FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period _______________ to _____________
Commission file number 0-15658
PETER KIEWIT SONS', INC.
(Exact name of registrant as specified in its charter)
Delaware 47-0210602
(State of Incorporation) (I.R.S. Employer
identification No.)
1000 Kiewit Plaza, Omaha, Nebraska 68131
(Address of principal executive offices) (Zip Code)
402-342-2052
(Registrant's telephone number,
including area code)
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 report(s)), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
___ ___
The number of shares outstanding of each class of the
issuer's common stock, as of May 1, 1994:
Class B Common Stock............................ 1,000,400 shares
Class C Common Stock............................ 14,142,652 shares
Class D Common Stock............................ 20,442,129 shares
<PAGE>
PETER KIEWIT SONS', INC.
Part I - Financial Information
______________________________
Page
____
Item 1. Financial Statements
Consolidated Condensed Statements of
Earnings
Consolidated Condensed Balance Sheets
Consolidated Condensed Statements of Cash
Flows
Notes to Consolidated Condensed Financial
Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Part II - Other Information
___________________________
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
Index to Exhibits
<PAGE>
PETER KIEWIT SONS', INC.
Consolidated Condensed Statements of Earnings
(unaudited)
Three months ended
March 31,
__________________
(dollars in millions, except per share data) 1994 1993
__________________________________________________________________
Revenue $ 573 $ 437
Cost of Revenue (521) (387)
______ ______
52 50
Operating Expenses (54) (40)
______ ______
Operating Income (Loss) (2) 10
Other Income (Expense):
Gain on Subsidiary's Stock Activity, net 25 -
Investment Income 21 19
Interest Expense (17) (2)
Other, net 3 3
______ ______
32 20
______ ______
Earnings Before Income Taxes
and Minority Interest 30 30
Provision for Income Taxes (14) (10)
Minority Interest in Loss of Subsidiaries 7 -
______ ______
Net Earnings $ 23 $ 20
====== ======
Earnings (Loss) Attributable to Class
B&C Stock:
Net Earnings (Loss) $ (2) $ 5
====== ======
Earnings (Loss) per Common and
Common Equivalent Share $ (.14) $ .25
====== ======
Earnings Attributable to Class D Stock:
Net Earnings $ 25 $ 15
====== ======
Earnings per Common and Common
Equivalent Share $ 1.21 $ .77
====== ======<PAGE>
Cash Dividends per Common Share:
B&C Stock $ - $ .30
====== ======
D Stock $ - $ .50
====== ======
__________________________________________________________________
See accompanying notes to consolidated condensed financial
statements.
<PAGE>
PETER KIEWIT SONS', INC.
Consolidated Condensed Balance Sheets
March 31, December 25,
1994 1993
(dollars in millions) (unaudited)
__________________________________________________________________
Assets
Current Assets:
Cash and cash equivalents $ 259 $ 296
Marketable securities 1,433 1,082
Receivables, less allowance of $7
and $7 331 296
Costs and earnings in excess of
billings on uncompleted contracts 91 79
Investment in construction
joint ventures 58 81
Deferred income taxes 75 66
Other 68 54
_______ _______
Total Current Assets 2,315 1,954
Property, Plant and Equipment,
less accumulated depreciation and
amortization of $656 and $636 910 844
Investments 233 233
Intangible Assets, net 496 415
Other Assets 239 238
_______ _______
$ 4,193 $ 3,684
======= =======
__________________________________________________________________
See accompanying notes to consolidated condensed financial
statements.
<PAGE>
PETER KIEWIT SONS', INC.
Consolidated Condensed Balance Sheets
March 31, December 25,
(dollars in millions, 1994 1993
except per share data) (unaudited)
__________________________________________________________________
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 237 $ 260
Current portion of long-term debt:
Telecommunications 9 7
Other 8 8
Accrued costs and billings in excess
of revenue on uncompleted contracts 120 107
Accrued insurance costs 68 67
Other 140 140
______ _______
Total Current Liabilities 582 589
Long-Term Debt, less current portion:
Telecommunications 911 420
Other 58 42
Deferred Income Taxes 409 385
Retirement Benefits 70 71
Accrued Reclamation Costs 93 92
Other Liabilities 104 116
Minority Interest 310 298
Stockholders' Equity:
Preferred stock, no par value,
Authorized 250,000 shares: no shares
outstanding - -
Common stock, $.0625 par value,
$1.6 billion aggregate redemption
value:
Class B, authorized 8,000,000 shares:
1,000,400 outstanding in 1994 and
1,180,400 in 1993 - -
Class C, authorized 125,000,000 shares:
14,187,510 outstanding in 1994 and
16,316,070 in 1993 1 1
Class D, authorized 50,000,000 shares:
20,525,144 outstanding in 1994 and
20,010,696 in 1993 1 1
Additional paid-in capital 161 164
Foreign currency adjustment (7) (3)
Net unrealized holding gains (losses) (2) 9
Retained earnings 1,502 1,499
_______ _______<PAGE>
Total Stockholders' Equity 1,656 1,671
_______ _______
$ 4,193 $ 3,684
======= =======
__________________________________________________________________
See accompanying notes to consolidated condensed financial
statements.
<PAGE>
PETER KIEWIT SONS', INC.
Consolidated Condensed Statements of Cash Flows
(unaudited)
Three months ended
March 31,
__________________
(dollars in millions) 1994 1993
_________________________________________________________________
Cash flows from operations:
Net cash provided by continuing
operations $ 3 $ 39
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 992 1,856
Purchases of marketable securities (1,355) (1,823)
Proceeds from sales of property, plant
and equipment, and other investments 4 5
Capital expenditures (74) (33)
Acquisition of APAC-Arizona, Inc. (49) -
Redemption of U.S. Can Preferred Stock - 12
Deferred development costs and other (8) (3)
_______ _______
Net cash provided by (used in)
investing activities (490) 14
Cash flows from financing activities:
Proceeds from long-term debt borrowings 639 -
Payments on long-term debt, including
current portion (159) (1)
Net change in short-term borrowings 1 (80)
Repurchases of common stock (22) (46)
Dividends paid (6) (12)
Other (3) -
_______ _______
Net cash provided by (used in)
financing activities 450 (139)
Cash flows from discontinued packaging
operations:
Proceeds from sales of discontinued
packaging operations - 10
Other cash provided by discontinued
packaging operations 2 -
_______ _______
Net cash provided by discontinued
packaging operations 2 10
Effect of exchange rates on cash (2) -
_______ _______
Net change in cash and cash equivalents (37) (76)<PAGE>
Cash and cash equivalents at beginning
of period 296 203
_______ _______
Cash and cash equivalents at end of period $ 259 $ 127
======= =======
Noncash investing activities:
Issuance of MFS stock for purchase of
telecommunications companies $ 19 $ -
MFS stock transactions to settle
contingent purchase price liability 25 -
Noncash financing activities:
Dividends declared $ - $ 15
_________________________________________________________________
See accompanying notes to consolidated condensed financial
statements.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
1. Basis of Presentation:
_____________________
The consolidated condensed balance sheet of Peter Kiewit
Sons', Inc. ("PKS") and subsidiaries (the "Company") at
December 25, 1993 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 for the year ended
December 25, 1993.
Marketable securities at March 31, 1994 and December 25, 1993
include approximately $62 million and $56 million,
respectively, of investments which are being held by the
owners of various construction projects in lieu of retainage.
Receivables at March 31, 1994 and December 25, 1993 include
approximately $51 million and $37 million, respectively of
retainage on uncompleted projects, the majority of which is
expected to be collected within one year.
Where appropriate, items within the consolidated condensed
financial statements have been reclassified from the
previous periods to conform to current year presentation.
2. Earnings (Loss) Per Share:
_________________________
Primary earnings (loss) per share of common stock have been
computed using the weighted average number of shares
outstanding during each period. Fully diluted earnings (loss)
per share have not been presented because it is not materially
different from primary earnings (loss) per share. The number
of shares used in computing earnings (loss) per share was as
follows:
Three months ended
March 31,
_______________________
1994 1993
_______________________
Class B&C 15,376,585 17,190,330
Class D 20,546,044 19,913,554
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
3. Summarized Financial Information:
________________________________
Holders of Class B&C Stock (Construction & Mining Group) and
Class D Stock (Diversified Group) are stockholders of PKS. The
Construction & Mining Group contains the Company's traditional
construction operations and certain mining services. The
Diversified Group contains coal mining properties,
telecommunications subsidiaries, a minority interest in
California Energy Company, Inc. ("California Energy") and
miscellaneous investments. Corporate assets and liabilities
which are not separately identified with the ongoing
operations of the Construction & Mining Group or the
Diversified Group are allocated equally between the two
groups.
A summary of the results of operations and financial position
for the Construction & Mining Group and the Diversified Group
follows. The summary information for December 25, 1993 was
derived from the audited financial statements of the
respective groups which were exhibits to the 1993 Annual
Report. All other summary information was derived from the
unaudited financial statements of the respective groups which
are exhibits to this Form 10-Q. All significant intercompany
accounts and transactions, except those directly between the
Construction & Mining Group and the Diversified Group, have
been eliminated.
Construction & Mining Group:
Three months ended
March 31,
___________________
1994 1993
___________________
Results of Operations:
Revenue $ 411 $ 354
====== =====
Net earnings (loss) $ (2) $ 5
====== =====
Earnings (loss) per share $ (.14) $ .25
====== =====
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
3. Summarized Financial Information (continued):
____________________________________________
March 31, December 25,
1994 1993
__________ ____________
Financial Position:
Working capital $ 269 $ 372
Total assets 838 889
Long-term debt, less
current portion 8 10
Stockholders' equity 421 480
Included within earnings before income taxes is mine service
income from the Diversified Group of $7 million in 1994 and
1993.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
3. Summarized Financial Information (continued):
____________________________________________
Diversified Group:
Three months ended
March 31,
___________________
1994 1993
___________________
Results of Operations:
Revenue $ 162 $ 83
====== ======
Net earnings $ 25 $ 15
====== ======
Earnings per share $ 1.21 $ .77
====== ======
March 31, December 25,
1994 1993
_________ ____________
Financial Position:
Working capital $ 1,464 $ 993
Total assets 3,363 2,809
Long-term debt, less
current portion 961 452
Stockholders' equity 1,235 1,191
Included within earnings before income taxes is mine
management fees paid to the Construction & Mining Group of $7
million in 1994 and 1993.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
4. Acquisitions:
____________
On February 28, 1994, the Company acquired APAC Arizona, Inc.
("APAC"), a contracting and construction materials business,
from Ashland Oil Company, Inc.
The acquisition of APAC for $49 million in cash, subject to
certain adjustments, was accounted for as a purchase and
accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed, as follows:
Assets:
Trade accounts receivable $ 24
Other current assets 5
Property, plant and equipment 22
Intangible assets 18
Other assets 1
Liabilities:
Current liabilities (15)
Deferred income taxes (6)
_____
$ 49
=====
Results of APAC's operations are included in the Company's
consolidated results of operations since the date of
acquisition. APAC's results of operations prior to the
acquisition were not significant relative to the Company's
results.
5. Long-Term Debt:
______________
On January 19, 1994, MFS Communications Company, Inc. ("MFS")
issued 9-3/8% Senior Discount Notes due January 15, 2004.
Cash interest will not be paid on the notes prior to January
15, 1999. Accordingly, MFS recorded the net proceeds,
exclusive of transaction costs, of approximately $500 million
as long-term debt and is accruing to the principal amount of
the notes of $788 million through January 1999. Commencing
July 15, 1999 cash interest will be payable semi-annually.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
5. Long-Term Debt (continued):
______________
On or after January 15, 1999, the notes will be redeemable at
the option of MFS, in whole or in part, as stipulated in the
note agreement. In addition, under certain conditions
related to a change in control of MFS, they may be required
to repurchase all or any part of the notes as stipulated in
the note agreement. The notes are senior unsecured
obligations of MFS and are subordinated to all current and
future indebtedness of MFS's subsidiaries, including trade
payables. The notes contain certain covenants which, among
other things restrict MFS's ability to incur additional
debt, create liens, enter into sale and leaseback
transactions, pay dividends, make certain restricted
payments, enter into transactions with affiliates, and
sell assets or merge with another company.
6. Other Matters:
_____________
In 1994, the Company settled, for $25 million, a contingent
liability resulting from MFS' 1990 purchase of Chicago Fiber
Optics Corporation ("CFO"). The former shareholders of CFO
accepted MFS stock previously held by the Company, valued at
current market prices, as payment of the obligation. This
transaction, along with stock issuances for acquisitions by
MFS and the exercise of MFS employee stock options, resulted
in a $25 million net gain to the Company.
On March 16, 1994 MFS made an offer to purchase all
outstanding shares of common stock and associated preferred
share purchase rights of Centex Telemanagement, Inc. (Centex)
at $9 per share. On May 2, 1994, MFS announced that it had
signed a merger agreement with Centex, which amended its
offer to $11 per share. The offer is conditioned upon, among
other things, there being validly tendered a number of shares
that, when added to the number of shares currently
beneficially owned by MFS, will represent at least a majority
of the Centex shares outstanding on a fully diluted basis.
The offer expires on May 17, 1994.
On March 4, 1994, several former stockholders of an MFS
subsidiary filed a lawsuit against MFS, Kiewit Diversified
Group, Inc. ("KDG") and the chief executive officer of MFS,
in the United States District Court for the Northern
District of Illinois, Case No. 94C-1381. These shareholders
sold shares of the subsidiary to MFS in September 1992. MFS
completed an initial public offering in May 1993. Plaintiffs<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
6. Other Matters (continued):
_____________
allege that MFS fraudulently concealed material information
about its plans from them causing them to sell their shares
at an inadequate price. Plaintiffs have alleged damages of
at least $100 million. Defendants have meritorious defenses
and intend to vigorously contest this lawsuit. Prior to
the initial public offering, KDG agreed to indemnify MFS
against any liabilities arising from the September 1992 sale;
if MFS is deemed to be liable to plaintiffs, KDG will be
required to satisfy MFS' liabilities pursuant to the
indemnity agreement. Any settlement amount would be treated
as an adjustment of the original purchase price and recorded
as additional goodwill.
The Company is involved in other various lawsuits, claims and
regulatory proceedings incidental to its business.
Management believes that any resulting liability for legal
proceedings beyond that provided should not materially affect
the Company's financial position.
See "Legal Proceedings" with respect to the Whitney Benefits
case.
7. Subsequent Event:
________________
On April 1, 1994, C-TEC Corporation ("C-TEC") signed an
agreement to sell its cellular properties to Independent
Cellular Network, Inc. for $183 million, subject to
regulatory approvals. The Company does not expect to
recognize a gain or loss from this transaction, but instead
will reallocate the original purchase price among C-TEC's net
assets as required by purchase accounting guidelines.
<PAGE>
PETER KIEWIT SONS', INC.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
__________________________________________________
Separate management's discussion and analysis of financial
condition and results of operations for the Kiewit Construction &
Mining Group and the Kiewit Diversified Group have been filed as
Exhibits 99.A and 99.B to this report. The Company will furnish
without charge a copy of such exhibits upon the written request of
a stockholder addressed to Stock Registrar, Peter Kiewit Sons',
Inc., 1000 Kiewit Plaza, Omaha, Nebraska 68131.
Revenue from each of the Company's business segments for the three
months ended March 31 comprised the following (in millions):
1994 1993
_____ _____
Construction $ 405 $ 350
Mining 57 55
Telecommunications 107 29
Other 4 3
Results of Operations - First Quarter 1994 vs. First Quarter 1993
_________________________________________________________________
Construction
____________
Construction revenue increased 16% during the first quarter of 1994
compared to the same period in 1993. The increase primarily
relates to a 30% increase in joint venture revenues and revenues
generated by APAC. The increase in joint venture revenue resulted
from several large design-build projects awarded in 1992 and 1993
entering the construction phase. These projects include the San
Joaquin Toll Road project in southern California and the Montgomery
County Resource Recovery Facility near Baltimore, Maryland. The
Company's contract backlog remained at $2.2 billion at March 31,
1994. Foreign operations, principally Canada, accounted for 10%,
and projects on the west coast accounted for approximately 50% of
the total backlog. The San Joaquin Toll Road joint venture
accounts for 19% of the contract backlog and is scheduled for
completion in 1997.
The gross margin on construction contracts decreased to 4% for
the first quarter of 1994 from 7% during the first quarter of 1993.
The recognition of projected cost overruns on certain east coast
projects and the deferral of gains on the San Joaquin Toll Road
project, because of environmental and construction uncertainties,
contributed to the decline.
<PAGE>
PETER KIEWIT SONS', INC.
Results of Operations - First Quarter 1994 vs. First Quarter 1993
(continued)
_________________________________________________________________
Mining
______
Mining revenues and gross profits for the first quarter of 1994
increased 3% and 9%, respectively, over the first quarter of
1993. Additional sales on the "spot" coal market from the Black
Butte mine favorably impacted revenue and earnings. Downsizing
of the Black Butte mine during the last nine months of 1993
also contributed to the higher margin. The downsizing resulted
from the renegotiation of the Commonwealth Edison Company contract
in late 1992.
Telecommunications
__________________
In the first quarter of 1994, the components of telecommunications
revenue were: 68% - C-TEC operations; 21% - MFS telecommunications
services; and 11% - MFS network systems integration and facilities
management services. In the first quarter of 1993, revenue was
comprised of 52% - MFS telecommunications services and 48% MFS
network systems integration and facilities management services.
C-TEC activity accounted for $72 million of telecommunications
revenues. The telephone and cable television groups generated the
majority of the revenues.
MFS telecommunications services revenue rose $7 million, or 47%, to
$22 million from the first quarter of 1993. Market penetration and
network expansion in New York, Chicago, Washington, D.C., New
Jersey, and Atlanta accounted for 67% of the increase. New
services provided by MFS Datanet and MFS Intelenet also
contributed to the revenue increase.
MFS network systems integration and facilities management revenue
decreased $1 million, or 7%, to $13 million, from the first quarter
of 1993. Increases in revenue recognized by various network
systems projects partially offset a decrease in revenue recognized
from the network integration project for the State of Iowa which is
now substantially complete.
Components of 1994's first quarter telecommunications cost of
revenue were: 62% - C-TEC operations; 29% - MFS
telecommunications services; and 9% - MFS network systems
integration and facilities management services. In the first
quarter of 1993 cost of revenue consisted of 57% - MFS
<PAGE>
PETER KIEWIT SONS', INC.
Results of Operations - First Quarter 1994 vs. First Quarter 1993
(continued)
_________________________________________________________________
Telecommunications (continued)
______________________________
telecommunications services and 43% - MFS network systems
integration and facilities management services.
C-TEC activity accounted for $61 million of telecommunications
cost of revenue. The telephone and cable television groups
generated the majority of these costs.
MFS telecommunications services cost of revenue increased $13
million, or 81%, to $29 million from the first quarter of 1993.
The increase reflects operating costs associated with MFS Datanet
and MFS Intelenet and higher costs associated with the networks.
Nearly 40% of the increase relates to depreciation of existing
networks.
MFS network systems integration and facilities management services
cost of revenue decreased $2 million, or 19%, to $9 million from
the first quarter of 1993. A decrease in the State of Iowa
project's direct costs more than offset increased costs on other
network systems projects.
<PAGE>
PETER KIEWIT SONS', INC.
Results of Operations - First Quarter 1994 vs. First Quarter 1993
(continued)
_________________________________________________________________
Operating Expenses
__________________
First quarter 1994 operating expenses exceeded first quarter 1993
expenses by $14 million, or 35%. The telecommunications operations
generated the majority of the increase. MFS's operating expenses
rose $6 million, or 44%, while C-TEC's amounted to $2 million.
Modest increases in several administrative departments accounted
for the remainder of the increase.
Investment Income
_________________
Investment income includes interest, gains and losses on sales of
securities, dividends, and net equity earnings. Investment income
for the first quarter of 1994 increased $2 million, or 10%, over
the first quarter of the previous year. A $4 million increase in
gains on the sale of securities offset slight declines in other
areas. Despite interest income remaining constant between the two
periods, the mix of interest income changed significantly. MFS had
interest income during the quarter of $7 million compared to just
$1 million in the prior period. Interest income from other
entities declined significantly due to decreases in their
investment portfolios.
Interest Expense
________________
Interest expense of $17 million consists of $8 million interest on
MFS' debt issuance, $8 million on C-TEC debt, and $1 million on
other debt.
Other Income, net
_________________
Other income consists of gains and losses from asset dispositions
and other miscellaneous activities.
<PAGE>
PETER KIEWIT SONS', INC.
Results of Operations - First Quarter 1994 vs. First Quarter 1993
(continued)
_________________________________________________________________
Gain on Subsidiary's Stock Activity, net
________________________________________
In 1994, the Company settled, for $25 million, a contingent
liability resulting from MFS' 1990 purchase of Chicago Fiber
Optics Corporation ("CFO"). The former shareholders of CFO
accepted MFS stock previously held by the Company, valued at
current market prices, as payment of the obligation. This
transaction, along with stock issuances for acquisitions by
MFS and the exercise of MFS employee stock options, resulted
in a $25 million net gain to the Company.
Taxes
_____
The effective income tax rate in the first quarter of 1994 differs
from the expected statutory rate of 35% due to net operating loss
limitations on losses generated by MFS.
<PAGE>
PETER KIEWIT SONS', INC.
Financial Condition - March 31, 1994 vs. December 25, 1993
__________________________________________________________
The Company's working capital increased $368 million or 27% during
the first quarter of 1994.
Cash used in investing activities during the first quarter of 1994
includes the net purchase of marketable securities of $363 million,
$74 million of capital expenditures, and $49 million for the
purchase of APAC.
Financing activities generated $450 million during the first
quarter of 1994, the majority of which related to MFS. MFS's debt
issuance resulted in net proceeds of approximately $500 million.
MFS requires significant capital to fund future building expansion
and acquisition of communications networks in major metropolitan
areas. MFS intends to invest $250 million in 1994 and in excess of
$1 billion over the next three to five years to expand its
operations to a total of 75 markets (including approximately 10
international markets).
Other financing activity for the quarter included C-TEC borrowing
approximately $135 million to refinance certain mortgage notes
payable. C-TEC's prepayment of mortgage notes payable and
subsequent refinancing removed certain restrictions on the amount
of dividends and other distributions of capital which may be made
by C-TEC's Telephone subsidiary .
The Company anticipates investing between $45 and $85 million
annually in its construction and mining businesses, making
significant investments in its energy business - including its
joint venture agreement with California Energy covering
international power project development activities - and searching
for opportunities to acquire capital intensive businesses which
provide for long-term growth. Other long-term liquidity uses
include payment of income taxes and repurchases of common stock.
MFS, from time to time, evaluates acquisitions, either as an
alternative to constructing networks or introducing services
that compliment existing and/or planned services. Such
acquisitions, including the Centex transaction, may be significant
in size and could use a substantial portion of MFS' available
cash. MFS may fund future activity through additional debt or
equity financing.
<PAGE>
PETER KIEWIT SONS', INC.
Financial Condition - March 31, 1994 vs. December 25, 1993
(continued)
__________________________________________________________
From time to time, MFS has also had discussions with other
communications entities concerning the establishment of possible
strategic relationships, including transactions involving
acquisitions, combinations and equity investments in MFS or one of
its subsidiaries. MFS intends to consider appropriate
opportunities to establish strategic relationships.
The Company's working capital position at March 31, 1994, together
with anticipated cash flows from operations and existing
borrowing capacity, should be sufficient for immediate cash
requirements and future investing activities. C-TEC expects to
independently finance its 1994 working capital and investment
requirements.
<PAGE>
PETER KIEWIT SONS', INC.
PART II - OTHER INFORMATION
___________________________
Item 1. Legal Proceedings
__________________________
In 1974, a subsidiary of the Company ("Kiewit"), entered into
a lease with Whitney Benefits, Inc., a Wyoming charitable
corporation ("Whitney"). Whitney is the owner, and Kiewit is
the lessee, of a coal deposit underlying a 1,300 acre tract
in Sheridan County, Wyoming. The coal was rendered
unmineable by the Surface Mining Control and Reclamation Act
of 1977 ("SMRCA"), which prohibited surface mining of coal in
certain alluvial valley floors significant to farming. In
1983, Kiewit and Whitney filed an action, now titled Whitney
Benefits, Inc. and Peter Kiewit Sons' Co. v. The United
States, in the U.S. Court of Federal Claims ("Claims Court"),
alleging that the enactment of SMRCA constituted a taking of
their coal without just compensation. In 1989, the Claims
Court ruled that a taking had occurred and awarded plaintiffs
the 1977 fair market value of the property ($60 million) plus
interest. In 1991, the U.S. Court of Appeals for the Federal
Circuit affirmed the decision of the Claims Court and the
U.S. Supreme Court denied certiorari. On February 10, 1994,
the Claims Court issued an opinion which provided that the
$60 million judgement would bear interest compounded annually
from 1977 until payment. Kiewit has calculated the interest
for the period from 1977 to present at $234 million. Kiewit and
Whitney have agreed that Kiewit and Whitney will receive 67.5
and 32.5 percent, respectively, of any award. At March 31,
1994, Kiewit and Whitney would be entitled to $198 million
and $96 million, respectively.
The government filed two post-trial motions in the Claims
Court during 1992. The government requested a new trial to
redetermine the 1977 value of the property. The government
also filed a motion to reopen and set aside the 1989
judgement as void and to dismiss plaintiffs' complaint for
lack of jurisdiction. On May 3, 1994, the Claims Court
entered a written order denying both motions. The
government may appeal from that order, as well as the order
regarding compound interest. It is not presently known when
these proceedings will be concluded, what amount Kiewit will
ultimately receive, nor when payment will occur.<PAGE>
PETER KIEWIT SONS', INC.
PART II - OTHER INFORMATION (continued)
___________________________
Item 6. Exhibits & Reports on Form 8-K
______________________________________
(a) Exhibits filed as part of this report are listed below.
Exhibit
Number
_______
99.A Kiewit Construction & Mining Group Financial
Statements and Management's Discussion and
Analysis of Financial Condition and Results of
Operations.
99.B Kiewit Diversified Group Financial Statements and
Management's Discussion and Analysis of Financial
Condition and Results of Operations.
(b) No reports on Form 8-K were filed by the Company during the
first quarter of 1994.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and 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.
Dated: May 13, 1994 /s/ R. E. Julian
_______________________
Robert E. Julian
Executive Vice President
Chief Financial Officer
<PAGE>
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
No. Page No.
________ ________
99.A Kiewit Construction & Mining Group
Financial Statements and Management's
Discussion and Analysis of Financial
Condition and Results of Operations.
99.B Kiewit Diversified Group Financial
Statements and Management's Discussion
and Analysis of Financial Condition and
Results of Operations.
<PAGE>
Exhibit 99.A
KIEWIT CONSTRUCTION & MINING GROUP
Index to Financial Statements and
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page
____
Financial Statements
Condensed Statements of Operations for the
three months ended March 31, 1994 and 1993
Condensed Balance Sheets as of March 31, 1994
and December 25, 1993
Condensed Statements of Cash Flows for the
three months ended March 31, 1994 and 1993
Notes to Condensed Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Condensed Statements of Operations
(unaudited)
Three months ended
March 31,
__________________
(dollars in millions, except per share data) 1994 1993
_________________________________________________________________
Revenue $ 411 $ 354
Cost of Revenue (393) (330)
______ ______
18 24
Operating Expenses (33) (28)
______ ______
Operating Income (15) (4)
Other Income (Expense):
Investment Income 2 5
Interest Expense - (1)
Other, net 10 9
______ _______
12 13
______ _______
Earnings (Loss) Before Income Taxes (3) 9
(Provision) Benefit for Income Taxes 1 (4)
______ _______
Net Earnings (Loss) $ (2) $ 5
====== =======
Earnings (Loss) Per Common & Common
Equivalent Share $ (.14) $ .25
====== =======
Cash Dividends per Common Share $ - $ .30
====== =======
_________________________________________________________________
See accompanying notes to condensed financial statements.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Condensed Balance Sheets
March 31, December 25,
1994 1993
(dollars in millions) (unaudited)
___________________________________________________________________
Assets
Current Assets:
Cash and cash equivalents $ 23 $ 99
Marketable securities 149 183
Receivables, less allowance
of $5 and $5 236 215
Costs and earnings in excess
of billings on uncompleted
construction contracts 84 75
Investment in construction
joint ventures 58 81
Deferred income taxes 55 48
Other 31 18
_______ _______
Total Current Assets 636 719
Property, plant and equipment,
less accumulated depreciation
and amortization of $385 and $384 130 107
Deferred income taxes - 9
Intangible assets 18 -
Other assets 54 54
_______ _______
$ 838 $ 889
======= =======
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, including
retainage of $41 and $37 $ 144 $ 148
Current portion of long-term debt 3 4
Accrued construction costs and
billings in excess of revenue
on uncompleted contracts 103 87
Accrued insurance costs 66 65
Other 51 43
_______ _______
Total Current Liabilities 367 347
Long-term debt, less current portion 8 10
Other Liabilities 42 52
Stockholders' Equity (Redeemable
Common Stock, $339 million aggregate
redemption value)<PAGE>
Common equity 427 483
Net unrealized holding losses (1) -
Foreign currency adjustment (5) (3)
_______ _______
Total Stockholders' Equity 421 480
_______ _______
$ 838 $ 889
======= =======
________________________________________________________________
See accompanying notes to condensed financial statements.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Condensed Statements of Cash Flows
(unaudited)
Three months ended
March 31,
__________________
(dollars in millions) 1994 1993
__________________________________________________________________
Cash flows from operations:
Net cash provided by (used in)
operations $ 18 $ (3)
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 109 337
Purchases of marketable securities (78) (333)
Proceeds from sales of property,
plant and equipment 2 5
Capital expenditures (12) (9)
Acquisition of APAC-Arizona, Inc. (49) -
Other (2) (2)
______ ______
Net cash used in investing activities (30) (2)
Cash flows from financing activities:
Payments on long-term debt, including
current portion (4) -
Repurchases of common stock (8) (10)
Dividends paid (6) (5)
Exchange of Class B&C Stock for
Class D Stock (44) (24)
______ ______
Net cash used in financing activities (62) (39)
Effect of exchange rates on cash (2) -
______ ______
Net change in cash and cash equivalents (76) (44)
Cash and cash equivalents at beginning
of period 99 68
______ ______
$ 23 $ 24
====== ======
Noncash financing activities:
Dividends declared $ - $ 5
__________________________________________________________________
See accompanying notes to condensed financial statements.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Condensed Financial Statements
1. Basis of Presentation:
_____________________
The condensed balance sheet of Kiewit Construction & Mining
Group (the "Group") at December 25, 1993 has been condensed
from the Group's audited balance sheet as of that date. All
other financial statements contained herein are unaudited and
have been prepared using the historical amounts included in
the Peter Kiewit Sons', Inc. ("PKS") consolidated condensed
financial statements. The Group's accounting policies and
certain other disclosures are set forth in the notes to the
financial statements contained in PKS' Annual Report on Form
10-K as an exhibit for the year ended December 25, 1993.
Although the financial statements of PKS' Construction &
Mining Group and Diversified Group separately report
the assets, liabilities and stockholders' equity of PKS
attributed to each such group, legal title to such assets and
responsibility for such liabilities will not be affected by
such attribution. Holders of Class B&C Stock and Class D
Stock are stockholders of PKS. Accordingly, the PKS
consolidated condensed financial statements and related notes
as well as those of the Kiewit Diversified Group should be
read in conjunction with these financial statements.
Marketable securities at March 31, 1994 and December 25, 1993
include approximately $62 million and $56 million,
respectively, of investments which are being held by the
owners of various construction projects in lieu of retainage.
Receivables at March 31, 1994 and December 25, 1993 include
approximately $50 million and $37 million, respectively, of
retainage on uncompleted projects, the majority of which is
expected to be collected within one year.
Where appropriate, items within the condensed financial
statements have been reclassified from the previous periods to
conform to current year presentation.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Condensed Financial Statements
2. Earnings (Loss) Per Share:
_________________________
Primary earnings (loss) per share of common stock have been
computed using the weighted average number of shares
outstanding during each period. The number of shares used in
computing earnings (loss) per share was 15,376,585 for the
three months ended March 31, 1994 and 17,190,330 for the three
months ended March 31, 1993. Fully diluted earnings (loss)
per share have not been presented because it is not materially
different from primary earnings (loss) per share.
3. Summarized Financial Information:
________________________________
The Group's 50% portion of PKS' corporate assets and
liabilities and related transactions, which are not separately
identified with the ongoing operations of the Construction &
Mining Group or the Diversified Group, is as follows (in
millions):
Group
________________________
March 31, December 25,
1994 1993
________________________
Cash and cash
equivalents $ 24 $ 47
Marketable securities 23 11
Property, plant and
equipment, net 12 12
Other assets 20 11
_____ _____
Total Assets $ 79 $ 81
===== =====
Accounts payable $ 28 $ 27
Convertible debentures 2 2
Notes to former stockholders 6 8
Liability for stock
appreciation rights 1 2
Other liabilities 6 5
_____ _____
Total Liabilities $ 43 $ 44
===== =====
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Condensed Financial Statements
3. Summarized Financial Information (continued):
____________________________________________
Group
__________________
Three months ended
March 31,
__________________
1994 1993
____ ____
Investment income, net of
interest expense $ - $ -
Other costs, net 1 -
Corporate general and administrative costs have been allocated
to the Group based upon certain measures of business
activities, such as employment, investments, and sales, which
management believes to be reasonable. These allocations were
$6 million for the three months ended March 31, 1994 and 1993.
Mining service income that the Group recognized as a result of
the Group's mine service agreement with the Diversified Group
was $7 million in 1994 and 1993.
4. Acquisitions:
____________
On February 28, 1994, the Group acquired APAC Arizona, Inc.
("APAC"), a contracting and construction materials business,
from Ashland Oil Company, Inc.
The acquisition of APAC for $49 million in cash, subject to
adjustments, was accounted for as a purchase, and accordingly,
the purchase price was allocated to the assets acquired and
liabilities assumed, as follows:
Assets:
Trade accounts receivable $ 24
Other current assets 5
Property, plant and equipment 22
Intangible assets 18
Other assets 1
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Condensed Financial Statements
4. Acquisitions (continued):
_______________________
Liabilities:
Current liabilities (15)
Deferred income taxes (6)
_____
$ 49
=====
Results of APAC's operations are included in the Group's
results of operations since the date of acquisition. APAC's
results of operations prior to the acquisition were not
significant relative to the Group's results.
5. Other Matters:
_____________
The Group is involved in various lawsuits, claims and
regulatory proceedings incidental to its business. Management
believes that any resulting liability for legal proceedings
beyond that provided should not materially affect the Group's
financial position.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
_________________________________________________
Results of Operations - First Quarter 1994 vs. First Quarter 1993
_________________________________________________________________
Construction
____________
Construction revenue increased 16% during the first quarter of 1994
compared to the same period in 1993. The increase primarily
relates to a 30% increase in joint venture revenues and revenues
generated by the APAC-Arizona acquisition. The increase in joint
venture revenue resulted from several large design-build projects
awarded in 1992 and 1993 entering the construction phase. These
projects include the San Joaquin Toll Road project in southern
California and the Montgomery County Resource Recovery Facility
near Baltimore, Maryland. The Groups's contract backlog remained
at $2.2 billion at March 31, 1994. Foreign operations, principally
Canada, accounted for 10%, and projects on the west coast
accounted for approximately 50% of the total backlog. The San
Joaquin Toll Road joint venture accounts for 19% of the contract
backlog and is scheduled for completion in 1997.
The gross margin on construction contracts decreased to 4% for
the first quarter of 1994 from 7% during the first quarter of 1993.
The recognition of projected cost overruns on certain east coast
projects and the deferral of gains on the San Joaquin Toll Road
project, because of environmental and construction uncertainties,
contributed to the decline.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Results of Operations - First Quarter 1994 vs. First Quarter 1993
(continued)
_________________________________________________________________
Operating Expenses
__________________
Operating expenses increased $5 million, or 18%, in the first three
months of 1994 compared to 1993. Modest increases in several
administrative departments accounted for the slight increase.
Investment Income
_________________
Investment income decreased to $2 million in the first quarter of
1994 from $5 million in the first quarter of the previous year.
The decrease relates primarily to a reduction in cash and
marketable securities.
Other Income, net
_________________
Other income consists of mine management fees, gains and losses
from asset dispositions, and other miscellaneous activities.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Financial Condition - March 31, 1994 vs. December 25, 1993
__________________________________________________________
The Company's working capital decreased $103 million or 28% during
the first quarter of 1994.
Cash used in investing activities during the first quarter of 1994
includes $12 million of capital expenditures and $49 million
for the purchase of APAC, offset by net proceeds from the sales and
maturities of marketable securities of $31 million.
Financing activities used $62 million during the first quarter
of 1994. The conversion of Class B&C Stock for Class D Stock
accounted for $44 million. The repurchase of Class B&C stock
totalled $8 million.
The Group anticipates investing between $40 and $75 million
annually in its construction business, and purchasing additional
shares of an electrical contractor - the Group is committed to
80% ownership by 1997. Other long-term liquidity uses include
payment of income taxes and repurchases and conversions of common
stock.
The Group's working capital position at March 31, 1994, together
with anticipated cash flows from operations and existing
borrowing capacity, should be sufficient for immediate cash
requirements and future investing activities.
<PAGE>
Exhibit 99.B
KIEWIT DIVERSIFIED GROUP
Index to Financial Statements and
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Page
____
Financial Statements
Condensed Statements of Earnings for the
three months ended March 31, 1994 and 1993
Condensed Balance Sheets as of March 31, 1994
and December 25, 1993
Condensed Statements of Cash Flows for the
three months ended March 31, 1994 and 1993
Notes to Condensed Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE>
KIEWIT DIVERSIFIED GROUP
Condensed Statements of Earnings
(unaudited)
Three months ended
March 31,
__________________
(dollars in millions, except per share data) 1994 1993
__________________________________________________________________
Revenue $ 162 $ 83
Cost of Revenue (128) (57)
_____ _____
34 26
Operating Expenses (28) (19)
_____ _____
Operating Income 6 7
Other Income (Expense):
Gain on Subsidiary's Stock
Activity, net 25 -
Investment Income 19 14
Interest Expense (17) (1)
Other, net - 1
_____ _____
27 14
_____ _____
Earnings Before Income Taxes and
Minority Interest 33 21
Provision for Income Taxes (15) (6)
Minority Interest 7 -
_____ _____
Net Earnings $ 25 $ 15
===== =====
Earnings Per Common & Common
Equivalent Share $1.21 $ .77
===== =====
Cash Dividends per Common Share $ - $ .50
===== =====
__________________________________________________________________
See accompanying notes to condensed financial statements.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Condensed Balance Sheets
March 31, December 25,
1994 1993
(dollars in millions) (unaudited)
__________________________________________________________________
Assets
Current Assets:
Cash and cash equivalents $ 236 $ 197
Marketable securities 1,284 899
Receivables, less allowance
of $2 and $2 96 86
Deferred income taxes 20 18
Other 51 40
_______ _______
Total Current Assets 1,687 1,240
Property, Plant and Equipment,
less accumulated depreciation and
amortization of $271 and $252 780 737
Investments 233 233
Intangible Assets, net 478 415
Other Assets 185 184
_______ _______
$ 3,363 $ 2,809
======= =======
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 93 $ 113
Current portion of long-term debt:
Telecommunications 9 7
Other 5 4
Accrued costs and billings in excess
of revenue on uncompleted contracts 17 20
Accrued reclamation and other
mining costs 20 23
Other 79 80
_______ _______
Total Current Liabilities 223 247
Long-Term Debt, less current portion:
Telecommunications 911 420
Other 50 32
Deferred Income Taxes 409 394
Retirement Benefits 69 71
Accrued Reclamation Costs 93 92
Other Liabilities 63 64<PAGE>
Minority Interest 310 298
Stockholders' Equity ($1.2 billion
aggregate redemption value)
Common equity 1,238 1,182
Foreign currency adjustment (2) -
Net unrealized holding gains (losses) (1) 9
_______ _______
Total Stockholders' Equity 1,235 1,191
_______ _______
$ 3,363 $ 2,809
======= =======
________________________________________________________________
See accompanying notes to condensed financial statements.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Condensed Statements of Cash Flows
(unaudited)
Three months ended
March 31,
__________________
(dollars in millions) 1994 1993
__________________________________________________________________
Cash flows from operations:
Net cash provided by (used in)
continuing operations $ (14) $ 42
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 882 1,519
Purchases of marketable securities (1,277) (1,490)
Capital expenditures (62) (24)
Redemption of U.S. Can preferred stock - 12
Other (4) (1)
________ ________
Net cash provided by (used in)
investing activities (461) 16
Cash flows from financing activities:
Proceeds from long-term debt borrowings 639 -
Payments on long-term debt, including
current portion (155) (1)
Net change in short-term borrowings 1 (80)
Repurchases of common stock (14) (36)
Dividends paid - (7)
Exchange of Class B&C Stock for Class
D Stock 44 24
Other (3) -
________ ________
Net cash provided by (used in)
financing activities 512 (100)
Cash flows from discontinued packaging
operations:
Proceeds from sales of discontinued
packaging operations - 10
Other cash provided by discontinued
packaging operations 2 -
________ ________
Net cash provided by discontinued
packaging operations 2 10
________ ________
Net change in cash and cash equivalents 39 (32)
Cash and cash equivalents at beginning
of period 197 135
________ ________
Cash and cash equivalents at end of period $ 236 $ 103
======== ========
<PAGE>
Noncash investing activities:
Issuance of MFS stock for the
purchase of telecommunications
companies $ 19 $ -
MFS stock transaction to settle
contingent purchase price liability 25 -
Noncash financing activities:
Dividends declared $ - $ 10
__________________________________________________________________
See accompanying notes to condensed financial statements.<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Condensed Financial Statements
1. Basis of Presentation:
_____________________
The condensed balance sheet of Kiewit Diversified Group (the
"Group") at December 25, 1993 has been condensed from the
Group's audited balance sheet as of that date. All other
financial statements contained herein are unaudited and have
been prepared using historical amounts included in the Peter
Kiewit Sons', Inc. ("PKS") consolidated condensed financial
statements. The Group's accounting policies and certain
other disclosures are set forth in the notes to the financial
statements contained in PKS' Annual Report on Form 10-K as an
exhibit for the year ended December 25, 1993.
Although the financial statements of PKS' Construction &
Mining Group and Diversified Group separately report the
assets, liabilities and stockholders' equity of PKS attributed
to each such group, legal title to such assets and
responsibility for such liabilities will not be affected
by such attribution. Holders of Class B&C Stock and Class D
Stock are stockholders of PKS. Accordingly, the PKS
consolidated condensed financial statements and related notes
as well as those of the Kiewit Construction & Mining Group
should be read in conjunction with these financial statements.
Where appropriate, items within the condensed financial
statements have been reclassified from the previous periods
to conform to current year presentation.
2. Earnings Per Share:
__________________
Primary earnings per share of common stock have been computed
using the weighted average number of shares outstanding during
each period. The number of shares used in computing earnings
per share was 20,546,044 for the three months ended March 31,
1994 and 19,913,554 for the three months ended March 31, 1993.
Fully diluted earnings per share have not been presented
because it is not materially different from primary earnings
per share.<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Condensed Financial Statements
3. Summarized Financial Information:
________________________________
The Group's 50% portion of PKS' corporate assets and
liabilities and related transactions, which are not separately
identified with the ongoing operations of the Construction &
Mining Group or the Diversified Group, is as follows (in
millions):
Group
___________________________
March 31, December 25,
1994 1993
_________ ___________
Cash and cash equivalents $ 24 $ 47
Marketable securities 23 11
Property, plant and equipment,
net 12 12
Other assets 20 11
_____ _____
Total Assets $ 79 $ 81
===== =====
Accounts payable $ 28 $ 27
Convertible debentures 2 2
Notes to former stockholders 6 8
Liability for stock
appreciation rights 1 2
Other liabilities 6 5
_____ _____
Total Liabilities $ 43 $ 44
===== =====
Group
__________________
Three months ended
March 31,
__________________
1994 1993
____ ____
Investment income, net of
interest expense $ - $ -
Other costs, net 1 -
Corporate general and administrative costs have been allocated
to the Group based upon certain measures of business
activities, such as employment, investments and sales, which
management believes to be reasonable. These allocations were
$3 million for the three months ended March 31, 1994 and 1993.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Condensed Financial Statements
3. Summarized Financial Information (continued):
____________________________________________
Mining service expense that the Group recognized as a result
of the Group's mine service agreement with the Construction &
Mining Group is $7 million in 1994 and 1993.
4. Long-Term Debt:
______________
On January 19, 1994, MFS Communications Company, Inc. ("MFS")
issued 9-3/8% Senior Discount Notes due January 15, 2004.
Cash interest will not be paid on the notes prior to January
15, 1999. Accordingly, MFS recorded the net proceeds,
exclusive of transaction costs, of approximately $500 million
as long-term debt and is accruing to the principal amount of
the notes of $788 million through January 1999. Commencing
July 15, 1999 cash interest will be payable semi-annually.
On or after January 15, 1999, the notes will be redeemable at
the option of MFS, in whole or in part, as stipulated in the
note agreement. In addition, under certain conditions
related to a change in control of MFS, they may be required
to repurchase all or any part of the notes as stipulated in
the note agreement. The notes are senior unsecured
obligations of MFS and are subordinated to all current and
future indebtedness of MFS's subsidiaries, including trade
payables. The notes contain certain covenants which, among
other things restrict MFS's ability to incur additional
debt, create liens, enter into sale and leaseback
transactions, pay dividends, make certain restricted
payments, enter into transactions with affiliates, and
sell assets or merge with another company.
5. Other Matters:
_____________
In 1994, the Group settled, for $25 million, a contingent
liability resulting from MFS' 1990 purchase of Chicago Fiber
Optics Corporation ("CFO"). The former shareholders of CFO
accepted MFS stock previously held by the Group, valued at
current market prices, as payment of the obligation. This
transaction, along with stock issuances for acquisitions by
MFS and the exercise of MFS employee stock options, resulted
in a $25 million net gain to the Group.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Condensed Financial Statements
5. Other Matters (continued):
________________________
On March 16, 1994 MFS made an offer to purchase all
outstanding shares of common stock and associated
preferred share purchase rights of Centex Telemanagement,
Inc. (Centex) at $9 per share. On May 2, 1994, MFS
announced that it had signed a merger agreement with
Centex, which amended its offer to $11 per share. The offer
is conditioned upon, among other things, there being
validly tendered a number of shares that, when added to the
number of shares currently beneficially owned by MFS, will
represent at least a majority of the Centex shares
outstanding on a fully diluted basis. The offer expires on
May 17, 1994.
On March 4, 1994, several former stockholders of an MFS
subsidiary filed a lawsuit against MFS, Kiewit Diversified
Group, Inc. ("KDG") and the chief executive officer of MFS,
in the United States District Court for the Northern
District of Illinois, Case No. 94C-1381. These shareholders
sold shares of the subsidiary to MFS in September 1992. MFS
completed an initial public offering in May 1993. Plaintiffs
allege that MFS fraudulently concealed material information
about its plans from them causing them to sell their shares
at an inadequate price. Plaintiffs have alleged damages of
at least $100 million. Defendants have meritorious defenses
and intend to vigorously contest this lawsuit. Prior to
the initial public offering, KDG agreed to indemnify MFS
against any liabilities arising from the September 1992 sale;
if MFS is deemed to be liable to plaintiffs, KDG will be
required to satisfy MFS' liabilities pursuant to the
indemnity agreement. Any settlement amount would be treated
as an adjustment of the original purchase price and recorded
as additional goodwill.
The Group is involved in other various lawsuits, claims and
regulatory proceedings incidental to its business. Management
believes that any resulting liability for legal proceedings
beyond that provided should not materially affect the Group's
financial position.
See "Legal Proceedings" with respect to the Whitney Benefits
case.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Condensed Financial Statements
6. Subsequent Event:
________________
On April 1, 1994, C-TEC Corporation ("C-TEC") signed an
agreement to sell its cellular properties to Independent
Cellular Network, Inc. for $183 million, subject to regulatory
approvals. The Group does not expect to recognize a gain or
loss from this transaction, but instead will reallocate the
original purchase price among C-TEC's net assets as required
by purchase accounting guidelines.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
_________________________________________________
Results of Operations - First Quarter 1994 vs. First Quarter 1993
_________________________________________________________________
Mining
______
Mining revenues and gross profits for the first quarter of 1994
increased 3% and 9%, respectively, over the first quarter of
1993. Additional sales on the "spot" coal market from the Black
Butte mine favorably impacted revenue and earnings. Downsizing
of the Black Butte mine during the last nine months of 1993
also contributed to the higher margin. The downsizing resulted
from the renegotiation of the Commonwealth Edison Company contract
in late 1992.
Telecommunications
__________________
In the first quarter of 1994, the components of telecommunications
revenue were: 68% - C-TEC operations; 21% - MFS telecommunications
services; and 11% - MFS network systems integration and facilities
management services. In the first quarter of 1993, revenue was
comprised of 52% - MFS telecommunications services and 48% MFS
network systems integration and facilities management services.
C-TEC activity accounted for $72 million of telecommunications
revenues. The telephone and cable television groups generated the
majority of the revenues.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Results of Operations - First Quarter 1994 vs. First Quarter 1993
(continued)
_________________________________________________________________
Telecommunications (continued)
______________________________
MFS telecommunications services revenue rose $7 million, or 47%, to
$22 million from the first quarter of 1993. Market penetration and
network expansion in New York, Chicago, Washington, D.C., New
Jersey, and Atlanta accounted for 67% of the increase. New
services provided by MFS Datanet and MFS Intelenet also
contributed to the revenue increase.
MFS network systems integration and facilities management revenue
decreased $1 million, or 8%, to $13 million, from the first quarter
of 1993. Increases in revenue recognized by various network
systems projects partially offset a decrease in revenue recognized
from the network integration project for the State of Iowa which is
now substantially complete.
Components of 1994's first quarter telecommunications cost of
revenue were: 62% - C-TEC operations; 29% - MFS
telecommunications services; and 9% - MFS network systems
integration and facilities management services. In the first
quarter of 1993 operating expenses were comprised of 57% - MFS
telecommunications services and 43% - MFS network systems
integration and facilities management services.
C-TEC activity accounted for $61 million of telecommunications
cost of revenue. The telephone and cable television groups
generated the majority of these costs.
MFS telecommunications services cost of revenue increased $13
million, or 81%, to $29 million from the first quarter of 1993.
The increase reflects operating costs associated with MFS Datanet
and MFS Intelenet and higher costs associated with the networks.
Nearly 40% of the increase relates to depreciation of existing
networks.
MFS network systems integration and facilities management services
cost of revenue decreased $2 million, or 19%, to $9 million from
the first quarter of 1993. A decrease in the State of Iowa
project's direct costs more than offset increased costs on other
network systems projects.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Results of Operations - First Quarter 1994 vs. First Quarter 1993
(continued)
_________________________________________________________________
Operating Expenses
__________________
First quarter 1994 operating expenses exceeded first quarter 1993
expenses by $9 million, or 47%. The telecommunications segment
generated the majority of the increase. MFS's selling and
administrative expenses rose $6 million, or 44%, while C-TEC's
amounted to $2 million. Operating expenses for both quarters
include $7 million of mine management fees paid to the Construction
and Mining Group.
Investment Income
_________________
Investment income includes interest, gains and losses on sales of
securities, dividends, and net equity earnings. Investment income
for the first quarter of 1994 increased $5 million, or 36%. A
$4 million increase in gains on the sale of securities accounted
for the majority of the difference. Despite interest income
remaining constant between the two periods, the mix of interest
income changed significantly. MFS had interest income during the
quarter of $7 million compared to just $1 million in the prior
period. Interest income from the other Group entities declined
significantly due to a decrease in their investment portfolios.
Interest Expense
________________
Interest expense of $17 million consists of $8 million interest on
MFS' debt issuance, $8 million on C-TEC debt, and $1 million on
other debt.
Other Income, net
_________________
Other income consists of gains and losses from asset dispositions
and other miscellaneous activities.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Results of Operations - First Quarter 1994 vs. First Quarter 1993
(continued)
_________________________________________________________________
Gain on Subsidiary's Stock Activity, net
________________________________________
In 1994, the Group settled, for $25 million, a contingent liability
resulting from MFS' 1990 purchase of Chicago Fiber Optics
Corporation ("CFO"). The former shareholders of CFO accepted MFS
stock previously held by the Group, valued at current market
prices, as payment of the obligation. This transaction, along with
stock issuances for acquisitions by MFS and the exercise of MFS
employee stock options, resulted in a $25 million net gain to
the Group.
Taxes
_____
The effective income tax rate in the first quarter of 1994 differs
from the expected statutory rate of 35% due to net operating loss
limitations on losses generated MFS.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Financial Condition - March 31, 1994 vs. December 25, 1993
__________________________________________________________
The Group's working capital increased $471 million or 47% during
the first quarter of 1994.
Cash used in investing activities during the first quarter of 1994
includes the net purchase of marketable securities of $395 million
and $62 million of capital expenditures.
Financing activities generated $512 million during the first
quarter of 1994, the majority of which related to MFS. MFS's debt
issuance resulted in net proceeds of approximately $500 million.
MFS requires significant capital to fund future building expansion
or acquisition of communications networks in major metropolitan
areas. MFS intends to invest $250 million in 1994 and in excess of
$1 billion over the next three to five years to expand its
operations to a total of 75 markets (including approximately 10
international markets).
Other financing activity for the quarter included C-TEC borrowing
approximately $135 million to refinance certain mortgage notes
payable, the exchange of Class B&C stock for Class D stock for $44
million and the repurchase of Class D stock for $14 million.
C-TEC's prepayment of mortgage notes payable and subsequent
refinancing removed certain restrictions on the amount of dividends
and other distributions of capital which may be made by C-TEC's
Telephone subsidiary.
The Group anticipates investing up to $10 million annually in
its mining business, making significant investments in its
energy business - including its joint venture agreement with
California Energy covering international power project development
activities - and searching for opportunities to acquire capital
intensive businesses which provide for long-term growth. Other
long-term liquidity uses include payment of income taxes and
repurchases of common stock.
MFS, from time to time, evaluates acquisitions, either as an
alternative to constructing networks or introducing services
that compliment existing and/or planned services. Such
acquisitions, including the Centex transaction, may be significant
in size and could use a substantial portion of MFS' available cash.
MFS may fund future activity through additional debt or equity
financing.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Financial Condition - March 31, 1994 vs. December 25, 1993
(continued)
__________________________________________________________
From time to time, MFS has also had discussions with other
communications entities concerning the establishment of possible
strategic relationships, including transactions involving
acquisitions, combinations and equity investments in MFS or one of
its subsidiaries. MFS intends to consider appropriate
opportunities to establish strategic relationships.
The Group's working capital position at March 31, 1994, together
with anticipated cash flows from operations and existing
borrowing capacity, should be sufficient for immediate cash
requirements and future investing activities. C-TEC expects to
independently finance its 1994 working capital and investment
requirements.
