SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
March 27, 1998
PETER KIEWIT SONS', INC.
(Exact name of registrant as specified in its charter)
Delaware 000-23943 91-1842817
(State or other jurisdiction) (Commission File Number) (I.R.S. Employer
of Incorporation) Identification No.)
1000 Kiewit Plaza, Omaha, Nebraska 68131
(Address of principal executive offices) (Zip Code)
(402) 342-2052
(Registrant's telephone number, including area code)
Item 2. Acquisition and Disposition of Assets.
In connection with the Transaction, and pursuant to the Separation
Agreement, the Company acquired 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 (the "Construction
and Mining Business") of Level 3. Level 3 previously conducted the
Construction and Mining Business through KCG and its subsidiaries.
The Company intends to continue the Construction and Mining Business
through KCG and its subsidiaries. A more detailed description of the
Transaction is set forth in the Registration Statement on Form S-4
(Registration No. 333-34627) filed by Level 3 and the Company.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements.
The financial statements of the Construction and Mining Business, the
predecessor business of the Company, are contained in the financial
statements and footnotes thereto listed in the Index on Page F-1 herein.
(b) Pro Forma Financial Information.
No pro forma financial information has been provided since presentation
of pro forma financial information would not materially vary from the
financial statements of the Construction and Mining Business.
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 hereunto duly authorized.
PETER KIEWIT SONS', INC.
By: /s/ Thomas C. Stortz
Date: May 1, 1998 Thomas C. Stortz, Vice President
KIEWIT CONSTRUCTION & MINING GROUP
Index to Financial Statements
and Financial Statement Schedule
Page
Report of Independent Accountants F- 2
Financial Statements as of December 27, 1997 and December 28,
1996 and for the three years ended December 27, 1997:
Statements of Earnings F- 3
Balance Sheets F- 4
Statements of Cash Flows F- 6
Statements of Changes in Stockholders' Equity F- 8
Notes to Financial Statements F- 9
Financial Statement Schedule for the three years ended December 27, 1997:
II - Valuation and Qualifying Accounts and Reserves F-24
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 financial
statements or in the notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Peter Kiewit Sons', Inc.
We have audited the financial statements and the financial
statement schedule of Kiewit Construction & Mining Group, a
business group of Peter Kiewit Sons', Inc. (as defined in Note 1
to these financial statements) as listed in the index on the
preceding page. These financial statements and financial
statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, when
read in conjunction with the consolidated financial statements of
Peter Kiewit Sons', Inc. and Subsidiaries, present fairly, in all
material respects, the financial position of Kiewit Construction
& Mining Group as of December 27, 1997 and December 28, 1996, and
the results of its operations and its cash flows for each of the
three years in the period ended December 27, 1997 in conformity
with generally accepted accounting principles. In addition, in
our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
/s/ Coopers & Lybrand L.L.P.
Omaha, Nebraska
March 30, 1998
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Earnings
For the three years ended December 27, 1997
(dollars in millions,
except per share data) 1997 1996 1995
Revenue $ 2,764 $ 2,303 $ 2,330
Cost of Revenue (2,427) (2,079) (2,127)
------- ------- -------
337 224 203
General and Administrative Expenses (147) (117) (116)
------- ------- -------
Operating Earnings 190 107 87
Other Income (Expense):
Investment Income 16 19 17
Interest Expense (3) (4) (2)
Other, net 59 58 62
------- ------- -------
72 73 77
------- ------- -------
Earnings Before Income Taxes 262 180 164
Provision for Income Taxes (107) (72) (60)
------- ------- -------
Net Earnings $ 155 $ 108 $ 104
======== ======== ========
Net Earnings Per Share:
Basic $ 15.99 $ 10.13 $ 7.78
======== ======== ========
Diluted $ 15.35 $ 9.76 $ 7.62
======== ======== ========
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Balance Sheets
December 27, 1997 and December 28, 1996
(dollars in millions) 1997 1996
Assets
Current Assets:
Cash and cash equivalents $ 232 $ 173
Marketable securities 26 54
Receivables, less allowance of $9 and $17 430 289
Costs and earnings in excess of billings on
uncompleted construction contracts 119 80
Investment in construction joint ventures 176 91
Deferred income taxes 61 64
Other 13 13
------- -------
Total Current Assets 1,057 764
Property, Plant and Equipment, at cost:
Land 18 15
Buildings 40 37
Equipment 585 542
------- -------
643 594
Less accumulated depreciation and amortization (446) (429)
------- -------
Net Property, Plant and Equipment 197 165
Other Assets 87 109
------- -------
$ 1,341 $ 1,038
======== ========
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Balance Sheets
December 27, 1997 and December 28, 1996
(continued)
(dollars in millions) 1997 1996
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, including retainage of $37 and $33 $ 208 $ 164
Current portion of long-term debt 5 -
Accrued construction costs and billings in excess of
revenue on uncompleted contracts 217 112
Accrued insurance costs 76 81
Other 73 40
------- -------
Total Current Liabilities 579 397
Long-term Debt, less current portion 22 12
Other Liabilities 77 67
Minority Interest 11 -
Stockholders' Equity (Redeemable Common Stock, $527 million
aggregate redemption value):
10,132,343 shares outstanding in 1997 and 11,006,641 shares
outstanding in 1996
Common equity 670 568
Foreign currency adjustment (7) (5)
Unrealized holding loss (11) (1)
------- -------
Total Stockholders' Equity 652 562
------- -------
$ 1,341 $ 1,038
======== ========
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Cash Flows
For the three years ended December 27, 1997
(dollars in millions) 1997 1996 1995
Cash flows from operations:
Net earnings $ 155 $ 108 $ 104
Adjustments to reconcile net earnings to
net cash provided by operations:
Depreciation and amortization 66 61 56
Gain on sale of property, plant and
equipment and other investments (24) (17) (33)
Equity (earnings) loss, net 2 (8) (3)
Change in other noncurrent liabilities 18 18 6
Deferred income taxes - (6) -
Change in working capital items:
Receivables (113) 37 -
Costs and earnings in excess of billings on
uncompleted construction contracts (39) (1) 23
Investment in construction joint ventures (82) (18) (4)
Other current assets 7 2 (3)
Accounts payable 27 (18) 3
Accrued construction costs and billings in
excess of revenue on uncompleted contracts 102 1 5
Other liabilities 27 11 4
Other 8 (7) (6)
------- ------- -------
Net cash provided by operations 154 163 152
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 73 160 82
Purchases of marketable securities (39) (157) (42)
Proceeds from sale of property, plant
and equipment 36 25 15
Capital expenditures (107) (72) (79)
Investments and acquisitions, net of cash
acquired (21) (6) (10)
Distributions from investees 9 6 8
Sale of note receivable and other - 14 -
------- ------- -------
Net cash used in investing activities $ (49) $ (30) $ (26)
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Cash Flows
For the three years ended December 27, 1997
(continued)
(dollars in millions) 1997 1996 1995
Cash flows from financing activities:
Long-term debt borrowings $ 8 $ 3 $ 3
Short-term debt borrowings, net - (45) 45
Payments on long-term debt, including
current portion - (2) (4)
Issuances of common stock 34 27 24
Repurchases of common stock (2) (5) (3)
Dividends paid (12) (12) (13)
Exchange of Class C Stock for Class D
Stock, net (72) (20) (155)
------- ------- -------
Net cash used in financing activities (44) (54) (103)
Effect of exchange rates on cash (2) - 1
------- ------- -------
Net change in cash and cash equivalents 59 79 24
Cash and cash equivalents at beginning of year 173 94 70
Cash and cash equivalents at end of year $ 232 $ 173 $ 94
======== ========= ========
Supplemental disclosures of cash flow information:
Taxes paid $ 94 $ 78 $ 69
Interest paid 2 2 2
Noncash investing activity:
Disposition of gold operations in exchange for
Kinross common stock, net $ - $ - $ 21
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Changes in Stockholders' Equity
For the three years ended December 27, 1997
(dollars in millions, except per share data) 1997 1996 1995
Common equity:
Balance at beginning of year $ 568 $ 471 $ 513
Issuances of stock 34 27 24
Repurchases of stock (2) (5) (3)
Exchange of Class C Stock for Class D
Stock, net (72) (20) (155)
Net earnings 155 108 104
Dividends (per share: $1.50 in 1997,
$1.30 in 1996 and $1.05 in 1995)(a) (13) (13) (12)
------- ------- -------
Balance at end of year 670 568 471
Other equity adjustments:
Balance at beginning of year (6) (4) (8)
Foreign currency adjustment (2) - 2
Unrealized holding (loss) gain (10) (2) 2
------- ------- -------
Balance at end of year (18) (6) (4)
------- ------- -------
Total stockholders' equity $ 652 $ 562 $ 467
(a) Dividends include $.80, $.70, and $.60 for dividends declared in 1997,
1996 and 1995 but paid in January of the subsequent year.
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(1) Basis of Presentation
The Class C Stock and the Class D Stock are designed to
provide stockholders with separate securities reflecting the
performance of Peter Kiewit Sons', Inc.'s ("PKS")
construction and materials businesses ("Construction & Mining
Group") and its other businesses ("Diversified Group"),
respectively. Dividends on the Class C Stock are limited to
the legally available funds of PKS less the Class D formula
value which is to be reduced by any dividends on Class D
Stock declared during the current year. Subject to this
limitation, the Board of Directors intends to declare and pay
dividends on the Class C Stock based primarily on the
Construction & Mining Group's separately reported financial
condition and results of operations.
The financial statements of the Construction & Mining Group
include the financial position, results of operations and
cash flows for PKS' construction and materials businesses
held by its wholly-owned subsidiary, Kiewit Construction
Group Inc., and certain PKS corporate assets and liabilities
and related transactions. These financial statements have
been prepared using the historical amounts included in the
PKS consolidated financial statements.
Although the financial statements of PKS' Construction &
Mining Group and Diversified Group separately report the
assets, liabilities and stockholders' equity of PKS
attributed to each such group, legal title to such assets and
responsibility for such liabilities will not be affected by
such attribution. Holders of Class C Stock and Class D Stock
are stockholders of PKS. Accordingly, the PKS consolidated
financial statements and related notes should be read in
conjunction with these financial statements. (See Note 3)
(2) Summary of Significant Accounting Policies
Principles of Group Presentation
These financial statements include the accounts of the
Construction & Mining Group ("the Group"). The Group's and
Diversified Group's financial statements, taken together,
comprise all the accounts included in the PKS consolidated
financial statements. All significant intercompany accounts
and transactions, except those directly between the Group and
the Diversified Group, have been eliminated. Investments in
construction joint ventures and other companies in which the
Group exercises significant influence over operating and
financial policies are accounted for by the equity method.
The Group accounts for its share of the operations of the
construction joint ventures on a pro rata basis in the
statements of earnings.
In 1997, the Group increased its ownership in ME Holding Inc.
("ME Holding") an electrical contractor, from 49% to 80%.
The Group consolidated ME Holding in its 1997 financial
statements and accounted for it using the equity method in
1996 and 1995.
The Group invests in various portfolios of the Kiewit Mutual
Fund, ("KMF"), a registered investment company. KMF is not
consolidated in the Group's financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies (cont.)
Construction Contracts
The Group operates generally within the United States and
Canada as a general contractor and engages in various types
of construction projects for both public and private owners.
Credit risk is minimal with public (government) owners
since the Group 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, the Group 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 Group 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 Group's business involves construction contracts obtained
through competitive bidding. The volume and profitability of
the Group's construction work depends to a significant extent
upon the general state of the economies in which it operates
and the volume of work available to contractors. The Group's
construction operations could be adversely affected by labor
stoppages or shortages, adverse weather conditions, shortages
of supplies, or governmental action.
The Group recognizes revenue on long-term construction
contracts and joint ventures on the percentage-of-completion
method based upon engineering estimates of the work performed
on individual contracts. Provisions for losses are recognized
on uncompleted contracts when they become known. Claims for
additional revenue are recognized in the period when allowed.
It is at least reasonably possible that engineering estimates
of the work performed on individual contracts will be revised
in the near term.
Assets and liabilities arising from construction activities,
the operating cycle of which extends over several years, are
classified as current in the financial statements. A
one-year time period is used as the basis for classification
of all other current assets and liabilities.
Depreciation and Amortization
Property, plant and equipment are recorded at cost.
Depreciation and amortization are computed on accelerated and
straight-line methods.
Foreign Currencies
The local currencies of foreign subsidiaries are the
functional currencies for financial reporting purposes.
Assets and liabilities are translated into U.S. dollars at
year-end exchange rates. Revenue and expenses are translated
using average exchange rates prevailing during the year.
Gains or losses resulting from currency translation are
recorded as adjustments to stockholders' equity.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies (cont.)
Earnings Per Share
In 1997, the Group adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share". The
Statement establishes standards for computing and presenting
earnings per share and requires the restatement of prior per
share data presented. 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.
1997 1996 1995
Net income available to common
shareholders (in millions) $ 155 $ 108 $ 104
Add: Interest expense, net of tax
effect associated with
convertible debentures 1 -* -*
------- ------- -------
Net income for diluted shares $ 156 $ 108 $ 104
======= ======= =======
Total number of weighted average
shares outstanding used to compute
basic earnings per share (in
thousands) 9,728 10,656 13,384
Additional dilutive shares assuming
conversion of convertible debentures 441 437 312
------- ------- -------
Total number of shares used to
compute diluted earnings per share 10,169 11,093 13,696
======= ======= =======
Net Income
Basic earnings per share $ 15.99 $ 10.13 $ 7.78
======== ======== ========
Diluted earnings per share $ 15.35 $ 9.76 $ 7.62
======== ======== ========
*Interest expense attributable to convertible debentures was
less than $1 million in 1996 and 1995.
Income Taxes
Deferred income taxes are provided for the temporary
differences between the financial reporting basis and tax
basis of the Group's assets and liabilities using enacted tax
rates in effect for the year in which the differences are
expected to reverse.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies (cont.)
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board
("FASB") issued SFAS No. 130, "Reporting Comprehensive
Income", which requires that changes in comprehensive income
be shown in a financial statement that is displayed with the
same prominence as other financial statements.
Also in 1997, the FASB issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information",
which changes the way public companies report information
about segments. SFAS No. 131, which is based on the
management approach to segment reporting includes
requirements to report selected segment information
quarterly, and entity wide disclosures about products and
services, major customers, and geographic data.
These statements are effective for financial statements for
periods beginning after December 15, 1997. Management does
not expect adoption of these statements to materially affect
the Group's financial statements.
Reclassifications
Where appropriate, items within the financial statements and
notes thereto have been reclassified from previous years to
conform to current year presentation.
Fiscal Year
The Group's fiscal year ends on the last Saturday in
December. There were 52 weeks in fiscal years 1997, 1996 and
1995.
(3) Reorganization
In October 1996, the PKS Board of Directors directed PKS
management to pursue a listing of Class D Stock as a way to
address certain issues created by PKS' two-class capital
stock structure and the need to attract and retain the best
management for PKS' businesses. During the course of its
examination of the consequences of a listing of Class D
Stock, management concluded that a listing of Class D Stock
would not adequately address these issues, and instead began
to study a separation of the Construction and Mining Group
and the Diversified Group. At the regular meeting of the
Board on July 23, 1997, management submitted to the Board for
consideration a proposal for separation of the Construction
and Mining Group from the Diversified Group through a spin-
off of the Construction and Mining Group ("the
Transaction"). At a special meeting on August 14, 1997, the
Board approved the Transaction.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(3) Reorganization (cont.)
The separation of the Construction and Mining Group and the
Diversified Group was contingent upon a number of conditions,
including the favorable ratification by a majority of both
Class C and Class D shareholders and the receipt by PKS of an
Internal Revenue Service ruling or other assurance acceptable
to the Board that the separation would be tax-free to U.S.
shareholders. On December 8, 1997, PKS' Class C and Class D
shareholders approved the transaction and on March 5, 1998
PKS received a favorable ruling from the Internal Revenue
Service. The Transaction is anticipated to be effective on
March 31, 1998.
PKS' certificate of incorporation gives stockholders the
right to exchange their Class C Stock for Class D Stock under
a set conversion formula. That right will be eliminated as a
result of the separation. To replace that conversion right,
Class C stockholders received 6.5 million shares of new Class
R stock in January, 1998, which is convertible into Class D
Stock in accordance with terms ratified by stockholders in
December, 1997.
The PKS Board of Directors has approved in principle a plan
to force conversion of all shares of Class R stock
outstanding. Due to certain provisions of the Class R stock,
conversion will not be forced prior to May, 1998, and the
final decision to force conversion would be made by PKS' (now
called Level 3 Communications, Inc. ("Level 3")) Board of
Directors at that time. Level 3's Board of Directors may
choose not to force conversion if it were to decide that
conversion is not in the best interests of Level 3
stockholders. If, as currently anticipated, Level 3's Board
of Directors determines to force conversion of the Class R
stock on or before June 30, 1998, certain adjustments will be
made to the cost sharing and risk allocation provisions of
the separation agreement and tax allocation agreements
between Level 3 and the construction business.
(4) Acquisitions
In April, 1997 the Group and a partner each invested $15
million to acquire a 96% interest in Oak Mountain Energy LLC,
("Oak Mountain"). Oak Mountain then acquired the existing
assets of an underground coal mine located in Alabama for
approximately $18 million and assumed approximately $14
million of related liabilities. Oak Mountain used cash and
$18 million of nonrecourse bank borrowings to retire the
existing debt and develop and modernize the mine.
Oak Mountain's results are consolidated with those of the
Group on a pro-rata basis since the date of acquisition. Due
to higher than anticipated costs in modernizing and operating
the mine, Oak Mountain incurred operating losses in 1997.
Production at the mine has been significantly below
anticipated levels, and as a result of this and other
factors, Oak Mountain is not in compliance with certain
covenants of the bank borrowings. Those events caused the
Group to assess whether its investment is impaired. Upon
considering estimated cash flow levels, including additional
funding necessary to operate the mine, and assessments of the
fair value of the net assets of the mine based upon potential
recovery though a sale, the Group recognized an impairment
loss of $8 million. This loss along with the operating
losses, reduced the Group's investment to zero. The
impairment has been included in Cost of Revenue in the
Statement of Earnings.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(4) Acquisitions (cont.)
In 1997, the Group paid $5 million to increase its ownership
in ME Holding from 49% to 80%. The Group's investment in ME
Holding exceeds its proportionate share of ME Holding equity
by $3 million. The goodwill is being amortized over 5 years.
Construction revenue for ME Holding was $247 million in 1996,
however the net operating results of ME Holding was not
significant relative to the Group's results in 1996.
(5) Corporate Activities
Financial Structure
PKS, in addition to specifically attributable items, has
corporate assets, liabilities and related income and expense
which are not separately identified with the ongoing
operations 7of the Group or the Diversified Group. The items
attributable to the Group and the Group's 50% portion of PKS
are as follows:
(dollars in millions) 1997 1996
Cash and cash equivalents $ 8 $ 8
Marketable securities 3 5
Property, plant and equipment, net 5 5
Other assets 2 2
------- -------
Total Assets $ 18 $ 20
======= =======
Accounts payable $ 10 $ 8
Long-term debt and other noncurrent liabilities 17 13
------- -------
Total Liabilities $ 27 $ 21
======= =======
1997 1996 1995
---- ---- ----
Net investment expense $ 1 $ - $ -
Corporate General and Administrative Costs
A portion of PKS' corporate general and administrative costs
has been allocated to the Group based upon certain measures
of business activity, such as employment, investments and
sales, which management believes to be reasonable. The
allocations were $1 million in 1997, 1996 and 1995.
Income Taxes
All domestic members of the PKS affiliated group are included
in the consolidated U.S. income tax return filed by PKS as
allowed by the Internal Revenue Code. Accordingly, the
provision for income taxes and the related payments or
refunds of tax are determined on a consolidated basis.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(5) Corporate Activities (cont.)
The financial statement provision and actual cash tax
payments have been reflected in the Group's and the
Diversified Group's financial statements in accordance with
PKS' tax allocation policy for such groups. In general, such
policy provides that the consolidated tax provision and
related cash flows and balance sheet amounts are allocated
between the Group and the Diversified Group, for group
financial statement purposes, based principally upon the
financial income, taxable income, credits, preferences and
other amounts directly related to the respective groups. The
provision for estimated United States income taxes for the
Group does not differ materially from that which would have
been determined on a separate return basis.
(6) Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to determine
classification and fair values of financial instruments:
Cash and Cash Equivalents
Cash equivalents generally consist of funds invested in the
Kiewit Mutual Fund-Money Market Portfolio and highly liquid
instruments purchased with an original maturity of three
months or less. The securities are stated at cost, which
approximates fair value.
Marketable Securities and Non-current Investments
The Group 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 stockholders' equity, net of tax.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(6) Disclosures about Fair Value of Financial Instruments (cont.)
The following summarizes the amortized cost, unrealized
holding gains and losses, and estimated fair values of
marketable securities and marketable non-current investments
at December 27, 1997 and December 28, 1996.
Unrealized Unrealized
Amortized Holding Holding Fair
(dollars in millions) Cost Gains Losses Value
1997
Kiewit Mutual Fund:
Short-term government $ 10 $ - $ - $ 10
Intermediate term bond 1 - - 1
Tax exempt 1 - - 1
U.S. debt securities 14 - - 14
-------- --------- --------- --------
$ 26 $ - $ - $ 26
======== ========= ========= ========
Non-current investments:
Equity securities $ 30 $ - $ (18) $ 12
======== ========= ========= ========
1996
Kiewit Mutual Fund:
Short-term government $ 22 $ - $ - $ 22
Intermediate term bond 10 - - 10
Tax exempt 9 - - 9
U.S. debt securities 13 - - 13
-------- --------- --------- --------
$ 54 $ - $ - $ 54
======== ========= ========= ========
Non-current investments:
Equity securities $ 30 $ - $ (2) $ 28
======== ========= ========= ========
For debt securities, amortized costs do not vary
significantly from principal amounts. Realized gains and
losses on sales of marketable securities were each less than
$1 million in 1997, 1996 and 1995.
The contractual maturities of the debt securities are as
follows:
Amortized Cost Fair Value
U.S. debt securities:
less than 1 year $ 6 $ 6
1-5 years 8 8
-------- --------
$ 14 $ 14
======== ========
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(6) Disclosures about Fair Value of Financial Instruments (cont.)
Maturities for the mutual fund and equity securities have not
been presented as they do not have a single maturity date.
Long-term Debt
The fair value of debt was estimated using the incremental
borrowing rates of the Group for debt of the same remaining
maturities and approximates the carrying amount.
(7) Retainage on Construction Contracts
Receivables at December 27, 1997 and December 28, 1996
include approximately $88 million and $86 million of
retainage on uncompleted projects, the majority of which is
expected to be collected within one year. Included in
accounts receivable are $44 million and $53 million of
securities which are being held by the owners of various
construction projects in lieu of retainage. These securities
are carried at fair value which is determined based on quoted
market prices for the securities on hand or for similar
investments. Net unrealized holding gains and losses, if
any, are reported as a separate component of stockholders'
equity, net of tax.
(8) Investment in Construction Joint Ventures
The Group has entered into a number of construction joint
venture arrangements. Under these arrangements, if one
venturer is financially unable to bear its share of the
costs, the other venturers will be required to pay those
costs.
Summary joint venture financial information follows:
Financial Position (dollars in millions) 1997 1996
Total Joint Ventures
Current assets $ 659 $ 435
Other assets (principally construction equipment) 123 47
------- -------
782 482
Current liabilities (515) (347)
------- -------
Net assets $ 267 $ 135
======= =======
Group's Share
Equity in net assets $ 156 $ 73
Receivable from joint ventures 20 18
------- -------
Investment in construction joint ventures $ 176 $ 91
======= =======
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(8) Investment in Construction Joint Ventures (cont.)
Operations (dollars in millions) 1997 1996 1995
Total Joint Ventures
Revenue $ 1,490 $ 1,370 $ 1,211
Costs 1,332 1,201 1,108
-------- ------- --------
Operating income $ 158 $ 169 $ 103
======== ======= ========
Group's Share
Revenue $ 786 $ 689 $ 691
Costs 690 621 625
-------- ------- --------
Operating income $ 96 $ 68 $ 66
======== ======= ========
(9) Other Assets
Other assets consist of the following at December 27, 1997
and December 28, 1996:
dollars in millions) 1997 1996
ME Holding Inc. $ - $ 33
Equity securities of Kinross Gold
Corporation (Note 6) 12 28
Aker-Gulf Marine 18 15
Goodwill 23 15
Deferred income taxes 12 2
Other 22 16
-------- --------
$ 87 $ 109
========= ========
Other assets include marketable equity securities classified
as non-current, an equity method investment in a partnership
which fabricates offshore oil platforms, and the net goodwill
recognized in the APAC, ME Holdings and other acquisitions.
In 1997 ME Holding is accounted for as a consolidated
subsidiary. In 1996, ME Holding was accounted for using the
equity method.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(10) Long-Term Debt
At December 27, 1997 and December 28, 1996, long-term debt
consisted of a portion of PKS' notes to former stockholders
which have been allocated to the Group and the Diversified
Group and convertible debentures as follows:
(dollars in millions) 1997 1996
6.25%-8.75% Convertible debentures, 2003-2007 $ 13 $ 10
BICC Cables Corp. Note 6 -
ME Holdings Note 5 -
Stockholder notes and other 3 2
-------- -------
27 12
Less current portion 5 -
-------- -------
$ 22 $ 12
======== =======
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. Debentures were
converted into 51,314 and 59,935 shares of Class C Stock in
1997 and 1995, respectively. At December 27, 1997, 478,394
shares of Class C Stock are reserved for future conversions.
In 1997, ME Holding borrowed $6 million from BICC Cables
Corp. ("BICC"). BICC is affiliated with a joint venture
partner of ME Holding. The note is payable in full in 1999
and requires quarterly interest payments at a rate equal to
one month LIBOR. The proceeds from the note were used for
working capital requirements.
In 1997, the Group issued a note payable in the amount of $5
million, payable on demand to the minority shareholder, as
part of the ME Holding acquisition. The note and accrued
interest were paid on January 5, 1998.
Scheduled maturities of long-term debt through 2002 are as
follows (in millions): 1998 - $5; 1999 - $7; 2000 - $1; 2001
- - $1 and $- in 2002.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(11) Income Taxes
An analysis of the (provision) benefit for income taxes
relating to earnings for the three years ended December 27,
1997 follows:
(dollars in millions) 1997 1996 1995
Current:
U.S. federal $ (88) $ (62) $ (58)
Foreign (9) (5) 4
State (10) (11) (6)
------- ------- -------
(107) (78) (60)
Deferred:
U.S. federal 1 7 6
Foreign (1) (3) (7)
State - 2 1
------- ------- -------
- 6 -
------- ------- -------
$ (107) $ (72) $ (60)
======= ======= =======
The United States and foreign components of earnings, for tax
reporting purposes, before income taxes follows:
(dollars in millions) 1997 1996 1995
United States $ 226 $ 155 $ 159
Foreign 36 25 5
------- ------- -------
$ 262 $ 180 $ 164
======= ======= =======
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 for
the three years ended December 27, 1997 follows:
(dollars in millions) 1997 1996 1995
Computed tax at statutory rate $ (92) $ (63) $ (57)
State income taxes (8) (6) (8)
Prior year tax adjustments (5) (4) 5
Other (2) 1 -
------ ------ -------
$ (107) $ (72) $ (60)
====== ====== =======
Possible taxes, beyond those provided, on remittances of
undistributed earnings of foreign subsidiaries, are not
expected to be material.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(11) Income Taxes (cont.)
The components of the net deferred tax assets for the years
ended December 27, 1997 and December 28, 1996 were as
follows:
(dollars in millions) 1997 1996
Deferred tax assets:
Construction accounting $ 24 $ 15
Investments in construction joint ventures 26 30
Insurance claims 31 32
Compensation - retirement benefits 8 6
Other 7 10
------ -------
Total deferred tax assets 96 93
Deferred tax liabilities:
Investments in securities 1 7
Other 22 20
------ -------
Total deferred tax liabilities 23 27
------ -------
Net deferred tax assets $ 73 $ 66
====== =======
(12) Employee Benefit Plans
The Group makes contributions, based on collective bargaining
agreements related to its construction operations, to several
multi-employer union pension plans. These contributions are
included in the cost of revenue. Under federal law, the
Group may be liable for a portion of future plan
deficiencies; however, there are no known deficiencies.
Substantially all employees of the Group are covered under
the Group's profit sharing plans. The expense related to
these plans was $5 million in 1997 and $3 million in 1996 and
1995.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(13) Stockholders' Equity
Ownership of the Class C Stock is restricted to certain
employees conditioned upon the execution of repurchase
agreements which restrict the employees from transferring the
stock. PKS is generally committed to purchase all Class C
Stock at the amount computed pursuant to the Certificate of
Incorporation. Issuances and repurchases of common shares,
including conversions, for the three years ended December 27,
1997 were as follows:
Class C
Stock
Shares issued in 1995 1,021,875
Shares repurchased in 1995 6,228,934
Shares issued in 1996 896,640
Shares repurchased in 1996 770,368
Shares issued in 1997 893,924
Shares repurchased in 1997 1,768,222
(14) Industry and Geographic Data
The Group's operations are primarily conducted in one
business segment; construction contracting. The following is
derived from geographic information in the PKS consolidated
financial statements as it relates to the Group.
Geographic Data (dollars in millions) 1997 1996 1995
Revenue:
United States $ 2,594 $ 2,017 $ 2,007
Canada 90 175 237
Other 80 111 86
------- ------- -------
$ 2,764 $ 2,303 $ 2,330
======= ======= =======
Operating earnings:
United States $ 153 $ 86 $ 70
Canada 10 7 7
Other 27 14 10
------- ------- -------
$ 190 $ 107 $ 87
======= ======= =======
Identifiable assets:
United States $ 1,230 $ 924 $ 866
Canada 94 92 90
Other 17 22 20
------- ------- -------
$ 1,341 $ 1,038 $ 976
======= ======= =======
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(15) Related Party Transaction
The Group performs certain mine management services for the
Diversified Group. The income from these services was $32
million in 1997, $37 million in 1996 and $30 million in 1995
and is recorded in other income in the statements of
earnings.
(16) Other Matters
In June 1995, the Group exchanged its interest in a wholly-
owned subsidiary involved in gold mining activities for
4,000,000 common shares of Kinross Gold Corporation, a
publicly traded corporation. The Group recognized a $21
million pre-tax gain on the exchange based on the difference
between the book value of the subsidiary and the fair market
value of the Kinross stock on the date of the transaction.
The Group is involved in various lawsuits and claims
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.
The Group leases various buildings and equipment under both
operating and capital leases. Minimum rental payments on
buildings and equipment subject to noncancellable operating
leases during the next 23 years aggregate $18 million.
It is customary in the Group's industry to use various
financial instruments in the normal course of business.
These instruments include items such as letters of credit.
Letters of credit are conditional commitments issued on
behalf of the Group in accordance with specified terms and
conditions. The Group has informal arrangements with a
number of banks to provide such commitments. As of December
27, 1997, the Group had outstanding letters of credit of
approximately $125 million.
(17) Subsequent Events
On December 31, 1997, the convertible debentures issued from
1993-1996 were converted to equity as part of the
reorganization. In conjunction with this transaction, the
Group provided non-interest bearing loans to the debenture
holders for a period equal to the original terms of the
debentures.
In January 1998, approximately 2.3 million shares of Class C
Stock, with a redemption value of $122 million, were
converted into approximately 10.5 million shares of Class D
Stock. During the first quarter of 1998, the Group also
repurchased $25 million of stock from Class C stockholders.
In order to partially fund these financing activities, the
Group incurred short-term borrowings of $20 million in
January, 1998. The Group expects to repay these borrowings
during the first half of 1998.
SCHEDULE II
KIEWIT CONSTRUCTION & MINING GROUP
Valuation and Qualifying Accounts and Reserves
Additions Amounts
Balance Charged to Charged Balance
Beginning Costs and to End of
(dollars in millions) of Period Expenses Reserves Other Period
Year ended December 27, 1997
- ----------------------------
Allowance for doubtful
trade accounts $ 17 $ 3 $ (11) $ - $ 9
Reserves:
Insurance claims 81 7 (12) - 76
Year ended December 28, 1996
- ----------------------------
Allowance for doubtful
trade accounts $ 10 $ 12 $ (5) $ - $ 17
Reserves:
Insurance claims 79 22 (20) - 81
Year ended December 30, 1995
- ----------------------------
Allowance for doubtful
trade accounts $ 7 $ 5 $ (2) $ - $ 10
Reserves:
Insurance claims 75 18 (14) - 79
_________________________________________________________________
