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 26, 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)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The registrant's stock is not publicly traded, and
therefore, there is no ascertainable market value of voting stock
held by non-affiliates.
33,596,348 shares of the registrant's $0.01 par value Common
Stock were issued and outstanding on March 25, 1999.
Portions of the registrant's definitive proxy statement for
its 1999 Annual Meeting of Stockholders are incorporated by
reference into Part III of this Form 10-K.
TABLE OF CONTENTS
Page
Part I
Item 1. Business 1
Item 2. Properties 3
Item 3. Legal Proceedings 3
Item 4. Submissions of Matters to a Vote of Security
Holders 3
Item 4A. Executive Officers of the Registrant 4
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 5
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 12
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 37
Part III
Item 10. Directors and Executive Officers of the
Registrant 37
Item 11. Executive Compensation 37
Item 12. Security Ownership of Certain Beneficial Owners
and Management 37
Item 13. Certain Relationships and Related Transactions 37
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 37
PART I
Item 1. Business.
General. Peter Kiewit Sons', Inc. and its subsidiaries
("PKS" or the "Company") is one of the largest construction
contractors in North America and also owns materials businesses.
The Company was incorporated in Delaware in 1997 to continue a
construction business founded in Omaha, Nebraska in 1884.
On March 31, 1998, the Company's former parent, Level 3
Communications, Inc. ("Level 3") transferred all of the issued
and outstanding shares of common stock of Kiewit Construction
Group Inc. ("KCG"), as well as certain other assets and
liabilities related to Level 3's construction and materials
businesses, which together with such common stock comprised all
of the construction and materials businesses of Level 3 (the
"Construction and Materials Businesses"), to the Company in
exchange for all of the Company's then outstanding shares of
Common Stock. Level 3 then distributed all of such Common Stock
to the holders of Level 3's Class C Construction & Mining Group
Restricted Redeemable Convertible Exchangeable Common Stock
("Class C Stock"), in exchange for such shares of Class C
Stock. As a result of such transactions (collectively, the
"Transaction"), the Company is now owned by the former holders
of Level 3's Class C Stock, and now conducts the Construction and
Materials Businesses. In connection with the Transaction, the
Company's name was changed from "PKS Holdings, Inc." to "Peter
Kiewit Sons', Inc." and Level 3's name was changed from "Peter
Kiewit Sons', Inc." to "Level 3 Communications, Inc."
The Construction Business. The Construction Business is
conducted by operating subsidiaries of the Company. 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 1998 were
distributed among the following construction markets
(approximately, by number): transportation (including highways,
bridges, airports, railroads, and mass transit) -- 48%,
commercial buildings -- 21%, water supply -- 8%, sewage and waste
disposal -- 6%, dams -- 5%, mining -- 5%, power, heat, cooling --
3%, oil and gas -- 3% and other markets -- 1%.
The Company primarily performs its services as a general
contractor. As a general contractor, the Company is responsible
for the overall direction and management of construction projects
and for completion of each contract in accordance with its terms,
plans, and specifications. The Company plans and schedules the
projects, procures materials, hires workers as needed, and awards
subcontracts. The Company generally requires performance and
payment bonds or other assurances of operational capability and
financial capacity from its subcontractors.
Contract Types. The Company performs its construction work
under various types of contracts, including fixed unit or lump-
sum price, guaranteed maximum price, and cost-reimbursable
contracts. Contracts are either competitively bid and awarded or
negotiated. The Company's public contracts generally provide for
the payment of a fixed price for the work performed. Profit on a
fixed-price contract is realized on the difference between the
contract price and the actual cost of construction, and the
contractor bears the risk that it may not be able to perform all
the work for the specified amount. Construction contracts
generally provide for progress payments as work is completed,
with a retainage to be paid when performance is substantially
complete. Construction contracts frequently contain penalties or
liquidated damages for late completion and infrequently provide
bonuses for early completion.
Government Contracts. Public contracts accounted for
approximately 52% of the combined prices of contracts awarded to
the Company during 1998. Most of these contracts were awarded by
government and quasi-government units under fixed price contracts
after competitive bidding. Most public contracts are subject to
termination at the election of the government. In the event of
termination, the contractor is entitled to receive the contract
price on completed work and payment of termination related costs.
Competition. A contractor's competitive position is based
primarily on its prices for construction services and its
reputation for quality, timeliness, experience, and financial
strength. The construction industry is highly competitive and
lacks firms with dominant market power. In 1998, Engineering News
Record, a construction trade publication, ranked the Company as
the 7th largest United States contractor in terms of 1997 revenue
and 6th largest in terms of 1997 new contract awards. It ranked
the Company 1st in the transportation market in terms of 1997
revenue.
Demand. The volume and profitability of the Company's
construction work depends to a significant extent upon the
general state of the economies of the United States and Canada,
and the volume of work available to contractors. Fluctuating
demand cycles are typical of the industry, and such cycles
determine to a large extent the degree of competition for
available projects. The Company's construction operations could
be adversely affected by labor stoppages or shortages, adverse
weather conditions, shortages of supplies, or governmental
action. The volume of available government work is affected by
budgetary and political considerations. A significant decrease in
the amount of new government contracts, for whatever reason,
would have a material adverse effect on the Company.
Backlog. At the end of 1998, the Company had backlog
(anticipated revenue from uncompleted contracts) of approximately
$4.9 billion, an increase from approximately $3.9 billion at the
end of 1997. Of current backlog, approximately $2 billion is not
expected to be completed during 1999. In 1998, the Company was
low bidder on 218 jobs with total contract prices of
approximately $2.2 billion, an average price of approximately
$10.2 million per job. There were 19 new projects with contract
prices over $25 million, accounting for approximately 71% 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 1998, the Company derived approximately 60% of its joint
venture revenue from sponsored joint ventures and approximately
40% from non-sponsored joint ventures. The Company's share of
joint venture revenue accounted for approximately 33% of its 1998
total revenue.
The Materials Business. Several of the Company's
subsidiaries, primarily in Arizona and Oregon, produce
construction materials, including ready-mix concrete, asphalt,
sand and gravel. The Company also has quarrying operations in New
Mexico and Wyoming, which produce landscaping materials and
railroad ballast. Kiewit Mining Group Inc. ("KMG"), a
subsidiary of the Company, provides mine management services to
KCP, Inc. ("KCP"), a subsidiary of Level 3, pursuant to the
terms and conditions of a mine management agreement. Under the
terms of such mine management agreement, Level 3 pays KMG an
annual fee equal to 30% of KCP's adjusted operating income. The
fee in 1998 was approximately $34 million.
Locations. The Company structures its construction
operations around 20 principal operating offices located
throughout North America, including its headquarters located in
Omaha, Nebraska. Through its decentralized system of management,
the Company has been able to quickly respond to changes in the
local markets. At the end of 1998, the Company had current
projects in 43 states, Puerto Rico, Washington, D.C. and 8
Canadian provinces.
Properties. The Company's headquarters facilities are
located in Omaha, Nebraska and are owned by the Company. The
Company also has 19 principal district offices, 15 of which are
owned facilities and 4 are leased facilities. The Company also
has 16 area offices, 1 of which is an owned facility and 15 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
3,900 trucks, pickups and automobiles and 3,800 heavy
construction vehicles, such as graders, scrapers, backhoes and
cranes. Joint ventures in which the Company is a participant
also own an approximate additional 2,000 portable offices, shops
and transport trailers, 600 trucks, pickups and automobiles and
1,000 heavy construction vehicles.
Environmental Protection. Compliance with federal, state,
and local provisions regulating the discharge of materials into
the environment, or otherwise relating to the protection of the
environment, has not and is not expected to have a material
effect upon the capital expenditures, earnings, or competitive
position of the Company and its subsidiaries.
Employees. At the end of 1998, the Company and its majority-
owned subsidiaries employed approximately 16,200 people.
Item 2. Properties.
The Company's headquarters facilities are located in Omaha,
Nebraska and are owned by the Company. The Company also has 19
principal district offices located in Arizona, California,
Colorado, Georgia, Massachusetts, Texas, Utah, Washington,
Alberta and Quebec, 15 of which are owned facilities and 4 are
leased facilities. The Company also has 16 area offices located
in Alaska, Arizona, California, Colorado, Florida, Hawaii,
Illinois, Maryland, Nebraska, Nevada, New Jersey, New Mexico,
British Columbia and Ontario, 1 of which is an owned facility and
15 are leased facilities. The Company owns or leases numerous
other shops, equipment yards, storage facilities, warehouses, and
construction material quarries.
Item 3. Legal Proceedings.
The Company and its subsidiaries are parties to many pending
legal proceedings incidental to the business of such entities. It
is not believed that any resulting liabilities for legal
proceedings, beyond amounts reserved, will materially affect the
financial condition, future results of operation, or future cash
flows of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
None during the three months ended December 26, 1998.
Item 4A. Executive Officers of the Registrant.
The table below shows information as of March 25, 1999,
about each executive officer of the Company, including his
business experience during the past five years. In addition to
the named executive officers of the Company, the Company
considers directors who are executive officers of certain of the
Company's subsidiaries to be executive officers of the Company.
The Company's executive officers are elected annually to serve
until their successors are elected and qualified or until their
death, resignation or removal.
Name Business Experience Age
John B. Chapman Mr. Chapman, has been Vice President of 53
Human Resources and Administration of the
Company since August 1997. Mr. Chapman was
Vice President of Human Resources for KCG
for more than five years prior to August
1997.
Richard W. Colf Mr. Colf has been an Executive Vice 55
President of the Company since July 1998.
Mr. Colf is also a director of the Company
and is a member of the Executive Committee
of the Company. Mr. Colf has been an
Executive Vice President of Kiewit Pacific
Co. ("KPC"), a subsidiary of the Company,
since September 1998, was a Senior Vice
President of KPC from October 1995 to
September 1998 and was a Vice President
of KPC for more than five years prior to
October 1995.
Bruce E. Grewcock Mr. Grewcock has been an Executive Vice 45
President of the Company since August 1997.
Mr. Grewcock is also a director of the
Company and is a member of the Executive
Committee of the Company. Mr. Grewcock has
been the President of Kiewit Western Co., a
subsidiary of the Company, since July 1997.
Mr. Grewcock was an Executive Vice President
of KCG from July 1996 to June 1998, and
President of KMG from January 1992 to July
1996. Mr. Grewcock is currently also a
director of Kinross Gold Corporation.
Kenneth M. Jantz Mr. Jantz has been a Vice President and 56
Treasurer of the Company since August 1997.
Mr. Jantz was a Vice President of KCG from
May 1994 to June 1998. Mr. Jantz was
Executive Vice President and Chief Financial
Officer of C-TEC Corporation from October
1993 to April 1994.
Tait P. Johnson Mr. Johnson has been the President of 49
Gilbert Industrial Corporation, a subsidiary
of the Corporation, for more than the last
five years. Mr. Johnson is also a director
of the Company and is the Chairman of the
Audit Committee of the Company. Mr. Johnson
was President of Gilbert Southern Corp., a
subsidiary of the Company, from October 1995
to July 1996 and Vice President of Gilbert
Southern Corp. from June 1994 to October
1995.
Allan K. Kirkwood Mr. Kirkwood has been an Executive Vice 55
President of the Company since July 1998.
Mr. Kirkwood is also a director of the
Company and is a member of the Executive
Committee and the Audit Committee of the
Company. Mr. Kirkwood has been an
Executive Vice President of KPC since
September 1998, was a Senior Vice President
of KPC from October 1995 to September 1998
and was a Vice President of KPC for more
than five years prior to October 1995.
Gerald S. Pfeffer Mr. Pfeffer has been a Vice President of 53
the Company since April 1998. Mr. Pfeffer
was a Vice President of KCG from December
1997 to June 1998. Mr. Pfeffer was Vice
President of Kiewit SR91 Corp., a
subsidiary of Level 3, from January 1993
to December 1997.
Rodney K. Rosenthal Mr. Rosenthal has been the Controller 45
of the Company since March 1998. Mr.
Rosenthal was Controller of KCG from
October 1995 to June 1998. Mr. Rosenthal
was Corporate Accounting Manager of KCG
from April 1991 to October 1995.
Tobin A. Schropp Mr. Schropp has been a Vice President 37
and General Counsel of the Company since
September 1998. Mr. Schropp was Director
of Taxes of the Company from March 1998
to September 1998. Mr. Schropp was Director
of Taxes of Level 3 from August 1996 to
March 1998, and Director of Research,
Planning and Audit of Level 3 from
September 1993 to August 1996.
Stephen A. Sharpe Mr. Sharpe has been a Vice President of 47
the Company since August 1997. Mr. Sharpe
was a Vice President of KCG from October
1996 to June 1998. Mr. Sharpe was a Vice
President of U.S. Generating Company,
Bethesda, Maryland, for more than five
years prior to October 1996.
Kenneth E. Stinson Mr. Stinson has been President of the 56
Company since August 1997 and Chairman
and Chief Executive Officer of the Company
since March 1998. Mr. Stinson is also a
director of the Company and is the Chairman
of the Executive Committee of the Company.
Mr. Stinson has been the Chairman and Chief
Executive Officer of KCG for more than the
last five years. Mr. Stinson was Executive
Vice President of Level 3 from June 1991 to
August 1997. Mr. Stinson is also currently
a director of ConAgra, Inc., Valmont
Industries, Inc. and Level 3.
George B. Toll, Jr. Mr. Toll has been an Executive Vice 62
President of the Company since August 1997.
Mr. Toll is also a director of the Company
and is a member of the Executive Committee
of the Company. Mr. Toll was an Executive
Vice President of KCG from April 1994 to
June 1998, and Vice President of KPC from
June 1992 to August 1994.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
Market Information. As of December 26, 1998, the Company's
$0.01 par value common stock ("Common Stock") is not listed on
any national securities exchange or the NASDAQ National Market
and there is no established public trading market for the Common
Stock.
Company Repurchase Obligation. Pursuant to the terms of the
Company's Restated Certificate of Incorporation
("Certificate"), the Company is generally required to
repurchase shares of Common Stock at a formula price upon demand.
Common Stock can be issued only to employees of the Company and
its subsidiaries and can be resold only to the Company at a
formula price based on the year-end book value of the Company.
The Company is generally required to repurchase Common Stock for
cash upon stockholder demand.
Formula Price. The formula price of the Common Stock is
based on the book value of the Company. A significant element of
the Common Stock formula price is the subtraction of the book
value of property, plant, and equipment used in the Company's
construction activities (approximately $120 million in 1998).
Restrictions. Ownership of Common Stock is generally
restricted to active Company employees. Upon retirement,
termination of employment, or death, Common Stock must be resold
to the Company at the applicable formula price.
Stockholders. On March 25, 1999, and after giving effect to
a dividend of 3 shares of Common Stock for each outstanding share
of Common Stock effected on January 15, 1999, the Company had the
following numbers of stockholders and outstanding shares:
Class of Stock Stockholders Outstanding Shares
- -------------- ------------ ------------------
Common Stock 1,177 33,596,348
Dividends and Prices. As a result of the Transaction, the
Construction and Materials Businesses were distributed to the
Company. Level 3's former Class C Stock was linked to the
performance of the Construction and Materials Businesses.
Consequently, for presentation purposes, the chart below sets
forth the dividends declared or paid on Level 3's Class C Stock
and the Common Stock during 1997 and 1998, respectively, and the
stock price after each dividend payment, in each case adjusted
retroactively to reflect the January 1999 Common Stock dividend.
<TABLE>
<S>
Dividend
Dividend Declared Dividend Paid Per Share Price Adjusted Stock Price
<C> <C> <C> <C> <C>
October 25, 1996 January 4, 1997 $0.175 December 29, 1996 $10.175
April 23, 1997 May 1, 1997 $0.175 May 1, 1997 $10.00
October 22, 1997 January 5, 1998 $0.20 December 28, 1997 $12.80
April 24, 1998 May 1, 1998 $0.20 May 1, 1998 $12.60
October 30, 1998 January 6, 1999 $0.225 December 27, 1998 $15.90
</TABLE>
The Company's current dividend policy is to pay a regular
dividend on Common Stock of about 15% to 20% of the prior year's
ordinary earnings, with any special dividends to be based on
extraordinary earnings.
Sales of Unregistered Securities. The Company's former
parent, Level 3, acquired 100 shares of Common Stock on November
1, 1997 for $1.00. Such shares of Common Stock were acquired
without registration based upon reliance of Section 4(2) of the
Securities Act of 1933, as a transaction by an issuer not
involving a public offering. On March 31, 1998, in connection
with the Transaction, Level 3 transferred the Construction and
Materials Businesses to the Company in exchange for 30,711,680
shares of Common Stock. Such shares of Common Stock were acquired
without registration based upon reliance of Section 4(2) of the
Securities Act of 1933, as a transaction by an issuer not
involving a public offering.
Item 6. Selected Financial Data.
The following selected financial data for each of the years
in the period 1994 to 1998 have been derived from the audited
consolidated financial statements.
(dollars in millions, Fiscal Year Ended
except per share amounts)
1998 1997 1996 1995 1994
Results of Operations:
Revenue $3,403 $2,764 $2,303 $2,330 $2,175
Net earnings 136 155 108 104 77
Per Common Share:
Net earnings
Basic 4.07 4.00 2.53 1.95 1.23
Diluted 4.02 3.84 2.44 1.91 1.22
Dividends(1) .45 .375 .325 .26 .225
Stock price(2) 15.90 12.80 10.18 8.10 6.39
Book value 19.35 16.10 12.76 10.73 7.85
Financial Position:
Total assets 1,377 1,341 1,038 976 967
Current portion of
long-term debt 8 5 - 2 3
Long-term debt, net of
current portion 13 22 12 9 9
Redeemable common
stock (3) 691 652 562 467 505
(1) The 1998, 1997, 1996, 1995 and 1994 dividends include $.225,
$.20, $.175, $.15 and $.1125 for dividends declared in 1998,
1997, 1996, 1995 and 1994 respectively, but paid in January of
the subsequent year.
(2) Pursuant to the Restated Certificate of Incorporation, the
stock price calculation is computed annually at the end of the
fiscal year.
(3) Ownership of the Common Stock is restricted to certain
employees conditioned upon the execution of repurchase agreements
which restrict the employees from transferring the stock. The
Company is generally committed to purchase all Common Stock at
the amount computed, when put to the Company by a stockholder,
pursuant to the Certificate of Incorporation. The aggregate
redemption value of Common Stock at December 26, 1998 was $576
million.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
This document contains forward looking statements and
information that are based on the beliefs of management as well
as assumptions made by and information currently available to the
Company. When used in this document, the words "anticipate,"
"believe," "estimate," "expect" and similar expressions, as
they relate to the Company or its management, are intended to
identify forward-looking statements. Such statements reflect the
current views of the Company with respect to future events and
are subject to certain risks, uncertainties and assumptions.
Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual results
may vary materially from those described in this document.
Results of Operations 1998 vs. 1997
Revenue from the Company's segments for the twelve months
ended December 26, 1998 and December 27, 1997 was (in millions):
1998 1997
Construction $3,057 $2,474
Materials 346 290
------ ------
$3,403 $2,764
====== ======
Construction. Revenues for the construction business
increased $583 million or 23.6% from the same time period in
1997. $210 million of the increase in revenues resulted from
several new domestic cogeneration facilities. Joint ventures
performing electrical work on railway systems contributed another
$82 million. Another major factor was the "I-15" project, a
$1.4 billion (the Company's share of $780 million) design build
joint venture to reconstruct 16 miles of interstate through the
Salt Lake City, Utah area which contributed $135 million to the
increase. Several new projects account for the remainder of the
increase.
Contract backlog at December 26, 1998 was nearly $5 billion,
of which 3.5% is attributable to foreign operations located
primarily in Canada. Domestic projects are spread geographically
throughout the U.S.
Margins on construction projects as a percentage of revenue
for the twelve months ended December 26, 1998 decreased to 8.6%
from 13% for the same time period in 1997. Favorable resolutions
of project uncertainties, change order settlements and bonuses
for cost savings and early completion increased margins for the
twelve months ended December 27, 1997. Margins in 1996 and 1995
were 9.6% and 7.7%, respectively.
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 have
been suspended. The suspension had no material impact on the
Company, as substantially all payments have been received for
work performed and the costs of demobilizing the project were not
significant. All amounts that have been billed and received in
excess of costs incurred on the suspended projects have been
deferred pending final resolution of these projects with the U.S.
client and its lenders.
Materials. Revenues for the materials business were up 19%,
from $290 million to $346 million, for the twelve months ended
December 26, 1998 as compared to the same time period in 1997.
Greater sales volume and higher average selling prices for
aggregates, ready mix concrete and asphalt products resulted in a
27% increase which was offset by the decrease in revenues from
the Oak Mountain Coal operations. The investment in Oak Mountain
was sold on June 9, 1998. The Oak Mountain investment was
previously written off as an impaired asset in December 1997. In
1998, the Company realized operating losses of $3 million.
Margins from materials sales as a percentage of revenue for
the twelve months ended December 26, 1998 increased from 5% in
1997 to 7.5% in 1998. The increase in margins was attributable
to higher average selling prices and improvements in the
performance of recent acquisitions. Also contributing to the
increase was the elimination of losses from the Oak Mountain Coal
operations.
General and Administrative Expenses. General and
administrative expenses decreased in 1998. G & A expense, as a
percent of revenue, decreased from 5.3% in 1997 to 4.1% in 1998,
as a proportionate increase in administration costs were not
necessary to support the Company's revenue growth.
Investment Income, Net. Net investment income decreased by
$6 million. The decrease was partially due to the increased
interest expense on long-term debt and gains on sales of
marketable securities in 1997 which were not recurring items.
Other, Net. Other income is primarily comprised of mine
management fee income from Level 3 and gains and losses on the
disposition of property, plant and equipment and other assets.
The mine management fee increased by $2 million while a decrease
in the amount of equipment sold during 1998 resulted in a $3
million decrease in gains from sales.
The Company manages certain coal mines for Level 3. Fees
for these services were $34 million in 1998, $32 million in 1997
and $37 million in 1996. The Company's fee is a percentage of
adjusted operating earnings of the coal mines, as defined. The
mines managed by the Company for Level 3 earn the majority of
their revenues under long-term contracts. The remainder of the
mines' sales are made on the spot market where prices are
substantially lower than those of the long-term contracts. As
the long-term contracts expire over the next two to five years,
adjusted operating earnings at the mines will decrease
substantially, thereby similarly decreasing the management fee
earned by the Company.
Additionally, the Minerals Management Service and Montana
Department of Revenue have issued assessments to the Level 3
mines for the underpayment of royalties and production taxes.
Level 3 is vigorously contesting the assessments. If Level 3
pays these assessments, the payments could materially decrease
future mine management fees, but will not affect fees previously
received.
Provision for Income Taxes. The effective income tax rates
in 1998 and 1997 differ from the expected rate of 35% primarily
due to state income taxes and prior year tax adjustments.
Results of Operations 1997 vs. 1996
Revenue from each of the Company's segments for the twelve
months ended December 27, 1997 and December 28, 1996 was (in
millions).
1997 1996
---- ----
Construction $2,474 $2,060
Materials 290 243
------ ------
$2,764 $2,303
====== ======
Construction. Construction revenues increased $414 million
during 1997 compared to 1996. The consolidation of ME Holding
Inc. (due to the increase in ownership from 49% to 80%) ("ME
Holding") contributed $261 million, almost two-thirds of the
increase. In addition to ME Holding, several large projects and
joint ventures became fully mobilized during the latter part of
the year and were well into the "peak" construction phase.
Construction margins increased to 13% of revenue in 1997 as
compared to 10% in 1996. The favorable resolution of project
uncertainties, several change order settlements, and cost savings
or early completion bonuses received during the year contributed
to this increase.
Materials. Material revenues increased 19% to $290 million
in 1997 from $243 million in 1996. The acquisition of additional
plant sites accounts for 22% of the increase in sales. The
remaining increase was a result of the strong market for material
products in Arizona. This raised sales volume from existing
plant sites and allowed for slightly higher selling prices. The
inclusion of $10 million of revenues from the Oak Mountain
facility in Alabama also contributed to the increase.
Material margins decreased from 10% of revenue in 1996 to 5%
in 1997. Losses at the Oak Mountain facility in Alabama were the
source of the decrease. The materials margins from sources other
than Oak Mountain remained stable as higher unit sales and
selling prices were offset by increases in raw materials costs.
General and Administrative Expenses. General and
administrative expenses increased 11% in 1997 after deducting $17
million of expenses attributable to ME Holding. Compensation and
profit sharing expenses increased $9 million and $2 million,
respectively, from 1996. The increase in these costs is a direct
result of higher earnings.
Investment Income. Investment income declined 16% in 1997
to $16 million. The decrease is primarily attributable to the
consolidation of ME Holding in 1997. In 1996, equity earnings
attributable to ME Holding was $4 million. Partially offsetting
this decline was a slight increase in income from the sale of
marketable securities.
Interest Expense. The decline in interest expense is due to
the absence of short-term borrowings which were repaid in 1996.
Other, Net. Other income is primarily comprised of gains
and losses on the disposition of construction equipment and mine
management fees paid by Level 3. A $6 million increase in gains
on the sale of equipment and additional miscellaneous income were
partially offset by a decline in mine management fee income.
Provision for Income Taxes. The effective income tax rates
in 1997 and 1996 differ from the expected statutory rate of 35%
primarily due to state income taxes and prior year tax
adjustments.
Financial Condition - December 26, 1998
The Company's working capital increased $4 million or 1%
during 1998. Sources of cash primarily included $158 million of
cash provided by operations, the issuance of common stock of $67
million, $12 million in net proceeds from the sale and maturity
of marketable securities, $25 million in proceeds from the sale
of property, plant and equipment and $17 million in distributions
from equity method investees. Uses of cash primarily included
shareholders exchanging their Class C stock for Level 3's former
Class D Stock, totaling $122 million, stock repurchases of $35
million, dividends of $13 million, net repayment of debt of $1
million, capital expenditures of $87 million, $13 million in
investments and acquisitions and $15 million, net issuances of
notes receivable.
The Company usually invests between $50 and $100 million
annually in its construction and materials businesses. In
addition to normal spending, the Company expects to make
investments in new construction joint ventures. 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 $.225 per share dividend declared in
October and paid in January 1999. 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.
Subsequent Events. On February 28, 1999, the Company
purchased the remaining 60% of a materials operation located in
the Portland, Oregon/Vancouver, Washington area.
On January 11, 1999, the Company declared a four-for-one
stock split in the form of a stock dividend of three shares of
Common Stock for each share issued and outstanding payable on
January 15, 1999. All share and per share amounts for all
periods have been retroactively restated to reflect the stock
split.
Recent Pronouncements. In June 1998, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities,"
which establishes accounting and reporting standards for
derivative instruments and for hedging activities. This
statement is effective for all fiscal years beginning after June
15, 1999. Management does not expect adoption of this statement
to materially affect the Company's financial statements as the
Company has no derivative instruments or hedging activities.
Year 2000 Update
General. The Company's Year 2000 Effort (the "Effort") is
proceeding on schedule. The Effort is comprised of two
components: Internal, which includes updating and replacing all
computer systems which are not Year 2000 compliant, and External,
which requires developing strategies to protect the Company from
disruptions caused by third parties not being Year 2000
compliant.
Internal. The most significant Internal component is the
replacement of the current mainframe payroll system with a client
server-based system. The new system is intended to bring payroll
systems into Year 2000 compliance. All other internal systems
materially affecting operations have already been updated. The
Internal systems component of the Effort is expected to be
completed during the first six months of 1999, well ahead of the
Year 2000. The Effort did not delay any other Information System
projects as several systems were already scheduled to be revised.
The Company does not believe that a backup plan is necessary as
the Effort is sufficiently well enough along. Check writing with
manual intervention would be in place to handle payroll on a
short-term basis if the Effort was not completed before the Year
2000. The Company's ability to process payroll and make the
associated tax payment, in the long-term, would be adversely
affected if the deadline is not met, however, there would be no
material affect on the Company's results of operations.
External. The primary External factor which could interrupt
the Company's operations is the inability of third party owners
to pay the Company on a timely basis for work performed as a
result of their Year 2000 problem. A large portion of the
Company's domestic construction work is with federal, state and
local government agencies. If these agencies are unable to make
payments due to their own Internal Year 2000 problems, the
Company could experience cash flow problems.
Another potentially significant External factor which could
interrupt the Company's operations is the inability of major
equipment suppliers to supply the Company with the equipment
needed to complete various construction projects as a result of
their Year 2000 problems. Other major purchasing components,
primarily permanent materials, have alternative procurement
sources, in the event that the primary supplier encounters
problems.
Costs. The total cost associated with the Effort is not
expected to be material to the Company's financial position. The
estimated total cost of the Effort is approximately $5.9 million,
of which $4 million has been spent to date.
Risks. The failure to correct a material Internal Year 2000
problem could result in the disruption of some normal activities
and negatively impact the Company's ability to complete projects
on a timely basis. Such failures could materially and adversely
affect the Company's results of operations, liquidity and
financial condition. Due to the general uncertainty inherent in
the Year 2000 problem, resulting in large part from the
uncertainty of the Year 2000 readiness of third party suppliers
and owners, the Company is unable to determine at this time
whether the consequences of External Year 2000 failures will have
a material impact on the Company's results of operations,
liquidity or financial condition. The Effort is expected to
significantly reduce the Company's level of uncertainty about the
Year 2000 problem and, in particular, about the Year 2000
compliance and readiness of its material third party suppliers
and owners. The Company believes that, with the implementation
of new business systems and completion of the Effort as
scheduled, the possibility of significant interruptions of normal
operations should be reduced.
Forward Looking Statements. The discussion of the Company's
efforts and management's expectations relating to the Year 2000
problem are forward-looking statements. The Company's ability to
achieve Year 2000 compliance and the costs associated therewith
could be adversely impacted by, among other things, the
availability and cost of programming and testing resources, the
ability of third party suppliers and customers to bring their
systems into Year 2000 compliance, and unanticipated problems
identified in the implementation of the Effort.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Peter Kiewit Sons', Inc.
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of earnings, changes in
redeemable common stock and comprehensive income, and of cash
flows present fairly, in all material respects, the consolidated
financial position of Peter Kiewit Sons', Inc. and Subsidiaries
at December 26, 1998, and December 27, 1997, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended December 26, 1998, in conformity
with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Omaha, Nebraska
March 18, 1999
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
For the three years ended December 26, 1998
(dollars in millions, 1998 1997 1996
except per share data)
Revenue $ 3,403 $ 2,764 $ 2,303
Cost of Revenue (3,115) (2,427) (2,079)
------- ------- -------
288 337 224
General and Administrative Expenses
(141) (147) (117)
Operating Earnings 147 190 107
Other Income (Expense):
Investment Income 12 16 19
Interest Expense, net (5) (3) (4)
Other, net 61 61 58
-- -- --
68 74 73
-- -- --
Earnings Before Income Taxes
and Minority Interest 215 264 180
Minority Interest in Net Income
of Subsidiaries (1) (2) -
Provision for Income Taxes (78) (107) (72)
---- ----- ----
Net Earnings $ 136 $ 155 $ 108
======= ======== ========
Net Earnings per Share:
Basic $ 4.07 $ 4.00 $ 2.53
======== ======== ========
Diluted $ 4.02 $ 3.84 $ 2.44
======== ======== ========
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 26, 1998 and December 27, 1997
(dollars in millions) 1998 1997
Assets
Current Assets:
Cash and cash equivalents $ 227 $ 232
Marketable securities 9 26
Receivables, less allowance of $5 and $9 454 430
Unbilled contract revenue 88 88
Contract costs in excess of related revenue26 31
Investment in construction joint ventures 190 176
Deferred income taxes 64 61
Other 15 13
------- --------
Total Current Assets 1,073 1,057
Property, Plant and Equipment, at cost:
Land 17 18
Buildings 42 40
Equipment 631 585
-------- --------
690 643
Less accumulated depreciation and
amortization (482) (446)
-------- --------
Net Property, Plant and Equipment 208 197
Other Assets 96 87
-------- --------
$1,377 $1,341
====== ======
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 26, 1998 and December 27, 1997
(dollars in millions) 1998 1997
Liabilities and Redeemable Common Stock
Current Liabilities:
Accounts payable, including retainage
of $47 and $37 $ 182 $ 208
Current portion of long-term debt 8 5
Accrued costs on construction contracts 125 96
Billings in excess of related costs
and earnings 132 121
Accrued insurance costs 81 76
Other 63 73
------- -------
Total Current Liabilities 591 579
Long-term Debt, less current portion 13 22
Deferred taxes 1 -
Other Liabilities 69 77
Minority Interest 12 11
Preferred stock, no par value, 250,000 shares
authorized, no shares outstanding in 1998
and 1997 - -
Redeemable Common Stock ($576 million aggregate
redemption value):
Common Stock, 125 million shares authorized
par $0.01 and $.0625, 35,692,820 and 40,529,372
outstanding - 1
Additional paid-in capital 161 117
Accumulated other comprehensive income (22) (18)
Retained earnings 552 552
------ --------
Total Redeemable Common Stock 691 652
------ --------
$1,377 $1,341
====== ======
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three years ended December 26, 1998
(dollars in millions) 1998 1997 1996
Cash flows from operations:
Net earnings $136 $155 $108
Adjustments to reconcile net earnings to
net cash provided by operations:
Depreciation and amortization 70 66 61
Gain on sale of property, plant and
equipment and other investments (20) (24) (17)
Equity (earnings) loss, net (17) 2 (8)
Change in other noncurrent liabilities (7) 18 18
Deferred income taxes 6 - (6)
Change in working capital items:
Receivables (6) (113) 37
Costs and earnings in excess of billings
on uncompleted construction contracts 5 (39) (1)
Investment in construction joint
Ventures (13) (82) (18)
Other current assets - 7 2
Accounts payable (27) 27 (18)
Accrued construction costs and
billings in excess of revenue on
uncompleted contracts 28 102 1
Other liabilities 5 23 8
Other (2) 8 (7)
---- ---- ----
Net cash provided by operations 158 150 160
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 24 73 160
Purchases of marketable securities (7) (39) (157)
Proceeds from sale of property, plant
and equipment 25 36 25
Capital expenditures (87) (107) (72)
Investments and acquisitions, net of
cash acquired (13) (21) (6)
Distributions from investees 17 9 6
Additions to notes receivable (20) - -
Payments received on notes receivable 5 - -
Sale of note receivable and other - - 14
---- ---- ----
Net cash used in investing activities (56) (49) (30)
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three years ended December 26, 1998
(dollars in millions) 1998 1997 1996
Cash flows from financing activities:
Long-term debt borrowings $ 4 $ 12 $ 6
Short-term debt borrowings, net (5) - (45)
Payments on long-term debt - - (2)
Issuances of common stock 67 34 27
Repurchases of common stock (35) (2) (5)
Dividends paid (13) (12) (12)
Exchange of Class C Stock for Level 3's
Class D Stock, net (122) (72) (20)
---- ---- ----
Net cash used in financing activities (104) (40) (51)
Effect of exchange rates on cash (3) (2) -
---- ---- ----
Net change in cash and cash equivalents (5) 59 79
Cash and cash equivalents at beginning
of year 232 173 94
---- ---- ----
Cash and cash equivalents at end of year $227 $232 $173
==== ==== ====
Supplemental disclosures of cash flow information:
Taxes paid $ 91 $ 94 $ 78
Interest paid 5 2 2
Non-cash financing activities:
Conversion of convertible debentures to
common stock $(10) $ - $ -
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Redeemable Common
Stock and Comprehensive Income
For the three years ended December 26, 1998
<TABLE>
<S>
Accumulated
Additional Other Total
Common Paid-in Comprehensive Retained Stockholder's
Stock Capital Income Earnings Equity
----- ------- ------ -------- ------
<C> <C> <C> <C> <C> <C>
Balance at December 30, 1995 $ 1 $ 78 $ (4) $ 392 $ 467
Dividends (a) - - - (13) (13)
Issuance of stock - 27 - - 27
Repurchase of stock - (1) - (4) (5)
Exchange of Class C Stock
for Class D stock, net - (4) - (16) (20)
Comprehensive income:
Net earnings - - - 108 108
Other comprehensive income:
Change in unrealized holding
loss, net of tax - - (2) - (2)
------
Total other comprehensive income (2)
------
Total comprehensive income 106
------ ------ ------ ------ ------
Balance at December 28, 1996 1 100 (6) 467 562
------ ------ ------ ------ ------
Dividends (a) (13) (13)
Issuance of stock - 34 - - 34
Repurchase of stock - - - (2) (2)
Exchange of class C stock
for Class D stock, net - (17) - (55) (72)
Comprehensive income:
Net earnings - - - 155 155
Other comprehensive income:
Foreign currency adjustment - - (2) - (2)
Change in unrealized holding
loss, net of tax - - (10) - (10)
------
Total other comprehensive income (12)
------
Total comprehensive income 143
------ ------ ------ ------ ------
Balance at December 27, 1997 1 117 (18) 552 652
------ ------ ------ ------ ------
</TABLE>
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Redeemable Common
Stock and Comprehensive Income
For the three years ended December 26, 1998
<TABLE>
<S>
Accumulated
Additional Other Total
Common Paid-in Comprehensive Retained Stockholder's
Stock Capital Income Earnings Equity
----- ------- ------ -------- ------
<C> <C> <C> <C> <C> <C>
Dividends (a) - - - (13) (13)
Issuance of stock - 77 - - 77
Repurchase of stock - (7) - (28) (35)
Exchange of Class C stock
for Class D stock, net - (27) - (95) (122)
Change in par value of
common stock (1) 1 -
Comprehensive income:
Net earnings - - - 136 136
Other comprehensive income:
Foreign currency adjustment - - (1) - (1)
Change in unrealized holding loss,
net of tax - - (3) - (3)
------
Total other comprehensive income (4)
------
Total comprehensive income 132
------ ------ ------ ----- ------
Balance at December 26, 1998 $ - $ 161 $ (22) $ 552 $ 691
====== ====== ====== ===== ======
</TABLE>
(a) Dividends include $.225, $.20, and $.175 for dividends
declared in 1998, 1997 and 1996 but paid in January of the
following year.
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Basis of Presentation:
Peter Kiewit Sons', Inc. (the "Company") was formed by its
former parent, Level 3 Communications, Inc. (formerly Peter
Kiewit Sons', Inc.) ("Level 3"), in connection with a
transaction (the "Transaction") intended to separate the
Construction and Materials Businesses and the diversified
business of Level 3 into two independent companies. On March 31,
1998, pursuant to the terms of a Separation Agreement between the
Company, Level 3 and certain other parties (the "Separation
Agreement"), Level 3 consummated the Transaction by: (i)
transferring 100 shares of the $100 par value common stock ("KCG
Stock") of Kiewit Construction Group Inc. ("KCG"),
representing all of the issued and outstanding shares of KCG
Stock, as well as certain other assets and liabilities related to
the construction and materials businesses which together
comprised the Construction and Mining Group (the "Construction &
Mining Group"), to the Company in exchange for 30,711,680 shares
of the $.01 par value common stock of the Company ("Common
Stock") (125 million shares authorized) and (ii) distributing
100% of its shares of the Common Stock to the holders of Level
3's $0.0625 par value Class C Construction & Mining Group
Restricted Redeemable Convertible Exchangeable Common Stock
("Class C Stock") as of March 31, 1998, in exchange for such
shares of Class C Stock. Prior to the Transaction, the Company
was a wholly-owned subsidiary of Level 3. As a result of the
Transaction, the Company is now owned by the former holders of
Level 3's Class C Stock. Prior to consummation of the
Transaction, Level 3's Class C Common stock was convertible to
Level 3's Class D Common Stock ("Class D Stock"). As the
Construction & Mining Group comprised all of the net assets and
operations of the Company at the time of the Transaction, the
Construction & Mining Group is the Company's predecessor. Thus,
the term "the Company", as used herein, refers to Peter Kiewit
Sons', Inc., its predecessor, and its consolidated subsidiaries.
2. Summary of Significant Accounting Policies:
Principles of Consolidation:
The consolidated financial statements include the accounts of the
Company and subsidiaries in which it has control, which are
engaged in enterprises primarily related to construction and
materials. Investments in other companies in which the Company
exercises significant influence over operating and financial
policies, including construction and materials joint ventures,
are accounted for by the equity method. The company accounts for
its share of the operations of the construction and materials
joint ventures on a pro rata basis in the consolidated statements
of earnings. All significant intercompany accounts and
transactions have been eliminated.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies, Continued:
Construction Contracts:
The Company operates as a general contractor throughout North
America and engages in various types of construction projects for
both public and private owners. Credit risk is minimal with
public (government) owners since the Company ascertains that
funds have been appropriated by the governmental project owner
prior to commencing work on public projects. Most public
contracts are subject to termination at the election of the
government. However, in the event of termination, the Company is
entitled to receive the contract price on completed work and
reimbursement of termination-related costs. Credit risk with
private owners is minimized because of statutory mechanics liens,
which give the Company high priority in the event of lien
foreclosures following financial difficulties of private owners.
The construction industry is highly competitive and lacks firms
with dominant market power. A substantial portion of the
Company's business involves construction contracts obtained
through competitive bidding. The volume and profitability of the
Company's construction work depends to a significant extent upon
the general state of the economies of North America and the
volume of work available to contractors. The Company's
construction operations could be adversely affected by labor
stoppages or shortages, adverse weather conditions, shortages of
supplies or other governmental action.
The Company uses the percentage of completion method of
accounting on long-term construction contracts and joint
ventures. Under the percentage of completion method, an
estimated percentage for each contract, as determined by the
Company's engineering estimate based on the amount of work
performed, is applied to total estimated profit. Provision is
made for the entire amount of future estimated losses on
contracts and joint ventures in progress; claims for additional
contract compensation, however, are not reflected in the accounts
until the year in which such claims are allowed. Revisions in
cost and profit estimates during the course of the work are
reflected in the accounting period in which the facts which
require the revision become known. It is at least reasonably
possible that cost and profit estimates will be revised in the
near-term.
In accordance with industry practice, amounts realizable and
payable under contracts which may extend beyond one year are
included in current assets and liabilities.
Depreciation:
Property, plant and equipment are recorded at cost. Depreciation
for the majority of the Company's property, plant and equipment
is calculated using accelerated methods.
Intangible Assets:
Intangible assets primarily consist of amounts allocated upon
purchase of existing operations. Those assets are amortized on a
straight-line basis over the expected period of benefit, which
does not exceed 20 years.
Long-Lived Assets:
The Company reviews the carrying amount of long-lived assets for
impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. Measurement of
any impairment would include a comparison of estimated future
operating cash flows anticipated to be generated during the
remaining life of the assets to the net carrying value of the
assets.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies, Continued:
Foreign Currencies:
The local currencies of foreign subsidiaries are the functional
currencies for financial reporting purposes. Assets and
liabilities are translated into U.S. dollars at year end exchange
rates. Revenue and expenses are translated using average
exchange rates prevailing during the year. Gains or losses
resulting from currency translation are recorded as adjustments
to accumulated other comprehensive income.
Earnings Per Share:
Basic earnings per share have been computed using the weighted
average number of shares outstanding during each period. Diluted
earnings per share give effect to convertible debentures
considered to be dilutive common stock equivalents. The
potentially dilutive convertible debentures are calculated in
accordance with the "if converted" method. This method assumes
that the after-tax interest expense associated with the
debentures is an addition to income and the debentures are
converted into equity with the resulting common shares being
aggregated with the weighted average shares outstanding.
1998 1997 1996
---- ---- ----
Net earnings available to common
stockholders (in millions) $ 136 $ 155 $ 108
Add: Interest expense, net of tax effect,
associated with convertible debentures * 1 *
------ ------ ------
Net earnings for diluted shares $ 136 $ 156 $ 108
====== ====== ======
Total number of weighted average shares
outstanding used to compute basic
earnings per share (in thousands) 33,396 38,912 42,624
Additional dilutive shares assuming
conversion of convertible
debentures 432 1,764 1,748
------- ------- -------
Total number of shares used to compute
diluted earnings per share 33,828 40,676 44,372
======= ======= =======
Net earnings
Basic earnings per share $ 4.07 $ 4.00 $ 2.53
====== ====== ======
Diluted earnings per share $ 4.02 $ 3.84 $ 2.44
====== ====== ======
* Interest expense attributable to convertible debentures was
less than $.5 million.
Income Taxes:
Deferred income taxes are provided for the temporary differences
between the financial reporting basis and the tax basis of the
Company's assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
reverse.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
2. Summary of Significant Accounting Policies, Continued:
Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Recent Pronouncements:
During 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income", and SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information". These
standards expand and modify disclosures, but have no effect upon
measurement of amounts included in the consolidated financial
statements. Disclosures of prior years have been restated to
conform to the requirements of these standards.
In June 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", which establishes accounting and reporting
standards for derivative instruments and for hedging activities.
This statement is effective for all fiscal years beginning after
June 15, 1999. Management does not expect adoption of this
statement to materially affect the Company's financial statements
as the Company has no derivative instruments or hedging
activities.
Stock Split:
On January 11, 1999, the Company declared a four-for-one stock
split in the form of a stock dividend of three shares of Common
Stock for each share issued and outstanding, payable on January
15, 1999. All share and per share amounts for all periods
presented have been retroactively restated to reflect the stock
split.
Fiscal Year:
The Company has a 52-53 week fiscal year which ends on the last
Saturday in December. 1998, 1997 and 1996 were all 52 week
years.
Reclassifications:
When appropriate, items within the consolidated financial
statements have been reclassified in the previous periods to
conform to current year presentation.
3. Disclosures about Fair Value of Financial Instruments:
The following methods and assumptions were used to determine
classification and fair values of financial instruments:
Cash and Cash Equivalents:
Cash equivalents generally consist of funds invested in
Wilmington Trust-Money Market Portfolio and highly liquid
instruments purchased with an original maturity of three months
or less. The securities are stated at cost, which approximates
fair value.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
3. Disclosures about Fair Value of Financial Instruments,
Continued:
Marketable Securities and Non-current Investments:
The Company has classified all marketable securities and
marketable non-current investments not accounted for under the
equity method as available-for-sale. The amortized cost of the
securities used in computing unrealized and realized gains and
losses is determined by specific identification. Fair values are
estimated based on quoted market prices for the securities on
hand or for similar investments. Net unrealized holding gains
and losses are reported as a separate component of accumulated
other comprehensive income, net of tax.
The following summarizes the amortized cost, unrealized holding
gains and losses, and estimated fair values of marketable
securities and marketable non-current investments at December 26,
1998 and December 27, 1997:
Unrealized Unrealized
Amortized Holding Holding Fair
(dollars in millions) Cost Gains Losses Value
1998
- ----
Marketable securities:
U.S. debt securities $ 9 $ - $ - $ 9
----- ----- ----- -----
$ 9 $ - $ - $ 9
===== ===== ===== =====
Non-current investments:
Equity securities $ 30 $ - $ (21) $ 9
===== ===== ===== =====
1997
- ----
Marketable securities:
Mutual Funds:
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
===== ===== ===== =====
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 1998,
1997 and 1996.
The contractual maturities of the debt securities are from one to
five years.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
3. Disclosures about Fair Value of Financial Instruments,
Continued:
Retainage on Construction Contracts:
Receivables at December 26, 1998 and December 27, 1997 include
approximately $86 million and $88 million of retainage on
uncompleted projects, the majority of which is expected to be
collected within one year. Included in the retainage amounts are
$26 million and $18 million of securities which are being held by
the owners of various construction projects in lieu of retainage.
Also included in accounts receivable are $15 million and $26
million of securities held by the owners which are now due as the
contracts are completed. These securities are carried at fair
value which is determined based on quoted market prices for the
securities on hand or for similar investments. Net unrealized
holding gains and losses, if any, are reported as a separate
component of accumulated other comprehensive income, net of tax.
Long-term Debt:
The fair value of debt was estimated using the incremental
borrowing rates of the Company for debt of the same remaining
maturities and approximates the carrying amount.
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.
Summary joint venture financial information follows:
Financial Position 1998 1997
(dollars in millions)
Total Joint Ventures
- --------------------
Current assets $ 871 $ 659
Other assets (principally construction
equipment) 110 123
------- -------
980 782
Current liabilities (671) (515)
------ ------
Net assets $ 309 $ 267
======= =======
Company's Share
- ---------------
Equity in net assets $ 175 $ 156
Receivable from joint ventures 15 20
------- -------
Investment in construction joint ventures $ 190 $ 176
======= =======
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
4. Investment in Construction Joint Ventures, Continued:
Operations (dollars in millions) 1998 1997 1996
Total Joint Ventures
- --------------------
Revenue $2,042 $1,490 $1,370
Costs 1,915 1,332 1,201
------ ------ ------
Operating income $ 127 $ 158 $ 169
====== ====== ======
Company's Share
- ---------------
Revenue $1,020 $ 786 $ 689
Costs 942 690 621
------ ------ ------
Operating income $ 78 $ 96 $ 68
====== ====== ======
5. Other Assets:
Other assets consist of the following at December 26, 1998 and
December 27, 1997:
(dollars in millions) 1998 1997
Marketable securities (note 3) $ 9 $ 12
Equity method investment 4 4
Construction partnership and materials
joint ventures 39 32
Goodwill, net of accumulated amortization
of $12 and $10 26 23
Deferred income taxes - 12
Notes receivable 18 4
------ ------
$ 96 $ 87
====== ======
The marketable securities are an investment in a publicly traded
company.
The equity method investment consists of a 33% interest in a
concrete products business that is not publicly traded and does
not have a readily determinable market value.
The notes receivable are primarily non-interest bearing employee
notes.
Investment in Construction Partnership and Materials Joint
Ventures:
The Company owns a 49% interest in a partnership, Aker-Gulf-
Marine. The partnership engages in the engineering,
construction, fabrication and installation of steel and concrete
structures.
The Company owns a 49% interest in Granite Canyon Joint Venture
and a 40% interest in Pacific Rock Products, L.L.C. These
companies are engaged in the mining of rock products.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
5. Other Assets, Continued:
Financial data relating to the construction partnership and
materials joint ventures are summarized below:
(dollars in millions) 1998 1997
Current assets $ 73 $ 66
Property, plant and equipment, net 84 76
Other noncurrent assets 3 1
------ ------
160 143
------ ------
Current liabilities (42) (33)
Noncurrent liabilities (14) (24)
------ ------
Net assets $ 104 $ 86
====== ======
Equity in net assets $ 39 $ 32
====== ======
Depreciation is computed by the partnerships using straight-line
and declining balance methods over the estimated useful life of
the assets which range from 2 to 20 years.
The consolidated financial statements include the following items
related to the construction and materials partnerships:
(dollars in millions) 1998 1997 1996
Revenue $ 129 $ 100 $ 82
====== ====== ======
Operating Income $ 22 $ 14 $ 6
====== ====== ======
6. Long-Term Debt:
At December 26, 1998 and December 27, 1997, long-term debt
consisted of the following:
(dollars in millions) 1998 1997
7.35% - 8.03% Convertible debentures, 2007-2008 $ 8 $ 13
BICC Cables Corp. note 6 6
Minority shareholder note - 5
Stockholder notes and other 7 3
----- -----
21 27
Less current portion 8 5
----- -----
$ 13 $ 22
===== =====
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 1,542,076
and 205,256 shares of stock in 1998 and 1997, respectively. At
December 26, 1998, 707,836 shares of stock were reserved for
future conversions.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
6. Long-Term Debt, Continued:
In 1997, the Company borrowed $6 million from BICC Cables Corp.
("BICC"). BICC is affiliated with a joint venture partner of
the Company. The note 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 Company issued a note payable in the amount of $5
million, payable upon demand to the minority shareholder of an
80% owned subsidiary. The note and accrued interest were paid in
1998.
Scheduled maturities of long-term debt are as follows (in
millions): 1999 - $8; 2000 - $3; 2001 - $1; 2002 - $1; 2003 - $-
and 2004 and thereafter - $8.
7. Income Taxes:
An analysis of the (provision) benefit for income taxes relating
to earnings before minority interest and income taxes for the
three years ended December 26, 1998 follows:
(dollars in millions) 1998 1997 1996
Current:
U.S. federal $ (55) $ (88) $ (62)
Foreign (5) (9) (5)
State (12) (10) (11)
------ ------ ------
(72) (107) (78)
Deferred:
U.S. federal (8) 1 7
Foreign 2 (1) (3)
State - - 2
------ ------ ------
(6) - 6
------ ------ ------
$ (78) $ (107) $ (72)
====== ====== ======
The United States and foreign components of earnings, for tax
reporting purposes, before minority interest and income taxes
follows:
(dollars in millions) 1998 1997 1996
United States $ 213 $ 228 $ 155
Foreign 2 36 25
------ ------ ------
$ 215 $ 264 $ 180
====== ====== ======
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
7. Income Taxes, Continued:
A reconciliation of the actual (provision) benefit for income
taxes and the tax computed by applying the U.S. federal rate
(35%) to the earnings before minority interest and income taxes
for the three years ended December 26, 1998 follows:
(dollars in millions) 1998 1997 1996
Computed tax at statutory rate $ (75) $ (92) $ (63)
State income taxes (7) (8) (6)
Prior year tax adjustments - (5) (4)
Other 4 (2) 1
------ ------ ------
$ (78) $ (107) $ (72)
====== ====== ======
Possible taxes, beyond those provided, on remittances of
undistributed earnings of foreign subsidiaries, are not expected
to be material.
The components of the net deferred tax assets for the years ended
December 26, 1998 and December 27, 1997 were as follows
(dollars in millions) 1998 1997
Deferred tax assets:
Construction accounting $ 27 $ 27
Investments in construction joint ventures 27 25
Insurance claims 33 31
Compensation - retirement benefits 8 8
Other 2 6
----- -----
Total deferred tax assets 97 97
Deferred tax liabilities:
Asset bases/accumulated depreciation 14 2
Other 20 22
----- -----
Total deferred tax liabilities 34 24
----- -----
Net deferred tax assets $ 63 $ 73
===== =====
8. Employee Benefit Plans:
The Company makes contributions, based on collective bargaining
agreements related to its construction operations, to several
multi-employer union pension plans. These contributions are
included in the cost of revenue. Under federal law, The Company
may be liable for a portion of future plan deficiencies; however,
there are no known deficiencies.
Approximately 15% of the employees of the Company are covered
under the Company's profit sharing plan. The expense related to
the profit sharing plan was $3 million in 1998, $5 million in
1997 and $3 million in 1996.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
9. Redeemable Common Stock:
Ownership of Common Stock is restricted to certain employees
conditioned upon the execution of repurchase agreements which
restrict the employees from transferring the Common Stock. The
Company is generally committed to purchase all stock at the
amount computed pursuant to its Restated Certificate of
Incorporation. Issuances and repurchases of Common Stock,
including conversions, for the three years ended December 26,
1998, were as follows:
Shares issued in 1996 3,586,560
Shares repurchased in 1996 3,081,472
Shares issued in 1997 3,575,696
Shares repurchased in 1997 7,072,888
Shares issued in 1998 6,852,196
Shares repurchased in 1998 11,688,748
10. Segment and Geographic Data:
The Company is managed and operated in two segments, Construction
and Materials. The Construction segment performs services for a
broad range of public and private customers primarily in North
America. Construction services are performed in the following
construction markets: transportation (including highways,
bridges, airports, railroads and mass transit), commercial
buildings, water supply, sewage and waste disposal, dams, mining,
power, heat and cooling, and oil and gas. The Materials segment
primarily operates in Arizona and Oregon. This segment produces
construction materials including ready-mix concrete, asphalt and
sand and gravel, landscaping materials and railroad ballast.
Intersegment sales are recorded at cost. Operating earnings
(loss) is comprised of net sales less all identifiable operating
expenses, allocated general and administrative expenses,
depreciation and amortization. Interest income, interest expense
and income taxes have been excluded from segment operations. The
management fee earned by the Company as described in Note 11 is
excluded from the segment information that follows as it is
included in other income on the Statement of Earnings and not
included in operating earnings. This fee is earned, however, by
the Materials segment. Segment asset information has not been
presented as it is not reported to or reviewed by the chief
operating decision maker.
<TABLE>
<S>
Segment Data 1998 1997 1996
(dollars in millions) ---------------------- ---------------------- ----------------------
Construction Materials Construction Materials Construction Materials
<C> <C> <C> <C>
Revenue
External customers $3,057 $ 346 $2,474 $ 290 $2,060 $ 243
Intersegment - 6 - 8 - 8
------ ------ ------ ------ ------ ------
Total Revenues 3,057 352 2,474 298 2,060 251
Elimination of
intersegment revenues - (6) - (8) - (8)
------ ------ ------ ------ ------ ------
Total consolidated
revenues $3,057 $ 346 $2,474 $ 290 $2,060 $ 243
====== ====== ====== ====== ====== ======
Depreciation and
amortization $ 64 $ 6 $ 60 $ 6 $ 55 $ 6
====== ====== ====== ====== ====== ======
Operating Earnings $ 124 $ 23 $ 178 $ 12 $ 82 $ 25
====== ====== ====== ====== ====== ======
</TABLE>
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
10. Segment and Geographic Data, Continued:
Geographic Data 1998 1997 1996
(dollars in millions)
Revenue, by location of services provided:
United States $3,306 $2,594 $2,017
Canada 77 90 175
Other 20 80 111
------ ------ ------
$3,403 $2,764 $2,303
====== ====== ======
Long-lived assets:
United States $ 204 $ 191 $ 152
Canada 4 6 13
------ ------ ------
$ 208 $ 197 $ 165
====== ====== ======
11. Management Fees:
The Company manages certain coal mines for Level 3. Fees for
these services which are included in other income in the
statement of earnings were $34 million in 1998, $32 million in
1997 and $37 million in 1996. The Company's fee is a percentage
of adjusted operating earnings of the coal mines, as defined.
The mines managed by the Company for Level 3 earn the majority of
their revenues under long-term contracts. The remainder of the
mines' sales are made on the spot market where prices are
substantially lower than those of the long-term contracts. As
the long-term contracts expire over the next two to five years,
adjusted operating earnings at the mines will decrease
substantially, thereby similarly decreasing the management fee
earned by the Company.
Additionally, the Minerals Management Service and Montana
Department of Revenue have issued assessments to the Level 3
mines for the underpayment of royalties and production taxes.
Level 3 is vigorously contesting the assessments. If Level 3
pays these assessments, the payments could materially decrease
future mine management fees, but will not affect fees previously
received.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
12. Other Comprehensive Income:
Other comprehensive income consisted of the following:
Tax
(Expense)
Before Tax of Benefit After Tax
---------- ---------- ---------
For the year ended December 28, 1996
- ------------------------------------
Foreign currency
translation adjustments $ - $ - $ -
-------- -------- --------
Unrealized holding loss:
Unrealized holding losses
arising during the period (2) 1 (1)
Plus reclassification adjustment
for gains realized in net income (2) 1 (1)
------- ------- -------
Net unrealized losses (4) 2 (2)
------- ------- -------
Other comprehensive income
December 28, 1996 $ (4) $ 2 $ (2)
======= ======= =======
For the year ended December 27, 1997
- ------------------------------------
Foreign currency translation
Adjustments $ (3) $ 1 $ (2)
------- ------- -------
Unrealized holding loss:
Unrealized holding losses arising
during the period (14) 5 (9)
Plus reclassification adjustment
for gains realized in net income (1) - (1)
------- ------- -------
Net unrealized losses (15) 5 (10)
------- ------- -------
Other comprehensive income
December 27, 1997 $ (18) $ 6 $ (12)
======= ======= =======
For the year ended December 26, 1998
- ------------------------------------
Foreign currency translation
Adjustments $ (2) $ 1 $ (1)
------- ------- -------
Unrealized holding loss:
Unrealized holding losses arising
during the period (4) 1 (3)
Plus reclassification adjustment
for gains realized in net income - - -
------- ------- -------
Net unrealized losses (4) 1 (3)
------- ------- -------
Other comprehensive income
December 26, 1998 $ (6) $ 2 $ (4)
======= ======= =======
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
12. Other Comprehensive Income, Continued:
Accumulated other comprehensive income consisted of the
following:
Foreign Unrealized Accumulated
Currency Holding Other
Translation Gain/(Loss) Comprehensive
Adjustments on Securities Income
----------- ------------- ------------
Balance at December 30, 1995 $ (5) $ 1 $ (4)
Change during the year - (2) (2)
----- ---- -----
Balance at December 28, 1996 (5) (1) (6)
Change during the year (2) (10) (12)
----- ---- -----
Balance at December 27, 1997 (7) (11) (18)
Change during the year (1) (3) (4)
----- ---- -----
Balance at December 26, 1998 $ (8) $(14) $ (22)
===== ==== =====
13. Other Matters:
In connection with the Transaction, the Company and Level 3
entered into various agreements including a Separation Agreement,
a Tax-Sharing Agreement and an amended Mine Management Agreement.
The Separation Agreement provides for the allocation of certain
risks and responsibilities between Level 3 and the Company and
for cross-indemnifications that are intended to allocate
financial responsibility to the Company for liabilities arising
out of the construction business and to allocate to Level 3
financial responsibility for liabilities arising out of the non-
construction businesses. The Separation Agreement also provides
for the payment, by the Company, of a majority of the third party
costs and expenses associated with the Transaction.
Under the Tax Sharing Agreement, with respect to periods, or
portions thereof, ending on or before the closing date of the
Transaction, Level 3 and the Company generally will be
responsible for paying the taxes relating to such periods,
including any subsequent adjustments resulting from the
redetermination of such tax liabilities by the applicable taxing
authorities, that are allocable to the non-construction
businesses and construction businesses, respectively. The Tax
Sharing Agreement also provides that Level 3 and the Company will
indemnify the other from certain taxes and expenses that would be
assessed if the Transaction was determined to be taxable, but
solely to the extent that such determination arose out of the
breach by Level 3 or the Company, respectively, of certain
representations made to the Internal Revenue Service in
connection with the ruling issued with respect to the Transaction
or made in the Tax-Sharing Agreement. If the Transaction were
determined to be taxable for any other reason, those taxes
("Transaction Taxes") would be allocated 50% to Level 3 and 50%
to the Company. Finally, under certain circumstances, Level 3
would make certain liquidated damage payments to the Company if
the Transaction was determined to be taxable in order to take
into account the fact that the Transaction is taxable to the
holders of Common Stock.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
13. Other Matters, Continued:
Additionally, the Mine Management Agreement, pursuant to which
the Company provides mine management and related services to
Level 3's coal mining operations, was amended to provide the
Company with a right of offer in the event that Level 3 would
determine to sell any or all of its coal mining properties.
Under the right of offer, Level 3 would be required to offer to
sell those properties to the Company at the price that Level 3
would seek to sell the properties to a third party. If the
Company declined to purchase the properties at that price, Level
3 would be free to sell them to a third party for an amount
greater than or equal to that price. If Level 3 sold the
properties to a third party, thus terminating the Mine Management
Agreement, it would be required to pay the Company an amount
equal to the discounted present value of the Mine Management
Agreement, determined, if necessary, by an appraisal process.
In 1997, the Company and a partner each invested $15 million to
acquire a 96% interest in Oak Mountain Energy LLC, ("Oak
Mountain"). Oak Mountain then acquired the existing assets of
an underground coal mine located in Alabama for approximately $18
million and assumed approximately $14 million of related
liabilities. Oak Mountain used cash and $18 million of
nonrecourse bank borrowings to retire the existing debt and
develop and modernize the mine.
Oak Mountain's results are consolidated with those of the Company
on a pro-rata basis since the date of acquisition. Due to higher
than anticipated costs in modernizing and operating the mine, Oak
Mountain incurred operating losses since acquisition. Production
at the mine was significantly below anticipated levels, and as a
result of this and other factors, Oak Mountain fell out of
compliance with certain covenants of the bank borrowings. Those
events caused the Company to assess whether its investment was
impaired. In 1997, the Company determined its investment in Oak
Mountain was impaired and reduced the Company's investment to
zero. In June 1998, the Company disposed of its investment in
Oak Mountain. In 1998, the Company realized operating losses of
$3 million.
The Company and certain other defendants are party to certain
litigation involving repairs to runways at Denver International
Airport. In December 1998, a jury determined that the defendants
were liable for compensatory and punitive damages. The Company
intends to appeal the verdict. Management believes that any
resulting liability, beyond that provided, should not materially
affect the Company's financial position, future results of
operations or future cash flows.
The Company is involved in various other lawsuits and claims
incidental to its business. Management believes that any
resulting liability, beyond that provided, should not materially
affect the Company's financial position, future results of
operations or future cash flows.
The Company leases various buildings and equipment under both
operating and capital leases. Minimum rental payments on
buildings and equipment subject to noncancellable operating
leases during the next 21 years aggregate $31 million.
It is customary in the Company's industry to use various
financial instruments in the normal course of business. These
instruments include items such as letters of credit. Letters of
credit are conditional commitments issued on behalf of the
Company in accordance with specified terms and conditions. The
Company has informal arrangements with a number of banks to
provide such commitments. As of December 26, 1998, the Company
had outstanding letters of credit of approximately $191 million.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
13. Other Matters, Continued:
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 have
been suspended. The suspension had no material impact on the
Company, as substantially all payments have been received for
work performed and the costs of demobilizing the project were not
significant. All amounts that have been billed and received in
excess of costs incurred on the suspended projects have been
deferred pending final resolution of these projects with the U.S.
client and its lenders.
14. Subsequent Events:
On February 28, 1999, the Company purchased the remaining 60% of
a materials operation operating in the Portland, Oregon/Vancouver,
Washington area.
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosures.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Item 13. Certain Relationships and Related Transactions.
The information required by Part III is incorporated by reference
to the Company's definitive proxy statement for the 1999 Annual
Meeting of Stockholders to be filed with the Securities and
Exchange Commission. However, certain information is set forth in
Item 4A "Executive Officers of the Registrant" above.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) The following documents are filed as part of this
report:
1. Consolidated Financial Statements as of December 28, 1996 and
December 27, 1997 and for the three years ended December 26,
1998:
Report of Independent Accountants dated March 18, 1999 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 26, 1998:
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 March
19, 1998 (Exhibit 2 to the Company's Registration
Statement on Form 8-A filed March 24, 1998).
3.2 Amended and Restated By-laws, effective March 19, 1998
(Exhibit 3 to the Company's Registration Statement on
Form 8-A filed March 24, 1998).
4.1 Form of Stock Repurchase Agreement for Employee
Stockholders (Exhibit 1 to the Company's Registration
Statement on Form 8-A filed March 24, 1998).
4.2 Indenture dated as of July 1, 1986, as amended pursuant
to a First Supplemental Indenture dated as of March 31,
1998 (Exhibit 4.3 to the Company's Registration
Statement on Form S-8 filed October 5, 1998).
4.3 Form of Debenture (Exhibit 4.4 to the Company's
Registration Statement on Form S-8 filed October 5,
1998).
4.4 Form of Repurchase Agreement for Convertible Debentures
(Exhibit 4.5 to the Company's Registration Statement on
Form S-8 filed October 5, 1998).
21 List of Subsidiaries of the Company.
27 Financial Data Schedule.
(b) No reports on Form 8-K have been filed during the last
quarter of 1998.
Report of Independent Accountants
To the Board of Directors
Of Peter Kiewit Sons', Inc.
Our audits of the consolidated financial statements referred to
in our report dated March 18, 1999 appearing on page 12 of this
Form 10-K also included an audit of the financial statement
schedule listed in Item 14(a)(2) of this Form 10-K. In our
opinion, this financial statement schedule presents fairly, in
all material respects, the information set forth therein when
read in conjunction with the related consolidated financial
statements.
PricewaterhouseCoopers LLP
Omaha, Nebraska
March 18, 1999
Schedule II
Valuation and Qualifying Accounts and Reserves
Additions Amounts
Balance Charged to Charged Balance
Beginning Costs and to End of
(dollars in millions) Of Period Expenses Reserves Other Period
- -----------------------------------------------------------------
Year ended December 26, 1998
- ----------------------------
Allowance for doubtful
trade accounts $ 9 $ - $ (4) $ - $ 5
Reserves:
Insurance claims 76 15 (10) - 81
Year ended December 27, 1997
- ----------------------------
Allowance for doubtful
trade accounts $ 17 $ 3 $ (11) $ - $ 9
Reserves:
Insurance claims 81 7 (12) - 76
Year ended December 28, 1996
- ----------------------------
Allowance for doubtful
trade accounts $ 10 $ 12 $ (5) $ - $ 17
Reserves:
Insurance claims 79 22 (20) - 81
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 24, 1999 Tobin A. Schropp, Vice President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Name Title Date
---- ----- ----
/s/ Kenneth E. Stinson Chairman of the Board
Kenneth E. Stinson and President
(Principal Executive Officer) March 25, 1999
/s/ Kenneth M. Jantz Vice President
Kenneth M. Jantz (Principal Financial Officer) March 25, 1999
/s/ Rodney K. Rosenthal Controller
Rodney K. Rosenthal (Principal Accounting Officer) March 25, 1999
/s/ Mogens C. Bay Director March 25, 1999
Mogens C. Bay
/s/ Richard W. Colf Director March 25, 1999
Richard W. Colf
/s/ James Q. Crowe Director March 25, 1999
James Q. Crowe
/s/ Richard Geary Director March 25, 1999
Richard Geary
/s/ Bruce E. Grewcock Director March 25, 1999
Bruce E. Grewcock
/s/ William L. Grewcock Director March 25, 1999
William L. Grewcock
/s/ Tait P. Johnson Director March 25, 1999
Tait P. Johnson
/s/ Peter Kiewit, Jr. Director March 25, 1999
Peter Kiewit, Jr.
/s/ Allan K. Kirkwood Director March 25, 1999
Allan K. Kirkwood
/s/ Walter Scott, Jr. Director March 25, 1999
Walter Scott, Jr.
/s/ George B. Toll, Jr. Director March 25, 1999
George B. Toll, Jr.
EXHIBIT 21
LIST OF SUBSIDIARIES OF
PETER KIEWIT SONS', INC.
DECEMBER 26, 1998
Peter Kiewit Sons', Inc.
Kiewit Construction Group Inc.
Newsham Hybrids (USA), Inc.
Kiewit Construction Company
Kiewit Pacific Co.
Kiewit Western Co.
Grow Tunneling Corp.
ME Holdings Inc.
Mass. Electric Construction Co.
Mass. Electric Securities Corp., Inc.
Kiewit Engineering Co.
Ben Holt Company
Bibb and Associates, Inc.
Kiewit Industrial Co.
Kiewit Network Services Co.
Kiewit International Services Ltd. (inactive)
Kiewit Investment Management Corp.
Kiewit International Inc.
Constructora Kiewit, C.A.
Kiewit Venezuela Inc.
Kiewit International Services Inc.
Peter Kiewit Sons Co. Ltd.
Les Entreprises Kiewit Ltee
Kiewit Management Limited
MIL Offshore Inc.
Kiewit Engineering Canada Ltd.
Kiewit Industrial Canada Ltd.
Kiewit Pipelines Ltd.
V.K. Mason Construction Ltd.
V.K. Mason Inc.
Kiewit Mining Group Inc.
Kiewit Alabama Mining Company
Kiewit Mining Services Inc.
United Metro Materials Inc.
Western Equipment Co.
Quality Ready Mix, Inc.
Apache Materials, L.L.C.
Global Surety & Insurance Co.
Midwest Agencies, Inc.
Construcciones Kiewit, S.A. de C.V.
Kiewit Mazon Constructores, S.A. de C.V.
Servitec de Sonora, S.A. de C.V.
Gilbert Southern Corp.
Guernsey Stone and Construction Company
Twin Mountain Rock Company
Twin Mountain Construction II Company
Bentson Contracting Company
Gilbert Frontier, Inc.
Gilbert Central Corp.
Gilbert Western Corp.
Gilbert Texas Construction Corp.
Gilbert Network Services, L.P.
Gilbert Industrial Corporation
Gulf Marine Fabricators, Inc.
Aker Gulf Marine (Partnership)
GBV-Texas, L.P.
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0
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<INCOME-CONTINUING> 136
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 136
<EPS-PRIMARY> 4.07
<EPS-DILUTED> 4.02
</TABLE>
