<PAGE> 1
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
JUNE 30, 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 August 8, 2000:
<TABLE>
<CAPTION>
Title of Class Shares Outstanding
<S> <C>
Common Stock, $0.01 par value 31,844,872
</TABLE>
<PAGE> 2
PETER KIEWIT SONS', INC.
Index
<TABLE>
<CAPTION>
Page
-------------------------------------------------------------------------------------------------------------------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Condensed Statements of Earnings for the three and six months
ended June 30, 2000 and 1999 1
Consolidated Condensed Balance Sheets as of June 30, 2000 and
December 25, 1999 2
Consolidated Condensed Statements of Cash Flows for the six months
ended June 30, 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. 10
Item 3. Quantitative and Qualitative Disclosure About Market Risk. 13
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders. 14
Item 6. Exhibits and Reports on Form 8-K. 14
Signatures 14
Index to Exhibits 15
-------------------------------------------------------------------------------------------------------------------
</TABLE>
i
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
PETER KIEWIT SONS', INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -----------------------
(dollars in millions, except per share data) 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 1,313 $ 996 $ 2,396 $ 1,769
Cost of revenue (1,207) (923) (2,239) (1,653)
------- ----- ------- -------
106 73 157 116
General and administrative expenses (44) (32) (89) (75)
------- ----- ------- -------
Operating earnings 62 41 68 41
Other income (expense):
Investment income and equity earnings 4 3 10 7
Interest expense (1) -- (1) (1)
Other, net 18 14 30 31
------- ----- ------- -------
21 17 39 37
------- ----- ------- -------
Earnings before income taxes 83 58 107 78
Provision for income taxes (33) (23) (43) (31)
------- ----- ------- -------
Net earnings $ 50 $ 35 $ 64 $ 47
======= ===== ======= =======
Net earnings per share:
Basic $ 1.57 $1.04 $ 2.01 $ 1.39
======= ===== ======= =======
Diluted $ 1.52 $1.02 $ 1.95 $ 1.36
======= ===== ======= =======
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
1
<PAGE> 4
PETER KIEWIT SONS', INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 25,
2000 1999
(dollars in millions) (unaudited)
--------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 288 $ 338
Marketable securities 5 12
Receivables, less allowance of $7 and $7 494 507
Unbilled contract revenue 152 73
Contract costs in excess of related revenue 47 31
Investment in construction joint ventures 163 197
Deferred income taxes 61 60
Other 28 21
------- -------
Total current assets 1,238 1,239
Property, plant and equipment, less accumulated
depreciation and amortization of $518 and $508 278 243
Other assets 129 117
------- -------
$ 1,645 $ 1,599
======= =======
Liabilities and redeemable common stock
Current liabilities:
Accounts payable, including retainage of $47 and $50 $ 239 $ 270
Current portion of long-term debt 2 4
Accrued costs on construction contracts 161 120
Billings in excess of related costs and earnings 175 122
Accrued insurance costs 93 84
Other 45 62
------- -------
Total current liabilities 715 662
Long-term debt, less current portion 18 18
Deferred income taxes 4 2
Other liabilities 66 67
Minority interest 13 13
------- -------
Total liabilities 816 762
Redeemable common stock ($648 million aggregate
redemption value):
Preferred stock, no par value, 250,000 shares authorized,
no shares outstanding -- --
Common stock, par $0.01; 125 million shares authorized
and 31,846,072 and 34,876,718 shares outstanding -- --
Additional paid-in capital 159 175
Accumulated other comprehensive income (11) (10)
Retained earnings 681 672
------- -------
Total redeemable common stock 829 837
------- -------
$ 1,645 $ 1,599
======= =======
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
2
<PAGE> 5
PETER KIEWIT SONS', INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
(dollars in millions) 2000 1999
---------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operations:
Net cash provided by operations $ 114 $ 113
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 9 1
Purchases of marketable securities (2) (4)
Proceeds from sales of property, plant and equipment 14 20
Acquisitions, net of cash acquired (37) (33)
Distributions from investees -- 2
Capital expenditures (53) (33)
Additions to notes receivable (4) --
Payments received on notes receivable 1 1
----- -----
Net cash used in investing activities (72) (46)
Cash flows from financing activities:
Payments on long-term debt (2) (16)
Issuance of common stock -- 25
Repurchases of common stock (63) (37)
Dividends paid (18) (16)
Change in outstanding checks in excess of funds on deposit (9) (3)
----- -----
Net cash used in financing activities (92) (47)
----- -----
Net (decrease) increase in cash and cash equivalents (50) 20
Cash and cash equivalents at beginning of period 338 227
----- -----
Cash and cash equivalents at end of period $ 288 $ 247
===== =====
Noncash investing activities:
Issuance of debt for materials acquisitions $ 2 $ --
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 6
PETER KIEWIT SONS', INC.
NOTES TO CONSOLIDATED CONDENSED 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 June 30, 2000 and December 25, 1999 include
approximately $102 million and $90 million, respectively, of retainage
on uncompleted projects, the majority of which is expected to be
collected within one year. Included in the retainage amounts are $33
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 accounts receivable are $10 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 six months ended June 30, 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.
4
<PAGE> 7
PETER KIEWIT SONS', INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
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 gives effect to convertible debentures considered to be dilutive
common stock equivalents. The potentially dilutive convertible
debentures are calculated in accordance with the "if converted" method.
This method assumes that the after-tax interest expense associated with
the debentures is an addition to income and the debentures are
converted into equity with the resulting common shares being aggregated
with the weighted average shares outstanding.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2000 1999 2000 1999
----------------------- -----------------------
<S> <C> <C> <C> <C>
Net earnings available to common
stockholders (in millions) $ 50 $ 35 $ 64 $ 47
Add: Interest expense, net of tax effect,
associated with convertible debentures * * * *
Net earnings for diluted shares $ 50 $ 35 $ 64 $ 47
======= ======= ======= =======
Total number of weighted average shares
outstanding used to compute basic
earnings per share (in thousands) 31,878 33,555 32,119 33,717
Additional dilutive shares assuming
conversion of convertible debentures 1,025 706 1,027 707
------- ------- ------- -------
Total number of shares used to compute
diluted earnings per share 32,903 34,261 33,146 34,424
======= ======= ======= =======
Net earnings
Basic earnings per share $ 1.57 $ 1.04 $ 2.01 $ 1.39
Diluted earnings per share $ 1.52 $ 1.02 $ 1.95 $ 1.36
</TABLE>
* Interest expense attributable to convertible debentures was less than $.5
million.
5
<PAGE> 8
PETER KIEWIT SONS', INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
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 and
six months ended June 30, 2000 and 1999 was as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ----------------------
(dollars in millions) 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings $50 $35 $64 $47
Other comprehensive income, before tax:
Foreign currency translation adjustments 2 2 2 4
Unrealized gains (losses) arising during period (4) (2) (4) (2)
Income tax (expense) benefit related to items of
other comprehensive income 1 -- 1 (1)
----- ----- ----- ----
Comprehensive income $49 $35 $63 $48
===== ===== ===== ====
</TABLE>
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.
6
<PAGE> 9
PETER KIEWIT SONS', INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
4. SEGMENT DATA (CONTINUED):
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 and income taxes have
been excluded from segment operations. The management fee earned by the
Company as described in Note 5 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. Segment asset
information has not been presented as it is not reported to or reviewed
by the chief operating decision maker.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 2000 June 30, 1999
----------------------------- -----------------------------
(dollars in millions) Construction Materials Construction Materials
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue
External customers $1,189 $ 124 $887 $ 109
Intersegment -- 2 -- 2
------ ----- ---- -----
Total revenues 1,189 126 887 111
Equity earnings adjustment (1) -- -- -- --
Elimination of intersegment revenues -- (2) -- (2)
------ ----- ---- -----
Total consolidated revenues $1,189 $ 124 $887 $ 109
====== ===== ==== =====
Depreciation and amortization $ 13 $ 4 $ 14 $ 3
====== ===== ==== =====
Operating earnings $ 52 $ 10 $ 34 $ 7
====== ===== ==== =====
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
----------------------------- -----------------------------
(dollars in millions) Construction Materials Construction Materials
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue
External customers $2,180 $ 216 $1,569 $ 202
Intersegment -- 6 -- 4
------ ----- ------ -----
Total revenues 2,180 222 1,569 206
Equity earnings adjustment (1) -- -- -- (2)
Elimination of intersegment revenues -- (6) -- (4)
------ ----- ------ -----
Total consolidated revenues $2,180 $ 216 $1,569 $ 200
====== ===== ====== =====
Depreciation and amortization $ 25 $ 9 $ 26 $ 5
====== ===== ====== =====
Operating earnings $ 54 $ 14 $ 28 $ 13
====== ===== ====== =====
</TABLE>
--------------------------------------------------------------------------------
(1) Adjust revenue of limited liability companies accounted for by the
equity method.
During the second quarter 2000 and 1999, the Company earned 40.2% and
32.4%, respectively, of revenues from contracts with Level 3
Communications, Inc. ("Level 3"). For the first six months of 2000, the
Company earned 40.2% of revenues from contracts with Level 3, as
compared to 23.6% for the same period in 1999.
7
<PAGE> 10
PETER KIEWIT SONS', INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
5. OTHER MATTERS:
In connection with the spin-off of the Company from 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.
8
<PAGE> 11
PETER KIEWIT SONS', INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
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 intended to be tax-free for U.S. Federal income tax purposes.
On July 11, 2000, the Company notified Aker Maritime, Inc. ("Aker"),
the Company's partner in Aker Gulf Marine (the "Partnership"), that the
Company was exercising its right to either sell its 49% interest in the
Partnership to Aker, or purchase Aker's 51% interest in the
Partnership. Pursuant to the terms of the Company's notice, Aker has
until September 9, 2000, to determine whether either Aker or the
Company will be the acquiror. The transaction is anticipated to close
on September 11, 2000. The purchase price payable by the acquiring
partner will be determined based upon the value of the Partnership of
$175 million.
On August 4, 2000, the Company acquired 100% of the outstanding common
stock and related assets of Fort Calhoun Stone Company, a limestone
quarry business located in Washington County, Nebraska, for
approximately $41 million. The acquisition will be accounted for as a
purchase. The purchase price allocation will be determined when
additional information becomes available.
9
<PAGE> 12
PETER KIEWIT SONS', INC.
ITEM 2. 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 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.
Management has proposed to separate its materials and construction
businesses in the form of a spin-off. Consequently, in the event that the
spin-off is effected, the Company will no longer have any interest in its
materials operations. The materials operations will be owned and operated solely
by the Company's subsidiary, Kiewit Materials Company ("Materials"). The
spin-off will result in a decrease in equity, revenue and net income for the
Company, but it is not expected to have an adverse impact on the future
liquidity of the Company. The construction operations have historically
generated cash flows sufficient to fund their operations, and this trend is
expected to continue.
RESULTS OF OPERATIONS - SECOND QUARTER 2000 VS. SECOND QUARTER 1999
Revenue from each of the Company's segments was (in millions):
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-------------------
<S> <C> <C>
2000 1999
Construction $1,189 $ 887
Materials 124 109
------ -------
$1,313 $ 996
====== =======
</TABLE>
Included in the construction segment are construction revenues and
margins earned by two Materials subsidiaries which perform construction in
addition to their materials operations. Those subsidiaries had $2.7 million of
construction revenue for the second quarter of 2000 and $3.7 million of
construction revenue in the second quarter of 1999.
CONSTRUCTION. Construction revenue for the second quarter of 2000
increased $302 million or 34% from the same period in 1999. The most
significant factor contributing to this increase was a large fiber optic project
where installation was being performed only in selected locations during the
second quarter of 1999 as compared to nationwide installation being performed
during the second quarter of 2000.
Contract backlog at June 30, 2000 was $3.8 billion of which 4.5% is
attributable to foreign operations located in Canada. Domestic projects are
spread geographically throughout the U.S.
Margins, as a percentage of revenue, for the second quarter of 2000
increased to 7.9% compared to 7.2% for the same period in 1999. Margins may
vary between periods due to the inherent uncertainties associated with fixed
price contracts, as well as seasonality and the stage of completion of
individual projects.
MATERIALS. Revenues increased $15 million or 14% in the second quarter
of 2000 to $124 million, as compared to $109 million for the same period in
1999. The increase is comprised of a 3% increase in average selling prices, a 4%
increase in unit volumes and the inclusion of additional revenues of $7 million
from acquired companies. Unit volumes were greater for both ready mix concrete
and aggregates which were mitigated by a decline in asphalt sales. Asphalt sales
declined, as the Company became more selective in supplying the market in an
effort to improve product margins.
10
<PAGE> 13
Margins increased to 10% for the second quarter of 2000 as compared to
8% for the same period in 1999. The increased unit volumes and average selling
prices were responsible for the improved margins.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the second quarter of 2000 increased $12 million to $44 million
when compared to the same period in 1999. The increase was attributed to
increased compensation and travel costs. As a percentage of revenue, general and
administrative expenses increased from 3.2% in 1999 to 3.4% in 2000.
INVESTMENT INCOME AND EQUITY EARNINGS. Investment income for the second
quarter of 2000 increased $1 million to $4 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 comprised primarily of mine management fee
income from Level 3 and gains and losses on the disposition of property, plant
and equipment and other assets.
The Company manages three active coal mines for Level 3. Fees for these
services for the second 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 customer. The Company's fee is a percentage of adjusted operating
earnings of the coal mines, as defined in the mine management agreement with
Level 3. 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 in 2000,
adjusted operating earnings at the mines will decrease substantially, thereby
decreasing the annual management fee earned by the Company to approximately $6
million in 2001.
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. On May 9, 2000, the Montana
Supreme Court issued an order dismissing the assessment of the Montana
Department of Revenue. Level 3 is vigorously contesting the Minerals Management
Service assessment. If Level 3 is ultimately required to pay the Minerals
Management Service assessment of approximately $18.9 million, of which $9.3
million is principal and $9.6 million is interest, the payment would decrease
future mine management fees in total by as much as $2.8 million, but will not
affect fees previously received.
Net gains on the disposition of property, plant and equipment and other
assets increased to $7 million in the second quarter of 2000 from $6 million in
the same period in 1999. The increase is due to additional sales of excess
construction equipment.
PROVISION FOR INCOME TAXES. The effective income tax rate during the
second quarter of both 2000 and 1999 were 40%. These rates differ from the
federal statutory rate of 35% primarily due to state income taxes.
RESULTS OF OPERATIONS - SIX MONTHS 2000 VS. SIX MONTHS 1999
Revenue from each of the Company's segments was (in millions):
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
2000 1999
<S> <C> <C>
Construction $2,180 $1,569
Materials 216 200
-------- ------
$2,396 $1,769
======== ======
</TABLE>
Included in the construction segment are construction revenues and
margins earned by two Materials subsidiaries which perform construction in
addition to their materials operations. Those subsidiaries had $6.6 million of
construction revenue for the first six months of 2000 and $9.5 million of
construction revenue for the first six months of 1999.
11
<PAGE> 14
CONSTRUCTION. Construction revenue for the first six months of 2000
increased $611 million or 39% from the same period in 1999. The most
significant factor contributing to this increase was a large fiber optic project
where installation was being performed only in selected locations during the
first six months of 1999 as compared to nationwide installation being performed
during the first six months of 2000.
Margins, as a percentage of revenue, for the first six months of 2000
increased to 6.4% compared to 6.3% for the same period in 1999. Margins may
vary between periods due to the inherent uncertainties associated with fixed
price contracts, as well as seasonality and the stage of completion of
individual projects.
MATERIALS. Materials revenues increased $16 million or 8% for the first
six months of 2000 to $216 million, as compared to $200 million in the same
period of 1999. The increase is primarily due to a 3% increase in average
selling prices and the inclusion of additional revenues of $17 million from
acquired companies. Offsetting the increases were declines in unit volumes of
asphalt sales. Asphalt sales declined as the Company became more selective in
supplying the market in an effort to improve product margins.
Margins remained consistent between the first six months of 2000 and
the same period of 1999. Higher margin sales from acquired companies, a higher
average selling price and a more selective approach to supplying asphalt demand
were offset by increases in asphalt oil costs and higher fuel prices.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the first six months of 2000 increased $14 million to $89 million
when compared to the same period in 1999. The increase was attributed to
increased compensation and travel costs. As a percentage of revenue, general and
administrative expenses decreased from 4.2% in 1999 to 3.7% in 2000 as a
proportionate increase in administrative costs was not necessary to support the
Company's revenue growth.
INVESTMENT INCOME AND EQUITY EARNINGS. Investment income for the first
six months of 2000 increased $3 million to $10 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.
The Company manages three active coal mines for Level 3. Fees for these
services for the first six months of 2000 were $16 million as compared to $14
million for the same period in 1999. The increase is due to timing of revenues
generated from a customer. The Company's fee is a percentage of adjusted
operating earnings of the coal mines, as defined in the mine management
agreement with Level 3. 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 in 2000, adjusted operating earnings at the mines will decrease
substantially, thereby decreasing the annual management fee earned by the
Company to approximately $6 million in 2001.
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. On May 9, 2000, the Montana
Supreme Court issued an order dismissing the assessment of the Montana
Department of Revenue. Level 3 is vigorously contesting the Minerals Management
Service assessment. If Level 3 is ultimately required to pay the Minerals
Management Service assessment of approximately $18.9 million, of which $9.3
million is principal and $9.6 million is interest, the payment would decrease
future mine management fees in total by as much as $2.8 million, but will not
affect fees previously received.
Net gains on the disposition of property, plant and equipment and other
assets decreased to $11 million for the first six months of 2000 from $13
million in the same period in 1999. The decrease is due to a decline in sales of
excess construction equipment.
PROVISION FOR INCOME TAXES. The effective income tax rate for the
first six months of both 2000 and 1999 were 40%. These rates differ from the
federal statutory rate of 35% primarily due to state income taxes.
12
<PAGE> 15
FINANCIAL CONDITION - JUNE 30, 2000 VS. DECEMBER 25, 1999
Cash and cash equivalents decreased $50 million to $288 million at June
2000 from $338 million at December 1999. The decrease reflects net cash provided
by operations of $114 million offset by net cash used in investing activities of
$72 million and $92 million used in financing activities.
Net cash provided by operating activities for the first six months of
2000 of $114 million represented an increase of $1 million from the same period
in 1999. A net income increase of $17 million for the first six months of 2000
compared to the same period in 1999 was offset by increased working capital
requirements for construction contracts. Cash provided or used by operating
activities is affected to a large degree by the mix, timing, stage of completion
and terms of individual contracts which are reflected through changes in current
assets and liabilities.
Net cash used in investing activities for the first six months of 2000
increased by $26 million to $72 million as compared to the same period in 1999.
This increase was due to increases in acquisitions of $4 million, additional
capital expenditures of $20 million, decreases in proceeds from the sale of
property, plant and equipment in the ordinary course of business of $6 million,
a decrease in distributions from investees of $2 million and additions to notes
receivable of $4 million. These changes were partially offset by a decrease in
purchases of marketable securities of $2 million and an $8 million increase in
proceeds from the sale of marketable securities.
Net cash used in financing activities for the first six months of 2000
increased by $45 million to $92 million as compared to the same time period in
1999. This increase was due to an increase in repurchases of common stock of $26
million, decrease in issuance of common stock of $25 million, increase in
dividends paid of $2 million and change in outstanding checks in excess of funds
on deposit of $6 million over 1999 amounts. These changes were partially offset
by a decrease in payments on long-term debt of $14 million.
The Company anticipates investing between $50 and $100 million annually
in its construction and materials businesses. In the event that the spin-off of
the Company's materials business is effected, the Company anticipates investing
a similar amount in its construction business. 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. As of June 30,
2000, the Company had no material firm binding purchase commitments related to
its investments 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 $2 million. The Company paid dividends
during the first six months of 2000 and 1999 of $18 million and $16 million,
respectively. These amounts were determined by the Board of Directors and were
paid in January and May of each such year. The Company also has the commitment
to repurchase stock at any time during the year from shareholders.
The Company does not believe that the spin-off of its materials
business, if effected, will have an adverse impact on its liquidity or material
commitments, since earnings generated from the materials business have
historically been reinvested in the materials business. The Company's current
financial condition, together with anticipated cash flows from operations,
should be sufficient for immediate cash requirements and future investing
activities. The Company does not presently have any committed bank credit
facilities. In the past, the Company has been able to borrow on terms
satisfactory to it. The Company believes that, to the extent necessary, it will
likewise be able to borrow funds on acceptable terms for the foreseeable future.
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.
13
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Corporation's annual meeting of stockholders was held on June 17,
2000. The holders of 30,812,374 of the 31,895,472 outstanding shares of $0.01
par value common stock ("Common Stock") were present in person or by proxy at
the annual meeting. At such meeting, the following slate of nominees for
director was proposed by the incumbent directors. No additional nominations were
received and all of the nominees proposed by the board were elected to serve
one-year terms.
<TABLE>
<CAPTION>
Director Nominee Votes For Withheld
---------------- --------- --------
<S> <C> <C>
Mogens C. Bay 30,085,802 726,572
Roy L. Cline 30,424,332 388,042
Richard W. Colf 30,800,306 12,068
James Q. Crowe 30,755,386 56,988
Richard Geary 30,797,306 15,068
Bruce E. Grewcock 30,796,306 16,068
William L. Grewcock 30,796,806 15,568
Peter Kiewit, Jr. 30,788,986 23,388
Allan K. Kirkwood 30,800,306 12,068
Walter Scott, Jr. 30,800,306 12,068
Kenneth E. Stinson 30,800,306 12,068
George B. Toll, Jr. 30,710,362 102,012
</TABLE>
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 June 28, 2000, reporting the potential
spin-off of the Company's materials business, which Report was filed with the
Securities and Exchange Commission on June 28, 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: August 8, 2000 /s/ Michael J. Piechoski
---------------------------
Michael J. Piechoski
Vice President and Treasurer
14
<PAGE> 17
PETER KIEWIT SONS', INC.
INDEX TO EXHIBITS
Exhibit
No.
27 Financial Data Schedule (For electronic filing purposes only)
15
