - (8)
------ ------ ------ ------ ------ ------
Total consolidated
revenues $3,594 $419 $3,057 $322 $2,474 $268
====== ====== ====== ====== ====== ======
Depreciation and
amortization $ 56 $ 17 $ 65 $ 6 $ 61 $ 6
====== ====== ====== ====== ====== ======
Operating earnings $ 178 $ 36 $ 124 $ 18 $ 178 $ 8
====== ====== ====== ====== ====== ======
(1) Adjust revenue of limited liability companies accounted for
by the equity method.
Geographic Data (dollars in millions) 1999 1998 1997
Revenue, by location of services provided:
United States $3,907 $3,282 $2,572
Canada 87 77 90
Other 19 20 80
------ ------ ------
$4,013 $3,379 $2,742
====== ====== ======
Long-lived assets:
United States $ 239 $ 208
Canada 4 4
------ ------
$ 243 $ 212
====== ======
During 1999, the Company earned 21.7% of revenues from a single
customer.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. Management Fees:
The Company manages certain coal mines for Level 3. Fees for
these services were $33 million in 1999, $34 million in 1998 and
$32 million in 1997. The Company's fee is a percentage of
adjusted operating earnings of the coal mines, as defined. The
mines managed by the Company for Level 3 earn the majority of
their revenues under long-term contracts. The remainder of the
mines' sales are made on the spot market where prices are
substantially lower than those of the long-term contracts. After
a significant long-term contract expires next year, adjusted
operating earnings at the mines will decrease substantially,
thereby similarly decreasing the management fee earned by the
Company.
Additionally, the Minerals Management Service and Montana
Department of Revenue have issued assessments to the Level 3
mines for the underpayment of royalties and production taxes.
Level 3 is vigorously contesting the assessments. If Level 3
pays these assessments, the payments could materially decrease
future mine management fees, but will not affect fees previously
received.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. Other Comprehensive Income:
Other comprehensive income consisted of the following (dollars in
millions):
Tax
(Expense)
Before Tax of Benefit After Tax
For the year ended December 27, 1997
Foreign currency translation adjustments $ (3) $ 1 $ (2)
----- ----- -----
Unrealized holding loss:
Unrealized holding losses arising during
the period (14) 5 (9)
Plus reclassification adjustment for gains
realized in net earnings (1) - (1)
----- ----- -----
(15) 5 (10)
----- ----- -----
Other comprehensive income
December 27, 1997 $ (18) $ 6 $ (12)
===== ===== =====
For the year ended December 26, 1998
Foreign currency translation adjustments $ (2) $ 1 $ (1)
----- ----- -----
Unrealized holding loss:
Unrealized holding losses arising during
the period (4) 1 (3)
Plus reclassification adjustment for gains
realized in net earnings - - -
----- ----- -----
(4) 1 (3)
----- ----- -----
Other comprehensive income
December 26, 1998 $ (6) $ 2 $ (4)
===== ===== =====
For the year ended December 25, 1999
Foreign currency translation adjustments $ 1 $ - $ 1
----- ----- -----
Unrealized holding loss:
Unrealized holding losses arising
during period (1) - (1)
Less reclassification adjustment for losses
realized in net earnings 18 (6) 12
----- ----- -----
17 (6) 11
----- ----- -----
Other comprehensive income
December 25, 1999 $ 18 $ (6) $ 12
===== ===== =====
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. Other Comprehensive Income, Continued:
Accumulated other comprehensive income consisted of the following
(dollars in millions):
Foreign Unrealized Accumulated
Currency Holding Other
Translation Gain/(Loss) Comprehensive
Adjustments on Securities Income
Balance at December 28, 1996 $ (5) $ (1) $ (6)
Change during the year (2) (10) (12)
----- ----- -----
Balance at December 27, 1997 (7) (11) (18)
Change during the year (1) (3) (4)
----- ----- -----
Balance at December 26, 1998 (8) (14) (22)
Change during the year 1 11 12
----- ----- -----
Balance at December 25, 1999 $ (7) $ (3) $ (10)
===== ===== =====
13. Other Matters:
In connection with the Transaction, the Company and Level 3
entered into various agreements including a Separation Agreement,
a Tax-Sharing Agreement and an amended Mine Management Agreement.
The Separation Agreement provides for the allocation of certain
risks and responsibilities between Level 3 and the Company and
for cross-indemnifications that are intended to allocate
financial responsibility to the Company for liabilities arising
out of the construction business and to allocate to Level 3
financial responsibility for liabilities arising out of the non-
construction businesses. The Separation Agreement also provides
for the payment, by the Company, of a majority of the third party
costs and expenses associated with the Transaction.
Under the Tax Sharing Agreement, with respect to periods, or
portions thereof, ending on or before the closing date of the
Transaction, Level 3 and the Company generally will be
responsible for paying the taxes relating to such periods,
including any subsequent adjustments resulting from the
redetermination of such tax liabilities by the applicable taxing
authorities, that are allocable to the non-construction
businesses and construction businesses, respectively. The Tax
Sharing Agreement also provides that Level 3 and the Company will
indemnify the other from certain taxes and expenses that would be
assessed if the Transaction was determined to be taxable, but
solely to the extent that such determination arose out of the
breach by Level 3 or the Company, respectively, of certain
representations made to the Internal Revenue Service in
connection with the ruling issued with respect to the Transaction
or made in the Tax-Sharing Agreement. If the Transaction were
determined to be taxable for any other reason, those taxes
("Transaction Taxes") would be allocated 50% to Level 3 and 50%
to the Company. Finally, under certain circumstances, Level 3
would make certain liquidated damage payments to the Company if
the Transaction was determined to be taxable in order to take
into account the fact that the Transaction is taxable to the
holders of Common Stock.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. Other Matters, Continued:
Additionally, the Mine Management Agreement, pursuant to which
the Company provides mine management and related services to
Level 3's coal mining operations, was amended to provide the
Company with a right of offer in the event that Level 3 would
determine to sell any or all of its coal mining properties.
Under the right of offer, Level 3 would be required to offer to
sell those properties to the Company at the price that Level 3
would seek to sell the properties to a third party. If the
Company declined to purchase the properties at that price, Level
3 would be free to sell them to a third party for an amount
greater than or equal to that price. If Level 3 sold the
properties to a third party, thus terminating the Mine Management
Agreement, it would be required to pay the Company an amount
equal to the discounted present value of the Mine Management
Agreement, determined, if necessary, by an appraisal process.
In 1997, the Company and a partner each invested $15 million to
acquire a 96% interest in Oak Mountain Energy LLC, ("Oak
Mountain"). Oak Mountain then acquired the existing assets of
an underground coal mine located in Alabama for approximately $18
million and assumed approximately $14 million of related
liabilities. Oak Mountain used cash and $18 million of
nonrecourse bank borrowings to retire the existing debt and
develop and modernize the mine.
Oak Mountain's results are consolidated with those of the Company
on a pro-rata basis since the date of acquisition. Due to higher
than anticipated costs in modernizing and operating the mine, Oak
Mountain incurred operating losses since acquisition. Production
at the mine was significantly below anticipated levels, and as a
result of this and other factors, Oak Mountain fell out of
compliance with certain covenants of the bank borrowings. Those
events caused the Company to assess whether its investment was
impaired. In 1997, the Company determined its investment in Oak
Mountain was impaired and reduced the Company's investment to
zero. In June 1998, the Company disposed of its investment in
Oak Mountain. In 1998, the Company realized operating losses of
$3 million.
On February 28, 1999, the Company purchased the remaining 60% of
a materials operation in the Portland, Oregon/Vancouver,
Washington area. Goodwill recognized on the purchase is being
amortized over 20 years. Had the results of operations of this
acquisition been consolidated for the periods prior to
acquisition, there would have been no material impact to the
Company's results.
The Company and certain other defendants are party to certain
litigation involving repairs to runways at Denver International
Airport. In December 1998, a jury determined that the defendants
were liable for compensatory and punitive damages. The Company
intends to appeal the verdict. 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.
The Company is involved in various other lawsuits and claims
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.
The Company leases various buildings and equipment under both
operating and capital leases. Minimum rental payments on
buildings and equipment subject to noncancellable operating
leases during the next 20 years aggregate $32 million.
It is customary in the Company's industry to use various
financial instruments in the normal course of business. These
instruments include items such as letters of credit. Letters of
credit are conditional commitments issued on behalf of the
Company in accordance with specified terms and conditions. The
Company has informal arrangements with a number of banks to
provide such commitments. As of December 25, 1999, the Company
had outstanding letters of credit of approximately $201 million.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. Subsequent Events:
The Company has filed various documents with the Securities and
Exchange Commission pursuant to which the Company is proposing to
spin-off the Materials Business to its shareholders in a
transaction that is intended to be tax-free for U.S. Federal
income tax purposes.
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosures.
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
to the Company's definitive proxy statement for the 2000 Annual
Meeting of Stockholders to be filed with the Securities and
Exchange Commission. However, certain information is set forth in
Item 4A "Executive Officers of the Registrant" above.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements as of December 25, 1999 and
December 26, 1998 and for the three years ended December 25,
1999:
Report of Independent Accountants dated March 17, 2000 of
PricewaterhouseCoopers LLP
Consolidated Statements of Earnings
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Redeemable Common Stock and
Comprehensive Income
Notes to Consolidated Financial Statements
2. Financial Statement Schedules for the three years ended
December 25, 1999:
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 the notes thereto.
3. Exhibits required by Item 601 of Regulation S-K. Exhibits
incorporated by reference are indicated in parentheses:
Exhibit
Number Description
3.1 Restated Certificate of Incorporation, effective June
19, 1999 (Exhibit 3.1 to the Company's Quarterly Report
on Form 10Q for the quarter ended June 30, 1999).
3.2 Amended and Restated By-laws, effective June 19, 1999
(Exhibit 3.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999).
4.1 Form of Stock Repurchase Agreement for Employee
Stockholders (Exhibit 1 to the Company's Registration
Statement on Form 8-A filed March 24, 1998).
4.2 Indenture dated as of July 1, 1986, as amended pursuant
to a First Supplemental Indenture dated as of March 31,
1998 (Exhibit 4.3 to the Company's Registration
Statement on Form S-8 filed October 5, 1998).
4.3 Form of Debenture (Exhibit 4.4 to the Company's
Registration Statement on Form S-8 filed October 5,
1998).
4.4 Form of Repurchase Agreement for Convertible Debentures
(Exhibit 4.5 to the Company's Registration Statement on
Form S-8 filed October 5, 1998).
21 List of Subsidiaries of the Company.
27 Financial Data Schedule.
(b) No reports on Form 8-K have been filed during the last
quarter of 1999.
Report of Independent Accountants
The Board of Directors and Stockholders
Peter Kiewit Sons', Inc.
Our audits of the consolidated financial statements referred to
in our report dated March 17, 2000 appearing on page 12 of this
Form 10-K also included an audit of the financial statement
schedule listed in Item 14(a)(2) of this Form 10-K. In our
opinion, this financial statement schedule presents fairly, in
all material respects, the information set forth therein when
read in conjunction with the related consolidated financial
statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Omaha, Nebraska
March 17, 2000
Schedule II
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 25, 1999
Allowance for doubtful
trade accounts $ 5 $ 3 $ (1) $ - $ 7
Reserves:
Insurance claims 81 23 (20) - 84
Year ended December 26, 1998
Allowance for doubtful
trade accounts $ 9 $ - $ (4) $ - $ 5
Reserves:
Insurance claims 76 15 (10) - 81
Year ended December 27, 1997
Allowance for doubtful
trade accounts $ 17 $ 3 $ (11) $ - $ 9
Reserves:
Insurance claims 81 7 (12) - 76
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.
PETER KIEWIT SONS', INC.
By: /s/ Tobin A. Schropp
Date: March 17, 2000 Tobin A. Schropp, Vice President
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 and on the
dates indicated.
Name Title Date
/s/ Kenneth E. Stinson Chairman of the Board and President
(Principal Executive Officer) March 17, 2000
Kenneth E. Stinson
/s/ Kenneth M. Jantz Vice President
(Principal Financial Officer) March 17, 2000
Kenneth M. Jantz
/s/ Rodney K. Rosenthal Controller
(Principal Accounting Officer) March 17, 2000
Rodney K. Rosenthal
/s/ Mogens C. Bay Director March 17, 2000
Mogens C. Bay
/s/ Roy L. Cline Director March 17, 2000
Roy L. Cline
/s/ Richard W. Colf Director March 17, 2000
Richard W. Colf
/s/ James Q. Crowe Director March 17, 2000
James Q. Crowe
/s/ Richard Geary Director March 17, 2000
Richard Geary
/s/ Bruce E. Grewcock Director March 17, 2000
Bruce E. Grewcock
/s/ William L. Grewcock Director March 17, 2000
William L. Grewcock
/s/ Peter Kiewit, Jr. Director March 17, 2000
Peter Kiewit, Jr.
/s/ Allan K. Kirkwood Director March 17, 2000
Allan K. Kirkwood
/s/ Walter Scott, Jr. Director March 17, 2000
Walter Scott, Jr.
/s/ George B. Toll, Jr. Director March 17, 2000
George B. Toll, Jr.