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 28, 2002 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. [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes [X] No [ ]
The registrant's stock is not publicly traded, and therefore, there is
no ascertainable market value of voting stock held by non-affiliates.
28,781,651 shares of the registrant's $0.01 par value Common Stock were
issued and outstanding on March 14, 2003.
Portions of the registrant's definitive proxy statement for its 2003
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 4
Item 4A. Executive Officers of the Registrant 4
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 6
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 14
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 47
Part III
Item 10. Directors and Executive Officers of the Registrant 47
Item 11. Executive Compensation 47
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters 47
Item 13. Certain Relationships and Related Transactions 47
Item 14. Controls and Procedures 47
Part IV
Item 15. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 47
Signatures 50
Certifications 51
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. ("PKS," which
together with its subsidiaries is referred to herein as 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. PKS was incorporated in Delaware in 1997, and is a successor to a
Delaware corporation that was incorporated in 1941, which itself was the
successor of a construction business enterprise founded in Omaha, Nebraska
in 1884.
The Construction Business.
The Company and its joint ventures perform construction services for a
broad range of public and private customers primarily in the United States
and Canada. New contract awards during 2002 were distributed among the
following construction markets (approximately, by percentage of the
Company's share of total contract value): transportation (including
highways, bridges, airports, mass transit and rail) - 47.6%; petroleum -
12.5%; power, heat, cooling - 8.8%; water supply/dams - 7.2%; building -
6.6% and all other markets - 17.3%. Revenue earned during 2002 was
distributed among the following construction markets (approximately, by
percentage of revenue earned): transportation (including highways, bridges,
airports, mass transit and rail) - 49.8%; power, heat, cooling - 29.9%;
building - 8.9%; sewage and solid waste - 4.5%; water supply/dams - 2.8%;
petroleum - 1.2% and all other markets - 2.9%.
The Company, through its subsidiaries, 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. 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. Construction contracts generally
provide for progress payments as work is completed, with a retainage,
ranging from zero to ten percent, 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 76% of the combined prices
of contracts awarded to the Company and 64% of revenue earned by the Company
during 2002. Most of these contracts were awarded by government and quasi-
government units under fixed price contracts after competitive bidding.
Credit risk is minimal with public (government) owners since the Company
ascertains that funds have been appropriated by the governmental project owner
prior to commencing work on public projects. Most public contracts are
subject to termination at the election of the government. In the event of
termination, 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 in certain instances, its reputation for quality,
timeliness, experience, and financial strength. The construction industry is
highly competitive and lacks firms with dominant market power. In 2002,
Engineering News Record, a construction trade publication, ranked the
Company as the seventh largest United States contractor in terms of 2001
revenue. Also in terms of 2001 revenue, it ranked the Company first in the
construction markets of transportation, hydropower, water supply, sanitary
and storm sewers, and transmission lines and cables, and in the top ten of
various other markets.
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 2002 and 2001, the Company had backlog (anticipated
revenue from uncompleted contracts) of approximately $4.2 billion. Of
current backlog, approximately $1.7 billion is not expected to be completed
during 2003. In 2002, the Company was the successful bidder on 255 jobs
with total contract prices of approximately $3.2 billion, an average price
of approximately $12.4 million per job. There were 19 new projects with
contract prices over $25 million, accounting for approximately 77% 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 2002,
the Company derived approximately 86% of its joint venture revenue from
sponsored joint ventures and approximately 14% from non-sponsored joint
ventures. The Company's share of joint venture revenue accounted for
approximately 31% of its 2002 total revenue.
Locations.
The Company has 21 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. During 2002, the Company had
projects in 38 states, Puerto Rico and 6 Canadian provinces. Financial
information about geographic areas for the fiscal years ended December 28,
2002, December 29, 2001 and December 30, 2000 is included in Note 11 of the
"Notes to Consolidated Financial Statements".
Environmental Protection.
Compliance with the U.S. and Canadian federal, state, provincial 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 2002, the Company employed approximately 15,000 people.
Included in this number are approximately 6,000 employees subject to
various collective bargaining agreements with labor unions. During 2002,
the Company was a participant in approximately 550 collective bargaining
agreements. These agreements typically expire within 1 to 3 years. The
Company considers relations with its employees and labor unions to be good.
Available Information.
Financial and other information of the Company can be accessed at its
website www.kiewit.com. The Company makes available at its website its
periodic annual reports and amendments thereto as soon as reasonably
practicable after such material is electronically filed with or furnished to
the Securities and Exchange Commission.
Item 2. Properties.
The Company's headquarters facilities are located in Omaha, Nebraska and
are owned by the Company. The Company also has 20 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 6 of which operate from leased facilities.
The Company also has 17 area offices located in Alaska, California,
Colorado, Florida, Hawaii, Illinois, Nebraska, New Mexico, New York,
Pennsylvania, Rhode Island, British Columbia and Ontario, 1 of which is an
owned facility and 16 of which are leased facilities. The Company owns or
leases numerous shops, equipment yards, storage facilities, warehouses, and
construction material quarries. Since construction projects are inherently
temporary and location-specific, the Company owns approximately 1,400
portable offices, shops and transport trailers. The Company has a large
equipment fleet, including approximately 3,500 trucks, pickups and
automobiles and 1,500 heavy construction vehicles, such as graders,
scrapers, backhoes and cranes. Joint ventures in which the Company is a
participant also own approximately an additional 160 portable offices, shops
and transport trailers, 540 trucks, pickups and automobiles and 210 heavy
construction vehicles.
Item 3. Legal Proceedings.
On April 25, 2001, Bibb and Associates, Inc. ("Bibb"), a subsidiary of
PKS, was served with a complaint (the "Complaint") filed in the Circuit
Court of Jackson County, Missouri (the "Court"), in an action brought by
Kansas City Power & Light ("KCPL") with respect to a January 13, 1999
explosion at KCPL's Hawthorn No. 5 power plant. The Complaint lists a total
of 13 defendants, and generally alleges as to Bibb, strict liability,
negligence, professional gross negligence, fraud, negligent
misrepresentation and wrongful inducement to contract. The Complaint also
names PKS, and alleges that PKS is either the alter ego of Bibb or the
successor to Bibb's liability. The Complaint alleges damages in excess of
$450 million including property damage, costs of replacement of power and
lost profits. PKS believes that the factual allegations and legal claims
asserted against Bibb and PKS are without merit and intends to vigorously
defend them.
On November 19, 2002, a suit was filed in the District Court, City and
County of Broomfield, Colorado for an unspecified amount of damages by Gary
Haegle, derivatively on behalf of Level 3 Communications, Inc. ("Level 3"),
against Walter Scott, Jr., James Q. Crowe, R. Douglas Bradbury, Charles C.
Miller, III, Kevin V. O'Hara, Mogens C. Bay, William L. Grewcock, Richard
Jaros, Robert E. Julian, David C. McCourt, Kenneth E. Stinson, Michael B.
Yanney, Colin V. K. Williams (collectively, the "Level 3 Directors") and
PKS. The suit alleges that the Level 3 Directors breached their fiduciary
duty with respect to various transactions between Level 3 and PKS, and that
PKS aided and abetted the Level 3 Directors in their alleged breach of
fiduciary duty. The suit also alleges that PKS exercised improper control
over certain of the Level 3 Directors. PKS believes that the factual
allegations and legal claims made against it are without merit and intends
to vigorously defend them.
The Company is party to many other 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 28, 2002.
Item 4A. Executive Officers of the Registrant.
The table below shows information as of March 14, 2003, about each
executive officer of PKS, including his business experience during the past
five years. PKS' 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 PKS since
June 2000. Mr. Brokke was Assistant Treasurer
of PKS from August 1997 to June 2000. 40
John B. Chapman Mr. Chapman has been Vice President of
Human Resources and Administration of PKS
since August 1997. 57
Lawrence J. Cochran Mr. Cochran has been a Vice President of PKS
since March 2003. Mr. Cochran has served as
an Area Manager for Kiewit Pacific Co., a
subsidiary of the Company, since 1997. 47
Richard W. Colf Mr. Colf has been a director of PKS since August
1997. Mr. Colf has been an Executive Vice President
of PKS since July 1998. Mr. Colf 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. Colf is a member of the Executive
Committee of PKS. 59
Bruce E. Grewcock Mr. Grewcock has been a director of PKS since
August 1997. Mr. Grewcock has been President
and Chief Operating Officer of PKS since
December 2000 and was an Executive Vice
President of PKS from August 1997 until
December 2000. Mr. Grewcock is a member of
the Executive Committee of PKS. 49
Allan K. Kirkwood Mr. Kirkwood has been a director of PKS since
August 1997. Mr. Kirkwood has been an
Executive Vice President of PKS 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 a member of the Executive Committee
of PKS. 59
Ben E. Muraskin Mr. Muraskin has been a Vice President of
PKS since January 2000. Mr. Muraskin was a partner
at Alston & Bird LLP from January 1999 to December
1999, and an associate at that firm from May
1992 to January 1999. 39
Douglas E. Patterson Mr. Patterson has been a director of PKS since
June 2001. Mr. Patterson has been Executive
Vice President of PKS since November 2001.
Mr. Patterson was President of Gilbert Central
Corp., Gilbert Industrial Corporation and
Kiewit Engineering Co., all subsidiaries of
PKS, from June 1999 to June 2001. Mr. Patterson
was Senior Vice President of Kiewit Construction
Company, a subsidiary of PKS, from July 1996 to
June 1999. Mr. Patterson is also a member of the
Executive Committee of PKS. 51
Gerald S. Pfeffer Mr. Pfeffer has been a Vice President of PKS
since April 1998. Mr. Pfeffer was a Vice
President of Kiewit Construction Group Inc.
from December 1997 to June 1998. 57
Michael J. Piechoski Mr. Piechoski has been Chief Financial Officer
of PKS since November 2002 and a Vice President
and the Treasurer of PKS since June 2000. Mr.
Piechoski was Director of Audit of PKS from April
1999 to June 2000. Mr. Piechoski was Chief
Accounting Officer of United Metro Materials, Inc.,
a former subsidiary of PKS, for more than five
years prior to March 1999. 49
Jerry C. Porter Mr. Porter has been a Vice President of PKS since
May 2000. Mr. Porter has been the design/build
manager of PKS since September 1999. Mr. Porter
was a construction design manager for Kiewit
Pacific Co. from September 1996 until
September 1999. 59
James E. Rowings Mr. Rowings has been a Vice President of
PKS since June 2001. Mr. Rowings was
professor and director of the Construction
Engineering Department at Iowa State University
for more than five years prior to June 2001. 50
Tobin A. Schropp Mr. Schropp has been a Senior Vice President
of PKS since November 2002 and General Counsel
and Secretary of PKS since September 1998. Mr.
Schropp was a Vice President of PKS from
September 1998 to November 2002. Mr. Schropp
was Director of Taxes of PKS from March 1998 to
September 1998. 40
Kenneth E. Stinson Mr. Stinson has been a director and Chairman
of PKS since August 1997. Mr. Stinson has been
Chief Executive Officer of PKS since March 1998
and was President of PKS from August 1997 until
December 2000. Mr. Stinson is also currently a
director of ConAgra, Inc., Valmont Industries,
Inc., and Level 3 Communications, Inc. Mr.
Stinson is also the Chairman of the Executive
Committee of PKS. 60
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
Market Information.
As of December 28, 2002, PKS'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 PKS' Restated Certificate of Incorporation
("Certificate"), PKS is generally required to repurchase shares of Common
Stock at a formula price upon demand. Common Stock can generally be issued
only to employees and directors of the Company and can be resold only to PKS
at a formula price based on the year-end book value of PKS.
Formula Price.
The formula price of the Common Stock is based on the book value of PKS.
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 $125 million at December 28, 2002).
Restrictions.
Ownership of Common Stock is generally restricted to active Company
employees and directors and conditioned upon the execution of repurchase
agreements which restrict the transfer of the Common Stock. Upon
retirement, termination of employment, or death, PKS is generally required
to repurchase the Common Stock at the applicable formula price.
Stockholders.
On March 14, 2003, PKS had the following numbers of stockholders and
outstanding shares:
Class of Stock Stockholders Outstanding Shares
-------------- ------------ ------------------
Common Stock 1,465 28,781,651
Dividends and Prices.
The chart below sets forth the cash dividends declared or paid on the
Common Stock during 2000, 2001 and 2002, and the formula price after each
dividend payment.
Dividend
Dividend Declared Dividend Paid Per Share Price Adjusted Formula Price
- ----------------- ------------- --------- -------------- -------------
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
April 27, 2001 May 1, 2001 $0.35 May 1, 2001 $17.35
October 26, 2001 January 4, 2002 $0.30 December 28, 2002 $21.50
April 26, 2002 May 1, 2002 $0.40 May 1, 2002 $21.10
October 25, 2002 January 6, 2003 $0.35 December 28, 2002 $27.15
PKS' 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, PKS effected a spin-off of its materials business
to stockholders. As described in Note 15 of the "Notes to Consolidated
Financial Statements," PKS has reclassified the results of its materials
business as discontinued operations.
Item 6. Selected Financial Data.
The following table presents selected historical financial data of the
Company as of and for the fiscal years ended 1998 through 2002, and is
derived from the Company's historical consolidated financial statements and
the notes to those financial statements.
Fiscal Year Ended
(dollars in millions, except
per share amounts) 2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------
Results of Operations:
Revenue $3,699 $3,871 $4,463 $3,586 $3,053
====== ====== ====== ====== ======
Earnings from continuing operations $ 193 $ 175 $ 161 $ 137 $ 118
Earnings from discontinued
operations (1) - - 18 28 18
------ ------ ------ ------ ------
Net earnings $ 193 $ 175 $ 179 $ 165 $ 136
====== ====== ====== ====== ======
Per Common Share:
Basic:
Earnings from continuing operations $ 6.37 $ 5.72 $ 4.97 $ 4.00 $ 3.53
Earnings from discontinued
operations (1) - - .57 .81 .54
------ ------ ------ ------ ------
Net earnings $ 6.37 $ 5.72 $ 5.54 $ 4.81 $ 4.07
====== ====== ====== ====== ======
Diluted:
Earnings from continuing operations $ 6.08 $ 5.49 $ 4.83 $ 3.91 $ 3.48
Earnings from discontinued
operations (1) - - .55 .80 .54
------ ------ ------ ------ ------
Net earnings $ 6.08 $ 5.49 $ 5.38 $ 4.71 $ 4.02
====== ====== ====== ====== ======
Dividends (2) $ .75 $ .65 $ .58 $ .52 $ .43
====== ====== ====== ====== ======
Formula price (3) $27.15 $21.50 $17.70 $20.63 $15.90
====== ====== ====== ====== ======
Book value $31.80 $26.44 $21.56 $24.01 $19.35
====== ====== ====== ====== ======
Financial Position:
Total assets $1,876 $1,594 $1,401 $1,599 $1,379
====== ====== ====== ====== ======
Current portion of
long-term debt $ - $ 1 $ 1 $ 4 $ 8
====== ====== ====== ====== ======
Long-term debt, net of current portion$ 24 $ 25 $ 12 $ 18 $ 13
====== ====== ====== ====== ======
Redeemable Common Stock (4) $ 995 $ 835 $ 696 $ 837 $ 691
====== ====== ====== ====== ======
(1) On September 30, 2000, PKS effected a spin-off of its materials business
to stockholders. As described in Note 15 of the "Notes to Consolidated
Financial Statements," PKS has reclassified the results of its materials
business as discontinued operations.
(2) The 2002, 2001, 2000, 1999 and 1998 dividends include $.35, $.30, $.30,
$.27 and $.225 for dividends declared in those years, respectively, but paid
in January of the subsequent year.
(3) 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.
(4) Ownership of Common Stock is generally restricted to active Company
employees and directors of PKS and conditioned upon the execution of
repurchase agreements which restrict the transfer of the Common Stock. Upon
retirement, termination of employment, or death, PKS is generally required
to repurchase the Common Stock at the applicable formula price. The
aggregate redemption value of Common Stock at December 28, 2002 and
December 29, 2001 was $849 and $679 million, respectively.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company primarily operates in the construction industry and
currently has one reportable operating segment. 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, mass transit and rail); power, heat, cooling; commercial
buildings; sewage and solid waste; water supply/dams; petroleum; mining; and
telecommunication infrastructure.
On September 30, 2000, PKS effected a spin-off of its materials business
("Materials Business") to its stockholders. As described in Note 15 of the
"Notes to 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 2002 vs. 2001
Revenue.
Revenue for the twelve months ended December 28, 2002 consisted of
$2,495 million from sole contracts, $1,161 million from joint ventures and
$43 million from other sources. Total revenues decreased $172 million or 4%
from the same period in 2001. The decrease was primarily attributed to a
$702 million reduction in revenue earned on a significant fiber optic
project for the twelve months ended December 28, 2002 from the same period
in 2001. This project was substantially complete at the end of 2001.
Offsetting the decrease were increases in other sole contract projects of
$15 million, joint venture projects of $514 million and other sources of $1
million. The joint venture increase is primarily attributable to a $417
million increase in revenue on four significant transportation projects.
Also offsetting the decrease was an increase in claim settlements of $67
million on various sole contract and joint venture projects.
Contract backlog was $4.2 billion at December 28, 2002 and December 29,
2001. Backlog included $2.2 billion for sole contracts and $2.0 billion for
the Company's share of joint ventures at December 28, 2002. Foreign
operations, located primarily in Canada, represent 5.6% of backlog at
December 28, 2002. Domestic projects are spread geographically throughout
the U.S. The Company's share of a highway contract in Colorado and bridge
contracts in California and Washington make up 41% of total backlog at
December 28, 2002.
Margin.
Margins for the twelve months ended December 28, 2002 consisted of $253
million from sole contracts, $246 million from joint ventures and $15
million from other sources. Total margin increased $87 million or 20% from
the same period in 2001. Excluding the significant fiber optic project for
2002 and 2001, construction margin (including both sole contracts and the
Company's share of joint ventures), as a percentage of revenue, increased to
13.6% compared to 9.5%. Margins increased due to several factors. Claim
settlements on various sole contract and joint venture projects increased by
$67 million for the twelve months ended December 28, 2002 when compared to
the same period in 2001. During 2002, the Company received an early
completion bonus of $28 million on a significant power plant project. The
Company also experienced a $45 million reduction in job losses for the
twelve months ended December 28, 2002 when compared to the same period in
2001. The decrease in job losses was attributed to the Company's emphasis
on continuous improvements in cost containment efforts. Also contributing
to increased margin was an increase in significant high risk projects with
increased bonding requirements. These projects generally provide higher
margins due to the increased risk and limited number of bidders willing or
able to take such risks. The increase in margin was partially offset by a
$114 million decrease in margins on a significant fiber optic project for
the twelve months ended December 28, 2002 as compared to the same period in
2001. This project was substantially complete at the end of 2001.
General and Administrative Expenses.
General and administrative expenses for the twelve months ended December
28, 2002 increased $15 million to $199 million compared to the same period
in 2001. As a percentage of revenue, general and administrative expenses
for the twelve months ended December 28, 2002 increased to 5.4% compared to
4.8% for the same period in 2001 This increase was primarily attributed to
Home Office costs of $8 million related to a potential corporate conversion
to a limited partnership and a $4 million increase in compensation.
Overall, operating office general and administrative expenses remained
relatively stable for the twelve months ended December 28, 2002 compared to
the same period in 2001. Increases for operating offices in the states of
Washington and Texas were partially offset by a reduction in expenses as a
result of consolidating operations located on the East Coast.
Gain on Sale of Operating Assets.
Net gains on the disposition of property, plant and equipment and other
assets decreased to $11 million during the twelve months ended December 28,
2002 from $20 million the same period in 2001. The decrease was primarily
attributable to a $5 million loss incurred on the sale of a specialized
piece of equipment with no ready resale market.
Investment Income and Equity Earnings, net.
Investment income and equity earnings decreased $20 million for the
twelve months ended December 28, 2002 from the same period in 2001. During
the twelve months ended December 28, 2002, interest income, primarily from
money market funds, bond funds and other highly liquid instruments,
decreased $9 million compared to the same period in 2001. The decrease was
primarily attributable to a decline in interest rates earned on money market
funds from approximately 4.2% for the twelve months ended December 29, 2001
to approximately 1.7% for the same period in 2002. Another factor
contributing to the decrease in interest income was a decline in funds
carried in interest bearing money market accounts. These funds were
transferred, during the third quarter of 2001, to investments that primarily
recognize changes in market value as a separate component of accumulated
other comprehensive income.
During the twelve months ended December 28, 2002, the Company also sold
shares in a stock mutual fund at a $7 million loss and recognized a $4
million unrealized holding loss on its investment in stock warrants acquired
in December 2001.
Other, net.
Other income is comprised primarily of mine management fee income. Fees
for these services for the twelve months ended December 28, 2002 and
December 29, 2001 were $7 million and $5 million, respectively. The
Company's fee is a percentage of adjusted operating earnings of coal mines
managed, as defined in a mine management agreement. The mines 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.
Provision for income taxes.
The effective income tax rates for the twelve months ended December 28,
2002 and December 29, 2001 were 41.7% and 38.3%, respectively. These rates
differ from the federal statutory rate of 35% primarily due to state income
taxes, currently non-deductible costs associated with a potential corporate
conversion to a limited partnership and settled prior year tax adjustments.
The effective state tax rate significantly increased in 2002 from 2001
because of an increase in the concentration of contracts in jurisdictions
with higher tax rates.
Results of Operations 2001 vs. 2000
Revenue.
Revenue for the twelve months ended December 29, 2001 consisted of
$3,182 million from sole contracts, $647 million from joint ventures and $42
million from other sources. Total revenues decreased $592 million or 13%
from 2000. The decrease was attributed to a $992 million reduction in
revenue earned on a significant fiber optic project for the twelve months
ended December 29, 2001 from the same period in 2000. This project was
substantially complete at the end of 2001. Partially offsetting the
decrease were increases in other sole contract projects of $327 million and
joint venture projects of $43 million. These increases are primarily
attributed to projects awarded to the Company during the year 2000.
Contract backlog at December 29, 2001 increased to $4.2 billion from
$3.3 billion at December 30, 2000. Backlog included $2.3 billion for sole
contracts and $1.9 billion for the Company's share of joint ventures at
December 29, 2001. Foreign operations, located primarily in Canada,
represent 3.2% of backlog. Domestic projects are spread geographically
throughout the U.S. The Company's share of a large highway contract in
Colorado makes up 21% of total backlog.
Margin.
Margins for the twelve months ended December 29, 2001 consisted of $388
million from sole contracts, $25 million from joint ventures and $14 million
from other sources. Total margin increased $102 million or 31% from 2000.
Margins, as a percentage of revenue, for the twelve months ended December
29, 2001 increased to 11.0% compared to 7.3% in 2000. The increased margin
is primarily attributable to a $99 million final settlement recognized on a
significant fiber optic project during December 2001, and an increase in
joint venture margins of $48 million for the twelve months ended December
29, 2001. The joint venture increase is primarily attributed to projects
awarded to the Company during the year 2000 and lower than anticipated close
out costs on several completed or near completed projects. Margins on sole
contracts, as a percentage of revenue excluding the significant fiber optic
project, were 12% for the twelve months ended December 29, 2001 remaining
relatively constant when compared to an 11% margin in 2000.
General and Administrative Expenses.
General and administrative expenses for the twelve months ended December
29, 2001 increased $14 million to $184 million compared to 2000. As a
percentage of revenue, general and administrative expenses for the twelve
months ended December 29, 2001 increased to 4.8% compared to 3.8% for the
same period in 2000. This increase was primarily attributed to new
operating offices in Colorado and Texas; the acquisition of a marine
construction operation in Washington State on July 31, 2001; and the
relocation of an operating office from Nebraska to Kansas. Revenue at the
new office locations lagged the related administrative costs associated with
their start-up. Another contributing factor was the increased general and
administrative staffing for the purpose of bidding new work during 2001.
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 29, 2001
from $17 million the same period in 2000. Although this number can vary
relative to business conditions, it remained comparably static to 2000.
Investment Income and Equity Earnings.
Investment income and equity earnings increased $3 million for the
twelve months ended December 29, 2001 from the same period in 2000. During
the twelve months ended December 29, 2001, interest income, primarily from
money market funds, bond funds and other highly liquid instruments,
decreased $3 million compared to the same period in 2000. A contributing
factor was the change in the Company's portfolio mix from primarily
interest-bearing money market funds during the third quarter 2001 to a
diversified portfolio that includes bond and stock mutual funds that
primarily recognize changes in market value as a separate component of
accumulated other comprehensive income.
During the twelve months ended December 29, 2001, the Company also
experienced a $1 million decrease in equity method investment earnings.
A $3 million investment carried at cost was written off during the
twelve months ended December 29, 2001 due to an other-than-temporary decline
in market value.
During 2000, the Company determined that the decline in market value of
an investment security was other-than-temporary, therefore, this investment
was written down to the current market value and a loss of $9 million was
recognized in the Statement of Earnings. Prior to the 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. This investment was subsequently sold during 2001 at
a gain of $1 million.
Other, net.
Other income is comprised primarily of mine management fee income.
During 2001 and 2000, the Company managed two and three active coal mines,
respectively. Fees for these services for the twelve months ended December
29, 2001 were $5 million as compared to $29 million in 2000. The decrease
is primarily due to the combination of: the expiration of a significant
long-term contract in late 2000; and the September 26, 2000 acquisition of
Walnut Creek Mining Company, a mine previously managed. The Company's fee
is a percentage of adjusted operating earnings of the coal mines, as defined
in the mine management agreement. The mines managed 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.
Provision for income taxes.
The effective income tax rates for the twelve months ended December 29,
2001 and December 30, 2000 were 38.3% and 37.5%, respectively. These rates
differ from the federal statutory rate of 35% primarily due to state income
taxes.
Financial Condition - December 28, 2002 vs. December 29, 2001
Cash and cash equivalents increased $59 million to $275 million at
December 28, 2002 from $216 million at December 29, 2001. The increase
reflects net cash provided by operations of $214 million; offset by net cash
used in investing activities of $119 million and $36 million used in
financing activities.
Net cash provided by operating activities for the twelve months ended
December 28, 2002 increased by $21 million to $214 million as compared to
the same period in 2001. This increase was primarily due to higher earnings
(after excluding gains on sale of property, plant and equipment and other
investments, net) and decreased working capital requirements for
construction contracts. This was partially offset by an increase in
undistributed earnings from construction joint ventures. 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 28, 2002 decreased by $125 million to $119 million as compared to
the same period in 2001. This decrease was due primarily to a decrease in
cash used for purchases of securities for sale and for other investments of
$61 million, an increase in proceeds from sales of securities of $27
million, a decrease in acquisitions of $21 million and a decrease in capital
expenditures of $14 million.
Capital spending varies due to the nature and timing of jobs awarded.
Management does not expect any material changes to capital spending.
Acquisitions depend largely on market conditions.
Net cash used in financing activities for the twelve months ended
December 28, 2002 increased by $3 million to $36 million as compared to the
same time period in 2001. This increase was primarily due to a reduction in
issuance of common stock of $8 million, a $5 million decrease in long-term
debt borrowings and an increase in dividends paid of $2 million. This
increase was offset by a $5 million reduction in payments of long-term debt
and a decrease in repurchases of common stock of $7 million.
Liquidity.
During 2002, 2001 and 2000, the Company expended $141 million, $176
million and $262 million, respectively, on capital expenditures and
acquisitions, net of cash. The Company anticipates that its future cash
requirements for capital expenditures and acquisitions will not change
significantly from these historical amounts. Cash generated by joint
ventures, while readily available, historically is generally not distributed
to partners until the liabilities and commitments of the joint ventures have
been substantially satisfied. Other long-term liquidity uses include the
payment of income taxes and the payment of dividends. As of December 28,
2002, 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
less than $1 million. PKS paid dividends during the twelve months ended
December 28, 2002 and December 29, 2001 of $22 million and $19 million,
respectively. These amounts were determined by the Board of Directors and
were paid in January and May of each such year. PKS also has the commitment
to repurchase its Common Stock at any time during the year from
shareholders.
At the July 25, 2002 meeting of PKS' Board, the Directors gave
preliminary approval to pursue a corporate reorganization plan which would
change the legal ownership structure of PKS from a corporation to a limited
partnership. PKS is continuing to study the feasibility of the proposed
reorganization. If effected, the plan is anticipated to have minimal impact
to the Company's business operations and no impact to the Company's ability
to fund its operations.
The spin-off of the Materials Business did not have an adverse impact on
its liquidity or material commitments. 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 terms satisfactory to
it. The Company believes that, to the extent necessary, it will likewise be
able to borrow funds on acceptable terms for the foreseeable future.
Critical Accounting Policies.
Revenue Recognition - Construction Contracts:
The Company, through its subsidiaries, 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. A
company's ability to bid on new projects is affected by many factors,
including its ability to obtain performance bonds. Currently, the Company has
not experienced, nor does management anticipate, any problems securing
performance bonds on future projects. 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. For
fixed-price construction contracts, an estimated percentage of completion for
each contract, as determined by the Company's engineering estimate based on
the amount of work performed, is applied to total estimated revenue. For
cost-plus construction contracts, the percentage of completion, based upon
costs incurred divided by projected costs, is applied to total estimated
profit. Provision is made for the entire amount of future estimated losses on
construction contracts in progress; claims for additional contract
compensation, however, are not reflected in the accounts until the period in
which such claims are settled. Claims are considered settled when cash is
received or upon receipt of a signed written agreement with respect to such
claims. 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.
Investments:
The Company evaluates its investments for other than temporary declines in
value. Several factors are analyzed in evaluating investments including an
analysis of the relevant company, its industry, valuation levels and
subsequent developments. Unrealized losses that are determined to be other
than temporary are recognized in earnings.
Included in accounts receivable retainage are securities that relate to
stock warrants which are carried at fair value. Such fair value is
estimated based on a valuation model. Unrealized gains and losses are
recognized as a component of investment income in the Consolidated Statement
of Earnings.
Construction Joint Ventures:
As described under Note 4 to the Company's Consolidated Financial
Statements, the Company participates in various construction joint venture
partnerships. Generally, each construction joint venture is formed to
accomplish a specific project, is jointly controlled by the joint venture
partners and is dissolved upon completion of the project. The Company selects
its joint venture partners based on its analysis of the prospective venturer's
construction and financial capabilities, expertise in the type of work to be
performed and past working relationships with the Company, among other
criteria. The joint venture agreements typically provide that the interests
of the Company in any profits and assets, and its respective share in any
losses and liabilities that may result from the performance of the contract
are limited to the Company's stated percentage interest in the project. The
venture's contract with the project owner typically requires joint and several
liability, however the Company's agreements with its joint venture partners
provide that each party will assume and pay its full proportionate share of
any losses resulting from a project. Investments in construction joint
ventures are accounted for under the equity method in the consolidated
balance sheet. The Company accounts for its share of the operations of the
construction joint ventures on a pro rata basis in the consolidated statements
of earnings under Emerging Issues Task Force ("EITF") Issue No. 00-1 "Investor
Balance Sheet and Income Statement Display under the Equity Method for
Investments in Certain Partnerships and Other Ventures."
Property, Plant and Equipment:
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. The estimated useful lives of the Company's property,
plant and equipment are as follows:
Land improvements 10 - 15 years
Buildings 5 - 39 years
Equipment 3 - 20 years
A change in depreciation methods or estimated useful lives could have a
significant impact to earnings.
Accrued Insurance Costs:
The Company is self-insured for certain general, auto and worker's
compensation claims, and accrues for the estimated ultimate liability for
incurred losses, both reported and unreported. The Company bases its estimate
of loss on historic trends modified for recent events and records its estimate
of loss without regard to the time value of money. It is at least reasonably
possible that the estimate of ultimate liability will be revised in the near-
term.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company holds a diversified portfolio of investments that includes
cash, high quality commercial paper of maturities less than 90 days, US
Government debt obligations and money market, stock and bond mutual funds
and stock warrants. Except for cash, each of these investments is subject,
in varying degrees, to market risks, interest rate risks, economic risks and
credit risks. These risks, among others, can result in loss of principal.
The majority of the Company's investments consist of holdings in a money
market mutual fund.
In addition, the Company is a limited partner in an investment limited
partnership. The investment objective of the investment partnership is to
generate current income and capital appreciation while minimizing the
potential for loss of principal. The investment partnership may use a
variety of investment strategies with the principal one being merger
arbitrage. In general, a merger arbitrage strategy involves purchasing the
stock of a company being acquired or merging with another company and
selling short the stock of the acquiring company. A particular merger
arbitrage transaction will either derive a profit or a loss depending on the
price differential between the price of the securities when purchased and
the price ultimately realized when the transaction is completed. The
primary risk is that a loss could result if the transaction is not
completed. The investment partnership invests in a diversified portfolio of
these types of transactions to minimize risk of loss.
Stock warrants are accounted for under SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities". The value of the warrants
is primarily based on the volatility of the underlying stock, the price of
the underlying stock and the time period until the warrants expire. The
risk to the value of the stock warrants predominately relates to the
potential change in volatility and price of the underlying stock.
Item 8. Financial Statements and Supplementary Data.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Peter Kiewit Sons', Inc.:
We have audited the accompanying consolidated balance sheets of Peter Kiewit
Sons', Inc. and subsidiaries as of December 28, 2002 and December 29, 2001,
and the related consolidated statements of earnings, changes in redeemable
common stock and comprehensive income, and cash flows for the years then
ended. In connection with our audit of the consolidated financial
statements, we have also audited the financial statement schedule. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Peter
Kiewit Sons', Inc. and subsidiaries as of December 28, 2002 and December 29,
2001, and the results of their operations and their cash flows for the years
then ended, in conformity with accounting principles generally accepted in
the United States of America. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As required by Financial Accounting Standards No. 142 and as discussed in
Note 6 to the consolidated financial statements, the Company changed its
method of accounting for goodwill in 2002.
KPMG LLP
Omaha, Nebraska
February 28, 2003
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Peter Kiewit Sons', Inc.
In our opinion, the accompanying consolidated statements of earnings, of
changes in redeemable common stock and comprehensive income, and of cash
flows for the year ended December 30, 2000 present fairly, in all material
respects, the results of operations and cash flows of Peter Kiewit Sons',
Inc. and its subsidiaries for the year ended December 30, 2000, in
conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement
schedules listed in the accompanying index under Item 15(a)(2) on page 48
present fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
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 the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for 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 28, 2002
(dollars in millions, except per share data) 2002 2001 2000
- -----------------------------------------------------------------------------
Revenue $ 3,699 $ 3,871 $ 4,463
Cost of revenue (3,185) (3,444) (4,138)
------ ------ ------
514 427 325
General and administrative expenses (199) (184) (170)
Gain on sale of operating assets 11 20 17
------ ------ ------
Operating earnings 326 263 172
Other income (expense):
Investment income (loss) and equity earnings (4) 16 13
Interest expense (3) (3) (4)
Gain on sale of partnership interest - - 45
Other, net 12 11 33
------ ------ ------
5 24 87
------ ------ ------
Earnings before income taxes, minority interest
and discontinued operations 331 287 259
Minority interest in net earnings of subsidiaries,
net of tax - (2) (1)
Provision for income taxes (138) (110) (97)
------ ------ ------
Earnings from continuing operations 193 175 161
Discontinued operations:
Income from materials operations, net of income tax
expense of $12 in 2000 - - 18
------ ------ ------
Net earnings $ 193 $ 175 $ 179
====== ====== ======
Earnings per share:
Continuing operations:
Basic $ 6.37 $ 5.72 $ 4.97
====== ====== ======
Diluted $ 6.08 $ 5.49 $ 4.83
====== ====== ======
Discontinued operations:
Basic $ - $ - $ .57
====== ====== ======
Diluted $ - $ - $ .55
====== ====== ======
Net earnings:
Basic $ 6.37 $ 5.72 $ 5.54
====== ====== ======
Diluted $ 6.08 $ 5.49 $ 5.38
====== ====== ======
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 28, 2002 and December 29, 2001
(dollars in millions) 2002 2001
- -----------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 275 $ 216
Investments 111 108
Receivables, less allowance of $13 and $7 554 544
Unbilled contract revenue 128 115
Contract costs in excess of related revenue 59 41
Investment in construction joint ventures 258 112
Deferred income taxes 45 59
Other 22 12
--------- ---------
Total current assets 1,452 1,207
Property, plant and equipment, at cost:
Land 14 13
Land improvements 37 12
Buildings 106 64
Equipment 650 642
--------- ---------
807 731
Less accumulated depreciation and amortization (480) (446)
--------- ---------
Net property, plant and equipment 327 285
Other assets 97 102
--------- ---------
$ 1,876 $ 1,594
========= =========
- -----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 28, 2002 and December 29, 2001
(dollars in millions) 2002 2001
- -----------------------------------------------------------------------------
Liabilities and Redeemable Common Stock
Current liabilities:
Accounts payable, including retainage of
$67 and $63 $ 248 $ 242
Current portion of long-term debt - 1
Accrued costs on construction contracts 195 154
Billings in excess of related costs and earnings 217 145
Accrued insurance costs 66 65
Accrued payroll 37 32
Other 50 39
--------- ---------
Total current liabilities 813 678
Long-term debt, less current portion 24 25
Deferred income taxes 31 30
Other liabilities 13 10
Minority interest - 16
Preferred stock, no par value, 250,000 shares authorized,
no shares outstanding - -
Redeemable common stock ($849 million and $679 million
aggregate redemption value):
Common stock, $.01 par value, 125 million shares authorized
31,288,355 and 31,588,125 outstanding - -
Additional paid-in capital 223 206
Accumulated other comprehensive loss (9) (11)
Retained earnings 781 640
--------- ---------
Total redeemable common stock 995 835
--------- ---------
$ 1,876 $ 1,594
========= =========
- -----------------------------------------------------------------------------
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 28, 2002
(dollars in millions) 2002 2001 2000
- -----------------------------------------------------------------------------
Cash flows from operations:
Net earnings $ 193 $ 175 $ 179
Adjustments to reconcile net earnings to
net cash provided by operations:
Depreciation and amortization 89 74 72
Gain on sale of property, plant and
equipment and other investments, net (4) (20) (8)
Gain on sale of partnership interest - - (45)
Equity in earnings, net of distributions 3 2 (7)
Change in other noncurrent liabilities 2 (9) 7
Deferred income taxes 14 33 (8)
Change in working capital items:
Receivables (5) (61) (15)
Unbilled contract revenue and contract
costs in excess of related revenue (31) 4 (51)
Investment in construction
joint ventures (153) (19) 63
Other current assets (10) - (1)
Accounts payable 33 19 4
Accrued construction costs and billings
in excess of revenue on uncompleted
contracts 95 3 36
Accrued payroll 5 (2) (2)
Change in outstanding checks in excess
of funds on deposit (22) (3) (20)
Other liabilities 1 1 (5)
Other 4 (4) 9
--------- -------- ---------
Net cash provided by operations 214 193 208
Cash flows from investing activities:
Proceeds from sales of available-for-
sale securities 30 3 -
Proceeds from maturities of available-
for-sale securities 2 3 9
Purchases of available-for-
sale securities (44) (85) (5)
Purchases of other investments - (20) -
Proceeds from sale of property,
plant and equipment 29 27 24
Acquisitions, net of cash acquired (17) (38) (172)
Proceeds from sale of partnership
Interest - - 86
Capital expenditures (124) (138) (90)
Additions to notes receivable - (2) (4)
Payments received on notes receivable 5 6 4
--------- --------- ---------
Net cash used in investing
Activities $ (119) $ (244) $ (148)
- -----------------------------------------------------------------------------
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 28, 2002
(dollars in millions) 2002 2001 2000
- -----------------------------------------------------------------------------
Cash flows from financing activities:
Long-term debt borrowings $ - $ 5 $ 5
Payments on long-term debt (1) (6) (4)
Issuances of common stock 29 37 32
Repurchases of common stock (43) (50) (64)
Dividends paid (21) (19) (18)
Cash distributed in connection with
Materials spin-off - - (47)
---------- --------- ---------
Net cash used in financing activities (36) (33) (96)
Effect of exchange rates on cash - (2) -
---------- --------- ---------
Net increase (decrease) in cash and
cash equivalents 59 (86) (36)
Cash and cash equivalents at beginning
of year 216 302 338
---------- --------- ---------
Cash and cash equivalents at
end of year $ 275 $ 216 $ 302
========== ========= =========
Supplemental disclosures of cash flow information:
Taxes paid $ 123 $ 67 $ 124
Interest paid $ 3 $ 3 $ 5
Non-cash investing activities:
Stock warrants received as part
of a contract settlement $ - $ 23 $ -
Land received as revenue on a
construction contract $ 9 $ - $ -
Non-cash financing activities:
Exchange of convertible debentures
for materials stock (Note 15) $ - $ - $ (7)
Exchange of convertible debentures
for common stock $ 1 $ - $ -
- -----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Redeemable Common Stock and
Comprehensive Income
For the three fiscal years ended December 28, 2002
Accumulated
Other
(dollars in Compre- Total
millions) Redeemable Additional hensive Redeemable
Common Paid-In Income Retained Common
Stock Capital (Loss) Earnings Stock
- -----------------------------------------------------------------------------
Balance at December 25, 1999 - 175 (10) 672 837
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
Materials spin-off
Dividends (a) - - - (19) (19)
Issuance of stock - 37 - - 37
Repurchase of stock - (16) - (34) (50)
Comprehensive income:
Net earnings - - - 175 175
Other comprehensive loss:
Foreign currency adjustment - - (4) - (4)
-----
Total other comprehensive
Loss (4)
-----
Total comprehensive income 171
-----
Balance at December 29, 2001 $ - $ 206 $ (11) $ 640 $ 835
- -----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Redeemable Common Stock and
Comprehensive Income
For the three fiscal years ended December 28, 2002
Accumulated
Other
(dollars in Compre- Total
millions) Redeemable Additional hensive Redeemable
Common Paid-In Income Retained Common
Stock Capital (Loss) Earnings Stock
- -----------------------------------------------------------------------------
Dividends (a) - - - (22) (22)
Debenture conversions - 1 - - 1
Issuance of stock - 29 - - 29
Repurchase of stock - (13) - (30) (43)
Comprehensive income:
Net earnings - - - 193 193
Other comprehensive income:
Foreign currency adjustment - - 1 - 1
Change in unrealized holding
gain, net of tax - - 1 - 1
------
Total other comprehensive
Income 2
------
Total comprehensive income 195
------ ------ ------ ------ ------
Balance at December
28, 2002 $ - $ 223 $ (9) $ 781 $ 995
====== ====== ====== ====== ======
- -----------------------------------------------------------------------------
(a) Dividends per share include $.35, $.30, and $.30 for dividends declared
in 2002, 2001 and 2000, respectively, 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. Summary of Significant Accounting Policies and Description of Business:
The Business:
Peter Kiewit Sons', Inc. ("PKS," which together with its subsidiaries is
referred to herein as the "Company") is one of the largest construction
contractors in North America. PKS, through its subsidiaries, 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.
Basis of Presentation:
The consolidated financial statements include the accounts of the Company in
which it has or had control.
Revenue Recognition:
Construction Contracts:
The Company, through its subsidiaries, 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 governmental action.
The Company uses the percentage of completion method of accounting. For
fixed-price construction contracts, an estimated percentage of completion for
each contract, as determined by the Company's engineering estimate based on
the amount of work performed, is applied to total estimated revenue. For
cost-plus construction contracts, the percentage of completion, based upon
costs incurred divided by projected costs, is applied to total estimated
profit. Provision is made for the entire amount of future estimated losses on
construction contracts in progress; claims for additional contract
compensation, however, are not reflected in the accounts until the period in
which such claims are settled. Claims are considered settled when cash is
received or upon receipt of a signed written agreement with respect to such
claims. 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.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. Summary of Significant Accounting Policies and Description of Business,
Continued
Cash and Cash Equivalents:
Cash equivalents generally consist of highly liquid instruments with
original maturities of three months or less when purchased. The securities
are stated at cost, which approximates fair value.
Outstanding checks in excess of funds on deposit in the amount of $56
million and $78 million at December 28, 2002 and December 29, 2001 have been
reclassified to accounts payable.
Investments:
Available-for-Sale Securities:
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 (loss), net of tax. The Company evaluates its investments for other
than temporary declines in value. Several factors are analyzed in
evaluating investments including an analysis of the relevant company, its
industry, valuation levels and subsequent developments. Unrealized losses
that are determined to be other than temporary are recognized in earnings.
Other:
The Company accounts for investments in a limited investment partnership
under the equity method of accounting.
Construction Joint Ventures:
As described under Note 4 to the Company's Consolidated Financial
Statements, the Company participates in various construction joint venture
partnerships. Generally, each construction joint venture is formed to
accomplish a specific project, is jointly controlled by the joint venture
partners and is dissolved upon completion of the project. The Company
selects its joint venture partners based on its analysis of the prospective
venturer's construction and financial capabilities, expertise in the type of
work to be performed and past working relationships with the Company, among
other criteria. The joint venture agreements typically provide that the
interests of the Company in any profits and assets, and its respective share
in any losses and liabilities that may result from the performance of the
contract are limited to the Company's stated percentage interest in the
project. The venture's contract with the project owner typically requires
joint and several liability, however the Company's agreements with its joint
venture partners provide that each party will assume and pay its full
proportionate share of any losses resulting from a project. Investments in
construction joint ventures are accounted for under the equity method in the
consolidated balance sheet. The Company accounts for its share of the
operations of the construction joint ventures on a pro rata basis in the
consolidated statements of earnings under Emerging Issues Task Force
("EITF") Issue No. 00-1 "Investor Balance Sheet and Income Statement Display
under the Equity Method for Investments in Certain Partnerships and Other
Ventures."
Deferred 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. A valuation allowance would be
recognized if it were anticipated that some or all of a deferred tax asset
would not be realized.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. Summary of Significant Accounting Policies and Description of Business,
Continued
Property, plant and equipment:
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. The estimated useful lives of the Company's property,
plant and equipment are as follows:
Land improvements 10 - 15 years
Buildings 5 - 39 years
Equipment 3 - 20 years
Goodwill and Intangible Assets:
Intangible assets, which include coal contracts, are amortized on a units of
production basis over the expected period of benefit, which does not exceed 25
years. The Company periodically tests intangible assets for impairment at
least annually by comparing the estimated fair value of the asset with its
carrying value. The Company would recognize an impairment loss if the
carrying value exceeded the estimated fair value of the asset.
Goodwill represents the excess of cost over the fair value of net tangible and
identifiable intangible assets of acquired business. Effective December 30,
2001, the Company adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("SFAS No. 142"). Under SFAS No. 142,
goodwill is no longer amortized to expense, but is instead subjected to a
periodic impairment test at least annually. The impairment test is conducted
at the reporting unit level by comparing the fair value of the reporting unit
with its carrying value. If the carrying value exceeds the fair value,
goodwill may be impaired. If this occurs, the fair value of the reporting
unit is then allocated to its assets and liabilities in a manner similar to a
purchase price allocation in order to determine the implied fair value of the
reporting unit goodwill. This implied fair value is then compared with the
carrying amount of the reporting unit goodwill, and if it is less, the Company
would then recognize the impairment loss.
Prior to December 30, 2001, goodwill was amortized to expense on a straight-
line basis over a period not to exceed 20 years. The carrying value of
goodwill was reviewed for possible impairment whenever events or changes in
circumstances indicated that an impairment might exist.
No goodwill impairment losses have been recognized in any of the periods
presented herein.
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.
Accrued Insurance Costs:
The Company is self-insured for certain general, auto and worker's
compensation claims, and accrues for the estimated ultimate liability for
incurred losses, both reported and unreported. The Company bases its estimate
of loss on historic trends modified for recent events and records its estimate
of loss without regard to the time value of money. It is at least reasonably
possible that the estimate of ultimate liability will be revised in the near-
term.
Redeemable Common Stock:
The Company accounts for its redeemable common stock under EITF Issue No. 87-
23 "Book Value Stock Purchase Plans".
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. Summary of Significant Accounting Policies and Description of Business,
Continued:
Foreign Currencies:
The local currencies of foreign subsidiaries are the functional currencies for
financial reporting purposes. Assets and liabilities are translated into U.S.
dollars at year-end exchange rates. Revenue and expenses are translated using
average exchange rates prevailing during the year. Gains or losses resulting
from currency translation are recorded as adjustments to accumulated other
comprehensive income (loss).
Earnings Per Share:
Basic earnings per share has been computed using the weighted average number
of shares outstanding during each period. Diluted earnings per share gives
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.
2002 2001 2000
---- ---- ----
Earnings from continuing operations
(in millions) $ 193 $ 175 $ 161
Earnings from discontinued operations - - 18
------ ------ ------
Net earnings available to common stockholders 193 175 179
Add: Interest expense, net of tax effect,
associated with convertible debentures 1 1 *
------ ------ ------
Net earnings for diluted shares $ 194 $ 176 $ 179
====== ====== ======
Total number of weighted average shares
outstanding used to compute basic
earnings per share (in thousands) 30,348 30,588 32,284
Additional dilutive shares assuming
conversion of convertible debentures 1,565 1,408 1,041
------ ------ ------
Total number of shares used to compute
diluted earnings per share 31,913 31,996 33,325
====== ====== ======
Continuing operations:
Basic earnings per share $ 6.37 $ 5.72 $ 4.97
====== ====== ======
Diluted earnings per share $ 6.08 $ 5.49 $ 4.83
====== ====== ======
Discontinued operations:
Basic earnings per share $ - $ - $ .57
====== ====== ======
Diluted earnings per share $ - $ - $ .55
====== ====== ======
Net earnings:
Basic earnings per share $ 6.37 $ 5.72 $ 5.54
====== ====== ======
Diluted earnings per share $ 6.08 $ 5.49 $ 5.38
====== ====== ======
* Interest expense attributable to convertible debentures was less than $.5
million.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. Summary of Significant Accounting Policies and Description of Business,
Continued:
Use of Estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 143 (SFAS 143),
"Accounting for Asset Retirement Obligations." SFAS 143 applies to legal
obligations associated with the retirement of long-lived assets that result
from the acquisition, construction, development and (or) the normal
operation of a long-lived asset. The provisions of SFAS 143 will be
effective for fiscal years beginning after June 15, 2002. Under SFAS 143:
(1) retirement obligations, measured at fair value, will be recognized when
they are incurred and displayed as liabilities, and (2) the associated asset
retirement costs will be capitalized as part of the carrying amount of the
long-lived asset and subsequently allocated to expense over the asset's
useful life. The adoption of SFAS 143 will not have a material effect on
its consolidated financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144 (SFAS 144), "Accounting for the
Impairment or Disposal of Long-Lived Assets" which supersedes both FASB
Statement No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived
Assets and for Long-lived Assets to be Disposed Of" and the accounting and
reporting provisions of APB Opinion No. 30 (APB 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", for the disposal of a segment of a business (as previously
defined in that Opinion). SFAS 144 retains the fundamental provisions in
SFAS 121 for recognizing and measuring impairment losses on long-lived
assets held for use and long-lived assets to be disposed of by sale, while
also resolving significant implementation issues associated with SFAS 121.
For example, SFAS 144 provides guidance on how a long-lived asset that is
used as part of a group should be evaluated for impairment, establishes
criteria for when a long-lived asset is held for sale, and prescribes the
accounting for a long-lived asset that will be disposed of other than by
sale. SFAS 144 retains the basic provisions of APB 30 on how to present
discontinued operations in the income statement but broadens that
presentation to include a component of an entity (rather than a segment of a
business). Unlike SFAS 121, an impairment assessment under SFAS 144 will
never result in a write-down of goodwill. Rather, goodwill is evaluated for
impairment under SFAS No. 142, "Goodwill and Other Intangible Assets". The
Company adopted SFAS 144 in 2001. Adoption of SFAS 144 has not had a
material impact on the Company's financial statements.
In April 2002, the FASB issued SFAS No. 145 (SFAS 145), Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and
Technical Corrections. SFAS 145 is effective for fiscal years beginning
after May 15, 2002. The Company does not anticipate that adoption of SFAS
145 will result in any material changes to its financial position or results
of operations.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. Summary of Significant Accounting Policies and Description of Business,
Continued:
In July 2002, the FASB issued SFAS No. 146 (SFAS 146), "Accounting For Costs
Associated with Exit or Disposal Activities." SFAS 146 is effective for
exit or disposal activities initiated after December 31, 2002. The Company
does not anticipate that adoption of SFAS 146 will result in any material
changes to its financial position or results of operations.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45 expands on
the accounting guidance of SFAS No. 5, 57 and 107 and incorporates without
change the provisions of FASB Interpretation No. 34, which is being
superceded. FIN 45 elaborates on existing disclosure requirements for most
guarantees, including standby letters of credit. It also clarifies that
guarantees must be recognized as an initial liability for fair value, or
market value, of the obligations assumed under the guarantee and that this
information must be disclosed in interim and annual financial statements.
FIN 45 applies on a prospective basis to guarantees issued or modified after
December 31, 2002. The Company does not anticipate the adoption of FIN 45
to have a material effect on its consolidated financial position or results
of operations.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 addresses the
consolidation of variable interest entities in which the equity investment
at risk is not sufficient to permit the entity to finance its activities
without additional subordinated financial support from other parties, or the
equity investors lack one or more of the essential characteristics of a
controlling financial interest. FIN 46 requires enterprises to consolidate
and disclose existing unconsolidated variable interest entities in which
they are the primary beneficiaries if the entities do not effectively
disperse risk among the parties involved. FIN 46 also requires disclosures
by an enterprise holding significant interests in variable interest entities
in which it is not a primary beneficiary. FIN 46 applies immediately to
variable interest entities created or in which interest is obtained after
January 31, 2003. FIN 46 applies in the first fiscal year or interim period
beginning after June 15, 2003, to variable interest entities in which an
interest was acquired before February 1, 2003. The Company is currently
assessing the impact of the adoption of FIN 46. The Company does not
anticipate the adoption of FIN 46 to have a material effect on its
consolidated financial position or results of operations. The preliminary
assessment is that the Company's investment in construction joint ventures
does not qualify as a variable interest entity.
Fiscal Year:
The Company has a 52-53 week fiscal year which ends on the last Saturday in
December. The years 2002 and 2001 were 52-week years and 2000 was a 53-week
year.
Reclassifications:
When appropriate, immaterial 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)
2. 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 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 15).
On September 26, 2000, the Company acquired 100% of Walnut Creek Mining
Company ("Walnut Creek"), 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 intangible assets related to this purchase will
be amortized over their useful life of 15 years. No goodwill related to
this transaction was recorded.
On July 31, 2001, a subsidiary of the Company merged with General
Construction Company ("GCC"), a marine construction business located in
Poulsbo, Washington, pursuant to which the Company acquired 100% of the
outstanding common stock of GCC for $48 million. The results of GCC's
operations have been included in the consolidated financial statements since
that date. The merger occurred as part of the Company's plan to expand its
businesses. The following table summarizes the estimated fair value of the
GCC assets acquired and liabilities assumed at the date of acquisition.
As of
(dollars in millions) July 31, 2001
- ------------------------------------------------------------------------
Current assets $ 28
Property and equipment 36
Non-tax deductible goodwill 18
---------
Total assets acquired 82
---------
Current liabilities 20
Long-term debt 5
Deferred taxes 9
---------
Total liabilities assumed 34
---------
Net assets acquired $ 48
=========
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Acquisitions (Continued):
On June 28, 2002, the Company acquired the remaining 20% minority interest
in ME Holding Inc. ("ME"), an electrical subcontractor located in Boston,
Massachusetts. The payment for such minority interest was $17 million.
The following table summarizes the estimated fair value of the ME assets
acquired and liabilities assumed at the date of acquisition.
As of
(dollars in millions) June 28, 2002
- -------------------------------------------------------------------------
Current assets $ 29
Property and equipment 1
Non-tax deductible goodwill 1
-------
Total assets acquired 31
-------
Total liabilities assumed 14
-------
Net assets acquired $ 17
=======
The following unaudited, pro-forma financial information assumes the GCC and
ME acquisitions occurred at the beginning of 2001. 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 2001, or the results which may occur in the future.
(dollars in millions, except per share data) 2002 2001
- -------------------------------------------------------------------------
Revenue $ 3,699 $ 3,940
========== ==========
Net earnings $ 193 $ 177
========== ==========
Net earnings per share:
Basic $ 6.37 $ 5.76
========== ==========
Diluted $ 6.08 $ 5.52
========== ==========
3. Disclosures about Fair Value of Financial Instruments:
The following methods and assumptions were used to determine classification
and fair values of financial instruments:
Investments:
Investments consist of the following at December 28, 2002 and December 28,
2001:
(dollars in millions) 2002 2001
- -------------------------------------------------------------------------
Available-for-sale securities $ 93 $ 87
Investment in limited investment partnership 18 21
--------- ----------
$ 111 $ 108
========= ==========
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. Disclosures about Fair Value of Financial Instruments, Continued:
The following summarizes the amortized cost, unrealized holding gains and
losses, and estimated fair values of available-for-sale securities at
December 28, 2002 and December 29, 2001:
Unrealized Unrealized
Amortized Holding Holding Fair
(dollars in millions) Cost Gains Losses Value
- -----------------------------------------------------------------------------
2002
- ----
U.S. debt securities $ 2 $ - $ - $ 2
Mutual funds 90 2 (1) 91
------- ------- ------- -------
Total $ 92 $ 2 $ (1) $ 93
======= ======= ======= =======
2001
- ----
U.S. debt securities $ 2 $ - $ - $ 2
Mutual funds 85 - - 85
------- ------- ------- -------
Total $ 87 $ - $ - $ 87
======= ======= ======= =======
For debt securities, amortized costs do not vary significantly from
principal amounts. During 2002, realized losses on sales of available-for-
sale securities were $7 million. During 2001, realized gains on sales of
available-for-sale securities were $1 million. Realized gains and losses on
sales of available-for-sale securities were less than $1 million in fiscal
2000.
The contractual maturities of the debt securities are from one to five
years.
The limited investment partnership invests in publicly traded securities
with readily determinable market values. The Company accounts for this
investment utilizing the equity method of accounting. The limited investment
partnership is not material in relation to the financial position or results
of operations of the Company.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. Disclosures about Fair Value of Financial Instruments, Continued:
Retainage on Construction Contracts:
Construction contracts generally provide for progress payments as work is
completed, a portion of which is customarily retained until performance is
substantially complete. Retainage on uncompleted projects, the majority of
which is expected to be collected within one year, is included in
receivables at December 28, 2002 and December 29, 2001.
In some instances, the Company is able to substitute bank letters of credit
or escrowed securities in lieu of a retainage. Substituting securities in
lieu of retainage is a technique employed by construction companies to earn
interest on retained balances. Included in retainage are escrowed
securities which are not yet due, 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.
Included in escrowed securities are stock warrants that are carried at fair
value. Such fair value is based on a valuation model. Unrealized gains and
losses are recognized as a component of investment income in the
Consolidated Statement of Earnings.
The following summarizes the components of retainage on uncompleted projects
which is not yet due included in receivables at December 28, 2002 and
December 29, 2001:
(dollars in millions) 2002 2001
- -----------------------------------------------------------------
Escrowed securities:
Stock warrants $ 19 $ 23
Other securities 39 36
-------- --------
58 59
Other retainage held by owners 94 96
-------- --------
$ 152 $ 155
======== ========
Also included in accounts receivable at December 28, 2002 and December 29,
2001 are $1 million and $1 million, respectively, of securities held by the
owners which are now due as the contracts are completed.
Long-term Debt:
The fair value of debt was estimated using the incremental borrowing rates
of the Company for debt of the same remaining maturities and approximates
the carrying amount.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Investment in Construction Joint Ventures:
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. The Company regularly evaluates the financial stability
of its business partners. Two partners defaulted on their joint venture
obligations, causing the Company to incur losses of $4 million, $6 million
and $8 million during 2002, 2001 and 2000, respectively.
Summary joint venture financial information follows:
Financial Position (dollars in millions) 2002 2001
- -----------------------------------------------------------------------------
Total Joint Ventures
Current assets $ 969 $ 722
Other assets (primarily construction equipment) 52 101
------ ------
1,021 823
Current liabilities (670) (630)
------ ------
Net assets $ 351 $ 193
====== ======
Company's Share
Equity in net assets $ 218 $ 116
Payable (to) from joint ventures 40 (4)
------ ------
Investment in construction joint ventures $ 258 $ 112
----------------------------------------- ====== ======
Operations (dollars in millions) 2002 2001 2000
- -----------------------------------------------------------------------------
Total Joint Ventures
Revenue $ 1,835 $ 1,168 $ 1,129
Costs 1,454 1,135 1,155
------- ------- -------
Operating income (loss) $ 381 $ 33 $ (26)
======= ======= =======
Company's Share
Revenue $ 1,161 $ 647 $ 604
Costs 915 622 622
------- ------- -------
Operating income (loss) $ 246 $ 25 $ (18)
======= ======= =======
Depreciation is computed by the joint ventures using straight-line and
declining balance methods over the estimated useful lives of the assets
which range from 3 to 7 years.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Other Assets:
Other assets consist of the following at December 28, 2002 and December 29,
2001:
(dollars in millions) 2002 2001
- -------------------------------------------------------------------------
Notes receivable $ 10 $ 13
Equity method investment in concrete
products business 7 7
Goodwill (Note 6) 27 25
Other intangibles, net of accumulated
amortization of $9 and $5 53 57
------ ------
$ 97 $ 102
====== ======
The notes receivable are primarily non-interest bearing employee notes.
The equity method investment in concrete products business is a 33% interest
that is not publicly traded and does not have a readily determinable market
value. The equity method investment is not material in relation to the
financial position or results of operations of the Company.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Goodwill and Intangible Assets:
Amortizable intangibles consist of the following at December 28, 2002 and
December 29, 2001:
December 28, 2002 December 29, 2001
---------------------------- ---------------------------
Gross Carrying Accumulated Gross Carrying Accumulated
(dollars in millions) Amount Amortization Amount Amortization
- -----------------------------------------------------------------------------
Coal Contracts $59 $ (9) $59 $ (5)
Other 3 - 3 -
-- --- -- ---
$62 $ (9) $62 $ (5)
== === == ===
Amortization expense recognized on intangibles was $4 million, $4 million
and $1 million for 2002, 2001 and 2000, respectively.
Future amortization expense is estimated to be $4 million for each of the
fiscal years ended 2003-2007.
Following are the carrying amounts of goodwill for the three years ended
December 28, 2002:
(dollars in millions)
Balance as of December 30, 2000 $ 8
Goodwill acquired 18
Amortization expense (1)
-----
Balance as of December 29, 2001 $ 25
Goodwill acquired 2
-----
Balance as of December 28, 2002 $ 27
=====
Following are net earnings and earnings per share as adjusted for the
adoption of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets.":
dollars in millions, except per share data 2002 2001 2000
- -----------------------------------------------------------------------------
Reported net earnings $ 193 $ 175 $ 179
Add back: Goodwill amortization, net of tax - 1 1
------ ------ ------
Adjusted net earnings $ 193 $ 176 $ 180
====== ====== ======
Basic earnings per share:
Reported net earnings $ 6.37 $ 5.72 $ 5.54
Goodwill amortization, net of tax - .03 .05
------ ------ ------
Adjusted basic earnings per share $ 6.37 $ 5.75 $ 5.59
====== ====== ======
Diluted earnings per share:
Reported net earnings $ 6.08 $ 5.49 $ 5.38
Goodwill amortization, net of tax - .02 .05
------ ------ ------
Adjusted diluted earnings per share $ 6.08 $ 5.51 $ 5.43
====== ====== ======
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Long-Term Debt:
At December 28, 2002 and December 29, 2001, long-term debt consisted of the
following:
(dollars in millions) 2002 2001
- ----------------------------------------------------------------------------
6.28% - 8.25% convertible debentures, due 2008-2011 $ 15 $ 16
Stockholder notes and other 9 10
----- -----
24 26
Less current portion - 1
----- -----
$ 24 $ 25
===== =====
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 28, 2002, 1,288,449 shares of stock were reserved for future
conversions.
Scheduled maturities of long-term debt are as follows (in millions): 2003 -
$0; 2004 - $9; 2005 - $0, 2006 - $0; 2007 - $0 and 2008 and thereafter -
$15.
8. 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 28, 2002 follows:
(dollars in millions) 2002 2001 2000
- ----------------------------------------------------------------------------
Current:
U.S. federal $ 94 $ 64 $ 85
Foreign 15 4 10
State 15 9 10
----- ----- -----
124 77 105
Deferred:
U.S. federal 9 30 (4)
Foreign 4 - (4)
State 1 3 -
----- ----- -----
14 33 (8)
----- ----- -----
$ 138 $ 110 $ 97
===== ===== =====
The United States and foreign components of earnings, for tax reporting
purposes, before income taxes, minority interest and discontinued operations
follows:
(dollars in millions) 2002 2001 2000
- ----------------------------------------------------------------------------
United States $ 293 $ 279 $ 254
Foreign 38 8 5
----- ----- -----
$ 331 $ 287 $ 259
===== ===== =====
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. Income Taxes, Continued:
Income tax expense (benefit) is recorded in various places in the Company's
financial statements as detailed below:
(dollars in millions) 2002 2001 2000
- ----------------------------------------------------------------------------
Provision for income taxes $ 138 $ 110 $ 97
Minority interest in net
earnings of subsidiaries * (1) *
Discontinued operations - - 12
Redeemable common stock:
Related to change in:
Foreign currency adjustment * (2) *
Unrealized holding gains/losses * * 1
------- ------- -------
Total income tax expense $ 138 $ 107 $ 110
======= ======= =======
* Income tax expense attributable to these items was less than $.5 million.
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 28, 2002 follows:
(dollars in millions) 2002 2001 2000
- ----------------------------------------------------------------------------
Computed tax at statutory rate $ 116 $ 100 $ 91
State income taxes 17 9 6
Other 5 1 -
------- ------- -------
$ 138 $ 110 $ 97
======= ======= =======
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)
8. Income Taxes, Continued:
The components of the net deferred tax assets for the years ended December
28, 2002 and December 29, 2001 were as follows:
2002 2001
--------------------- --------------------
(dollars in millions) Current Noncurrent Current Noncurrent
- -----------------------------------------------------------------------------
Deferred tax assets:
Construction accounting $ 14 $ 4 $ 4 $ 4
Joint venture investments 9 2 35 -
Insurance claims 27 1 26 1
Other 7 1 4 -
Valuation allowance (2) - - -
---- ---- ---- ----
Total deferred tax assets 55 8 69 5
Deferred tax liabilities:
Asset bases/accumulated depreciation - (18) - (17)
Other (10) (21) (10) (18)
---- ---- ---- ----
Total deferred tax liabilities (10) (39) (10) (35)
---- ---- ---- ----
Net deferred tax assets $ 45 $ (31) $ 59 $ (30)
==== ==== ==== ====
Because of its historical earnings, its current backlog and various other
factors, the Company believes that it is more likely than not that its
deferred tax assets will be realized, therefore, no valuation allowance has
been established for U.S. income tax purposes. The valuation allowance
reflected above relates to the Company's Canadian operations. Based on the
Company's review of their Canadian operations, certain deferred tax assets
related to Canadian net operating losses may not be realized.
9. Employee Benefit Plans:
The Company makes contributions, based on collective bargaining agreements
related to its construction operations, to several multi-employer union
pension plans. Total contributions related to these multi-employer union
pension plans were $46 million in 2002, $42 million in 2001 and $42 million
in 2000. 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 20% of the employees of the Company are covered under the
Company's profit sharing plan. The expense related to the profit sharing
plan was $4 million in 2002, $2 million in 2001 and $8 million in 2000.
The Company sponsors a 401(k) plan covering all domestic employees.
Employees may contribute up to 30% of their pay and the Company generally
does not provide matching contributions. Certain labor agreements require
the Company to match employee contributions; however, such contributions
were less than $1 million for each of the twelve months ended December 28,
2002, December 29, 2001 and December 30, 2000.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10. Redeemable Common Stock:
Ownership of Common Stock is generally restricted to active Company
employees and directors and conditioned upon the execution of repurchase
agreements which restrict the transfer of the Common Stock. PKS 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 28, 2002, were as follows:
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
Shares issued in 2001 2,130,210
Shares repurchased in 2001 (2,801,725)
------------
Balance at December 29, 2001 31,588,125
Shares issued in 2002 1,670,450
Shares repurchased in 2002 (1,970,220)
------------
Balance at December 28, 2002 31,288,355
===========
11. Segment and Geographic Data:
The Company primarily operates in the construction industry and currently
has one reportable operating segment. 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,
mass transit and rail); power, heat, cooling; commercial buildings; sewage
and solid waste; water supply/dams; petroleum; mining; and telecommunication
infrastructure. As described in Note 15, 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 12 is excluded from the segment information
that follows as it is included in other income on the Consolidated
Statements 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 2002 2001 2000
(dollars in
millions) Construction Other Construction Other Construction Other
- ----------- ------------ ----- ------------ ----- ------------ -----
Revenue-external
customers $ 3,656 $ 43 $ 3,829 $ 42 $ 4,451 $ 12
======= ===== ======= ===== ======= =====
Depreciation and
amortization $ 80 $ 9 $ 62 $ 9 $ 53 $ 2
======= ===== ======= ===== ======= =====
Operating
Earnings $ 317 $ 9 $ 252 $ 11 $ 174 $ (2)
======= ===== ======= ===== ======= =====
- -----------------------------------------------------------------------------
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. Segment and Geographic Data (Continued):
Geographic Data (dollars in millions) 2002 2001 2000
- ---------------------------------------------------------------------------
Revenue, by location of services provided:
United States $ 3,428 $ 3,649 $ 4,269
Canada 269 222 194
Other 2 - -
------- ------- -------
$ 3,699 $ 3,871 $ 4,463
======= ======= =======
Long-lived assets:
United States $ 316 $ 279 $ 184
Canada 11 6 4
------- ------- -------
$ 327 $ 285 $ 188
======= ======= =======
During 2001 and 2000, revenue recognized from Level 3 Communications, Inc.
("Level 3") represented 20.1% and 39.8%, respectively, of the Company's
total revenue. Receivables from Level 3 at December 28, 2002 and December
29, 2001 were $11 million and $71 million, respectively. Also included in
accounts receivable retainage at December 28, 2002 and December 29, 2001,
respectively, were $19 million and $23 million of stock warrants from Level
3 which are carried at estimated fair value.
12. Management Fees:
The Company manages coal mines for an unrelated party. Fees for these
services were $7 million, $5 million and $29 million for 2002, 2001 and
2000, respectively. The Company's fee is a percentage of adjusted operating
earnings of the coal mines, as defined in the mine management agreement.
The mines managed by the Company 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.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. Other Comprehensive Income (Loss):
Other comprehensive income (loss) consisted of the following (dollars in
millions):
Tax
(Expense)
Before Tax Benefit After Tax
---------- --------- ---------
For the year ended December 28, 2002
- ------------------------------------
Unrealized holding gain:
Unrealized holding losses arising
during the period $ (6) $ 2 $ (4)
Less reclassification adjustment
for losses realized in
net earnings 7 (2) 5
---------- -------- ---------
1 - 1
Foreign currency translation
adjustments 1 - 1
---------- -------- ---------
Other comprehensive income
December 28, 2002 $ 2 $ - $ 2
========== ======== =========
For the year ended December 29, 2001
- ------------------------------------
Foreign currency translation
adjustments $ (6) $ 2 $ (4)
---------- -------- ---------
Other comprehensive loss
December 29, 2001 $ (6) $ 2 $ (4)
========== ======== =========
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
========== ======== =========
- ----------------------------------------------------------------------------
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 25, 1999 $ (7) $ (3) $ (10)
Change during the year - 3 3
------- ------- -------
Balance at December 30, 2000 (7) - (7)
Change during the year (4) - (4)
------- ------- -------
Balance at December 29, 2001 (11) - (11)
Change during the year 1 1 2
------- ------- -------
Balance at December 28, 2002 $ (10) $ 1 $ (9)
======= ======= =======
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. Related Party Transactions:
Elk Mountain Ventures, Inc. ("EMV"), a corporation controlled by Mr. Walter
Scott, Jr., a director of PKS, and the Company are parties to various
aircraft operating agreements pursuant to which the Company provides EMV
with aircraft maintenance, operations and related services. EMV reimbursed
the Company approximately $1 million in expenses incurred with the operation
of EMV's aircraft during 2002, 2001 and 2000.
The Company provided various construction related services to Mr. Scott.
Mr. Scott paid the Company approximately $9 million, $13 million, and $5
million in connection with those services during 2002, 2001 and 2000,
respectively. During 2001, Mr. Scott purchased 1,514,840 warrants to
purchase shares of Common Stock of Level 3 from the Company for $5 million.
The Company's acquisition cost of such warrants was $5 million.
During 2001, Mr. William L. Grewcock, a director of the Company, purchased
1,514,840 warrants to purchase shares of Common Stock of Level 3 from the
Company for $5 million. The Company's acquisition cost of such warrants was
$5 million.
15. Other Matters:
Proposed Conversion to Partnership:
At the July 25, 2002 meeting of PKS' Board, the Directors gave preliminary
approval to pursue a corporate reorganization plan which would change the
legal ownership structure of PKS from a corporation to a limited
partnership. PKS is continuing to study the feasibility of the proposed
reorganization. If effected, the plan is anticipated to have minimal
impacts on the Company's business operations.
Materials Spin-Off:
On September 30, 2000, PKS 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 PKS in a Spin-off (the
"Materials Spin-off"). In the Materials Spin-off, each stockholder of PKS
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, PKS also completed a share exchange
offer and debenture exchange offer, pursuant to which holders of Common
Stock and PKS' convertible debentures collectively exchanged 1,081,226
shares of Common Stock and $13,095,000 principal amount of PKS' 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 PKS' new reduced principal convertible debentures. As a
result of the Materials Spin-off, PKS and Materials operated as two separate
independent companies.
On September 25, 2002, Materials was acquired by Jem Lear Acquisition
Company, Inc., a wholly-owned subsidiary of Rinker Materials Corporation.
In connection with the Materials Spin-off, Materials and PKS 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 PKS and for cross-
indemnifications that are intended to allocate financial responsibility to
PKS for liabilities arising out of the construction business and to allocate
to Materials liabilities arising out of the Materials Businesses.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
15. Other Matters (Continued):
Under the Materials Tax Sharing Agreement, with respect to periods, or
portions thereof, ending on or before the Materials Spin-off, Materials and
PKS 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 PKS 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 PKS, 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.
In accordance with APB 30, the 2000 consolidated statement of earnings of
the Company has been reclassified to reflect the spin-off of the Company's
materials business (the "Materials Business") that occurred on September 30,
2000. 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 financial
statements.
Summarized financial information for the discontinued operations follows:
(dollars in millions) 2000
- -----------------------------------------------------------------------------
Revenues $ 360
=======
Income from discontinued operations (after
applicable income taxes of $13) $ 20
Loss on disposal of business* (after applicable
income tax benefit of $1) (2)
-------
Income from discontinued operations $ 18
=======
*The loss on disposal of the Materials Business for the twelve months ended
December 30, 2000 reflects the costs directly associated with the
disposition.
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.
Disposition:
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.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
15. Other Matters (Continued):
Other:
On April 25, 2001, Bibb and Associates, Inc. ("Bibb"), a subsidiary of PKS,
was served with a complaint (the "Complaint") filed in the Circuit Court of
Jackson County, Missouri (the "Court"), in an action brought by Kansas City
Power & Light ("KCPL") with respect to a January 13, 1999 explosion at
KCPL's Hawthorn No. 5 power plant. The Complaint lists a total of 13
defendants, and generally alleges as to Bibb, strict liability, negligence,
professional gross negligence, fraud, negligent misrepresentation and
wrongful inducement to contract. The Complaint also names PKS, and alleges
that PKS is either the alter ego of Bibb or the successor to Bibb's
liability. The Complaint alleges damages in excess of $450 million
including property damage, costs of replacement of power and lost profits.
PKS believes that the factual allegations and legal claims asserted against
Bibb and PKS are without merit and intends to vigorously defend them.
On November 19, 2002, a suit was filed in the District Court, City and
County of Broomfield, Colorado for an unspecified amount of damages by Gary
Haegle, derivatively on behalf of Level 3 Communications, Inc. ("Level 3"),
against Walter Scott, Jr., James Q. Crowe, R. Douglas Bradbury, Charles C.
Miller, III, Kevin V. O'Hara, Mogens C. Bay, William L. Grewcock, Richard
Jaros, Robert E. Julian, David C. McCourt, Kenneth E. Stinson, Michael B.
Yanney, Colin V. K. Williams (collectively, the "Level 3 Directors") and
PKS. The suit alleges that the Level 3 Directors breached their fiduciary
duty with respect to various transactions between Level 3 and PKS, and that
PKS aided and abetted the Level 3 Directors in their alleged breach of
fiduciary duty. The suit also alleges that PKS exercised improper control
over certain of the Level 3 Directors. PKS believes that the factual
allegations and legal claims made against it are without merit and intends
to vigorously defend them.
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 mineral properties, buildings and equipment under
noncancelable operating lease agreements. Future minimum lease commitments
are as follows (dollars in millions):
2003 $ 7
2004 6
2005 5
2006 4
2007 3
Thereafter 7
---------
$ 32
=========
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 standby letters of credit. Standby letters of credit are
conditional commitments issued by financial institutions for the Company
naming owners and other third parties as beneficiaries in accordance with
specified terms and conditions. The Company has informal arrangements with
a number of banks to provide such commitments. At December 28, 2002, the
Company had outstanding letters of credit of approximately $219 million.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
16. Quarterly Information (Unaudited):
(dollars in millions, March June September December
except per share data) 2002 2001 2002 2001 2002 2001 2002 2001
- -----------------------------------------------------------------------------
Revenue $ 809 $ 972 $ 878 $ 968 $1,132 $1,004 $ 880 $ 927
==== ==== ==== ==== ===== ===== ==== ====
Gross profit $ 61 $ 46 $ 114 $ 75 $ 173 $ 84 $ 166 $ 222
==== ==== ==== ==== ===== ===== ==== ====
Net earnings $ 10 $ 5 $ 40 $ 27 $ 79 $ 26 $ 64 $ 117
==== ==== ==== ==== ===== ===== ==== ====
Earnings per common share:
Basic $ .32 $ .17 $1.37 $ .91 $ 2.59 $ .84 $2.05 $3.69
==== ==== ==== ==== ===== ===== ==== ====
Diluted $ .31 $ .16 $1.30 $ .88 $ 2.46 $ .81 $1.97 $3.52
==== ==== ==== ==== ===== ===== ==== ====
Dividends paid per share
$ .30 $ .30 $ .40 $ .35 $ - $ - $ - $ -
==== ==== ==== ==== ===== ===== ==== ====
During the normal course of business, the Company settles claims and
recognizes income in the period in which such claims are settled. During
December 2001, the Company settled a claim which significantly impacted
fourth quarter earnings.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosures.
On October 10, 2001, PKS dismissed PricewaterhouseCoopers LLP as its
principal independent accountant for the fiscal year ended December 29, 2001
and engaged KPMG LLP.
The reports of PricewaterhouseCoopers LLP for the fiscal year ended December
30, 2000 did not contain any adverse opinion or disclaimer of opinion that
were not qualified or modified as to uncertainty, audit scope or accounting
principles. In addition, during the fiscal year ended December 30, 2000 and
the interim period from December 31, 2000 through October 10, 2001, there
were no disagreements between PKS and PricewaterhouseCoopers LLP on any
matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of PricewaterhouseCoopers LLP, would have
caused it to make reference to the subject matter of the disagreements in
connection with its reports on such financial statements of PKS for such
years. No event as described in paragraph (a) (1) (v) of Item 304 of
Regulation S-K has occurred within PKS' fiscal year ended December 30, 2000
or the period from December 31, 2000 through October 10, 2001.
The decision to change principal independent accountants was approved by
PKS' audit committee and board of directors.
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 and
Related Stockholder Matters.
Item 13. Certain Relationships and Related Transactions.
The information required by Part III is incorporated by reference to PKS'
definitive proxy statement for the 2003 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.
Item 14. Controls and Procedures
Under the supervision and with the participation of PKS' management,
including PKS' Chief Executive Officer and Chief Financial Officer, PKS has
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures within 90 days of the filing date of this annual
report, and, based on their evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that these disclosure controls and
procedures are effective. There were no significant changes in PKS'
internal controls or in other factors that would significantly affect these
controls subsequent to the date of their evaluation.
PART IV
Item 15. 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 28, 2002 and
December 29, 2001 and for the three years ended December 28, 2002:
Independent Auditors' Report dated February 28, 2003 of KPMG LLP
Report of Independent Accountants dated March 5, 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
28, 2002:
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 PKS' 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 'PKS' 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 PKS' 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 PKS' Registration Statement on Form S-8
filed October 5, 1998).
4.3 Form of Debenture (Exhibit 4.4 to PKS' Registration
Statement on Form S-8 filed October 5, 1998).
4.4 Form of Repurchase Agreement for Convertible Debentures
(Exhibit 4.5 to PKS' Registration Statement on Form S-8
filed October 5, 1998).
16 Letter re: change in certifying accountants (Exhibit 16.1
to PKS' Form 8-K filed October 12, 2001)
21 List of Subsidiaries of the Company
99.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
99.2 Certificate of Chief Financial Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the last quarter of 2002.
Schedule II
Valuation and Qualifying Accounts and Reserves
Additions
Balance Charged to Amounts Balance
Beginning Costs and Charged to End of
(dollars in millions) Of Period Expenses Reserves Other* Period
- -----------------------------------------------------------------------------
Year ended December 28, 2002
- ----------------------------
Allowance for doubtful
trade accounts $ 7 $ 10 $ (4) $ - $ 13
Reserves:
Insurance claims $ 65 $ 19 $ (18) $ - $ 66
Year ended December 29, 2001
- ----------------------------
Allowance for doubtful
trade accounts $ 4 $ 4 $ (1) $ - $ 7
Reserves:
Insurance claims $ 64 $ 19 $ (20) $ 2 $ 65
Year ended December 30, 2000
- ----------------------------
Allowance for doubtful
trade accounts $ 7 $ 2 $ (4) $ (1) $ 4
Reserves:
Insurance claims $ 84 $ - $ (11) $ (9) $ 64
- -----------------------------------------------------------------------------
* On September 30, 2000, as discussed in Note 15, PKS spun-off its Materials
Business. On July 31, 2001, as discussed in Note 2, the Company acquired a
marine construction 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 14, 2003 Tobin A. Schropp, Senior 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
Kenneth E. Stinson Chief Executive Officer
(Principal Executive Officer) March 14, 2003
/s/ Michael J. Piechoski Chief Financial Officer and
Michael J. Piechoski Vice President
(Principal Financial Officer) March 14, 2003
/s/ Gregory D. Brokke Controller
Gregory D. Brokke (Principal Accounting Officer) March 14, 2003
/s/ Mogens C. Bay Director March 14, 2003
Mogens C. Bay
/s/ Richard W. Colf Director March 14, 2003
Richard W. Colf
/s/ James Q. Crowe Director March 14, 2003
James Q. Crowe
/s/ Richard Geary Director March 14, 2003
Richard Geary
/s/ Bruce E. Grewcock Director March 14, 2003
Bruce E. Grewcock
/s/ William L. Grewcock Director March 14, 2003
William L. Grewcock
/s/ Allan K. Kirkwood Director March 14, 2003
Allan K. Kirkwood
/s/ Michael R. McCarthy Director March 14, 2003
Michael R. McCarthy
/s/ Douglas E. Patterson Director March 14, 2003
Douglas E. Patterson
/s/ Walter Scott, Jr. Director March 14, 2003
Walter Scott, Jr.
/s/ George B. Toll, Jr. Director March 14, 2003
George B. Toll, Jr.
CERTIFICATIONS
I, Kenneth E. Stinson, Chief Executive Officer, certify that:
1. I have reviewed this annual report on Form 10-K of Peter Kiewit Sons',
Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 14, 2003
/s/ Kenneth E. Stinson
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Kenneth E. Stinson
Chief Executive Officer
I, Michael J. Piechoski, Chief Financial Officer, certify that:
1. I have reviewed this annual report on Form 10-K of Peter Kiewit Sons',
Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 14, 2003
/s/ Michael J. Piechoski
- ---------------------------
Michael J. Piechoski
Chief Financial Officer