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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 30, 2000 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. [X]
The registrant's stock is not publicly traded, and therefore, there is
no ascertainable market value of voting stock held by non-affiliates.
29,729,414 shares of the registrant's $0.01 par value Common Stock were
issued and outstanding on March 16, 2001.
Portions of the registrant's definitive proxy statement for its 2001
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 3
Item 3. Legal Proceedings 3
Item 4. Submissions of Matters to a Vote of Security Holders 3
Item 4A. Executive Officers of the Registrant 4
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 5
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
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 40
Part III
Item 10. Directors and Executive Officers of the Registrant 40
Item 11. Executive Compensation 40
Item 12. Security Ownership of Certain Beneficial Owners and Management 40
Item 13. Certain Relationships and Related Transactions 40
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 40
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 Peter Kiewit Sons', Inc., together with
its subsidiaries ("PKS" or 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.
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.
As described in Note 2 of the "Notes to the Consolidated Financial
Statements", the Company spun-off its materials operations on September 30,
2000.
Business.
The Company conducts its business through various operating
subsidiaries. The Company and 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 2000
were distributed among the following construction markets (approximately, by
number): power, heat, cooling -- 18.7%; transportation (including highways,
bridges, airports, railroads, and mass transit) -- 47.8%; commercial
buildings -- 14.8%; water supply/dams -- 10.2%; mining -- 3.0%; and other
markets -- 5.5%.
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, ranging from 0% to 10%, to be paid when performance is
substantially complete. In some instances, the Company is able to
substitute bank letters of credit or escrowed securities in lieu of
retainage. 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 78% of the combined prices
of contracts awarded to the Company during 2000. 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,
however, 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 2000, Engineering
News Record, a construction trade publication, ranked the Company as the
seventh largest United States contractor in terms of 1999 revenue. It ranked
the Company first in the transportation market in terms of 1999 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 2000, the Company had backlog (anticipated revenue from
uncompleted contracts) of approximately $3.3 billion, a decrease from
approximately $4.0 billion at the end of 1999. Of current backlog,
approximately $1 billion is not expected to be completed during 2001. In
2000, the Company was low bidder on 195 jobs with total contract prices of
approximately $2.6 billion, an average price of approximately $13.3 million
per job. There were 26 new projects with contract prices over $20 million,
accounting for approximately 78% 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 2000,
the Company derived approximately 77% of its joint venture revenue from
sponsored joint ventures and approximately 23% from non-sponsored joint
ventures. The Company's share of joint venture revenue accounted for
approximately 14% of its 2000 total revenue.
Significant Customer.
During 2000, revenue recognized from contracts with Level 3
Communications, Inc. ("Level 3") represented 39.8% of the Company's total
revenue.
Locations.
The Company has 22 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 2000, the Company had
current projects in 43 states, Puerto Rico, Washington, D.C. and 7 Canadian
provinces.
Financial information about geographic areas for the fiscal years ended
December 30, 2000, December 25, 1999 and December 26, 1998 is included in
Note 12 of the "Notes to the Consolidated Financial Statements".
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.
Employees.
At the end of 2000, the Company employed approximately 11,146 people.
The Company considers relations with its employees to be good.
Item 2. Properties.
The Company's headquarters facilities are located in Omaha, Nebraska and
are owned by the Company. The Company also has 21 principal district offices
located in Arizona, California, Colorado, Georgia, Kansas, Massachusetts,
Nebraska, New Jersey, Texas, Washington, Alberta and Quebec, 14 of which are
located in owned facilities and 7 of which operate from leased facilities.
The Company also has 22 area offices located in Alaska, California,
Colorado, Florida, Hawaii, Illinois, Maryland, Nebraska, Nevada, New Mexico,
New York, Pennsylvania, Rhode Island, Utah, British Columbia and Ontario, 2
of which are owned facilities and 20 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 700 portable offices, shops and transport trailers. The
Company has a large equipment fleet, including approximately 3,300 trucks,
pickups and automobiles and 1,800 heavy construction vehicles, such as
graders, scrapers, backhoes and cranes. Joint ventures in which the Company
is a participant also own approximately an additional 200 portable offices,
shops and transport trailers, 400 trucks, pickups and automobiles and 500
heavy construction vehicles.
Item 3. Legal Proceedings.
The Company is party 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 30, 2000.
Item 4A. Executive Officers of the Registrant.
The table below shows information as of March 16, 2001, 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
- ---- ------------------- ---
Gregory D. Brokke Mr. Brokke has been the Controller of the 38
Company since June 2000. Mr. Brokke was Assistant
Treasurer of the Company from August 1997 to June
2000. Mr. Brokke was Audit Supervisor of Kiewit
Construction Group Inc., a subsidiary of the
Company, from December 1994 to June 1997.
John B. Chapman Mr. Chapman has been Vice President of Human 55
Resources and Administration of the Company since
August 1997. Mr. Chapman was Vice President of
Human Resources for Kiewit Construction Group Inc.
for more than five years prior to August 1997.
Roy L. Cline Mr. Cline has been a director and an Executive 63
Vice President of the Company since June 1999. Mr.
Cline was the President of Kiewit Industrial Co., a
subsidiary of the Company, from March 1992 until
June 1999. Mr. Cline is also a member of the
Executive Committee of the Company.
Richard W. Colf Mr. Colf has been a director and an Executive 57
Vice President of the Company since July 1998. Mr.
Colf has been an Executive Vice President of Kiewit
Pacific Co., a subsidiary of the Company, since
September 1998 and was a Senior Vice President of
Kiewit Pacific Co. from October 1995 to September
1998. Mr. Colf is currently also a director of
Kiewit Materials Company. Mr. Colf is also a member
of the Executive Committee of the Company.
Bruce E. Grewcock Mr. Grewcock has been President of the Company 47
since December 2000. Mr. Grewcock has been a
director of the Company since July 1998 and was
an Executive Vice President of the Company from
August 1997 until December 2000. 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 Kiewit Construction Group
Inc. from July 1996 to June 1998, and President of
Kiewit Mining Group Inc. from January 1992 to July
1996. Mr. Grewcock is currently also a director of
Kinross Gold Corporation and Kiewit Materials Company.
Mr. Grewcock is also a member of the Executive
Committee of the Company.
Allan K. Kirkwood Mr. Kirkwood has been a director and an Executive 57
Vice President of the Company since July 1998.
Mr. Kirkwood has been an Executive Vice President
of Kiewit Pacific Co. since September 1998 and was
a Senior Vice President of Kiewit Pacific Co. from
October 1995 to September 1998. Mr. Kirkwood is also
a member of the Executive Committee and is the
Chairman of the Audit Committee of the Company.
Ben E. Muraskin Mr. Muraskin has been a Vice President of the 37
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 of the 55
Company since April 1998. Mr. Pfeffer was a Vice
President of Kiewit Construction Group Inc. from
December 1997 to June 1998. Mr. Pfeffer was Vice
President of Kiewit SR91 Corp. from January 1993 to
December 1997.
Michael J. Piechoski Mr. Piechoski has been a Vice President and the 47
Treasurer of the Company since June 2000. Mr.
Piechoski was Director of Audit of the Company from
April 1999 to June 2000. Mr. Piechoski was Chief
Accounting Officer of United Metro Materials Inc.,
a former subsidiary of the Company, from December
1983 to March 1999.
Jerry C. Porter Mr. Porter has been a Vice President of the 57
Company since May 2000. Mr. Porter has been the
design/build manager for the Company since September
1999. Mr. Porter was a construction design manager
for Kiewit Pacific Co. from September 1996 until
September 1999. Mr. Porter was an engineering
manager and a construction manager for Kiewit SR91
Corp. from October 1993 until September 1996.
Tobin A. Schropp Mr. Schropp has been a Vice President, General 38
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
Communications, Inc. from August 1996 to March
1998, and Director of Research, Planning and Audit
of Level 3 Communications, Inc. from September 1993
to August 1996.
Stephen A. Sharpe Mr. Sharpe has been a Vice President of the 49
Company since August 1997. Mr. Sharpe was a Vice
President of Kiewit Construction Group Inc. 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 Chairman and Chief 58
Executive Officer of the Company since March 1998.
Mr. Stinson was President of the Company from
August 1997 until December 2000. Mr. Stinson has
been the Chairman and Chief Executive Officer of
Kiewit Construction Group Inc. for more than the
last five years. Mr. Stinson was Executive Vice
President of Level 3 Communications, Inc. from
June 1991 to August 1997. Mr. Stinson is also
currently a director of ConAgra, Inc., Valmont
Industries, Inc., Kiewit Materials Company and
Level 3 Communications, Inc. Mr. Stinson is also
the Chairman of the Executive Committee of the
Company.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
Market Information.
As of December 30, 2000, the Company's $0.01 par value common stock
("Common Stock") was 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 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 $111 million at December
30, 2000).
Restrictions.
Ownership of Common Stock is generally restricted to active Company
employees and conditioned upon the execution of repurchase agreements which
restrict employees from transferring the Common Stock. Upon retirement,
termination of employment, or death, Common Stock must be resold to the
Company at the applicable formula price.
Stockholders.
On March 16, 2001, the Company had the following numbers of stockholders
and outstanding shares:
Class of Stock Stockholders Outstanding Shares
-------------- ------------- ------------------
Common Stock 1,377 29,729,414
Dividends and Prices.
The chart below sets forth the cash dividends declared or paid on the
Common Stock during 1999 and 2000, and the formula 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 Formula Price
- ----------------- ------------- --------- -------------- -------------
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
April 28, 2000 May 1, 2000 $0.28 May 1, 2000 $20.35
October 27, 2000 January 5, 2001 $0.30 December 30, 2000 $17.70 1
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.
- ------------------------
1 On September 30, 2000, the Company distributed the shares of common stock
of its subsidiary, Kiewit Materials Company, to holders of Common Stock in a
distribution intended to be tax-free for U.S. Federal income tax purposes
(see Note 16 of the "Notes to Consolidated financial Statements").
Item 6. Selected Financial Data.
The following table presents selected historical financial data of the
Company as of and for the fiscal years ended 1996 through 2000, and is
derived from the Company's historical consolidated financial statements and
the notes to those financial statements.
Fiscal Year Ended
2000 1999 1998 1997 1996
(dollars in millions, except per share amounts)
Results of Operations:
Revenue $4,463 $3,586 $3,053 $2,474 $2,066
====== ====== ====== ====== ======
Income from continuing operations $ 161 $ 137 $ 118 $ 136 $ 92
Income from discontinued operations 18 28 18 19 16
------ ------ ------ ------ ------
Net earnings $ 179 $ 165 $ 136 $ 155 $ 108
====== ====== ====== ====== ======
Per Common Share:
Basic:
Income from continuing operations$ 4.97 $ 4.00 $ 3.53 $ 3.52 $ 2.15
Income from discontinued operations .57 .81 .54 .48 .38
------ ------ ------ ------ ------
Net earnings $ 5.54 $ 4.81 $ 4.07 $ 4.00 $ 2.53
====== ====== ====== ====== ======
Diluted:
Income from continuing operations $ 4.83 $ 3.91 $ 3.48 $ 3.38 $ 2.07
Income from discontinued operations .55 .80 .54 .46 .37
------ ------ ------ ------ ------
Net earnings $ 5.38 $ 4.71 $ 4.02 $ 3.84 $ 2.44
====== ====== ====== ====== ======
Dividends (1) $ .58 $ .52 $ .43 $ .38 $ .33
Formula price (2) $17.70 $20.63 $15.90 $12.80 $10.18
Book value $21.56 $24.01 $19.35 $16.10 $12.76
Financial Position:
Total assets $1,426 $1,599 $1,379 $1,342 $1,039
Current portion of
long-term debt $ 1 $ 4 $ 8 $ 5 $ -
Long-term debt, net of
current portion $ 12 $ 18 $ 13 $ 22 $ 12
Redeemable Common Stock (3) $ 696 $ 837 $ 691 $ 652 $ 562
- -----------------------------------------------------------------------------
(1) The 2000, 1999, 1998, 1997 and 1996 dividends include $.30, $.27,
$.225, $.20 and $.175 for dividends declared in 2000, 1999, 1998, 1997 and
1996 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 30, 2000 was $571 million.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
On September 30, 2000, the Company effected a spin-off of its materials
business ("Materials Business") to its stockholders. As described in Note 2
of the Consolidated Financial Statements, the Company has reclassified the
results of operations of its Materials Business as discontinued operations.
The following discussion is on a continuing operations basis.
Results of Operations 2000 vs. 1999
Revenue. Revenue for the twelve months ended December 30, 2000 increased
$877 million or 24% from the same time period in 1999. The most significant
factor contributing to this increase was a large fiber optic project where
installation was being performed only in selected locations during 1999 as
compared to nationwide installation being performed during the same period
in 2000.
Contract backlog at December 30, 2000 was nearly $3.3 billion, of which
8.3% is attributable to foreign operations located primarily in Canada.
Domestic projects are spread geographically throughout the U.S.
Margin. Margins, as a percentage of revenue, for the twelve months
ended December 30, 2000, decreased to 7.3% compared to 8.8% for the same
period in 1999. Cost overruns on certain significant projects contributed
to the decrease. Margins may vary between periods due to the inherent
uncertainties associated with fixed price contracts, as well as seasonality
and the stage of completion of individual projects.
Gain on Sale of Operating Assets. Net gains on the disposition of
property, plant and equipment and other assets decreased to $17 million in
the twelve months ended December 30, 2000, from $20 million in the same
period in 1999. The decrease is due to fewer sales of excess construction
equipment.
General and Administrative Expenses. General and administrative
expenses for the twelve months ended December 30, 2000, increased $29
million to $170 million when compared to the same period in 1999. The
increase was attributed primarily to increased compensation of $18 million
and increased travel costs of $6 million. As a percentage of revenue,
general and administrative expenses decreased from 3.9% in the twelve months
ended 1999 to 3.8% in the same period in 2000 as a proportionate increase in
administrative costs was not necessary to support the Company's revenue
growth.
Investment Income and Equity Earnings. During the third quarter 2000
and 1999, the Company determined that the decline in market value of an
investment security was other-than-temporary. This investment was written
down to the current market value and losses of $9 million and $18 million,
respectively, were recognized in the Statement of Earnings. Prior to each
write-down, this investment had been carried at market value and the write-
down had been recorded as an unrealized loss as a separate component of other
comprehensive income. Subsequent changes in the market value of the
security will be included as a separate component of comprehensive income.
Gain on Sale of Partnership. On September 27, 2000, the Company sold
its interest in the Aker Gulf Marine partnership for $86 million. A gain of
$45 million was recognized in the Consolidated Statement of Earnings.
Other, Net. Other income is primarily comprised of mine management fee
income from Level 3.
During the first nine months ended September 26, 2000 and for the twelve
months ended December 25, 1999, the Company managed three active coal mines
for Level 3. On September 26, 2000, the Company acquired Walnut Creek
Mining Company, a mine previously managed for Level 3. Primarily, as a
result of this acquisition, fees for these services decreased to $29 million
for the twelve months ended December 30, 2000 as compared to $33 million for
the same period in 1999. The Company's fee is a percentage of adjusted
operating earnings of the coal mines, as defined in the mine management
agreement with Level 3. 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. A significant long-term
contract expired in 2000; consequently, adjusted operating earnings at the
mines will decrease substantially, thereby decreasing the annual management
fee earned by the Company to approximately $6 million in 2001.
The U.S. Minerals Management Service has issued an assessment to the
Level 3 mines for the underpayment of royalties. Level 3 is vigorously
contesting the U.S. Minerals Management Service assessment. If Level 3 is
ultimately required to pay the U.S. Minerals Management Service assessment
of approximately $20.2 million ($13.0 million of which is principal and $7.2
million of which is interest) the payment would decrease future mine
management fees in total by as much as $3.9 million, but will not affect
fees previously received.
Provision for Income Taxes. The effective income tax rates for the
twelve months ended December 30, 2000 and December 25, 1999 were 37.5% and
37.6%, respectively. These rates differ from the federal statutory rate of
35% due primarily to state income taxes.
Results of Operations 1999 vs. 1998
Revenue. Revenue for the twelve months ended December 25, 1999
increased $533 million or 17% 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 $4.0 billion of which
5.5% is attributable to foreign operations located primarily in Canada.
Domestic projects are spread geographically throughout the U.S.
Margin. Margins, 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 8.8%.
General and Administrative Expenses. General and administrative
expenses for the twelve months ended December 25, 1999 were the same as
1998, at $141 million.
Gain on sale of Operating Assets. Net gains on the disposition of
property, plant and equipment and other assets increased to $20 million in
the twelve months ended December 25, 1999, from $18 million in the same
period in 1998. The increase is due to additional sales of excess
construction equipment.
Investment Income and Equity Earnings. During the third quarter 1999,
the Company determined that the decline in market value of an investment
security was other-than-temporary. This investment was written down to the
current market value and a loss of $18 million was recognized in the
Statement of Earnings. Prior to the writedown, this investment had 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.
During the twelve months ended December 25, 1999 and December 26, 1998,
the Company managed three active coal mines for Level 3. Fees for these
services for December 26, 1999 were $33 million as compared to $34 million
for the same period in 1998. The Company's fee is a percentage of adjusted
operating earnings of the coal mines, as defined in the mine management
agreement with Level 3. 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 in 2000, adjusted operating earnings at the mines will
decrease substantially, thereby decreasing the annual management fee earned
by the Company to approximately $6 million in 2001.
The U.S. Minerals Management Service has issued an assessment to the
Level 3 mines for the underpayment of royalties. Level 3 is vigorously
contesting the U.S. Minerals Management Service assessment. If Level 3 is
ultimately required to pay the U.S. Minerals Management Service assessment
of approximately $20.2 million ($13.0 million of which is principal and $7.2
million of which is interest) the payment would decrease future mine
management fees in total by as much as $3.9 million, but will not affect
fees previously received.
Provision for Income Taxes. The effective income tax rates in 1999 and
1998 were 37.6% and 35.7%, respectively. These rates differ from the
federal statutory rate of 35% due primarily to state income taxes.
Financial Condition - December 30, 2000 vs. December 25, 1999
Cash and cash equivalents decreased $36 million to $302 million at
December 30, 2000 from $338 million at December 25, 1999. The decrease
reflects net cash provided by operations of $208 million offset by net cash
used in investing activities of $148 million and $96 million used in
financing activities.
Net cash provided by operating activities for the twelve months ended
December 30, 2000 decreased by $27 million to $208 million as compared to
the same period in 1999. Increased working capital requirements for
construction contracts were partially offset by a net earnings increase of
$14 million for the twelve months ended December 30, 2000 compared to the
same period in 1999. Cash provided or used by operating activities is
affected to a large degree by the mix, timing, stage of completion and terms
of individual contracts which are reflected in changes through current
assets and liabilities.
Net cash used in investing activities for the twelve months ended
December 30, 2000 increased by $68 million to $148 million as compared to
the same period in 1999. This increase was due to an increase in
acquisitions of $136 million, additional capital expenditures of $15
million, a decrease in proceeds from the sale of property, plant and
equipment in the ordinary course of business of $8 million, an increase in
additions to notes receivable of $2 million and a decrease in payments
received on notes receivable of $1 million. These changes were partially
offset by a decrease in purchases of marketable securities of $2 million,
proceeds from sale of partnership of $86 million and a $6 million increase
in proceeds from the sale of marketable securities.
Net cash used in financing activities for the twelve months ended
December 30, 2000 increased by $49 million to $96 million as compared to the
same time period in 1999. This increase was due to an increase in
repurchases of common stock of $25 million, an increase in dividends paid of
$2 million over 1999 amounts and cash distributed in connection with the
Materials Spin-off of $47 million. These changes were partially offset by a
decrease in payments on long-term debt of $18 million and an increase in
issuance of common stock of $7 million.
The Company continues to explore opportunities to acquire additional
businesses and anticipates investing between $50 and $100 million annually
to expand its operations. Other long-term liquidity uses include the
payment of income taxes and the payment of dividends. As of December 30,
2000, the Company had no material firm binding purchase commitments related
to its investments other than meeting the normal course of business needs of
its construction joint ventures. The current portion of long-term debt is
$1 million. The Company paid dividends during the twelve months ended
December 30, 2000 and December 25, 1999 of $18 million and $16 million,
respectively. These amounts were determined by the Board of Directors and
were paid in January and May of each such year. The Company also has the
commitment to repurchase Common Stock at any time during the year from
shareholders.
The Company does not believe that the spin-off of its Materials Business
will have an adverse impact on its liquidity or material commitments, since
earnings generated from the Materials Business have historically been
reinvested in the Materials Business. The Company's current financial
condition, together with anticipated cash flows from operations, should be
sufficient for immediate cash requirements and future investing activities.
The Company does not presently have any committed bank credit facilities.
In the past, the Company has been able to borrow on satisfactory terms.
The Company believes that, to the extent necessary, it will likewise be
able to borrow funds on acceptable terms for the foreseeable future.
New Accounting Pronouncement. In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("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. Adoption of
this statement will not materially affect the Company's financial statements
as the Company has no significant derivative instruments or hedging
activities.
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 financial position of Peter Kiewit Sons', Inc. and its
subsidiaries at December 30, 2000, and December 25, 1999 and the results of
their operations and their cash flows for each of the three fiscal years in
the period ended December 30, 2000 in conformity with accounting principles
generally accepted in the United States of America. 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 statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform an 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 our opinion.
PricewaterhouseCoopers LLP
Omaha, Nebraska
March 5, 2001
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
For the three fiscal years ended December 30, 2000
(dollars in millions,
except per share data) 2000 1999 1998
- ------------------------------------------------------------------------
Revenue $ 4,463 $ 3,586 $ 3,053
Cost of revenue (4,138) (3,272) (2,791)
------- ------- -------
325 314 262
General and administrative expenses (170) (141) (141)
Gain on sale of operating assets 17 20 18
------- ------- -------
Operating earnings 172 193 139
Other income (expense):
Investment income and equity earnings 13 - 12
Interest expense (4) (7) (8)
Gain on sale of partnership interest 45 - -
Other, net 33 35 42
------- ------- -------
87 28 46
------- ------- -------
Earnings before income taxes, minority interest
and discontinued operations 259 221 185
Minority interest in net earnings of
Subsidiaries (1) (1) (1)
Provision for income taxes (97) (83) (66)
------- ------- -------
Earnings from continuing operations 161 137 118
Discontinued operations:
Income from materials operations, net of income tax
expense of $12, $17 and $12 18 28 18
------- ------- -------
Net earnings $ 179 $ 165 $ 136
======= ======= =======
Earnings per share:
Continuing operations:
Basic $ 4.97 $ 4.00 $ 3.53
======= ======= =======
Diluted $ 4.83 $ 3.91 $ 3.48
======= ======= =======
Discontinued operations:
Basic $ .57 $ .81 $ .54
======= ======= =======
Diluted $ .55 $ .80 $ .54
======= ======= =======
Net earnings:
Basic $ 5.54 $ 4.81 $ 4.07
======= ======= =======
Diluted $ 5.38 $ 4.71 $ 4.02
======= ======= =======
- ------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 30, 2000 and December 25, 1999
(dollars in millions) 2000 1999
- -------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 302 $ 338
Marketable securities 5 12
Receivables, less allowance of $4 and $7 463 507
Unbilled contract revenue 97 73
Contract costs in excess of related revenue 58 31
Investment in construction joint ventures 138 197
Deferred income taxes 60 60
Other 10 21
------ ------
Total current assets 1,133 1,239
Property, plant and equipment, at cost:
Land 24 40
Buildings 60 51
Equipment 528 660
------ ------
612 751
Less accumulated depreciation and amortization(424) (508)
------ ------
Net property, plant and equipment 188 243
Other assets 96 117
Deferred income taxes 9 -
------ ------
$1,426 $1,599
====== ======
- -----------------------------------------------------------------
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 30, 2000 and December 25, 1999
(dollars in millions) 2000 1999
- -------------------------------------------------------------------------
Liabilities and Redeemable Common Stock
Current liabilities:
Accounts payable, including retainage of
$56 and $50 $ 223 $ 270
Current portion of long-term debt 1 4
Accrued costs on construction contracts 133 120
Billings in excess of related costs and
earnings 145 122
Accrued insurance costs 64 84
Accrued payroll 34 36
Other 22 26
------ ------
Total current liabilities 622 662
Long-term debt, less current portion 12 18
Deferred income taxes - 2
Other liabilities 82 67
Minority interest 14 13
Preferred stock, no par value, 250,000 shares authorized,
no shares outstanding - -
Redeemable common stock ($571 million aggregate redemption value):
Common stock, $.01 par value, 125 million shares authorized
32,259,640 and 34,876,718 outstanding - -
Additional paid-in capital 185 175
Accumulated other comprehensive loss (7) (10)
Retained earnings 518 672
------ ------
Total redeemable common stock 696 837
------ ------
$1,426 $1,599
====== ======
- ------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three fiscal years ended December 30, 2000
(dollars in millions) 2000 1999 1998
- -----------------------------------------------------------------------------
Cash flows from operations:
Net earnings $ 179 $ 165 $ 136
Adjustments to reconcile net earnings to
net cash provided by operations:
Depreciation and amortization 72 73 71
Gain on sale of property, plant and
equipment and other investments, net (8) (2) (20)
Gain on sale of partnership interest (45) - -
Equity earnings, net of distributions (7) (13) -
Change in other noncurrent liabilities 7 - (7)
Deferred income taxes (8) (2) 5
Change in working capital items:
Receivables (15) (41) (6)
Unbilled contract revenue and contract
costs in excess of related revenue (51) 10 5
Investment in construction joint ventures 63 (8) (13)
Other current assets (1) 10 1
Accounts payable 4 42 (6)
Accrued construction costs and billings in
excess of revenue on uncompleted contracts 36 (16) 28
Accrued payroll (2) - 3
Change in outstanding checks in excess of funds
on deposit (20) 43 (21)
Other liabilities (5) (8) 2
Other 9 (18) (3)
------ ------ ------
Net cash provided by operations 208 235 175
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 9 3 24
Purchases of marketable securities (5) (7) (7)
Proceeds from sale of property, plant
and equipment 24 32 25
Acquisitions, net of cash acquired (172) (36) (13)
Proceeds from sale of partnership interest 86 - -
Capital expenditures (90) (75) (87)
Additions to notes receivable (4) (2) (20)
Payments received on notes receivable 4 5 5
------ ------ ------
Net cash used in investing activities (148) (80) (73)
- -----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three fiscal years ended December 30, 2000
(dollars in millions) 2000 1999 1998
- -----------------------------------------------------------------------------
Cash flows from financing activities:
Long-term debt borrowings $ 5 $ 5 $ 4
Short-term debt borrowings, net - - (5)
Payments on long-term debt (4) (22) -
Issuances of common stock 32 25 67
Repurchases of common stock (64) (39) (35)
Dividends paid (18) (16) (13)
Exchange of Class C Stock for Level 3's
Class D Stock, net - - (122)
Cash distributed in connection with
Materials spin-off (47) - -
------ ------ ------
Net cash used in financing activities (96) (47) (104)
Effect of exchange rates on cash - 3 (3)
------ ------ ------
Net (decrease) increase in cash and
cash equivalents (36) 111 (5)
Cash and cash equivalents at beginning of year 338 227 232
------ ------ ------
Cash and cash equivalents at end of year $ 302 $ 338 $ 227
====== ====== ======
Supplemental disclosures of cash flow information:
Taxes paid $ 124 $ 95 $ 91
Interest paid $ 5 $ 4 $ 5
Non-cash financing activities:
Conversion of convertible debentures to
Common Stock $ - $ - $ (10)
Exchange of convertible debentures for materials
stock (Note 16) $ (7) $ - $ -
- --------------
- -----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Redeemable Common Stock and
Comprehensive Income (Loss)
For the three fiscal years ended December 30, 2000
Accumulated Total
Redeemable Additional Other Redeemable
Common Paid-in Comprehensive Retained Common
(dollars in millions) Stock Capital Income (Loss) Earnings Stock
- ------------------------------------------------------------------------------------------------
Balance at December 28, 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
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
- -----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Redeemable Common Stock and
Comprehensive Income (Loss)
For the three fiscal years ended December 30, 2000
Accumulated Total
Redeemable Additional Other Redeemable
Common Paid-in Comprehensive Retained Common
(dollars in millions) Stock Capital Income (Loss) Earnings Stock
- -------------------------------------------------------------------------------------------------
Dividends (a) - - - (18) (18)
Issuance of stock - 32 - - 32
Repurchase of stock - (16) - (48) (64)
Exchange of Common Stock
for Materials Stock - (6) - (16) (22)
Materials spin-off - - - (251) (251)
Comprehensive income:
Net earnings - - - 179 179
Other comprehensive income:
Foreign currency adjustment - - - - -
Change in unrealized holding
loss, net of tax - - 3 - 3
-----
Total other comprehensive
Income - - - - 3
-----
Total comprehensive income - - - - 182
----- ----- ----- ----- -----
Balance at December 30, 2000 $ - $ 185 $ (7) $ 518 $ 696
===== ===== ===== ===== =====
- -----------------------------------------------------------------------------
(a) Dividends per share include $.30, $.27 and $.225 for dividends
declared in 2000, 1999 and 1998 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, as
part of the Transaction, Level 3 transferred all of the common stock of
Kiewit Construction Group Inc., 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. 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. Discontinued Operations:
In accordance with Accounting Principles Board Opinion No. 30 "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" ("APB 30"), the consolidated statements of earnings of the
Company have been reclassified to reflect the spin-off of the Company's
materials business (the "Materials Business") that was effected on September
30, 2000 (Note 16). Accordingly, the revenues, costs and expenses of the
Materials Business have been segregated in the Consolidated Statements of
Earnings. The net operating results of the Materials Business have been
reported as "Discontinued Operations" in the accompanying consolidated
condensed financial statements.
Summarized financial information for the discontinued operations follows:
(dollars in millions) 2000 1999 1998
Revenues $ 360 $ 437 $ 333
====== ====== ======
Income from discontinued operations (after applicable
income taxes of $13, $17 and $12) $ 20 $ 28 $ 18
Loss on disposal of business* (after applicable income
tax benefit of $1) (2) - -
------ ------ ------
Income from discontinued operations $ 18 $ 28 $ 18
====== ====== ======
December 25, 1999
-----------------
Current assets $ 144
Total assets $ 277
Current liabilities $ 51
Total liabilities $ 67
Net assets of discontinued operations $ 210
In connection with the spin-off, the company distributed $352 million of
total assets, including $47 million of cash and total liabilities of $72
million.
*The loss on disposal of the Materials Business for the twelve months ended
December 30, 2000 reflects the costs directly associated with the
disposition.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. Dispositions and Acquisitions:
On January 3, 2000, the Company acquired 100% of the outstanding common stock
and related assets of Solano Concrete Co., Inc., a materials operation
operating in the Northern California area, for $31 million. On August 4,
2000, the company acquired substantially all of the assets of Fort Calhoun
Stone Company, a limestone quarry located in Washington County, Nebraska,
for $42 million. During the first nine months of 2000, the Company also
acquired the assets of various materials operations for $7 million. Notes
payable of $2 million were issued in connection with the purchases. These
operations were included with the spin-off of the Company's Materials
Business (Note 16).
On September 27, 2000, the Company sold its interest in the Aker Gulf Marine
partnership for $86 million. A gain of $45 million was recognized in the
Statement of Earnings.
On September 26, 2000, the Company acquired 100% of Walnut Creek Mining
Company, a lignite mining business located in Robertson County, Texas, for
$94 million. The fair value of the identifiable assets acquired and
liabilities assumed was $110 million and $16 million, respectively.
Identifiable intangibles assets related to this purchase will be amortized
over their useful life of 15 years. No goodwill related to this transaction
was recorded. The following unaudited, pro-forma financial information
assumes the acquisition occurred at the beginning of 1999. These results
have been prepared for comparative purposes only and do not purport to be
indicative of what would have occurred had the acquisition been made at the
beginning of 1999, or the results which may occur in the future.
(dollars in millions) 2000 1999
- -----------------------------------------------------------------------------
Revenue $4,489 $3,619
Net earnings $ 183 $ 171
Net earnings per share:
Basic $ 5.67 $ 5.00
Diluted $ 5.51 $ 4.89
4. Summary of Significant Accounting Policies:
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and subsidiaries in which it has or had control. 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.
Prior to their spin-off, investments in materials limited liability
companies in which the Company exercised significant influence over
operations and financial policies were accounted for by the equity method.
The Company accounted 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)
4. 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 period 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.
Coal Sales Contracts:
The Company recognizes coal sales revenue at the time the product is
delivered and all contractual obligations have been satisfied.
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.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Summary of Significant Accounting Policies, Continued:
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.
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 (loss).
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Summary of Significant Accounting Policies, Continued:
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.
2000 1999 1998
---- ---- ----
Earnings from continuing operations (in millions) $ 161 $ 137 $ 118
Earnings from discontinued operations 18 28 18
------ ------ ------
Net earnings available to common stockholders 179 165 136
Add: Interest expense, net of tax effect,
associated with convertible debentures * * *
------ ------ ------
Net earnings for diluted shares $ 179 $ 165 $ 136
====== ====== ======
Total number of weighted average shares
outstanding used to compute basic
earnings per share (in thousands) 32,284 34,299 33,396
Additional dilutive shares assuming
conversion of convertible debentures 1,041 753 432
------ ------ ------
Total number of shares used to compute
diluted earnings per share 33,325 35,052 33,828
====== ====== ======
Continuing operations:
Basic earnings per share $ 4.97 $ 4.00 $ 3.53
Diluted earnings per share $ 4.83 $ 3.91 $ 3.48
Discontinued operations:
Basic earnings per share $ .57 $ .81 $ .54
Diluted earnings per share $ .55 $ .80 $ .54
Net earnings:
Basic earnings per share $ 5.54 $ 4.81 $ 4.07
Diluted earnings per share $ 5.38 $ 4.71 $ 4.02
* Interest expense attributable to convertible debentures was less than
$.5 million.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Summary of Significant Accounting Policies, Continued:
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.
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, 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. Adoption of this statement will not 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. The year 2000 was a 53-week year and 1999 and 1998 were 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.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Disclosures about Fair Value of Financial Instruments:
The following methods and assumptions were used to determine classification
and fair values of financial instruments:
Cash and Cash Equivalents:
Cash equivalents generally consist of 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 $81
million and $100 million at December 30, 2000 and December 25, 1999 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 30, 2000 and December 25, 1999:
Unrealized Unrealized
Amortized Holding Holding Fair
(dollars in millions) Cost Gains Losses Value
- -----------------------------------------------------------------------------
2000
- ----
Marketable securities:
U.S. debt securities $ 5 $ - $ - $ 5
====== ====== ====== ======
Non-current investments:
Equity securities $ 2 $ - $ - $ 2
====== ====== ====== ======
1999
- ----
Marketable securities:
U.S. debt securities $ 12 $ - $ - $ 12
====== ====== ====== ======
Non-current investments:
Equity securities $ 12 $ - $ (4) $ 8
====== ====== ====== ======
- -----------------------------------------------------------------------------
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 fiscal 2000, 1999 and 1998.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Disclosures about Fair Value of Financial Instruments, Continued:
The contractual maturities of the debt securities are from one to five years.
During 2000 and 1999, the Company determined that the decline in market value
of an investment security was other-than-temporary. This investment was
written down to the current market value and losses of $9 million and $18
million, respectively, were recognized in the Statement of Earnings. Prior
to each write-down, this investment had been carried at market value and the
write-down had been recorded as an unrealized loss as a separate component
of accumulated 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 accumulated other comprehensive income (loss).
Retainage on Construction Contracts:
Receivables at December 30, 2000 and December 25, 1999 include approximately
$116 million and $90 million, respectively, 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 $29 million,
respectively, of securities which are being held by the owners of various
construction projects in lieu of retainage, which are not yet due. Also
included in accounts receivable are $10 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
(loss), 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)
6. Investment in Construction Joint Ventures and Partnership:
The Company has entered into a number of construction joint venture
arrangements. Under these arrangements, if one venturer is financially unable
to bear its share of the costs, the other venturers will be required to pay
those costs. On September 27, 2000, the Company sold its 49% interest in the
Aker Gulf Marine construction partnership. The partnership engaged in the
engineering, construction, fabrication and installation of steel and concrete
structures.
Summary joint venture and partnership financial information follows:
Financial Position (dollars in millions) 2000 1999
- -----------------------------------------------------------------------------
Total Joint Ventures and Partnership
Current assets $ 755 $ 866
Other assets (principally construction equipment) 101 105
------ ------
856 971
Current liabilities (619) (600)
------ ------
Net assets $ 237 $ 371
====== ======
Company's Share
Equity in net assets $ 133 $ 192
Receivable from joint ventures and partnership 5 52
------ ------
138 244
Less: Construction partnership (Note 7) - (47)
------ ------
Investment in construction joint ventures $ 138 $ 197
====== ======
Operations (dollars in millions) 2000 1999 1998
- -----------------------------------------------------------------------------
Total Joint Ventures and Partnership
Revenue $1,129 $1,841 $2,237
Costs 1,162 1,692 2,082
------ ------ ------
Operating income (loss) $ (33) $ 149 $ 155
====== ====== ======
Company's Share
Revenue $ 604 $ 908 $1,116
Costs 627 833 1,024
------ ------ ------
Operating income (loss) $ (23) $ 75 $ 92
====== ====== ======
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)
7. Other Assets:
Other assets consist of the following at December 30, 2000 and December 25,
1999:
(dollars in millions) 2000 1999
- ----------------------------------------------------------------------------
Marketable securities (Note 5) $ 2 $ 8
Equity method investment 6 5
Other investments at cost 3 -
Construction partnership (Note 6) - 47
Goodwill, net of accumulated amortization of $11 and $15 8 40
Other intangibles, net of accumulated amortization of $1 62 -
Land option - 2
Notes receivable 15 15
----- -----
$ 96 $ 117
===== =====
The marketable securities are an investment in a publicly traded company.
The notes receivable are primarily non-interest bearing employee notes.
The equity method investment is a 33% interest in a concrete products
business that is not publicly traded and does not have a readily determinable
market value.
Financial data relating to the equity method investment is summarized below:
(dollars in millions) 2000 1999 1998
- -----------------------------------------------------------------------------
Current assets $ 19 $ 11
Property, plant and equipment, net 7 6
Other noncurrent assets 1 -
----- -----
27 17
Current liabilities (11) (4)
----- -----
Net assets $ 16 $ 13
===== =====
Equity in net assets $ 6 $ 5
===== =====
Revenue $ 55 $ 37 $ 80
====== ====== ======
Gross margin $ 8 $ 7 $ 21
====== ====== ======
Net earnings $ 3 $ 3 $ 16
====== ====== ======
Equity in net earnings $ 1 $ 1 $ 6
====== ====== ======
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. Long-Term Debt:
At December 30, 2000 and December 25, 1999, long-term debt consisted of the
following:
(dollars in millions) 2000 1999
- -----------------------------------------------------------------------------
7.35% - 8.25% Convertible debentures, 2007-2009 $ 11 $ 14
Stockholder notes and other 2 8
----- -----
13 22
Less current portion 1 4
----- -----
$ 12 $ 18
===== =====
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 30, 2000, 1,366,869 shares of stock were reserved for future
conversions.
Scheduled maturities of long-term debt are as follows (in millions): 2001 -
$1; 2002 - $1; 2003 - $0; 2004 - $0, 2005 - $0 and 2006 and thereafter - $11.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. Income Taxes:
An analysis of the income tax (provision) benefit relating to earnings before
income taxes, minority interest and discontinued operations for the three
years ended December 30, 2000 follows:
(dollars in millions) 2000 1999 1998
- -----------------------------------------------------------------------------
Current:
U.S. federal $ (85) $ (72) $ (46)
Foreign (10) (4) (5)
State (10) (9) (10)
----- ----- -----
(105) (85) (61)
Deferred:
U.S. federal 4 6 (7)
Foreign 4 (2) 2
State - (2) -
----- ----- -----
8 2 (5)
----- ----- -----
$ (97) $ (83) $ (66)
===== ===== =====
The United States and foreign components of earnings, for tax reporting
purposes, before income taxes, minority interest and discontinued operations
follows:
(dollars in millions) 2000 1999 1998
- -----------------------------------------------------------------------------
United States $ 254 $ 222 $ 183
Foreign 5 (1) 2
----- ----- -----
$ 259 $ 221 $ 185
===== ===== =====
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
income taxes, minority interest and discontinued operations for the three
years ended December 30, 2000 follows:
(dollars in millions) 2000 1999 1998
- -----------------------------------------------------------------------------
Computed tax at statutory rate $ (91) $ (77) $ (65)
State income taxes (6) (7) (6)
Other - 1 5
----- ----- -----
$ (97) $ (83) $ (66)
===== ===== =====
Possible taxes, beyond those provided, on remittances of undistributed
earnings of foreign subsidiaries, are not expected to be significant.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. Income Taxes, Continued:
The components of the net deferred tax assets for the years ended December
30, 2000 and December 25, 1999 were as follows:
(dollars in millions) 2000 1999
- ----------------------------------------------------------------------------
Deferred tax assets:
Construction accounting $ 31 $ 26
Investments in construction joint ventures 30 24
Insurance claims 27 34
Other 7 11
----- -----
Total deferred tax assets 95 95
Deferred tax liabilities:
Asset bases/accumulated depreciation 6 15
Other 20 22
----- -----
Total deferred tax liabilities 26 37
----- -----
Net deferred tax assets $ 69 $ 58
===== =====
10. 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 19% of the employees of the Company are covered under the
Company's profit sharing plan. The expense related to the profit sharing
plan was $8 million in 2000, $4 million in 1999 and $3 million in 1998.
11. 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 fiscal years ended December 30, 2000,
were as follows:
Balance at December 28, 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
Shares issued in 2000 1,559,150
Shares repurchased in 2000 (4,176,228)
-----------
Balance at December 30, 2000 32,259,640
===========
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. Segment and Geographic Data:
The Company primarily operates in the construction industry and currently
has one reportable operating segment. The Company's other operations
consist of the coal mining operation acquired on September 26, 2000. 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,
telecommunication infrastructure, heating and cooling, and oil and gas. As
described in Note 2, the Company has reclassified the results of operations
of its Materials Business as discontinued operations. The Materials
Business was previously disclosed as a separate operating segment. The
following segment data have been restated to exclude amounts related to the
Materials Business.
Intersegment sales are recorded at cost. Operating earnings is comprised of
net sales less all identifiable operating expenses, allocated general and
administrative expenses, gain on sale of operating assets, depreciation and
amortization. Investment income, interest expense and income taxes have
been excluded from segment operations. The management fee earned by the
Company as described in Note 13 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 2000 1999* 1998*
----------------------------------------------------
(dollars in millions) Construction Other Construction Other Construction Other
- ---------------------------- ------------ ----- ------------ ----- ------------ -----
Revenue-external
customers $4,451 $ 12 $3,586 $ - $3,053 $ -
====== ==== ====== ==== ====== ====
Depreciation and
Amortization $ 53 $ 2 $ 54 $ - $ 63 $ -
====== ==== ====== ==== ====== ====
Operating earnings $ 174 $ (2) $ 193 $ - $ 139 $ -
====== ==== ====== ==== ====== ====
- -----------------------------------------------------------------------------
* As restated.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. Segment and Geographic Data (Continued):
Geographic Data (dollars in millions) 2000 1999 1998
- -----------------------------------------------------------------------------
Revenue, by location of services provided:
United States $4,269 $3,480 $2,956
Canada 194 87 77
Other - 19 20
------ ------ ------
$4,463 $3,586 $3,053
====== ====== ======
Long-lived assets:
United States $ 184 $ 239
Canada 4 4
------ ------
$ 188 $ 243
====== ======
During 2000 and 1999, revenue recognized from Level 3 represented 39.8% and
24.5%, respectively, of the Company's total revenue.
13. Management Fees:
During 2000, 1999 and 1998, the Company managed three active coal mines for
Level 3. Fees for these services were $29 million, $33 million and $34
million for 2000, 1999 and 1998, respectively. On September 26, 2000, the
Company acquired Walnut Creek Mining Company, a mine previously managed for
Level 3. The Company's fee is a percentage of adjusted operating earnings of
the coal mines, as defined in the mine management agreement with Level 3.
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. A significant long-term contract expired in 2000;
consequently, adjusted operating earnings at the mines will decrease
substantially, thereby decreasing the annual management fee earned by the
Company to approximately $6 million in 2001.
The U.S. Minerals Management Service has issued an assessment to the Level 3
mines for the underpayment of royalties. Level 3 is vigorously contesting
the U.S. Minerals Management Service assessment. If Level 3 is ultimately
required to pay the U.S. Minerals Management Service assessment of
approximately $20.2 million ($13.0 million of which is principal and $7.2
million of which is interest), the payment would decrease future mine
management fees in total by as much as $3.9 million, but will not affect fees
previously received.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. Other Comprehensive Income:
Other comprehensive income (loss) consisted of the following (dollars in
millions):
Tax
(Expense)
Before Tax of Benefit After Tax
---------- ---------- ---------
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)
------ ----- ------
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
====== ===== ======
For the year ended December 30, 2000
- ------------------------------------
Unrealized holding loss:
Unrealized holding losses arising
during the period $ (5) $ 2 $ (3)
Less reclassification adjustment for losses
realized in net earnings 9 (3) 6
------ ----- ------
Other comprehensive income December 30, 2000 $ 4 $ (1) $ 3
====== ===== ======
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. Other Comprehensive Income, Continued:
Accumulated other comprehensive income (loss) consisted of the following
(dollars in millions):
Foreign Unrealized Accumulated
Currency Holding Other
Translation Gain/(Loss) Comprehensive
Adjustments on Securities Income (Loss)
----------- ------------- -------------
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)
Change during the year - 3 3
------ ------- -------
Balance at December 30, 2000 $ (7) $ - $ (7)
====== ======= =======
15. Related Party Transactions
During 2000, 1999 and 1998, the Company was involved in transactions with
Kiewit Materials Company as follows:
(dollars in millions) 2000 1999 1998
- -----------------------------------------------------------------------------
Sole contract costs $ 14 $ 10 $ 7
Administrative service fee income $ 2 $ 4 $ 1
Interest expense $ 1 $ 3 $ 3
Interest income $ 2 $ 1 $ 1
Asset acquisitions $ - $ 2 $ -
Receivables at December 30, 2000 and December 25, 1999 include $15 million
and $6 million, respectively, due from Kiewit Materials Company.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
16. Other Matters:
Materials Spin-Off:
On September 30, 2000, the Company distributed all of the 32,288,840 shares
of common stock of its former subsidiary, Kiewit Materials Company
("Materials"), it then held to stockholders of the Company in a Spin-off (the
"Materials Spin-off"). In the Materials Spin-off, each stockholder of the
Company received one share of Materials common stock ("Materials Stock") for
each share of Common Stock they held on the record date for the Materials
Spin-off. Prior to the Materials Spin-off, the Company also completed a
share exchange offer and debenture exchange offer, pursuant to which holders
of Common Stock and the Company's convertible debentures collectively
exchanged 1,081,226 shares of Common Stock and $13,095,000 principal amount
of the Company's convertible debentures for: (1) 4,055,029 shares of
Materials Stock; (2) $670,000 principal amount of Materials convertible
debentures; and (3) $5,475,045 principal amount of the Company's new reduced
principal convertible debentures. As a result of the Materials Spin-off, the
Company and Materials now operate as two separate independent companies.
In connection with the Materials Spin-off, Materials and the Company entered
into various agreements including a Separation Agreement (the "Materials
Separation Agreement") and a Tax Sharing Agreement (the "Materials Tax
Sharing Agreement").
The Materials Separation Agreement provides for the allocation of certain
risks and responsibilities between Materials 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 Materials liabilities arising out of the Materials Businesses.
Under the Materials Tax Sharing Agreement, with respect to periods, or
portions thereof, ending on or before the Materials Spin-off, Materials and
the Company generally will be responsible for paying the taxes relating to
such returns, including any subsequent adjustments resulting from the
redetermination of such tax liabilities by the applicable taxing authorities,
that are allocable to the Materials Business and construction business,
respectively. The Materials Tax Sharing Agreement also provides that
Materials and the Company will indemnify the other from certain taxes and
expenses that would be assessed if the Materials Spin-off were determined to
be taxable, but solely to the extent that such determination arose out of the
breach by Materials or the Company, respectively, of certain representations
made to the Internal Revenue Service in connection with the private letter
ruling issued with respect to the Materials Spin-off.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
16. Other Matters, (Continued):
Level 3 Spin-Off:
In connection with the spin-off of the Company from Level 3 in 1998 ("Level 3
Spin-off"), various agreements were entered into including a Separation
Agreement (the "Level 3 Separation Agreement"), a Tax Sharing Agreement (the
"Level 3 Tax Sharing Agreement") and an amended Mine Management Agreement.
The Level 3 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 Level 3 Tax Sharing Agreement provides, with respect to periods, or
portions thereof, ending on or before the closing date of the spin-off that
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 Level 3 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 Level 3 Spin-off 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 Level 3 Spin-off or made in the Level 3 Tax
Sharing Agreement. If the Level 3 Spin-off was determined to be taxable for
any other reason, those 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 Level 3 Spin-off was
determined to be taxable in order to take into account the fact that the
Level 3 Spin-off is taxable to the holders of Common Stock.
The amended Mine Management Agreement, pursuant to which the Company provides
mine management and related services to Level 3's coal mining operations,
provides 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 amended Mine Management Agreement, it would
be required to pay the Company an amount equal to the discounted present
value of the amended Mine Management Agreement, determined, if necessary, by
an appraisal process.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
16. Other Matters, (Continued):
Other:
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 25 years aggregate $31
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 30, 2000, the Company had
outstanding letters of credit of approximately $166 million.
17. Quarterly Information (Unaudited):
March June September December
----- ----- --------- --------
(dollars in millions,
except per share data) 2000 1999 2000 1999 2000 1999 2000 1999
- -----------------------------------------------------------------------------
Revenue $ 986 $ 673 $1,189 $ 887 $1,314 $ 960 $ 974 $1,066
===== ===== ====== ===== ====== ===== ===== ======
Gross profit $ 44 $ 34 $ 95 $ 65 $ 51 $ 82 $ 135 $ 133
===== ===== ===== ===== ===== ===== ===== =====
Income from continuing
operations $ 11 $ 8 $ 42 $ 29 $ 40 $ 27 $ 68 $ 73
Income from discontinued
operations $ 3 $ 4 $ 8 $ 6 $ 7 $ 8 $ - $ 10
----- ----- ----- ----- ----- ----- ----- -----
Net earnings $ 14 $ 12 $ 50 $ 35 $ 47 $ 35 $ 68 $ 83
===== ===== ===== ===== ===== ===== ===== =====
Earnings per common share - basic:
Income from continuing
operations $ .34 $ .22 $1.32 $ .88 $1.20 $ .78 $2.11 $2.09
Income from discontinued
operations .11 .13 .25 .16 .22 .23 - .28
----- ----- ----- ----- ----- ----- ----- -----
Net earnings $ .45 $ .35 $1.57 $1.04 $1.42 $1.01 $2.11 $2.37
===== ===== ===== ===== ===== ===== ===== =====
Earnings per common share - diluted:
Income from continuing
operations $ .34 $ .21 $1.28 $ .86 $1.17 $ .76 $2.04 $2.03
Income from discontinued
operations .10 .13 .24 .16 .21 .23 - .28
----- ----- ----- ----- ----- ----- ----- -----
Net earnings $ .44 $ .34 $1.52 $1.02 $1.38 $ .99 $2.04 $2.31
===== ===== ===== ===== ===== ===== ===== =====
Dividends paid
per share $ .27 $.225 $ .28 $ .25 $ - $ - $ - $ -
===== ===== ===== ===== ===== ===== ===== =====
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 2001 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 30, 2000 and
December 25, 1999 and for the three years ended December 30, 2000:
Report of Independent Accountants dated March 16, 2001 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
30, 2000:
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 10-Q 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.
(b) Reports on Form 8-K.
Current Report on Form 8-K dated October 2, 2000 reporting the completion of
the spin-off of the Materials Business, which Report was filed with the
Securities and Exchange Commission on October 2, 2000.
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 5, 2001 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.
PricewaterhouseCoopers LLP
Omaha, Nebraska
March 5, 2001
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 30, 2000
- ----------------------------
Allowance for doubtful trade accounts $ 7 $ 2 $ (4) $ (1) $ 4
Reserves:
Insurance claims $ 84 $ - $ (11) $ (9) $ 64
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
- -----------------------------------------------------------------------------
* On September 30, 2000, as discussed in Note 2, the Company spun-off its
Materials Business.
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 16, 2001 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 Chief
Kenneth E. Stinson Executive Officer
(Principal Executive Officer) March 16, 2001
/s/ Michael J. Piechoski Vice President
Michael J. Piechoski (Principal Financial Officer) March 16, 2001
/s/ Gregory D. Brokke Controller
Gregory D. Brokke (Principal Accounting Officer) March 16, 2001
/s/ Mogens C. Bay Director March 16, 2001
Mogens C. Bay
/s/ Roy L. Cline Director March 16, 2001
Roy L. Cline
/s/ Richard W. Colf Director March 16, 2001
Richard W. Colf
/s/ James Q. Crowe Director March 16, 2001
James Q. Crowe
/s/ Richard Geary Director March 16, 2001
Richard Geary
/s/ Bruce E. Grewcock Director March 16, 2001
Bruce E. Grewcock
/s/ William L. Grewcock Director March 16, 2001
William L. Grewcock
/s/ Peter Kiewit, Jr. Director March 16, 2001
Peter Kiewit, Jr.
/s/ Allan K. Kirkwood Director March 16, 2001
Allan K. Kirkwood
/s/ Walter Scott, Jr. Director March 16, 2001
Walter Scott, Jr.
/s/ George B. Toll, Jr. Director March 16, 2001
George B. Toll, Jr.