SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended Commission File
December 25, 1993 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)
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Class B Construction & Mining Group Nonvoting Restricted
Redeemable Convertible Common Stock, par value $.0625
Class C Construction & Mining Group Restricted Redeemable
Convertible Exchangeable Common Stock, par value $.0625
Class D Diversified Group Convertible Exchangeable
Common Stock, par value $.0625
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The registrant's stock is not publicly traded, and therefore there is no
ascertainable aggregate market value of voting stock held by nonaffiliates.
As of March 15, 1994, the number of shares outstanding of each class of
the Company's common stock was:
Class B - 1,000,400 shares
Class C - 14,199,160 shares
Class D - 20,556,699 shares
Portions of the Company's definitive Proxy Statement for the 1994 Annual
Meeting of Stockholders are incorporated by reference into Part III of this
Form 10-K.
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PART I
ITEM 1. BUSINESS.
Peter Kiewit Sons', Inc. (the "Company") was incorporated in Delaware in
1941 to continue a construction business founded in Omaha, Nebraska in 1884.
The Company entered the coal mining business in 1943 and the telecommunications
business in 1988. Since 1990, the Company's subsidiary, PKS Information
Services, Inc. has provided computer services to third parties. Financial
information about the construction, mining, and telecommunications segments,
as well as geographical information, is contained in Note 17 to the Company's
consolidated financial statements.
In connection with a reclassification of the Company's securities in
January 1992, the business units of the Company were realigned into two
groups. The Construction & Mining Group contains the Company's traditional
construction operations and Kiewit Mining Group Inc., which performs mining
management services for the Company's mining properties. The Diversified
Group (through Kiewit Diversified Group Inc., or "KDG") contains mining
properties and miscellaneous investments, as well as interests in MFS
Communications Company, Inc., California Energy Company, Inc., and C-TEC
Corporation. Additional detailed information about each of those three
companies can be obtained from their separate Forms 10-K filed with the U.S.
Securities and Exchange Commission.
CONSTRUCTION
The construction business is conducted by operating subsidiaries of
Kiewit Construction Group Inc., a wholly-owned subsidiary of the Company
(collectively, "KCG"). KCG and its joint ventures perform construction
services for a wide range of public and private customers primarily in North
America. New contract awards during 1993 were distributed among the following
construction markets: transportation, including highways, bridges, airports
and railroads (58%), sewer and waste disposal (13%), buildings (11%), oil and
gas (7%), power (6%), residential (2%), and water supply systems (1%), with
smaller awards in the dams and reservoirs, marine, and mining markets.
As general contractors, KCG's operating subsidiaries are responsible for
the overall direction and management of construction projects and for
completion of each contract in accordance with terms and specifications.
KCG plans and schedules the projects, procures materials, hires workers as
needed, and awards subcontracts. KCG generally requires performance and
payment bonds or other assurances of operational capability and financial
capacity from its subcontractors.
KCG's construction contracts generally provide for the payment of a fixed
price for the work performed. Profit is realized by the difference between the
contract price and the actual cost of construction, and the contractor bears
the risk that it may not be able to perform all the work for the specified
amount. The contracts generally provide for progress payments as work is
completed, with a retainage to be paid when performance is substantially
complete. Construction contracts frequently contain penalties or liquidated
damages for late completion and infrequently provide bonuses for early
completion.
Government Contracts. Public contracts accounted for 67% of the combined
prices of contracts awarded to KCG during 1993. Most of these contracts were
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awarded by government agencies after competitive bidding. Most public
contracts are subject to termination at the election of the government. In
the event of termination, the contractor is entitled to receive the contract
price on completed work and payment of termination related costs. The
volume of available government work is affected by budgetary and political
considerations. A significant decrease in the amount of new government
contracts, for whatever reasons, would have a material adverse effect on
KCG.
Demand. The volume and profitability of KCG's construction work depends
to a significant extent upon the general state of the economies of the United
States and Canada, and the volume of work available to contractors.
Fluctuating demand cycles are typical of the industry, and such cycles
determine to a large extent the degree of competition for available projects.
KCG's construction operations could be adversely affected by labor stoppages
or shortages, adverse weather conditions, shortages of supplies, or
governmental action.
Joint Ventures. KCG enters into joint ventures to efficiently allocate
expertise and resources among the venturers and to spread risks associated with
particular projects. In most joint ventures, if one venturer is financially
unable to bear its share of costs and expenses, the other venturers may be
required to pay those costs and expenses. KCG prefers to act as the sponsor
of joint ventures. KCG's share of joint venture revenue accounted for 24%
of its 1993 total revenue.
Locations. KCG structures its construction operations around 20 principal
operating offices located throughout the U.S. and Canada, with headquarters in
Omaha, Nebraska. Through its decentralized system of management, KCG has been
able to quickly respond to changes in the local markets. Internationally, a KCG
subsidiary is participating in the construction of a tunnel under Denmark's
Great Belt Channel and other subsidiaries have operations in Hermosillo, Mexico.
Backlog. At the end of 1993, KCG had a backlog (work contracted for but
not yet completed) of $2.1 billion. Of this amount, $700 million is not
expected to be completed during 1994. Backlog was $2.2 billion at the end of
1992.
Competition. A substantial portion of KCG's business involves
construction contracts obtained through competitive bidding. A contractor's
competitive position is based primarily on its prices for construction services
and its reputation for quality, reliability and timeliness. The construction
industry is highly competitive and lacks firms with dominant market power.
For 1992, Engineering News Record ranked KCG as the 22nd largest contractor
in the United States. It ranked KCG 6th in the transportation market and 7th
in the domestic heavy construction market. These rankings were based on the
prices of contracts awarded in 1992. The U.S. Department of Commerce
reports that the total value of construction put in place in 1993 was $486
billion. KCG's U.S. revenues for the same period were $1.8 billion, or 0.4%
of the total market. In 1993 KCG was low bidder on 253 contracts, three of
which had a contract price exceeding $50 million; the average contract price
was $5.8 million.
Properties. KCG has 20 district offices, of which 14 are in owned
facilities and 6 are leased. KCG owns or leases numerous shops, equipment
yards, storage facilities, warehouses, and construction material quarries.
Since construction projects are inherently temporary and location-specific,
KCG owns approximately 800 portable offices and shops, and 400 transport
trailers. KCG has a large equipment fleet, including approximately 3,000
trucks, pickups, and automobiles, and 1,500 heavy construction vehicles,
such as graders, scrapers, backhoes, and cranes.
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Subsequent Event. On February 28, 1994, KCG acquired APAC-Arizona, Inc.
("APAC") from Ashland Oil Company, Inc. for $49 million cash, subject to
various adjustments. APAC is engaged in construction and construction
materials businesses in Arizona. The APAC businesses will be divided between
PKS' construction and mining segments.
MINING
The Company is engaged in coal mining through its subsidiaries, Kiewit
Mining Group Inc. ("KMG") and Kiewit Coal Properties Inc. ("KCP"). KCP has a
50% interest in three mines, which are operated by KMG. Decker Coal Company
("Decker") is a joint venture with Western Minerals, Inc., a subsidiary of
NERCO, Inc. Black Butte Coal Company ("Black Butte") is a joint venture
with Bitter Creek Coal Company, a subsidiary of Union Pacific Corporation.
Walnut Creek Mining Company ("Walnut Creek") is a general partnership with
Phillips Coal Company, a subsidiary of Phillips Petroleum Company. The Decker
Mine is located in southeastern Montana, the Black Butte Mine is in southwestern
Wyoming, and the Walnut Creek Mine is in east-central Texas. Kiewit also has
interests in two smaller coal mines, a precious metals mine, and construction
aggregate quarries.
Production and Distribution. The coal mines use the surface mining
method. During surface mining operations, topsoil is removed and stored for
later use in land reclamation. After removal of topsoil, overburden in varying
thicknesses is stripped from above coal seams. Stripping operations are
usually conducted by means of large, earth-moving machines called draglines,
or by fleets of trucks, scrapers and power shovels. The exposed coal is
fractured by blasting and is loaded into haul trucks or onto overland conveyors
for transportation to processing and loading facilities. Coal delivered by
rail from Decker originates on the Burlington Northern Railroad. Coal
delivered by rail from Black Butte originates on the Union Pacific Railroad.
Coal is also hauled by trucks from Black Butte to the nearby Jim Bridger
Power Plant. Coal is delivered by trucks from Walnut Creek to the adjacent
facilities of the Texas-New Mexico Power Company.
Customers. The coal is sold primarily to electric utilities, which burn
coal in order to generate steam to produce electricity. Approximately 94% of
sales are made under long-term contracts, and the remainder are made on the
spot market. Approximately 84, 55, and 58 percent of KCP's revenues in 1993,
1992 and 1991, respectively, were derived from long-term contracts with
Commonwealth Edison Company (with Decker and Black Butte) and The Detroit
Edison Company (with Decker). The sole customer of Walnut Creek is the Texas-
New Mexico Power Company.
Contracts. Customers enter into long-term contracts for coal primarily
to secure a reliable source of supply at a predictable price. KCP's major
long-term contracts have remaining terms ranging from 6 to 35 years. A
majority of KCP's long-term contracts provide for periodic price adjustments.
The price is typically adjusted through the use of various indices for items
such as materials, supplies, and labor. Other portions of the price are
adjusted for changes in production taxes, royalties, and changes in cost due
to new legislation or regulation, and in most cases, such cost items are
passed through directly to the customer as incurred. In most cases the price
is also adjusted based on the heating content of the coal.
Beginning in 1993 the amended contract between Commonwealth Edison
Company and Black Butte Coal Company provides that Commonwealth's delivery
commitments will be satisfied, not with coal produced from the Black Butte
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mine, but with coal purchased from two unaffiliated mines in the Powder River
Basin of Wyoming and Decker.
Coal Production. Coal production commenced at the Decker, Black Butte,
and Walnut Creek mines in 1972, 1979, and 1989, respectively. Coal mined in
1993 at the Decker, Black Butte, and Walnut Creek mines was 11, 3, and 2
million tons, respectively.
Revenue. KCP's total revenue in 1993 was $210 million. Revenue
attributable to the Decker, Black Butte, and Walnut Creek entities, and other
mining operations was $98 million, $92 million, $19 million, and $1 million,
respectively.
Backlog. At the end of 1993, the backlog of coal sold under KCP's long-
term contracts approximated $2.0 billion, based on December 1993 market
prices. Of this amount, approximately $243 million is to be sold in 1994.
Reserves. At the end of 1993, KCP's share of assigned coal reserves at
Decker, Black Butte, and Walnut Creek was 184, 60, and 90 million tons,
respectively. Of these amounts, KCP's share of the committed reserves of
Decker, Black Butte, and Walnut Creek was 68, 7, and 22 million tons,
respectively. Assigned reserves represent coal which can be mined using KCP's
current mining practices. Committed reserves (excluding alternate source coal)
represent KCP's maximum contractual amounts. These coal reserve estimates
represent total proved and probable reserves.
Leases. The coal reserves and deposits of the mines are held pursuant to
leases with the federal government through the Bureau of Land Management, with
two state governments (Montana and Wyoming), and with numerous private parties.
Competition. The coal industry is highly competitive. KCP competes not
only with other domestic and foreign coal suppliers, some of whom are larger
and have greater capital resources than KCP, but also with alternative methods
of generating electricity and alternative energy sources. In 1992, KCP's
production represented 2.0% of total U.S. coal production.
Demand for KCP's coal is affected by economic, political and regulatory
factors. For example, recent "clean air" laws may stimulate demand for low
sulphur coal. KCP's western coal reserves generally have a low sulfur content
(less than one percent) and are currently useful principally as fuel for coal-
fired steam-electric generating units. KCP's sales of its western coal, like
sales by other western coal producers, typically provide for delivery to
customers at the mine. A significant portion of the customer's delivered cost
of coal is attributable to transportation costs. Most of the coal sold from
KCP's western mines is currently shipped by rail to utilities outside Montana
and Wyoming. The Decker and Black Butte mines are each served by a single
railroad. Many of their western coal competitors are served by two railroads
and such competitors' customers often benefit from lower transportation
costs because of competition between railroads for coal hauling business.
Other western coal producers, particularly those in the Powder River Basin of
Wyoming, have lower stripping ratios (i.e. the amount of overburden that must
be removed in proportion to the amount of minable coal) than the Black Butte
and Decker mines, often resulting in lower comparative costs of production.
Environmental Regulation. Kiewit is required to comply with various
federal, state and local laws and regulations concerning protection of the
environment. KCP's share of land reclamation expenses in 1993 was $5 million.
KCP's share of accrued estimated reclamation costs was $99 million at the end
of 1993. Kiewit does not expect to make significant capital expenditures for
environmental compliance in 1994. Kiewit believes its compliance with
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environmental protection and land restoration laws will not affect its
competitive position since its competitors in the industry are similarly
affected by such laws.
TELECOMMUNICATIONS
The Company provides telecommunication services through two partially-
owned subsidiaries, MFS Communications Company, Inc. and C-TEC Corporation.
MFS COMMUNICATIONS COMPANY, INC.
The Company owns 71% of the common stock of MFS Communications Company,
Inc. ("MFS"). The remaining shares are publicly-owned and are traded on the
NASDAQ National Market System. Shares were sold in an initial public offering
in May of 1993 and in another public offering in September of 1993.
MFS operates in two business segments: telecommunications services, and
network systems integration and facilities management services.
Telecommunications Services. MFS Telecom, Inc. ("MFS Telecom") is a major
competitive access provider, offering business and government users an
alternative to the local telephone companies for various telecommunication
services. At the end of 1993, MFS Telecom operated telecommunication networks
in 14 metropolitan areas: New York City, Los Angeles, Chicago, San Francisco,
Philadelphia, Boston, Washington, D.C., Dallas, Houston, Minneapolis,
Baltimore, Pittsburgh, Atlanta and northern New Jersey. At the end of 1993,
MFS Telecom provided service to over 900 users. Its network covers
approximately 1,300 route miles, including approximately 62,000 miles of
optical fiber, with nearly 1,600 office buildings connected to the network.
MFS Telecom's primary service offerings are special access and private
line. Special access service connects a long distance carrier to an end user
or another carrier. Private line service consists of dedicated circuits
connecting two end users, typically two offices of a single business. To the
extent that transmissions over circuits on the MFS Telecom network do not pass
through facilities of the local telephone company, access charges for long
distance service are avoided. MFS Telecom's digital fiber optic networks
employ advanced fault-tolerant electronics and dual path architecture to ensure
reliable and secure telecommunications.
MFS Telecom has an active program to expand its existing networks and to
develop new networks in other metropolitan areas throughout the United States
and internationally. It currently contemplates expansion into more than 60
additional markets (including a number of international markets) over the next
three to five years. In 1993, MFS Telecom commenced construction of new
fiber optic networks in London, England, the San Jose-Silicon Valley area of
California, and Tampa, Florida.
In 1993, MFS developed two new services which utilize the existing MFS
Telecom networks. MFS Datanet, Inc. offers high-speed data telecommunications
services, including an innovative service designed to connect geographically
separate local area networks ("LAN"') at the same native speed and protocol at
which each LAN operates. MFS Intelenet, Inc. ("Intelenet") is providing a
single source for local and long distance telecommunication services to
small and medium sized businesses in New York City. As regulatory barriers
are removed, the services offered by Intelenet will be provided in all of MFS
Telecom's network cities.
Network Systems Integration and Facilities Management Services. MFS'
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subsidiary, MFS Network Technologies, Inc. ("MFS-NT"), designs, engineers,
develops and manages the installation of MFS Telecom's new fiber optic networks
and its network expansions. MFS-NT also offers its network systems integration
services and facilities management services to third parties.
MFS-NT had a third-party backlog of approximately $110 million at the end
of 1993, an increase of 49% from year-end 1992. A substantial portion of the
backlog is related to federal, state or local government contracts. Although
some of these contracts are subject to cancellation and/or to a revision of
funding, MFS believes that MFS-NT is adequately protected for all incurred costs
and the reasonable costs of termination.
Customers. MFS Telecom's customers include long distance carriers as
well as financial service companies, government departments and agencies, and
academic, scientific and other major institutions, each of which has a
significant volume of traffic and/or requires extremely reliable
communications. During 1993, MFS Telecom's top ten customers accounted for
approximately 50% of its total recurring revenue; however, no single customer
of MFS Telecom accounted for more than 10% of MFS' consolidated revenues.
MFS-NT's third party customers include major local and long distance
carriers, cable television operators, government units, and large
corporations. During 1993, a contract with the State of Iowa for remote
interactive learning facilities accounted for 30% of MFS' consolidated
revenues.
Competition. In each of its markets, MFS Telecom faces significant
competition for its special access and private line telecommunications services
from local telephone companies, which currently dominate their local
telecommunications markets. Existing competition for private line and special
access services is not based on proprietary technology, but on the quality and
reliability of the network facilities, customer service, and service features
and price. As a result of the comparatively recent installation of its fiber
optic networks, its dual path architecture and the state-of-the-art technology
used in its networks, MFS Telecom may, in some cases, have cost and service
quality advantages over some currently available local telephone company
networks. MFS-NT's network systems integration and facilities management
competitors are primarily the regional Bell operating companies, long distance
carriers, equipment manufacturers and major independent telephone companies.
Regulation. MFS is subject to varying degrees of federal, state and local
regulation. MFS is not subject to price cap or rate of return regulation, nor
is it currently required to obtain Federal Communication Commission ("FCC")
authorization for installation or operation of its network facilities used for
domestic services. FCC approval is required, however, for the installation and
operation of its international facilities and services. The FCC has determined
that nondominant carriers, such as MFS, are required to file interstate tariffs
on an ongoing basis. MFS subsidiaries that provide intrastate service are
generally subject to certification and tariff filing requirements by state
regulators.
C-TEC CORPORATION
On October 29, 1993, the Company purchased a controlling interest in C-TEC
Corporation ("C-TEC") for $207 million. Through subsidiaries, the Company
acquired 7.5% of the outstanding shares of C-TEC common stock and 59.6% of the
C-TEC Class B common stock. Holders of common stock are entitled to one vote
per share; holders of Class B stock are entitled to 15 votes per share. The
Company thus owns 34.5% of the outstanding shares, but is entitled to 56.6%
of the available votes. C-TEC common stock is traded on the NASDAQ National
Market System, and the Class B Stock is quoted on NASDAQ and traded over the
counter.
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C-TEC Corporation has headquarters in Wilkes-Barre, Pennsylvania (it has
announced plans to move certain key corporate and operating group functions to
Princeton, New Jersey). C-TEC has five operating groups. Commonwealth
Telephone Company provides local telephone service in 19 counties in eastern
Pennsylvania. With more than 211,000 main access lines, Commonwealth is the 20th
largest U.S. telephone company. The Cable Group is a cable television operator
with systems located in New York, New Jersey, Michigan, Delaware, and
Pennsylvania. The Cable Group owns and operates systems serving 224,000
customers and manages systems with an additional 34,000 customers, ranking it
among the top 35 U.S. multiple systems operators. The Mobile Services Group
offers cellular telephone service in northeastern and central Pennsylvania
and southeastern Iowa, as well as paging and message management services in
northeastern Pennsylvania. The Long Distance Group sells long distance
telephone services in the Commonwealth Telephone local service area and resells
services elsewhere. The Communications Group provides telecommunications-
related engineering and technical services in the northeastern U.S.
Regulation. Commonwealth Telephone Company and C-TEC's long distance
telephone subsidiary are subject to FCC regulation. Commonwealth Telephone
Company is subject to extensive regulation by the Pennsylvania Public Utility
Commission, including its rate-making process. Consequently, the ability of
Commonwealth Telephone Company to generate increased income is largely dependent
on its ability to increase its subscriber base, obtain higher message volume,
and control its expenses. C-TEC's cable television operations are regulated
by local and state franchise authorities and by the FCC. The federal Cable
Television Consumer Protection and Competition Act of 1992 has increased FCC
oversight, including increased regulation of subscriber rates.
OTHER OPERATIONS
CALIFORNIA ENERGY COMPANY, INC.
California Energy Company, Inc. ("CECI") is an independent power producer
and a developer and owner of geothermal and other environmentally responsible
power generating facilities. CECI currently operates five geothermal
facilities, producing in excess of 250 megawatts of electricity, and controls
leases to 450,000 areas of geothermal development property in the western United
States. CECI, with KCG and others, is developing geothermal facilities in the
Philippines.
Kiewit Energy Company ("KEC"), a Company subsidiary, owns 21 percent of
the outstanding common stock (7.4 million shares) of CECI; CECI common stock is
traded on the New York Stock Exchange. KEC has options to purchase 5.5 million
common shares, at exercise prices below the current market price. In 1991, KEC
purchased $50 million of CECI voting convertible preferred stock, on which
dividends are payable at an 8.125% rate. The combined common stock and
preferred stock voting rights presently entitle KEC to 28% of the available
votes. If the options were exercised and the preferred stock converted, KEC
would own approximately 37% of CECI's common stock. A 1991 agreement provides
for three KEC representatives on the CECI board of directors and prohibits KEC
from acquiring more than 49% of CECI's voting stock before March 1996.
In December 1993, KDG and KCG (together "Kiewit") signed a joint venture
agreement with CECI, covering international power project development
activities in Asia, particularly in the Philippines and Indonesia, and in
other regions (excluding the Caribbean, South America, and Central America).
The agreement, which has an initial term of three years, provides each party
a right of first refusal to pursue jointly all "build, own and operate" or
"build, own, operate and transfer" power projects identified by the other
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party or its affiliates. If both parties agree to participate in a project,
they will share all development costs equally, each of CECI and Kiewit will
provide 50% of the equity required for financing a project developed by the
joint venture, and CECI will operate and manage any such project. The
agreement contemplates a joint development structure under which, on a
project by project basis, CECI will be the development manager, managing
partner and/or project operator, an equal equity participant with Kiewit and
a preferred participant in the construction consortium and Kiewit will be an
equal equity participant and the preferred turnkey construction contractor,
with the construction consortium providing customary security to project
lenders (including CECI) for liquidated damages and completion guarantees.
INFORMATION SERVICES
In addition to providing information services to the Company and its
subsidiaries, PKS Information Services, Inc. ("PKSIS") provides remote
computing services, or "computer outsourcing", to users of IBM and DEC systems
under long-term contracts. The primary focus of PKSIS is on the systems
operations segment of the computer outsourcing market. Voice and data
telecommunications services and professional services practices are in place to
support existing and prospective customers. PKSIS provides its services to
firms who desire to focus resources on their core businesses while avoiding
the capital and overhead costs of operating their own computer centers. In
1993, 55 percent of PKSIS' revenue was from external customers. PKSIS
operations and computing equipment are located in a specially designed 50,000
square foot computer center in Omaha, Nebraska. Construction will begin in
1994 on a 39,000 square foot addition to the existing facility.
GENERAL INFORMATION
Environmental Protection. Compliance with federal, state, and local
provisions regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment, has not and is not
expected to have a material effect upon the capital expenditures, earnings, or
competitive position of the Company and its subsidiaries.
Employees. At the end of 1993, the Company and its majority-owned
subsidiaries employed approximately 10,620 people -- 7,200 in construction,
750 in mining, 2,200 in telecommunications (920 at MFS, 1,280 at C-TEC), 140
in information services, and 330 in corporate positions.
ITEM 2. PROPERTIES.
The properties used in the construction segment are described under a
separate heading in Item 1 above. Properties relating to the Company's mining
and telecommunications segments are described as part of the general business
descriptions of those segments in Item 1 above. The Company considers its
properties to be adequate for its present and foreseeable requirements.
ITEM 3. LEGAL PROCEEDINGS.
General. The Company and its subsidiaries are parties to many pending
legal proceedings. Management believes that any resulting liabilities for
legal proceedings, beyond amounts reserved, will not materially affect the
Company's financial condition and results of operations.
Environmental Proceedings. In a large number of proceedings, the Company
or its predecessors is one of numerous defendants who may be "potentially
responsible parties" liable for the cleanup of hazardous substances deposited
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in landfills or other sites. Management believes that any resulting
liabilities for environmental legal proceedings, beyond amounts reserved,
will not materially affect the Company's financial condition.
Whitney Litigation. 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 1977-1993
period to be $230 million. Kiewit and Whitney have agreed that Kiewit and
Whitney will receive 67.5 and 32.5 percent, respectively, of any award. At
year-end 1993, Kiewit and Whitney would be entitled to $196 million and $94
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. In August 1992, the Claims Court indicated that both motions
would be denied, but a written order has not yet been entered. The
government may appeal from that order, as well as the order regarding
compound interest. It is not presently known when these proceedings will be
concluded, what amount Kiewit will ultimately receive, nor when payment will
occur.
MFS Litigation. On March 4, 1994, several former stockholders of MFS
Telecom filed a lawsuit against MFS, 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 MFS Telecom 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's liabilities in accordance
with the indemnification agreement. If KDG does make payments as a result of
this litigation, the Company's earnings and stockholders' equity will not
immediately decline, because such payments will be recorded in the financial
statements as an increase to the original purchase price of the MFS Telecom
shares, resulting in goodwill which will be amortized against earnings in
future periods.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 1993.
EXECUTIVE OFFICERS OF THE REGISTRANT.
The table below shows information as of March 15, 1994 about each
<PAGE>
executive officer of the Company, including his business experience during the
past five years (1989-1994). The Company considers its executive officers to
be its directors who are employed by the Company or one of its subsidiaries.
The Company's directors and officers are elected annually and each was elected
on June 5, 1993 to serve until his successor is elected and qualified or until
his death, resignation or removal.
Name Business Experience (1989-1994) Age
Walter Scott, Jr. Chairman of the Board and President 62
William L. Grewcock Vice Chairman 68
Robert E. Julian Executive Vice President-Chief Financial 54
Officer (since 1991); Vice President-
Chief Financial Officer (1989-1991);
Treasurer (1990-1993)
Kenneth E. Stinson Executive Vice President (since 1991) 51
Vice President (1989-1991)
John Bahen President, Peter Kiewit Sons Co. 66
Ltd. (1989-1993)
Richard Geary Executive Vice President, KCG; President, 59
Kiewit Pacific Co.
Leonard W. Kearney Vice President, KCG; President, Kiewit 53
Construction Company and Kiewit Western Co.
James Q. Crowe Chairman and Chief Executive Officer 44
of MFS
Richard R. Jaros Executive Vice President (since 1993); 42
Vice President (1990-1992); Chairman
(since 1993), President and CEO (1992-1993)
of CECI; Vice President, KDG (1989-1990)
George B. Toll, Jr. Executive Vice President, KCG (1994); Vice 58
President, Kiewit Pacific Co.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Market Information. There is no established public trading market for
the Company's common stock. Under the Company's Restated Certificate of
Incorporation effective January 1992, the Company now has three classes of
common stock: Class B Construction & Mining Group Nonvoting Restricted
Redeemable Convertible Common Stock ("Class B"), Class C Construction & Mining
Group Restricted Redeemable Convertible Exchangeable Common Stock ("Class C"),
and Class D Diversified Group Convertible Exchangeable Common Stock ("Class
D"). In connection with a reclassification in January 1992, each "old" Class
B share was exchanged for one "new" Class B share and one Class D share, and
each "old" Class C share was exchanged for one "new" Class C share and one
Class D share. New Class B and Class C shares can be issued only to Company
employees and can be resold only to the Company at a formula price based on
the year-end book value of the Construction & Mining Group. The Company is
<PAGE>
generally required to repurchase Class B and Class C shares for cash upon
stockholder demand. Class D shares have a formula price based on the year-
end book value of the Diversified Group. The Company must generally
repurchase Class D shares for cash upon stockholder demand at the formula
price, unless the Class D shares become publicly traded. Although the Class
D shares are predominantly owned by employees and former employees, such
shares are not subject to ownership or transfer restrictions.
Dividends. During 1992 and 1993 the Company declared the following
dividends on its common stock:
Date Declared Date Paid Dividend Per Share Class
January 4, 1992 January 4, 1992 $0.50 Old B&C
March 20, 1992 May 1, 1992 0.15 New B&C
March 20, 1992 May 1, 1992 0.35 D
March 20, 1992 June 1, 1992 1.00 D
October 23, 1992 January 5, 1993 0.30 B&C
October 23, 1992 January 5, 1993 0.35 D
March 19, 1993 May 1, 1993 0.30 B&C
March 19, 1993 May 1, 1993 0.35 D
March 19, 1993 June 1, 1993 0.15 D
October 29, 1993 January 6, 1994 0.40 B&C
The Board of Directors announced on August 27, 1993 that the Company did not
intend to pay dividends on Class D shares in the foreseeable future.
Holders. On March 1, 1994, the Company had the following number of
stockholders for each class of its common stock:
Holders Class
4 B
1121 C
1327 D
ITEM 6. SELECTED FINANCIAL DATA.
_________________________________
PETER KIEWIT SONS', INC.
SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Financial Data of Peter Kiewit Sons', Inc. ("PKS") and the
Kiewit Construction & Mining Group ("B&C Stock") and the Kiewit
Diversified Group ("D Stock") appear below and on the next four pages. The
consolidated data of PKS are presented below with the exception of per
common share data which is presented in the Selected Financial Data of the
respective groups.
Fiscal Year Ended
(dollars in millions, _________________________________________________
except per share amounts) 1993 1992 1991 1990 1989
_______________________________________________________________________________
Results of Operations:
Revenue (1) $ 2,179 $ 2,020 $ 2,086 $ 1,917 $ 1,701
Earnings from
continuing operations
before cumulative
effect of change in
accounting principle (2) 261 150 49 108 92
Net earnings (2) 261 181 441 80 140
Financial Position:
Total assets (1) 3,684 2,599 2,632 2,966 3,762
Current portion of
long-term debt (1) 15 3 15 31 178
Long-term debt, less
current portion (1) 462 30 110 269 302
Stockholders' equity (3) 1,671 1,458 1,396 1,185 1,141
_______________________________________________________________________________
(1) In October 1993, the Company acquired 34.5% of the outstanding shares
of C-TEC Corporation that have 56.6% of the available voting rights.
(2) In 1993, through two public offerings, the Company sold 29% of its
subsidiary, MFS Communications Company, Inc., resulting in a $137
million after-tax gain.
(3) The aggregate redemption value of common stock at December 25, 1993
was $1.6 billion.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
SELECTED FINANCIAL DATA
The following selected financial data for each of the years in the
period 1989 to 1993 have been derived from audited financial statements.
The historical financial information for the Kiewit Construction & Mining
and Kiewit Diversified Groups supplements the consolidated financial
information of PKS and, taken together, includes all accounts which comprise
the corresponding consolidated financial information of PKS.
Fiscal Year Ended
(dollars in millions, ____________________________________________
except per share amounts) 1993 1992 1991 1990 1989
____________________________________________________________________________
Results of Operations:
Revenue $ 1,777 $ 1,671 $ 1,834 $ 1,671 $ 1,481
Earnings before
cumulative effect
of change in
accounting principle 80 69 23 57 52
Net earnings 80 82 23 57 52
Per Common Share (1):
Earnings before
cumulative effect
of change in
accounting principle 4.63 3.79 1.12 2.47 2.13
Net earnings 4.63 4.48 1.12 2.47 2.13
Dividends (2) 0.70 0.70 0.30 0.25 0.30
Stock price (3) 22.35 18.70 14.40 10.35 8.40
Book value 27.43 23.31 19.25 14.99 12.65
Financial Position:
Total assets 889 862 849 762 678
Current portion of
long-term debt 4 2 7 15 26
Long-term debt, less
current portion 10 12 13 14 11
Stockholders' equity (4) 480 437 400 350 313
Formula value (3) 391 351 299 249 215
____________________________________________________________________________
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
SELECTED FINANCIAL DATA
(continued)
(1) In connection with the January 8, 1992 reorganization, each share of
previous Class B and Class C Stock was exchanged for one share of new
Class B&C Stock and one share of new Class D Stock. Therefore, for
purposes of computing Class B&C Stock per share data, the number of
shares for years 1989 to 1991 are assumed to be the same as the
corresponding number of shares of previous Class B and Class C Stock.
Fully diluted earnings per share have not been presented because it is
not materially different from earnings per share.
(2) The 1993 and 1992 dividends include $.40 and $.30 for dividends
declared in 1993 and 1992, respectively, but paid in January of
the subsequent year. Years 1989 to 1991 reflect dividends paid by PKS
on its previous Class B and Class C Stock that have been attributed to
Kiewit Construction & Mining Group and Kiewit Diversified Group based
upon the relative formula values of each group which were determined at
the end of each preceding year. Accordingly, the dividends may bear no
relationship to the dividends that would have been declared by the Board
in such years had the new Class B&C Stock and the Class D Stock been
outstanding.
(3) Pursuant to the Restated Certificate of Incorporation, the stock price
and formula value calculations are computed annually at the end of the
fiscal year.
(4) Ownership of the Class B&C Stock is restricted to certain employees
conditioned upon the execution of repurchase agreements which restrict
the employees from transferring the stock. PKS is generally committed
to purchase all Class B&C Stock at the amount computed, when put to PKS
by a stockholder, pursuant to the Restated Certificate of Incorporation.
The aggregate redemption value of the B&C Stock at December 25, 1993 was
$391 million.
<PAGE>
KIEWIT DIVERSIFIED GROUP
SELECTED FINANCIAL DATA
The following selected financial data for each of the years in the
period 1989 to 1993 have been derived from audited financial statements.
The historical financial information for the Kiewit Diversified and Kiewit
Construction & Mining Groups supplements the consolidated financial
information of PKS and, taken together, includes all accounts which comprise
the corresponding consolidated financial information of PKS.
Fiscal Year Ended
(dollars in millions ______________________________________
except per share amounts) 1993 1992 1991 1990 1989
_____________________________________________________________________________
Results of Operations:
Revenue (1) $ 402 $ 349 $ 252 $ 246 $ 220
Earnings from continuing
operations before
cumulative effect of
change in accounting
principle (2) 181 81 26 51 40
Net earnings (2) 181 99 418 23 88
Per Common Share (3):
Earnings from continuing
operations before
cumulative effect of
change in accounting
principle 9.08 4.00 1.26 2.20 1.63
Net earnings 9.08 4.92 20.30 1.03 3.59
Dividends (4) 0.50 1.95 0.70 0.70 0.90
Stock price (5) 59.40 50.65 47.85 35.00 32.65
Book value 59.52 50.75 47.93 35.75 33.47
Financial Position:
Total assets (1) 2,809 1,759 1,801 2,204 3,084
Current portion of
long-term debt (1) 11 1 8 16 152
Long-term debt, less
current portion (1) 452 18 97 255 291
Stockholders' equity (6) 1,191 1,021 996 835 828
Formula value (5) 1,191 1,021 996 835 828
_____________________________________________________________________________
<PAGE>
KIEWIT DIVERSIFIED GROUP
SELECTED FINANCIAL DATA
(continued)
(1) In October 1993, the Group acquired 34.5% of the outstanding shares of
C-TEC Corporation that have 56.6% of the available voting rights.
(2) In 1993, through two public offerings, the Group sold 29% of MFS
Communications Company, Inc., resulting in a $137 million after-tax gain.
(3) In connection with the January 8, 1992 reorganization, each share of
previous Class B and Class C Stock was exchanged for one share of new
Class B&C Stock and one share of new Class D Stock. Therefore, for
purposes of computing Class D Stock per share data, the number of
shares for years 1989 to 1991 are assumed to be the same as the
corresponding number of shares of previous Class B and Class C Stock.
Fully diluted earnings per share have not been presented because it is
not materially different from earnings per share.
(4) The 1992 dividends include $.35 for dividends declared in 1992 but
paid January 5, 1993. Years 1989 to 1991 reflect dividends paid by
PKS on its previous Class B and Class C Stock that have been attributed
to Kiewit Diversified Group and Kiewit Construction & Mining Group based
upon the relative formula values of each group which were determined at
the end of each preceding year. Accordingly, the dividends may bear
no relationship to the dividends that would have been declared by the
Board in such years had the new Class D Stock and the new Class B&C
Stock been outstanding.
(5) Pursuant to the Restated Certificate of Incorporation, the stock price
and formula value calculations are computed annually at the end of the
fiscal year.
(6) Until public trading begins, PKS is generally committed to purchase
all Class D Stock at the amount computed, in accordance with the
Restated Certificate of Incorporation, when put to PKS by a stockholder.
The aggregate redemption value of the Class D Stock at December 25, 1993
was $1.2 billion.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Separate management's discussion and analysis of financial condition
and results of operations for the Kiewit Construction & Mining Group and
the Kiewit Diversified Group have been filed as Exhibits 99.A and 99.B to
this report. The Company will furnish without charge a copy of such exhibits
upon the written request of a stockholder addressed to Stock Registrar, Peter
Kiewit Sons', Inc., 1000 Kiewit Plaza, Omaha, Nebraska 68131.
Revenue from each of the Company's business segments was (in millions):
1993 1992 1991
_______ _______ _______
Construction $ 1,757 $ 1,659 $ 1,825
Mining 230 246 219
Telecommunications 189 109 37
Other Operations 3 6 5
_______ _______ _______
$ 2,179 $ 2,020 $ 2,086
======= ======= =======
General
_______
Additional financial information about the Company's industry segments,
including operating earnings, identifiable assets, capital expenditures and
depreciation, depletion and amortization, as well as geographic information,
is contained in Note 17 to the Company's consolidated financial statements.
Results of Operations 1993 vs. 1992
___________________________________
Construction
____________
Construction revenue increased by $98 million or 6% in 1993. The Company's
share of joint venture revenue rose by 60% and accounted for 24% of total
construction revenue for the period as compared to 16% for 1992. Several
large contracts awarded in 1992 and early 1993 contributed to the overall
increase, the largest of which was the San Joaquin Toll Road Joint Venture
("San Joaquin"). The increase in joint venture revenue was partially offset
by a small decrease in sole contract revenue due to a decrease in the average
size of sole contracts awarded. Contract backlog at December 25, 1993 was
$2.1 billion, of which 6% is attributable to foreign operations, principally,
Canada. Projects on the west coast comprise 50% of the total backlog
of which San Joaquin accounts for $435 million. San Joaquin is scheduled
for completion in 1997.
Direct costs associated with construction contracts increased $66 million
or 4% to $1.569 billion in 1993. The increase is net of a $20 million
reduction in reserves previously established for the non-sponsored Denmark
tunnel project. The overall rise in costs is directly attributable to
the increase in volume. Costs as a percentage of revenue, excluding the
reduction in reserves, approximated 90% and 91% for 1993 and 1992, respectively.
<PAGE>
Results of Operations 1993 vs. 1992 (continued)
_______________________________________________
Construction (continued)
________________________
Management of the non-sponsored Denmark tunnel project completed a cost
estimate which indicated a favorable variance in the estimated costs of
the project. As a result of this revised cost estimate and negotiations with
the owner, management reduced reserves maintained to provide for the Company's
share of estimated losses on the project. This reduction contributed to the
increase in gross margin to 11% in 1993 from 9% in 1992.
Mining
______
Mining revenue decreased 6.5% in 1993. The renegotiation of the
agreements with Commonwealth Edison Company ("Commonwealth"), ceased
sales of undivided interests in coal reserves. Such sales accounted for
approximately $40 million or 16% of the total mining revenue recognized in
1992. The absence of the sale of undivided interests to Commonwealth in
1993, was partially offset by a $9 million increase in precious metal sales,
a rise in tonnage shipped and an approximate $4 increase in the average
price per ton of coal shipped. The sales of precious metals improved in 1993
due to improved market conditions.
Alternate source coal sales by the Black Butte mine produced the
increase in the average price per ton of coal shipped. Alternate source coal
consists of coal purchased from two unaffiliated mines located in the Powder
River Basin area of Wyoming and from the Company's Decker mine. The
purchased coal is sold to Commonwealth under terms of the renegotiated
agreements. Alternate source coal sales in 1993 comprised 31% of 1993
mining revenue.
The gross margin on mining revenue increased to 48% in 1993 from 43%
in 1992. Alternate source coal sales, which result in larger margins than
mined coal, led to the increase.
See "Legal Proceedings" with respect to the Whitney Benefits case.
Telecommunications
__________________
In 1993, the components of telecommunications revenue were as follows:
37% - MFS Communications Company, Inc. ("MFS") telecommunications
services; 38% - MFS network systems integration and facilities management
services; and 25% - C-TEC operations (two months). In 1992, revenue
was comprised of 44% telecommunications services and 56% network systems
integration and facilities management services.
MFS telecommunications revenue increased from $48 million to $70
million, an increase of 46%. The majority of the increase in revenue
resulted from sales of additional services to existing customers and,
to a lesser extent, further market penetration. The growth of services
in New York City, the expansion of networks in Boston, Chicago and the
Washington, D.C. metropolitan area, and new services provided by MFS Datanet
and MFS Intelenet also contributed to the revenue increase.
<PAGE>
Results of Operations 1993 vs. 1992 (continued)
_______________________________________________
Telecommunications (continued)
______________________________
Third party revenue from services offered by the MFS network systems
integration and facilities management segment increased from $61 million in
1992 to $71 million in 1993, a 16% increase. The increase primarily resulted
from network systems integration projects in the United Kingdom and for the
State of Iowa. MFS purchased the other 50% interest in a partnership
providing network systems integration services to customers in the United
Kingdom, thereby increasing revenue from that country. The network systems
integration and facilities management services segment had third party
backlog of $110 million at December 31, 1993.
Two months of C-TEC activity accounted for $48 million of
telecommunications revenues. The telephone and cable television groups
generated the majority of the revenues.
Telecommunications operating expenses increased 78% in 1993. Components
of 1993 operating expenses were: 45% - MFS telecommunications services;
32% - MFS network systems integration and facilities management services;
and 23% - C-TEC operating expenses. In 1992, operating expenses were 51%
MFS telecommunications services and 49% MFS network systems integration and
facilities management services.
MFS telecommunications operating expenses increased from $48 million to
$80 million in 1993, a 67% increase. The increase reflects operating costs
associated with MFS Datanet and MFS Intelenet services and higher costs
associated with the new and expanded networks. Increased depreciation of
existing networks accounted for nearly 41% of the increase.
MFS network systems integration and facilities management services
operating expenses increased from $49 million to $55 million in 1993, a 12%
increase. The increase directly relates to increased activity on several
network systems integration projects, primarily direct costs associated
with the projects in the United Kingdom and for the State of Iowa.
Two months of C-TEC activity accounted for $42 million of
telecommunications operating expenses. The telephone and cable television
groups generated the majority of these costs.
Progress on the network systems integration project for the State of Iowa
was delayed in June and July 1993 by significant rainfall and flooding.
Management believes that any additional costs resulting from the floods
will not materially impact the Company's telecommunications operations.
Other Income
____________
Other income decreased from $128 million in 1992 to $62 million in 1993,
a decrease of 52%. The decline primarily relates to a $40 million increase
in realized losses and permanent valuation adjustments on marketable
securities, including certain derivative securities. Interest income
declined by $20 million due to lower interest rates and to a change in
portfolio mix. Dividend income decreased by $10 million due to dividends
accrued in 1992 on an investment in United States Can Company preferred
stock redeemed in March of 1993. Slight increases in equity earnings and
miscellaneous income partially offset the declines noted above.
<PAGE>
Results of Operations 1993 vs. 1992 (continued)
_______________________________________________
Selling and Administrative Expenses
___________________________________
Selling and administrative expenses increased 15% or $26 million in 1993.
Costs incurred in developing MFS Datanet and MFS Intelenet account for a large
portion of the increase. MFS expects to incur significant expense developing
the high-speed data communications and integrated, single-source
telecommunication services in 1994. Increased legal costs, primarily reserves
established for environmental matters (see "Legal Proceedings"), also
contributed to the increase.
Interest Expense
________________
Interest expense increased by $3 million or 27% in 1993. The increase
is due to the C-TEC debt assumed in the acquisition. Interest on C-TEC debt
during the last two months, approximated $6 million. The extinguishment of
significant debt in 1992 partially offset C-TEC interest. The Company
anticipates significant increases in interest expense due to the C-TEC
acquisition, the MFS debt issuance of $500 million in January 1994, and
project financing on the Company's 65% equity interest in a privately-owned
toll road in southern California.
Gain on Sale of Subsidiary's Stock
__________________________________
In May 1993, MFS sold 12.7 million shares of common stock to the public
at an initial offering price of $20 per share for $233 million, net of
certain transaction costs. An additional 4.6 million shares were sold to
the public on September 15, 1993 at a price of $50 per share for $218
million, net of certain transaction costs. These transactions have reduced
the Company's ownership interest in MFS to 71% at December 25, 1993.
Substantially all of the net proceeds from the offerings are intended to fund
MFS' growth. Prior to the initial public offering, MFS was a wholly-owned
subsidiary of the Company.
As a result of the above transactions, the Company recognized a pre-tax
gain of $211 million representing the increase in the Company's equity in the
underlying net assets of MFS. Deferred income taxes have been provided
on this gain.
Income Taxes
____________
The effective income tax rate for earnings from continuing operations is
30% in 1993 and 32% in 1992. The decrease in rates is due to adjustments
to prior year tax provisions which more than offset the effects of the
increase in 1993 Federal income tax rates. In both years, dividend exclusions
and mineral depletion expenses also reduced the overall effective rate.
<PAGE>
Results of Operations - 1992 vs. 1991
_____________________________________
Construction
____________
Revenue from construction activity in 1992 decreased 9% compared to
1991. Although the number of new contracts awarded in 1992 increased
approximately 15%, the average size of new contracts, excluding the $520
million contract awarded to San Joaquin, decreased by approximately 20%.
Contract backlog at the end of 1992 was $2.2 billion, a $300 million increase
from backlog at the end of 1991. Of the 1992 backlog, 9% related to foreign
projects mainly in Canada and the remainder related to projects in the
United States. Sixty-four percent of the U.S. projects were on the west
coast. The decrease in revenue as well as in contract backlog (excluding
San Joaquin) was the result of the general state of the economy in Canada
and the United States. Fluctuating demand cycles are typical of the
industry. The gross margin was 9% in 1992 and 6% in 1991. The 1991 gross
margin was unfavorably impacted primarily by losses on the Denmark tunnel
project and on several U.S. projects.
In 1992, management of the nonsponsored Denmark tunnel project completed
negotiations with respect to the settlement of claims against the project
owner and equipment supplier. The new agreement with the project owner
covered the reimbursement of certain costs incurred and time extensions due
to differing soil conditions at the site of the tunnels. Costs incurred with
respect to the flooding of two of the four tunnels being drilled as part of
the project have been covered by insurers. Because of the remaining
uncertainties involved in completing the tunnels, due primarily to the
adverse soil conditions, no adjustments were made in 1992 for the Company's
share of the estimated losses. Management believes that the resolution of
the uncertainties should not materially effect of the Company's financial
position.
Mining
______
Mining revenue increased 12% in 1992 as compared to 1991. The increase
was due to the mines collectively shipping 20% more tons of coal and lignite
in 1992. The increase in tonnage was due principally to new short-term
contracts at the Black Butte mine and sales on the spot market. This
increase was partially offset by a 4% decrease in the average price per ton,
the result of increased lower-priced spot sales from the Decker mine.
Revenue recognition on previously consummated sales of undivided interests
in coal reserves to be mined in the future represented $40 million of 1992
revenue and $39 million of 1991 revenue. The gross margin on mining revenue,
including reserve coal, approximated 43% in 1992, exceeds the gross margin
in 1991. The 1991 gross margin was unfavorably impacted by certain
one-time charges for production taxes and reclamation costs, and expenses
expenses incurred to repair a dragline.
In 1992, the agreements with Commonwealth Edison Company
("Commonwealth") were renegotiated. Beginning January 1, 1993, the Black
Butte mine discontinued coal shipments to Commonwealth. Coal is now
purchased from two unaffiliated mines located in the Powder River Basin area
of Wyoming and from the Company's Decker mine to satisfy the delivery
commitments under the renegotiated Commonwealth agreements.
<PAGE>
Results of Operations 1992 vs. 1991 (continued)
_______________________________________________
Mining (continued)
__________________
Also in accordance with the renegotiation, there were no sales of
interests in coal reserves subsequent to January 1, 1993. The Company does
not expect that the financial impact of the renegotiation will be material
to its mining operations, cash flows, or financial position.
Telecommunications
__________________
Revenue in 1992 was comprised of 56% network systems integration and
facilities management and 44% telecommunications services. Revenue in 1991
was comprised of 38% network systems integration and facilities management
and 62% telecommunications services. Network systems integration and
facilities management backlog at December 26, 1992 was $74 million, of which
$16 million relates to the United Kingdom joint venture and the remainder
relates mainly to the State of Iowa project. Revenue increased from $37
million in 1991 to $109 million in 1992, representing a 192% increase. Of
the increase, 66% was from network systems integration and facilities
management. This increase resulted primarily from network systems
integration projects in Iowa, Minnesota and the United Kingdom.
Telecommunications services accounted for the remaining increase in
total revenue. This increase in revenue primarily reflects increased
services provided on networks in New York City and Dallas which commenced
operations in early 1991 and a full year of results for the Washington, D.C.
metropolitan area network which was acquired in October 1991. The balance
of the increase in telecommunications services revenue resulted from
continued market growth of other networks. The Atlanta network became
operational during the fourth quarter of 1992, but generated insignificant
revenues.
The cost of revenue in 1992 increased 112% compared to 1991.
Seventy-three percent of the increase relates to direct costs incurred on
network systems integration and facilities management projects for third
parties. Another 17% of the increase is due to increased depreciation and
amortization expense primarily on the telecommunications networks in
Washington, D.C., New York City and Dallas. The balance of the increase
relates to an increase in other costs associated directly with network
operations; primarily from the Washington, D.C., New York City and Dallas
networks. The cost of revenue, as a percentage of total revenue, has
decreased from 123% in 1991 to 89% in 1992. This change resulted generally
from increased utilization of existing network capacity.
<PAGE>
Results of Operations 1992 vs. 1991 (continued)
_______________________________________________
Other Income
____________
The Company recognized investment income of $98 million in 1992 and
$108 million in 1991. The decrease in investment income is generally
attributable to the collection of various receivables from the sales of the
discontinued packaging operations. In 1992 the Company recognized $11
million of interest on these receivables compared to $20 million in 1991.
Included in 1992 investment income are $4 million of dividends in kind
received from an investment in California Energy Company, Inc.
("California Energy") preferred stock and $11 million of dividends accrued
on an investment in United States Can Company ("U.S. Can") preferred stock
which was redeemed in March 1993. Included in 1991 investment income is
$12 million of dividends received from U.S. Can preferred stock. Other
Income in 1992 and 1991 also reflects gains on the sales of timberlands of
$5 million and $3 million, respectively, net equity earnings from an
investment in California Energy of $4 million and $3 million, respectively,
and information services income of $7 million and $5 million, respectively.
The increase in Other Income in 1992 was partially offset by a decline
in market value considered to be other than temporary of $12 million
recorded for two of the Company's marketable securities, one of which was
sold in 1993.
Selling and Administrative Expenses
___________________________________
Selling and administrative expenses increased 5% in 1992 compared to
1991 due in part to increases within the telecommunications operations. The
Company incurred $4 million in 1992 developing new telecommunications
services. The increase is also attributable to modest increases in several
of the Company's administrative departments.
Interest Expense
________________
Interest expense in 1992 reflects the anticipated decrease due to the
significant reductions during 1991 in both short-term borrowings and
long-term debt. All short-term borrowings were repaid in July 1991 and no
new borrowings were incurred until December 1992. The Company also
redeemed $150 million of debt in October 1991 and extinguished $73 million
of debt in 1992 with no new material debt incurred since year-end 1991.
Taxes
_____
The effective income tax rate, with respect to continuing operations
before cumulative effect of change in accounting principle, is 32% in 1992
and 46% in 1991. The 1992 rate is lower than the 1991 rate primarily due
to 1991 foreign taxes and adjustments to the prior year tax provision.
In both 1992 and 1991, dividend exclusions and mineral depletion expenses
reduced the overall effective rate.
<PAGE>
Results of Operations 1992 vs. 1991 (continued)
_______________________________________________
Discontinued Packaging Operations
_________________________________
The gain on disposal of discontinued operations in 1992 resulted from
a $19 million adjustment to prior year tax estimates and an $8 million
payment, net of tax, received from BTR Nylex Limited and a $1 million
accrual, net of tax, relating to additional sales proceeds from the 1990
sale of Continental PET Technologies, Inc. The gain was partially offset by
miscellaneous sales adjustments related to the 1991 and 1990 sales of
certain discontinued packaging operations. The gain on disposal of
discontinued operations in 1991 reflects the sales of the European
packaging operations, Continental Can International Corporation,
Continental White Cap, Inc. and Continental Plastic Containers, Inc. The
significant decrease in 1992 in earnings from discontinued operations is due
to the sales of the remaining packaging operations in 1991. Earnings in
1992 reflect the equity earnings from the Company's investment in a plastics
joint venture, which was sold to Ball Corporation in July 1992. No
significant gain or loss was recognized as a result of this transaction.
<PAGE>
Financial Condition - December 25, 1993
_______________________________________
The Company's working capital increased $227 million or 20% to $1,365
million in 1993.
For the year, the Company generated positive cash flows of $286 million
from operating activities, an increase of $86 million over 1992.
Cash used in investing activities in 1993 includes the net purchase of
marketable securities of $304 million, capital expenditures of $192 million
which consists of $127 million for communications, $48 million for construction
and $5 and $12 million for mining and corporate, respectively, and the
purchase of a controlling interest in C-TEC Corporation for $146 million,
net of cash acquired. These investments were necessary to support existing
operations and develop new opportunities for future growth. Overall, net
cash used in investing activities was $655 million in 1993.
Cash from financing activities was derived principally from the issuances
of the common stock of MFS and PKS. The Company raised $451 million in cash
from the sale of 17.3 million shares or 29% of MFS' common stock in two
public offerings. The net proceeds are intended to fund MFS' growth. The
Company also raised $24 million in cash from the sale of its Class C and
Class D common stock, which will be used for general corporate purposes.
Uses of cash in financing activities in 1993 consisted of paying dividends
of $27 million to Class B & C and Class D stockholders, repurchasing
Class C and Class D common stock for $54 million and repaying 1992
short-term borrowings of $80 million. Throughout 1993, the Company borrowed
funds to meet short-term liquidity needs. These additional borrowings
have all been repaid. During 1993, the Company collected $110 million
related to notes receivable from sales of discontinued operations.
The Company's existing working capital position together with anticipated
cash flows from operations, debt issuances and existing lines of credit,
should be sufficient for 1994's working capital and investing requirements.
It is expected that C-TEC will be able to independently finance its working
capital and investment requirements in 1994.
In addition to investing between $45 million and $85 million annually in
its construction and mining businesses, the Company anticipates 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 operating
businesses that are capital intensive and provide long-term growth. In
February 1994, the Company completed the purchase of APAC-Arizona, Inc.
from Ashland Oil Company, Inc. for approximately $49 million, subject to
adjustments. APAC is engaged in the construction materials and contracting
businesses in Arizona and surrounding states. The Company has been and
continues to investigate other investment opportunities.
These investments, along with the payment of income taxes and the
repurchases of common stock, will be the significant long-term uses
of liquidity. The Company's existing cash and cash equivalents, marketable
securities, cash flows from future operations and existing borrowing
capacity are expected to fund these expenditures.
<PAGE>
Financial Condition - December 25, 1993 (continued)
___________________________________________________
MFS requires significant capital to fund future building, expansion or
acquisition of communications networks in major metropolitan areas. In
January 1994, MFS issued $500 million of Senior Discount Notes due in 2004.
In June 1993, MFS entered into a secured revolving credit agreement in the
amount of $75 million. The indenture pursuant to which the Senior Discount
Notes were issued permits MFS to have a $150 million secured credit facility.
These transactions will provide liquidity to fund future expansion, including
the proposed acquisition of Centex Telemanagement, Inc., for net
consideration of approximately $150 million, announced by MFS on March 16,
1994. MFS may fund future capital expenditures and acquisitions through
additional issuances of debt and equity securities. MFS intends to invest
$250 million in 1994 and in excess of $1 billion over the next five years to
expand its networks to an additional 55 markets.
In July 1993, financing was approved to construct a 10-mile privately-owned
toll road in southern California. The Company has a 65% interest in this
project. Management expects $107 million of third party debt to be incurred.
by the project's completion in 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements and supplementary financial information for Peter
Kiewit Sons', Inc. and Subsidiaries begin on page P1. Separate financial
statements and financial statement schedules 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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Part III is incorporated by reference from
the Company's definitive proxy statement for the Annual Meeting of
Stockholders to be held on June 4, 1994. However, certain information is set
forth under the caption "Executive Officers of the Registrant" following
Item 4 above.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Financial statements and financial statement schedules required to
be filed for the registrant under Items 8 or 14 are set forth following the
index page at page P1.
Exhibits filed as a part of this report are listed below. Exhibits
incorporated by reference are indicated in parentheses.
Exhibit
Number Description
3.1 Restated Certificate of Incorporation, effective January 8, 1992
(Exhibit 3.1 to Company's Form 10-K for 1991).
3.4 By-laws, composite copy, including all amendments, as of March 19,
1993 (Exhibit 3.4 to Company's Form 10-K for 1992).
10.11 Kiewit Construction and Mining Long-Term Incentive Plan,
Construction and Mining Appreciation Rights (Exhibit 10.11 to
Company's Form 10-K for 1988).
10.12 Kiewit Long-Term Incentive Plan, Stock Appreciation Rights
(Exhibit 10.12 to Company's Form 10-K for 1988).
<PAGE>
21 List of subsidiaries of the Company.
99.A Kiewit Construction & Mining Group Financial Statements and
Financial Statement Schedules and Management's Discussion and
Analysis of Financial Condition and Results of Operations.
99.B Kiewit Diversified Group Financial Statements and Financial
Statement Schedules and Management's Discussion and Analysis
of Financial Condition and Results of Operations.
(b) No Form 8-K was filed during the fourth quarter of 1993.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on the
24th day of March, 1994.
PETER KIEWIT SONS', INC.
By: /s/ R. E. Julian
________________________
Robert E. Julian
Executive Vice President -
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 24th day of March, 1994.
/s/ Walter Scott, Jr.
_________________________ Chairman of the Board
Walter Scott, Jr. and President (principal
executive officer)
/s/ R. E. Julian
_________________________ Director, Executive Vice
Robert E. Julian President-Chief Financial
Officer (principal financial
officer)
/s/ Frank V. Yelick
_________________________ Vice President and Controller
Frank V. Yelick (principal accounting officer)
_________________________ ___________________________
John Bahen, Director Charles M. Harper, Director
/s/ Richard L. Coyne /s/ Richard R. Jaros
_________________________ ___________________________
Richard L. Coyne, Director Richard R. Jaros, Director
/s/ James Q. Crowe /s/ Leonard W. Kearney
_________________________ ___________________________
James Q. Crowe, Director Leonard W. Kearney, Director
_________________________ ___________________________
Robert B. Daugherty, Director Peter Kiewit, Jr., Director
/s/ Richard Geary /s/ Kenneth E. Stinson
_________________________ ___________________________
Richard Geary, Director Kenneth E. Stinson, Director
/s/ W. L. Grewcock /s/ George B. Toll, Jr.
_________________________ ___________________________
William L. Grewcock, Director George B. Toll, Jr., Director
<PAGE>
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Index to Financial Statements and Financial Statement Schedules
Pages
___________________________________________________________________________
Report of Independent Accountants
Consolidated Financial Statements as of December 25, 1993
and December 26, 1992 and for the three years ended
December 25, 1993:
Consolidated Statements of Earnings
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Stockholders' Equity
Notes to Consolidated Financial Statements
Consolidated Financial Statement Schedules for the three
years ended December 25, 1993:
VIII--Valuation and Qualifying Accounts and Reserves
IX--Short-Term Borrowings
X--Supplementary Income Statement Information
___________________________________________________________________________
Schedules not indicated above have been omitted because of the absence of
the conditions under which they are required or because the information
called for is shown in the consolidated financial statements or in the
notes thereto.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
_________________________________
The Board of Directors and Stockholders
Peter Kiewit Sons', Inc.
We have audited the consolidated financial statements and the financial
statement schedules of Peter Kiewit Sons', Inc. and Subsidiaries as listed
in the index on the preceding page of this Form 10-K. These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Peter
Kiewit Sons', Inc. and Subsidiaries as of December 25, 1993 and December 26,
1992, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 25, 1993 in
conformity with generally accepted accounting principles. In addition, in
our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
As discussed in Note 1 to the financial statements, the Company has changed
its method of accounting for income taxes in 1992, and its method of accounting
for certain investments in debt and equity securities in 1993.
COOPERS & LYBRAND
Omaha, Nebraska
March 18, 1994
<PAGE>
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
For the three years ended December 25, 1993
(dollars in millions) 1993 1992 1991
_____________________________________________________________________________
Revenue $ 2,179 $ 2,020 $ 2,086
Other Income 62 128 125
_______ _______ _______
2,241 2,148 2,211
Costs and Expenses:
Cost of revenue 1,866 1,741 1,905
Selling and administrative 203 177 169
Interest 14 11 47
_______ _______ _______
2,083 1,929 2,121
_______ _______ _______
158 219 90
Gain on Sale of Subsidiary's Stock 211 - -
_______ _______ _______
Earnings from Continuing Operations
Before Income Taxes, Minority
Interest and Cumulative Effect of
Change in Accounting Principle 369 219 90
Provision for Income Taxes (111) (69) (41)
Minority Interest in Loss of Subsidiaries 3 - -
_______ _______ _______
Earnings from Continuing Operations
Before Cumulative Effect of
Change in Accounting Principle 261 150 49
Cumulative Effect of Change in
Accounting Principle - 12 -
_______ _______ _______
Earnings from Continuing Operations 261 162 49
Discontinued Operations:
Earnings from discontinued
operations net of income taxes
of $- and $26 in 1992 and 1991,
respectively - 1 19
Gain on disposal of discontinued
operations net of income taxes
(benefit) of $(19) and $221 in
1992 and 1991, respectively
- 18 373
_______ _______ _______
Net Earnings $ 261 $ 181 $ 441
======= ======= =======
_____________________________________________________________________________
See accompanying notes to consolidated financial statements.
<PAGE>
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Earnings (continued)
For the three years ended December 25, 1993
(dollars in millions,
except per share data) 1993 1992 1991
_____________________________________________________________________________
Earnings Attributable to Class
B&C Stock:
Earnings Before Cumulative
Effect of Change in Accounting
Principle $ 80 $ 69 $ 23
Cumulative Effect of Change in
Accounting Principle - 13 -
_______ _______ _______
Net Earnings $ 80 $ 82 $ 23
======= ======= =======
Earnings Attributable to Class
D Stock:
Earnings from Continuing
Operations Before Cumulative
Effect of Change in Accounting
Principle $ 181 $ 81 $ 26
Cumulative Effect of Change in
Accounting Principle - (1) -
_______ _______ _______
Earnings from Continuing Operations 181 80 26
Discontinued Operations:
Earnings - 1 19
Gain on disposal - 18 373
_______ _______ _______
Net Earnings $ 181 $ 99 $ 418
======= ======= =======
Earnings Per Common and Common
Equivalent Share:
Class B&C:
Earnings Before Cumulative
Effect of Change in
Accounting Principle $ 4.63 $ 3.79 $ 1.12
Cumulative Effect of Change in
Accounting Principle - .69 -
_______ _______ _______
Net Earnings $ 4.63 $ 4.48 $ 1.12
======= ======= =======
Class D:
Continuing Operations:
Earnings Before Cumulative
Effect of Change in Accounting
Principle $ 9.08 $ 4.00 $ 1.26
Cumulative Effect of Change in
Accounting Principle - (.05) -
_______ _______ _______
Earnings from Continuing
Operations 9.08 3.95 1.26
Discontinued Operations:
Earnings - .04 .94
Gain on disposal - .93 18.10
_______ _______ _______
Net Earnings $ 9.08 $ 4.92 $ 20.30
======= ======= =======
_____________________________________________________________________________
See accompanying notes to consolidated financial statements.
<PAGE>
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 25, 1993 and December 26, 1992
(dollars in millions) 1993 1992
____________________________________________________________________________
Assets
Current Assets:
Cash and cash equivalents $ 296 $ 203
Marketable securities 1,082 905
Receivables, less allowance of $7 and $7 291 271
Note receivable from sale of discontinued
operations 5 60
Costs and earnings in excess of billings
on uncompleted contracts 79 53
Investment in construction joint
ventures 81 48
Deferred income taxes 66 55
Other 54 90
_______ _______
Total Current Assets 1,954 1,685
Property, Plant and Equipment, at cost:
Land 29 26
Buildings 200 48
Equipment 1,251 895
_______ _______
1,480 969
Less accumulated depreciation and
amortization (636) (575)
_______ _______
Net Property, Plant and Equipment 844 394
Note Receivable from Sale of
Discontinued Operations 29 84
Investments 233 180
Intangible Assets, net 415 75
Other Assets 209 181
_______ _______
$ 3,684 $ 2,599
======= =======
____________________________________________________________________________
See accompanying notes to consolidated financial statements.
<PAGE>
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 25, 1993 and December 26, 1992
(dollars in millions, except share data) 1993 1992
____________________________________________________________________________
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 260 $ 198
Short-term borrowings - 80
Current portion of long-term debt:
Telecommunications 7 -
Other 8 3
Accrued costs and billings in excess
of revenue on uncompleted contracts 107 107
Accrued insurance costs 67 66
Other 140 93
_______ _______
Total Current Liabilities 589 547
Long-Term Debt, less current portion:
Telecommunications 420 -
Other 42 30
Deferred Income Taxes 385 267
Retirement Benefits 71 74
Accrued Reclamation Costs 92 94
Other Liabilities 116 117
Minority Interest 298 12
Stockholders' Equity:
Preferred stock, no par value, authorized
250,000 shares: no shares outstanding in
1993 and 1992 - -
Common stock, $.0625 par value, $1.6 billion
aggregate redemption value:
Class B, authorized 8,000,000
shares: 1,180,400 outstanding in
1993 and 1,257,000 outstanding in 1992 - -
Class C, authorized 125,000,000
shares: 16,316,070 outstanding in
1993 and 17,505,535 outstanding in 1992 1 1
Class D, authorized 50,000,000 shares:
20,010,696 outstanding in 1993 and
20,104,478 outstanding in 1992 1 1
Additional paid-in capital 164 145
Foreign currency adjustment (3) 3
Net unrealized holding gain 9 -
Retained earnings 1,499 1,308
_______ _______
Total Stockholders' Equity 1,671 1,458
_______ _______
$ 3,684 $ 2,599
======= =======
____________________________________________________________________________
See accompanying notes to consolidated financial statements.
<PAGE>
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three years ended December 25, 1993
(dollars in millions) 1993 1992 1991
___________________________________________________________________________
Cash flows from operations:
Earnings from continuing operations $ 261 $ 162 $ 49
Adjustments to reconcile earnings
from continuing operations to
net cash provided by continuing
operations:
Cumulative effect of change in
accounting principle - (12) -
Depreciation, depletion and
amortization 99 86 82
(Gain) loss on sale of property, plant
and equipment, and other
investments 23 (18) (11)
Gain on sale of subsidiary's stock (211) - -
Decline in market value of
investments 21 12 -
Retirement benefits paid (17) (8) (5)
Change in retirement benefits and
other noncurrent liabilities 10 19 68
Deferred income taxes 49 (4) (4)
Change in working capital items:
Receivables 9 (16) 13
Other current assets (48) 18 4
Payables 47 (12) 23
Other liabilities 13 (33) 10
Other 30 6 (38)
_______ _______ _______
Net cash provided by
continuing operations 286 200 191
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 4,927 6,542 3,717
Purchases of marketable securities (5,231) (6,629) (4,116)
Acquisition of C-TEC, excluding
cash acquired (146) - -
Proceeds from sale of property, plant
and equipment, and other investments 38 31 34
Capital expenditures (192) (129) (122)
Investments in affiliates (14) (42) (135)
Acquisition of minority interest (2) (27) -
Deferred development costs and other (35) 6 (6)
_______ _______ _______
Net cash used in investing
activities (655) (248) (628)
____________________________________________________________________________
See accompanying notes to consolidated financial statements.
<PAGE>
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three years ended December 25, 1993
(continued)
(dollars in millions) 1993 1992 1991
___________________________________________________________________________
Cash flows from financing activities:
Long-term debt borrowings 21 3 21
Payments on long-term debt, including
current portion (8) (98) (199)
Net change in short-term borrowings (80) 80 (231)
Issuances of common stock 24 24 21
Issuances of subsidiary's stock 458 - -
Repurchases of common stock (54) (85) (137)
Dividends paid (27) (40) (21)
Other - (1) (3)
_______ _______ _______
Net cash provided by (used in)
financing activities 334 (117) (549)
Cash flows from discontinued packaging
operations:
Proceeds from sales of discontinued
packaging operations 110 163 1,285
USW ERISA Litigation settlement
installment payment - - (207)
Other cash provided by (used in)
discontinued packaging operations 20 (34) (105)
_______ _______ _______
Net cash provided by discontinued
packaging operations 130 129 973
Effect of exchange rates on cash (2) (4) -
_______ _______ _______
Net increase (decrease) in cash
and cash equivalents 93 (40) (13)
Cash and cash equivalents at beginning
of year 203 243 256
_______ _______ _______
Cash and cash equivalents at end of year $ 296 $ 203 $ 243
======= ======= =======
Supplemental disclosure of cash flow
information for continuing and
discontinued operations:
Taxes $ 83 $ 183 $ 213
Interest 7 14 53
___________________________________________________________________________
See accompanying notes to consolidated financial statements.
<PAGE>
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the three years ended December 25, 1993
(dollars in millions)
Class Class Net
B & C D Additional Foreign Unrealized
Common Common Paid-in Currency Holding Retained
Stock Stock Capital Adjustment Gain Earnings Total
_______________________________________________________________________________
Balance at
December
30, 1990 $ 1 $ 1 $ 123 $ 102 $ - $ 958 $ 1,185
Issuances
of stock - - 21 - - - 21
Repurchases
of stock - - (16) - - (121) (137)
Foreign
currency
adjustment - - - (93) - - (93)
Net earnings - - - - - 441 441
Dividends
($1.00 per
common
share) - - - - - (21) (21)
_____ _____ _____ _____ _____ _______ _______
Balance
at December
28, 1991 1 1 128 9 - 1,257 1,396
Issuances
of stock - - 24 - - - 24
Repurchases
of stock - - (7) - - (78) (85)
Foreign
currency
adjustment - - - (6) - - (6)
Net earnings - - - - - 181 181
Dividends: (a)
Class B&C
($.70 per
common
share) - - - - - (13) (13)
Class D
($1.95 per
common
share) - - - - - (39) (39)
_____ _____ _____ _____ _____ _______ _______
Balance at
December
26, 1992 1 1 145 3 - 1,308 1,458
______________________________________________________________________________
See accompanying notes to consolidated financial statements.
<PAGE>
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the three years ended December 25, 1993
(continued)
(dollars in millions)
Class Class Net
B & C D Additional Foreign Unrealized
Common Common Paid-in Currency Holding Retained
Stock Stock Capital Adjustment Gain Earnings Total
________________________________________________________________________________
Balance at
December
26, 1992 $ 1 $ 1 $ 145 $ 3 $ - $ 1,308 $ 1,458
Issuances
of stock - - 24 - - - 24
Repurchases
of stock - - (5) - - (49) (54)
Foreign
currency
adjustment - - - (6) - - (6)
Net unrealized
holding
gain - - - - 9 - 9
Net earnings - - - - - 261 261
Dividends: (b)
Class B&C
($.70 per
common
share) - - - - - (11) (11)
Class D
($.50 per
common
share) - - - - - (10) (10)
___ ___ _____ _____ ____ ________ _______
Balance
at December
25, 1993 $ 1 $ 1 $ 164 $ (3) $ 9 $ 1,499 $ 1,671
=== === ===== ===== ==== ======== =======
_______________________________________________________________________________
(a) Includes $.30 and $.35 per share for dividends on Class B & C Stock
and Class D Stock, respectively, declared in 1992 but paid in January
1993.
(b) Includes $.40 per share for dividends on Class B&C Stock declared in
1993 but paid on January 6, 1994.
See accompanying notes to consolidated financial statements.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
__________________________________________
Principles of Consolidation
___________________________
The consolidated financial statements include the accounts of Peter
Kiewit Sons', Inc. and subsidiaries in which it owns more than
50% of the voting stock ("PKS" or "the Company"), which are engaged in
enterprises primarily related to construction, mining and
telecommunications. See Note 2 with respect to discontinued packaging
operations. Fifty-percent-owned mining joint ventures are consolidated
on a pro rata basis. All significant intercompany accounts and
transactions have been eliminated. Investments in other companies in
which the Company exercises significant influence over operating and
financial policies and construction joint ventures are accounted for by
the equity method. The Company accounts for its share of the
operations of the construction joint ventures on a pro rata basis in
the consolidated statements of earnings.
Construction Contracts
______________________
The Company operates generally within North America as a general
contractor and engages in various types of construction projects
for both public and private owners. Credit risk is minimal with
public (government) owners since the Company ascertains that
funds have been appropriated by the governmental project owner prior
to commencing work on public projects. Most public contracts are
subject to termination at the election of the government. In the
event of termination, the Company is entitled to receive the contract
price on completed work and reimbursement of termination related
costs, plus a reasonable profit on such costs. Credit risk with
private owners is minimized because of statutory mechanics liens,
which give the Company high priority in the event of lien foreclosures
following financial difficulties of private owners.
The Company recognizes revenue on long-term construction contracts and
joint ventures on the percentage-of-completion method based upon
engineering estimates of the work performed on individual contracts.
Provisions for losses are recognized on uncompleted contracts when
they become known. Claims for additional revenue are recognized in
the period when allowed.
Assets and liabilities arising from construction activities, the
operating cycle of which extends over several years, are classified as
current in the financial statements. A one-year time period is used
as the basis for classification of all other current assets and
liabilities.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(1) Summary of Accounting Policies (continued)
__________________________________________
Coal Sales Contracts
____________________
The Company and its mining ventures have entered into various agree-
ments with its customers which stipulate delivery and payment terms
for the sale of coal. Prior to 1993, one of the primary customers
deferred receipt of certain commitments by purchasing undivided
fractional interests in coal reserves of the Company and the mining
ventures. Under the arrangements, revenue was recognized when cash
was received. The agreements with this customer were renegotiated in
1992. In accordance with the renegotiated agreements, there were no
sales of interests in coal reserves subsequent to January 1, 1993. The
Company has the obligation to extract and deliver the coal reserves
to the customer in the future if the customer exercises its option.
If the option is exercised, the Company presently intends to deliver
coal from an unaffiliated mine. In the opinion of management, the Company
has sufficient coal reserves to cover the above sales commitments.
The Company's coal sales contracts are with several electric utility
and industrial companies. In the event that these customers do not
fulfill contractual responsibilities, the Company would pursue the
available legal remedies.
Telecommunications Revenues
___________________________
A subsidiary of the Company, MFS Communications Company, Inc. ("MFS"),
provides private line and special access telecommunications services to
major businesses, governmental entities and long distance carriers in
major metropolitan areas of the United States through a competitive
access provider subsidiary. Another subsidiary of MFS is a network
systems integrator that designs, engineers, develops and installs
telecommunications networks and systems and also provides facilities
management services. MFS recognizes revenue on telecommunications
services in the month the related service is provided. Network systems
integration revenue is recognized on the percentage-of-completion method
of accounting.
In October 1993, the Company acquired 34.5% of the outstanding shares
of C-TEC Corporation ("C-TEC") that have 56.6% of the available
voting rights. C-TEC's results of operations have been consolidated
from the acquisition date. C-TEC's most significant operating groups
are its local telephone service and cable system operations. C-TEC's
telephone network access revenues are derived from net access charges,
toll rates and settlement arrangements for traffic that originates or
terminates within C-TEC's local telephone company. Revenues from basic
and premium cable programming services are recorded in the month the
service is provided.
Concentration of credit risk with respect to accounts receivable are
limited due to the dispersion of customer base among different
industries and geographic areas and remedies provided by terms of
contracts and statutes.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies (continued)
______________________________________________________
Depreciation and Amortization
_____________________________
Depreciation and amortization for the majority of the Company's property,
plant and equipment are computed on accelerated and straight-line
methods. Depletion of mineral properties is provided primarily on a
units-of-extraction basis determined in relation to estimated reserves.
In accordance with industry practice, certain telephone plant owned by
C-TEC valued at $216 million is depreciated based on the estimated
remaining lives of the various classes of depreciable property and
straight-line composite rates. When property is retired, the original
cost, plus cost of removal, less salvage, is charged to accumulated
depreciation.
Intangible Assets
_________________
Intangible assets consist of amounts allocated upon purchase of assets
of existing operations and development costs. These assets are
amortized on a straight-line basis over the expected period of benefit,
which does not exceed 40 years.
Pension Plans
_____________
The Company maintains defined benefit plans primarily for retired
packaging employees. Benefits paid under the plans are based on years of
service for hourly employees and years of service and rates of pay for
salaried employees.
Substantially all of C-TEC's employees are included in a trusteed
noncontributory defined benefit plan. Upon retirement, employees are
provided a monthly pension based on length of service and compensation.
The plans are funded in accordance with the requirements of the Employee
Retirement Income Security Act of 1974.
Reserves for Reclamation
________________________
The Company follows the policy of providing an accrual for reclamation
of mined properties, based on the estimated cost of restoration of such
properties, in compliance with laws governing strip mining.
Foreign Currencies
__________________
The local currencies of foreign subsidiaries are the functional
currencies for financial reporting purposes. Assets and liabilities
are translated into U.S. dollars at year-end exchange rates. Revenue
and expenses are translated using average exchange rates prevailing
during the year. Gains or losses resulting from currency translation
are recorded as adjustments to stockholders' equity.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policices (continued)
_______________________________________________________
Subsidiary Stock Sales
______________________
The Company recognizes gains and losses from the sales of stock by its
subsidiaries.
Earnings Per Share
__________________
Primary earnings per share of common stock have been computed using
the weighted average number of shares outstanding during each year.
For purposes of computing earnings per share data for periods prior to
January 8, 1992, the number of Class B&C and Class D shares are
assumed to be the same as the aggregate number of previous Class B and
Class C shares. 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:
1993 1992 1991
__________ __________ __________
Class B&C 17,290,971 18,262,680 20,588,236
Class D 19,941,885 20,126,768 20,588,236
Marketable Securities and Investments
_____________________________________
On December 25, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which addresses the
accounting and reporting of investments in equity securities with readily
determinable fair values and all investments in debt securities. The
statement does not apply to investments in equity securities accounted
for under the equity method nor to investments in consolidated
subsidiaries. At December 25, 1993, a net unrealized holding gain of
$9 million, net of income taxes, was reported in stockholders' equity.
See Note 6 for additional disclosures.
Income Taxes
____________
At the beginning of 1992, the Company adopted SFAS No. 109, "Accounting
for Income Taxes," which requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax
returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial and tax basis
for assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse. In 1992, the
Company recorded income of $12 million which represented the decrease
in the net deferred tax liabilities as a result of the accounting
change. This amount has been reflected in the consolidated statements
of earnings as a cumulative effect of a change in accounting principle.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies (continued)
______________________________________________________
Reclassifications
_________________
Where appropriate, items within the consolidated financial statements
and notes thereto have been reclassified from previous years to
conform to current year presentation.
Fiscal Year
___________
The Company's fiscal year ends on the last Saturday in December.
There were 52 weeks each in the fiscal years 1993, 1992 and 1991.
MFS and C-TEC's fiscal years end on December 31.
(2) Discontinued Operations
_______________________
In 1990, the Company's management authorized the disposition of its
packaging businesses. As a result, the consolidated financial
statements reflect the packaging businesses as discontinued
operations.
Discontinued Packaging Operations for the year ended December
26, 1992 reflect the equity earnings of the Company's investment in a
plastics joint venture, net of tax at the statutory rate. Summary
financial information relative to the discontinued packaging
operations, which primarily reflects earnings from packaging
operations which were sold during 1991, for the year ended
December 28, 1991 is provided below:
(dollars in millions) 1991
_____________________________________________________________________
Revenue $ 1,145
Earnings Before Income Taxes 45
Net Earnings 19
_____________________________________________________________________
The effective income tax rate for 1991 is higher than the statutory
rate of 34%, primarily resulting for the effects of purchase
accounting, state income taxes, higher taxes on foreign earnings
and minority interest.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(3) Acquisitions
____________
In October 1993, the Company acquired 34.5% of the outstanding shares
of C-TEC that have 56.6% of the available voting rights.
The acquisition of C-TEC for $207 million in cash was accounted for as
a purchase, and accordingly, the purchase price was allocated to the
assets acquired and liabilities assumed, as follows:
Assets:
Cash and cash equivalents $ 61
Other current assets 49
Property, plant and equipment 354
Investments 17
Intangible assets 303
Other 8
Liabilities:
Current liabilities (64)
Deferred income taxes (46)
Other liabilities (8)
Long-term debt (427)
Minority interest (40)
_______
$ 207
=======
Results of C-TEC operations are included in the Company's consolidated
results of operations since the date of acquisition.
The following unaudited pro forma information shows the results of the
Company as though the acquisition occurred at the beginning of 1992.
These results include certain adjustments, primarily increased
amortization, and are not necessarily indicative of what the results
would have been had the acquisition been made as of that date or
results that will occur in the future.
1993 1992
_______ _______
Revenue $ 2,415 $ 2,277
Net Earnings 255 175
Earnings Per Share of Class D Stock 8.78 4.63
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(4) MFS Stock Sales
_______________
In May 1993, MFS sold 12.7 million shares of common stock to the public
at an initial offering price of $20 per share for $233 million, net of
certain transaction costs. An additional 4.6 million shares were sold
to the public in September 1993, at a price of $50 per share for
$218 million, net of certain transaction costs. These transactions
have reduced the Company's ownership interest in MFS to 71% at
December 25, 1993. Substantially all of the net proceeds from the
offerings are intended to fund MFS' growth. Prior to the initial
public offering, MFS was a wholly-owned subsidiary of the Company.
The 29% outside ownership interest has been included in the
consolidated condensed balance sheet minority interest caption.
As a result of the above transactions, the Company recognized a gain of
$211 million representing the increase in the Company's equity in the
underlying net assets of MFS. Deferred income taxes have been provided
on this gain.
(5) Disposal of Packaging Businesses
________________________________
In July 1992, the Company sold its equity investment in a plastics
joint venture to Ball Corporation for $7 million. No significant gain
or loss was recognized as a result of this transaction. The gain on
disposal of discontinued operations in 1992 resulted from a $19
million adjustment to prior year tax estimates and an $8 million
payment, net of tax, received from BTR Nylex Limited and a $1 million
accrual, net of tax, relating to additional sales proceeds from the
1990 sale of Continental PET Technologies, Inc. This gain was
partially offset by miscellaneous sales adjustments related to the
1991 and 1990 sales of certain discontinued packaging operations.
In April 1991, certain subsidiaries of the Company sold their
European packaging operations ("Europe") to VIAG Aktiengesellschaft,
a German company. The transaction closed in June 1991. Europe was
engaged in developing, manufacturing and marketing metal and plastic
containers, closures and related packaging products principally in
western Europe. Revenue from these businesses was $818 million prior
to the transaction close in 1991. Europe's net earnings for this same
period was $34 million. The net proceeds were $853 million in cash.
With the net proceeds, the Company repaid in July 1991 short-term
borrowings of $252 million. The short-term borrowings consisted of
$123 million which was borrowed in June 1991 to repay intercompany
loans made to the Company by a subsidiary of Europe and $129 million
which was directly related to financing Europe's capital expenditures.
In May 1991, the Company sold Continental Can International
Corporation ("CCIC"), a wholly-owned subsidiary that held the
Company's interests in metal packaging operations in Latin America,
the Far East and the Middle East, to Crown Cork & Seal Company, Inc.
Revenue and net earnings were not material during the period prior
to closing in 1991. Proceeds from the transaction consisted of $35
million paid in cash at closing and a receivable of $94 million which
was collected in November 1991.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(5) Disposal of Packaging Businesses (continued)
____________________________________________
In August 1991, the Company sold Continental White Cap, Inc.
("White Cap"), a wholly-owned subsidiary that manufactured metal,
plastic and composite closures for food vacuum-packed in both glass
and plastic containers to Schmalbach Lubeca A.G., a German company,
for $279 million, after certain adjustments. Revenue from this
business was $119 million prior to the transaction close in 1991.
Net earnings for this same period was $13 million. The proceeds
consisted of a promissory note, with interest at the LIBOR rate plus
.625%, receivable in installments over the next five years with the
final installment due on December 31, 1995. The first installment
payment of $50 million was received in October 1991. Additional payments
totalling $25 million were received in December 1991 and January 1992,
$60 million was received in December 1992, and $110 million was
received in 1993.
In November 1991, the Company sold Continental Plastic Containers,
Inc. and Continental Caribbean Containers, Inc. (collectively "PCD"),
two wholly-owned subsidiaries that manufactured blow-molded rigid
plastic containers for household, automotive, industrial and food
products, to Plastic Containers, Inc., a newly formed corporation, for
approximately $150 million, after adjustments. Revenue from this
business was $190 million prior to the transaction close in 1991. Net
earnings for this same period was $4 million. The proceeds consisted of
$50 million in cash at the closing and a $100 million bridge note
receivable which was collected in April 1992.
The table below summarizes the gain on disposal for each sale
and for the combined sales (in millions) during 1991:
Europe CCIC White Cap PCD Total
______ _____ _________ _____ _______
Net Proceeds $ 853 $ 129 $ 279 $ 150 $ 1,411
Financial Reporting Basis 560 41 109 96 806
_____ _____ _____ _____ _______
Pre-Tax Gain 293 88 170 54 605
Estimated Tax Provision 94 33 78 28 233
_____ _____ _____ _____ _______
Gain on Disposal $ 199 $ 55 $ 92 $ 26 $ 372
===== ===== ===== ===== =======
The effective income tax rates differ from the expected statutory
income tax rates due to state income taxes and the tax bases being
different than the financial reporting bases.
Included in the gain on disposal of Europe is $43 million of
cumulative translation adjustments, consisting of $95 million
of foreign currency adjustments, recorded at December 29, 1990,
offset by $52 million of foreign currency losses incurred in 1991.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(5) Disposal of Packaging Businesses (continued)
____________________________________________
The difference between the gain summarized above and the gain per the
consolidated statement of earnings is $1 million, net of tax,
consisting of the following (in millions):
Purchase price adjustment for Continental PET
Technologies, Inc. $ 17
Gain on sale of investment in unconsolidated subsidiary 6
Reserves for various sales of discontinued
packaging operations (22)
_____
$ 1
=====
During 1991, the Company received $176 million in cash related to the
remaining receivable, along with accrued interest, from the sale of the
Company's domestic Beverage and Food packaging businesses in 1990.
In 1990, the Company sold Continental PET Technologies, Inc. ("PET")
to BTR Nylex Limited ("BTR"), an Australian company. Closing date
proceeds, subject to adjustment, approximated $110 million. BTR
paid an additional $40 million for revenue recognized by PET during
1991-1993 from certain new products. At closing, the Company received
a note receivable of $110 million, which was collected in cash in
January 1991.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(6) Disclosures about Fair Value of Financial Instruments
_____________________________________________________
The following methods and assumptions were used to determine
classification and fair values of financial instruments:
Cash and Cash Equivalents
_________________________
Cash equivalents generally consist of highly liquid debt instruments
purchased with an original maturity of three months or less. The
securities are stated at cost, which approximates fair value.
Marketable Securities and Investments
_____________________________________
The Company has classified all marketable securities and non-current
investments not accounted for under the equity method as available-
for-sale. The amortized cost of the securities used in computing
unrealized and realized gains and losses are determined by specific
identification. Fair values are estimated based on quoted market
prices for the securities on hand or for similar investments. Fair
values of certificates of deposit approximate cost. Net unrealized
holding gains and losses are reported as a separate component of
stockholders' equity, net of tax.
At December 26, 1992 the cost of marketable securities approximated
fair value. At December 25, 1993 the cost, unrealized holding gains
and losses, and estimated fair values of marketable securities and
noncurrent investments are as follows:
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
_________ __________ __________ _____
Marketable Securities:
Equity securities $ 79 $ 2 $ 2 $ 79
U.S. debt securities 536 - - 536
State and political
subdivision debt
securities 136 1 - 137
Foreign government
debt securities 84 - - 84
Corporate debt
securities 204 - 1 203
Collateralized mortgage
obligations 27 - - 27
Certificates of
deposit 16 - - 16
_______ ____ ____ _______
$ 1,082 $ 3 $ 3 $ 1,082
======= ==== ==== =======
Noncurrent Investments:
Equity Securities $ 80 $ 13 $ - $ 93
======= ==== ==== =======
For debt securities, amortized costs do not vary significantly from
principal amounts. Realized gains and losses on sales of marketable
securities were $31 million and $64 million, respectively, in 1993.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(6) Disclosures about Fair Value of Financial Instruments (continued)
_________________________________________________________________
The contractual maturities of the debt securities are as follows:
Amortized Cost Fair Value
______________ __________
U.S. debt securities:
less than 1 year $ 517 $ 517
1-5 years 19 19
_______ _______
$ 536 $ 536
======= =======
State and political subdivision
debt securities:
less than 1 year $ 4 $ 4
1-5 years 114 115
5-10 years 5 5
over 10 years 13 13
_______ _______
$ 136 $ 137
======= =======
Foreign government debt securities:
1-5 years $ 67 $ 67
5-10 years 17 17
_______ _______
$ 84 $ 84
======= =======
Corporate debt securities:
less than 1 year $ 65 $ 65
1-5 years 103 102
5-10 years 16 16
over 10 years 20 20
_______ _______
$ 204 $ 203
======= =======
Certificates of deposit:
less than 1 year $ 16 $ 16
======= =======
Maturities for the collateralized mortage obligations have not been
presented as they do not have a single maturity date.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(6) Disclosures about Fair Value of Financial Instruments (continued)
_________________________________________________________________
Note Receivable from Sale of Discontinued Operations:
____________________________________________________
The carrying amount approximates fair value for both the current and
the long-term portion due to the interest rate provided in the note.
Short-term Borrowings and Long-term Debt:
________________________________________
The fair value of debt was estimated using the incremental borrowing
rates of the Company for debt of the same remaining maturities and
approximates the carrying amount, except for certain Rural Telephone
Bank debt which C-TEC may refinance. (See Note 11).
(7) Retainage on Construction Contracts
___________________________________
Marketable securities at December 25, 1993 and December 26, 1992
include approximately $56 million and $48 million, respectively,
of investments which are being held by the owners of various
construction projects in lieu of retainage.
Receivables at December 25, 1993 and December 26, 1992 include
approximately $37 million and $35 million, respectively, of
retainage on uncompleted projects, the majority of which is expected
to be collected within one year.
(8) Investment in Construction Joint Ventures
_________________________________________
The Company has entered into a number of construction joint venture
arrangements. Under these arrangements, if one venturer is
financially unable to bear its share of costs, the other venturers
will be required to pay those costs.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(8) Investment in Construction Joint Ventures (continued)
_____________________________________________________
Summary joint venture financial information follows:
Financial Position (dollars in millions) 1993 1992
_____________________________________________________________________
Total Joint Ventures
____________________
Current assets $ 563 $ 395
Other assets (principally construction equipment) 71 39
______ ______
634 434
Current liabilities (481) (181)
______ ______
Net assets $ 153 $ 253
====== ======
Company's Share
_______________
Equity in net assets $ 80 $ 51
Receivable (payable) from (to) joint ventures 1 (3)
______ ______
Investment in construction joint ventures $ 81 $ 48
====== ======
_____________________________________________________________________
Operations (dollars in millions) 1993 1992 1991
_____________________________________________________________________
Total Joint Ventures
____________________
Revenue $ 906 $ 575 $ 565
Costs 841 522 703
______ ______ ______
Operating income (loss) $ 65 $ 53 $ (138)
====== ====== ======
Company's Share
_______________
Revenue $ 430 $ 269 $ 337
Costs 372 243 352
______ ______ ______
Operating income (loss) $ 58 $ 26 $ (15)
====== ====== ======
_____________________________________________________________________
Management of the nonsponsored Denmark tunnel project completed a cost
estimate in 1993 which indicated a favorable variance in the estimated
costs of the project. As a result of this cost estimate and negotiations
with the owner, the Company's management reduced reserves by $20 million
which had been maintained to provide for the Company's share of estimated
losses on the project. Management believes that the resolution of the
the uncertainties in completing the tunnel, primarily due to adverse
soil conditions, should not materially affect the Company's financial
position.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(8) Investment in Construction Joint Ventures (continued)
_____________________________________________________
Operating income in 1991 was unfavorably impacted by losses on certain
joint venture contracts including recording estimated losses on the
nonsponsored Denmark tunnel project of $32 million.
(9) Investments
___________
During 1992, the Company purchased additional shares of California Energy
Company, Inc. ("California Energy") common stock for $23 million,
increasing its ownership interest to 21%. The cumulative investment
in common stock, accounted for on the equity method, totals $80 million.
The Company has certain options to purchase additional shares of
California Energy common stock. The excess purchase price over the under-
lying equity is being amortized over 20 years. Equity earnings, net of
the amortization of the excess purchase price over the underlying equity,
were $7 million, $4 million and $3 million in 1993, 1992 and 1991,
respectively. California Energy common stock is traded on the New York
Stock Exchange. On December 25, 1993, the market value of the
Company's investment in California Energy common stock was $138
million.
In 1993 and 1992, the Company also recorded dividends in kind declared
by California Energy consisting of voting convertible preferred stock
valued at $5 million and $4 million, respectively. The stock dividends
brought the Company's total investment in convertible preferred stock
to $59 million at December 25, 1993.
Investments also include equity securities classified as noncurrent
and carried at the fair value of $93 million (See Note 6).
(10) Intangible Assets
_________________
Intangible assets consist of the following at December 25, 1993 and
December 26, 1992 (dollars in millions):
1993 1992
_____ _____
Goodwill $ 234 $ 52
Franchise and subscriber lists 60 5
Noncompete agreements 36 -
Licenses and right-of-ways 32 11
Deferred development costs 64 13
_____ _____
426 81
Less accumulated amortization (11) (6)
_____ _____
$ 415 $ 75
===== =====
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(11) Long-Term Debt and Unutilized Borrowing Arrangements
____________________________________________________
At December 25, 1993 and December 26, 1992, long-term debt was as
follows:
(dollars in millions) 1993 1992
______________________________________________________________________
C-TEC Long-term Debt (with recourse only to C-TEC)
____________________
Mortgage notes payable to the United States of
America -
Rural Telephone Bank (RTB)
5% - 6.05%, with monthly payments through 2009 $ 64 $ -
6.5% - 7%, with quarterly sinking fund
payments through 2015 58 -
Federal Financing Bank (FFB)
7.69% - 8.36%, with quarterly sinking fund
payments through 2012 14 -
Senior Secured Notes
9.65%, with annual principal payments
1996 through 1999 (includes unamortized
premium of $7 based on imputed rate of
6.12%) 157 -
9.52%, with annual principal payments
1996 through 2001 (includes unamortized
premium of $4 based on imputed rate of
6.93%) 104 -
Revolving Credit Agreements and Other 30 -
_____ _____
427 -
Other PKS Long-term Debt
________________________
7.5% to 11.6% Notes to former stockholders due
1994-2001 16 17
6.25% to 10.5% Convertible debentures due
1999-2003 7 5
Other 27 11
_____ _____
50 33
_____ _____
477 33
Less current portion (15) (3)
_____ _____
$ 462 $ 30
===== =====
_______________________________________________________________________
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(11) Long-term Debt and Unutilized Borrowing Arrangements (continued)
________________________________________________________________
Substantially all of the assets of C-TEC's telephone group ($353 million)
collateralize the mortgage notes payable to the United States of America.
These note agreements restrict telephone group dividends.
The Senior Secured notes are collateralized by pledges of the stock of
C-TEC's telephone, mobile services, and cable group subsidiaries.
The notes contain restrictive covenants which require, among other
things, specific debt to cash flow ratios.
C-TEC's Revolving Credit agreements are collaterlized by a pledge of
the stock of C-TEC's telephone and mobile services subsidiaries.
The convertible debentures are convertible during October of the fifth
year preceding their maturity date. Each annual series may be redeemed
in its entirety prior to the due date except during the conversion
period. Debentures were converted into 14,322, 10,468, and 36,598,
shares of Class C and Class D common stock in 1993, 1992 and 1991,
respectively. At December 25, 1993, 215,180 shares of Class C common
stock and 86,736 shares of Class D common stock are reserved for future
conversions.
Other PKS long-term debt consists primarily of construction financing of
a privately owned toll road which will be converted to term debt upon
completion of the project. Variable interest rates on this debt ranged
from 5% to 9% at December 25, 1993.
Scheduled maturities of long-term debt through 1998 are as follows
(in millions): 1994 - $11; 1995 - $25; 1996 - $56; 1997 - $68 and
$70 in 1998.
The Company has the following unutilized borrowing arrangements at
December 25, 1993:
C-TEC's telephone group's agreement with the RTB provides for an
additional $23 million of borrowings. The agreement requires C-TEC to
invest in RTB stock for approximately 5% of the available amount.
C-TEC's Revolving Credit agreements provide for an additional $11
million of borrowings collateralized by stock pledges. The total
commitments are reduced on a quarterly basis through maturity in
September 1996.
An additional $50 million Credit Agreement collateralized by stock
pledges may be utilized by C-TEC. The agreement provides revolving
borrowings through June 1, 1994 at which time the outstanding balance
converts to a term loan with quarterly payments through 1997. Under
the arrangement, C-TEC must maintain specified debt to cash flow
ratios.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(11) Long-term Debt and Unutilized Borrowing Arrangements (continued)
________________________________________________________________
C-TEC also has an unused line of credit for $13 million under which
unsecured borrowings may be made. Unused lines are cancelable at
the option of the lenders.
MFS has a $75 million secured revolving credit agreement dependent
in part on their ability to attain certain cash flow requirements.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(12) Income Taxes
____________
An analysis of the provision for income taxes related to continuing
operations before minority interest and cumulative effect of change
in accounting principle for the three years ended December 25, 1993
follows:
(dollars in millions) 1993 1992 1991
_____________________________________________________________________
Current:
U.S. federal $ 52 $ 62 $ 32
Foreign 2 5 7
State 8 6 6
_____ _____ _____
62 73 45
_____ _____ _____
Deferred:
U.S. federal 51 (2) (4)
Foreign (1) (4) -
State (1) 2 -
_____ _____ _____
49 (4) (4)
_____ _____ _____
$ 111 $ 69 $ 41
===== ===== =====
_____________________________________________________________________
The United States and foreign components of earnings, for tax reporting
purposes, from continuing operations before minority interest, income
taxes and cumulative effect of change in accounting principle follow:
(dollars in millions) 1993 1992 1991
____________________________________________________________________
United States $ 362 $ 215 $ 74
Foreign 7 4 16
_____ _____ _____
$ 369 $ 219 $ 90
===== ===== =====
____________________________________________________________________
The components of the deferred income tax benefit, prior to adopting
SFAS No. 109, in 1991 were as follows:
(dollars in millions) 1991
____________________________________________________________________
Depreciation and fixed assets $ 4
Retirement benefits and other compensation 1
Mining revenue and costs 5
Insurance reserves (3)
Construction contract accounting (18)
Equity earnings 4
Accrued revenue 4
Other (1)
_____
$ (4)
=====
____________________________________________________________________
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(12) Income Taxes (continued)
________________________
A reconciliation of the actual provision for income taxes and the tax
computed by applying the U.S. federal rate (35% in 1993 and 34% in
1992 and 1991) to the earnings from continuing operations before
minority interest, income taxes and cumulative effect of change in
accounting principle for the three years ended December 25, 1993
follows:
(dollars in millions) 1993 1992 1991
___________________________________________________________________
Computed tax at statutory rate $ 129 $ 74 $ 31
State income taxes 4 5 4
Depletion (4) (4) (4)
Dividend exclusion (4) (3) (2)
Equity earnings - (3) -
Foreign taxes - - 3
Prior year tax adjustments (13) - 3
Nondeductible expenses - - 3
Other (1) - 3
_____ ____ ____
$ 111 $ 69 $ 41
===== ==== ====
___________________________________________________________________
The Company and its domestic subsidiaries file a consolidated federal
income tax return. Possible taxes, beyond those provided, on remittances
of undistributed earnings of foreign subsidiaries are not expected to be
material.
The components of the net deferred tax liabilities for the years ended
December 25, 1993 and December 26, 1992 were as follows:
(dollars in millions) 1993 1992
_____________________________________________________________________
Deferred tax liabilities:
Investments in joint ventures $ 112 $ 108
Investments in subsidiaries 84 -
Asset bases - accumulated depreciation 198 149
Deferred coal sales 26 25
Other 48 34
_____ _____
Total deferred tax liabilities 468 316
_____ _____
Deferred tax assets:
Construction accounts 16 8
Insurance claims 20 22
Compensation - retirement benefits 22 38
Provision for estimated expenses 8 10
Net operating losses of subsidiaries 52 7
Alternative minimum tax credits realizable by
subsidiary 11 -
Other 37 26
Valuation adjustments (17) (7)
_____ _____
Total deferred tax assets 149 104
_____ _____
Net deferred tax liabilities $ 319 $ 212
===== =====
_____________________________________________________________________
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(12) Income Taxes (continued)
________________________
The Company's subsidiaries have federal income tax net operating loss
carryforwards of $120 million which begin to expire in 2001.
(13) Employee Benefit Plans
______________________
The Company makes contributions, based on collective bargaining
agreements related to its construction operations, to several
multi-employer union pension plans. These contributions are included
in the cost of revenue. Under federal law, the Company may be liable for
a portion of plan deficiencies; however, there are no known deficiencies.
The Company's defined benefit pension plans cover primarily packaging
employees who retired prior to the disposition of the packaging
operations. The expense related to these plans was approximately $7
million in 1993 and $1 million in 1992 and 1991.
C-TEC maintains a separate defined benefit plan for substantially all
of its employees. The prepaid pension cost and income related to
this plan is not significant at December 25, 1993 or for the period
from the acquisition date through December 25, 1993.
The Company also has a long-term incentive plan, consisting of stock
appreciation rights, for certain employees. The expense related to
this plan was $3 million, $6 million, and $8 million in 1993, 1992 and
1991, respectively. Substantially all employees of the Company, with
the exception of stockholders and MFS and C-TEC employees, are covered
under the Company's profit sharing plans. The expense related to these
plans was $2 million, $3 million and $2 million in 1993, 1992 and 1991,
respectively.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(14) Postretirement Benefits
_______________________
In addition to providing pension and other supplemental benefits, the
Company provides certain health care and life insurance benefits
primarily for packaging employees who retired prior to the disposition
of certain packaging operations and C-TEC employees. Employees become
eligible for these benefits if they meet minimum age and service
requirements or if they agree to contribute a portion of the cost.
These benefits have not been funded.
The net periodic costs for health care benefits were $4 million in
1993, 1992, and 1991. The net perioidic costs for life insurance
benefits were $2 million, $2 million, and $1 million in 1993, 1992,
and 1991, respectively. In all years, the costs related entirely
to interest on accumulated benefits.
The accrued postretirement benefit liability as of December 25, 1993
was as follows:
Health Life
(dollars in millions) Insurance Insurance
______________________________________________________________________
Retirees $ 34 $ 17
Fully eligible active plan participants - -
Other active plan participants - -
_____ _____
Total accumulated postretirement
benefit obligation 34 17
Unrecognized prior service cost 24 1
Unrecognized net loss (7) (2)
_____ _____
Accrued postretirement benefit liability $ 51 $ 16
===== =====
______________________________________________________________________
The unrecognized prior service cost resulted from certain modifications
to the postretirement benefit plan which reduced the accumulated
postretirement benefit obligation. The Company may make additional
modifications in the future.
A 8.3% increase in the cost of covered health care benefits was assumed
for fiscal 1993. This rate is assumed to gradually decline to 6.2% in
the year 2020 and remain at that level thereafter. A 1% increase in
the health care trend rate would increase the accumulated postretirement
benefit obligation ("APBO") by $1 million at year-end 1993. The
weighted average discount rate used in determining the APBO was 7.0%.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(15) Stockholders' Equity
____________________
Under the Company's Restated Certificate of Incorporation, effective
January 8, 1992, the Company now has three classes of common stock:
Class B Construction and Mining Group Nonvoting Restricted Redeemable
Convertible Common Stock ("Class B"), Class C Construction and Mining
Group Restricted Redeemable Convertible Exchangeable Common Stock
("Class C"), and Class D Diversified Group Convertible Exchangeable
Common Stock ("Class D"). In connection with a reclassification in
January 1992, each "old" Class B share was exchanged for one "new"
Class B share and one Class D share, and each "old" Class C share was
exchanged for one "new" Class C share and one Class D share. New
Class B and Class C shares can be issued only to Company employees and
can be resold only to the Company at a formula price based on the book
value of the Construction & Mining Group. The Company is generally
required to repurchase Class B and Class C shares for cash upon
stockholder demand. Class D shares have a formula price based on the
book value of the Diversified Group. The Company must generally
repurchase Class D shares for cash upon stockholder demand at the
formula price, unless the Class D shares become publicly traded.
Although the Class D shares are predominantly owned by employees and
former employees, such shares are not subject to ownership or
transfer restrictions.
In accordance with the January 8, 1992 reorganization, the number of
authorized shares of Class B, C and D common stock were increased to 8
million, 125 million and 50 million, respectively.
In the event of liquidation, after the holders of any preferred stock
have been paid the par value and any accrued and unpaid dividends, the
Board of Directors will establish two liquidation accounts, the "B&C
Liquidation Account" and the "D Liquidation Account." The assets of
the liquidation accounts will be distributed as follows: first, Class
B&C stockholders will receive an amount equal to $1.00 per share,
reducing the B&C Liquidation Account; second, Class D stockholders
will receive an amount equal to $2.00 per share, reducing the D
Liquidation Account; and third, any amount remaining in the B&C
Liquidation Account shall be distributed pro rata to the Class B&C
stockholders, and any amount remaining in the D Liquidation Account
shall be distributed pro rata to the Class D stockholders.
For comparative purposes, the table below presents issuances and
repurchases of common shares assuming the plan of exchange was
effected at the beginning of 1991 since each outstanding share of
existing Class B and Class C stock was exchanged for one share of new
Class B&C stock and one share of new Class D stock.
<PAGE>
PETER KIEWIT SONS' INC.
Notes to Consolidated Financial Statements
(15) Stockholders' Equity (continued)
________________________________
For the three years ended December 25, 1993, issuances and repurchases
of common shares including conversions were as follows:
_______________________________________________________________________
Class B Class C Class D
Common Common Common
Stock Stock Stock
______ _______ _______
Shares issued in 1991 - 514,518 514,518
Shares repurchased in 1991 206,000 2,897,335 3,103,335
Shares issued in 1992 - 2,886,418 1,019,553
Shares repurchased in 1992 137,000 4,765,161 1,693,353
Shares issued in 1993 - 1,027,657 748,026
Shares repurchased in 1993 76,600 2,217,122 841,808
______________________________________________________________________
(16) Other Income
____________
Other income includes net investment income of $16 million, $86 million,
and $108 million in 1993, 1992 and 1991, respectively, gains and losses
on sales of property, plant and equipment and other assets, and other
miscellaneous income. Net investment income in 1993 includes
$59 million of losses on the sale and permanent writedown of certain
derivative securities.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(17) Industry and Geographic Data
____________________________
The Company operates primarily in three reportable segments:
construction, mining and telecommunications. The packaging segment is
reported as discontinued operations.
A summary of the Company's operations by geographic area and industry
follows:
Geographic Data
(dollars in millions) 1993 1992 1991
_____________________________________________________________________
Revenue:
United States $ 1,930 $ 1,808 $ 1,834
Canada 175 182 238
Other 74 30 14
_______ _______ _______
$ 2,179 $ 2,020 $ 2,086
======= ======= =======
Operating earnings:
United States $ 107 $ 131 $ 48
Canada 4 (2) 13
Other 22 - (32)
_______ _______ _______
133 129 29
Gain on sales of subsidiary's
stock 211 - -
Interest income, net 41 63 35
Nonoperating income (expense),
net (16) 27 26
_______ _______ _______
Earnings from continuing
operations before income
taxes, minority interest and
cumulative effect of change
in accounting principle $ 369 $ 219 $ 90
======= ======= =======
Identifiable assets:
United States $ 2,445 $ 1,049 $ 861
Canada 82 90 102
Other areas 17 10 -
Corporate (1) 1,140 1,450 1,657
Discontinued packaging
operations - - 12
_______ _______ _______
$ 3,684 $ 2,599 $ 2,632
======= ======= =======
_____________________________________________________________________
(1) Principally cash, cash equivalents, marketable securities, notes
receivable from sales of discontinued operations and investments
in all years.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(17) Industry and Geographic Data (continued)
________________________________________
Industry Data (dollars in millions) 1993 1992 1991
______________________________________________________________________
Revenue:
Construction $ 1,757 $ 1,659 $ 1,825
Mining 230 246 219
Telecommunications 189 109 37
Other 3 6 5
_______ _______ _______
$ 2,179 $ 2,020 $ 2,086
======= ======= =======
Operating earnings:
Construction $ 94 $ 72 $ 29
Mining 99 96 71
Telecommunications (26) (12) (27)
Other (34) (27) (44)
_______ _______ _______
133 129 29
Gain on sale of subsidiary's stock 211 - -
Interest income, net 41 63 35
Nonoperating income (expense),
net (16) 27 26
_______ _______ _______
Earnings from continuing operations
before income taxes, minority
interest and cumulative effect of
change in accounting principle $ 369 $ 219 $ 90
======= ======= =======
Identifiable assets:
Construction $ 594 $ 543 $ 527
Mining 206 217 196
Telecommunications 1,682 363 205
Other 62 26 35
Corporate 1,140 1,450 1,657
Discontinued packaging - - 12
_______ _______ _______
$ 3,684 $ 2,599 $ 2,632
======= ======= =======
Capital expenditures:
Construction $ 48 $ 37 $ 57
Mining 5 8 6
Telecommunications 127 80 51
Other - - 5
Corporate 12 4 3
_______ _______ _______
$ 192 $ 129 $ 122
======= ======= =======
Depreciation, depletion and
amortization:
Construction $ 43 $ 45 $ 53
Mining 13 12 11
Telecommunications 35 21 12
Other 2 3 3
Corporate 6 5 3
_______ _______ _______
$ 99 $ 86 $ 82
======= ======= =======
____________________________________________________________________
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(18) 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
performed by Kiewit Construction Group Inc. and certain mining services,
performed by Kiewit Mining Group Inc. The Diversified Group contains
coal mining properties owned by Kiewit Coal Properties Inc.,
communications companies owned by MFS, the 34.5% interest in C-TEC,
a minority interest in 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 groups.
A summary of the results of operations and financial position for the
Construction & Mining Group and the Diversified Group follows. These
summaries were derived from the audited financial statements of the
respective groups which are exhibits to this Annual Report.
All significant intercompany accounts and transactions, except those
directly between the Construction & Mining Group and the Diversified
Group, have been eliminated.
Construction & Mining Group:
1993 1992 1991
_______ _______ _______
Results of Operations:
Revenue $ 1,777 $ 1,671 $ 1,834
======= ======= =======
Earnings before cumulative effect
of change in acounting principle $ 80 $ 69 $ 23
Cumulative effect of change in
accounting principle - 13 -
_______ _______ _______
Net Earnings $ 80 $ 82 $ 23
======= ======= =======
Earnings per Share:
Earnings before cumulative
effect of change in
accounting principle $ 4.63 $ 3.79 $ 1.12
Cumulative effect of change in
accounting principle - .69 -
_______ _______ _______
Net Earnings $ 4.63 $ 4.48 $ 1.12
======= ======= =======
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(18) Summarized Financial Information (continued)
_____________________________________________
Construction & Mining Group (continued):
1993 1992 1991
_______ _______ _______
Financial Position:
Working capital $ 372 $ 342 $ 285
Total assets 889 862 849
Long-term debt, less current
portion 10 12 13
Stockholders' equity 480 437 400
Included within earnings before income taxes is mine service income
from the Diversified Group of $29 million in 1993 and 1992 and $8
million in 1991.
Diversified Group:
1993 1992 1991
_______ _______ _______
Results of Operations:
Revenue $ 402 $ 349 $ 252
======= ======= =======
Earnings from continuing
operations before cumulative
effect of change in accounting
principle $ 181 $ 81 $ 26
Cumulative effect of change in
accounting principle - (1) -
Discontinued Operations - 19 392
_______ _______ _______
Net Earnings $ 181 $ 99 $ 418
======= ======= =======
Earnings per Share:
Earnings from continuing
operations before cumulative
effect of change in accounting
principle $ 9.08 $ 4.00 $ 1.26
Cumulative effect of change
in accounting principle - (.05) -
Discontinued operations - .97 19.04
_______ ______ _______
Net Earnings $ 9.08 $ 4.92 $ 20.30
======= ====== =======
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(18) Summarized Financial Information (continued)
_____________________________________________
Diversified Group:
1993 1992 1991
_______ _______ _______
Financial Position:
Working capital $ 993 $ 796 $ 788
Total assets 2,809 1,759 1,801
Long-term debt, less current
portion 452 18 97
Stockholders' equity 1,191 1,021 996
Included within earnings from continuing operations before income
taxes is mine management fees paid to the Kiewit Construction & Mining
Group of $29 million in 1993 and 1992 and $8 million in 1991.
(19) Other Matters
_____________
The Company is involved in various lawsuits, claims and regulatory
proceedings incidental to its business. Management believes that any
resulting liability, beyond that provided, should not materially affect
the Company's financial position or results of operations.
In many pending proceedings, the Company is one of numerous defendants
who may be "potentially responsible parties" liable for the cleanup of
hazardous substances deposited in landfills or other sites.
The Company has established reserves to cover its probable liabilities
for environmental cases and believes that any additional liabilities
will not materially affect the Company's financial condition or results
of operations.
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.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(19) Other Matters (continued)
_________________________
It is customary in the Company's industries to use various financial
instruments in the normal course of business. These instruments include
items such as letters of credit. Letters of credit are conditional
commitments issued on behalf of the Company in accordance with specified
terms and conditions. As of December 25, 1993, the Company had
outstanding letters of credit of approximately $141 million.
A subsidiary of the Company, Continental Holdings Inc. remains
contingently liable as a guarantor of $111 million of debt relating to
various businesses which have been sold.
The Company leases various buildings and equipment under both operating
and capital leases. Minimum rental payments on buildings and equipment
subject to noncancelable operating leases during the next 24 years
aggregate $104 million.
In 1974, a subsidiary of the Company ("Kiewit"), entered into a lease
agreement with Whitney Benefits, Inc., a Wyoming charitable corporation
("Whitney"). Whitney is the owner, and Kiewit is the lessee, of a coal
deposit underlying approximately 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, Whitney and Kiewit 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. In 1991, the U.S. Supreme Court denied
certiorari. On February 10, 1994, the Claims Court issued an opinion
which provided that the $60 million judgement would bear interest
compounded annually from 1977 until payment. Interest for the 1977-1993
period is $230 million. Kiewit and Whitney have agreed that Kiewit and
Whitney will receive 67.5 and 32.5 percent, respectively, of any award.
The government filed two post-trial motions in the Claims Court
during 1992. The government requested a new trial to redetermine the
value of the property. The government also filed a motion
to reopen and set aside the 1989 judgement as void and to dismiss
plaintiffs' complaint for lack of jurisdiction. In August 1992, the
Claims Court indicated that both motions would be denied. A written
order has not yet been entered. The government may appeal from the 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 of that
amount will occur.
<PAGE>
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(19) Other Matters (continued)
_________________________
C-TEC has an outstanding interest rate swap agreement which expires
in December 1994. Under this agreement, the Company received a fixed
rate of 9.52% on $100 million and pays a floating rate of LIBOR plus
502 basis points (8.52% at December 31, 1993), as determined in
six-month intervals. The transaction effectively changes C-TEC's
interest rate exposure from a fixed-rate to a floating-rate basis on
the $100 million underlying debt. The counter-party to the interest
rate swap contract is a major financial institution. C-TEC is exposed
to economic loss in the event of nonperformance by the counter-party,
however, it does not anticipate such non-performance.
(20) Subsequent Events
_________________
On January 19, 1994, MFS issued 9 3/8% Senior Discount Notes due
January 15, 2004. Cash interest will not accrue on the notes prior
to January 15, 1999. Commencing July 15, 1999 cash interest will
be payable semi-annually. Accordingly, MFS will initially record
the proceeds it received from the offering of $500 million and
accrue to the principal amount of the notes of $788 million
through January 1999. 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. The notes contain certain covenants
which, among other things, will 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 or merge with
another company.
On February 28, 1994 the Company completed the purchase of APAC-
Arizona, Inc. ("APAC") from Ashland Oil Company, Inc. for
approximately $49 million, subject to adjustments. APAC is
engaged in the construction materials and contracting businesses
in Arizona and surrounding states. The acquisition will be accounted
for as a purchase, and accordingly, the purchase price will be
allocated to the assets and liabilities of APAC based upon their
estimated fair values at the acquisition date. Results of operations
of APAC will be included in the Company's consolidated results of
operations subsequent to the date of acquisition.
On March 16, 1994, MFS made an offer to purchase all outstanding
shares of common stock and associated preferred share purchase
rights to Centex Telemanagement, Inc. at $9 per share. The net
consideration of the offer approximates $150 million. The offer, which
will expire on April 12, 1994, is conditioned upon, among other
things, acquiring a majority of the common shares and the preferred
share purchase rights being redeemed or invalidated.
<PAGE>
SCHEDULE VIII
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Amounts
Balance, Charged to Charged Balance
Beginning Costs and to End of
(dollars in millions) of Period Expenses Reserves Other Period
_____________________________________________________________________________
Year ended December
25, 1993
____________
Allowance for doubtful
trade accounts $ 7 $ 5 $ (6) $ 1 $ 7
Reserves:
Insurance claims 66 14 (13) - 67
Retirement benefits 74 12 (17) 2 71
Year ended December
26, 1992
____________
Allowance for doubtful
trade accounts $ 7 $ 1 $ (1) $ - $ 7
Reserves:
Insurance claims 61 20 (15) - 66
Retirement benefits 58 8 (8) 16 (a) 74
Year ended December
28, 1991
___________________
Allowance for doubtful
trade accounts $ 8 $ 1 $ (2) $ - $ 7
Reserves:
Insurance claims 45 25 (9) - 61
Retirement benefits 21 37 (5) 5 58
_____________________________________________________________________________
(a) In 1992, adjustments made in accordance with SFAS No. 109 to adjust
remaining retirement benefits, acquired in prior business acquisitions,
recorded net of tax, to their pre-tax amounts.
<PAGE>
SCHEDULE IX
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Short-Term Borrowings
Weighted Maximum Weighted
Average Month-End Average Average
Interest Amount Amount Interest
Balance, Rate, Outstanding Outstanding Rate
End of End of During the During the During
(dollars in milions) Period Period Period Period (a) the Period
____________________________________________________________________________
Year ended December
25, 1993
___________________
Bank Borrowings $ - -% $ 50 $ 24 3.4%
Year ended December
26, 1992
___________________
Bank Borrowings $ 80 3.4% $ 80 $ - -%
Year ended December
28, 1991
___________________
Bank Borrowings $ - -% $ 264 $ 92 10.8%
__________________________________________________________________________
(a) Determined on the basis of average daily balances of short-term
borrowings. The 1992 bank borrowings were made during the last week of
the year.
The bank borrowings provided for interest at various rates and
matured on various dates within one year.
<PAGE>
SCHEDULE X
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Supplementary Income Statement Information
Charged to Costs and Expenses
_____________________________
(dollars in millions) 1993 1992 1991
____________________________________________________________________________
Royalties (a) $ 22 $ 27 $ 24
Production taxes (a) 16 26 19
____________________________________________________________________________
(a) The Company incurred royalty costs and production taxes with
respect to its mining operations based on the tons of coal mined or
sold from various properties.
Advertising costs and amortization of intangible assets are not presented as
such amounts represent less than one percent of revenue as reported in the
related consolidated statements of earnings.
The costs to repair equipment used on construction contracts, which are
charged against such contracts, are excluded because it is impractical to
segregate them from other contract costs. Maintenance and repair costs
in 1993 and 1992 were less than one percent of revenue. Maintenance
and repair costs, primarily related to the Company's discontinued
packaging operations, were $50 million in 1991.
PETER KIEWIT SONS', INC.
AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit
____________________________________________________________________________
21 List of Subsidiaries of the Company.
99.A Kiewit Construction & Mining Group
Financial Statements and Financial
Statement Schedules and Management's
Discussion and Analysis of Financial
Condition and Results of Operations.
99.B Kiewit Diversified Group Financial
Statements and Financial Statement
Schedules and Management's Discussion
and Analysis of Financial Condition
and Results of Operations.
LIST OF SUBSIDIARIES
OF
PETER KIEWIT SONS', INC.
DECEMBER 25, 1993
(Subsidiaries with total assets of less than
$10 million have been omitted)
Peter Kiewit Sons', Inc. (Delaware)
Kiewit Construction Group Inc. (Delaware)
Bentson Contracting Company (Arizona)
Gilbert Central Corp. (Delaware)
Gilbert Industrial Corporation (Delaware)
Gulf Marine Fabricators, Inc. (Delaware)
Aker Gulf Marine (49%)(Texas partnership)
Gilbert Southern Corp. (Delaware)
Gilbert Texas Construction Corp. (Texas)
Gilbert Western Corp. (Delaware)
Global Surety & Insurance Co. (Nebraska)
Grow Tunneling Corp. (Delaware)
Guernsey Stone and Construction Company (Wyoming)
Kiewit Construction Company (Delaware)
CMF Leasing Company (Nebraska partnership)
K-G Leasing Company (65%)(Nebraska partnership)
Kiewit Industrial Co. (Delaware)
Kiewit Pacific Co. (Delaware)
Kiewit Western Co. (Delaware)
Peter Kiewit Sons Co. Ltd. (Canada)
Les Enterprises Kiewit Ltee (Quebec)
V. K. Mason Construction Ltd. (Canada)
Union Rock & Materials Corporation (Arizona)
Kiewit Diversified Group Inc. (Delaware)
Continental Holdings Inc. (Wyoming)
CCC Canada Holding, Inc. (Delaware)
The Continental Group of Canada, Inc. (Canada)
SKD Company (50%) (Canada partnership)
Continental Forest Investments, Inc. (Delaware)
Continental Kiewit Inc.
Continental Land Sales, Inc. (Delaware)
Continental Mineral Sales, Inc. (Delaware)
KMI Continental Jeffersonville, Inc. (Delaware)
KMI Continental Lignite, Inc. (Delaware)
KMI Continental Timberlands, Inc. (Delaware)
Kiewit Coal Properties Inc. (Delaware)
Big Horn Coal Company (Wyoming)
Kiewit Texas Mining Company (Delaware)
Walnut Creek Mining Company (50%) (joint venture)
Black Butte Coal Company (50%) (joint venture)
Decker Coal Company (50%) (joint venture)
Rosebud Coal Sales Company (Wyoming)
R-K Leasing Company (50%)(Nebraska partnership)
Kiewit Energy Company (Delaware)
California Energy Company, Inc. (21%) (Delaware)
MFS Communications Company, Inc. (Delaware)
MFS Telecom, Inc. (Delaware)
Chicago Fiber Optic Corporation (90%) (Illinois)
Institutional Communications Company (85%) (Delaware)
MFSA Holding Inc. (80%) (Delaware)
Metrex Corporation (Georgia)
Metropolitan Fiber Systems of California, Inc. (Delaware)
<PAGE>
Metropolitan Fiber Systems of Dallas, Inc. (Delaware)
Metropolitan Fiber Systems of Houston, Inc. (86.75%)
(Delaware)
Metropolitan Fiber Systems/McCourt, Inc. (82.5%)
(Delaware)
Metropolitan Fiber Systems of New York, Inc. (Delaware)
MFS Network Technologies, Inc. (Delaware)
RCN Corporation (90%)(Delaware)
RCN Holdings, Inc. (Delaware)
C-TEC Corporation (56.6%)(Pennsylvania)
C-TEC Cable Systems, Inc. (Delaware)
C-TEC Cable Systems of Michigan, Inc.
(Pennsylvania)
C-TEC Cable Systems of New York, Inc.
(Pennsylvania)
C-TEC Cable Systems Services, Inc.
(Pennsylvania)
ComVideo Systems, Inc. (Pennsylvania)
C-TEC Financial Services, Inc. (Nebraska)
C-TEC Properties, Inc. (Delaware)
C-TEC Services, Inc. (Pennsylvania)
Cellular Plus, Inc. (Delaware)
Cellular Plus of Iowa, Inc. (Delaware)
Commonwealth Cellular Telephone Services, Inc.
(Delaware)
NEPA SMSA Limited Partnership (Pennsylvania)
Commonwealth Telephone Company (Pennsylvania)
Peter Kiewit Sons' Co. (Nebraska)
Kiewit SR 91 Corp. (Delaware)
California Private Transportation Company, L.P. (64.8%)
(California)
Kiewit Mining Group Inc. (Delaware)
PKS Information Services, Inc. (96%)(Delaware)
KIEWIT CONSTRUCTION & MINING GROUP
Index to Financial Statements
and Financial Statement Schedules and
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Pages
____________________________________________________________________________
Report of Independent Accountants
Financial Statements as of December 25, 1993 and
December 26, 1992 and for the three years ended
December 25, 1993:
Statements of Earnings
Balance Sheets
Statements of Cash Flows
Statements of Changes in Stockholders' Equity
Notes to Financial Statements
Financial Statement Schedules for the three years ended
December 25, 1993:
VIII--Valuation and Qualifying Accounts and Reserves
Management's Discussion and Analysis of Financial
Condition and Results of Operations
____________________________________________________________________________
Schedules not indicated above have been omitted because of the absence of the
conditions under which they are required or because the information called
for is shown in the financial statements or in the notes thereto.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Peter Kiewit Sons', Inc.
We have audited the financial statements and the financial statement
schedules of Kiewit Construction & Mining Group, a business group of Peter
Kiewit Sons', Inc. (as defined in Note 1 to these financial statements) as
listed in the index on the preceding page of this exhibit to Form 10-K.
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedules
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above, when read in
conjunction with the consolidated financial statements of Peter Kiewit Sons',
Inc. and Subsidiaries, present fairly, in all material respects, the
financial position of Kiewit Construction & Mining Group as of December 25,
1993 and December 26, 1992, and the results of its operations and its cash
flows for each of the three years in the period ended December 25, 1993 in
conformity with generally accepted accounting principles. In addition, in
our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
As discussed in Note 2 to the financial statements, the Group has changed
its method of accounting for income taxes in 1992, and its method of accounting
for certain investments in debt and equity securities in 1993.
COOPERS & LYBRAND
Omaha, Nebraska
March 18, 1994
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Earnings
For the three years ended December 25, 1993
(dollars in millions, except per share data) 1993 1992 1991
____________________________________________________________________________
Revenue $ 1,777 $ 1,671 $ 1,834
Other Income 45 70 49
_______ _______ _______
1,822 1,741 1,883
Costs and Expenses:
Cost of revenue 1,583 1,513 1,725
Selling and administrative 118 114 111
Interest 3 2 5
_______ _______ _______
1,704 1,629 1,841
_______ _______ _______
Earnings from Continuing Operations
Before Income Taxes and Cumulative
Effect of Change in Accounting
Principle 118 112 42
Provision for Income Taxes 38 43 19
_______ _______ _______
Earnings Before Cumulative Effect
of Change in Accounting Principle 80 69 23
Cumulative Effect of Change in
Accounting Principle - 13 -
_______ _______ _______
Net Earnings $ 80 $ 82 $ 23
======= ======= =======
Net Earnings Per Common and Common
Equivalent Share:
Earnings Before Cumulative Effect
of Change in Accounting Principle $ 4.63 $ 3.79 $ 1.12
Cumulative Effect of Change in
Accounting Principle - .69 -
_______ _______ _______
Net Earnings $ 4.63 $ 4.48 $ 1.12
======= ======= =======
____________________________________________________________________________
See accompanying notes to financial statements.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Balance Sheets
December 25, 1993 and December 26, 1992
(dollars in millions) 1993 1992
___________________________________________________________________________
Assets
Current Assets:
Cash and cash equivalents $ 99 $ 68
Marketable securities 183 248
Receivables, less allowance of $5 and $2 215 220
Costs and earnings in excess of billings on
uncompleted construction contracts 75 53
Investment in construction joint ventures 81 48
Deferred income taxes 48 52
Other 18 14
______ ______
Total Current Assets 719 703
Property, Plant and Equipment, at cost:
Land 14 14
Buildings 28 22
Equipment 449 434
______ ______
491 470
Less accumulated depreciation and amortization (384) (366)
______ ______
Net Property, Plant and Equipment 107 104
Deferred Income Taxes 9 5
Other Assets 54 50
______ ______
$ 889 $ 862
====== ======
___________________________________________________________________________
See accompanying notes to financial statements.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Balance Sheets
December 25, 1993 and December 26, 1992
(dollars in millions) 1993 1992
_____________________________________________________________________________
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, including retainage of $37 and $35 $ 148 $ 159
Current portion of long-term debt 4 2
Accrued construction costs and billings in excess
of revenue on uncompleted contracts 87 95
Accrued insurance costs 65 66
Other 43 39
______ ______
Total Current Liabilities 347 361
Long-Term Debt, less current portion 10 12
Other Liabilities 52 52
Stockholders' Equity (Redeemable Common Stock,
$391 million aggregate redemption value)
Common equity 483 438
Foreign currency adjustment (3) (1)
______ ______
Total Stockholders' Equity 480 437
______ ______
$ 889 $ 862
====== ======
_____________________________________________________________________________
See accompanying notes to financial statements.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Cash Flows
For the three years ended December 25, 1993
(dollars in millions) 1993 1992 1991
_____________________________________________________________________________
Cash flows from operations:
Net earnings $ 80 $ 82 $ 23
Adjustments to reconcile net earnings to
net cash provided by operations:
Cumulative effect of change in
accounting principle - (13) -
Depreciation and amortization 48 47 54
(Gain) loss on sale of property, plant
and equipment, and other assets 15 (11) (14)
Change in other noncurrent liabilities 7 16 14
Deferred income taxes 4 (12) (22)
Change in working capital items:
Receivables 5 (9) 5
Costs and earnings in excess of
billings on uncompleted
construction contracts (22) 18 4
Investment in construction joint
ventures (33) (3) 25
Other current assets 7 1 5
Accounts payable (9) (9) 18
Accrued construction costs and
billings in excess of revenue
on uncompleted contracts (8) (21) (21)
Other liabilities 3 (6) 42
Other (10) 11 (11)
______ ______ ______
Net cash provided by operations 87 91 122
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 773 931 605
Purchases of marketable securities (741) (983) (685)
Proceeds from sale of property, plant
and equipment 14 19 23
Capital expenditures (54) (40) (57)
Investment in affiliates (9) (16) -
Other (3) (5) (4)
______ ______ ______
Net cash used in investing activities (20) (94) (118)
______________________________________________________________________________
See accompanying notes to financial statements.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Cash Flows (continued)
For the three years ended December 25, 1993
(dollars in millions) 1993 1992 1991
_____________________________________________________________________________
Cash flows from financing activities:
Long-term debt borrowings $ 2 $ 2 $ 10
Payments on long-term debt, including
current portion (2) (9) (20)
Issuances of common stock 16 24 5
Repurchases of common stock (14) (21) (32)
Dividends paid (10) (7) (6)
Exchange of Class B&C Stock for Class
D Stock, net (26) (32) -
Contribution from parent - - 58
______ ______ ______
Net cash provided by (used in)
financing activities (34) (43) 15
Effect of exchange rates on cash (2) (4) -
______ ______ ______
Net increase (decrease) in cash and
cash equivalents 31 (50) 19
Cash and cash equivalents at beginning
of year 68 118 99
______ ______ ______
Cash and cash equivalents at end of year $ 99 $ 68 $ 118
====== ====== ======
Supplemental disclosures of cash
flow information:
Taxes $ 54 $ 66 $ 7
Interest 3 3 5
_____________________________________________________________________________
See accompanying notes to financial statements.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Changes in Stockholders' Equity
For three years ended December 25, 1993
(dollars in millions, except per share data) 1993 1992 1991
_____________________________________________________________________________
Common equity:
Balance at beginning of year $ 438 $ 398 $ 350
Issuances of stock 16 24 5
Repurchases of stock (14) (21) (32)
Exchange of Class B&C Stock for Class D
Stock, net (26) (32) -
Net earnings 80 82 23
Dividends (per share: $.70 in 1993, $.70 in
1992 and $.30 in 1991) (a) (11) (13) (6)
Contribution from parent - - 58
______ ______ ______
Balance at end of year $ 483 $ 438 $ 398
====== ====== ======
Other equity adjustments:
Balance at beginning of year $ (1) $ 2 $ -
Foreign currency adjustment (2) (3) 2
______ ______ ______
Balance at end of year $ (3) $ (1) $ 2
====== ====== ======
Total stockholders' equity $ 480 $ 437 $ 400
====== ====== ======
______________________________________________________________________________
(a) 1993 and 1992 dividends include $.40 and $.30 for dividends declared in
1993 and 1992, respectively, but paid in January of the subsequent year. 1991
reflects dividends paid by PKS on its previous common stock that have been
attributed to the Construction & Mining Group and the Diversified Group based
upon the relative formula values of each group which were determined at the
end of each preceding year. Accordingly, the dividends reflected for those
years may bear no relationship to the dividends that would have been declared
by the Board in such years had the D Stock and B&C Stock been outstanding.
See accompanying notes to financial statements.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(1) Basis of Presentation
_____________________
The Class B&C Stock and the Class D Stock are designed to provide
stockholders with separate securities reflecting the performance of
Peter Kiewit Sons', Inc.'s ("PKS") construction business and
certain mining services ("Construction & Mining Group") and its other
businesses ("Diversified Group"), respectively. Dividends on the
Class B&C Stock are limited to the legally available funds of PKS
less the Class D formula value which is to be reduced by any dividends
on Class D Stock declared during the current year. Subject to this
limitation, the Board of Directors intends to declare and pay dividends
on the Class B&C Stock based primarily on the Construction & Mining
Group's separately reported financial condition and results of
operations.
The financial statements of the Construction & Mining Group include the
financial position, results of operations and cash flows for PKS'
construction business and certain mining service businesses held by
wholly-owned subsidiaries, Kiewit Construction Group Inc. and Kiewit
Mining Group Inc., respectively, and a portion of the 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. These financial statements
have been prepared using the historical amounts included in the PKS
consolidated financial statements. Corporate amounts reflected in these
financial statements are determined based upon methods which management
believes to be reasonable (Note 3).
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
financial statements and related notes should be read in conjunction
with these financial statements.
(2) Summary of Significant Accounting Policies
_________________________________________
Principles of Group Presentation
________________________________
These financial statements include the accounts of the Construction &
Mining Group ("the Group"). The Group's and Diversified Group's
financial statements, taken together, comprise all the accounts
included in the PKS consolidated financial statements. All significant
intercompany accounts and transactions, except those directly between
the Group and the Diversified Group, have been eliminated. Investments
in construction joint ventures and other companies in which the Group
exercises significant influence over operating and financial policies
are accounted for by the equity method. The Group accounts for its
share of the operations of the construction joint ventures on a pro rata
basis in the statements of earnings.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies (continued)
______________________________________________________
Construction Contracts
______________________
The Group operates generally within North America as a general
contractor and engages in various types of construction projects
for both public and private owners. Credit risk is minimal with
public (government) owners since the Group ascertains that funds have
been appropriated by the governmental project owner prior to commencing
work on public projects. Most public contracts are subject to
termination at the election of the government. In the event of
termination, the Group is entitled to receive the contract price on
completed work and reimbursement of termination related costs, plus a
reasonable profit on such costs. Credit risk with private owners is
minimized because of statutory mechanics liens, which give the Group
high priority in the event of lien foreclosures following financial
difficulties of private owners.
The Group recognizes revenue on long-term construction contracts and
joint ventures on the percentage-of-completion method based upon
engineering estimates of the work performed on individual contracts.
Provisions for losses are recognized on uncompleted contracts when they
become known. Claims for additional revenue are recognized in the
period when allowed.
Assets and liabilities arising from construction activities, the
operating cycle of which extends over several years, are classified as
current in the financial statements. A one-year time period is used as
the basis for classification of all other current assets and
liabilities.
The costs to repair equipment used on construction contracts are charged
against such contracts and included in cost of revenue.
Depreciation and Amortization
_____________________________
Depreciation and amortization are computed on accelerated and
straight-line methods.
Foreign Currencies
__________________
The local currencies of certain construction company subsidiaries are
the functional currencies for financial reporting purposes. Assets and
liabilities are translated into U.S. dollars at year-end exchange rates.
Revenue and expenses are translated using average exchange rates
prevailing during the year. Gains or losses resulting from currency
translation are recorded as adjustments to stockholders' equity.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies (continued)
______________________________________________________
Earnings Per Share
__________________
Primary earnings per share of Class B&C Stock have been computed using
the weighted average number of shares outstanding during each year. For
purposes of computing earnings per share data for periods prior to
January 8, 1992, the number of Class B&C shares are assumed to be the
same as the aggregate number of previous Class B and Class C shares.
The number of shares used in computing primary earnings per share was
17,290,971 in 1993, 18,262,680 in 1992 and 20,588,236 in 1991. Fully
diluted earnings per share have not been presented because it is not
significantly different from primary earnings per share.
Marketable Securities
_____________________
On December 25, 1993, the Group adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," which addresses the accounting and reporting of
investments in equity securities with readily determinable fair values
and all investments in debt securities. The statement does not apply to
investments in equity securities accounted for under the equity method
nor to investments in consolidated subsidiaries. No significant impact
resulted from adopting SFAS No. 115. See Note 4 for additional
disclosures.
Income Taxes
____________
At the beginning of 1992, the Group adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included
in the financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between
the financial and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to
reverse. In 1992, the Group recorded income of $13 million, which
represented the increase in the net deferred tax assets, as a result of
the accounting change. This amount has been reflected in the statements
of earnings as a cumulative effect of change in accounting principle.
Reclassifications
_________________
Where appropriate, items within the financial statements and notes
thereto have been reclassified from previous years to conform to
current year presentation.
Fiscal Year
___________
The Group's fiscal year ends on the last Saturday in December. There
were 52 weeks each in the fiscal years 1993, 1992 and 1991.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(3) Corporate Activities
____________________
Financial structure - Cash, cash equivalents and marketable securities
were allocated to the Group and the Diversified Group based on the
desired capital structure of the two groups at December 28, 1991.
Financial statement impacts of dividends paid to holders of Class B&C
Stock and repurchases and issuances of Class B&C Stock in 1993 and 1992
were reflected in their entirety in the Group's financial statements.
The value of common stock issuances and repurchases and related dividends
in 1991 were generally attributed to the Group and the Diversified Group
based upon the relative formula values of each group, which were
determined at the end of 1990.
The desired capital structure at December 28, 1991 for the Group was
stockholders' equity of $400 million. It was determined by PKS
management that this was the appropriate level of equity at December 28,
1991 necessary for the Group to continue its traditional construction
and mining service businesses, based upon certain factors such as
contract volume, prequalification requirements to bid on projects,
bonding requirements of its outside insurance company, and working
capital requirements. The capital structure of the Diversified Group
consisted of the remaining equity of PKS and provided the equity and
liquidity to allow the Diversified Group the opportunity to invest in
capital intensive businesses, a primary objective of the reorganization.
In order to attain the desired capital structure, PKS contributed $58
million of equity to the Group on December 28, 1991.
PKS has corporate assets, liabilities and related income and expense
which are not separately identified with the ongoing operations of the
Group or the Diversified Group. The Group's 50% portion is as follows
(in millions):
1993 1992
_____ _____
Cash and cash equivalents $ 47 $ 45
Marketable securities 11 12
Property, plant and equipment, net 12 9
Deferred taxes and other 11 15
_____ _____
Total Assets $ 81 $ 81
===== =====
Accounts payable $ 27 $ 25
Convertible debentures 2 2
Notes to former stockholders 8 9
Liability for stock appreciation rights 2 3
Other liabilities 5 5
_____ _____
Total Liabilities $ 44 $ 44
===== =====
1993 1992 1991
____ ____ ____
Net investment income (expense) $(1) $ 3 $ 4
Depreciation (2) (2) (1)
Stock appreciation rights costs (1) (1) (3)
Other income (expense) 4 4 (2)
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(3) Corporate Activities (continued)
________________________________
Corporate general and administrative costs - a portion of corporate
general and administrative costs has been allocated to the Group
based upon certain measures of business activities, such as employment,
investments and sales, which method management believes to be
reasonable. The allocations were $26 million, $27 million, and
$25 million in 1993, 1992 and 1991, respectively.
Income taxes - All domestic members of the PKS affiliated group are
included in the consolidated U.S. income tax return filed by PKS.
Accordingly, the provision for income taxes and the related payments
or refunds of tax are determined on a consolidated basis.
The financial statement provision and actual cash tax payments have been
reflected in the Group's and the Diversified Group's financial statements
in accordance with PKS' tax allocation policy for such groups. In
general, such policy provides that the consolidated tax provision and
related cash flows and balance sheet amounts are allocated between the
Group and the Diversified Group, for group financial statement purposes,
based principally upon the financial income, taxable income, credits,
preferences and other amounts directly related to the respective groups.
The provision for estimated United States income taxes for the Group
does not differ materially from that which would have been determined
on a separate return basis.
(4) Disclosures about Fair Value of Financial Instruments
_____________________________________________________
The following methods and assumptions were used to determine
classification and fair values of financial instruments:
Cash and Cash Equivalents
_________________________
Cash equivalents generally consist of highly liquid debt instruments
purchased with a maturity of three months or less. The securities are
stated at cost, which approximates fair value.
Marketable Securities
_____________________
The Group has classified all marketable securities as available-
for-sale. The amortized cost of the securities used in computing
unrealized and realized gains and losses are determined by
specific identification. Fair values are estimated based on
quoted market prices for the securities on hand or for similar
investments. Fair values of certificates of deposit approximate cost.
Net unrealized holding gains and losses, if any, are reported as a
separate component of stockholders' equity, net of tax.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(4) Disclosures about Fair Value of Financial Instruments (continued)
_________________________________________________________________
At December 26, 1992 the cost of marketable securities approximated fair
value. At December 25, 1993 the cost, unrealized holding gains and
losses, and estimated fair values of marketable securities are as follows:
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
_________ __________ __________ _____
Equity securities $ 29 $ - $ - $ 29
U.S. debt securities 40 - - 40
State and political
subdivision debt
securities 48 1 - 49
Corporate debt securities 49 - 1 48
Collateralized
mortgage obligations 2 - - 2
Certificates of deposit 15 - - 15
_______ _____ _____ _____
$ 183 $ 1 $ 1 $ 183
======= ===== ===== =====
For debt securities, amortized costs do not vary significantly from
principal amounts. Realized gains and losses on sales of marketable
securities were $2 and $25, respectively, in 1993.
The contractual maturities of the debt securities are as follows:
Amortized Cost Fair Value
______________ __________
U.S. debt securities:
less than 1 year $ 23 $ 23
1-5 years 17 17
_____ _____
$ 40 $ 40
===== =====
State and political subdivision
debt securities:
less than 1 year $ 2 $ 2
1-5 years 40 41
5-10 years - -
over 10 years 6 6
_____ _____
$ 48 $ 49
===== =====
Corporate debt securities:
less than 1 year $ 3 $ 3
1-5 years 46 45
_____ _____
$ 49 $ 48
===== =====
Certificates of deposit:
less than 1 year $ 15 $ 15
===== =====
Maturities for the collateralized mortgage obligations have not been
presented as they do not have a single maturity date.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(4) Disclosures about Fair Value of Financial Instruments (continued)
_________________________________________________________________
Long-term Debt:
_______________
The fair value of debt was estimated using the incremental
borrowing rates of the Group for debt of the same remaining
maturities and approximates the carrying amount.
(5) Retainage on Construction Contracts
___________________________________
Marketable securities at December 25, 1993 and December 26, 1992
include approximately $56 million and $48 million, respectively of
investments which are being held by the owners of various construction
projects in lieu of retainage.
Receivables at December 25, 1993 and December 26, 1992 include
approximately $37 million and $35 million, respectively, of retainage
on uncompleted projects, the majority of which is expected to be
collected within one year.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(6) Investment in Construction Joint Ventures
_________________________________________
The Group has entered into a number of construction joint venture
arrangements. Under these arrangements, if one venturer is financially
unable to bear its share of costs, the other venturers will be
required to pay those costs.
Summary joint venture financial information follows:
Financial Position (dollars in millions) 1993 1992
______________________________________________________________________
Total Joint Ventures
Current assets $ 563 $ 395
Other assets (principally construction
equipment) 71 39
______ ______
634 434
Current liabilities (481) (181)
______ ______
Net assets $ 153 $ 253
====== ======
Group's Share
Equity in net assets $ 80 $ 51
Receivable (payable) from (to) joint
ventures 1 (3)
______ ______
Investment in construction joint
ventures $ 81 $ 48
====== ======
______________________________________________________________________
Operations (dollars in millions) 1993 1992 1991
______________________________________________________________________
Total Joint Ventures
____________________
Revenue $ 906 $ 575 $ 565
Costs 841 522 703
______ ______ ______
Operating income (loss) $ 65 $ 53 $ (138)
====== ====== ======
Group's Share
_____________
Revenue $ 430 $ 269 $ 337
Costs 372 243 352
______ ______ ______
Operating income (loss) $ 58 $ 26 $ (15)
====== ====== ======
______________________________________________________________________
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(6) Investment in Construction Joint Ventures (continued)
_____________________________________________________
Management of the nonsponsored Denmark tunnel project completed a cost
estimate in 1993 which indicated a favorable variance in the estimated
costs of the project. As a result of this cost estimate and negotiations
with the owner, the Group's management has reduced reserves by $20
million which had been maintained to provide for the Group's share of
estimated losses on the project. Management believes that the
resolution of the uncertainties in completing the tunnel, primarily
due to adverse soil conditions, should not materially affect the
Group's financial position.
Operating income in 1991 was unfavorably impacted by losses on certain
joint venture contracts including recording estimated losses on a
nonsponsored Denmark tunnel project of $32 million.
(7) Other Assets
____________
In 1992 the Group purchased a 30% ownership interest in an electrical
contracting business for approximately $16 million. In 1993 the Group
purchased an additional 6% ownership interest for approximately $3
million. The investment is accounted for on the equity method.
(8) Long-Term Debt
______________
At December 25, 1993 and December 26, 1992, long-term debt consisting
of a portion of PKS' notes to former stockholders and convertible
debentures which have been allocated equally to the Group and the
Diversified Group, and specifically attributed debt was as follows:
(dollars in millions) 1993 1992
_____________________________________________________________________
7.5%-11.6% Notes to former stockholders, 1994-2001 $ 8 $ 9
6.25%-10.50% Convertible debentures, 1999-2003 3 2
Other 3 3
_____ _____
14 14
Less current portion (4) (2)
_____ _____
$ 10 $ 12
===== =====
_____________________________________________________________________
The convertible debentures are convertible during October of the fifth
year preceding their maturity date. Each annual series may be redeemed
in its entirety prior to the due date except during the conversion
period. Debentures were converted into 14,322, 10,468 and 36,598
shares of Class C common stock in 1993, 1992 and 1991, respectively.
At December 25, 1993, 215,180 shares of Class C common stock are
reserved for future conversions.
Assuming conversion of debentures, scheduled maturities of long-term
through 1998 are as follows (in millions): 1994 - $4, 1995 - $3;
1996 - $3; 1997 - $1, and 1998 - $1.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(9) Income Taxes
____________
An analysis of the provision for income taxes relating to earnings
before cumulative effect of change in accounting principle for the
three years ended December 25, 1993 follows:
(dollars in millions) 1993 1992 1991
___________________________________________________________________
Current:
U.S. federal $ 28 $ 47 $ 30
Foreign 2 5 7
State 4 3 4
_____ _____ _____
34 55 41
_____ _____ _____
Deferred:
U.S. federal 4 (10) (22)
Foreign 1 (4) -
State (1) 2 -
_____ _____ _____
4 (12) (22)
_____ _____ _____
$ 38 $ 43 $ 19
===== ===== =====
___________________________________________________________________
The United States and foreign components of earnings for tax reporting
purposes, before income taxes and cumulative effect of change in
accounting principle follow:
(dollars in millions) 1993 1992 1991
___________________________________________________________________
United States $ 111 $ 110 $ 28
Foreign 7 2 14
_____ _____ _____
$ 118 $ 112 $ 42
===== ===== =====
___________________________________________________________________
The components of the deferred income tax benefit, prior to adopting
SFAS No. 109, in 1991 were as follows:
(dollars in millions) 1991
___________________________________________________________________
Retirement benefits and other compensation $ (1)
Insurance reserves (3)
Construction contract accounting (18)
_____
$ (22)
=====
___________________________________________________________________
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(9) Income Taxes (continued)
________________________
A reconciliation of the actual provision for income taxes and the tax
computed by applying the U.S. federal rate (35% in 1993 and 34% in 1992
and 1991) to the earnings before income taxes and cumulative effect of
change in accounting principle for the three years ended December 25,
1993 follows:
(dollars in millions) 1993 1992 1991
______________________________________________________________________
Computed tax at statutory rate $ 41 $ 38 $ 15
State income taxes 1 3 2
Foreign taxes - - 2
Other (2) 2 -
Effect of federal income tax rate change (2) - -
_____ _____ _____
$ 38 $ 43 $ 19
===== ===== =====
______________________________________________________________________
Possible taxes, beyond those provided, on remittances of undistributed
earnings of foreign subsidiaries are not expected to be material.
The components of the net deferred tax assets as of December 25, 1993
and December 26, 1992 were as follows:
(dollars in millions) 1993 1992
_____________________________________________________________________
Deferred tax assets:
Construction accounts $ 16 $ 8
Investments in construction joint ventures 13 18
Insurance claims 24 26
Compensation - retirement benefits 6 6
Other 11 6
_____ _____
Total deferred tax assets 70 64
_____ _____
Deferred tax liabilities:
Other 13 7
_____ _____
Total deferred tax liabilities 13 7
_____ _____
Net deferred tax assets $ 57 $ 57
===== =====
_____________________________________________________________________
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(10) Employee Benefit Plans
______________________
The Group makes contributions, based on collective bargaining agreements
related to its construction operations, to several multi-employer union
pension plans. These contributions are included in construction
contract costs. Under federal law, the Group may be liable for a
portion of future plan deficiencies; however, there no known
deficiencies.
The Group also has a long-term incentive plan, stock appreciation
rights, for certain employees. The expense related to this plan was
$2 million in 1993, $4 million in 1992 and $5 million in 1991.
Substantially all employees of the Group, with the exception of
stockholders, are covered under the Group's profit sharing plans.
The expense related to these plans was $1 million, $2 million, and
$1 million in 1993, 1992 and 1991, respectively.
(11) Stockholders' Equity
____________________
Ownership of the Class B&C Stock is restricted to certain employees
conditioned upon the execution of repurchase agreements which
restrict the employees from transferring the stock. PKS is generally
committed to purchase all Class B&C Stock at the amount computed
pursuant to the Restated Certificate of Incorporation. Issuances and
repurchases of common shares including conversions for the three years
ended December 25, 1993 (1991 attributed shares) were as follows:
____________________________________________________________________
B&C
Stock
_________
Shares issued in 1991 514,518
Shares repurchased in 1991 3,103,335
Shares issued in 1992 2,886,418
Shares repurchased in 1992 4,902,161
Shares issued in 1993 1,027,657
Shares repurchased in 1993 2,293,722
____________________________________________________________________
(12) Other Income
____________
Investment income (loss) was $(8) million, $20 million and $19 million
in 1993, 1992 and 1991, respectively. In 1993, losses of $24 million
from the sale and permanent writedown of certain derivative securities
adversely affected the results. Mining service income that the Group
recognized as a result of the Group's mining service arrangements with
the Diversified Group was $29 million in 1993 and 1992 and $8 million
in 1991. Generally, gains from miscellaneous asset dispositions,
including property, plant and equipment, made up the remaining activity
of Other Income.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(13) Industry and Geographic Data
____________________________
The Group's operations are primarily conducted in one business
segment; construction contracting.
The following is derived from geographic information in the PKS
consolidated financial statements as it relates to the Group.
The information below summarizes the Group's operations in different
geographical areas:
Geographic Data (dollars in millions) 1993 1992 1991
_____________________________________________________________________
Revenue:
United States $ 1,550 $ 1,466 $ 1,584
Canada 175 182 238
Other 52 23 12
_______ _______ _______
$ 1,777 $ 1,671 $ 1,834
======= ======= =======
Operating earnings:
United States $ 93 $ 92 $ 31
Canada 4 (2) 13
Other 22 - (32)
_______ _______ _______
119 90 12
Interest income, net 10 15 10
Nonoperating income (expense), net (11) 7 20
_______ _______ _______
Earnings before income taxes and
cumulative effect of change in
accounting principle $ 118 $ 112 $ 42
======= ======= =======
Identifiable assets:
United States $ 530 $ 473 $ 465
Canada 82 90 102
Other areas 13 9 -
Corporate (1) 264 290 282
_______ _______ _______
$ 889 $ 862 $ 849
======= ======= =======
_____________________________________________________________________
(1) Principally cash, cash equivalents and marketable securities.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(14) Other Matters
_____________
The Group is involved in various lawsuits and claims incidental to its
business. Management believes that any resulting liability, beyond
that provided, should not materially affect the Group's financial
position or results of operations.
The Group leases various buildings and equipment under both operating
and capital leases. Minimum rental payments on buildings and equipment
subject to noncancellable operating leases during the next 17 years
aggregate $10 million.
It is customary in the Group's industry to use various financial
instruments in the normal course of business. These instruments
include items such as letters of credit. Letters of credit are
conditional commitments issued on behalf of the Group in accordance
with specified terms and conditions. As of December 25, 1993, the
Group had outstanding letters of credit of approximately $78 million.
(15) Subsequent Events
_________________
On February 28, 1994 the Group completed the purchase of APAC-Arizona,
Inc. ("APAC") from Ashland Oil Company, Inc. for approximately $49
million, subject to adjustments. APAC is engaged in the construction
materials and contracting businesses in Arizona and surrounding states.
The acquisition will be accounted for as a purchase, and accordingly,
the purchase price will be allocated to the assets and liabilities
of APAC based upon their estimated fair values at the acquisition
date. Results of operations of APAC will be included in the Group's
results of operations subsequent to the date of acquisition.
<PAGE>
SCHEDULE VIII
KIEWIT CONSTRUCTION & MINING GROUP
Valuation and Qualifying Accounts and Reserves
Additions Amounts
Balance Charged to Charged Balance
(dollars) Beginning Costs and to End of
in millions) of Period Expenses Reserves Other Period
____________________________________________________________________________
Year ended
December 25, 1993
_________________
Alowance for doubtful
trade accounts $ 2 $ 4 $ (1) $ - $ 5
Reserves:
Insurance claims 66 13 (13) (1) 65
Year ended
December 26, 1992
_________________
Allowance for doubtful
trade accounts $ 2 $ 1 $ (1) $ - $ 2
Reserves:
Insurance claims 61 20 (15) - 66
Year ended
December 28, 1991
_________________
Allowance for doubtful
trade accounts $ 2 $ 1 $ (1) $ - $ 2
Reserves:
Insurance claims 45 25 (9) - 61
____________________________________________________________________________
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
___________________________________________________________
The financial statements of the Construction & Mining Group (the
"Group") include the financial position, results of operations and cash
flows for the construction business and certain mining services of Peter
Kiewit Sons', Inc. ("PKS") and a portion of the corporate assets and
liabilities and related transactions which are not separately identified
with ongoing operations of the Construction & Mining Group or the
Diversified Group. The Group's share of corporate assets and liabilities
and related transactions includes amounts to reflect certain financial
activities, corporate general and administrative costs and income taxes.
See Notes 1 and 3 to the Group's financial statements.
Results of Operations - 1993 vs. 1992
_____________________________________
Construction
____________
Construction revenue increased by $98 million or 6% in 1993. The
Group's share of joint venture revenue rose by 60% and accounted for 24% of
the total construction revenue for the period as compared to 16% for 1992.
Several large contracts awarded in 1992 and early 1993 contributed to the
overall increase, the largest of which was the San Joaquin Toll Road Joint
Venture ("San Joaquin"). The increase in joint venture revenue was partially
offset by a small decrease in sole contract revenue recognized due to a
decrease in the average size of sole contracts awarded. Contract backlog at
December 25, 1993 was $2.1 billion, of which 6% is attributable to foreign
operations, principally, Canada. Projects on the west coast comprised 50% of
the total backlog of which San Joaquin accounts for $435 million. San Joaquin
is scheduled for completion in 1997.
Direct costs associated with construction contracts increased $66
million or 4% to $1.569 billion in 1993. The increase is net of a $20
million reduction in reserves previously established for the non-sponsored
Denmark tunnel project. The overall rise in costs is directly attributable
to the increase in volume. Costs as a percentage of revenue, excluding
the reduction in reserves, approximated 90% and 91% for 1993 and 1992,
respectively.
Management of the non-sponsored Denmark tunnel projected completed a
cost estimate which indicated a favorable variance in the estimated costs of
the project. As a result of this revised cost estimate and negotiations with
the owner, management reduced reserves maintained to provide for the Group's
share of estimated losses on the project. This reduction contributed to the
increase in gross margin to 11% in 1993 from 9% in 1992.
Other Income
____________
Other income decreased $25 million in 1993. Approximately 90% of the
decline resulted from the realization of losses on the sale of and valuation
adjustments to certain derivative instruments. Slight increases in
miscellaneous income partially offset declines in interest income and net
gains on asset dispositions.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
___________________________________________________________
Results of Operations - 1993 vs. 1992 (continued)
_________________________________________________
Selling and Administrative
__________________________
Selling and administrative expenses increased 4% in 1993 as a result
of moderate increases in several of the Group's operating districts.
Taxes
_____
The effective income tax rates are 32% in 1993 and 38% in 1992. The
rates differ from the statutory rates principally because of the effect of
the Federal income tax rate change on deferred tax assets in 1993 and state
income taxes in 1992.
Results of Operations - 1992 vs. 1991
_____________________________________
Construction
____________
Revenue from construction activity in 1992 decreased 9% compared to
1991. Although the number of new contracts awarded in 1992 increased
approximately 15%, the average size of new contracts, excluding the $520
million contract awarded from the San Joaquin Hills Transportation
Corridor Agency ("San Joaquin"), decreased by approximately 20%. Contract
backlog at December 26, 1992 was $2.2 billion, a $300 million increase from
backlog at December 28, 1991. Of the 1992 backlog, 9% relates to foreign
projects mainly in Canada and the remainder relates to projects in the
United States. Sixty-four percent of the U.S. projects are on the west
coast. The decrease in revenue as well as in contract backlog (excluding
San Joaquin) is the result of the general state of the economy in Canada
and the United States. Fluctuating demand cycles are typical of the
industry. The gross margin was 9% in 1992 and 6% in 1991. The 1991 gross
margin was unfavorably impacted primarily by losses on the Denmark tunnel
project and on several U.S. projects.
Management of the nonsponsored Denmark tunnel project completed
negotiations with respect to the settlement of claims against the project
owner and equipment supplier. The new agreement covered the reimbursement of
certain costs incurred and time extensions due to differing soil conditions
at the site of the tunnels. Costs incurred with respect to the flooding of
two of the four tunnels being drilled as part of the project have been
covered by insurers. Because of the remaining uncertainties involved in
completing the tunnels, due primarily to the adverse soil conditions, no
adjustments were made in 1992 for the Company's share of the estimated losses.
Management believed that the resolution of the uncertainties would not
materially affect on the Company's financial position.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
___________________________________________________________
Results of Operations - 1992 vs. 1991 (continued)
_________________________________________________
Other Income
____________
Other income increased 43% in 1992 compared to 1991. The Group's
investment income of $20 million in 1992 approximated the 1991 amount. The
overall increase in Other Income is principally the result of a $21 million
increase in mine service income that the Group recognized a result of a new
mine management service agreement, effective as of the beginning of 1992, with
the Diversified Group. Significant increases are not expected to continue in
the future. The new agreement provides that a percentage of the Diversified
Group's operating income from mining operations is to be paid to the Group.
Selling and Administrative
__________________________
Selling and administrative expenses increased 3% in 1992 as result
of moderate increases in several of the Group's administrative departments.
Interest Expense
________________
Interest expense decreased from $5 million in 1991 to $2 million in
1992 due primarily to interest incurred in 1991 on settlements of various
tax issues.
Taxes
_____
The effective income tax rates are 38% in 1992 and 45% in 1991,
which are higher than the statutory rate of 34%, primarily due to state
income taxes in 1992 and foreign and state income taxes in 1991.
Financial Condition - December 25, 1993
_______________________________________
In 1993, the Group's working capital increased $30 million or 9% to
$372 million.
For the year, the Group generated $87 million of cash from operating
activities, a decrease of 4% from the prior year.
The Group's 1993 net investing activities used $20 million.
Capital expenditures of $54 million and other outlays of $12 million exceeded
net proceeds from sales and maturities of marketable securities of $32
million and proceeds from sales of fixed assets of $14 million. Future
investing activity includes the acquisition of APAC, purchasing additional
shares of an electrical contractor - the Group is committed to 80% ownership by
1997 - and investing between $40 and $75 million annually in the construction
business.
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
___________________________________________________________
Financial Condition - December 25, 1993 (continued)
___________________________________________________
Financing activities reducing cash during 1993 consisted of net
conversions of Class B&C stock for Class D stock of $26 million, stock
repurchases of $14 million and dividends of $10 million. Stock issuances
and long-term debt borrowings generated cash of $16 million and $2 million,
respectively, in 1993. Stock conversions and repurchases, dividends ($6
million paid in January of 1994), and stock issuances will continue as the
Group's major financing activities.
The Group's existing cash and cash equivalents, marketable
securities and operating cash flows, along with existing borrowing capacity,
should suffice for 1994 working capital and capital expenditure
requirements and provide adequate liquidity for the expenditures discussed
above.
KIEWIT DIVERSIFIED GROUP
Index to Financial Statements
and Financial Statement Schedules and
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Pages
____________________________________________________________________________
Report of Independent Accountants
Financial Statements as of December 25, 1993 and
December 26, 1992 and for the three years ended
December 25, 1993:
Statements of Earnings
Balance Sheets
Statements of Cash Flows
Statements of Changes in Stockholders' Equity
Notes to Financial Statements
Financial Statement Schedules for the three years
ended December 25, 1993:
V--Property, Plant and Equipment
VI--Accumulated Depreciation, Depletion and Amortization
of Property, Plant and Equipment
VIII--Valuation and Qualifying Accounts and Reserves
IX--Short-Term Borrowings
X--Supplementary Income Statement Information
Management's Discussion and Analysis of Financial
Condition and Results of Operations
____________________________________________________________________________
Schedules not indicated above have been omitted because of the absence of the
conditions under which they are required or because the information called for
is shown in the financial statements or in the notes thereto.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
_________________________________
The Board of Directors and Stockholders
Peter Kiewit Sons', Inc.
We have audited the financial statements and the financial statement
schedules of Kiewit Diversified Group, a business group of Peter Kiewit
Sons', Inc. (as defined in Note 1 to these financial statements) as listed in
the index on the preceding page of this exhibit to Form 10-K. These
financial statements and financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above, when read in
conjunction with the consolidated financial statements of Peter Kiewit Sons',
Inc. and Subsidiaries, present fairly, in all material respects, the financial
position of Kiewit Diversified Group as of December 25, 1993 and December 26,
1992 and the results of its operations and its cash flows for each of the
three years in the period ended December 25, 1993 in conformity with generally
accepted accounting principles. In addition, in our opinion the financial
statement schedules referred to above, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects, the information required to be included therein.
As discussed in Note 2 to the financial statements, the Group changed its
method of accounting for income taxes in 1992, and its method of accounting
for certain investments in debt and equity securities in 1993.
COOPERS & LYBRAND
Omaha, Nebraska
March 18, 1994
<PAGE>
KIEWIT DIVERSIFIED GROUP
Statements of Earnings
For the three years ended December 25, 1993
(dollars in millions, except per share data) 1993 1992 1991
____________________________________________________________________________
Revenue $ 402 $ 349 $ 252
Other Income 47 87 84
_______ _______ _______
449 436 336
Costs and Expenses:
Cost of revenue 285 228 184
Selling and administrative 113 92 62
Interest 11 9 42
_______ _______ _______
409 329 288
_______ _______ _______
40 107 48
Gain on Sale of Subsidiary's Stock 211 - -
_______ _______ _______
Earnings from Continuing Operations Before
Income Taxes, Minority Interest and
Cumulative Effect of Change in Accounting
Principle 251 107 48
Provision for Incomes Taxes (73) (26) (22)
Minority Interest in Loss of Subsidiaries 3 - -
_______ _______ _______
Earnings from Continuing Operations Before
Cumulative Effect of Change in
Accounting Principle 181 81 26
Cumulative Effect of Change in
Accounting Principle - (1) -
_______ _______ _______
Earnings from Continuing Operations 181 80 26
Discontinued Operations:
Earnings from discontinued
operations net of income taxes
of $- and $26 in 1992 and
1991, respectively - 1 19
Gain on disposal of discontinued
operations net of income taxes
(benefit) of $(19) and $221
in 1992 and 1991, respectively - 18 373
_______ _______ _______
Net Earnings $ 181 $ 99 $ 418
======= ======= =======
____________________________________________________________________________
See accompanying notes to financial statements.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Statements of Earnings (continued)
For the three years ended December 25, 1993
(dollars in millions, except per share data) 1993 1992 1991
____________________________________________________________________________
Earnings Per Common and Common Equivalent
Share:
Continuing Operations:
Earnings Before Cumulative Effect of
Change in Accounting Principle $ 9.08 $ 4.00 $ 1.26
Cumulative Effect of Change in
Accounting Principle - (.05) -
_______ _______ _______
Earnings from Continuing Operations 9.08 3.95 1.26
Discontinued Operations:
Earnings - .04 .94
Gain on disposal - .93 18.10
_______ _______ _______
Net Earnings $ 9.08 $ 4.92 $ 20.30
======= ======= =======
____________________________________________________________________________
See accompanying notes to financial statements.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Balance Sheets
December 25, 1993 and December 26, 1992
(dollars in millions) 1993 1992
____________________________________________________________________________
Assets
Current Assets:
Cash and cash equivalents $ 197 $ 135
Marketable securities 899 657
Receivables, less allowance of $2 and $5 81 67
Note receivable from sale of discontinued
operations 5 60
Deferred income taxes 18 3
Other 40 77
_______ _______
Total Current Assets 1,240 999
Property, Plant and Equipment, at cost:
Land 15 12
Buildings 172 26
Equipment 802 461
_______ _______
989 499
Less accumulated depreciation and amortization (252) (209)
_______ _______
Net Property, Plant and Equipment 737 290
Note Receivable from Sale of Discontinued
Operations 29 84
Investments 233 180
Intangible Assets, net 415 75
Other Assets 155 131
_______ _______
$ 2,809 $ 1,759
======= =======
____________________________________________________________________________
See accompanying notes to financial statements.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Balance Sheets
December 25, 1993 and December 26, 1992
(dollars in millions) 1993 1992
___________________________________________________________________________
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 113 $ 55
Short-term borrowings - 80
Current portion of long-term debt:
Telecommunications 7 -
Other 4 1
Accrued costs and billings in excess of revenue
on uncompleted contracts 20 12
Accrued reclamation and other mining costs 23 16
Other 80 39
_______ _______
Total Current Liabilities 247 203
Long-Term Debt, less current portion:
Telecommunications 420 -
Other 32 18
Deferred Income Taxes 394 272
Retirement Benefits 71 74
Accrued Reclamation Costs 92 94
Other Liabilities 64 65
Minority Interest 298 12
Stockholders' Equity (Redeemable Common Stock,
$1.2 billion aggregate redemption value)
Common equity 1,182 1,017
Foreign currency adjustment - 4
Net unrealized holding gain 9 -
_______ _______
Total Stockholders' Equity 1,191 1,021
_______ _______
$ 2,809 $ 1,759
======= =======
___________________________________________________________________________
See accompanying notes to financial statements.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Statements of Cash Flows
For the three years ended December 25, 1993
(dollars in millions) 1993 1992 1991
__________________________________________________________________________
Cash flows from operations:
Earnings from continuing operations $ 181 $ 80 $ 26
Adjustments to reconcile earnings from
continuing operations to net cash
provided by continuing operations:
Cumulative effect of change in
accounting principle - 1 -
Depreciation, depletion and
amortization 51 39 28
(Gain) loss on sale of property,
plant and equipment,
and other investments 8 (7) 3
Gain on sale of subsidiary's stock (211) - -
Decline in market value of
investments 25 12 -
Retirement benefits paid (17) (8) (5)
Change in retirement benefits and
other noncurrent liabilities 1 3 54
Deferred income taxes 45 8 18
Change in working capital items:
Receivables 8 (14) 8
Other current assets - 16 (30)
Payables 51 13 5
Other liabilities 36 (29) (11)
Other 18 (5) (27)
_______ _______ _______
Net cash provided by continuing
operations 196 109 69
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 4,155 5,611 3,112
Purchases of marketable securities (4,490) (5,646) (3,431)
Proceeds from sale of property, plant
and equipment, and other investments 25 12 11
Capital expenditures (139) (89) (63)
Investments in affiliates (3) (26) (135)
Acquisition of C-TEC, excluding
cash acquired (146) - -
Acquisition of minority interest - (27) -
Deferred development costs and other (36) 11 (4)
_______ _______ _______
Net cash used in investing
activities (634) (154) (510)
Cash flows from financing activities:
Long-term debt borrowings 19 1 11
Payments on long-term debt, including
current portion (7) (89) (179)
Net change in short-term borrowings (80) 80 (231)
Issuances of common stock 8 - 16
Issuances of subsidiary's stock 458 - -
Repurchases of common stock (40) (64) (105)
Dividends paid (17) (33) (15)
Dividend to parent - - (58)
Exchange of B&C Stock for Class
D Stock, net 26 32 -
Other 3 (1) (3)
_______ _______ _______
Net cash provided by (used in)
financing activities 370 (74) (564)
___________________________________________________________________________
<PAGE>
KIEWIT DIVERSIFIED GROUP
Statements of Cash Flows
For the three years ended December 25, 1993 (continued)
(dollars in millions) 1993 1992 1991
__________________________________________________________________________
Cash flows from discontinued packaging
operations:
Proceeds from sales of discontinued
packaging operations 110 163 1,285
USW ERISA Litigation settlement
installment payment - - (207)
Other cash provided by (used in)
discontinued packaging operations 20 (34) (105)
_______ _______ _______
Net cash provided by discontinued
packaging operations 130 129 973
_______ _______ _______
Net increase (decrease) in cash and
cash equivalents 62 10 (32)
Cash and cash equivalents at
beginning of year 135 125 157
_______ _______ _______
Cash and cash equivalents at
end of year $ 197 $ 135 $ 125
======= ======= =======
Supplemental disclosure of cash flow
information for continuing and
discontinued operations:
Taxes $ 29 $ 117 $ 206
Interest 4 11 48
__________________________________________________________________________
See accompanying notes to financial statements.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Statements of Changes in Stockholders' Equity
For the three years ended December 25, 1993
(dollars in millions except per share data) 1993 1992 1991
___________________________________________________________________________
Common equity:
Balance at beginning of year $ 1,017 $ 989 $ 733
Issuances of stock 8 - 16
Repurchases of stock (40) (64) (105)
Exchange of Class B&C Stock for Class
D Stock, net 26 32 -
Net earnings 181 99 418
Dividends (per share: $.50 in 1993,
$1.95 in 1992, and $.70 in 1991) (a) (10) (39) (15)
Dividend to parent - - (58)
_______ _______ _______
Balance at end of year $ 1,182 $ 1,017 $ 989
======= ======= =======
Other equity adjustments:
Balance at beginning of year $ 4 $ 7 $ 102
Foreign currency adjustment (4) (3) (95)
Net unrealized holding gain 9 - -
_______ _______ _______
Balance at end of year $ 9 $ 4 $ 7
======= ======= =======
Total stockholders' equity $ 1,191 $ 1,021 $ 996
======= ======= =======
___________________________________________________________________________
(a) 1992 includes $.35 per share for dividends declared in 1992 but paid in
1993. 1991 reflects dividends paid by PKS on its previous common stock
that have been attributed to the Diversified Group and the Construction &
Mining Group based upon the relative formula values of each group which
were determined at the end of each preceding year. Accordingly, the
dividends reflected for those years may bear no relationship to the
dividends that would have been declared by the Board in such years had the
D Stock and B&C Stock been outstanding.
See accompanying notes to financial statements.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(1) Basis of Presentation
_____________________
The Class B&C Stock and the Class D Stock are designed to provide
stockholders with separate securities reflecting the performance of
Peter Kiewit Sons', Inc.'s ("PKS") construction business and certain
mining services ("Construction & Mining Group") and its other businesses
("Diversified Group"), respectively.
The financial statements of the Diversified Group include the
financial position, results of operations and cash flows for PKS'
businesses other than its Construction & Mining Group businesses, held
by a wholly-owned subsidiary, Kiewit Diversified Group Inc. ("KDG") and
a portion of the PKS corporate assets and liabilities and related
transactions which are not separately identified with the ongoing
operations of the Diversified Group or the Construction & Mining Group.
These financial statements have been prepared using the historical
amounts included in the PKS consolidated financial statements. Corporate
amounts reflected in these financial statements are determined based
upon methods which management believes to be reasonable (Note 3).
Although the financial statements of PKS' Diversified Group and
Construction & Mining 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 D Stock and Class B&C
Stock are stockholders of PKS. Accordingly, the PKS consolidated
financial statements and related notes should be read in conjunction
with these financial statements.
(2) Summary of Significant Accounting Policies
__________________________________________
Principles of Group Presentation
________________________________
These financial statements include the accounts of the Diversified Group
("the Group"). The Group's and Construction & Mining Group's financial
statements, taken together, comprise all of the accounts included in the
PKS consolidated financial statements. The Group's enterprises include
coal mining properties, telecommunications, energy production facilities
and timberlands. The Group's only reportable segments are coal mining
properties and telecommunications. See Note 4 with respect to
discontinued packaging operations. Fifty-percent-owned mining joint
ventures are consolidated on a pro rata basis. All significant
intercompany accounts and transactions, except those directly between
the Group and the Construction & Mining Group, have been eliminated.
Investments in other companies in which the Group exercises significant
influence over operating and financial policies are accounted for by
the equity method.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies (continued)
______________________________________________________
Coal Sales Contracts
____________________
The Group and its mining ventures have entered into various agreements
with its customers which stipulate delivery and payment terms for
the sale of coal. Prior to 1993, one of the primary customers deferred
receipt of certain commitments by purchasing undivided fractional
interests in coal reserves of the Group and the mining ventures. Under
these arrangements revenue was recognized when cash was received. The
agreements with this customer were renegotiated in 1992. In accordance
with the renegotiated agreements, there were no sales of interests
in coal reserves subsequent to January 1, 1993. The Group has the
obligation to extract and deliver the coal reserves to the customer in
the future if the customer exercises its option. If the option is
exercised, the Group presently intends to deliver coal from an
unaffiliated mine. In the opinion of management, the Group has
sufficient coal reserves to cover the above sales commitments.
The Group's coal sales contracts are with several electric utility and
industrial companies. In the event that these customers do not fulfill
contractual responsibilities, the Group would pursue the available legal
remedies.
Telecommunications Revenues
___________________________
A subsidiary of the Group, MFS Communications Company, Inc. ("MFS"),
provides private line and special access telecommunications services to
major businesses, governmental entities and long distance carriers in
major metropolitan areas of the United States through a competitive
access provider subsidiary. Another subsidiary of MFS is a network
systems integrator that designs, engineers, develops and installs
telecommunications networks and systems and also provides facilities
management services. MFS recognizes revenue on telecommunications
services in the month the related service is provided. Network systems
integration revenue is recognized on the percentage-of-completion
method of accounting.
In October 1993, the Group acquired 34.5.% of the outstanding shares
of C-TEC Corporation ("C-TEC") that have 56.6% of the available
voting rights. C-TEC's results of operations have been consolidated
from the acquisition date. C-TEC's most significant operating groups
are its local telephone service and cable system operations. C-TEC's
telephone network access revenues are derived from net access
charges, toll rates and settlement arrangements for traffic that
originates or terminates within C-TEC's local telephone company.
Revenues from basic and premium cable programming services are
recorded in the month service is provided.
Concentration of credit risk with respect to accounts receivable are
limited due to the dispersion of customer base among different
industries and geographic areas and remedies provided by the terms of
contracts and statutes.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies (continued)
______________________________________________________
Depreciation and Amortization
_____________________________
Depreciation and amortization for the majority of the Group's property,
plant and equipment are computed on accelerated and straight-line
methods. Depletion of mineral properties is provided primarily on a
unit-of- extraction basis determined in relation to estimated reserves.
In accordance with industry practice, certain telephone plant owned by
C-TEC valued at $216 million is depreciated based on the estimated
remaining lives of the various classes of depreciable property and
straight-line composite rates. At the time property is retired, the
original cost, plus cost of removal, less salvage, is charged to
accumulated depreciation.
Intangible Assets
_________________
Intangible assets consist of amounts allocated upon purchase of assets
of existing operations and development costs. These assets are
amortized on a straight-line basis over the expected period of benefit,
which does not exceed 40 years.
Pension Plans
_____________
The Group maintains defined benefit plans primarily for retired packaging
employees. Benefits paid under the plans are based on years of service
for hourly employees and years of service and rates of pay for
salaried employees.
Substantially all of C-TEC's employees are included in a trusteed
noncontributory defined benefit plan. Upon retirement, employees are
provided a monthly pension based on length of service and compensation.
The plans are funded in accordance with the requirements of the Employee
Retirement Income Security Act of 1974.
Reserves for Reclamation
________________________
The Group follows the policy of providing an accrual for reclamation of
mined properties, based on the estimated cost of restoration of such
properties, in compliance with laws governing strip mining.
Foreign Currencies
__________________
The local currencies of foreign subsidiaries are the functional
currencies for financial reporting purposes. Assets and liabilities
are translated into U.S. dollars at year-end exchange rates. Revenue
and expenses are translated using average exchange rates prevailing
during the year. Gains or losses resulting from currency translation
are recorded as adjustments to stockholders' equity.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies (continued)
______________________________________________________
Subsidiary Stock Sales
______________________
The Group recognizes gains and losses from the sales of stock by its
subsidiaries.
Earnings Per Share
__________________
Primary earnings per share of Class D Stock have been computed using the
weighted average number of shares outstanding during each year. For
periods prior to January 8, 1992, the number of Class D shares are
assumed to be the same as the total corresponding weighted average
shares of PKS. The number of shares used in computing primary earnings
per share was 19,941,885 in 1993, 20,126,768 in 1992 and 20,588,236 in
1991. Fully diluted earnings per share have not been presented because
it is not significantly different from primary earnings per share.
Marketable Securities and Investments
_____________________________________
On December 25 1993, the Group adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," which addresses the accounting and
reporting of investments in equity securities with readily determinable
fair values and all investments in debt securities. The statement
does not apply to investments in equity securities accounted for
under the equity method nor to investments in consolidated subsidiaries.
At December 25, 1993, a net unrealized holding gain of $9 million net
of income taxes, was reported in stockholders' equity. See Note 8 for
additional disclosures.
Income Taxes
____________
At the beginning of 1992, the Group adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included
in the financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the
difference between the financial and tax basis for assets and
liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. In 1992, the Group recorded
expense of $1 million, which represented the increase in the net deferred
tax liabilities as a result of the accounting change. This amount has
been reflected in the statements of earnings as a cumulative effect of a
change in accounting principle.
Reclassifications
_________________
Where appropriate, items within the financial statements and notes
thereto have been reclassified from previous years to conform to
current year presentation.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies (continued)
______________________________________________________
Fiscal Year
___________
The Group's fiscal year ends on the last Saturday in December. There
were 52 weeks each in the fiscal years 1993, 1992 and 1991.
MFS and C-TEC's fiscal years end on December 31.
(3) Corporate Activities
____________________
Financial structure - Cash, cash equivalents and marketable securities
have been allocated to the Group and the Construction & Mining Group
based upon the desired capital structure of the two at December 28,
1991. Financial statement impacts of dividends paid to holders of
Class D Stock and repurchases and issuances of Class D Stock in 1993 and
1992 were reflected in their entirety in the Diversified Group's
financial statements. The value of common stock issuances and
repurchases and related dividends in 1991 were generally attributed to
the Group and the Construction & Mining Group based upon the relative
formula values of each group which were determined at the end of 1990.
The desired capital structure at December 28, 1991 for the Construction
& Mining Group was stockholders' equity of $400 million. It was
determined by PKS management that this was the appropriate level of
equity at December 28, 1991 necessary for the Construction & Mining
Group to continue its traditional construction and mining service
businesses, based upon certain factors such as contract volume,
prequalification requirements to bid on projects, bonding requirements
of its outside insurance company, and working capital requirements.
The capital structure of the Group consisted of the remaining
equity of PKS and provided equity and liquidity to allow the
Group the opportunity to invest in capital intensive businesses, a
primary objective of the Reorganization. In order to attain the desired
capital structure, the Group dividended $58 million of equity to PKS
which was contributed by PKS to the Construction & Mining Group.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(3) Corporate Activities (continued)
________________________________
PKS has corporate assets, liabilities and related income and expense
which are not separately identified with the ongoing operations of the
Group or the Construction & Mining Group. The Group's 50% portion is
as follows (in millions):
1993 1992
____ ____
Cash and cash equivalents $ 47 $ 45
Marketable securities 11 13
Property, plant and equipment, net 12 8
Other assets 11 15
____ ____
Total Assets $ 81 $ 81
==== ====
Accounts payable $ 27 $ 25
Convertible debentures 2 3
Notes to former stockholders 8 8
Liability for stock appreciation rights 2 2
Other liabilities 5 6
____ ____
Total Liabilities $ 44 $ 44
==== ====
1993 1992 1991
_____________________
Net investment income (expense) $ (1) $ 3 $ 4
Depreciation (2) (1) (2)
Stock appreciation rights costs (1) (1) (2)
Other income (expense) 4 3 (1)
Corporate general and administrative costs - a portion of corporate
general and administrative costs has been allocated to the Group
based upon certain measures of business activities, such as employment,
investments and sales, which method management believes to be
reasonable. These allocations were $10 million, $13 million and $25
million in 1993, 1992 and 1991, respectively.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(3) Corporate Activities (continued)
________________________________
Income taxes - All domestic members of the PKS affiliated
group are included in the consolidated U.S. income tax return filed by
PKS. Accordingly, the provision for income taxes and the related
payments or refunds of tax are determined on a consolidated basis. The
financial statement provision and actual cash tax payments have been
reflected in the Group's and Construction & Mining Group's financial
statements in accordance with PKS' tax allocation policy for such
groups. In general, such policy provides that the consolidated tax
provision and related cash flows and balance sheet amounts are allocated
between the Group and the Construction & Mining Group, for group
financial statement purposes, based principally upon the financial
income, taxable income, credits, preferences and other amounts directly
related to the respective groups. The provision for estimated United
States income taxes for the Group does not differ materially from that
which would have been determined on a separate return basis.
(4) Discontinued Operations
_______________________
In 1990, the Group's management authorized the disposition of
its packaging businesses. As a result, the financial statements
reflect the packaging businesses as discontinued operations.
Discontinued Packaging Operations for the year ended December
26, 1992 reflect the equity earnings of the Group's investment in a
plastics joint venture, net of tax at the statutory rate. Summary
financial information relative to the discontinued packaging
operations, which primarily reflects earnings from packaging
operations which were sold during 1991 for the year ended December
28, 1991 is provided below:
(dollars in millions) 1991
______________________________________________________________________
Revenue $ 1,145
Earnings Before Income Taxes 45
Net Earnings 19
______________________________________________________________________
The effective income tax rate for 1991 is higher than the statutory
rate of 34%, primarily resulting from the effects of purchase
accounting, state income taxes, higher taxes on foreign earnings and
minority interest.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(5) Acquisitions
____________
In October 1993, the Group acquired 34.5% of the outstanding shares
of C-TEC that have 56.6% of the available voting rights.
The acquisition of C-TEC for $207 million in cash was accounted for
as a purchase, and accordingly, the purchase price was allocated to
the assets acquired and liabilities assumed, as follows:
Assets:
Cash and cash equivalents $ 61
Other current assets 49
Property, plant and equipment 354
Investments 17
Intangible assets 303
Other 8
Liabilities:
Current liabilities (64)
Deferred income taxes (46)
Other liabilities (8)
Long-term debt (427)
Minority interest (40)
______
$ 207
======
Results of C-TEC operations are included in the Group's results of
operations since the date of acquisition.
The following unaudited pro forma information shows the results of
the Group as though the acquisition occured at the beginning of 1992.
These results include certain adjustments, primarily increased
amortization, and are not necessarily indicative of what the results
would have been had the acquisition been made as of that date or
future results.
1993 1992
_______ _______
Revenue $ 638 $ 606
Net Earnings 175 93
Earnings Per Share 8.78 4.63
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(6) MFS Stock Sales
_______________
In May 1993, MFS sold 12.7 million shares of common stock to the public
at an initial offering price of $20 per share for $233 million, net of
certain transaction costs. An additional 4.6 million shares were sold
to the public in September 1993 at a price of $50 per share for
$218 million, net of certain transaction costs. These transactions
have reduced the Company's ownership interest in MFS to 71% at
December 25, 1993. Substantially all of the net proceeds from the
offerings are intended to fund MFS' growth. Prior to the initial
public offering, MFS was a wholly-owned subsidiary of the Group. The
29% outside ownership interest has been included in minority interest.
As a result of the above transactions, the Group recognized a gain of
$211 million representing the increase in the Group's equity in the
underlying net assets of MFS. Deferred income taxes have been provided
on this gain.
(7) Disposal of Packaging Businesses
________________________________
In July 1992, the Group sold its equity investment in a plastics joint
venture to Ball Corporation for $7 million. No significant gain or loss
was recognized as a result of this transaction. The gain on disposal of
discontinued operations in 1992 resulted from a $19 million adjustment
to prior year tax estimates and an $8 million payment, net of tax,
received from BTR Nylex Limited and a $1 million accrual, net of tax,
relating to additional sales proceeds from the sale of Continental PET
Technologies, Inc. This gain was partially offset by miscellaneous
sales adjustments related to the 1991 and 1990 sales of certain
discontinued packaging operations.
In April 1991, certain subsidiaries of the Group sold their European
packaging operations ("Europe") to VIAG Aktiengesellschaft, a German
company. The transaction closed in June 1991. Europe was engaged in
developing, manufacturing and marketing metal and plastic containers,
closures and related packaging products principally in western Europe.
Revenue from these businesses was $818 million prior to the transaction
close in 1991. Europe's net earnings for this same period was $34
million. The net proceeds were $853 million in cash. With the net
proceeds, the Group repaid in July 1991 short-term borrowings of $252
million. The short-term borrowings consisted of $123 million which was
borrowed in June 1991 to repay intercompany loans made to the Group
by a subsidiary of Europe and $129 million which was directly related
to financing Europe's capital expenditures.
In May 1991, the Group sold Continental Can International Corporation
("CCIC"), a wholly-owned subsidiary that held the Group's interests in
metal packaging operations in Latin America, the Far East and the
Middle East, to Crown Cork & Seal Company, Inc. Revenue and net
earnings were not material during the period prior to closing in 1991.
Proceeds from the transaction consisted of $35 million paid in cash at
closing and a receivable of $94 million which was collected in November
1991.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(7) Disposal of Packaging Businesses (continued)
____________________________________________
In August 1991, the Group sold Continental White Cap, Inc. ("White
Cap"), a wholly-owned subsidiary that manufactured metal, plastic and
composite closures for food vacuum-packed in both glass and plastic
containers to Schmalbach Lubeca A.G., a German company, for $279
million, after certain adjustments. Revenue from this business was
$119 million prior to the transaction close in 1991. Net earnings for
this same period was $13 million. The proceeds consisted of a
promissory note, with interest at the LIBOR rate plus .625%,
receivable in installments over the next five years with the final
installment due on December 31, 1995. The first installment payment of
$50 million was received in October 1991. Additional payments
totalling $25 million were received in December 1991 and January
1992, $60 million was received in December 1992, and $110 million was
received in 1993.
In November 1991, the Group sold Continental Plastic Containers, Inc.
and Continental Caribbean Containers, Inc. (collectively "PCD"),
two wholly-owned subsidiaries that manufactured blow-molded rigid
plastic containers for household, automotive, industrial and food
products, to Plastic Containers, Inc., a newly formed corporation, for
approximately $150 million, after adjustments. Revenue from this
business was $190 million prior to the transaction close in 1991. Net
earnings for this same period were $4 million. The proceeds consisted
of $50 million in cash at the closing and a $100 million bridge note
receivable which was collected in April 1992.
The table below summarizes the gain on disposal for each sale
and for the combined sales (in millions) during 1991:
Europe CCIC White Cap PCD Total
______ ____ _________ _____ _______
Net Proceeds $ 853 $ 129 $ 279 $ 150 $ 1,411
Financial Reporting Basis 560 41 109 96 806
_____ _____ _____ _____ _______
Pre-Tax Gain 293 88 170 54 605
Estimated Tax Provision 94 33 78 28 233
_____ _____ _____ _____ _______
Gain on Disposal $ 199 $ 55 $ 92 $ 26 $ 372
===== ===== ===== ===== =======
The effective income tax rates differ from the expected statutory income
tax rates due to state income taxes and the tax bases being different
than the financial reporting bases.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(7) Disposal of Packaging Businesses (continued)
____________________________________________
Included in the gain on disposal of Europe is $43 million of cumulative
translation adjustments, consisting of $95 million of foreign currency
adjustments, recorded at December 29, 1990, offset by $52 million of
foreign currency losses incurred in 1991.
The difference between the gain summarized above and the gain per the
statements of earnings is $1 million, net of tax, consisting of the
following (in millions):
Purchase price adjustment for Continental PET
Technologies, Inc. $ 17
Gain on sale of investment in unconsolidated subsidiary 6
Reserves for various sales of discontinued packaging
operations (22)
_____
$ 1
=====
During 1991, the Group received $176 million in cash related to the
remaining receivable, along with accrued interest, from the sale
of the Group's domestic Beverage and Food packaging business in 1990.
In December 1990, the Group sold Continental PET Technologies, Inc.
("PET") to BTR Nylex Limited ("BTR"), an Australian company.
Closing date proceeds, subject to adjustment, approximated $110
million. BTR paid an additional $40 million for revenue recognized
by PET during 1991-1993 from certain new products. At closing,
the Group received a note receivable of $110 million, which was
collected in cash in January 1991.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(8) Disclosures about Fair Value of Financial Instruments
_____________________________________________________
The following methods and assumptions were used to determine
classification and fair values of financial instruments:
Cash and Cash Equivalents
_________________________
Cash equivalents generally consist of highly liquid debt instruments
purchased with an original maturity of three months or less. The
securities are stated at cost, which approximates fair value.
Marketable Securities and Investments
_____________________________________
The Group has classified all marketable securities and non-current
investments not accounted for under the equity method as
available-for-sale. The amortized cost of the securities used in
in computing unrealized and realized holding gains and losses
are determined by specific identification. Fair values are
estimated based on quoted market prices for the securities on hand or
for similar investments. Fair values of certificates of deposit
approximate cost. Net unrealized holding gains and losses are
reported as a separate component of stockholders' equity, net of tax.
At December 26, 1992 the cost of marketable securities approximated
fair value. At December 25, 1993 the cost, unrealized holding gains and
losses and estimated fair values of marketable securities and
noncurrent investments are as follows:
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
_________ __________ __________ _____
Marketable securities:
Equity securities $ 50 $ 2 $ 2 $ 50
U.S. debt securities 496 - - 496
State and political
subdivision debt
securities 88 - - 88
Foreign government
debt securities 84 - - 84
Corporate debt
securities 155 - - 155
Collateralized
mortgage obligations 25 - - 25
Certificates of
deposit 1 - - 1
_____ _____ _____ _____
$ 899 $ 2 $ 2 $ 899
===== ===== ===== =====
Non-current investments:
Equity securities $ 80 $ 13 $ - $ 93
===== ===== ===== =====
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(8) Disclosures about Fair Value of Financial Instruments (continued)
_________________________________________________________________
For debt securities, amortized costs do not vary significantly from
principal amounts. Realized gains and losses on sales of marketable
securities were $29 million and $39 million, respectively, in 1993.
The contractual maturities of the debt securities are as follows:
Amortized Cost Fair Value
______________ __________
U.S. debt securities:
less than 1 year $ 494 $ 494
1-5 years 2 2
_____ _____
$ 496 $ 496
===== =====
State and political subdivision
debt securities:
less than 1 year $ 2 $ 2
1-5 years 74 74
5-10 years 5 5
over 10 years 7 7
_____ _____
$ 88 $ 88
===== =====
Foreign government debt securities:
1-5 years $ 67 $ 67
5-10 years 17 17
_____ _____
$ 84 $ 84
===== =====
Corporate debt securities:
less than 1 year $ 62 $ 62
1-5 years 57 57
5-10 years 16 16
over 10 years 20 20
_____ _____
$ 155 $ 155
===== =====
Certificates of deposit:
less than 1 year $ 1 $ 1
===== =====
Maturities for the collateralized mortgage obligations have not been
presented as they do not have a single maturity date
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(8) Disclosures about Fair Value of Financial Instruments (continued)
_________________________________________________________________
Note Receivable from Sale of Discontinued Operations:
____________________________________________________
The carrying amount approximates fair value for both the current and
the long-term portion due to the interest rate provided in the note.
Short-term Borrowings and Long-term Debt:
________________________________________
The fair value of debt was estimated using the incremental borrowing
rates of the Group for debt of the same remaining maturities and
approximates the carrying amount, except for certain Rural Telephone
Bank debt which C-TEC may refinance. (See Note 11).
(9) Investments
___________
During 1992, the Group purchased additional shares of California
Energy Company, Inc. ("California Energy") common stock for $23
million, increasing its ownership to 21%. The cumulative investment
in common stock, accounted for on the equity method, totals $80
million. The Group has certain options to purchase additional shares
of California Energy common stock. The excess purchase price over
the underlying equity is being amortized over 20 years. Equity
earnings, net of the amortization of the excess purchase price over
the underlying equity, were $7 million, $4 million and $3 million in
1993, 1992 and 1991, respectively. California Energy common stock is
traded on the New York Stock Exchange. On December 25, 1993, the
market value of the Group's investment in California Energy common
stock was $138 million, based on the closing price.
In 1993 and 1992, the Group also recorded dividends in kind declared
by California Energy, consisting of voting convertible preferred stock
valued at $5 million and $4 million, respectively. The stock dividends
brought the Group's total investment in convertible preferred stock to
$59 million at December, 25, 1993.
Investments also include equity securities classified as noncurrent
and carried at the fair value of $93 million. See Note 8.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(10) Intangible Assets
_________________
Intangible assets consist of the following at December 25, 1993 and
December 26, 1992 (dollars in millions):
1993 1992
_____ _____
Goodwill $ 234 $ 52
Franchise and subscriber lists 60 5
Noncompete agreements 36 -
Licenses and rights-of-ways 32 11
Deferred development costs 64 13
_____ _____
426 81
Less accumulated amortization (11) (6)
_____ _____
$ 415 $ 75
===== =====
Amortization expense for these assets was $6, $3 and $2 in 1993, 1992
and 1991, respectively.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(11) Long-Term Debt and Unutilized Borrowing Arrangements
____________________________________________________
At December 25, 1993 and December 26, 1992, long-term debt consisting
of a portion of PKS' notes to former stockholders and convertible
debentures which have been allocated equally to the Group and the
Construction & Mining Group, and specifically attributed debt was as
follows:
(dollars in millions) 1993 1992
______________________________________________________________________
C-TEC Long-term Debt (with recourse only to C-TEC)
____________________
Mortgage notes payable to the United States of
America -
Rural Telephone Bank (RTB)
5% - 6.05%, with monthly payments through 2009 $ 64 $ -
6.5% - 7%, with quarterly sinking fund
payments through 2015 58 -
Federal Financing Bank (FFB)
7.69% - 8.36%, with quarterly sinking fund
payments through 2012 14 -
Senior Secured Notes
9.65%, with annual principal payments,
1996 through 1999 (includes unamortized
premium of $7 based on imputed rate of
6.12%) 157 -
9.52%, with annual principal payments
1996 through 2001 (includes unamortized
premium of $4 based on imputed rate of
6.93%) 104 -
Revolving Credit Agreements and Other 30 -
_____ _____
427 -
Other Long-term Debt
____________________
7.5% to 11.6% Notes to former stockholders
due 1994-2001 8 8
6.25% to 10.5% Convertible debentures
due 1999-2003 4 3
Other 24 8
_____ _____
36 19
_____ _____
463 19
Less current portion (11) (1)
_____ _____
$ 452 $ 18
===== =====
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(11) Long-Term Debt and Unutilized Borrowing Arrangements (continued)
________________________________________________________________
Substantially all of the assets of C-TEC's telephone group ($353
million) collateralize the mortgage notes payable to the United
States of America. These note agreements restrict telephone
group dividends.
The Senior Secured notes are collateralized by pledges of the stock
of C-TEC's telephone, mobile services, and cable group subsidiaries.
The notes contain restrictive covenants which require, among other
things, specific debt to cash flow ratios.
C-TEC's Revolving Credit agreements are collaterlized by a pledge of
the stock of C-TEC's telephone and mobile services subsidiaries.
The convertible debentures are convertible during October of the
fifth year preceding their maturity date. Each annual series may
be redeemed in its entirety prior to the due date except during the
conversion period. Debentures were converted into 14,322, 10,468 and
36,598 shares of Class D common stock in 1993, 1992 and 1991,
respectively. At December 25, 1993, 86,736 shares of Class D common
stock are reserved for future conversions.
Other long-term debt consists primarily of construction financing
of a privately owned toll road which will be converted to term debt
upon completion of the project. Variable interest rates on this
debt ranged from 5% to 9% at December 25, 1993.
Scheduled maturities of long-term debt through 1998 are as follows (in
millions): 1994 - $11; 1995 - $25; 1996 - $56; 1997 - $68 and $70 in
1998.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(11) Long-Term Debt and Unutilized Borrowing Arrangements (continued)
_______________________________________________________________
The Group has the following unutilized borrowing arrangements at
December 25, 1993:
C-TEC's telephone group's agreement with the RTB provides for an
additional $23 million of borrowings. The agreement requires C-TEC
to invest in RTB stock for approximately 5% of the available amount.
C-TEC's Revolving Credit agreements provide for an additional $11
million of borrowings collateralized by stock pledges. The total
commitments are reduced on a quarterly basis through maturity in
September 1996.
An additional $50 million Credit Agreement collaterlized by stock
pledges may be utilized by C-TEC. The agreement provides revolving
borrowings through June 1, 1994 at which time the outstanding balance
converts to a term loan with quarterly payments through 1997. Under
the arrangement, C-TEC must maintain specified debt to cash flow
ratios.
C-TEC also has an unused line of credit for $13 million under which
unsecured borrowings may be made. Unused lines are cancelable at
the option of the lenders.
MFS has a $75 million secured revolving credit agreement dependent
in part on their ability to attain certain cash flow requirements.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(12) Income Taxes
____________
An analysis of the provision for income taxes related to continuing
operations before minority interest and cumulative effect of change
in accounting principle for the three years ended December 25, 1993
follows:
(dollars in millions) 1993 1992 1991
___________________________________________________________________
Current:
U.S. federal $ 24 $ 15 $ 2
State 4 3 2
____ ____ ____
28 18 4
____ ____ ____
Deferred:
U.S. federal 45 8 18
____ ____ ____
$ 73 $ 26 $ 22
==== ==== ====
___________________________________________________________________
The United States and foreign components of earnings for tax reporting
purposes from continuing operations before minority interest, income
taxes and cumulative effect of change in accounting principle follow:
(dollars in millions) 1993 1992 1991
___________________________________________________________________
United States $ 251 $ 105 $ 46
Foreign - 2 2
_____ _____ _____
$ 251 $ 107 $ 48
===== ===== =====
___________________________________________________________________
The components of the deferred income tax provision, prior to
adopting SFAS No. 109, in 1991 were as follows:
(dollars in millions) 1991
___________________________________________________________________
Depreciation and fixed assets $ 3
Retirement benefits and other compensation 2
Mining revenue and costs 5
Equity earnings 4
Accrued revenue 4
____
$ 18
====
___________________________________________________________________
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(12) Income Taxes (continued)
________________________
A reconciliation of the actual provision for income taxes and the tax
computed by applying the U.S. federal rate (35% in 1993, 34% in 1992
and 1991) to the earnings from continuing operations before minority
interest, income taxes and cumulative effect of change in accounting
principle for the three years ended December 25, 1993 follows:
(dollars in millions) 1993 1992 1991
___________________________________________________________________
Computed tax at statutory rate $ 88 $ 36 $ 16
State income taxes 3 2 2
Depletion (3) (4) (3)
Dividend exclusion (3) (3) (2)
Equity earnings - (2) -
Nondeductible expense - - 4
Prior year tax adjustments (12) - 4
Other - (3) 1
____ ____ ____
$ 73 $ 26 $ 22
==== ==== ====
___________________________________________________________________
Possible taxes, beyond those provided, on remittances of undistributed
earnings of foreign subsidiaries are not expected to be material.
The components of the net deferred tax liabilities as of December 25,
1993 and December 26, 1992 were as follows:
(dollars in millions) 1993 1992
_____________________________________________________________________
Deferred tax liabilities:
Investments in joint ventures $ 126 $ 126
Asset bases - accumulated depreciation 198 148
Investment in subsidiaries 84 -
Deferred coal sales 26 25
Other 38 35
______ ______
Total deferred tax liabilities 472 334
______ ______
Deferred tax assets:
Compensation - retirement benefits 16 32
Net operating losses realizable by subsidiaries 52 7
Alternative minimum tax credits realizable
by subsidiary 11 -
Provision for estimated expenses 8 10
Other 26 23
Valuation allowances (17) (7)
______ ______
Total deferred tax assets 96 65
______ ______
Net deferred tax liabilities $ 376 $ 269
====== ======
_____________________________________________________________________
The Group's subsidiaries have federal income tax net operating loss
carryforwards of $120 million which begin to expire in 2001.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(13) Employee Benefit Plans
______________________
The Group's defined benefit pension plans cover primarily packaging
employees who retired prior to the disposition of the packaging
operations. The expense related to these plans was approximately
$7 million in 1993 and $1 million in 1992 and 1991.
C-TEC maintains a separate defined benefit plan for substantially
all of its employees. The prepaid cost and income related to this
plan is not significant at December 25, 1993 or for the period from
the aquisition date due through December 25, 1993.
Substantially all employees of the Group, with the exception of
stockholders and MFS and C-TEC employees, are covered under the
Group's profit sharing plans. The expense related to these plans was
$1 million in each of the three years in the period ended December 25,
1993.
(14) Postretirement Benefits
________________________
In addition to providing pension and other supplemental benefits, the
Group provides certain health care and life insurance benefits
primarily for packaging employees who retired prior to the disposition
of certain packaging operations and C-TEC employees. Employees become
eligible for these benefits if they meet minimum age and service
requirements or if they agree to contribute a portion of the cost.
These benefits have not been funded.
The net periodic costs for health care benefits were $4 million
in 1993, 1992 and 1991. The net periodic costs for life insurance
benefits were $2 million, $2 million, and $1 million in 1993, 1992
and 1991, respectively. In all years, the costs related entirely
to interest on accumulated benefits.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(14) Postretirement Benefits (continued)
____________________________________
The accrued postretirement benefit liability as of December 25, 1993
was as follows:
(dollars in millions)
_____________________________________________________________________
Health Life
Insurance Insurance
_________ _________
Retirees $ 34 $ 17
Fully eligible active plan participants - -
Other active plan participants - -
______ ______
Total accumulated postretirement
benefit obligation 34 17
Unrecognized prior service cost 24 1
Unrecognized net loss (7) (2)
______ ______
Accrued postretirement benefit liability $ 51 $ 16
====== ======
_____________________________________________________________________
The unrecognized prior service cost resulted from certain modifications
to the postretirement benefit plan which reduced the accumulated post-
retirement benefit obligation. The Group may make additional
modifications in the future.
An 8.3% increase in the cost of covered health care benefits was assumed
for fiscal 1993. This rate is assumed to gradually decline to 6.2% in
the year 2020 and remain at that level thereafter. A 1% increase in
the health care trend rate would increase the accumulated postretirement
benefit obligation ("APBO") by $1 million at year-end 1993. The
weighted average discount rate used in determining the APBO was 7.0%.
(15) Stockholders' Equity
____________________
PKS is generally committed to purchase all Class D Stock in
accordance with the Restated Certificate of Incorporation. Issuances
and repurchases of common shares including conversions for the three
years ended December 23, 1993 (1991 are attributed shares) were as
follows:
_____________________________________________________________________
D
Stock
_________
Shares issued in 1991 514,518
Shares repurchased in 1991 3,103,335
Shares issued in 1992 1,019,553
Shares repurchased in 1992 1,693,353
Shares issued in 1993 748,026
Shares repurchased in 1993 841,808
_____________________________________________________________________
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(16) Other Income
____________
Other income includes net investment income of $19 million, $66
million, and $89 million in 1993, 1992 and 1991, respectively,
gains and losses on sales of property, plant and equipment and other
assets, and other miscellaneous income. In 1993, the Group
recognized $35 million of losses on the sale and permanent writedown
of certain derivative securities.
(17) Industry and Geographic Data
____________________________
The Diversified Group's continuing operations are conducted
domestically in two reportable business segments: mining and
telecommunications. The packaging segment is reported as discontinued
operations.
In 1993 and 1992, three customers individually accounted for 10% or
more of the Group's revenues. In 1993, Commonwealth Edison Company,
Detroit Edison Company and the Department of General Services - State
of Iowa accounted for 29%, 10%, and 11%, respectively, of revenue.
In 1992, these same entities accounted for 26%, 11%, and 13% of
revenue. Commonwealth Edison Company and Detroit Edison Company
accounted for 33% and 16% of revenue in 1991.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(17) Industry and Geographic Data (continued)
________________________________________
The information below summarizes the Diversified Group's operations in
different industries:
Industry Data (dollars in millions) 1993 1992 1991
_______________________________________________________________________
Revenue:
Mining $ 210 $ 234 $ 211
Telecommunications 189 109 37
Other 3 6 4
_______ _______ _______
$ 402 $ 349 $ 252
======= ======= =======
Operating earnings:
Mining $ 75 $ 77 $ 71
Telecommunications (26) (12) (27)
Other (35) (26) (27)
_______ _______ _______
14 39 17
Gain on Sale of Subsidiary's Stock 211 - -
Interest income, net 31 48 25
Nonoperating income (expense), net (5) 20 6
_______ _______ _______
Earnings from continuing operations
before minority interest, income
taxes and cumulative effect of
change in accounting principle $ 251 $ 107 $ 48
======= ======= =======
Identifiable assets:
Mining $ 185 $ 198 $ 194
Telecommunications 1,682 363 192
Other 62 26 47
Corporate (1) 880 1,172 1,356
Discontinued Operations - - 12
_______ _______ _______
$ 2,809 $ 1,759 $ 1,801
======= ======= =======
Capital Expenditures:
Mining $ 5 $ 8 $ 6
Telecommunications 127 80 51
Other - - 5
Corporate 7 1 1
_______ _______ _______
$ 139 $ 89 $ 63
======= ======= =======
Depreciation, depletion and amortization:
Mining $ 12 $ 12 $ 11
Telecommunications 35 21 12
Other 2 3 3
Corporate 2 3 2
_______ _______ _______
$ 51 $ 39 $ 28
======= ======= =======
______________________________________________________________________
(1) Principally cash, cash equivalents, marketable securities, notes
receivable from sales of discontinued operations and investments in
all years.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(18) Related Party Transaction
_________________________
The Group receives certain mining services from the Construction &
Mining Group. The expense for these services was $29 million in 1993,
$29 million in 1992 and $8 million in 1991.
(19) Other Matters
_____________
The Group is involved in various lawsuits, claims and regulatory
proceedings incidental to its business. Management believes that any
resulting liability, beyond that provided, should not materially affect
the Group's financial position or results of operations.
In many pending proceedings, the Group is one of numerous defendants
who may be "potentially responsible parties" liable for the cleanup of
hazardous substances deposited in landfills or other sites.
The Group has established reserves to cover its probable liabilities
for environmental cases and believes that any additional liabilities
will not materially affect the Group's financial condition or results
of operations.
On March 4, 1994, several former stockholders of an MFS subsidiary
filed a lawsuit against MFS, 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.
In 1974, a subsidiary of the Company ("Kiewit"), entered into a lease
agreement with Whitney Benefits, Inc., a Wyoming charitable
corporation ("Whitney"). Whitney is the owner, and Kiewit is the
lessee, of a coal deposit underlying approximately 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, Whitney and Kiewit 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
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(19) Other Matters (continued)
_________________________
U.S. Court of Appeals for the Federal Circuit Court affirmed the
decision of the claims court. In 1991, the U.S. Supreme Court
denied certiorari. On February 10, 1994, the Claims Court issued an
opinion which provided that the $60 million judgement would bear
interest compounded annually from 1977 until payment. Interest for
the 1977-1993 period is $230 million. Kiewit and Whitney have agreed
that Kiewit and Whitney will receive 67.5 and 32.5 percent,
respectively, of any award.
The government filed two-post trial motions in the Claims Court
during 1992. The government requested a new trial to redetermine the
value of the property. The government also filed a motion to reopen
and set aside the 1989 judgement as void and to dismiss plaintiff's
complaint for lack of jurisdiction. In August 1992, the Claims
Court indicated that both motions would be denied. A written order
has not yet been entered. The government may appeal from the 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 of that
amount will occur.
A subsidiary of the Group, Continental Holdings Inc., remains
contingently liable as a guarantor of $111 million of debt relating
to various businesses which have been sold.
The Group leases various buildings and equipment under both the
operating and capital leases. Minimum rental payments on buildings
and equipment subject to noncancelable operating leases during the
next 24 years aggregate $94 million.
It is customary in the Group's industries to use various financial
instruments in the normal course of business. These instruments
include items such as letters of credit. Letters of credit are
conditional commitments issued on behalf of the Group in accordance
with specified terms and conditions. As of December 25, 1993, the
Group had outstanding letters of credit of approximately $63 million.
C-TEC has an outstanding interest rate swap agreement which expires in
December 1994. Under this agreement, the Group received a fixed rate
of 9.52% on $100 million and pays a floating rate of LIBOR plus 502
basis points (8.52% at December 31, 1993), as determined in six-month
intervals. The transaction effectively changes C-TEC's interest rate
exposure from a fixed-rate to a floating-rate basis on the $100
million underlying debt. The counter-party to the interest swap
contract is a major financial institution. C-TEC is exposed to
economic loss in the event of nonperformance by the counter-party,
however, it does not anticipate such non-performance.
<PAGE>
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(20) Subsequent Event
________________
On January 19, 1994, MFS issued 9 3/8% Senior Discount Notes due
January 15, 2004. Cash interest will not accrue on the notes prior
to January 15, 1999. Commencing July 15, 1999 cash interest will
be payable semi-annually. Accordingly, MFS will initially record
the proceeds it received from the offering of $500 million and
accrue to the principal amount of the notes of $788 million
through January 1999. 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. The notes contain certain
covenants which, among other things, will restrict MFS' ability to
incur additional debt, create liens, enter into sale and leaseback
transactions with affiliates, and sell assets or merge with
another company.
On March 16, 1994, MFS made an offer to purchase all outstanding
shares of common stock and associated preferred share purchase
rights of Centex Telemanagement, Inc. at $9 per share. The
aggregate consideration of the offer approximates $150 million.
The offer, which will expire on April 12, 1994, is conditioned upon,
among other things, acquiring a majority of the common shares and
the preferred share purchase rights being redeemed or invalidated.
<PAGE>
SCHEDULE V
KIEWIT DIVERSIFIED GROUP
Property, Plant and Equipment
Balance Additions Balance
(dollars in Beginning at Retire- End of
millions) of Period Cost ments Other (a) Period
___________________________________________________________________________
Year ended
December 25,
1993
______________
Land $ 12 $ - $ - $ 3 $ 15
Buildings 26 2 - 144 172
Equipment 461 137 (6) 210 802
______ ______ _____ _____ ______
$ 499 $ 139 $ (6) $ 357 $ 989
====== ====== ===== ===== ======
Year ended
December 26,
1992
______________
Land $ 11 $ - $ - $ 1 $ 12
Buildings 25 - - 1 26
Equipment 380 89 (8) - 461
______ ______ _____ _____ ______
$ 416 $ 89 $ (8) $ 2 $ 499
====== ====== ===== ===== ======
Year ended
December 28,
1991
______________
Land $ 5 $ - $ - $ 6 $ 11
Buildings 20 - - 5 25
Equipment 292 63 (5) 30 380
______ ______ _____ _____ ______
$ 317 $ 63 $ (5) $ 41 $ 416
====== ====== ===== ===== ======
___________________________________________________________________________
(a) Primarily network and equipment obtained in the acquisitions of
telecommunications businesses.
<PAGE>
SCHEDULE VI
KIEWIT DIVERSIFIED GROUP
Accumulated Depreciation and Amortization of Property, Plant and Equipment
Additions
Balance, Charged to Balance
(dollars in Beginning Costs and Retire- End of
millions) of Period Expenses ments Other Period
___________________________________________________________________________
Year ended December
25, 1993
___________________
Buildings $ 25 $ 2 $ - $ 2 $ 29
Equipment 184 41 (4) 2 223
______ ______ _____ _____ ______
$ 209 $ 43 $ (4) $ 4 $ 252
====== ====== ===== ===== ======
Year ended December
26, 1992
___________________
Buildings $ 24 $ 1 $ - $ - $ 25
Equipment 164 29 (7) (2) 184
______ ______ _____ _____ ______
$ 188 $ 30 $ (7) $ (2) $ 209
====== ====== ===== ===== ======
Year ended December
28, 1991
___________________
Buildings $ 18 $ 1 $ - $ 5 $ 24
Equipment 137 25 (5) 7 164
______ ______ _____ _____ ______
$ 155 $ 26 $ (5) $ 12 $ 188
====== ====== ===== ===== ======
___________________________________________________________________________
The estimated service lives used to calculate depreciation are 15 to 40 years
for buildings and improvements and 3 to 25 years for equipment.
Improvements to leased properties are amortized over the lives of the leases
or the estimated useful lives of the improvements, whichever is less.
<PAGE>
SCHEDULE VII
KIEWIT DIVERSIFIED GROUP
Valuation and Qualifying Accounts and Reserves
Additions Amounts
Balance, Charged to Charged Balance
Beginning Costs and to End of
(dollars in millions) of Period Expenses Reserves Other Period
______________________________________________________________________________
Year ended
December 25, 1993
_________________
Allowance for doubtful
trade accounts $ 5 $ 1 $ (4) $ - $ 2
Reserves:
Retirement benefits 74 12 (17) 2 71
Year ended
December 26, 1992
_________________
Allowance for doubtful
trade accounts $ 5 $ - $ - $ - $ 5
Reserves:
Retirement benefits 58 8 (8) 16 (a) 74
Year ended
December 28, 1991
_________________
Allowance for doubtful
trade accounts $ 6 $ - $ (1) $ - $ 5
Reserves:
Retirement benefits 21 37 (5) 5 58
_____________________________________________________________________________
(a) In 1992, adjustment made in accordance with SFAS No. 109 to adjust
remaining retirement benefits, acquired in prior business acquisitions,
recorded net of tax, to their pre-tax amounts.
<PAGE>
SCHEDULE IX
KIEWIT DIVERSIFIED GROUP
Short-Term Borrowings
Weighted Maximum Weighted
Average Month-End Average Average
Interest Amount Amount Interest
Balance, Rate, Outstanding Outstanding Rate
End of End of During the During the During the
(dollars in millions) Period Period Period Period (a) Period
_____________________________________________________________________________
Year ended December
25, 1993
___________________
Bank Borrowings $ - -% $ 50 $ 24 3.4%
Year ended December
26, 1992
___________________
Bank Borrowings $ 80 3.4% $ 80 $ - -%
Year ended December
28, 1991
___________________
Bank Borrowings $ - -% $ 264 $ 92 10.8%
_____________________________________________________________________________
(a) Determined on the basis of average daily balances of short-term
borrowings. The 1992 bank borrowings were made the last week of the
year.
The bank borrowings provided for interest at various rates and
matured on various dates within one year.
<PAGE>
SCHEDULE X
KIEWIT DIVERSIFIED GROUP
Supplementary Income Statement Information
Charged to Costs and Expenses
_____________________________________
(dollars in millions) 1993 1992 1991
____________________________________________________________________________
Royalties (a) $ 22 $ 27 $ 24
Production taxes (a) 16 26 19
Federal Black Lung taxes (b) 4 5 4
____________________________________________________________________________
(a) The Company incurred royalty costs and production taxes with respect
to its mining operations based on the tons of coal mined or sold from
various properties.
(b) Federal Black Lung taxes were assessed on the various mines based on
the tons of coal mined.
Advertising costs, amortization of intangible assets, and taxes other than
payroll and income taxes are not presented as such amounts represent less
than one percent of revenue as reported in the related statements of
earnings or because the information called for is shown in the financial
statements or in the notes thereto.
Maintenance and repair costs in 1993 and 1992 were less than one percent of
revenue. Maintenance and repair costs, primarily related to the Group's
discontinued packaging operations, were $50 million in 1991.
<PAGE>
KIEWIT DIVERSIFIED GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
________________________________________________
The financial statements of the Diversified Group ("the Group")
include the financial position, results of operations and cash flows for the
businesses of PKS other than its construction business and certain mining
service businesses, and include a portion of the corporate assets and
liabilities and related transactions which are not separately identified with
ongoing operations of the Group or the Construction & Mining Group. The
Group's share of corporate assets and liabilities and related transactions
includes amounts to reflect certain financial activities, corporate general
and administrative costs, common stock transactions and income taxes. See
Notes 1 and 3 to the Group's financial statements.
Results of Operations - 1993 vs. 1992
_____________________________________
Mining
______
Mining revenue decreased 10% in 1993. The renegotiation of
agreements with Commonwealth Edison Company ("Commonwealth"), ceased sales of
undivided interests in coal reserves. Such sales accounted for approximately
$40 million or 17% of the total mining revenue recognized in 1992. The
absence of the sale of undivided interests to Commonwealth in 1993, was
partially offset by a rise in tonnage shipped and an approximate $4 increase
in average price per ton of coal shipped.
Alternate source coal sales by the Black Butte mine produced the
increase in the average price per ton of coal shipped. Alternate source coal
consists of coal purchased from two unaffiliated mines located in the Powder
River Basin area of Wyoming and from the Group's Decker mine. The purchased
coal is sold to Commonwealth under terms of the renegotiated agreements.
Alternate source coal sales in 1993 comprised 35% of 1993 mining revenue.
The gross margin on mining revenue increased to 49% in 1993 from
44% in 1992. Alternate source coal sales, which result in larger margins
than mined coal, led to the increase.
See "Legal Proceedings" with respect to the Whitney Benefits case.
Telecommunications
__________________
In 1993, the components of telecommunications revenue were as follows:
37% - MFS Communications Company, Inc. ("MFS") telecommunications services;
38% - MFS network systems integration and facilities management services; and
25% - C-TEC operations. In 1992, revenue was comprised of 44%
telecommunications services and 56% network systems integration and
facilities management services.
<PAGE>
KIEWIT DIVERSIFIED GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
________________________________________________
Results of Operations - 1993 vs. 1992 (continued)
________________________________________________
Telecommunications (continued)
______________________________
MFS telecommunications revenue increased from $48 million to $70
million, an increase of 46%. The majority of the increase resulted from
sales of additional services to existing customers and, to a lesser extent,
further market penetration. The growth of services in New York City,
the expansion of networks in Boston, Chicago and the Washington, D.C.
metropolitan area, and new services provided by MFS Datanet and MFS
MFS Intelenet also contributed to the revenue increase.
Third party revenue from services offered by the Company's network
systems integration and facilities management segment increased from $61
million in 1992 to $71 million in 1993, a 16% increase. The increase
primarily resulted from network system integration projects in the United
Kingdom and for the State of Iowa. MFS purchased the other 50% interest in
a partnership providing network systems integration services to customers
in the United Kingdom, thereby increasing revenue from that country. The
network system integration and facilities management services segment had
third party backlog of $110 million at December 31, 1993.
Two months of C-TEC activity accounted for $48 million of
telecommunications revenues. The telephone and cable television groups
generated the majority of the revenues.
Telecommunications operating expenses increased 78% in 1993. Components
of 1993 operating expenses were: 45% - MFS telecommunications services;
32% - MFS network systems integration and facilities management services;
and 23% - C-TEC operating expenses. In 1992, operating expenses were 51% MFS
telecommunication services and 49% MFS network systems integration and
facilities management services.
MFS telecommunications operating expenses incresed from $48 million
to $80 million in 1993, a 67% increase. The increase reflects operating
costs associated with MFS Datanet and MFS Intelenet services and higher costs
associated with the new and expanded networks. Increased depreciation of
of existing networks accounts for nearly 41% of the increase.
MFS network systems integration and facilities management services
operating expenses increased from $49 million to $55 million in 1993, a
12% increase. The increase directly relates to increased activity on
several network systems integration projects, primarily direct costs
associated with the projects in the United Kingdom and for the State of Iowa.
Two months of C-TEC activity accounted for $42 million of
telecommunications expenses. The telephone and cable television groups
generated the majority of these costs.
Progress on the network systems integration project for the State
of Iowa was delayed in June and July 1993 by significant rainfall and
flooding. Management believes that any additional cost resulting from the
floods will not materially impact the Group's telecommunications operations.
<PAGE>
KIEWIT DIVERSIFIED GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
________________________________________________
Results of Operations - 1993 vs. 1992 (continued)
________________________________________________
Other Income
____________
Other income decreased from $87 million in 1992 to $47 million in
1993, a decrease of 46%. The decline primarily relates to a $21 million
increase in realized losses and permanent valuation adjustments on
marketable securities, including certain derivatives. Interest income
declined by $16 million due to lower interest rates and to a change in
portfolio mix. Dividend income decreased by $10 million due to dividends
accrued in 1992 on an investment in United States Can Company preferred stock
redeemed in March of 1993. Slight increases in equity earnings and
miscellaneous income partially offset the declines noted above.
Selling and Administrative
__________________________
Selling and administrative expenses increased 23% in 1993. Costs
incurred in developing MFS Datanet and MFS Intelenet account for a large portion
of the increase. MFS expects to incur significant expense developing
the high-speed data communications and integrated, single-source
telecommunication services in 1994. Increased legal costs, primarily reserves
established for environmental matters (See "Legal Proceedings"), also
contributed to the increase.
Interest Expense
________________
Interest expense increased by $2 million or 22% in 1993. The
increase is due to the C-TEC debt assumed in the acquisition. Interest
on C-TEC debt during the last two months approximated $6 million. The
extinguishment of significant debt in 1992 partially offset the additions of
C-TEC interest. The Group anticipates significant increases in interest
due to the C-TEC acquisition and the MFS debt issuance of $500 million in
January 1994.
Gain on Sale of Subsidiary's Stock
__________________________________
In May 1993, MFS sold 12.7 million shares of common stock to the
public at an initial offering price of $20 per share for $233 million, net
of certain transaction costs. An additional 4.6 million shares were sold
to the public in September 1993 at price of $50 per share for $218
million, net of certain transaction costs. These transactions have reduced
the Group's ownership interest in MFS to 71% at December 25, 1993.
Substantially all of the net proceeds from the offerings are intended to
fund MFS' growth. Prior to the initial public offering, MFS was a
wholly-owned subsidiary of the Group.
As a result of the above transactions, the Group recognized a
pre-tax gain of $211 million representing the increase in the Group's
equity in the underlying net assets of MFS. Deferred income taxes have been
provided on this gain.
<PAGE>
KIEWIT DIVERSIFIED GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
________________________________________________
Results of Operations - 1993 vs. 1992 (continued)
________________________________________________
Income Taxes
____________
The effective income tax rate for earnings from continuing operations
is 29% in 1993 and 24% in 1992. An adjustment to prior year tax provisions
significantly impacted the effective rate in 1993. The increase in
effective rates from 1992 to 1993 is due to dividend exclusions, mineral
depletion expenses, and equity earnings being a larger percentage of
taxable income in the prior year. The 1993 Federal Income tax rate
change did not have a material impact to the Group's financial results.
Results of Operations - 1992 vs. 1991
_____________________________________
Mining
______
Mining revenue increased 12% in 1992. The increase was due to the
mines collectively shipping 20% more tons of coal and lignite in 1992. The
increase in tonnage was due principally to new short-term contracts at the
Black Butte mine and sales on the spot market. This increase was partially
offset by a 4% decrease in the average price per ton, the result of increased
lower-priced spot sales from the Decker mine. Revenue recognition on
previously consummated sales of undivided interests in coal reserves to be
mined in the future represented $40 million of 1992 revenue and $39 million
of 1991 revenue. The gross margin on mining revenue (including coal reserves)
approximated 44% in 1992, which is higher than the gross margin in 1991. The
1991 gross margin was unfavorably impacted by certain one-time charges for
production taxes and additional reclamation costs, and expenses incurred to
repair a dragline.
In 1992, the contracts with Commonwealth Edison Company ("Commonwealth")
were renegotiated. Beginning January 1, 1993, the Black Butte mine discontinued
coal shipments to Commonwealth. Coal is now purchased from two unaffiliated
mines located in the Powder River Basin area of Wyoming and from the Group's
Decker mine to satisfy the delivery commitments under the renegotiated
Commonwealth agreements. In accordance with the renegotiation, there will be
no sales of interests in coal reserves subsequent to January 1, 1993. The
Group does not expect that the financial impact of the renegotiation will be
material to its mining operations, cash flows, or financial position.
Telecommunications
__________________
Revenue in 1992 was comprised of 56% network systems integration and
facilities management and 44% telecommunications services. Revenue in 1991
was comprised of 38% network systems integration and facilities management and
62% telecommunications services. Network systems integration and facilities
management's backlog at December 26, 1992 was $74 million, of which $16
million relates to the United Kingdom joint venture and the remainder relates
mainly to the State of Iowa project. Revenue increased from $37 million in
1991 to $109 million in 1992, representing a 192% increase. Of the
increase, 66% was from network systems integration and facilities management.
This increase resulted primarily from network systems integration projects in
Iowa, Minnesota and the United Kingdom. Telecommunications services
accounted for the remaining increase in total revenue. This increase in
revenue primarily reflects increased services provided on networks in New York
<PAGE>
KIEWIT DIVERSIFIED GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
________________________________________________
Results of Operations 1992 vs. 1991 (continued)
_______________________________________________
Telecommunications (continued)
_____________________________
City and Dallas which commenced operations in early 1991 and a full year of
results for the Washington, D.C. metropolitan area network which was acquired
in October 1991. The balance of the increase in telecommunications services
revenue resulted from continued market growth of other networks. The Atlanta
network became operational during the fourth quarter of 1992, but generated
insignificant revenues.
The cost of revenue in 1992 increased 112% compared to 1991.
Seventy-three percent of the increase relates to direct costs incurred on
network systems integration and facilities management projects for third
parties. Another 17% of the increase is due to increased depreciation and
amortization expense primarily on the telecommunications networks in
Washington, D.C., New York City and Dallas. The balance of the increase
relates to an increase in other costs associated directly with network
operations; primarily from the Washington, D.C., New York City and Dallas
networks. The cost of revenue, as a percentage of total revenue, has
decreased from 123% in 1991 to 89% in 1992. This change resulted generally
from increased utilization of existing network capacity.
Other Income
____________
The Group recognized investment income of $78 million in 1992 and $89
million in 1991. The decrease in investment income is generally attributable
to the collection of various receivables from the sales of the discontinued
packaging operations. In 1992, the Group recognized $11 million of interest
on these receivables compared to $20 million in 1991. Included in 1992
investment income are $4 million of dividends in kind received from an
investment in California Energy Company, Inc. ("California Energy") preferred
stock and $11 million of dividends accrued on an investment in United States
Can Company ("U.S. Can") preferred stock which was redeemed in March 1993.
Included in 1991 investment income is $12 million of dividends received from
U.S. Can preferred stock. Other Income in 1992 and 1991 also reflects gains
on the sales of timberlands of $5 million and $3 million, respectively, net
equity earnings from an investment in California Energy of $4 million and $3
million, respectively, and information services income of $4 million and $2
million, respectively. The increase in Other Income in 1992 was partially
offset by a decline in market value considered to be other than temporary of
$12 million recorded for two of the Group's marketable securities, one of
which was sold in 1993. Generally gains and losses from miscellaneous asset
dispositions made up the remaining balance of Other Income.
<PAGE>
KIEWIT DIVERSIFIED GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
________________________________________________
Results of Operations 1992 vs. 1991 (continued)
______________________________________________
Selling and Administrative
__________________________
Selling and administrative expenses increased 48% in 1992 as compared to
1991. The increase was primarily due to a $21 million increase in mine
management fees paid to the Construction & Mining Group and increases within the
telecommunications operations relating to the development of new
telecommunications services. Significant increases in mine management fees are
not expected to continue in the future. The new agreement, effective as of the
beginning of 1992, provided that the Group pay a percentage of the operating
income from mining operations to the Construction & Mining Group.
Interest Expense
________________
Interest expense in 1992 reflects the anticipated decrease due to the
significant reductions during 1991 in both short-term borrowings and long-term
debt. All short-term borrowings were repaid in July 1991 and no new borrowings
were incurred until December 1992. The Group also redeemed $150 million of debt
in October 1991 and extinguished $73 million of debt in 1992 with no new
material debt incurred since year-end 1991.
Taxes
_____
The effective income tax rate, with respect to continuing operations
before cumulative effect of change in accounting principle, is 24% in 1992
and 46% in 1991. The 1992 rate is lower than the 1991 rate primarily
due to nondeductible expenses and prior year tax adjustments in 1991. In
both 1992 and 1991, dividend exclusions and mineral depletion expenses
reduced the overall effective rate.
Discontinued Packaging Operations
_________________________________
The gain on disposal of discontinued operations in 1992 resulted from
a $19 million adjustment to prior year tax estimates and an $8 million payment,
net of tax, received from BTR Nylex Limited and a $1 million accrual, net of
tax, relating to additional sales proceeds from the 1990 sale of Continental
PET Technologies, Inc. The gain was partially offset by miscellaneous sales
adjustments related to the 1991 and 1990 sales of certain discontinued packaging
operations. The gain on disposal of discontinued operations in 1991 reflects
the sales of the European packaging operations, Continental Can International
Corporation, Continental White Cap, Inc. and Continental Plastic Containers,
Inc. The significant decrease in 1992 in earnings from discontinued
operations is due to the sales of the remaining packaging operations in 1991.
Earnings in 1992 reflect the equity earnings from the Company's investment in a
plastics joint venture, which was sold to Ball Corporation in July 1992. No
significant gain or loss was recognized as a result of this transaction.
<PAGE>
KIEWIT DIVERSIFIED GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
________________________________________________
Financial Condition - December 25, 1993
_______________________________________
The Group's working capital increased $197 million or 25% to $993
million in 1993.
During 1993, the Group generated $196 million in cash from operating
activities, an $87 million increase from the prior year.
The Group's 1993 net investing activities used $634 million in
cash. Net purchases of marketable securities expended $335 million while
capital expenditures for fixed assets and other investments and the acquisition
of C-TEC accounted for $139 million and $146 million of cash outlays,
respectively. These investments were necessary to support existing
operations and develop opportunities for future growth.
In 1993, the Group generated $370 million in cash from financing
activities. The Group raised $451 million in cash from the sale of 17.3
million shares of MFS' common stock in two public offerings. The net
proceeds will fund MFS growth. The Group also raised $8 million in cash
from the sale of Class D common stock and $26 million in cash from the net
exchange of Class B&C stock for Class D stock, to be used for general
corporate purposes.
Financing activities requiring cash during 1993 consisted of
dividends of $17 million, stock repurchased of $40 million, and short-term
borrowing repayments of $80 million. Throughout 1993, the Group borrowed
funds to meet short-term liquidity needs. All borrowings were repaid.
During 1993, the Group collected $110 million related to notes receivable
from sales of discontinued operations.
The Group's working capital position at the end of 1993, together
with anticipated cash flows from operations and existing borrowing capacity,
should be sufficient for 1994 cash requirements. It is expected that C-TEC
will be able to independently finance its working capital and investment
requirements in 1994.
The Group anticipates that it will invest between $5 million and $10
million annually in its mining business, make 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 operating
businesses which provide for long-term growth. Investigation of other
investment opportunities continues.
These investments, along with the payment of income taxes and
repurchases of common stock will be the significant long-term uses of liquidity.
The Group's existing cash and cash equivalents, marketable securities, cash
flows from future operations and existing borrowing capacity are expected
to fund these expenditures.
<PAGE>
KIEWIT DIVERSIFIED GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
________________________________________________
Financial Condition - December 25, 1993
_______________________________________
MFS requires significant capital to fund future building, expansion
or acquisition of communications networks in major metropolitan areas. In
January 1994, MFS issued $500 million of Senior Discount Notes due in 2004.
In June 1993, MFS entered into a secured revolving credit agreement in the
amount of $75 million. The indenture pursuant to which the Senior Discount
Notes were issued permits MFS to have a $150 million secured credit facility.
These transactions will provide liquidity to fund future expansion,
including the proposed acquisition of Centex Telemanagement, Inc., for net
consideration of approximately $150 million, announced by MFS on March 16,
1994. MFS may fund future capital expenditures and acquisitions through
additional issuances of debt and equity securities. MFS intends to invest
$250 million in 1994 and in excess of $1 billion over the next five years
to expand its networks to an additional 55 markets.
In July 1993, financing was approved to construct a 10-mile
privately-owned toll road in southern California. The Group has a 65%
interest in this project. Management expects $107 million of third party
debt to be incurred by the project's completion in 1995.
