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 September 30, 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 November 1, 1994:
Class B Common Stock ............... 1,000,400 shares
Class C Common Stock ...............15,079,504 shares
Class D Common Stock ...............20,375,208 shares
PETER KIEWIT SONS', INC.
Page
____
Part I - Financial Information
______________________________
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 Nine months ended
September 30, September 30,
(dollars in millions, ________________ _________________
except per share data) 1994 1993 1994 1993
__________________________________________________________________
Revenue $ 913 $ 620 $ 2,203 $ 1,600
Cost of Revenue (799) (529) (1,929) (1,364)
______ ______ _______ ________
114 91 274 236
Operating Expenses (73) (45) (221) (125)
______ ______ _______ ________
Operating Income 41 46 53 111
Other Income (Expense):
Gain on Subsidiary's
Stock Issuances, net - 131 28 211
Investment Income 11 25 50 16
Interest Expense (20) (1) (56) (6)
Other, net 10 7 21 15
______ ______ _______ ________
Earnings Before Income
Taxes and Minority
Interest 42 208 96 347
Provision for Income Taxes (24) (72) (48) (121)
Minority Interest in Loss
of Subsidiaries 11 1 26 1
______ ______ _______ ________
Net Earnings $ 29 $ 137 $ 74 $ 227
====== ====== ======= ========
Earnings Attributable to
Class B&C Stock:
Net Earnings $ 41 $ 34 $ 58 $ 61
====== ====== ======= ========
Earnings per Common
and Common
Equivalent Share $ 2.67 $ 1.95 $ 3.77 $ 3.51
====== ====== ======= ========
<PAGE>
Earnings (Loss)
Attributable to
Class D Stock:
Net Earnings (Loss) $ (12) $ 103 $ 16 $ 166
====== ====== ====== =======
Earnings (Loss) per
Common and Common
Equivalent Share $ (.58) $ 5.12 $ .77 $ 8.34
====== ====== ====== =======
Cash Dividends per
Common Share:
B&C Stock $ - $ - $ .45 $ .30
====== ====== ====== =======
D Stock $ - $ - $ - $ .50
====== ====== ====== =======
__________________________________________________________________
See accompanying notes to consolidated condensed financial
statements.
<PAGE>
PETER KIEWIT SONS', INC.
Consolidated Condensed Balance Sheets
September 30, December 25,
1994 1993
(dollars in millions) (unaudited)
__________________________________________________________________
Assets
Current Assets:
Cash and cash equivalents $ 443 $ 296
Marketable securities 1,076 1,082
Receivables, less allowance of $7
and $7 390 296
Costs and earnings in excess
of billings on uncompleted
contracts 190 79
Investment in construction joint
ventures 89 81
Deferred income taxes 74 66
Other 59 54
_______ _______
Total Current Assets 2,321 1,954
Property, Plant and Equipment,
less accumulated depreciation and
amortization of $700 and $636 1,065 844
Investments 258 233
Intangible Assets, net 661 427
Other Assets 225 226
_______ _______
$ 4,530 $ 3,684
======= =======
________________________________________________________________
See accompanying notes to consolidated condensed financial
statements.
<PAGE>
PETER KIEWIT SONS', INC.
Consolidated Condensed Balance Sheets
September 30, December 25,
(dollars in millions, 1994 1993
except per share data) (unaudited)
__________________________________________________________________
Liabilities and Stockholders'
Equity
Current Liabilities:
Accounts payable $ 281 $ 260
Current portion of long-term debt:
Telecommunications 9 7
Other 9 8
Accrued costs and billings in
excess of revenue on uncompleted
contracts 190 107
Accrued insurance costs 71 67
Other 203 140
_______ _______
Total Current Liabilities 763 589
Long-Term Debt, less current portion:
Telecommunications 932 420
Other 69 42
Deferred Income Taxes 418 385
Retirement Benefits 67 71
Accrued Reclamation Costs 102 99
Other Liabilities 122 109
Minority Interest 344 298
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: 15,079,504 outstanding in
1994 and 16,316,070 in 1993 1 1
Class D, authorized 50,000,000
shares: 20,371,308 outstanding in
1994 and 20,010,696 in 1993 1 1
<PAGE>
Additional paid-in capital 180 164
Foreign currency adjustment (4) (3)
Net unrealized holding gains
(losses) (4) 9
Retained earnings 1,539 1,499
_______ _______
Total Stockholders' Equity 1,713 1,671
_______ _______
$ 4,530 $ 3,684
======= =======
_________________________________________________________________
See accompanying notes to consolidated condensed financial
statements.
<PAGE>
PETER KIEWIT SONS', INC.
Consolidated Condensed Statements of Cash Flows
(unaudited)
Nine months ended
September 30,
_________________
(dollars in millions) 1994 1993
__________________________________________________________________
Cash flows from operations:
Net cash provided by continuing operations $ 146 $ 159
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 1,503 3,519
Purchases of marketable securities (1,522) (3,901)
Proceeds from sales of property, plant
and equipment, and other investments 14 14
Capital expenditures (313) (129)
Acquisition of APAC-Arizona, Inc. (47) -
Acquisition of Centex Telemanagement,
Inc., net of cash acquired (199) -
Proceeds from sale of cellular properties 182 -
Purchases of California Energy stock (26) -
Deferred development costs and other (66) (11)
_______ ________
Net cash used in investing activities (474) (508)
Cash flows from financing activities:
Issuances of subsidiary's stock 5 455
Proceeds from long-term debt borrowings 677 14
Payments on long-term debt, including
current portion (189) (7)
Net change in short-term borrowings - (80)
Repurchases of common stock (31) (54)
Issuance of common stock 19 24
Dividends paid (13) (27)
Other - 1
_______ ________
Net cash provided by financing activities 468 326
Cash flows from discontinued packaging
operations 6 10
Effect of exchange rates on cash 1 (3)
_______ ________
Net change in cash and cash equivalents 147 (16)
Cash and cash equivalents at beginning
of period 296 203
_______ ________
Cash and cash equivalents at end of period $ 443 $ 187
======= ========<PAGE>
PETER KIEWIT SONS', INC.
Consolidated Condensed Statements of Cash Flows
(unaudited)
Nine months ended
September 30,
_________________
(dollars in millions) 1994 1993
__________________________________________________________________
Noncash investing activities:
Issuance of MFS stock for purchase of
telecommunications companies $ 23 $ -
MFS stock transactions to settle
contingent purchase price adjustment 25 -
__________________________________________________________________
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.
Where appropriate, items within the consolidated 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. Fully diluted earnings per share have not been
presented because it is not materially different from primary
earnings per share. The number of shares used in computing
earnings per share was as follows:
Three months ended Nine months ended
September 30, September 30,
______________________ ______________________
1994 1993 1994 1993
______________________ ______________________
Class B&C 16,104,794 17,527,842 15,316,445 17,229,434
Class D 20,375,280 19,978,247 20,457,392 19,922,955
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 data management services
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
3. Summarized Financial Information (continued):
____________________________________________
business, an investment 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 (in millions, except per share data).
Construction & Mining Group:
Three months ended Nine months ended
September 30, September 30,
__________________ _________________
1994 1993 1994 1993
______ ______ ______ ______
Results of Operations:
Revenue $ 680 $ 516 $ 1,619 $ 1,328
====== ====== ======= =======
Net earnings $ 41 $ 34 $ 58 $ 61
====== ====== ======= =======
Earnings per share $ 2.67 $ 1.95 $ 3.77 $ 3.51
====== ====== ======= =======
September 30, December 25,
1994 1993
_____________ ____________
Financial Position:
Working capital $ 340 $ 372
Total assets 1,007 889
Long-term debt, less current
portion 7 10
Stockholders' equity 497 480
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
3. Summarized Financial Information (continued):
____________________________________________
Included within earnings before income taxes is mine service
income from the Diversified Group of $7 million for the three
months ended September 30, 1994 and 1993 and $22 million and
$21 million for the nine months ended September 30, 1994 and
1993.
Diversified Group:
Three months ended Nine months ended
September 30, September 30,
__________________ _________________
1994 1993 1994 1993
______ ______ ______ ______
Results of Operations:
Revenue $ 233 $ 104 $ 584 $ 272
===== ====== ====== ======
Net earnings (loss) $ (12) $ 103 $ 16 $ 166
===== ====== ====== ======
Earnings (loss) per
share $(.58) $ 5.12 $ .77 $ 8.34
===== ====== ====== ======
September 30, December 25,
1994 1993
_____________ ____________
Financial Position:
Working capital $ 1,218 $ 993
Total assets 3,529 2,809
Long-term debt, less
current portion 994 452
Stockholders' equity 1,216 1,191
Included within earnings before income taxes is mine management
fees paid to the Construction & Mining Group of $7 million for
the three months ended September 30, 1994 and 1993 and $22
million and $21 million for the nine months ended September 30,
1994 and 1993.
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. for $47 million in cash. The
Company accounted for the acquisition as a purchase and has
consolidated APAC's operating results since the acquisition
date. The fair value of the net tangible assets acquired
totalled $30 million. Goodwill of $17 million is being
amortized over 20 years. APAC's operating results prior to the
acquisition were not significant relative to the Company's
results.
On May 18, 1994, the Company acquired Centex Telemanagement,
Inc. ("Centex"), a company which provides outsourced
telecommunications management services for small and
medium-sized businesses, for $250 million. The Company
accounted for the acquisition using the purchase method and has
consolidated Centex's operating results since the acquisition
date. The total purchase price in excess of the fair market
value of net assets acquired, $144 million, was recorded as
goodwill and will be amortized over 40 years. The unaudited
pro forma results below reflect certain adjustments, primarily
increased amortization, assuming the acquisition occurred at
the beginning of 1993. These results do not necessarily
indicate future results, nor the results of historical
operations had the acquisition actually happened on the assumed
date (in millions, except per share data).
For the nine For the nine
months ended months ended
September 30, 1994 September 30, 1993
__________________ __________________
Revenue $ 2,270 $ 1,728
======= =======
Net earnings $ 68 $ 215
======= =======
Earnings per share
of Class D stock $ .46 $ 7.74
======= =======
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,
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
5. Long-Term Debt (continued):
__________________________
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, MFS 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'
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 to or merge with another company.
In March of 1994, C-TEC's telephone group refinanced $135
million of mortgage notes payable to the United States of
America. Although the new agreement does not restrict
telephone group dividends, it does require the telephone group
to maintain specified ratios for total leverage, interest
coverage, and equity to total capitalization.
6. Other Matters:
_____________
Marketable securities at September 30, 1994 and December 25,
1993 include approximately $60 million and $56 million,
respectively, of investments which are being held by the owners
of various construction projects in lieu of retainage.
Receivables at September 30, 1994 and December 25, 1993 include
approximately $63 million and $37 million, respectively of
retainage on uncompleted projects, the majority of which is
expected to be collected within one year.
In 1994, the Company settled, for $25 million, a contingent
purchase price adjustment resulting from MFS' 1990 purchase
of Chicago Fiber Optic 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 for MFS employee stock options,
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
6. Other Matters (continued):
_________________________
resulted in a $28 million net gain to the Company.
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.
On September 9, 1994, C-TEC Corporation ("C-TEC") sold its
cellular properties to Independent Cellular Network, Inc. for
$190 million. The Company received $182 million of proceeds
and recorded an $8 million receivable. The Company did not
recognize a gain or loss from this transaction, but instead
reallocated the original purchase price among C-TEC's net
assets as required by purchase accounting guidelines. C-TEC's
cellular properties had sales of $6 million and $20 million for
the quarter and nine months ended September 30, 1994.
MFS has signed a merger agreement with RealCom Office
Communications, Inc. ("RealCom"). MFS anticipates that
it will issue approximately 1.6 million shares to complete the
merger. Some of the purchase price may be payable in cash
in lieu of common stock. The merger agreement is dependent on
certain events, including approval of the agreement by RealCom
shareholders. The transaction is expected to close in the
fourth quarter of 1994.
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
6. Other Matters (continued):
_________________________
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 or results of operations.
See "Legal Proceedings" with respect to the Whitney Benefits
case.
<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.
Results of Operations - Third Quarter 1994 vs. Third Quarter 1993
_________________________________________________________________
Revenue from operations for the three months ended September 30
comprised the following (in millions):
1994 1993
_____ _____
Construction $ 672 $ 505
Mining 68 69
Telecommunications 164 43
Other 9 3
_____ _____
$ 913 $ 620
===== =====
Construction
____________
Construction revenue rose 33% in the third quarter of 1994 as
compared to the third quarter of 1993. The increase is primarily
attributable to the APAC acquisition completed in the first
quarter of 1994 and a 20% increase in the size of new contracts
awarded this year. The Company's current contract backlog
increased to $2.4 billion from $2.2 billion in 1993. The
increase in contract size and the expansion into new markets
resulted in the increase. Foreign operations, principally
Canada, account for 20% and projects on the west coast account
for 42% of the total backlog. The San Joaquin Hills toll road
project accounts for 15% of the contract backlog and is
scheduled to be completed in 1997.
Gross margins on construction contracts declined from 12% in the
third quarter of 1993 to 11% during the same period in 1994. In
1994, the margins were adversely affected by the recognition of
projected cost overruns on certain projects and a decline in the
original bidding margin on work completed during the period. The
lower bidding margins are a result of increased competition in
PETER KIEWIT SONS', INC.
Results of Operations - Third Quarter 1994 vs. Third Quarter 1993
(continued)
_________________________________________________________________
Construction (continued)
_______________________
the construction industry. The recognition of income from the
construction of the San Joaquin Hills toll road partially
offset the overruns and declining margins.
Mining
______
Mining gross profits were 46% and 43% in the third quarter of
1994 and 1993. In 1994, alternate source coal sales accounted
for 31% of revenues and 52% of gross profits compared to 26% and
50% in 1993.
Telecommunications
__________________
In the third quarter of 1994, C-TEC and MFS accounted for 46% and
54% of telecommunications revenues. The telephone and cable groups
generated the majority, $31 million and $24 million, respectively,
of C-TEC's revenues while MFS' revenue consisted of $72 million
from telecommunications services and $16 million from systems
integration and facilities management. MFS' new subsidiary,
Centex, produced $42 million of telecommunications services
revenue. The remainder of MFS' growth over 1993 correlates to
increased market penetration of $12 million by MFS Telecom, MFS
Datanet, and MFS Intelenet being offset by decreases in revenue
recognized from the network systems integration project with
the State of Iowa.
Telecommunications cost of revenue totalled $156 million and $42
million for the third quarter of 1994 and 1993. C-TEC's
operations generated $48 million of the 1994 costs with $14 million
and $18 million related to the telephone and cable groups. MFS'
telecommunications services had $95 million in costs of revenue -
$42 million from Centex. The remainder of MFS' increased costs
related to expanded networks and the continued development of MFS
Datanet and MFS Intelenet.
PETER KIEWIT SONS', INC.
Results of Operations - Third Quarter 1994 vs. Third Quarter 1993
(continued)
_________________________________________________________________
Operating Expenses
__________________
Third quarter 1994 operating expenses exceeded 1993 expenses
by 62%. The telecommunications segment generated the majority
of the growth with C-TEC and MFS accounting for 71% and 25% of
the increase. Slight decreases in other expenses offset the
presence of C-TEC and increase in MFS.
Gain on Subsidiary's Stock Issuances, net
_________________________________________
The gain in 1993 resulted from the secondary offering of MFS stock.
Investment Income
_________________
Investment income includes interest, gains and losses on the sales
of securities, dividends and net equity earnings. Investment
income in the third quarter of 1994 declined 56% from 1993. The
principal reason for the decline was $15 million in losses from
the sales and writedown of securities in 1994.
Interest Expense
________________
Interest expense of $20 million includes $11 million interest on
MFS debt and $8 million on C-TEC debt.
Other Income, net
_________________
Other income consists of gains and losses from asset dispositions
and other miscellaneous activities.
Taxes
_____
The effective income tax rate in the third quarter of 1994 differs
from the expected statutory rate of 35% due to net operating loss
limitations on losses generated by MFS.
PETER KIEWIT SONS', INC.
Results of Operations - Nine Months 1994 vs. Nine months 1993
_____________________________________________________________
Revenue from each of the Company's business segments for the nine
months ended September 30 comprised the following (in millions):
1994 1993
_______ _______
Construction $ 1,594 $ 1,308
Mining 187 178
Telecommunications 405 103
Other 17 11
_______ _______
$ 2,203 $ 1,600
======= =======
Construction
____________
Construction revenues increased 22% in the first nine months of
1994 as compared to the same period in 1993. Revenues generated
from the APAC acquisition, an increase in joint venture work and
a 20% increase in the size of new contracts awarded contributed
to the higher volume. The increase in joint venture revenue
resulted from several design-build projects, awarded in 1992 and
1993, entering the construction phase. These projects include
the San Joaquin Hills toll road in southern California, and the
Montgomery County Resource Recovery Facility near Baltimore,
Maryland.
The gross margin on construction contracts declined to 8% in 1994
from 11% in 1993. In 1994, the margins were adversely affected
by the recognition of projected cost overruns on certain projects
and a decline in original bidding margins on work completed during
the period. The lower margins are a result of the increased
competition in the construction industry. The recognition of
income from the construction of the San Joaquin Hills toll road
partially offset the overruns and declining margins. A $20
million reduction of reserves previously established for the
Denmark tunnel project favorably impacted 1993 margins.
Mining
______
Mining gross profits were 47% and 45% in the first nine months of
1994 and 1993. In 1994, alternate source coal sales accounted for
30% of revenues and 47% of gross profits compared to 29% and 55%
in 1993.
PETER KIEWIT SONS', INC.
Results of Operations - Nine Months 1994 vs. Nine months 1993
(continued)
_____________________________________________________________
Telecommunications
__________________
In the first nine months of 1994, C-TEC and MFS accounted for 54%
and 46% of telecommunications revenues. The telephone and cable
groups generated the majority, $92 million and $71 million, of
C-TEC's revenues while MFS' revenues consisted of $142 million from
telecommunications services and $43 million from systems
integration and facilities management. MFS' new subsidiary,
Centex, produced $63 million of telecommunications services revenue
since the date of acquisition. The remainder of MFS growth
correlates to continued market penetration from all MFS businesses.
Telecommunications cost of revenue totalled $353 million and $101
million for the first nine months of 1994 and 1993. C-TEC's
operations generated $137 million of costs with $42 million and $55
million related to the telephone and cable groups.
MFS' telecommunications services had $183 million in costs of
revenue - $62 million from Centex. The remainder of MFS' increased
costs relates to expanded networks and the continued development of
MFS Datanet and MFS Intelenet.
Operating Expenses
__________________
Operating expenses for the first nine months of 1994 exceeded those
of 1993 by 77%. The telecommunications operations generated the
majority of the increase with C-TEC and MFS accounting for 69% and
24% of the increase. Modest decreases in several administrative
departments account for the remainder of the difference.
Gain on Subsidiary's Stock Issuances, net
_________________________________________
In 1994, the Company settled, for $25 million, a contingent
purchase price adjustment resulting from MFS' 1990 purchase of
Chicago Fiber Optic 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
for MFS employee stock options, resulted in a $28 million net gain
to the Company. The gain in 1993 resulted from the initial and
secondary public offerings of MFS stock.
PETER KIEWIT SONS', INC.
Results of Operations - Nine Months 1994 vs. Nine months 1993
(continued)
_____________________________________________________________
Investment Income
_________________
Investment income for the first nine months of 1994 increased
$34 million over 1993. The improvement resulted from the decline
in the net loss on sales of securities from $41 million in
1993 to $13 million in 1994, and an increase in interest income.
Interest Expense
________________
Interest expense of $56 million includes $30 million of interest on
MFS debt and $23 million of interest on C-TEC debt.
Other Income, net
_________________
Other income consists of gains and losses from asset dispositions
and other miscellaneous activities.
Taxes
_____
The effective income tax rate in the first nine months 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 - September 30, 1994 vs. December 25, 1993
______________________________________________________________
The Company's working capital increased $193 million or 14% during
the first nine months of 1994.
Cash used in investing activities during the first nine months of
1994 includes $313 million of capital expenditures (primarily
MFS networks), $199 for the acquisition of Centex, $47 million for
the purchase of APAC and $26 million for the purchase of
California Energy stock. Partially offsetting these uses were the
$182 million of proceeds from the sale of C-TEC's cellular
properties.
Financing activities generated $468 million during the first nine
months of 1994, the majority of which related to MFS. MFS' 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 $275 - 325 million in
1994 and in excess of $1 billion over the next 3 - 5 years to
expand its operations to a total of 75 markets (including
approximately 10 international markets).
Other financing activity for the nine months 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 businesses - 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
complement existing and/or planned services. Such acquisitions
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.
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
PETER KIEWIT SONS', INC.
Financial Condition - September 30, 1994 vs. December 25, 1993
(continued)
______________________________________________________________
its subsidiaries. MFS intends to consider appropriate
opportunities to establish strategic relationships.
C-TEC has filed a registration statement related to a rights
offering of shares of its common stock. The net proceeds from
the rights offering will be approximately $296 million if the
rights are fully exercised. KDG expects to exercise all of its
rights and to oversubscribe for additional rights not otherwise
exercised - an investment of $100 - $150 million. The funds
generated from the rights issuance and the cellular sale will
enable C-TEC to expand and develop its cable television and
telephone systems into full service networks, pursue potential
acquisitions, prepay certain indebtness, and independently finance
its current working capital and investment requirements.
The Company's working capital position at September 30, 1994,
together with anticipated cash flows from operations and existing
borrowing capacity, should be sufficient for immediate cash
requirements and future investing activities.
<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 ("SMCRA"), 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 SMCRA 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
judgment would bear interest compounded annually from 1977 until
payment. Kiewit has calculated the interest for the period from
1977 to present at $243 million. Kiewit and Whitney have agreed
that Kiewit and Whitney will receive 67.5 and 32.5 percent,
respectively, of any award. At September 30, 1994, Kiewit and
Whitney would be entitled to $204 million and $99 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 judgment 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 has appealed 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>
Item 6. Exhibits & Reports on Form 8-K
______________________________________
(a) Exhibits filed as part of this report are listed below:
Exhibit
Number
_______
27 Financial Data Schedule
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
third 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: November 14, 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.
_______
27 Financial Data Schedule
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.
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 Earnings for the
three months ended September, 1994 and 1993 and
the nine months ended September 30, 1994 and 1993
Condensed Balance Sheets as of September 30, 1994
and December 25, 1993
Condensed Statements of Cash Flows for the
nine months ended September 30, 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 Earnings
(unaudited)
Three months ended Nine months ended
September 30, September 30,
(dollars in millions, __________________ _________________
except per share data) 1994 1993 1994 1993
__________________________________________________________________
Revenue $ 680 $ 516 $ 1,619 $ 1,328
Cost of Revenue (605) (452) (1,483) (1,174)
______ _______ _______ ________
75 64 136 154
Operating Expenses (32) (29) (94) (83)
______ _______ _______ ________
Operating Income 43 35 42 71
Other Income (Expense):
Investment Income
(Loss) 3 4 9 (6)
Interest Expense - (1) (1) (2)
Other, net 16 11 38 29
______ _______ _______ ________
Earnings Before
Income Taxes 62 49 88 92
Provision for Income
Taxes (21) (15) (30) (31)
______ _______ _______ ________
Net Earnings $ 41 $ 34 $ 58 $ 61
====== ======= ======= ========
Earnings Per Common &
Common Equivalent
Share $ 2.67 $ 1.95 $ 3.77 $ 3.51
====== ======= ======= ========
Cash Dividends per
Common Share $ - $ - $ .45 $ .30
====== ======= ======= ========
__________________________________________________________________
See accompanying notes to condensed financial statements.<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Condensed Balance Sheets
September 30, December 25,
1994 1993
(dollars in millions) (unaudited)
__________________________________________________________________
Assets
Current Assets:
Cash and cash equivalents $ 56 $ 99
Marketable securities 156 183
Receivables, less allowance of
$4 and $5 256 215
Costs and earnings in excess of
billings on uncompleted
construction contracts 168 75
Investment in construction
joint ventures 89 81
Deferred income taxes 54 48
Other 19 18
_______ _______
Total Current Assets 798 719
Property, Plant and Equipment,
less accumulated depreciation
and amortization of $388 and
$384 137 107
Intangible Assets 16 -
Other Assets 56 63
_______ _______
$ 1,007 $ 889
======= =======
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, including
retainage of $41 and $37 $ 159 $ 148
Current portion of long-term
debt 3 4
Accrued costs and billings in
excess of revenue on
uncompleted contracts 162 87
Accrued insurance costs 71 65
Other 63 43
_______ _______
Total Current Liabilities 458 347
Long-Term Debt, less current
portion 7 10
Other Liabilities 45 52
Stockholders' Equity (Redeemable
Common Stock, $352 million
aggregate redemption value)
Common equity 501 483
Foreign currency adjustment (4) (3)
_______ _______
Total Stockholders' Equity 497 480
_______ _______
$ 1,007 $ 889
======= =======
______________________________________________________________
See accompanying notes to condensed financial statements.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Condensed Statements of Cash Flows
(unaudited)
Nine months ended
September 30,
_________________
(dollars in millions) 1994 1993
__________________________________________________________________
Cash flows from operations:
Net cash provided by operations $ 73 $ 65
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 258 443
Purchases of marketable securities (235) (399)
Proceeds from sales of property, plant
and equipment 14 9
Capital expenditures (53) (40)
Acquisition of APAC-Arizona, Inc. (47) -
Other (4) (8)
______ ______
Net cash provided by (used in)
investing activities (67) 5
Cash flows from financing activities:
Payments on long-term debt, including
current portion (4) (1)
Issuances of common stock 19 16
Repurchases of common stock (10) (14)
Dividends paid (13) (10)
Exchange of Class B&C Stock for Class
D Stock, net (42) (27)
Other - (6)
______ ______
Net cash used in financing activities (50) (42)
Effect of exchange rates on cash 1 (3)
______ ______
Net change in cash and cash equivalents (43) 25
Cash and cash equivalents at beginning
of period 99 68
______ ______
Cash and cash equivalents at end of period $ 56 $ 93
====== ======
__________________________________________________________________
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.
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 16,104,794 and 17,527,842 for the three months
ended September 30, 1994 and 1993 and 15,316,445 and
17,229,434 for the nine months ended September 30, 1994 and
1993. Fully diluted earnings per share have not been
presented because it is not materially different from primary
earnings per share.
<PAGE>
KIEWIT CONSTRUCTION & MINING 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
______________________________
September 30, December 25,
1994 1993
______________________________
Cash and cash equivalents $ 53 $ 47
Marketable securities 15 11
Property, plant and
equipment, net 2 12
Other assets 20 11
_____ _____
Total Assets $ 90 $ 81
===== =====
Accounts payable $ 32 $ 27
Convertible debentures 2 2
Notes to former
stockholders 5 8
Other liabilities 12 7
_____ _____
Total Liabilities $ 51 $ 44
===== =====
Group
______________________________________
Three months ended Nine months ended
September 30, September 30,
__________________ _________________
1994 1993 1994 1993
____ ____ ____ ____
Investment income,
net of interest
expense $ - $ (1) $ 1 $ (1)
Other income, net 2 1 - 2
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Condensed Financial Statements
3. Summarized Financial Information (continued):
____________________________________________
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
$7 million and $6 million for the three months ended September
30, 1994 and 1993 and $20 million and $19 million for the nine
months ended September 30, 1994 and 1993.
Mining service income that the Group recognized from the
Group's mine service agreement with the Diversified Group was
$7 million for the three months ended September 30, 1994 and
1993 and $22 million and $21 million for the nine months ended
September 30, 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. for $47 million in cash. The
Group accounted for the acquisition as a purchase and has
consolidated APAC's operating results since the acquisition
date. The fair value of the assets acquired and liabilities
assumed totalled $51 million and $21 million, respectively.
Goodwill of $17 million is being amortized over 20 years.
APAC's operating results prior to the acquisition were not
significant relative to the Group's results.
5. Other Matters:
_____________
Marketable securities at September 30, 1994 and December 25,
1993 include approximately $60 million and $56 million,
respectively, of investments which are being held by the
owners of various construction projects in lieu of retainage.
Receivables at September 30, 1994 and December 25, 1993
include approximately $61 million and $37 million,
respectively, of retainage on uncompleted projects, the
majority of which is expected to be collected within one year.
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 or results of operations.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
_________________________________________________
Results of Operations - Third Quarter 1994 vs. Third Quarter 1993
_________________________________________________________________
Construction
____________
Construction revenue rose 33% in the third quarter of 1994 as
compared to the third quarter of 1993. The increase is primarily
attributable to the APAC acquisition completed in the first quarter
of 1994 and a 20% increase in the size of new contracts awarded
this year. The Group's current contract backlog increased to
$2.4 billion from $2.2 billion in 1993. The increase in contract
size and the expansion to new markets resulted in the increase.
Foreign operations, principally Canada, account for 20% and
projects on the west coast account for 42% of the total backlog.
The San Joaquin Hills toll road project accounts for 15% of the
contract backlog and is scheduled to be completed in 1997.
Gross margins on construction contracts declined from 12% in the
third quarter of 1993 to 11% during the same period in 1994. In
1994, the margins were adversely affected by the recognition of
projected cost overruns on certain projects and a decline in
bidding margin on work completed during the period. The lower
margins are a result of increased competition in the
construction industry. Partially offsetting the overruns and
declining margins was the recognition of income from the
construction of the San Joaquin toll road.
Operating Expenses
__________________
Operating expenses increased $3 million in the third quarter of
1994 compared to 1993. Modest increases in administrative
departments account for the increase.
Other Income, net
_________________
A $5 million increase in asset disposition gains caused the change
in other income. Other income for both periods includes $7
million of mine service income.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Results of Operations - Nine Months 1994 vs. Nine Months 1993
_____________________________________________________________
Construction
____________
Construction revenues increased 22% in the first nine months of
1994 as compared to the same period in 1993. Revenues generated
from the APAC acquisition, an increase in joint venture work and
a 20% increase in the size of new contracts awarded contributed
to the higher volume. The increase in joint venture revenue
resulted from several design-build projects, awarded in 1992 and
1993, entering the construction phase. These projects include
the San Joaquin Hill toll road in southern California, and the
Montgomery County Resource Recovery Facility near Baltimore,
Maryland.
The gross margin on construction contracts declined to 8% in 1994
from 11% in 1993. In 1994, the margins were adversely affected
by the recognition of projected cost overruns on certain projects
and a decline in bidding margin on work completed during the
period. The lower bidding margins are a result of increased
competition in the construction industry. The recognition of
income from the construction of the San Joaquin Hills toll road
partially offset the overruns and declining margins. A $20
million reduction of reserves previously established for the
Denmark tunnel project favorably impacted 1993 margins.
Operating Expenses
__________________
Operating expenses increased $11 million, or 13%, in the three
quarters of 1994 compared to 1993. Higher professional service
fees and modest increases in several administrative departments
account for the slight increase.
Investment Income
_________________
Investment income increased $15 million in the three quarters
1994 compared to 1993. A $19 million loss on the sale and
writedown of certain derivative securities adversely affected 1993
results.
Other Income, net
_________________
Increases in asset disposition gains caused the change in other
income. Mine service income amounted to $22 million in 1994 and
$21 million in 1993.<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Financial Condition - September 30, 1994 vs. December 25, 1993
______________________________________________________________
The Company's working capital decreased $32 million or 9% during
the three quarters of 1994.
Cash used in investing activities during the three quarters of
1994 includes $53 million of capital expenditures, $47 million
for the purchase of APAC, and an additional $4 million investment
in an electrical contractor. Net proceeds from the sales
and maturities of marketable securities of $23 million and proceeds
from sales of equipment of $14 million provided cash during the
period.
Financing activities used $50 million during the three quarters of
1994. The principal uses of cash were the net conversion of B&C
shares for D shares for $42 million, the repurchase of B&C shares
for $10 million and the payment of dividends on B&C shares of $13
million. Partially offsetting the uses was the sale of B&C
shares for $19 million.
The Group anticipates investing between $40 and $75 million
annually in its construction business (primarily in equipment),
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 September 30, 1994,
together with anticipated cash flows from operations and existing
borrowing capacity, should be sufficient for immediate cash
requirements and future investing activities.
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 Operations for the
three months ended September 30, 1994 and 1993 and
the nine months ended September 30, 1994 and 1993
Condensed Balance Sheets as of September 30, 1994
and December 25, 1993
Condensed Statements of Cash Flows for the
nine months ended September 30, 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 Operations
(unaudited)
Three months ended Nine months ended
September 30, September 30,
__________________ _________________
(dollars in millions,
except per share data) 1994 1993 1994 1993
__________________________________________________________________
Revenue $ 233 $ 104 $ 584 $ 272
Cost of Revenue (194) (77) (446) (190)
______ ______ ______ ______
39 27 138 82
Operating Expenses (48) (23) (149) (63)
______ ______ ______ ______
Operating Income (Loss) (9) 4 (11) (19)
Other Income (Expense):
Gain on Subsidiary's
Stock Issuances, net - 131 28 211
Investment Income 8 21 41 22
Interest Expense (20) - (55) (4)
Other, net 1 3 5 7
______ ______ ______ ______
Earnings (Loss) Before
Income Taxes and Minority
Interest in Loss of
Subsidiaries (20) 159 8 255
Provision for Income Taxes (3) (57) (18) (90)
Minority Interest in Loss
of Subsidiaries 11 1 26 1
______ ______ ______ ______
Net Earnings (Loss) $ (12) $ 103 $ 16 $ 166
====== ====== ====== ======
Earnings (Loss) Per
Common & Common
Equivalent Share $ (.58) $ 5.12 $ .77 $ 8.34
====== ====== ====== ======
Cash Dividends per
Common Share $ - $ - $ - $ .50
====== ====== ====== ======
__________________________________________________________________
See accompanying notes to condensed financial statements.<PAGE>
KIEWIT DIVERSIFIED GROUP
Condensed Balance Sheets
September 30, December 25,
1994 1993
(dollars in millions) (unaudited)
___________________________________________________________________
Assets
Current Assets:
Cash and cash equivalents $ 387 $ 197
Marketable securities 920 899
Receivables, less allowance
of $3 and $2 137 86
Other 82 58
_______ _______
Total Current Assets 1,526 1,240
Property, Plant and Equipment,
less accumulated depreciation
and amortization of $312 and
$252 928 737
Intangible Assets, net 645 427
Investments 258 233
Other Assets 172 172
_______ _______
$ 3,529 $ 2,809
======= =======
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 122 $ 113
Current portion of long-term
debt:
Telecommunications 9 7
Other 6 4
Accrued costs and billings in
excess of revenue on uncompleted
contracts 28 20
Accrued reclamation and other
mining costs 18 23
Other 125 80
_______ _______
Total Current Liabilities 308 247
Long-Term Debt, less current
portion:
Telecommunications 932 420
Other 62 32
Deferred Income Taxes 421 394
Retirement Benefits 66 71
Accrued Reclamation Costs 102 99
Other Liabilities 78 57
Minority Interest 344 298
Stockholders' Equity (Redeemable
Common Stock, $1.2 billion
aggregate redemption value)
Common equity 1,220 1,182
Net unrealized holding
gains (losses) (4) 9
_______ _______
Total Stockholders' Equity 1,216 1,191
_______ _______
$ 3,529 $ 2,809
======= =======
__________________________________________________________________
See accompanying notes to condensed financial statements.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Condensed Statements of Cash Flows
(unaudited)
Nine months ended
September 30,
_________________
(dollars in millions) 1994 1993
__________________________________________________________________
Cash flows from operations:
Net cash provided by continuing operations $ 75 $ 94
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 1,245 3,076
Purchases of marketable securities (1,287) (3,502)
Acquisition of Centex, net of cash acquired (199) -
Capital expenditures (260) (88)
Proceeds from sale of cellular properties 182 -
Purchases of California Energy stock (26) -
Deferred development costs and other (62) 1
_______ ________
Net cash used in investing activities (407) (513)
Cash flows from financing activities:
Issuances of subsidiary's stock 5 455
Proceeds from long-term debt borrowings 677 13
Payments on long-term debt, including
current portion (185) (6)
Net change in short-term borrowings - (80)
Issuances of common stock - 8
Repurchases of common stock (21) (40)
Dividends paid - (17)
Exchange of Class B&C Stock for Class
D Stock, net 42 27
Other (2) 8
_______ ________
Net cash provided by financing
activities 516 368
Cash flows from discontinued packaging
operations 6 10
_______ ________
Net change in cash and cash equivalents 190 (41)
Cash and cash equivalents at beginning
of period 197 135
_______ ________
Cash and cash equivalents at end of period $ 387 $ 94
======= ========
Noncash investing activities:
Issuance of MFS stock for the purchase of
telecommunications companies and
minority interest $ 23 $ -
MFS stock transaction to settle
contingent purchase price adjustment 25 -
_________________________________________________________________
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 20,375,280 and 19,978,247 for the three months
ended September 30, 1994 and 1993 and 20,457,392 and
19,922,955 for the nine months ended September 30, 1994 and
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
________________________________
September 30, December 25,
1994 1993
_____________ ____________
Cash and cash equivalents $ 53 $ 47
Marketable securities 15 11
Property, plant and
equipment, net 2 12
Other assets 20 11
_____ _____
Total Assets $ 90 $ 81
===== =====
Accounts payable $ 32 $ 27
Convertible debentures 2 2
Notes to former
stockholders 5 8
Other liabilities 12 7
_____ _____
Total Liabilities $ 51 $ 44
===== =====
Group
______________________________________
Three months ended Nine months ended
September 30, September 30,
__________________ _________________
1994 1993 1994 1993
____ ____ ____ ____
Investment income,
net of interest
expense $ - $ (1) $ 1 $ (1)
Other income, net 2 1 - 2
KIEWIT DIVERSIFIED GROUP
Notes to Condensed Financial Statements
3. Summarized Financial Information (continued):
____________________________________________
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
$5 million and $3 million for the three months ended September
30, 1994 and 1993 and $9 million for the nine months ended
September 30, 1994 and 1993.
Mining service expense from the Group's mine service agreement
with the Construction & Mining Group was $7 million for
the three months ended September 30, 1994 and 1993 and $22
million and $21 million for the nine months ended September
30, 1994 and 1993.
4. Acquisitions:
____________
On May 18, 1994, MFS Communications Company, Inc. ("MFS")
acquired Centex Telemanagement, Inc. ("Centex"), a company
which provides outsourced telecommunications management
services for small and medium-sized businesses, for $250
million. The Group accounted for the acquisition using the
purchase method and has consolidated Centex's operating
results since the acquisition date. The total purchase price
in excess of the fair market value of net assets acquired,
$144 million, was recorded as goodwill and will be amortized
over 40 years. The unaudited proforma results below reflect
certain adjustments, primarily increased amortization,
assuming the acquisition occurred at the beginning of 1993.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Condensed Financial Statements
4. Acquisitions (continued):
________________________
These results do not necessarily indicate future results, nor
the results of historical operations had the acquisition
actually happened on the assumed date (in millions, except per
share data).
For the nine For the nine
months ended months ended
September 30, 1994 September 30, 1993
__________________ __________________
Revenue $ 651 $ 408
====== ======
Net earnings $ 10 $ 154
====== ======
Earnings per share
of Class D Stock $ .46 $ 7.74
====== ======
5. Long-Term Debt:
_______________
On January 19, 1994, 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, MFS 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'
subsidiaries, including trade payables. The notes contain
certain covenants which, among other things, restrict MFS'
ability to incur additional debt, create liens, enter into
sale and leaseback transactions, pay dividends, make certain
restricted payments, enter into transactions with affiliates,
KIEWIT DIVERSIFIED GROUP
Notes to Condensed Financial Statements
5. Long-Term Debt (continued):
__________________________
and sell assets to or merge with another company.
In March of 1994, C-TEC's telephone group refinanced $135
million of mortgage notes payable to the United States of
America. Although the new agreement does not restrict
telephone group dividends, it does require the telephone group
to maintain specified ratios for total leverage, interest
coverage, and equity to total capitalization.
6. Other Matters:
_____________
In 1994, the Group settled, for $25 million, a contingent
purchase price adjustment resulting from MFS' 1990 purchase
of Chicago Fiber Optic 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 for MFS employee stock options,
resulted in a $28 million net gain to the Group.
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.
On September 9, 1994 C-TEC Corporation ("C-TEC") sold
certain cellular properties to Independent Cellular Network,
Inc. for $190 million. The Group received $182 million of
proceeds and recorded an $8 million receivable. The Group
did not recognize a gain or loss from this transaction, but
instead reallocated the original purchase price among
KIEWIT DIVERSIFIED GROUP
Notes to Condensed Financial Statements
6. Other Matters (continued):
_________________________
C-TEC's net assets as required by purchase accounting
guidelines. The cellular properties had sales of $6
million and $20 million for the quarter and nine months
ended September 30, 1994.
MFS has signed a merger agreement with RealCom Office
Communications, Inc. ("RealCom"). MFS anticipates that it
will issue approximately 1.6 million shares to complete the
merger. Some of the purchase price may be payable in cash
in lieu of common stock. The merger agreement is dependent on
certain events, including approval of the agreement by RealCom
shareholders. The transaction is expected to close in the
fourth quarter of 1994.
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 or results of operations.
See "Legal Proceedings" with respect to the Whitney Benefits
case.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
_________________________________________________
Results of Operations - Third Quarter 1994 vs. Third Quarter 1993
_________________________________________________________________
Revenue from the Group's segments for the third quarter were (in
millions):
1994 1993
_____ _____
Mining $ 62 $ 60
Telecommunications 164 43
Other 7 1
Mining
______
Mining gross profits were 45% in the third quarter of 1994
and 1993. In 1994, alternate source coal sales accounted for
34% of revenues and 57% of gross profits compared to 30% and 56%
in 1993.
Telecommunications
__________________
In the third quarter of 1994, C-TEC and MFS accounted for 46% and
54% of telecommunications revenues. The telephone and cable groups
generated the majority, $31 million and $24 million, respectively,
of C-TEC's revenues while MFS' revenue consisted of $72 million
from telecommunications services and $16 million from systems
integration and facilities management. MFS' new subsidiary,
Centex, produced $42 million of telecommunications services
revenue. The remainder of MFS' growth over 1993 correlates to
increased market penetration of $12 million by MFS Telecom, MFS
Datanet, and MFS Intelenet being offset by decreases in revenue
recognized from the network systems integration project for the
State of Iowa.
Telecommunications cost of revenue totalled $156 million and $42
million for the third quarter of 1994 and 1993. C-TEC's
operations generated $48 million of the 1994 costs with $14 million
and $18 million related to the telephone and cable groups. MFS'
telecommunications services had $95 million in costs of revenue -
$42 million from Centex. The remainder of MFS' increased costs
KIEWIT DIVERSIFIED GROUP
Results of Operations - Third Quarter 1994 vs. Third Quarter 1993
(continued)
_________________________________________________________________
related to expanded networks and the continued development of MFS
Datanet and MFS Intelenet.
Operating Expenses
__________________
Operating expenses for the third quarter of 1994 exceeded those of
1993 by 109%. The telecommunications segment generated the growth
with C-TEC and MFS accounting for 80% and 28% of the increase,
respectively. Slight decreases in other expenses offset the
presence of C-TEC and increase in MFS. Operating expenses for
both periods include $7 million of mine management fees paid to
the Construction and Mining Group.
Gain on Subsidiary's Stock Issuances, net
_________________________________________
The gain in 1993 resulted from the secondary offering of MFS
stock.
Investment Income
_________________
Investment income includes interest, gains and losses on sales of
securities, dividends, and net equity earnings. Investment income
for the third quarter of 1994 decreased $13 million from 1993. In
1994 the Group realized losses of $11 million on the sale of
marketable securities.
Interest Expense
________________
Interest expense of $20 million consists of $11 million on MFS debt
and $9 million on C-TEC debt.
Other Income, net
_________________
Other income consists of gains and losses from asset dispositions
and other miscellaneous activities.
Taxes
_____
The effective income tax rate in the third quarter of 1994 differs
from the expected statutory rate of 35% due to net operating loss
limitations on losses generated by MFS.
KIEWIT DIVERSIFIED GROUP
Results of Operations - Nine Months 1994 vs. Nine Months 1993
_____________________________________________________________
Revenue from the Group's segments for the first nine months of 1994
and 1993 were (in millions):
1994 1993
_____ _____
Mining $ 168 $ 162
Telecommunications 405 103
Other 11 7
Mining
______
Mining gross profits were 48% and 47% in the first nine months of
1994 and 1993. In 1994, alternate source coal sales accounted for
32% of revenues and 51% of gross profits compared to 31% and 58%
in 1993.
Telecommunications
__________________
In the first nine months of 1994, C-TEC and MFS accounted for 54%
and 46% of telecommunications revenues. The telephone and cable
groups generated the majority, $92 million and $71 million, of
C-TEC's revenues while MFS' revenues consisted of $142 million from
telecommunications services and $43 million from systems
integration and facilities management. MFS' new subsidiary,
Centex, produced $63 million of telecommunications services revenue
since the date of acquisition. The remainder of MFS growth
correlates to continued market penetration from all MFS businesses.
Telecommunications cost of revenue totalled $353 million and $101
million for the first nine months of 1994 and 1993. C-TEC's
operations generated $137 million of costs with $42 million and $55
million related to the telephone and cable groups.
MFS' telecommunications services had $183 million in costs of
revenue - $62 million from Centex. The remainder of MFS' increased
costs relates to expanded networks and the continued development of
MFS Datanet and MFS Intelenet.
KIEWIT DIVERSIFIED GROUP
Results of Operations - Nine Months 1994 vs. Nine Months 1993
(continued)
_____________________________________________________________
Operating Expenses
__________________
Operating expenses for the first nine months of 1994 exceeded those
of 1993 by 137%. The telecommunications segment generated the
increase with C-TEC and MFS accounting for 69% and 24% of the
increase. Operating expenses for both periods include mine
management fees paid to the Construction and Mining Group. The
fees totalled $22 million and $21 million for the 1994 and 1993
periods.
Gain on Subsidiary's Stock Issuances, net
_________________________________________
In 1994, the Group settled, for $25 million, a contingent purchase
price adjustment resulting from MFS' 1990 purchase of Chicago
Fiber Optic 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 and for MFS employee
stock options, resulted in a $28 million net gain to the Group.
The gain in 1993 resulted from the public offerings of MFS stock.
Investment Income
_________________
In 1993 the Group experienced approximately $24 million of realized
losses and permanent writedowns on certain derivative securities.
In the third quarter of 1994 the Group realized losses of $11
million on the sale of marketable securities which were offset by
an $8 million increase in interest income.
Interest Expense
________________
Interest expense of $55 million includes of $30 million on MFS debt
and $23 million on C-TEC debt.
Other Income, net
_________________
Other income consists of gains and losses from asset dispositions
and other miscellaneous activities.
KIEWIT DIVERSIFIED GROUP
Results of Operations - Nine Months 1994 vs. Nine Months 1993
(continued)
_____________________________________________________________
Taxes
_____
The effective income tax rate in the three quarters of 1994
differs from the expected statutory rate of 35% due to net
operating loss limitations on losses generated by MFS.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Financial Condition - September 30, 1994 vs. December 25, 1993
______________________________________________________________
The Group's working capital increased $225 million or 23% during
the three quarters of 1994.
Cash used in investing activities during the three quarters of
1994 includes the net purchase of marketable securities of $42
million, $260 million of capital expenditures ($207 million by
MFS), and $199 million for the acquisition of Centex, and over
$50 million of deferred costs on telecommunications operations,
the construction of a toll road, and international power
project activities.
Financing activities generated $516 million during the three
quarters of 1994, the majority of which is related to MFS. MFS'
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 $275 - 325 million in
1994 and in excess of $1 billion over 3 - 5 years to expand its
operations to a total of 75 markets (including approximately 10
international markets).
Other financing activity for the year includes C-TEC borrowing
approximately $135 million to refinance certain mortgage notes
payable, the net exchange of Class B&C stock for Class D stock for
$42 million and the repurchase of Class D stock for $21 million.
C-TEC's 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
businesses - 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
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.
From time to time, MFS has also had discussions with other
communications entities concerning the establishment of possible
strategic relationships, including transactions involving
KIEWIT DIVERSIFIED GROUP
Financial Condition - September 30, 1994 vs. December 25, 1993
(continued)
______________________________________________________________
acquisitions, combinations and equity investments in MFS or one
of its subsidiaries. MFS intends to consider appropriate
opportunities to establish strategic relationships.
C-TEC has filed a registration statement related to a rights
offering of shares of its common stock. The net proceeds from
the rights offering will be approximately $296 million if the
rights are fully exercised. KDG expects to exercise all of
its rights and to oversubscribe for additional rights
not otherwise exercised - an investment of $100 - 150
million. The funds generated from the rights issuance and
the cellular sale will enable C-TEC to expand and develop its
cable television and telephone systems into full service networks,
pursue potential acquisitions, prepay certain indebtness, and
independently finance its current working capital and investment
requirements.
The Group's working capital position at September 30, 1994,
together with anticipated cash flows from operations and existing
borrowing capacity, should be sufficient for immediate cash
requirements and future investing activities.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
[DESCRIPTION] FINANCIAL DATA SCHEDULE FOR 1994 FORM 10-Q
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Form 10-Q for the period ending September 30, 1994 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 443
<SECURITIES> 1,076
<RECEIVABLES> 397
<ALLOWANCES> 7
<INVENTORY> 0
<CURRENT-ASSETS> 2,321
<PP&E> 1,765
<DEPRECIATION> 700
<TOTAL-ASSETS> 4,530
<CURRENT-LIABILITIES> 763
<BONDS> 1,001
<COMMON> 2
0
0
<OTHER-SE> 1,711
<TOTAL-LIABILITY-AND-EQUITY> 4,530
<SALES> 1,824
<TOTAL-REVENUES> 2,203
<CGS> 1,601
<TOTAL-COSTS> 1,929
<OTHER-EXPENSES> 221
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56
<INCOME-PRETAX> 96
<INCOME-TAX> 48
<INCOME-CONTINUING> 74
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74
<EPS-PRIMARY> $3.77<F1>
<EPS-DILUTED> $3.77<F1>
<FN>
<F1>$3.77 represents Class C Stock earnings per share, Class D Stock earnings
per share; $.77.
</FN>
</TABLE>
