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 June 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 August 1, 1994:
Class B Common Stock............................ 1,000,400 shares
Class C Common Stock............................ 15,107,792 shares
Class D Common Stock............................ 20,375,510 shares
<PAGE>
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 Six Months Ended
June 30, June 30,
__________________ ________________
(dollars in millions,
except per share data) 1994 1993 1994 1993
__________________________________________________________________
Revenue $ 717 $ 543 $ 1,290 $ 980
Cost of Revenue (623) (449) (1,130) (835)
______ ______ _______ ______
94 94 160 145
Operating Expenses (80) (40) (148) (80)
______ ______ _______ ______
Operating Income 14 54 12 65
Other Income (Expense):
Gain on Subsidiary's
Stock Issuances, net 3 80 28 80
Investment Income
(loss) 18 (28) 39 (9)
Interest Expense (19) (3) (36) (5)
Other, net 8 6 11 8
______ _____ _______ ______
10 55 42 74
______ ______ _______ ______
Earnings Before Income
Taxes and Minority
Interest 24 109 54 139
Provision for Income
Taxes (10) (39) (24) (49)
Minority Interest in
Loss of Subsidiaries 8 - 15 -
______ ______ _______ ______
Net Earnings $ 22 $ 70 $ 45 $ 90
====== ====== ======= ======
Earnings Attributable
to Class B&C Stock:
Net Earnings $ 19 $ 22 $ 17 $ 27
====== ====== ======= ======
Earnings per
Common and Common
Equivalent Share $ 1.24 $ 1.30 $ 1.10 $ 1.54
====== ====== ======= ======
PETER KIEWIT SONS', INC.
Consolidated Condensed Statements of Earnings
(unaudited)
Three months ended Six Months Ended
June 30, June 30,
__________________ ________________
(dollars in millions,
except per share data) 1994 1993 1994 1993
__________________________________________________________________
Earnings Attributable to
Class D Stock:
Net Earnings $ 3 $ 48 $ 28 $ 63
====== ====== ====== ======
Earnings per Common
and Common
Equivalent Share $ .14 $ 2.44 $ 1.35 $ 3.21
====== ====== ====== ======
Cash Dividends per
Common Share:
B&C Stock $ .45 $ - $ .45 $ .30
====== ====== ====== ======
D Stock $ - $ - $ - $ .50
====== ====== ====== ======
_________________________________________________________________
See accompanying notes to consolidated condensed financial
statements.
<PAGE>
PETER KIEWIT SONS', INC.
Consolidated Condensed Balance Sheets
June 30, December 25,
1994 1993
(dollars in millions) (unaudited)
__________________________________________________________________
Assets
Current Assets:
Cash and cash equivalents $ 315 $ 296
Marketable securities 1,123 1,082
Receivables, less allowance of $7
and $7 364 296
Costs and earnings in excess of
billings on uncompleted contracts 137 79
Investment in construction
joint ventures 55 81
Deferred income taxes 83 66
Other 70 54
_______ _______
Total Current Assets 2,147 1,954
Property, Plant and Equipment,
less accumulated depreciation and
amortization of $691 and $636 987 844
Investments 246 233
Intangible Assets, net 709 427
Other Assets 227 226
_______ _______
$ 4,316 $ 3,684
======= =======
__________________________________________________________________
See accompanying notes to consolidated condensed financial
statements.
<PAGE>
PETER KIEWIT SONS', INC.
Consolidated Condensed Balance Sheets
June 30, December 25,
(dollars in millions, 1994 1993
except per share data) (unaudited)
__________________________________________________________________
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 262 $ 260
Current portion of long-term debt:
Telecommunications 9 7
Other 8 8
Accrued costs and billings in excess
of revenue on uncompleted contracts 148 107
Accrued insurance costs 72 67
Other 165 140
______ _______
Total Current Liabilities 664 589
Long-Term Debt, less current portion:
Telecommunications 916 420
Other 59 42
Deferred Income Taxes 402 385
Retirement Benefits 68 71
Accrued Reclamation Costs 101 99
Other Liabilities 122 109
Minority Interest 305 298
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:
15,121,492 outstanding in 1994 and
16,316,070 in 1993 1 1
Class D, authorized 50,000,000 shares:
20,378,430 outstanding in 1994 and
20,010,696 in 1993 1 1
Additional paid-in capital 180 164
Foreign currency adjustment (7) (3)
Net unrealized holding gains (losses) (7) 9
Retained earnings 1,511 1,499
_______ _______<PAGE>
Total Stockholders' Equity 1,679 1,671
_______ _______
$ 4,316 $ 3,684
======= =======
__________________________________________________________________
See accompanying notes to consolidated condensed financial
statements.
<PAGE>
PETER KIEWIT SONS', INC.
Consolidated Condensed Statements of Cash Flows
(unaudited)
Six months ended
June 30,
__________________
(dollars in millions) 1994 1993
_________________________________________________________________
Cash flows from operations:
Net cash provided by continuing
operations $ 60 $ 48
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 856 3,132
Purchases of marketable securities (909) (3,203)
Proceeds from sales of property, plant
and equipment, and other investments 9 9
Capital expenditures (170) (77)
Acquisition of APAC-Arizona, Inc. (47) -
Acquisition of Centex Telemanagement,
Inc., net of cash acquired (189) -
Redemption of U.S. Can Preferred Stock - 12
Deferred development costs and other (49) (5)
_______ _______
Net cash used in investing activities (499) (132)
Cash flows from financing activities:
Issuances of subsidiary's stock 3 233
Proceeds from long-term debt borrowings 659 -
Payments on long-term debt, including
current portion (184) (2)
Net change in short-term borrowings - (30)
Repurchases of common stock (30) (50)
Issuance of common stock 19 21
Dividends paid (13) (27)
_______ _______
Net cash provided by financing
activities 454 145
Cash flows from discontinued packaging
operations 7 10
Effect of exchange rates on cash (3) -
_______ _______
Net change in cash and cash equivalents 19 71
Cash and cash equivalents at beginning
of period 296 203
_______ _______
Cash and cash equivalents at end of period $ 315 $ 274
======= =======
Noncash investing activities:
Issuance of MFS stock for purchase of
telecommunications companies $ 23 $ -
MFS stock transactions to settle
contingent purchase price liability 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 Six months ended
June 30, June 30,
________________________ _______________________
1994 1993 1994 1993
________________________ _______________________
Class B&C 15,232,250 16,968,572 15,306,347 17,081,835
Class D 20,446,882 19,876,053 20,497,789 19,895,207
<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, 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 Six months ended
June 30, June 30,
__________________ ________________
1994 1993 1994 1993
__________________ ________________
Results of Operations:
Revenue $ 528 $ 458 $ 939 $ 812
====== ====== ====== ======
Net earnings $ 19 $ 22 $ 17 $ 27
====== ====== ====== ======
Earnings per share $ 1.24 $ 1.30 $ 1.10 $ 1.54
====== ====== ====== ======
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
3. Summarized Financial Information (continued):
____________________________________________
June 30, December 25,
1994 1993
__________ ____________
Financial Position:
Working capital $ 285 $ 372
Total assets 902 889
Long-term debt, less
current portion 7 10
Stockholders' equity 454 480
Included within earnings before income taxes is mine service
income from the Diversified Group of $8 million and $7 million
for the three months ended June 30, 1994 and 1993 and $15
million and $14 million for the six months ended June 30, 1994
and 1993.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
3. Summarized Financial Information (continued):
____________________________________________
Diversified Group:
Three months ended Six months ended
June 30, June 30,
__________________ ________________
1994 1993 1994 1993
__________________ ________________
Results of Operations:
Revenue $ 189 $ 85 $ 351 $ 168
====== ====== ====== ======
Net earnings $ 3 $ 48 $ 28 $ 63
====== ====== ====== ======
Earnings per share $ .14 $ 2.44 $ 1.35 $ 3.21
====== ====== ====== ======
June 30, December 25,
1994 1993
________ ____________
Financial Position:
Working capital $ 1,198 $ 993
Total assets 3,433 2,809
Long-term debt, less
current portion 968 452
Stockholders' equity 1,225 1,191
Included within earnings before income taxes is mine
management fees paid to the Construction & Mining Group of $8
million and $7 million for the three months ended June 30,
1994 and 1993 and $15 million and $14 million for the six
months ended June 30, 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. 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 $240 million. The Company accounted
for the acquisition using the purchase method and has
consolidated Centex's operating results since the acquisition
date. The fair value of the net tangible assets acquired
totalled $47 million. Goodwill of $143 million and other
intangibles of $50 million are being amortized over 40 and 3
years, respectively. 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 six For the six
months ended months ended
June 30, 1994 June 30, 1993
_____________ _____________
Revenue $ 1,357 $ 1,075
======= =======
Net earnings $ 40 $ 84
======= =======
Earnings per share of
Class D stock $ 1.12 $ 2.90
======= =======
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
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.
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'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.
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 June 30, 1994 and December 25, 1993
include approximately $54 million and $56 million,
respectively, of investments which are being held by the
owners of various construction projects in lieu of retainage.
Receivables at June 30, 1994 and December 25, 1993 include
approximately $53 million and $37 million, respectively of
retainage on uncompleted projects, the majority of which is
expected to be collected within one year.
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
6. Other Matters (continued):
_____________
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 for MFS employee stock options, 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 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 transaction is expected to close
in the third quarter of 1994. 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.
C-TEC's cellular properties had sales of $8 million and $15
million for the quarter and six months ended June 30, 1994.
MFS has signed a merger agreement with RealCom Office
Communications, Inc. ("RealCom"). The agreement calls for
each outstanding share of RealCom common stock, subject to
certain adjustments, to be converted into the right to
receive a fractional share of MFS' common stock. MFS
anticipates that it will issue approximately 1.6 million
shares to complete the conversion. Some of the purchase
price
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
6. Other Matters (continued):
_____________
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 and certain federal
and state regulatory approvals. The transaction is expected
to close in the third quarter of 1994. The stock issuance
will result in a gain to the Company.
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 and 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 - Second Quarter 1994 vs. Second Quarter 1993
___________________________________________________________________
Revenue from operations for the three months ended June 30
comprised the following (in millions):
1994 1993
_____ _____
Construction $ 517 $ 453
Mining 62 54
Telecommunications 134 31
Other 4 5
_____ _____
$ 717 $ 543
===== =====
Construction
____________
Construction revenue rose 14% in the second quarter of 1994 as
compared to the second quarter of 1993. Substantially all of
the increase is attributable to the APAC-Arizona, Inc.
acquisition completed during the first quarter of 1994. The
Company's contract backlog remained at $2.2 billion at June 30,
1994. Foreign operations, principally Canada, account for 10% and
projects on the west coast account for 47% of the total backlog.
The San Joaquin Hills toll road project accounts for 18% of the
contract backlog and is scheduled to be completed in 1997.
Gross margins on construction revenue declined from 15% in
the second quarter of 1993 to 8% during the same period in 1994.
The higher margins in 1993 resulted from the $20 million reduction
of reserves previously established for the Denmark tunnel project.
The deferral of gains on the San Joaquin Hills toll road project,
because of environmental and construction uncertainties, lowered
margins in 1994.
PETER KIEWIT SONS', INC.
Results of Operations - Second Quarter 1994 vs. Second Quarter 1993
(continued)
___________________________________________________________________
Construction (continued)
____________
The Company has been awarded a $160 million contract to build a
165 megawatt geothermal plant in the Philippines. Construction of
the project will begin in the third quarter and is scheduled for
completion in 1997. The Company is exploring other construction
opportunities in international markets.
Mining
______
Mining revenues and gross profits for the second quarter increased
15% and 20%, respectively over 1993. A slight increase in average
price per ton of coal shipped and a rise in precious metal sales
resulted in revenue and margin growth. Costs of revenue remained
fairly constant as tons of coal shipped decreased by less than half
a percent. In 1994, alternate source coal sales accounted for 26%
of revenues and 40% of gross profits compared to 30% and 56% in
1993.
Telecommunications
__________________
In the second quarter of 1994, C-TEC and MFS accounted for 54% and
46% of telecommunications revenues. C-TEC's telephone and cable
groups generated the majority, $30 million and $23 million,
of C-TEC's revenues while MFS' revenue consisted of $47 million
from telecommunications services and $14 million from systems
integration and facilities management. MFS' new subsidiary,
Centex, generated $21 million of telecommunications services
revenue from the date of acquisition. The remainder of MFS'
growth correlates to expanded networks and the start-up of MFS
Datanet and MFS Intelenet.
Telecommunications cost of revenue totalled $110 million and $31
million for the second quarter of 1994 and 1993. C-TEC's
operations generated $42 million of the costs with $14 million
and $16 million related to the telephone and cable groups. MFS'
telecommunications services had $58 million in costs of revenue -
$20 million from Centex. The remainder of MFS' increased costs
of revenue relate to expanded networks and the continued
development of MFS Datanet and MFS Intelenet.
<PAGE>
PETER KIEWIT SONS', INC.
Results of Operations - Second Quarter 1994 vs. Second Quarter 1993
(continued)
___________________________________________________________________
Operating Expenses
__________________
Second quarter 1994 operating expenses exceeded second quarter 1993
expenses by 100%. The telecommunications segment generated the
majority of the growth with C-TEC and MFS accounting for 60% and
24% of the increase. Modest increases in several administrative
departments accounted for the remainder of the increase.
Gain on Subsidiary's Stock Issuances, net
________________________________________
During the second quarter of 1994, the Company purchased the
outstanding shares of a MFS subsidiary from the minority
stockholders by issuing MFS stock valued at market prices.
This transaction, along with stock issuances for MFS employee stock
options, resulted in a $3 million net gain to the Company. The
gain in 1993 resulted from the initial public 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 second quarter of 1994 increased $46 million over 1993.
A $43 million loss on the sale and writedown of derivative
securities in 1993 was the principal reason for the improvement.
Interest Expense
________________
Interest expense of $19 million includes $11 million interest on
MFS debt and $7 million on C-TEC 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 - Second Quarter 1994 vs. Second Quarter 1993
(continued)
___________________________________________________________________
Taxes
_____
The effective income tax rate in the second quarter of 1994
differs from the expected statutory rate of 35% due to net
operating loss limitations on losses generated by MFS.
Results of Operations - Six Months 1994 vs. Six Months 1993
___________________________________________________________
Revenue from each of the Company's business segments for the six
months ended June 30 comprised the following (in millions):
1994 1993
_______ _____
Construction $ 922 $ 803
Mining 119 109
Telecommunications 241 60
Other 8 8
_______ _____
$ 1,290 $ 980
======= =====
Construction
____________
Construction revenue increased 15% in the first six months of 1994
as compared to the first six months of 1993. Revenues generated
from the APAC acquisition and an increase in joint venture work
contributed to the higher volume. 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 Hills toll road project in southern
California and the Montgomery County Resource Recovery Facility
near Baltimore, Maryland.
The gross margin on construction contracts decreased to 6% for the
first half of 1994 from 11% in 1993. In 1994, margins were reduced
by the recognition of projected cost overruns on certain projects
and the deferral of gains on the San Joaquin Hills toll road
project because of environmental and construction uncertainties.
A $20 million reduction of reserves previously established for the
Denmark tunnel project favorably impacted 1993 margins.
PETER KIEWIT SONS', INC.
Results of Operations - Six Months 1994 vs. Six Months 1993
(continued)
___________________________________________________________
Mining
______
Mining revenues and gross profits for the six months ended June 30,
1994 increased 9% and 14% over the first six months of 1993. A
slight increase in average price per ton of coal shipped and a rise
in precious metal sales resulted in revenue and margin growth.
Costs of revenue remained fairly constant as tons of coal shipped
decreased by less than half a percent. In 1994, alternate source
coal sales accounted for 28% of revenues and 44% of gross profits
compared to 30% and 58% in 1993.
Telecommunications
__________________
In the first six months of 1994, C-TEC and MFS accounted for 60%
and 40% of telecommunications revenues. C-TEC's telephone and
cable groups generated the majority, $61 million and $47 million,
of C-TEC's revenues while MFS' revenues consisted of $69 million
from telecommunications services and $27 million from systems
integration and facilities management. MFS' new subsidiary,
Centex, produced $21 million of telecommunications services
revenue from the date of acquisition. The remainder of MFS
growth correlates to expanded networks and the start-up of MFS
Datanet and MFS Intelenet.
Telecommunications cost of revenue totalled $196 million and $58
million for the first six months of 1994 and 1993. C-TEC's
operations generated $89 million of the costs with $28 million
and $37 million related to the telephone and cable groups. MFS'
telecommunications services had $87 million in costs of revenue -
$20 million from Centex. The remainder of MFS' increased costs
relates to expanded networks and the continued development of MFS
Datanet and MFS Intelenet.
PETER KIEWIT SONS', INC.
Results of Operations - Six Months 1994 vs. Six Months 1993
(continued)
___________________________________________________________
Operating Expenses
__________________
Operating expenses for the first six months of 1994 exceeded those
of 1993 by 85%. The telecommunications operations generated the
majority of the increase with C-TEC and MFS accounting for 57% and
22% of the increase. Modest increases in several administrative
departments accounted for the remainder of the increase.
Gain on Subsidiary's Stock Issuances, 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 for MFS employee stock options, resulted in a $28 million
net gain to the Company. The gain in 1993 resulted from the
initial public offering of MFS stock.
Investment Income
_________________
Investment income for the first six months of 1994 increased
$48 million over 1993. An approximate $43 million loss on the
sale and writedown of derivative securities in 1993 was the
principal reason for the improvement.
Interest Expense
________________
Interest expense of $36 million includes $19 million of interest
on MFS debt and $15 million of interest on C-TEC debt.
<PAGE>
PETER KIEWIT SONS', INC.
Results of Operations - Six Months 1994 vs. Six Months 1993
(continued)
_________________________________________________________________
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 six 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 - June 30, 1994 vs. December 25, 1993
__________________________________________________________
The Company's working capital increased $118 million or 9% during
the first six months of 1994.
Cash used in investing activities during the first six months of
1994 includes the net purchase of marketable securities of $53
million, $170 million of capital expenditures, $189 for the
acquisition of Centex, and $47 million for the purchase of APAC.
Financing activities generated $454 million during the first
six months 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 group.
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 complement 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 - June 30, 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.
C-TEC recently announced plans to offer to its existing
stockholders transferable subscription rights for C-TEC common
stock. KDG expects to subscribe for its proportional share of
that offering. Although there is no assurance that C-TEC will
receive any proceeds from the rights offering, it expects
to raise approximately $300 million, approximately $100
million from KDG. 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 and independently finance its 1994 working capital
and investment requirements.
The Company's working capital position at June 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 $238 million. Kiewit and
Whitney have agreed that Kiewit and Whitney will receive 67.5
and 32.5 percent, respectively, of any award. At June 30,
1994, Kiewit and Whitney would be entitled to $201 million
and $97 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>
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
second 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: August 15, 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>
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: August 15, 1994
_______________________
Robert E. Julian
Executive Vice President
Chief Financial Officer
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 June 30, 1994 and 1993 and the
six months ended June 30, 1994 and 1993
Condensed Balance Sheets as of June 30, 1994
and December 25, 1993
Condensed Statements of Cash Flows for the
three months ended June 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 Six months ended
June 30, June 30,
__________________ ________________
(dollars in millions,
except per share data) 1994 1993 1994 1993
_________________________________________________________________
Revenue $ 528 $ 458 $ 939 $ 812
Cost of Revenue (485) (392) (878) (722)
______ ______ ______ ______
43 66 61 90
Operating Expenses (29) (26) (62) (54)
______ ______ ______ ______
Operating Income (Loss) 14 40 (1) 36
Other Income (Expense):
Investment Income
(Loss) 4 (15) 6 (10)
Interest Expense (1) - (1) (1)
Other, net 12 9 22 18
______ ______ ______ ______
15 (6) 27 7
______ ______ ______ ______
Earnings Before
Income Taxes 29 34 26 43
Provision for
Income Taxes (10) (12) (9) (16)
______ ______ ______ ______
Net Earnings $ 19 $ 22 $ 17 $ 27
====== ====== ====== ======
Earnings Per
Common & Common
Equivalent Share $ 1.24 $ 1.30 $ 1.10 $ 1.54
====== ====== ====== ======
Cash Dividends per
Common Share $ .45 $ - $ .45 $ .30
====== ====== ====== ======
_________________________________________________________________
See accompanying notes to condensed financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Condensed Balance Sheets
June 30, December 25,
1994 1993
(dollars in millions) (unaudited)
___________________________________________________________________
Assets
Current Assets:
Cash and cash equivalents $ 42 $ 99
Marketable securities 139 183
Receivables, less allowance
of $4 and $5 237 215
Costs and earnings in excess
of billings on uncompleted
construction contracts 123 75
Investment in construction
joint ventures 55 81
Deferred income taxes 61 48
Other 24 18
_______ _______
Total Current Assets 681 719
Property, Plant and Equipment,
less accumulated depreciation
and amortization of $391 and $384 144 107
Deferred Income Taxes 2 9
Intangible Assets 16 -
Other Assets 59 54
_______ _______
$ 902 $ 889
======= =======
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, including
retainage of $38 and $37 $ 141 $ 148
Current portion of long-term debt 3 4
Accrued construction costs and
billings in excess of revenue
on uncompleted contracts 126 87
Accrued insurance costs 70 65
Other 56 43
_______ _______
Total Current Liabilities 396 347
Long-Term Debt, less current portion 7 10
Other Liabilities 45 52
Stockholders' Equity (Redeemable
Common Stock, $353 million aggregate
redemption value)<PAGE>
Common equity 460 483
Net unrealized holding losses (1) -
Foreign currency adjustment (5) (3)
_______ _______
Total Stockholders' Equity 454 480
_______ _______
$ 902 $ 889
======= =======
________________________________________________________________
See accompanying notes to condensed financial statements.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Condensed Statements of Cash Flows
(unaudited)
Six months ended
June 30,
________________
(dollars in millions) 1994 1993
_________________________________________________________________
Cash flows from operations:
Net cash provided by (used in)
operations $ 42 $ (10)
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 138 514
Purchases of marketable securities (97) (453)
Proceeds from sales of property,
plant and equipment 6 7
Capital expenditures (41) (20)
Acquisition of APAC-Arizona, Inc. (47) -
Other (7) (9)
______ ______
Net cash provided by (used in)
investing activities (48) 39
Cash flows from financing activities:
Payments on long-term debt, including
current portion (4) (1)
Issuances of common stock 19 15
Repurchases of common stock (9) (12)
Dividends paid (13) (10)
Exchange of Class B&C Stock for
Class D Stock, net (42) (22)
Other - (4)
______ ______
Net cash used in financing activities (49) (34)
Effect of exchange rates on cash (2) -
______ ______
Net change in cash and cash equivalents (57) (5)
Cash and cash equivalents at beginning
of period 99 68
______ ______
$ 42 $ 63
====== ======
__________________________________________________________________
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.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Condensed Financial Statements
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 15,232,250 and 16,968,572 for
the three months ended June 30, 1994 and 1993 and 15,306,347
and 17,081,835 for the six months ended June 30, 1994 and
1993. Fully diluted earnings per share have not been
presented because it is not materially different from
primary earnings 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
________________________
June 30, December 25,
1994 1993
________________________
Cash and cash equivalents $ 38 $ 47
Marketable securities 20 11
Property, plant and
equipment, net 13 12
Other assets 12 11
_____ _____
Total Assets $ 83 $ 81
===== =====
Accounts payable $ 31 $ 27
Convertible debentures 2 2
Notes to former stockholders 6 8
Liability for stock
appreciation rights 1 2
Other liabilities 7 5
_____ _____
Total Liabilities $ 47 $ 44
===== =====
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Condensed Financial Statements
3. Summarized Financial Information (continued):
____________________________________________
Group
______________________________________
Three months ended Six months ended
June 30, June 30,
__________________ _________________
1994 1993 1994 1993
____ ____ ____ ____
Investment income,
net of interest
expense $ 1 $ - $ 1 $ -
Other costs, net (1) (1) (2) (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
$7 million and $6 million for the three months ended June 30,
1994 and 1993 and $13 million and $12 million for the six
months ended June 30, 1994 and 1993.
Mining service income that the Group recognized from the
Group's mine service agreement with the Diversified Group
was $8 million and $7 million for the three months ended June
30, 1994 and 1993 and $15 million and $14 million for the six
months ended June 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.<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Condensed Financial Statements
5. Other Matters:
_____________
Marketable securities at June 30, 1994 and December 25, 1993
include approximately $54 million and $56 million,
respectively, of investments which are being held by the
owners of various construction projects in lieu of retainage.
Receivables at June 30, 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.
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 and 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 - Second Quarter 1994 vs. Second Quarter 1993
___________________________________________________________________
Construction
____________
Construction revenue rose 14% in the second quarter of 1994 as
compared to 1993. Substantially all of the increase is
attributable to the APAC-Arizona, Inc. acquisition completed during
the first quarter of 1994. The Group's contract backlog
remained at $2.2 billion at June 30, 1994. Foreign operations,
principally Canada, accounted for 10%, and projects on the west
coast accounted for approximately 47% of the total backlog. The
San Joaquin Hills toll road joint venture accounts for 18% of the
contract backlog and is scheduled for completion in 1997.
Gross margins on construction revenue declined from 15% in the
second quarter of 1993 to 8% in 1994. The higher margins in 1993
resulted from the reduction of reserves established for the
Denmark tunnel project. The deferral of gains on the San Joaquin
Hills toll road project, because of environmental and construction
activities, lowered margins in 1994.
The Group has been awarded a $160 million contract to build a
165 megawatt geothermal plant in the Philippines. Construction
of the project will begin in the third quarter and is scheduled
for completion in 1997. The Group is exploring other
construction opportunities in international markets.
Operating Expenses
__________________
Operating expenses increased $3 million, or 12%, in the second
quarter of 1994 compared to 1993. Higher professional service fees
and modest increases in several administrative departments
accounted for the slight increase.
Investment Income
_________________
Investment income increased $19 million in the quarter ending June
30, 1994 as compared to 1993. The improvement relates to the $19
million loss on the sale and permanent writedown of certain
derivative securities in the second quarter of 1993.
KIEWIT CONSTRUCTION & MINING GROUP
Results of Operations - Second Quarter 1994 vs. Second Quarter 1993
(continued)
___________________________________________________________________
Other Income, net
_________________
Increases in mine management fees and asset disposition gains
caused the change in other income.
Results of Operations - Six Months 1994 vs. Six Months 1993
___________________________________________________________
Construction
____________
Construction revenue increased 15% during the first half of 1994
compared to 1993. Revenues generated by the APAC companies and
joint ventures contributed to the higher volume. 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 Hills toll road
project in southern California and the Montgomery County Resource
Recovery Facility near Baltimore, Maryland.
The gross margin on construction contracts decreased to 6% for the
first half of 1994, from 11% in 1993. In 1994 margins were reduced
by the recognition of projected cost overruns on certain
projects and the deferral of gains on the San Joaquin Hills toll
road project because of environmental and construction
uncertainties. A $20 million reduction of reserves previously
established for the Denmark tunnel project favorably impacted 1993
margins.
Operating Expenses
__________________
Operating expenses increased $8 million, or 15%, in the first half
of 1994 compared to 1993. Higher professional service fees and
modest increases in several administrative departments accounted
for the slight increase.
Investment Income
_________________
Investment income increased $16 million during the first half of
1994 compared to 1993. The $19 million loss on the sale and
writedown of certain derivative securities adversely affected 1993
results. A decline in interest income resulting from a reduction in
cash and marketable securities partially offsets the absence of the
writedown in 1994.
KIEWIT CONSTRUCTION & MINING GROUP
Results of Operations - Six Months 1994 vs. Six Months 1993
(continued)
___________________________________________________________
Other Income, net
_________________
Increases in mine management fees and asset disposition gains
caused the change in other income.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Financial Condition - June 30, 1994 vs. December 25, 1993
__________________________________________________________
The Company's working capital decreased $87 million or 23% during
the first half of 1994.
Net cash provided by operations for the six months ended June 30,
1994 increased $52 million over 1993. Improved cash flows from
construction joint ventures was the principal reason for the
increase.
Cash used in investing activities during the first quarter of 1994
includes $41 million of capital expenditures and $47 million
for the purchase of APAC, offset by net proceeds from the sales and
maturities of marketable securities of $41 million.
Financing activities used $49 million during the first half
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 $9 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, 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 June 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 Earnings for the
three months ended June 30, 1994 and 1993 and the
six months ended June 30, 1994 and 1993
Condensed Balance Sheets as of June 30, 1994
and December 25, 1993
Condensed Statements of Cash Flows for the
six months ended June 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 Earnings
(unaudited)
Three months ended Six months ended
June 30, June 30,
__________________ ________________
(dollars in millions,
except per share data) 1994 1993 1994 1993
__________________________________________________________________
Revenue $ 189 $ 85 $ 351 $ 168
Cost of Revenue (138) (57) (252) (113)
______ ______ ______ ______
51 28 99 55
Operating Expenses (59) (21) (101) (40)
______ ______ ______ ______
Operating Income (Loss) (8) 7 (2) 15
Other Income (Expense):
Gain on Subsidiary's
Stock Issuances,
net 3 80 28 80
Investment Income (Loss) 14 (13) 33 1
Interest Expense (18) (3) (35) (4)
Other, net 4 4 4 4
______ ______ ______ ______
3 68 30 81
______ ______ ______ ______
Earnings (Loss) Before
Income Taxes and
Minority Interest in
Loss of Subsidiaries (5) 75 28 96
Provision for Income
Taxes - (27) (15) (33)
Minority Interest in
Loss of Subsidiaries 8 - 15 -
______ ______ ______ ______
Net Earnings $ 3 $ 48 $ 28 $ 63
====== ====== ====== ======
Earnings Per Common &
Common Equivalent
Share $ .14 $ 2.44 $ 1.35 $ 3.21
====== ====== ====== ======
Cash Dividends per
Common Share $ - $ - $ - $ .50
====== ====== ====== ======
__________________________________________________________________
See accompanying notes to condensed financial statements.
KIEWIT DIVERSIFIED GROUP
Condensed Balance Sheets
June 30, December 25,
1994 1993
(dollars in millions) (unaudited)
__________________________________________________________________
Assets
Current Assets:
Cash and cash equivalents $ 273 $ 197
Marketable securities 984 899
Receivables, less allowance
of $3 and $2 129 86
Other 97 58
_______ _______
Total Current Assets 1,483 1,240
Property, Plant and Equipment,
less accumulated depreciation and
amortization of $300 and $252 843 737
Intangible Assets, net 693 427
Investments 246 233
Other Assets 168 172
_______ _______
$ 3,433 $ 2,809
======= =======
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 121 $ 113
Current portion of long-term debt:
Telecommunications 9 7
Other 5 4
Accrued costs and billings in excess
of revenue on uncompleted contracts 22 20
Accrued reclamation and other
mining costs 18 23
Other 110 80
_______ _______
Total Current Liabilities 285 247
Long-Term Debt, less current portion:
Telecommunications 916 420
Other 52 32
Deferred Income Taxes 404 394
Retirement Benefits 67 71
Accrued Reclamation Costs 101 99
Other Liabilities 78 57<PAGE>
KIEWIT DIVERSIFIED GROUP
Condensed Balance Sheets
(continued)
June 30, December 25,
1994 1993
(dollars in millions) (unaudited)
__________________________________________________________________
Minority Interest 305 298
Stockholders' Equity (Redeemable
common stock, $1.2 billion
aggregate redemption value)
Common equity 1,233 1,182
Foreign currency adjustment (2) -
Net unrealized holding gains (losses) (6) 9
_______ _______
Total Stockholders' Equity 1,225 1,191
_______ _______
$ 3,433 $ 2,809
======= =======
________________________________________________________________
See accompanying notes to condensed financial statements.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Condensed Statements of Cash Flows
(unaudited)
Six months ended
June 30,
__________________
(dollars in millions) 1994 1993
__________________________________________________________________
Cash flows from operations:
Net cash provided by continuing operations $ 19 $ 58
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 718 2,655
Purchases of marketable securities (812) (2,787)
Acquisition of Centex, net of cash
acquired (189) -
Capital expenditures (129) (57)
Redemption of U.S. Can preferred stock - 12
Other (41) 6
________ ________
Net cash used in investing activities (453) (171)
Cash flows from financing activities:
Issuances of subsidiary's stock 3 233
Proceeds from long-term debt borrowings 659 -
Payments on long-term debt, including
current portion (180) (1)
Net change in short-term borrowings - (30)
Issuances of common stock - 6
Repurchases of common stock (20) (38)
Dividends paid - (17)
Exchange of Class B&C Stock for Class
D Stock, net 42 22
Other - 4
________ ________
Net cash provided by financing
activities 504 179
Cash flows from discontinued packaging
operations 7 10
Effect of Exchange rates on cash (1) -
________ ________
Net change in cash and cash equivalents 76 76
Cash and cash equivalents at beginning
of period 197 135
________ ________
Cash and cash equivalents at end of period $ 273 $ 211
======== ========
Noncash investing activities:
Issuance of MFS stock for the
purchase of telecommunications
companies and minority interest $ 23 $ 1
MFS stock transaction to settle
contingent purchase price liability 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 20,446,882 and 19,876,053 for the three months
ended June 30, 1994 and 1993 and 20,497,789 and 19,895,207
for the six months ended June 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
___________________________
June 30, December 25,
1994 1993
_________ ___________
Cash and cash equivalents $ 38 $ 47
Marketable securities 20 11
Property, plant and equipment, net 13 12
Other assets 12 11
_____ _____
Total Assets $ 83 $ 81
===== =====
Accounts payable $ 31 $ 27
Convertible debentures 2 2
Notes to former stockholders 6 8
Liability for stock
appreciation rights 1 2
Other liabilities 7 5
_____ _____
Total Liabilities $ 47 $ 44
===== =====
Group
____________________________________
Three months ended Six months ended
June 30, June 30,
__________________ ________________
1994 1993 1994 1993
____ ____ ____ ____
Investment income, net
of interest expense $ 1 $ - $ 1 $ -
Other costs, net (1) (1) (2) 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
$1 million and $3 million for the three months ended June 30,
1994 and 1993 and $4 million and $6 million for the six months
ended June 30, 1994 and 1993.
KIEWIT DIVERSIFIED GROUP
Notes to Condensed Financial Statements
3. Summarized Financial Information (continued):
____________________________________________
Mining service expense from the Group's mine service agreement
with the Construction & Mining Group was $8 million and $7
million for the three months ended June 30, 1994 and 1993 and
$15 million and $14 million for the six months ended June 30,
1994 and 1993.
4. Acquisitions:
____________
On May 18, 1994, the Group acquired Centex Telemanagement,
Inc. Inc. ("Centex") - a company which provides outsourced
telecommunications management services for small and medium-
sized businesses - for $240 million. The Group accounted for
the acquisition using the purchase method and has consolidated
Centex's operating results since the acquisition date. The
fair value of the net tangible assets acquired totalled $47
million. Goodwill of $143 million and other intangible assets
of $50 million are being amortized over 40 and 3 years,
respectively. The unaudited proforma 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 six For the six
months ended months ended
June 30, 1994 June 30, 1993
_____________ _____________
Revenue $ 418 $ 263
====== ======
Net earnings $ 23 $ 57
====== ======
Earnings per share
of Class D Stock $ 1.12 $ 2.90
====== ======
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,
KIEWIT DIVERSIFIED GROUP
Notes to Condensed Financial Statements
5. Long-Term Debt (continued):
__________________________
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'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 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
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 for MFS employee stock options, resulted in a $28
million net gain to the Group.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Condensed Financial Statements
6. Other Matters (continued):
________________________
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 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 transaction is expected to close in the third
quarter of 1994. The Group will not 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. The cellular properties
had sales of $8 million and $15 million for the quarter and
six months ended June 30, 1994.
MFS has signed a merger agreement with RealCom Office
Communications, Inc. ("RealCom"). The agreement calls for
each outstanding share of RealCom common stock, subject to
certain adjustments, to be converted into the right to
receive a fractional share of MFS' common stock. MFS
anticipates that it will issue approximately 1.6 million
shares to complete the conversion. 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
and certain federal and state regulatory approvals. The
transaction is expected to close in the third quarter of 1994.
The stock issuance will result in a gain to the Group.
KIEWIT DIVERSIFIED GROUP
Notes to Condensed Financial Statements
6. Other Matters (continued):
________________________
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 and 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 - Second Quarter 1994 vs. Second Quarter 1993
___________________________________________________________________
Revenue from the Group's segments for the second quarter were (in
millions):
1994 1993
_____ _____
Mining $ 53 $ 50
Telecommunications 134 31
Other 2 4
Mining
______
Mining revenues and gross profits for the second quarter of 1994
increased 6% and 12% over the second quarter of 1993. A slight
increase in average price per ton of coal shipped resulted
in revenue and margin growth. Costs of revenue remained constant
as tons shipped decreased by less than half a percent. In 1994,
alternate source coal sales accounted for 30% of revenues and 44%
of gross profits compared to 32% and 58% in 1993.
Telecommunications
__________________
In the second quarter of 1994, C-TEC and MFS accounted for 54% and
46% of telecommunications revenues. C-TEC's telephone and cable
groups generated the majority, $30 million and $23 million,
respectively, of C-TEC's revenues while MFS' revenue consisted of
$47 million from telecommunications services and $14 million from
systems integration and facilities management. MFS' new
subsidiary, Centex, produced $21 million of telecommunications
services revenue since the date of acquisition. The remainder
of MFS' growth over 1993 correlates to expanded networks and the
start-up of MFS Datanet and MFS Intelenet.
Telecommunications cost of revenue totalled $111 million and $31
million for the second quarter of 1994 and 1993. C-TEC's
operations generated $42 million of the 1994 costs with $14 million
and $16 million related to the telephone and cable groups. MFS'
telecommunications services had $58 million in costs of
KIEWIT DIVERSIFIED GROUP
Results of Operations - Second Quarter 1994 vs. Second Quarter 1993
(continued)
___________________________________________________________________
Telecommunications (continued)
__________________
revenue - $20 million from Centex. The remainder of MFS'
increased costs related to expanded networks and the
continued development of MFS Datanet and MFS Intelenet.
Operating Expenses
__________________
Operating expenses for the second quarter of 1994 exceeded those
of 1993 by 181%. The telecommunications segment generated
the growth with C-TEC and MFS accounting for 63% and 25% of the
increase, respectively. Operating expenses for both periods
include mine management fees paid to the Construction and Mining
Group. The fees totalled $8 million and $7 million for the
1994 and 1993 periods.
Gain on Subsidiary's Stock Issuances, net
_________________________________________
During the second quarter of 1994 the Group purchased the
outstanding shares of a MFS subsidiary from the minority
shareholders by issuing MFS stock valued at market prices. This
transaction along with the exercise of MFS employee stock options,
resulted in a $3 million net gain to the Group. The gain in 1993
resulted from the initial public 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 second quarter of 1994 increased $27 million from 1993. In
the second quarter of 1993 the Group experienced approximately $24
million of realized losses and permanent write-downs on certain
derivative securities. The absence of such losses coupled with a
$3 million increase in interest income made up the majority of this
quarter's increase.
Interest Expense
________________
Interest expense of $18 million consists of $11 million on MFS
debt and $7 million on C-TEC debt.
KIEWIT DIVERSIFIED GROUP
Results of Operations - Second Quarter 1994 vs. Second Quarter 1993
(continued)
___________________________________________________________________
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 second quarter 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
Results of Operations - Six Months 1994 vs. Six Months 1993
___________________________________________________________
Revenue from the Group's segments for the first six months
of 1994 and 1993 were (in millions):
1994 1993
_____ _____
Mining $ 106 $ 102
Telecommunications 241 60
Other 4 6
Mining
______
Mining revenues and gross profits for the six months ended June
30, 1994 increased 4% and 8% over the first six months of 1993. A
slight increase in average price per ton of coal shipped resulted
in revenue and margin growth. Costs of revenue remained constant
as tons shipped decreased by less than half a percent. In 1994,
alternate source coal sales accounted for 31% of revenues and 47%
of gross profits compared to 32% and 59% in 1993.
Telecommunications
__________________
In the first six months of 1994, C-TEC and MFS accounted for 60%
and 40% of telecommunications revenues. C-TEC's telephone and
cable groups generated the majority, $61 million and $47 million,
of C-TEC's revenues while MFS' revenues consisted of $69 million
from telecommunications services and $27 million from systems
integration and facilities management. MFS' new subsidiary,
Centex, produced $21 million of telecommunications services
revenue since the date of acquisition. The remainder of MFS
growth correlates to expanded networks and the start-up of MFS
Datanet and MFS Intelenet.
Telecommunications cost of revenue totalled $196 million and $58
million for the first six months of 1994 and 1993. C-TEC's
operations generated $89 million of costs with $28 million
and $37 million related to the telephone and cable groups. MFS'
telecommunications services had $87 million in costs of
revenue - $20 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 - Six Months 1994 vs. Six Months 1993
(continued)
___________________________________________________________
Operating Expenses
__________________
Operating expenses for the first six months of 1994 exceeded those
of 1993 by 152%. The telecommunications segment generated the
increase with C-TEC and MFS accounting for 64% and 25% of the
increase. Operating expenses for both periods include mine
management fees paid to the Construction and Mining Group. The
fees totalled $15 million and $14 million for the 1994 and 1993
periods.
Gain on Subsidiary's Stock Issuances, 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 and for MFS employee stock
options, resulted in a $28 million net gain to the Group. The gain
in 1993 resulted from the initial public offering of MFS stock.
Investment Income
_________________
In the second quarter of 1993 the Group experienced approximately
$24 million of realized losses and permanent writedowns on certain
derivative securities. The absence of such losses coupled with a
$5 million increase in interest income made up the majority of the
increase.
Interest Expense
________________
Interest expense of $35 million consists of $19 million on MFS
debt and $15 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 - Six Months 1994 vs. Six Months 1993
(continued)
___________________________________________________________
Taxes
_____
The effective income tax rate in the first half 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 - June 30, 1994 vs. December 25, 1993
__________________________________________________________
The Group's working capital increased $205 million or 21% during
the first half of 1994.
Cash used in investing activities during the first half of 1994
includes the net purchase of marketable securities of $94 million,
$129 million of capital expenditures and $189 for the
acquisition of Centex.
Financing activities generated $504 million during the first
half 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 $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 net exchange of Class B&C stock for Class D stock for
$42 million and the repurchase of Class D stock for $20 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 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 - June 30, 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.
C-TEC recently announced plans to offer to its existing
stockholders transferable subscription rights for C-TEC common
stock. KDG expects to subscribe for its proportional share of
that offering. Although there is no assurance that C-TEC will
receive any proceeds from the rights offering, it does expect to
raise approximately $300 million, of which approximately $100
million is from KDG. 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
and independently finance its 1994 working capital and investment
requirements.
The Group's working capital position at June 30, 1994, together
with anticipated cash flows from operations and existing
borrowing capacity, should be sufficient for immediate cash
requirements and future investing activities.
