UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission file number
March 31, 1998 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)
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 [ ]
The number of shares outstanding of each of the
registrant's classes of common stock as of May 12,
1998:
Title of Class Shares Outstanding
Common Stock, $0.01 par value 7,663,756
PETER KIEWIT SONS', INC.
Index
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Condensed Statements of Earnings for the three months
ended March 31, 1998 and 1997 2
Consolidated Condensed Balance Sheets as of March 31, 1998 and
December 27, 1997 3
Consolidated Condensed Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 4
Notes to Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II - OTHER INFORMATION
Item 2. Changes in Securities. 13
Item 4. Submission of Matters to a Vote of Security Holders. 13
Item 6. Exhibits and Reports on Form 8-K. 14
Signatures 15
Index to Exhibits 16
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
PETER KIEWIT SONS', INC.
Consolidated Condensed Statements of Earnings
(unaudited)
Three Months Ended
March 31,
(dollars in millions, except per share data) 1998 1997
Revenue $ 732 $ 529
Cost of Revenue (703) (497)
------ ------
29 32
General and Administrative Expenses (38) (34)
------ ------
Operating Loss (9) (2)
Other Income (Expense):
Investment Income, net 2 3
Interest Expense, net - -
Other, net 13 23
------ ------
15 26
------ ------
Earnings Before Income Taxes 6 24
Provision for Income Taxes (2) (9)
Net Earnings $ 4 $ 15
======== ========
Net Earnings per Share:
Basic $ .44 $ 1.65
======== ========
Diluted $ .44 $ 1.58
======== ========
See accompanying notes to consolidated condensed financial statements.
PETER KIEWIT SONS', INC.
Consolidated Condensed Balance Sheets
March 31, December 27,
1998 1997
(dollars in millions) (unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 170 $ 232
Marketable securities 24 26
Receivables, less allowance of $9 and $9 459 430
Costs and earnings in excess of
billings on uncompleted contracts 103 119
Investment in construction joint ventures 130 176
Deferred income taxes 67 61
Other 15 13
------- -------
Total Current Assets 968 1,057
Property, Plant and Equipment, less accumulated
depreciation and amortization of $454 and $446 200 197
Other Assets 78 87
------- -------
$ 1,246 $ 1,341
Liabilities and Redeemable Common Stock
Current Liabilities:
Accounts payable, including retainage
of $37 and $37 $ 179 $ 208
Current portion of long-term debt 10 5
Accrued construction costs and billings in excess
of revenue on uncompleted contracts 292 217
Accrued insurance costs 79 76
Other 71 73
------- -------
Total Current Liabilities 631 579
Long-term debt, less current portion 8 22
Other Liabilities 80 77
Minority Interest 11 11
------- -------
Total Liabilities 730 689
Redeemable Common Stock ($393 million aggregate
redemption value in 1998):
Common stock, par $0.01 and $0.0625, 7,678,030 and
10,132,343 shares outstanding in 1998 and 1997,
respectively - 1
Additional paid in capital 89 116
Foreign currency adjustment (6) (7)
Net unrealized holding loss (9) (11)
Retained earnings 442 553
------- -------
Total Redeemable Common Stock 516 652
------- -------
$ 1,246 $ 1,341
======= =======
See accompanying notes to consolidated condensed financial statements.
PETER KIEWIT SONS', INC.
Consolidated Condensed Statements of Cash Flows
(unaudited)
Three Months Ended
March 31,
(dollars in millions) 1998 1997
Cash flows from operations:
Net cash provided by operations $ 104 $ 27
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 5 21
Purchases of marketable securities (3) (11)
Proceeds from sales of property, plant
and equipment 4 22
Acquisitions (2) (3)
Distributions from investees 4 -
Capital expenditures (21) (32)
-------- -------
Net cash used in investing activities (13) (3)
Cash flows from financing activities:
Long-term debt borrowing 5 -
Repurchases of common stock (30) (1)
Dividends paid (6) (7)
Exchange of Class C Stock for Class D Stock, net (122) (71)
-------- ------
Net cash used in financing activities (153) (79)
-------- ------
Net decrease in cash and cash equivalents (62) (55)
Cash and cash equivalents at beginning of period 232 173
-------- ------
Cash and cash equivalents at end of period $ 170 $ 118
======== ======
See accompanying notes to consolidated condensed financial statements.
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
1. Basis of Presentation:
Peter Kiewit Sons', Inc. (the "Company") was
formed by its former parent, Level 3
Communications, Inc. (formerly Peter Kiewit Sons',
Inc.) ("Level 3"), in connection with a
transaction (the "Transaction") intended to
separate the construction business and the
diversified business of Level 3 into two
independent companies. On March 31, 1998,
pursuant to the terms of a Separation Agreement
between the Company, Level 3 and certain other
parties (the "Separation Agreement"), Level 3
consummated the Transaction by: (i) transferring
100 shares of the $100 par value common stock
("KCG Stock") of Kiewit Construction Group Inc.
("KCG"), representing all of the issued and
outstanding shares of KCG Stock, as well as
certain other assets and liabilities related to
the construction and mining business which
together comprised the Construction and Mining
Group (the "Construction & Mining Group"), to
the Company in exchange for 7,677,920 shares of
the $.01 par value common stock of the Company
("Common Stock") (125 million shares authorized)
and (ii) distributing 100% of its shares of the
Common Stock to the holders of Level 3's $0.0625
par value Class C Construction & Mining Group
Restricted Redeemable Convertible Exchangeable
Common Stock ("Class C Stock") as of March 31,
1998, in exchange for such shares of Class C
Stock. Prior to the Transaction, the Company was
a wholly-owned subsidiary of Level 3. As a result
of the Transaction, the Company is now owned by
the former holders of Level 3's Class C Stock. As
the Construction & Mining Group comprises all of
the net assets and operations of the Company, the
Construction & Mining Group is the Company's
predecessor. Thus, the financial position,
results of operations and cash flows presented for
all periods prior to March 31, 1998 are those of
the Construction & Mining Group.
The consolidated condensed balance sheet of the
Company at December 27, 1997 has been condensed
from the Construction & Mining Group's audited
balance sheet as of that date. All other
financial statements contained herein are
unaudited and, in the opinion of management,
contain all adjustments (consisting only of normal
recurring accruals) necessary for a fair
presentation of financial position and results of
operations for the periods presented. The
Company's accounting policies and certain other
disclosures are set forth in the notes to the
financial statements of the Construction and
Mining group for the year ended December 27, 1997
contained in the Company's Current Report on Form
8-K, dated March 27, 1998, filed April 13, 1998
and amended May 1, 1998.
Receivables at March 31, 1998 and December 27,
1997 include approximately $80 million and $88
million, respectively of retainage on uncompleted
projects, the majority of which is expected to be
collected within one year. Included in the
retainage amounts are $46 million and $44 million
of securities which are being held by the owners
of various construction projects in lieu of
retainage.
The results of operations for the three months
ended March 31, 1998 are not necessarily
indicative of the results to be expected for the
full year.
When appropriate, items within the consolidated
condensed financial statements have been
reclassified in the previous periods to conform to
current year presentation.
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
2. Earnings Per Share:
Basic earnings per share have been computed using
the weighted average number of shares outstanding
during each period. Diluted earnings give effect
to convertible debentures considered to be
dilutive common stock equivalents. Dilutive
potential common shares 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.
Three Months Ended
March 31,
1998 1997
Net earnings available to common shareholders
(in millions) $ 4 $ 15
Add: Interest expense, net of tax effect,
associated with convertible debentures* - -
Net earnings for diluted shares $ 4 $ 15
Total number of weighted average shares
outstanding used to compute basic earnings
per share (in thousands) 8,054 9,321
Additional dilutive shares assuming conversion
of convertible debentures 93 437
Total number of shares used to compute diluted
earnings per share 8,147 9,758
Net earnings
Basic earnings per share $ .44 $ 1.65
Diluted earnings per share $ .44 $ 1.58
* Interest expense attributable to convertible
debentures was less than $.5 million in 1998 and 1997.
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
3. Comprehensive Income:
In the first quarter of 1998, the Company adopted
Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive
Income". SFAS 130 establishes new rules for the
reporting of comprehensive income and its
components; however the adoption of the standard
had no impact on the Company's current or
previously reported net income or redeemable
common stock. The standard requires the display
and reporting of comprehensive income, which
includes all changes in stockholders' equity with
the exception of additional investments by
stockholders or distributions to stockholders.
Comprehensive income for the Company includes net
income, unrealized gains (losses) on securities,
and foreign currency translation adjustments,
which are charged or credited to the cumulative
translation account within redeemable common
stock. Comprehensive income for the three months
ended March 31, 1998 and 1997 was as follows:
Three Months Ended
March 31,
1998 1997
Net Earnings $ 4 $ 15
Other comprehensive income, before tax:
Foreign currency translation adjustments 2 3
Unrealized gains (losses) arising during period 3 (18)
Income tax (expense) benefit related to items of
other comprehensive income (2) 6
---- ----
Comprehensive Income $ 7 $ 6
=== ====
4. Preferred Stock:
The Company has authorized 250,000 shares of no
par value Preferred Stock, the terms of which
shall be determined from time-to-time by the board
of directors. No shares of Preferred Stock are
currently issued and outstanding.
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
5. Other Matters:
The Company is involved in various lawsuits,
claims and regulatory proceedings incidental to
its business. Management believes that any
resulting liability, beyond that provided, should
not materially affect the Group's financial
position, future results of operations or future
cash flows.
In connection with the Transaction, the Company
and Level 3 entered into various agreements
including a Separation Agreement, a Tax Sharing
Agreement and an amended Mine Management
Agreement.
The Separation Agreement provides for the
allocation of certain risks and responsibilities
between Level 3 and the Company and for cross-
indemnifications that are intended to allocate
financial responsibility to the Company for
liabilities arising out of the construction
business and to allocate to Level 3 financial
responsibility for liabilities arising out of the
non-construction businesses. The Separation
Agreement also allocates certain corporate-level
risk exposures not readily allocable to either the
construction businesses or the non-construction
businesses.
Under the Tax Sharing Agreement, with respect to
periods, or portions thereof, ending on or before
the closing date of the Transaction, Level 3 and
the Company generally will be responsible for
paying the taxes relating to such periods,
including any subsequent adjustments resulting
from the redetermination of such tax liabilities
by the applicable taxing authorities, that are
allocable to the non-construction businesses and
construction businesses, respectively. The Tax
Sharing Agreement also provides that Level 3 and
the Company will indemnify the other from certain
taxes and expenses that would be assessed if the
Transaction was determined to be taxable, but
solely to the extend that such determination arose
out of the breach by Level 3 or the Company,
respectively, of certain representations made to
the Internal Revenue Service in connection with
the ruling issued with respect to the Transaction
or made in the Tax Sharing Agreement. If the
Transaction was determined to be taxable for any
other reason, those taxes ("Transaction Taxes")
would be allocated 82.5% to Level 3 and 17.5% to
the Company. Finally, under certain
circumstances, Level 3 would make certain
liquidated damage payments to the Company if the
Transaction was determined to be taxable in order
to take into account the fact that the Transaction
is taxable to the holders of Common Stock.
Additionally, the Mine Management Agreement,
pursuant to which the Company provides mine
management and related services to Level 3's coal
mining operations, was amended to provide the
Company with a right of offer in the event that
Level 3 were to determine to sell any or all of
its coal mining properties. Under the right of
offer, Level 3 would be required to offer to sell
those properties to the Company at the price that
Level 3 would seek to sell the properties to a
third party. If the Company were to decline to
purchase the properties at that price, Level 3
would be free to sell them to a third party for an
amount greater than or equal to that price. If
Level 3 were to sell the properties to a third
party, thus terminating the Mine Management
Agreement, it would be required to pay the Company
an amount equal to the discounted present value of
the Mine Management Agreement, determined, if
necessary, by an appraisal process.
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
6. Subsequent Event:
Prior to the consummation of the Transaction,
Level 3's certificate of incorporation gave
stockholders the right to exchange their Class C
Stock for Level 3's Class D Diversified Group
Convertible Exchangeable Common Stock ("Class D
Stock") under a set conversion formula. That
right was eliminated as a result of the
Transaction. To replace that conversion right,
Class C stockholders received 6.5 million shares
of Level 3's new Class R Convertible Common Stock
("Class R Stock") in January, 1998, which is
convertible into Level 3's Common Stock in
accordance with terms ratified by stockholders in
December, 1997.
In May, 1998, the Level 3 Board of Directors
approved a plan to force conversion of all shares
of Class R Stock outstanding, as of May 15, 1998.
As a result of such conversion and as provided in
the Separation Agreement and Tax Sharing
Agreement, certain adjustments will be made to the
cost sharing and risk allocation provisions of
such agreements, including, among others, the
payment by the Company of approximately $5 million
in additional third party costs and expenses
associated with the Transaction, and the
allocation of the Transaction Taxes, 50% to Level
3 and 50% to the Company.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
PETER KIEWIT SONS', INC.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - First Quarter 1998 vs. First Quarter 1997
This document contains forward looking statements and
information that are based on the beliefs of
management as well as assumptions made by and
information currently available to the Company. When
used in this document, the words "anticipate",
"believe", "estimate" and "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 or 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.
Revenue from each of the Company's businesses was (in millions):
Three Months Ended
March 31,
1998 1997
Construction $ 661 $ 471
Materials 71 58
------- -------
$ 732 $ 529
======= =======
Construction. Construction revenue for the first
quarter of 1998 increased $190 million or 40% from the
same period in 1997. This resulted primarily from two
factors. The "I-15" project, which is a $780 million
design-build joint venture to reconstruct 16 miles of
Interstate 15 through the Salt Lake City, Utah area,
was active for the entire quarter in 1998, but was not
started until after the first quarter of 1997. Also,
the domestic power market has improved and the current
quarter reflects revenue from several power plants
started after the first quarter of 1997.
Contract backlog at March 31, 1998 was $4.2 billion of
which 5% is attributable to foreign operations located
in Canada, Indonesia and the Philippines. Domestic
projects are spread geographically throughout the U.S.
Margins on construction projects for the first quarter
of 1998 decreased to 4.0% compared to 7.0% in 1997.
Due to the favorable resolution of project
uncertainties, change order settlements, and cost
savings or early completion bonuses, the first quarter
of 1997 had an unusually high margin. Margins in the
first quarter of 1995 and 1996 were 3.3% and 5.5%
respectively.
In September of 1997, a Presidential Decree was issued
in Indonesia affecting the construction and start-up
dates for a number of private power projects. As a
result of the Decree and the continued fluctuations in
the value of the Indonesian currency, several projects
in Indonesia for a U.S. client, included in contract
backlog at $155 million, could be terminated as a
result of actions by the Indonesian government. The
Company does not anticipate that termination will have
a material adverse effect as payment has been received
for all work performed and the costs of demobilizing
the projects would not be significant.
PETER KIEWIT SONS', INC.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Materials. Materials revenue increased $13 million or
22% over 1997. A continued strong market for material
products in Arizona, resulting in additional unit
sales and stronger selling prices accounted for
approximately $6 million of the increase. The
remainder was a result of the acquisition of
additional plant sites in 1997, and the inclusion in
1998 of the revenue from a coal mine in Alabama,
purchased in April, 1997.
Margins on materials operations increased by $1
million or 25% in 1998 due to higher revenue. Margins
as a percent of revenue remained constant during the
first quarter of 1998 compared to the same time period
in 1997.
General and Administrative Expenses. General and
administrative expenses increased 15% in 1998. The
increase was attributable to increased costs related
to higher Construction and Materials revenues. G & A
expense, as a percent of revenue, decreased from 6.5%
in 1997 to 5.3% in 1998 because additional
administrative expense did not increase at the same
rate as construction and materials activity.
Investment Income, net. Cash used in conversions of
Class C Stock to Level 3's Class D Stock prior to the
consummation of the Transaction caused a decline in
the average investment portfolio balance, which led to
a decline in interest income.
Other, net. Other income is primarily comprised of
mine management fee income from Level 3 and gains and
losses on the disposition of property, plant and
equipment and other assets. The $10 million decline
results from a decrease in the amount of equipment
sold during 1998.
Financial Condition - March 31, 1998 vs. December 27, 1997
The Company's working capital decreased $141 million
or 30% during the first quarter of 1998. The decline
was primarily due to cash used when shareholders
elected to exchange their Class C Stock for Class D
Stock, which amounted to $122 million, and repurchases
of Class C Stock of $30 million. In addition, the
Company had capital expenditures of $21 million.
Partially funding these outflows was $104 million of
cash provided by operations, of which $26 million was
provided by distributions of excess cash from
construction joint ventures and the remainder was
attributable to positive cash flow in the early stages
of construction contracts.
The Company anticipates investing between $40 and $75
million annually in its construction business. In
addition to normal spending, the Company expects to
make significant investments in new construction joint
ventures in 1998. The Company continues to explore
opportunities to acquire additional businesses. Other
long-term liquidity uses include the payment of income
taxes and repurchases of common stock and the payment
of dividends, including an $.80 per share dividend
declared in April and payable in May, 1998. The
Company's current financial condition and borrowing
capacity together with anticipated cash flows from
operations should be sufficient for immediate cash
requirements and future investing activities.
PART II - OTHER INFORMATION
Item 2. Changes in Securities.
(a) The Certificate of Incorporation of Peter
Kiewit Sons', Inc. (the "Company") was amended and
restated pursuant to a Restated Certificate of
Incorporation was filed with the Delaware Secretary of
State on March 19, 1998. The Restated Certificate of
Incorporation increased the number of shares of
authorized capital stock of the Company from 1,000
shares of $0.01 par value common stock ("Common
Stock") to 125,250,000 shares, of which 250,000 shares
are preferred stock, with no par value per share, and
of which 125,000,000 shares are Common Stock. The
Restated Certificate also imposed restrictions on the
Common Stock. The description of these restrictions and
other terms of the Common Stock are incorporated herein
by reference to the Company's Registration Statement
on Form S-4 (File No. 333-34627) as filed with the
Securities and Exchange Commission under the
Securities Act of 1933, as amended, on August 29,
1997, amended by Amendment No. 1 to the Registration
Statement on Form S-4 filed on October 10, 1997,
Amendment No. 2 to the Registration Statement on Form
S-4 filed on November 6, 1997 and Amendment No. 3 to
the Registration Statement on Form S-4 filed on
November 10, 1997 (the "Registration Statement").
(d) The Company filed the Registration Statement
with respect to 10,519,662 shares of Common Stock,
which Registration Statement was effective on November
11, 1997. The aggregate offering price of the Common
Stock registered pursuant to the Registration
Statement was $420,786,480.
The Registration Statement related to a proposed
distribution of shares of Common Stock by the Company
to its former parent, Level 3 Communications, Inc.
("Level 3"), in exchange for Level 3's construction
and mining business (the "Transaction"). Level 3 then
proposed to distribute all of its shares of Common
Stock to the holders of Level 3's $0.0625 par value
Class C Construction & Mining Group Restricted
Redeemable Convertible Exchangeable Common Stock
("Class C Stock") in exchange for all of such Class C
Stock. Level 3's Class C Stock "tracked" the
performance of Level 3's construction and mining
business.
The distribution of shares of Common Stock
contemplated by the Registration Statement commenced,
was completed and terminated on March 31, 1998, with
the distribution of 7,677,920 shares of Common Stock
to Level 3 in exchange for Level 3's construction and
mining business. None of the remaining shares of
Common Stock registered pursuant to the Registration
Statement will be distributed thereunder. To date, the
Company has incurred approximately $1,100,000 of
expenses in connection with the issuance and
distribution of such shares of Common Stock. This
amount is a reasonable estimate of such expenses. Such
expenses were paid directly to third parties, and no
such payments were made to directors or officers of
the Company or their associates, persons owning 10% or
more of any class of equity securities of the Company,
or any affiliates of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
By unanimous written consent on March 18, 1998,
the sole stockholder of the Company approved the
amendment and restatement of the Certificate of
Incorporation of the Company, as described in Item
2(a) above. The sole stockholder further approved an
amendment to the Certificate of Incorporation to
change the Company's name from PKS Holdings, Inc. to
Peter Kiewit Sons', Inc.
By unanimous written consent on March 23, 1998,
the sole stockholder of the Company, without the
solicitation of proxies or consents by the Company,
re-elected the entire board of directors of the
Company, as such board of directors was previously
reported to the Securities and Exchange Commission.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits required by Item 601 of Regulation S-
K. Exhibits incorporated by reference are indicated in
parentheses:
Exhibit
Number Description
27 Financial Data Schedule
(b) Reports on Form 8-K.
Current Report on Form 8-K dated March 27, 1998,
reporting that the Company completed the acquisition
of the Construction and Mining Business of Level 3
Communications, Inc. and certain other matters, which
Report was filed with the Securities and Exchange
Commission on April 13, 1998.
Amendment to Current Report on Form 8-K/A dated
March 27, 1998, filing financial statements of the
Construction and Mining Business of Level 3
Communications, Inc., which Report was filed with the
Securities and Exchange Commission on May 1, 1998.
SIGNATURES
Pursuant to the requirements 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.
Date: May 14, 1998 /s/ Kenneth M. Jantz
Kenneth M. Jantz
Vice President and
Chief Accounting Officer
PETER KIEWIT SONS', INC.
INDEX TO EXHIBITS
Exhibit
No.
27 Financial Data Schedule (For electronic filing purposes only)
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