UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission file number
March 31, 2000 000-23943
PETER KIEWIT SONS', INC.
(Exact name of registrant as specified in its charter)
Delaware 91-1842817
(State of Incorporation) (I.R.S. Employer Identification No.)
Kiewit Plaza, Omaha Nebraska 68131
(Address of principal executive offices) (Zip Code)
(402) 342-2052
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of each of the registrant's classes of
common stock as of May 15, 2000:
Title of Class Shares Outstanding
Common Stock, $0.01 par value 31,874,772
PETER KIEWIT SONS', INC.
Index
Page
_____________________________________________________________________________
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements.
Consolidated Condensed Statements of Earnings for the three months
ended March 31, 2000 and 1999 1
Consolidated Condensed Balance Sheets as of March 31, 2000 and
December 25, 1999 2
Consolidated Condensed Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 3
Notes to Consolidated Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 9
Item 3. Quantitative and Qualitative Disclosure About Market Risk. 11
PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K. 12
Signatures 12
Index to Exhibits 13
_____________________________________________________________________________
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
PETER KIEWIT SONS', INC.
Consolidated Condensed Statements of Earnings
(unaudited)
Three Months Ended
March 31,
--------------------
(dollars in millions, except per share data) 2000 1999
- ----------------------------------------------------------------------------
Revenue $ 1,083 $ 773
Cost of revenue (1,032) (730)
------- -----
51 43
General and administrative expenses (45) (43)
------- -----
Operating earnings 6 -
Other income (expense):
Investment income and equity earnings 6 5
Interest expense - (1)
Other, net 12 16
------- -----
18 20
------- -----
Earnings before income taxes 24 20
Provision for income taxes (10) (8)
------- -----
Net earnings $ 14 $ 12
======= =====
Net earnings per share:
Basic $ .43 $ .35
======= ======
Diluted $ .42 $ .34
======= ======
____________________________________________________________________________
See accompanying notes to consolidated condensed financial statements.
PETER KIEWIT SONS', INC.
Consolidated Condensed Balance Sheets
March 31, December 25,
2000 1999
(dollars in millions) (unaudited)
_____________________________________________________________________________
Assets
Current assets:
Cash and cash equivalents $ 232 $ 338
Marketable securities 15 12
Receivables, less allowance of $6 and $7 410 507
Unbilled contract revenue 134 73
Contract costs in excess of related revenue 38 31
Investment in construction joint ventures 187 197
Deferred income taxes 61 60
Other 27 21
------ ------
Total current assets 1,104 1,239
Property, plant and equipment, less accumulated
depreciation and amortization of $517 and $508 261 243
Other assets 120 117
------ ------
$1,485 $1,599
====== ======
Liabilities and redeemable common stock
Current liabilities:
Accounts payable, including retainage
of $50 and $50 $ 208 $ 270
Current portion of long-term debt 2 4
Accrued costs on construction contracts 131 120
Billings in excess of related costs and earnings 119 122
Accrued insurance costs 89 84
Other 45 62
------ ------
Total current liabilities 594 662
Long-term debt, less current portion 17 18
Deferred income taxes 4 2
Other liabilities 66 67
Minority interest 14 13
------ ------
Total liabilities 695 762
Preferred stock, no par value, 250,000 shares authorized,
no shares outstanding - -
Redeemable common stock ($658 million aggregate redemption value):
Common stock, $0.01 par value; 125 million
shares authorized 31,918,732 and
34,876,718 shares outstanding - -
Additional paid-in capital 160 175
Accumulated other comprehensive income (10) (10)
Retained earnings 640 672
------ ------
Total redeemable common stock 790 837
------ ------
$1,485 $1,599
====== ======
_____________________________________________________________________________
See accompanying notes to consolidated condensed financial statements.
PETER KIEWIT SONS', INC.
Consolidated Condensed Statements of Cash Flows
(unaudited)
Three Months Ended
March 31,
--------------------
(dollars in millions) 2000 1999
_____________________________________________________________________________
Cash flows from operations:
Net cash provided by operations $ 33 $ 80
Cash flows from investing activities:
Purchases of marketable securities - (3)
Proceeds from sales of property, plant and equipment 4 13
Acquisitions (31) -
Distributions from investees - 4
Capital expenditures (21) (16)
------ ------
Net cash used in investing activities (48) (2)
Cash flows from financing activities:
Long-term debt payments (2) (2)
Repurchases of common stock (62) (29)
Dividends paid (8) (8)
Change in outstanding checks in excess of
funds on deposit (19) (4)
------ ------
Net cash used in financing activities (91) (43)
------ ------
Net (decrease) increase in cash and cash equivalents (106) 35
Cash and cash equivalents at beginning of period 338 227
------ ------
Cash and cash equivalents at end of period $ 232 $ 262
====== ======
Noncash investing activities:
Issuance of debt for materials acquisitions $ - $ 42
____________________________________________________________________________
See accompanying notes to consolidated condensed financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation:
The consolidated condensed balance sheet of Peter Kiewit Sons', Inc. (the
"Company") at December 25, 1999 has been condensed from the Company's audited
balance sheet as of that date. All other financial statements contained
herein are unaudited and, in the opinion of management, contain all
adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of financial position and results of operations for the
periods presented. The Company's accounting policies and certain other
disclosures are set forth in the notes to the consolidated financial
statements contained in the Company's Annual Report on Form 10-K.
Receivables at March 31, 2000 and December 25, 1999 include approximately
$105 million and $90 million of retainage on uncompleted projects, the
majority of which is expected to be collected within one year. Included in
the retainage amounts are $34 million and $29 million, respectively, of
securities which are being held by the owners of various construction
projects in lieu of retainage. Also included in receivables are $11 million
and $15 million, respectively, of securities held by the owners which are
now due as the contracts are completed. These securities are carried at
fair value which is determined based on quoted market prices for the
securities on hand or for similar investments. Net unrealized holding gains
and losses, if any, are reported as a separate component of accumulated other
comprehensive income, net of tax.
The results of operations for the three months ended March 31, 2000 are not
necessarily indicative of the results to be expected for the full year.
When appropriate, items within the consolidated condensed financial statements
have been reclassified in the previous periods to conform to current year
presentation.
2. Earnings Per Share:
Basic earnings per share has been computed using the weighted average number
of shares outstanding during each period. Diluted earnings per share 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.
Three Months Ended
March 31,
------------------
2000 1999
------------------
Net earnings available to common
shareholders (in millions) $ 14 $ 12
Add: Interest expense, net of tax effect, associated with
convertible debentures * *
------ ------
Net earnings for diluted shares $ 14 $ 12
====== ======
Total number of weighted average shares outstanding
used to compute basic earnings per share (in thousands) 32,344 33,872
Additional dilutive shares assuming conversion of
convertible debentures 1,029 707
------ ------
Total number of shares used to compute diluted earnings
per share 33,373 34,579
====== ======
Net earnings
Basic earnings per share $ .43 $ .35
====== ======
Diluted earnings per share $ .42 $ .34
====== ======
* Interest expense attributable to convertible debentures was less than $.5
million.
3. Comprehensive Income:
Comprehensive income includes net income, unrealized gains (losses) on
securities and foreign currency translation adjustments which are charged or
credited to the cumulative translation account within Redeemable Common Stock.
Comprehensive income for the three months ended March 31, 2000 and 1999 was as
follows:
Three Months Ended
March 31,
------------------
(dollars in millions) 2000 1999
- ----------------------------------------------------------------------------
Net earnings $14 $12
Other comprehensive income, before tax:
Foreign currency translation adjustments - 2
Income tax expense related to items of
other comprehensive income - (1)
--- ---
Comprehensive income $14 $13
=== ===
4. Segment 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, telecommunication infrastructure, heating and cooling,
and oil and gas. The Materials segment primarily operates in the Southwest
and Northwest portions of the United States. This segment produces
construction materials primarily for sale to the private sector including
ready-mix concrete, asphalt, sand and gravel, landscaping materials and
railroad ballast.
Intersegment sales are recorded at cost. Operating earnings is comprised of
net sales less all identifiable operating expenses, allocated general and
administrative expenses, depreciation and amortization. Investment income,
interest expense, mine management fees and income taxes have been excluded
from segment operations. Segment asset information has not been presented as
it is not reported to or reviewed by the chief operating decision maker.
March 31, March 31,
2000 1999
----------------------- -----------------------
(dollars in millions) Construction Materials Construction Materials
- -----------------------------------------------------------------------------
Revenue
External customers $991 $ 92 $682 $ 93
Intersegment - 4 - 2
---- ---- ---- ----
Total revenues 991 96 682 95
Equity earnings adjustment (1) - - - (2)
Elimination of intersegment
revenues - (4) - (2)
---- ---- ---- ----
Total consolidated revenues $991 $ 92 $682 $ 91
==== ==== ==== ====
Depreciation and amortization $ 12 $ 5 $ 12 $ 2
==== ==== ==== ====
Operating earnings $ 2 $ 4 $ (6) $ 6
==== ==== ==== ====
_____________________________________________________________________________
(1) Adjust revenue of limited liability companies accounted for by the
equity method.
During the first quarter 2000 and 1999, the Company earned 38.5% and 18.2%,
respectively of revenues from a single customer.
5. Other Matters:
In connection with the spin-off of the Company from Level 3 Communications,
Inc. ("Level 3") in 1998, various agreements were entered into 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 Tax Sharing Agreement provides, with respect to periods, or portions
thereof, ending on or before the closing date of the spin-off that Level 3
and the Company generally will be responsible for paying the taxes relating
to such periods, including any subsequent adjustments resulting from the
redetermination of such tax liabilities by the applicable taxing authorities,
that are allocable to the non-construction businesses and construction
businesses, respectively. The 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 spin-off was determined to be taxable, but
solely to the extent that such determination arose out of the breach by Level
3 or the Company, respectively, of certain representations made to the
Internal Revenue Service in connection with the ruling issued with respect to
the spin-off or made in the Tax-Sharing Agreement. If the spin-off was
determined to be taxable for any other reason, those taxes would be allocated
50% to Level 3 and 50% to the Company. Finally, under certain circumstances,
Level 3 would make certain liquidated damage payments to the Company if the
spin-off was determined to be taxable in order to take into account the fact
that the spin-off is taxable to the holders of Common Stock.
The amended Mine Management Agreement, pursuant to which the Company provides
mine management and related services to Level 3's coal mining operations,
provides the Company with a right of offer in the event that Level 3 would
determine to sell any or all of its coal mining properties. Under the right
of offer, Level 3 would be required to offer to sell those properties to the
Company at the price that Level 3 would seek to sell the properties to a third
party. If the Company declined to purchase the properties at that price,
Level 3 would be free to sell them to a third party for an amount greater
than or equal to that price. If Level 3 sold the properties to a third party,
thus terminating the 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.
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.
6. Subsequent Events:
The Company has filed various documents with the Securities and Exchange
Commission pursuant to which the Company is proposing to spin-off its materials
business to its shareholders in a transaction that is generally intended to be
tax-free for U.S. Federal income tax purposes.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations - First Quarter 2000 vs. First Quarter 1999
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 or uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described in this document.
Revenue from each of the Company's segments was (in millions):
Three Months Ended
March 31,
-------------------
2000 1999
------ ------
Construction $ 991 $ 682
Materials 92 91
------ ------
$1,083 $ 773
====== ======
Construction. Construction revenue for the first quarter of 2000
increased $309 million or 45% from the same period in 1999. The increase is
due to favorable market conditions in the business sectors that the Company
operates.
Contract backlog at March 31, 2000 was $3.6 billion of which 8% is
attributable to foreign operations located primarily in Canada. Domestic
projects are spread geographically throughout the U.S.
Margins, as a percentage of revenue, for the first quarter of 2000
decreased to 4.5% compared to 5.1% for the same period in 1999. The decrease
is attributed to higher than anticipated costs on certain large complex
projects. Margins may vary between periods due to the inherent uncertainties
associated with fixed price contracts and the state of completion of
individual projects.
Materials. Revenues increased $1 million or 1% in the first quarter to
$92 million as compared to $91 million for the same time period in 1999. The
increase is primarily due to a 4% improvement in average sales prices and the
inclusion of additional revenues of $9 million from acquired companies.
Offsetting the increases were declines in unit volumes for aggregate and
asphalt sales. Aggregate sales were unfavorably impacted by customer
scheduling at certain quarries and a softening of market demand in the
Northwest. Asphalt sales declined, as the Company became more selective in
supplying the market in an effort to improve product margins.
Margins decreased to 7% in the first quarter of 2000 as compared to 9%
in the first quarter of 1999. Increases in asphalt oil prices and fuel costs
unfavorably impacted operating margins. The fixed cost nature of certain
quarry costs also caused lower margins at those sites with reduced aggregate
sales.
General and Administrative Expenses. General and administrative expenses
("G&A"), for the three months ended March 31, 2000 increased $2 million to $45
million when compared to the same period in 1999. The increase was attributed
to increased costs related to higher construction revenues. As a percentage
of revenue, G&A decreased from 5.6% in 1999 to 4.2% in 2000 as a proportionate
increase in administration costs were not necessary to support the Company's
revenue growth.
Investment Income and Equity Earnings. Investment income for the first
quarter 2000 increased $1 million to $6 million as compared to the same period
in 1999. An increase in interest income due to higher interest rates was
responsible for the improved results.
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. Gains on sales of property, plant and
equipment decreased $3 million in the first quarter of 2000 when compared to
the same period in 1999. The decrease is due to a decline in sales of excess
construction equipment.
The Company manages three active coal mines for Level 3. Fees for these
services for the first quarter 2000 were $8 million as compared to $7 million
for the same period in 1999. The increase is due to timing of revenues
generated from a coal customer and decreased cost of mining at one of the
mines. 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. After a
significant long-term contract expires this year, 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 separate assessments to the Level 3 mines for the
underpayment of royalties and production taxes. Level 3 is vigorously
contesting these assessments. On May 9, 2000, the Montana Supreme Court issued
an order dismissing the assessment of the Montana Department of Revenue. The
Montana Department of Revenue has until May 23, 2000 to file a Petition for
Rehearing with the Montana Supreme Court. The Minerals Management Service
assessment is still pending, and if Level 3 is ultimately required to pay this
assessment, the payment could materially decrease future mine management fees,
but will not affect fees previously received.
Provision for income taxes. The effective income tax rates during the
first quarter 2000 and 1999 were 40%. These rates differ from the federal
statutory rate of 35% primarily due to state income taxes.
Financial Condition - March 31, 2000
Cash and cash equivalents decreased $106 million to $232 million at March
2000 from $338 million at December 1999. The decrease reflects net cash
provided by operations of $33 million offset by net cash used in investing
activities of $48 million and $91 million used in financing activities.
The net cash and cash equivalents generated from operating activities
of $33 million represented a decrease of $47 million from the same period in
1999. Although net income was up, the decrease was due primarily to working
capital requirements for construction contracts. Cash provided or used by
operating activities is affected to a large degree by the mix, timing, state
of completion and terms of individuals contracts which are reflected in
changes in current assets and liabilities.
Net cash used in investing activities in the first quarter of 2000
increased by $46 million to $48 million as compared to the first quarter of
1999. This increase was due to increases in acquisitions of $31 million and
capital expenditures of $5 million and decreases in proceeds from the sale of
property, plant and equipment of $9 million and distributions from investees
of $4 million. These changes were partially offset by a decrease in
purchases of marketable securities of $3 million.
Net cash used in financing activities in the first quarter of 2000
increased by $48 million to $91 million as compared to the same time period
in 1999. This increase was due to additional repurchases of common stock of
$33 million and change in outstanding checks in excess of funds on deposit of
$15 million.
The Company anticipates investing between $50 and $100 million annually
in its construction and materials businesses. The Company continues to
explore opportunities to acquire additional businesses. Other long-term
liquidity uses include the payment of income taxes and the payment of
dividends. Currently the Company has no material firm binding purchase
commitments related to the investments described in Note 5 of the financial
statements other than meeting the normal course of business needs of the
construction partnership as well as other construction joint ventures. The
current portion of long-term debt is $4 million. The Company paid dividends
during the first quarter 2000 and 1999 of $8 million and $8 million,
respectively. These amounts are determined by the Board of Directors and
are paid in January and May of each year. The Company also has the
commitment to repurchase stock at any time during the year from shareholders.
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.
Management has proposed to separate its materials and construction
businesses in the form of a spin-off. The spin will result in a decrease in
equity, revenue and net income for the Company, but it is not expected to
unfavorably impact liquidity of the Company reflective to future needs. The
construction operations have historically generated cash flows sufficient to
fund their operations and it is expected that this trend will continue.
New Accounting Pronouncement. 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,
2000. Management does not expect adoption of this statement to materially
affect the Company's financial statements as the Company has no significant
derivative instruments or hedging activities.
Item 3. Quantitative and Qualitative Disclosure about Market Risk.
The Company does not believe that its business is subject to significant
market risks arising from interest rates, foreign exchange rates or equity
prices.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits required by Item 601 of Regulation S-K.
Exhibit
Number Description
------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K.
Current Report on Form 8-K dated January 14, 2000, reporting the
potential spin-off of the Company's materials business, which Report was
filed with the Securities and Exchange Commission on January 18, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PETER KIEWIT SONS', INC.
Date: May 15, 2000 /s/ Kenneth M. Jantz
---------------------------
Kenneth M. Jantz
Vice President and Principal Financial Officer
PETER KIEWIT SONS', INC.
INDEX TO EXHIBITS
Exhibit
No.
-------
27 Financial Data Schedule (For electronic filing purposes only)
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