FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period to
Commission file number 0-15658
PETER KIEWIT SONS', INC.
(Exact name of registrant as specified in its charter)
Delaware 47-0210602
(State of Incorporation) (I.R.S. Employer
Identification No.)
1000 Kiewit Plaza, Omaha, Nebraska 68131
(Address of principal executive offices) (Zip Code)
402-342-2052
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such report(s)), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares outstanding of each class of the issuer's
common stock, as of November 1, 1995:
Class B Common Stock..........................263,468 shares
Class C Common Stock.......................10,617,442 shares
Class D Common stock...................... 23,024,974 shares
PETER KIEWIT SONS', INC.
Page
Part I - Financial Information
Item 1. Financial Statements:
Consolidated Condensed Statements of Earnings
Consolidated Condensed Balance Sheets
Consolidated Condensed Statements of Cash Flows
Notes to Consolidated Condensed Financial
Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II - Other Information
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
Index to Exhibits
PETER KIEWIT SONS', INC.
Consolidated Condensed Statements of Earnings
(unaudited)
Three months ended Nine months ended
(dollars in millions, September 30, September 30,
except per share data) 1995 1994 1995 1994
Revenue $ 839 $ 824 $ 2,099 $ 2,018
Cost of Revenue (701) (693) (1,781) $(1,715)
_____ _____ _______ _______
138 131 318 303
General and Administrative
Expenses (54) (53) (161) (168)
_____ _____ _______ _______
Operating Income 84 78 157 135
Other Income (Expense):
Gain on Subsidiary's Stock
Transactions, net - - 3 28
Investment Income, ne 26 4 56 29
Interest Expense, net (7) (6) (31) (23)
Other, net (2) 10 169 21
_____ _____ _______ _______
17 8 197 55
Loss in MFS (66) (29) (151) (63)
_____ _____ _______ _______
Earnings Before Income Taxes
and Minority Interest 35 57 203 127
Benefit (Provision) for
Income Taxes 58 (25) (31) (50)
Minority Interest in Net
Income of Subsidiaries (3) (3) (11) (3)
_____ _____ ______ _______
Net Earnings $ 90 $ 29 $ 161 $ 74
===== ===== ======= =======
Earnings Attributable to
Class B & C Stock:
Net Earnings $ 39 $ 41 $ 73 $ 58
Earnings per Common and
Common Equivalent
Share $2.69 $2.67 $ 5.18 $ 3.77
Earnings Attributable
to Class D Stock:
Net Earnings (Loss) $ 51 $ (12) $ 88 $ 16
Earnings (Loss) per
Common and Common
Equivalent Share $2.38 $(.58) $ 4.13 $ .77
Cash Dividends per Common
Share:
B & C Stock $ - $ - $ .45 $ .45
D Stock $ - $ - $ - $ -
See accompanying notes to consolidated condensed financial statements.
PETER KIEWIT SONS', INC.
Consolidated Condensed Balance Sheets
September 30, December 31,
1995 1994 (dollars
in millions) (unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 446 $ 400
Marketable securities 541 910
Receivables, less allowance of $8 and $9 355 414
Note receivable from sale of
discontinued operations - 29
Costs and earnings in excess of billings
on uncompleted contracts 142 126
Investment in construction joint ventures 55 69
Recoverable income taxes 88 74
Other 56 93
_____ _____
Total Current Assets 1,683 2,115
Property, Plant and Equipment,
less accumulated depreciation and
amortization of $697 and $731 676 1,244
Investments 465 314
Intangible Assets, net 494 749
Other Assets 75 82
______ ______
$3,393 $4,504
====== ======
See
accompanying notes to consolidated condensed financial statements.
PETER KIEWIT SONS', INC.
Consolidated Condensed Balance Sheets
September 30, December 31,
(dollars in millions, 1995 1994
except per share data) (unaudited)
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 277 $ 344
Current portion of long-term debt:
Telecommunications 9 26
Other 5 7
Accrued costs and billings in excess
of revenue on uncompleted contracts 162 143
Accrued insurance costs 75 75
Other 113 218
______ ______
Total Current Liabilities 641 813
Long-Term Debt, less current portion:
Telecommunications 301 827
Other 98 81
Deferred Income Taxes 289 302
Retirement Benefits 49 67
Accrued Reclamation Costs 102 103
Other Liabilities 165 127
Minority Interest 209 448
Stockholders' Equity:
Preferred stock, no par value,
Authorized 250,000 shares: no shares
outstanding - -
Common stock, $.0625 par value,
$1.2 billion aggregate redemption
value:
Class B, authorized 8,000,000 shares:
263,468 outstanding in 1995 and
1,000,400 in 1994 - -
Class C, authorized 125,000,000 shares:
10,617,442 outstanding in 1995 and
15,087,028 in 1994 1 1
Class D, authorized 50,000,000 shares:
23,024,974 outstanding in 1995 and
20,391,568 in 1994 1 1
Additional paid-in capital 210 182
Foreign currency adjustment (6) (7)
Net unrealized holding gains (losses) 13 (8)
Retained earnings 1,320 1,567
______ ______
Total Stockholders' Equity 1,539 1,736
______ ______
$3,393 $4,504
====== ======
See
accompanying notes to consolidated condensed financial statements.
PETER KIEWIT SONS', INC.
Consolidated Condensed Statements of Cash Flows
(unaudited)
Nine months ended
September 30,
(dollars in millions) 1995 1994
Cash flows from operations:
Net cash provided by continuing operations $ 291 $ 146
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities and investments 369 1,503
Purchases of marketable securities (325) (1,522)
Proceeds from sales of property, plant
and equipment 11 14
Capital expenditures (114) (313)
Acquisitions, excluding cash acquired (167) (272)
Proceeds from sale of cellular properties - 182
Deferred development costs and other (32) (66)
_____ _____
Net cash used in investing activities (258) (474)
Cash flows from financing activities:
Issuances of subsidiary's stock - 5
Proceeds from long-term debt borrowings 23 677
Payments on long-term debt, including
current portion (26) (189)
Repurchases of common stock (7) (31)
Issuances of common stock 27 19
Dividends paid (13) (13)
____ ____
Net cash provided by financing activities 4 468
Cash flows from proceeds due to sales of
discontinued packaging operations 29 6
Cash and cash equivalents of MFS at
beginning of period: (22) -
Effect of exchange rates on cash 2 1
____ _____
Net change in cash and cash equivalents 46 147
Cash and cash equivalents at beginning of period 400 296
____ _____
Cash and cash equivalents at end of period $ 446 $ 443
===== ======
Noncash investing activities:
Issuance of MFS stock for purchase of
telecommunications companies $ - $ 23
MFS stock transactions to settle
contingent purchase price liability - 25
Dividend of investment in MFS 399 -
Issuance of C-TEC Redeemable Preferred
Stock for acquisition 44 -
See accompanying notes to consolidated condensed financial statements.
PETER KIEWIT SONS', INC
Notes to Consolidated Condensed Financial Statements
1. Basis of Presentation:
The consolidated condensed balance sheet of Peter Kiewit Sons', Inc.
("PKS") and subsidiaries (the "Company") at December 31, 1994 has been
condensed from the Company's audited balance sheet as of that date. All other
financial statements contained herein are unaudited and, in the opinion of
management, contain all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of financial position and results of
operations for the periods presented. The Company's accounting policies and
certain other disclosures are set forth in the notes to the consolidated
financial statements contained in the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
Marketable securities at September 30, 1995 and December 31, 1994
include approximately $58 million and $61 million, respectively, of investments
which are being held by the owners of various construction projects in lieu of
retainage. Receivables at September 30, 1995 and December 31, 1994 include
approximately $60 million and $48 million, respectively, of retainage on
uncompleted projects the majority of which is expected to be collected within
one year.
Where appropriate, items within the consolidated condensed financial
statements have been reclassified from the previous periods to conform to
current year presentation.
2. Earnings Per Share:
Primary earnings per share of common stock have been computed using
the weighted average number of shares outstanding during each period. Fully
diluted earnings per share have not been presented because it is not materially
different from primary earnings per share. The number of shares used in
computing earnings per share was as follows:
Three months ended Nine months ended
September 30, September 30,
1995 1994 1995 1994
Class B&C 14,740,972 16,104,794 14,219,168 15,316,445
Class D 21,326,218 20,375,280 21,283,397 20,457,392
3. Summarized Financial Information:
Holders of Class B&C Stock (Construction & Mining Group) and Class D Stock
(Diversified Group) are stockholders of PKS. The Construction & Mining Group
contains the Company's construction operations and certain mining services. The
Diversified Group contains coal mining properties, a telecommunications
subsidiary, a data management services company, a minority interest in
California Energy Company, Inc. ("CECI") and miscellaneous investments.
Corporate assets and liabilities which are not separately identified with the
ongoing operations of the Construction & Mining Group or the Diversified Group
are allocated equally between the two groups.
A summary of the results of operations and financial position for the
Construction & Mining Group and the Diversified Group follows. The summary
information for December 31, 1994 was derived from the audited financial
statements of the respective groups which were exhibits to the 1994 Annual
Report. All other summary information was derived from the unaudited financial
statements of the respective groups which are exhibits to this Form 10-Q. All
significant intercompany accounts and transactions, except those directly
between the Construction & Mining Group and the Diversified Group, have been
eliminated.
PETER KIEWIT SONS', INC
Notes to Consolidated Condensed Financial Statements
3. Summarized Financial Information (continued):
Construction & Mining Group:
(in millions, except per share data)
Three months ended Nine months ended
September 30, September 30,
1995 1994 1995 1994
Results of Operations:
Revenue $ 689 $ 680 $1,677 $1,619
Net earnings $ 39 $ 41 $ 73 $ 58
Earnings per share $2.69 $2.67 $ 5.18 $ 3.77
September 30, December 31,
1995 1994
Financial Position:
Working capital $ 227 $ 333
Total assets 971 963
Long-term debt, less
current portion 6 9
Stockholders' equity 445 505
Included within earnings before income taxes is mine service income
from the Diversified Group of $8 million and $7 million for the three months
ended September 30, 1995 and 1994 and $23 million and $22 million for the nine
months ended September 30, 1995 and 1994.
Diversified Group:
(in millions, except per share data)
Three months ended Nine months ended
September 30, September 30,
1995 1994 1995 1994
Results of Operations:
Revenue $ 152 $ 144 $ 429 $ 399
Net earnings (loss) $ 51 $ (12) $ 88 $ 16
Earnings (loss) per share $2.38 $(.58) $4.13 $ .77
September 30, December 31,
1995 1994
Financial Position:
Working capital $ 815 $ 969
Total assets 2,437 3,549
Long-term debt, less
current portion 393 899
Stockholders' equity 1,094 1,231
Included within earnings before income taxes is mine management fees paid
to the Construction & Mining Group of $8 million and $7 million for the three
months ended September 30, 1995 and 1994 and $23 million and $22 million for the
nine months ended September 30, 1995 and 1994.
4. MFS Spin-off:
The PKS Board of Directors approved a plan to make a tax-free
distribution of its entire ownership interest in MFS Communications
Company, Inc. ("MFS"), effective September 30, 1995, to the Class D stockholders
(the "Spin-off") at a special meeting on September 25, 1995.
PETER KIEWIT SONS', INC
Notes to Consolidated Condensed Financial Statements
4. MFS Spin-off (continued):
The Spin-off was completed after PKS and Kiewit Diversified Group
Inc., a wholly owned first tier subsidiary of PKS ("KDG") agreed with MFS to
effect a recapitalization of MFS pursuant to which KDG exchanged a portion of
the MFS Common Stock held by KDG for certain high-vote convertible preferred
stock. In addition, prior to completing the Spin-off, PKS purchased additional
shares of MFS Common Stock which were distributed to the Class D stockholders.
PKS completed an exchange offer prior to the Spin-off whereby 1,666,384
shares of Class D Stock were exchanged for 4,000,000 shares of Class B Stock and
Class C Stock (Class B&C Stock") tendered on terms similar to those upon which
Class B&C Stock can be converted into Class D Stock during the annual conversion
period provided in the Company's Certificate of Incorporation. The conversion
ratio used in the exchange was calculated using 1994 stock prices adjusted for
1995 dividends.
After the recapitalization of MFS and the exchange offer discussed
above, shares were distributed on the basis of approximately 1.741 shares of MFS
Common Stock and approximately .651 shares of MFS Preferred Stock for each share
of outstanding Class D Stock.
The net assets of MFS distributed on September 30, 1995 were approximately
$399 million.
The operating results of MFS have been classified as a single line
item on the statements of earnings for the three and nine month periods ended
September 30, 1995 and 1994.
Operating results of MFS are summarized as follows (dollars in
millions):
Three months ended Nine months ended
September 30, September 30,
1995 1994 1995 1994
Revenue $ 154 $ 89 $ 412 $ 185
Loss from operations (61) (37) (176) (83)
Net loss (67) (42) (196) (92)
PKS' loss in MFS (66) (29) (151) (63)
PKS' loss in MFS for the three and nine months ended September 30,
1995, includes $20 million for transaction costs associated with the Spin-off.
Included in Benefit (Provision) for Income Taxes on the consolidated
condensed statements of earnings for the three and nine months ended September
30, 1995, are $93 million of tax benefits from the reversal of certain deferred
tax liabilities recognized on gains from previous MFS stock transactions that
are no longer payable and $4 million of estimated U.S. income taxes attributable
to the corporate built-in gain on the stock of MFS distributed to certain
non-U.S. Class D stockholders.
5. Acquisitions:
In February 1995, CECI, an equity method investee, completed the
purchase of Magma Power Company. The cash transaction, valued at $950 million,
was partially financed by the sale of 17 million shares of CECI common stock at
$17 per share. As part of this offering, the Company purchased 1.5 million
shares. In addition, during the second quarter of 1995, the Company purchased
an additional 200,000 common shares of CECI. The Company owns 22% of CECI's
outstanding common stock. At September 30, 1995, the Company's cumulative
investment in CECI common stock totals $151 million, $37 million in excess of
the Company's proportionate share of CECI's equity.
PETER KIEWIT SONS', INC
Notes to Consolidated Condensed Financial Statements
5. Acquisitions (continued):
C-TEC Corporation ("C-TEC") completed the first step of an
acquisition of Twin County Trans Video, Inc. ("Twin County") in May 1995.
Twin County provides cable television service to 74,000 subscribers in eastern
Pennsylvania. In consideration for 40% of the capital stock of Twin County, C-
TEC paid $26 million in cash and issued a $4 million note of its subsidiary, C-
TEC Cable Systems, Inc. In addition, C-TEC paid $11 million in consideration
of a noncompete agreement. The remaining outstanding common stock of Twin
County was acquired in September 1995 in exchange for $52 million stated value
redeemable preferred stock of C-TEC Corporation. The preferred stock has a
stated dividend rate of 5%, beginning January 1, 1996. The estimated fair value
of the preferred stock is $44.5 million, subject to final determination.
In May, 1995, the C-TEC signed a definitive agreement for the acquisition
of all the outstanding shares of common stock of Buffalo Valley Telephone
Company for $61 per share, payable either in cash or C-TEC convertible preferred
stock. In October 1995, Buffalo Valley Telephone Company terminated its merger
agreement with C-TEC and entered into a definitive agreement with Conestoga
Enterprises, Inc.
In January 1995, C-TEC purchased, for $84 million in cash, a 40% equity
position in Megacable, S.A. De C.V., Mexico's second largest cable television
operator with 174,000 subscribers in twelve cities. The purchase price is
subject to adjustments based on fourth quarter 1995 exchange rates.
6. Other Matters:
Kinross Transaction
In June 1995, the Company exchanged its interest in a wholly-owned
subsidiary involved in gold mining activities for 4 million common shares of
Kinross Gold Corporation ("Kinross"), a publicly traded corporation. The
Company recognized a $21 million pre-tax gain on the exchange based on the
difference between the book value of the subsidiary and the fair market value
of the Kinross stock on the date of the transaction.
MFS Litigation
In 1994, several former stockholders of a 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. Defendants expect that a trial will
not be held until mid to late 1996. 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. KDG remains
obligated to satisfy these liabilities, if any, after the spin-off of MFS.
Whitney Settlement
In 1974, a subsidiary of the Company ("Kiewit"), entered into a lease with
Whitney Benefits,Inc., a Wyoming charitable corporation ("Whitney"). Whitney
was the owner, and Kiewit was 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.
PETER KIEWIT SONS', INC
Notes to Consolidated Condensed Financial Statements
6. Other Matters (continued):
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 (the "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 the plaintiffs
the 1977 fair market value of the property ($60 million) plus interest. In
1991, the U.S. Court of Appeals for the Federal Court affirmed the decision of
the Claims Court and the U.S. Supreme Court denied certiorari. 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 May
1994, the Claims Court entered an order denying both motions. In February 1994,
the Claims Court issued an opinion which provided that the $60 million judgment
would bear interest compounded annually from 1977 until payment. The government
appealed the February 1994 and May 1994 orders. A hearing on the appeals was
held in February 1995.
In May 1995, the government and the plaintiffs entered into a settlement
agreement. In settlement of all claims, the government agreed to pay plaintiffs
$200 million and plaintiffs agreed to deed the coal underlying the real property
to the government. Kiewit and Whitney agreed in 1992 that Kiewit would receive
67.5 percent of any award and Whitney would receive the remainder. Peter Kiewit
Sons' Co., a subsidiary of KDG, received approximately $135 million in June
1995.
Other Litigation:
The Company is involved in various other lawsuits, claims and regulatory
proceedings incidental to its business. Management believes that any resulting
liability for legal proceedings beyond that provided should not materially
affect the Company's financial position or results of operations.
PETER KIEWIT SONS', INC.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations:
Separate management's discussion and analysis of financial
condition and results of operations for the Kiewit Construction & Mining Group
and the Kiewit Diversified Group have been filed as Exhibits 99.A and 99.B to
this report. The Company will furnish without charge a copy of such exhibits
upon the written request of a stockholder addressed to Stock Registrar, Peter
Kiewit Sons', Inc., 1000 Kiewit Plaza, Omaha, Nebraska 68131.
Results of Operations - Third Quarter 1995 vs. Third Quarter 1994
Revenue from each of the Company's business segments for the three
months ended September 30 comprised the following (in millions):
1995 1994
Construction $ 686 $ 672
Mining 59 68
Telecommunications 85 75
Other 9 9
_____ ____
$ 839 $ 824
===== =====
Construction:
Construction revenue rose 2% in the third quarter of 1995 compared to the
third quarter of 1994. The increase is primarily due to revenues from joint
ventures during the period. Contract backlog at September 30, 1995 was $2.2
billion, of which 11% is attributable to foreign operations, principally, Canada
and the Philippines. Projects on the west coast account for 39% of the total
backlog which includes San Joaquin Toll Road of $188 million. San Joaquin is
scheduled for completion in 1997.
There was no change in gross margin on construction contracts between third
quarter 1995 and 1994.
Mining:
Mining revenue decreased in 1995 by $9 million when compared to 1994. The
decrease is the result of lower coal spot sales, fewer contract sales and lower
prices on a renegotiated contract. Margins increased as a result of additional
alternate source coal sales. This increase in margins was partially offset by
a lower margin on precious metal sales, lower prices on renegotiated coal
contracts, and lower sales in the quarter from a high margin contract.
Telecommunications:
C-TEC's revenues increased from $75 million to $85 million in 1995.
C-TEC's 1994 revenue included $8 million from its cellular business which was
sold during the third quarter of 1994. The increase in revenue is primarily
attributable to C-TEC's Cable Group which had increased revenues of $12 million.
The increase in Cable Group revenues is due to the acquisition of Twin County on
May 1, 1995, which contributed $7 million of revenues for the quarter and
Mercom, Inc. which contributed $2 million from August 1995 when its results were
consolidated with C-TEC's operations. Twin County serves approximately 74,000
subscribers in the Allentown/Bethlehem area of Pennsylvania. C-TEC acquired
majority control of the voting stock of Mercom, Inc. which provides cable
television service in Michigan and Port St. Lucie, Florida, through a rights
offering. C-TEC previously owned 43.63% of the voting stock of Mercom, Inc.
and accounted for its investment using the equity method. Additionally, Cable
Group revenues increased $3 million due to an increase of approximately 15,000
subscribers and rate increases effective in April 1995.
PETER KIEWIT SONS', INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Telecommunications (continued):
Revenues for C-TEC's Telephone, Long Distance and other groups were
comparable with the third quarter 1994 balances.
An increase in the operating expenses of the Cable Group partially offset
the increased revenues as operating income of the Cable Group improved in 1995.
The increase in expense is primarily due to the acquisition of Twin County and
consolidation of Mercom, Inc. and to increased programming costs resulting from
increased subscribers, new channels and programming rate increases.
C-TEC's equity in the earnings of Megacable, S.A. de C.V., ("Megacable"),
Mexico's second largest cable operator in which C-TEC holds a 40 percent
interest, was not significant to C-TEC's operations but declined slightly from
the second quarter of 1995 as a result of the recession in Mexico. The interest
in Megacable was acquired in January 1995.
The operating income of C-TEC's Telephone, Long Distance and other groups
were comparable with the third quarter 1994 amounts.
General and Administrative Expenses:
General and administrative expenses increased 2% in 1995. Expenses
incurred by C-TEC to explore and evaluate strategic alternatives to increase
shareholder value were partially offset by the elimination of expenses for the
PKS stock appreciation rights program which expired in 1994.
Investment Income, net:
Proceeds from C-TEC's rights offering, the sale of C-TEC's mobile services
group and the settlement of the Whitney litigation resulted in a higher average
portfolio balance and an increase in interest and dividend income. In addition
to increases in interest income, the Group realized gains from the sale of
marketable securities of $2 million in 1995 compared to $11 million of realized
losses in 1994. Increases in equity earnings, primarily from California Energy
Company, Inc. were offset by developmental expenses associated with
international energy projects.
Interest Expense, net:
Interest expense decreased by $2 million in 1995 primarily due to a decline
in interest expense incurred by C-TEC from the repayment of debt in the fourth
quarter of 1994.
Other Income, net:
Other income in 1995 declined by $12 million from 1994. A $5 million
decrease in the gains recognized from the sale of operating assets, a reduction
of $3 million in third party management fees and the lack of one time real
estate gains were the primary factors contributing to the reduction in other
income.
Loss in MFS:
MFS is a leading provider of communication services to business. Through
its operating subsidiaries, MFS provides a wide range of high quality voice,
data, network system integration and other enhanced services. The Company's
losses associated with MFS continued to increase, primarily because of the
accelerated expansion activities announced in 1993 and 1995. These expansion
activities require significant initial development and roll out expenses in
advance of anticipated revenues and continue to negatively effect the operating
results of MFS. After September 30, 1995, the date of the Spin-off, the Company
will no longer include MFS' results of operations in its financial statements.
PETER KIEWIT SONS', INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Loss in MFS (continued):
PKS' loss in MFS for the three and nine months ended September 30, 1995,
includes $20 million for transaction costs associated with the Spin-off.
Provision for Income Taxes:
The effective income tax rate for the three months ended September 30, 1995
differs from the statutory rate of 35% due primarily to the net operating loss
limitations on losses generated by MFS, $93 million of income tax benefits from
the reversal of certain deferred tax liabilities recognized on gains from
previous MFS stock transactions that are no longer payable due to the tax-free
spin-off of MFS and $4 million of estimated U.S. income taxes attributable to
the distribution of MFS stock to certain non-U.S. Class D stockholders.
Results of Operations - Nine Months 1995 vs. Nine Months 1994:
Revenue from each of the Company's business segments for the nine months
ended September 30 comprised the following (in millions):
1995 1994
Construction $1,652 $1,594
Mining 186 187
Telecommunications 237 220
Other 24 17
______ ______
$2,099 $2,018
====== ======
Construction:
Construction revenue increased by $58 million or 4% during the first nine
months of 1995 compared to the same period in 1994. The increase relates to
joint venture activity and the inclusion of an additional two months of
materials revenue generated by the APAC-Arizona companies which were acquired on
February 28, 1994.
There was no change in gross margin on construction contracts from the same
time period in 1994.
Mining:
Mining revenues for 1995 were about the same when compared to 1994. A
decrease in coal spot sales was offset by higher sales of precious metals and
additional alternate source coal sales. Margins increased slightly in 1995 as
a result of the additional alternate source coal sales. Lower margin precious
metal sales and renegotiated coal contracts partially offset margin increases
resulting from the additional alternate source coal sales.
Telecommunications:
C-TEC's revenues increased from $220 million to $237 million in 1995. C-
TEC's 1994 revenue included $22 million from its cellular business which was
sold during the third quarter of 1994. Cable and Long Distance Groups
contributed $19 million and $12 million, respectively, to the increase. The
Cable Group revenues increased due to the acquisition of Twin County, the
consolidation of Mercom, Inc. and an increase in subscribers and rate increases
effective in April, 1995. Long Distance Group revenues increased primarily due
to increased sales of tariff services to another long distance reseller which
terminated during the second quarter of 1995. Increased switched business
sales and 800-service sales also contributed to the increase in revenues.
Revenues for C-TEC's Telephone and other groups were comparable with the
1994 amounts.
PETER KIEWIT SONS', INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Telecommunications (continued):
Increased Cable Group revenues were partially offset by increased operating
expenses associated with the acquisition of Twin County, consolidation of
Mercom, Inc. and higher basic programming costs resulting from additional
subscribers, rate increases and new channels, however, operating income of the
Cable Group improved in 1995.
C-TEC's equity in the earnings of Megacable were not significant to C-TEC's
operations for the first nine months of 1995. The interest in Megacable was
acquired in January 1995.
The operating income of the Long Distance Group also improved in 1995 as
the increased revenues described above were only partially offset by increased
operating costs. The operating income of C-TEC's Telephone and other groups
were comparable with 1994 balances.
General and Administrative Expenses:
General and administrative expenses declined 4% for the nine months ended
September 30, 1995 as compared to the same period in 1994. Overall declines in
overhead costs attributable to C-TEC's operating units, the sale of C-TEC's
mobile services group and the elimination of expenses associated with the PKS
stock appreciation rights program, which expired in 1994, were factors in the
decrease in general and administrative expenses.
Gain on Subsidiary's Stock Transactions, net:
The issuance of MFS stock for acquisitions by MFS and the exercise of MFS
employee stock options resulted in a $3 million net gain to the Group in 1995.
In 1994 the Group settled a contingent purchase price obligation resulting from
MFS' 1990 purchase of Chicago Fiber Optic Corporation ("CFO"). The former
shareholders of CFO accepted MFS stock previously held by the Company, valued at
market prices, as payment of the obligation. This transaction along with the
issuances of stock for acquisitions and employee stock options, resulted in a
$28 million net gain before taxes. The Company has recognized gains and losses
from sales and issuances of stock by MFS on the condensed statement of earnings.
With the Spin-off of MFS (See note 4), these types of gains will no longer be
recognized for MFS transactions.
Investment Income, net:
Proceeds from C-TEC's rights offering, the sale of C-TEC's mobile services
group and the settlement of the Whitney litigation resulted in a higher average
portfolio balance and an increase in interest and dividend income. In addition
to increases in interest income, the Company's realized losses on the sale of
marketable securities declined by $11 million in 1995. Increases in equity
earnings, primarily from California Energy Company, Inc. were offset by
developmental expenses associated with international energy projects.
Interest Expense, net:
Interest expense increased 35% in 1995. Tax deficiency interest expense of
$11 million incurred in 1995 was partially offset by a decline in interest
expense incurred by C-TEC due to the repayment of debt in 1994.
Other Income, net:
The resolution of the Whitney litigation and the subsequent payment by the
government of $135 million and the gain of $21 million from the Kinross
transaction comprise the majority of other income in 1995. The remaining income
is comprised of gains and losses from the sale of operating assets and other
miscellaneous activities.
PETER KIEWIT SONS', INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Provision for Income Taxes:
The effective income tax rate for the nine months ended September 30, 1995
differs from the statutory rate of 35% due primarily to the net operating loss
limitations on losses generated by MFS, $93 million of income tax benefits from
the reversal of certain deferred tax liabilities recognized on gains from
previous MFS stock transactions that are no longer payable due to the tax-fee
spin-off of MFS and $4 million of estimated U.S. income taxes attributable to
the distribution of MFS stock to certain non-U.S. Class D stockholders.
Financial Condition - September 30, 1995 vs. December 31, 1994
The Company's working capital, exclusive of MFS, increased $23 million or
2% during the first nine months of 1995. The increase was mainly due to cash
flows from operations, including the Whitney settlement of $135 million, being
partially offset by significant investing activities of $258 million.
Investing activities include $114 million of capital expenditures and $167
million of investments. The investments include C-TEC's $84 million outlay for
40% of Megacable and $38 million outlay for Twin County, KDG's $29 million
purchase of CECI's stock and $8 million for a 19% interest in a healthcare
software development company. Other activities include investments of $12
million in a Philippine power project and $26 million for the construction of a
privately owned toll road offset by $9 million of proceeds from the sale of
C-TEC businesses.
Financing sources for the nine months include $23 million of borrowings for
the construction financing of a privately owned toll road and $27 million from
the sale of the Company's common stock. Financing uses consisted of $17 million
in net payments on C-TEC debt, $5 million of payments on stockholders' notes, $7
million for stock repurchases and $13 million of Class C Stock dividends.
In 1995, the Company received the final payment ($29 million) for the sale
of certain discontinued packaging operations.
In addition to the C-TEC activities described below, the Company
anticipates investing between $45 and $85 million annually in its construction
and mining businesses, making significant (over $25 million in 1995) investments
in its energy businesses - including its joint venture agreement with CECI
covering international power project development activities and searching for
opportunities to acquire capital intensive businesses which provide for long-
term growth. Other long-term liquidity uses include payment of income taxes
and the repurchase of stock. The Company's current financial condition and
borrowing capacity should be sufficient for future operating and investing
activities.
In October 1995, the PKS Board of Directors declared dividends of $.60 and
$.50 per share for Class B&C and Class D Stock, respectively, payable in
January, 1996.
On November 8, 1995, C-TEC announced that it is evaluating strategic
options for its various business units with a view toward enhancing shareholder
value. Specifically, C-TEC will evaluate the advisability and feasibility of
separating or restructuring its local telephone business, its cable television
business, and its various other communications businesses. C-TEC has engaged
the investment banking firm Merrill Lynch & Co. to assist with the process. No
assurances can be given that any transactions will be consummated.
See the notes to the consolidated condensed financial statements with
respect to the MFS spin-off.
PETER KIEWIT SONS', INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
In 1994, several former stockholders of a 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. Defendants expect that a trial will
not be held until mid to late 1996. 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. KDG remains
obligated to satisfy these liabilities, if any, after the spin-off of MFS.
Item 6. Exhibits & Reports on Form 8-K:
(a) Exhibits filed as part of this report are listed below:
Exhibit
Number
27 Financial Data Schedule (for electronic filing purposes only)
99.A Kiewit Construction & Mining Group Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
99.B Kiewit Diversified Group Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
(b) No reports on Form 8-K were filed by the Company during the third
quarter of 1995.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PETER KIEWIT SONS', INC.
Dated: November 14, 1995 /s/ Eric J. Mortensen
Eric J. Mortensen
Principal Accounting Officer
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
No.
27 Financial Data Schedule (For electronic filing purposes only)
99.A Kiewit Construction & Mining Group Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
99.B Kiewit Diversified Group Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q for the period ending September 30, 1995 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 446
<SECURITIES> 541
<RECEIVABLES> 363
<ALLOWANCES> 8
<INVENTORY> 0
<CURRENT-ASSETS> 1,683
<PP&E> 1,373
<DEPRECIATION> 697
<TOTAL-ASSETS> 3,393
<CURRENT-LIABILITIES> 641
<BONDS> 399
<COMMON> 2
0
0
<OTHER-SE> 1,537
<TOTAL-LIABILITY-AND-EQUITY> 3,393
<SALES> 1,840
<TOTAL-REVENUES> 2,099
<CGS> 1,619
<TOTAL-COSTS> 1,781
<OTHER-EXPENSES> 161
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> 203
<INCOME-TAX> 31
<INCOME-CONTINUING> 161
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161
<EPS-PRIMARY> $5.18<F1>
<EPS-DILUTED> $5.18<F1>
<FN>
<F1>$5.18 represents Class C Stock earnings per share, Class D Stock earnings
per share; $4.13
</FN>
</TABLE>
KIEWIT CONSTRUCTION & MINING GROUP
Condensed Statements of Earnings
(unaudited)
Three months ended Nine months ended
September 30, September 30,
(dollars in millions) 1995 1994 1995 1994
Revenue $ 689 $ 680 $ 1,677 $1,619
Cost of Revenue (615) (607) (1,541) (1,485)
______ ______ _______ ______
74 73 136 134
General and Administrative
Expenses (26) (30) (86) (92)
______ ______ _______ ______
Operating Income 48 43 50 42
Other Income (Expense):
Investment Income, net 4 3 10 9
Interest Expense (1) - (2) (1)
Other, net 8 16 54 38
_______ ______ _______ ______
11 19 62 46
_______ ______ _______ ______
Earnings Before
Income Taxes 59 62 112 88
Provision for Income Taxes (20) (21) (39) (30)
______ ______ _______ ______
Net Earnings $ 39 $ 41 $ 73 $ 58
====== ====== ======= =======
See accompanying notes to condensed financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Condensed Balance Sheets
September 30, December 31,
1995 1994
(dollars in millions) (unaudited)
Assets
Current Assets:
Cash and cash equivalents $ - $ 70
Marketable securities 117 156
Receivables, less allowance of
$6 and $7 285 260
Costs and earnings in excess of
billings on uncompleted
construction contracts 142 101
Investment in construction
joint ventures 55 69
Recoverable income taxes 79 59
Other 18 23
_____ ______
Total Current Assets 696 738
Property, Plant and Equipment,
less accumulated depreciation and
amortization of $412 and $395 160 140
Investments 84 55
Other Assets 31 30
_____ ______
$ 971 $ 963
===== ======
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, including retainage
of $42 and $41 $ 207 $ 179
Current portion of long-term debt 2 3
Accrued construction costs and
billings in excess of revenue
on uncompleted contracts 151 106
Accrued insurance costs 75 73
Other 34 44
_____ _____
Total Current Liabilities 469 405
Long-Term Debt, less current portion 6 9
Other Liabilities 51 44
Stockholders' Equity (Redeemable
Common Stock, $273 million
aggregate redemption value)
Common equity 447 513
Net unrealized holding gains (losses) 3 (1)
Foreign currency adjustment (5) (7)
_____ _____
Total Stockholders' Equity 445 505
_____ _____
$ 971 $ 963
===== ======
See accompanying notes to condensed financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Condensed Statements of Cash Flows
(unaudited)
Nine months ended
September 30,
(dollars in millions) 1995 1994
Cash flows from operations:
Net cash provided by operations $ 91 $ 73
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 177 258
Purchases of marketable securities (137) (235)
Proceeds from sales of property, plant
and equipment 11 14
Capital expenditures (60) (53)
Acquisition of APAC-Arizona, Inc. - (47)
Other (2) (4)
_____ _____
Net cash used in investing activities (11) (67)
Cash flows from financing activities:
Payments on long-term debt, including
current portion (4) (4)
Issuances of common stock 24 19
Repurchases of common stock (4) (10)
Dividends paid (13) (13)
Exchange of Class B&C Stock for Class D
Stock, net (154) (42)
_____ _____
Net cash used in financing activities (151) (50)
Effect of exchange rates on cash 1 1
_____ _____
Net change in cash and cash equivalents (70) (43)
Cash and cash equivalents at beginning
of period 70 99
_____ _____
Cash and cash equivalents at end of period $ - $ 56
====== =====
See accompanying notes to condensed financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Condensed Financial Statements
1. Basis of Presentation:
The condensed balance sheet of Kiewit Construction & Mining Group (the
"Group") at December 31, 1994 has been condensed from the Group's audited
balancesheet as of that date. All other financial statements contained herein
are unaudited and have been prepared using the historical amounts included in
the Peter Kiewit Sons', Inc. ("PKS") consolidated condensed financial
statements. The Group's accounting policies and certain other disclosures are
set forth in the notes to the financial statements contained in PKS' Annual
Report on Form 10-K as an exhibit for the year ended December 31, 1994.
Although the financial statements of PKS' Construction & Mining Group and
Diversified Group separately report the assets, liabilities and stockholders'
equity of PKS attributed to each such group, legal title to such assets and
responsibility for such liabilities will not be affected by such attribution.
Holders of Class B&C Stock and Class D Stock are stockholders of PKS.
Accordingly, the PKS consolidated condensed financial statements and related
notes as well as those of the Kiewit Diversified Group should be read in
conjunction with these financial statements.
Marketable securities at September 30, 1995 and December 31, 1994 include
approximately $58 million and $61 million, respectively, of investments which
are being held by the owners of various construction projects in lieu of
retainage. Receivables at September 30, 1995 and December 31, 1994 include
approximately $60 million and $48 million, respectively, of retainage on
uncompleted projects, the majority of which is expected to be collected within
one year.
Where appropriate, items within the condensed financial statements have
been reclassified from the previous periods to conform to current year
presentation.
2. Summarized Financial Information:
The Group's 50% portion of PKS' corporate assets and liabilities and
related transactions, which are not separately identified with the ongoing
operations of the Construction & Mining Group or the Diversified Group, is as
follows (in millions):
September 30, December 31,
1995 1994
Cash and cash equivalents $ - $ 25
Marketable securities 10 15
Property, plant and equipment, net 5 5
Other assets - 16
_____ _____
Total Assets $ 15 $ 61
===== =====
Accounts payable $ 32 $ 30
Convertible debentures - 1
Notes to former stockholders 1 6
Other liabilities - 2
_____ _____
Total Liabilities $ 33 $ 39
===== =====
Three months ended Nine months ended
September 30, September 30,
1995 1994 1995 1994
Investment income, net
of interest expense $ - $ - $ - $ 1
Other income, net 2 2 - -
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Condensed Financial Statements
2. Summarized Financial Information (continued):
Corporate general and administrative costs have been allocated to the
Group. These allocations were $- million and $7 million for the three months
ended September 30, 1995 and 1994, and $1 million and $20 million for the nine
months ended September 30, 1995 and 1994. Due to a realignment of the
corporate overhead departments, significantly all of the administrative
functions and personnel previously allocated to the Group are now located at
the Group.
Mining service income that the Group recognized from the Group's mine
service agreement with the Diversified Group was $8 million and $7 million for
the three months ended September 30, 1995 and 1994 and $23 million and $22
million for the nine months ended September 30, 1995 and 1994.
3. Other Matters:
Kinross Transaction
In June 1995, the Group exchanged its interest in a wholly-owned
subsidiary involved in gold mining activities for 4 million common shares of
Kinross Gold Corporation, ("Kinross"), a publicly traded corporation. The Group
recognized a $21 million pre-tax gain on the exchange based on the difference
between the book value of the subsidiary and the fair market value of the
Kinross stock on the date of the transaction.
MFS Spin-off
The PKS Board of Directors approved a plan to make a tax-free
distribution of its entire ownership interest in MFS Communications
Company, Inc. ("MFS"), effective September 30, 1995, to the Class D stockholders
(the "Spin-off") at a special meeting on September 25, 1995.
The Spin-off was completed after PKS and Kiewit Diversified Group Inc., a
wholly owned first tier subsidiary of PKS ("KDG") agreed with MFS to effect a
recapitalization of MFS pursuant to which KDG exchanged a portion of the MFS
Common Stock held by KDG for certain high-vote convertible preferred stock. In
addition, prior to completing the Spin-off, PKS purchased additional shares of
MFS Common Stock which were distributed to the D stockholders.
PKS completed an exchange offer prior to the Spin-off whereby 1,666,384
shares of Class D Stock were exchanged for 4,000,000 shares of Class B Stock and
Class C Stock (Class B&C Stock") tendered on terms similar to those upon which
Class B&C Stock can be converted into Class D Stock during the annual conversion
period provided in PKS' Certificate of Incorporation. The conversion ratio used
in the exchange was calculated using 1994 stock prices adjusted for 1995
dividends.
After the recapitalization of MFS and the exchange offer discussed above,
shares were distributed on the basis of approximately 1.741 shares of MFS Common
Stock and approximately .651 shares of MFS Preferred Stock for each share of
outstanding Class D Stock.
Litigation
The Group is involved in various lawsuits, claims and regulatory
proceedings incidental to its business. Management believes that any resulting
liabilities for legal proceedings beyond that provided should not materially
affect the Group's financial position or results of operations.
KIEWIT CONSTRUCTION & MINING GROUP
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Third Quarter 1995 vs. Third Quarter 1994
Construction
Construction revenue rose 2% in the third quarter of 1995 compared to the
third quarter of 1994. The increase is primarily due to revenues from joint
ventures during the period. Contract backlog at September 30, 1995 was $2.2
billion, of which 11% is attributable to foreign operations, principally, Canada
and the Philippines. Projects on the west coast account for 39% of the total
backlog which includes San Joaquin Toll Road of $188 million. San Joaquin is
scheduled for completion in 1997.
There was no change in gross margin on construction contracts between third
quarter 1995 and 1994.
General and Administrative Expenses
General and administrative expenses declined 13% in 1995 vs 1994. The
reduction was primarily attributable to a reduction in the corporate management
allocation, reduced data management expenses and the elimination of the expenses
associated with the PKS stock appreciation rights program which expired in 1994.
Other, net
Other income in 1995 declined to $8 million from $16 million in 1994. A $4
million decrease in the gains recognized from the sale of operating assets, a
reduction of $3 million in third party management fees and the lack of one time
real estate gains were the primary factors contributing to the change.
Results of Operations - Nine Months 1995 vs. Nine Months 1994
Construction
Construction revenue increased by $60 million or 4% during the first nine
months of 1995 compared to the same period in 1994. The increase relates to
joint venture activity and the inclusion of an additional two months of
materials revenue generated by the APAC-Arizona companies which were acquired
on February 28, 1994.
There was no change in gross margin on construction contracts from the same
time period in 1994.
General and Administrative Expenses
General and administrative expenses declined 7% for the nine months ended
September 30, 1995 vs. the same period in 1994. Reduction in corporate
management, data services and other administrative support expenses, as well as
the elimination of expenses associated with the PKS stock appreciation rights
program, which expired in 1994, all contributed to the decline.
Investment Income, net
Investment income increased $3 million or 33% in 1995. A slight decline in
losses on the sale of securities was the primary reason for the improvement.
Other, Net
In 1995 Other income is primarily comprised of $23 million of mine
management fees, $21 million of gains from the Kinross transaction and $9
million of gains from the sale of operating assets. In 1994 mine management
fees were $22 million and gains from the sale of assets were $11 million. The
remaining income resulted from management services provided to outside parties
and real estate gains.
KIEWIT CONSTRUCTION & MINING GROUP
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Financial Condition - September 30, 1995 vs. December 31, 1994
The Group's working capital decreased $106 million or 32% during the nine
months ended September 30, 1995. The decline was primarily due to the
conversion and repurchase of 6.2 million shares of Class B&C stock totalling
$158 million and dividend payments of $13 million. These financing activities
were partially offset by $24 million in proceeds from the sale of stock. In
addition to the cash used in financing activities, the Group had capital
expenditures, net of sales proceeds, of $49 million, $9 million in excess of the
net proceeds on the sale and maturity of marketable securities. Partially
funding these outflows was $91 million of cash provided by operations.
The Group anticipates investing between $40 and $75 million annually in its
construction business and purchasing additional shares of an electrical
contractor - the Group is committed to 80% ownership in 1997. Other long term
liquidity uses include the payment of income taxes and repurchases and
conversions of common stock.
In October 1995, the PKS Board of Directors declared a $.60 per share
dividend on Class B & C Stock payable in January, 1996.
The Group's working capital position at September 30, 1995, together with
anticipated cash flows from operations and existing borrowing capacity, should
be sufficient for immediate cash requirements and future investing activities.
The Group expects to incur additional debt to fund the stock conversions
resulting from the MFS Spin-Off.
Exhibit 99.B
KIEWIT DIVERSIFIED GROUP
Index to Financial Statements and
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Page
Financial Statements:
Condensed Statements of Earnings for the
three months ended September 30, 1995 and
1994 and the nine months ended September 30,
1995 and 1994
Condensed Balance Sheets as of September 30, 1995
and December 31, 1994
Condensed Statements of Cash Flows for the
nine months ended September 30, 1995 and 1994
Notes to Condensed Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
KIEWIT DIVERSIFIED GROUP
Condensed Statements of Earnings
(unaudited)
Three months ended Nine months ended
September 30, September 30,
(dollars in millions) 1995 1994 1995 1994
Revenue $ 152 $ 144 $ 429 $ 399
Cost of Revenue (88) (86) (247) (230)
_____ _____ _____ _____
64 58 182 169
General and Administrative
Expenses (36) (30) (98) (98)
_____ _____ _____ _____
Operating Income 28 28 84 71
Other Income (Expense):
Gain on Subsidiary's Stock
Transactions, net - - 3 28
Investment Income, net 22 1 46 20
Interest Expense, net (6) (6) (29) (22)
Other, net (2) 1 138 5
_____ _____ _____ _____
14 (4) 158 31
Loss in MFS (66) (29) (151) (63)
_____ _____ _____ ______
Earnings (Loss) Before
Income Taxes and
Minority Interest
in Net Income of
Subsidiaries (24) (5) 91 39
Benefit (Provision) for
Income Taxes 78 (4) 8 (20)
Minority Interest in Net
Income of Subsidiaries (3) (3) (11) (3)
_____ _____ _____ _____
Net Earnings (Loss) $ 51 $ (12) $ 88 $ 16
===== ===== ===== =====
See accompanying notes to condensed financial statements.
KIEWIT DIVERSIFIED GROUP
Condensed Balance Sheets
September 30, December 31,
1995 1994
(dollars in millions) (unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 446 $ 330
Marketable securities 424 754
Receivables, less allowance of
$2 and $2 80 157
Note receivable from sales
of discontinued operations - 29
Recoverable income taxes 9 15
Other 38 95
______ ______
Total Current Assets 997 1,380
Property, Plant and Equipment,
less accumulated depreciation and
amortization of $285 and $336 516 1,104
Intangible Assets, net 478 733
Investments 381 259
Other Assets 65 73
______ ______
$2,437 $3,549
====== ======
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 70 $ 165
Current portion of long-term debt:
Telecommunications 9 26
Other 3 4
Accrued costs and billings in excess
of revenue on uncompleted contracts 11 37
Accrued reclamation and other
mining costs 17 20
Other 72 159
______ ______
Total Current Liabilities 182 411
Long-Term Debt, less current portion:
Telecommunications 301 827
Other 92 72
Deferred Income Taxes 282 306
Retirement Benefits 48 67
Accrued Reclamation Costs 101 102
Other Liabilities 128 85
Minority Interest 209 448
Stockholders' Equity (Redeemable
Common Stock, $930 million
aggregate redemption value)
Common equity 1,085 1,238
Foreign currency adjustment (1) -
Net unrealized holding gains (losses) 10 (7)
______ ______
Total Stockholders' Equity 1,094 1,231
______ ______
$2,437 $3,549
====== ======
See accompanying notes to condensed financial statements.
KIEWIT DIVERSIFIED GROUP
Condensed Statements of Cash Flows
(unaudited)
Nine Months Ended
September 30,
(dollars in millions) 1995 1994
Cash flows from operations:
Net cash provided by continuing operations $ 200 $ 75
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities and investments 192 1,245
Purchases of marketable securities (188) (1,287)
Acquisitions, excluding cash acquired (167) (225)
Capital expenditures (54) (260)
Proceeds from sale of cellular properties - 182
Deferred development costs and other (30) (62)
____ _____
Net cash used in investing activities (247) (407)
Cash flows from financing activities:
Issuances of subsidiary's stock - 5
Proceeds from long-term debt borrowings 23 677
Payments on long-term debt, including
current portion (22) (185)
Issuances of common stock 3 -
Repurchases of common stock (3) (21)
Exchange of Class B&C Stock for Class
D Stock, net 154 42
Other - (2)
_____ _____
Net cash provided by financing activities 155 516
Cash flows from proceeds due to sales of
discontinued packaging operations 29 6
Cash and cash equivalents of MFS
at beginning of period (22) -
Effect of exchange rates on cash 1 -
_____ ______
Net change in cash and cash equivalents 116 190
Cash and cash equivalents at beginning
of period 330 197
_____ ______
Cash and cash equivalents at end of period $ 446 $ 387
===== =======
Noncash investing activities:
Issuance of MFS stock for the purchase of
telecommunications companies and
minority interest $ - $ 23
MFS stock transaction to settle
contingent purchase price liability - 25
Dividend of investment in MFS 399 -
Issuance of C-TEC Redeemable Preferred
Stock for acquisition 44 -
See accompanying notes to condensed financial statements.
KIEWIT DIVERSIFIED GROUP
Notes to Condensed Financial Statements
1. Basis of Presentation:
The condensed balance sheet of Kiewit Diversified Group (the "Group") at
December 31, 1994 has been condensed from the Group's audited balance sheet as
of that date. All other financial statements contained herein are unaudited and
have been prepared using historical amounts included in the Peter Kiewit Sons',
Inc. ("PKS") consolidated condensed financial statements. The Group's
accounting policies and certain other disclosures are set forth in the notes to
the financial statements contained in PKS' Annual Report on Form 10-K as an
exhibit for the year ended December 31, 1994.
Although the financial statements of PKS' Construction & Mining Group and
Diversified Group separately report the assets, liabilities and stockholders'
equity of PKS attributed to each such group, legal title to such assets and
responsibility for such liabilities will not be affected by such attribution.
Holders of Class B&C Stock and Class D Stock are stockholders of PKS.
Accordingly, the PKS consolidated condensed financial statements and related
notes as well as those of the Kiewit Construction & Mining Group should be read
in conjunction with these financial statements.
Where appropriate, items within the condensed financial statements have
been reclassified from the previous periods to conform to current year
presentation.
2. Summarized Financial Information:
The Group's 50% portion of PKS' corporate assets and liabilities and
related transactions, which are not separately identified with the ongoing
operations of the Construction & Mining Group or the Diversified Group, is as
follows (in millions):
September 30, December 31,
1995 1994
Cash and cash equivalents $ - $ 25
Marketable securities 10 15
Property, plant and equipment, net 5 5
Other assets - 16
____ _____
Total Assets $ 15 $ 61
==== =====
Accounts payable $ 32 $ 30
Convertible debentures - 1
Notes to former stockholders 1 6
Other liabilities - 2
____ ______
Total Liabilities $ 33 $ 39
==== ======
Three months ended Nine Months ended
September 30, September 30,
1995 1994 1995 1994
Investment income, net $ - $ - $ - $ 1
Other income, net 2 2 - -
Corporate general and administrative costs have been allocated to the
Group. These allocations were $2 million and $5 million for the three months
ended September 30, 1995 and 1994, and $4 million and $9 million for the nine
months ended September 30, 1995 and 1994. Due to a realignment of the corporate
overhead departments, certain administrative functions and personnel
previously allocated to the Group are now located at the Group.
Mining service expense from the Group's mine service agreement with the
Construction & Mining Group was $8 million and $7 million for the three months
ended September 30, 1995 and 1994, and $23 million and $22 million for the nine
months ended September 30, 1995 and 1994.
KIEWIT DIVERSIFIED GROUP
Notes to Condensed Financial Statements
3. MFS Spin-off:
The PKS Board of Directors approved a plan to make a tax-free distribution
of its entire ownership interest in MFS Communications Company, Inc. ("MFS"),
effective September 30, 1995, to the Class D stockholders (the "Spin-off") at a
special meeting on September 25, 1995.
The Spin-off was completed after PKS and Kiewit Diversified Group Inc., a
wholly owned first tier subsidiary of PKS ("KDG") agreed with MFS to effect a
recapitalization of MFS pursuant to which KDG exchanged a portion of the MFS
Common Stock held by KDG for certain high-vote convertible preferred stock. In
addition, prior to completing the Spin-off, PKS purchased additional shares of
MFS Common Stock which were distributed to the Class D stockholders.
PKS completed an exchange offer prior to the Spin-off whereby 1,666,384
shares of Class D Stock were exchanged for 4,000,000 shares of Class B Stock and
Class C Stock (Class B&C Stock") tendered on terms similar to those upon which
Class B&C Stock can be converted into Class D Stock during the annual conversion
period provided in PKS' Certificate of Incorporation. The conversion ratio used
in the exchange was calculated using 1994 stock prices adjusted for 1995
dividends.
After the recapitalization of MFS and the exchange offer discussed above,
shares were distributed on the basis of approximately 1.741 shares of MFS Common
Stock and approximately .651 shares of MFS Preferred Stock for each outstanding
share of Class D Stock.
The net assets of MFS distributed on September 30, 1995 were approximately
$399 million.
The operating results of MFS have been classified as a single line
item on the statements of earnings for the three and nine month periods ended
September 30, 1995 and 1994.
Operating results of MFS are summarized as follows (dollars in millions):
Three months ended Nine months ended
September 30, September 30,
1995 1994 1995 1994
Revenue $ 154 $ 89 $ 412 $ 185
Loss from operations (61) (37) (176) (83)
Net loss (67) (42) (196) (92)
D Group's loss in MFS (66) (29) (151) (63)
D Group's loss in MFS for the three and nine months ended September
30, 1995, includes $20 million for transaction costs associated with the Spin-
off.
Included in Benefit (Provision) for Income Taxes on the condensed statements
of earnings for the three and nine months ended September 30, 1995 are $93
million of tax benefits from the reversal of certain deferred tax liabilities
recognized on gains from previous MFS stock transactions that are no longer
payable and $4 million of estimated U.S. income taxes attributable to the
corporate built-in gain on the stock of MFS distributed to certain non-U.S.
Class D stockholders.
4. Acquisitions:
In February 1995, California Energy Company, Inc. ("CECI"), an equity
method investee, completed the purchase of Magma Power Company. The cash
transaction, valued at $950 million, was partially financed by the sale of 17
million shares of CECI common stock at $17 per share. As part of this offering,
the Group purchased 1.5 million shares. In addition, during the second quarter
of 1995, the Group purchased an additional 200,000 common shares of CECI. The
Group owns 22% of CECI's outstanding common stock. At September 30, 1995, the
Group's cumulative investment in CECI common stock totals $151 million, $37
million in excess of the Group's proportionate share of CECI's equity.
KIEWIT DIVERSIFIED GROUP
Notes to Condensed Financial Statements
4. Acquisitions (continued):
C-TEC Corporation ("C-TEC") completed the first step of an acquisition of
Twin County Trans Video, Inc. ("Twin County") in May 1995. Twin County provides
cable television service to 74,000 subscribers in eastern Pennsylvania. In
consideration for 40% of the capital stock of Twin County, C-TEC paid $26
million in cash and issued a $4 million note of its subsidiary, C-TEC Cable
Systems, Inc. In addition, C-TEC paid $11 million in consideration of a
noncompete agreement. The remaining outstanding common stock of Twin County was
acquired in September 1995 in exchange for $52 million stated value redeemable
preferred stock of C-TEC Corporation. The preferred stock has a stated dividend
rate of 5%, beginning January 1, 1996. The estimated fair value of the
preferred stock if $44.5 million, subject to final determination.
In May 1995, the C-TEC signed a definitive agreement for the acquisition of
all the outstanding shares of common stock of Buffalo Valley Telephone Company
for $61 per share, payable either in cash or C-TEC convertible preferred stock.
In October 1995,Buffalo Valley Telephone Company terminated its merger
agreement with C-TEC and entered into a definitive agreement with Conestoga
Enterprises, Inc.
In January 1995, C-TEC purchased, for $84 million in cash, a 40% equity
position in Megacable, S.A. de C.V., Mexico's second largest cable television
operator with 174,000 subscribers in twelve cities. The purchase price is
subject to adjustments based on fourth quarter 1995 exchange rates.
5. Other Matters:
MFS Litigation
In 1994, several former stockholders of a 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. Defendants expect that a trial will
not be held until mid to late 1996. 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. KDG remains
obligated to satisfy these liabilities, if any, after the spin-off of MFS.
Whitney Settlement
In 1974, a subsidiary of the Group ("Kiewit"), entered into a lease
with Whitney Benefits,Inc., a Wyoming charitable corporation ("Whitney").
Whitney was the owner, and Kiewit was 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 (the "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 the plaintiffs the
1977 fair market value of the property ($60 million) plus interest. In 1991,
the U.S. Court of Appeals for the Federal Court affirmed the decision of the
Claims Court and the U.S. Supreme Court denied certiorari. 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 May 1994, the
Claims Court entered an order denying both motions. In February 1994, the
Claims Court issued an opinion which provided that the $60 million judgment
would bear interest compounded annually from 1977 until payment. The
government appealed the February 1994 and May 1994 orders. A hearing on the
appeals was held in February 1995.
KIEWIT DIVERSIFIED GROUP
Notes to Condensed Financial Statements
5. Other Matters (continued):
In May 1995, the government and the plaintiffs entered into a settlement
agreement. In settlement of all claims, the government agreed to pay plaintiffs
$200 million and plaintiffs agreed to deed the coal underlying the real property
to the government. Kiewit and Whitney agreed in 1992 that Kiewit would receive
67.5 percent of any award and Whitney would receive the remainder. Peter
Kiewit Sons' Co., a subsidiary of the Group, received approximately $135 million
in June 1995.
Other Litigation:
The Group is involved in various other lawsuits, claims and regulatory
proceedings incidental to its business. Management believes that any resulting
liability for legal proceedings beyond that provided should not materially
affect the Group's financial position or results of operations.
KIEWIT DIVERSIFIED GROUP
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Third Quarter 1995 vs. Third Quarter 1994
Revenue from the Group's segments for the third quarter were (in millions):
1995 1994
Mining $ 56 $ 62
Telecommunications 85 75
Other 11 7
_____ _____
$ 152 $ 144
===== =====
Mining
Mining revenue decreased in 1995 by $6 million when compared to 1994. The
decrease is the result of lower coal spot sales, fewer contract sales and lower
prices on a renegotiated contract. Margins increased as a result of additional
alternate source coal sales. This increase in margins was partially offset by
lower prices on renegotiated coal contracts and lower sales in the quarter from
a high margin contract.
Telecommunications
C-TEC's revenues increased from $75 million to $85 million in 1995.
C-TEC's 1994 revenue included $8 million from its cellular business which was
sold during the third quarter of 1994. The increase in revenue is primarily
attributable to C-TEC's Cable Group which had increased revenues of $12 million.
The increase in Cable Group revenues is due to the acquisition of Twin County on
May 1, 1995, which contributed $7 million of revenues for the quarter and
Mercom, Inc. which contributed $2 million from August 1995 when its results were
consolidated with C-TEC's operations. Twin County serves approximately 74,000
subscribers in the Allentown/Bethlehem area of Pennsylvania. C-TEC acquired
majority control of the voting stock of Mercom, Inc. which provides cable
television service in Michigan and Port St. Lucie, Florida, through a rights
offering. C-TEC previously owned 43.63% of the voting stock of Mercom, Inc. and
accounted for its investment using the equity method. Additionally, Cable Group
revenues increased $3 million due to an increase of approximately 15,000
subscribers and rate increases effective in April 1995.
Revenues for C-TEC's Telephone, Long Distance and other groups were
comparable with the third quarter 1994 balances.
An increase in the operating expenses of the Cable Group partially offset
the increased revenues as operating income of the Cable Group improved in 1995.
The increase in expense is primarily due to the acquisition of Twin County, the
consolidation of Mercom, Inc. and to increased programming costs resulting from
increased subscribers, new channels and programming rate increases.
C-TEC's equity in the earnings of Megacable, S.A. de C.V., ("Megacable"),
Mexico's second largest cable operator in which C-TEC holds a 40 percent
interest, was not significant to C-TEC's operations but declined slightly from
the second quarter of 1995 as a result of the recession in Mexico. The interest
in Megacable was acquired in January 1995.
The operating income of C-TEC's Telephone, Long Distance and other groups
were comparable with the third quarter 1994 amounts.
General and Administrative Expenses
General and administrative expenses increased 20% in 1995. Higher mine
management fees, corporate overhead and expenses incurred by C-TEC, primarily
for exploring and evaluating strategic alternatives to increase shareholder
value all contributed to the increase in general and administrative expenses.
KIEWIT DIVERSIFIED GROUP
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Third Quarter 1995 vs. Third Quarter 1994 (continued):
Investment Income, net
Proceeds from C-TEC's rights offering, the sale of C-TEC's mobile services
group and the settlement of the Whitney litigation resulted in a higher average
portfolio balance and an increase in interest and dividend income. In addition
to increases in interest income, the Group realized gains from the sale of
marketable securities of $2 million in 1995 compared to $10 million of realized
losses in 1994. Increases in equity earnings, primarily from California Energy
Company, Inc. were offset by developmental expenses associated with
international energy projects.
Loss in MFS
MFS is a leading provider of communication services to business. Through
its operating subsidiaries, MFS provides a wide range of high quality voice,
data, network system integration and other enhanced services. The Group's
losses associated with MFS continued to increase, primarily because of the
accelerated expansion activities announced in 1993 and 1995. These expansion
activities require significant initial development and roll out expenses in
advance of anticipated revenues and continue to negatively effect the operating
results of MFS. After September 30, 1995, the date of the spin-off, the Group
will no longer include MFS' results of operations in its financial statements.
D Group's loss in MFS for the three and nine months ended September 30,
1995, includes $20 million for transaction costs associated with the Spin-off.
Provision for Income Taxes
The effective income tax rate for the three months ended September 30, 1995
differs from the statutory rate of 35% due primarily to the net operating loss
limitations on losses generated by MFS, $93 million of income tax benefits from
the reversal of certain deferred tax liabilities recognized on gains from
previous MFS stock transactions that are no longer payable due to the tax-free
spin-off of MFS and $4 million of estimated U.S. income taxes attributable to
the distribution of MFS stock to certain non-U.S. Class D stockholders.
Results of Operations - Nine Months 1995 vs. Nine Months 1994
Revenue from the Group's segments for the first nine months of 1995 and 1994
were (in millions):
1995 1994
Mining $ 163 $ 168
Telecommunications 237 220
Other 29 11
_____ _____
$ 429 $ 399
===== =====
Mining
Mining revenues declined 3% for the nine months ending September 30, 1995
as compared to 1994. The decrease is the result of lower coal spot sales,
fewer contract sales and lower prices on a renegotiated contract. Margins
increased as a result of additional alternate source coal sales. This increase
in margins was partially offset by lower prices on renegotiated coal contracts
and lower sales in the quarter from a high margin contract.
Telecommunications
C-TEC's revenues increased from $220 million to $237 million in 1995. C-
TEC's 1994 revenue included $22 million from its cellular business which was
sold during the third quarter of 1994. Cable and Long Distance Groups
contributed $19 million and $12 million, respectively, to the increase. The
Cable Group revenues increased due to the acquisition of Twin County, the
consolidation of Mercom, Inc. and an increase in subscribers and rate increases
effective in April, 1995.
Long Distance Group revenues increased primarily due to increased sales of
tariff services to another long distance reseller which terminated during the
second quarter of 1995. Increased switched business sales and 800-service
sales also contributed to the increase in revenues.
KIEWIT DIVERSIFIED GROUP
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Nine Months 1995 vs. Nine Months 1994 (continued):
Revenues for C-TEC's Telephone and other groups were comparable with the
1994 amounts.
Increased Cable Group revenues were partially offset by increased operating
expenses associated with the acquisition of Twin County, consolidation of
Mercom,Inc. and higher basic programming costs resulting from additional
subscribers, rate increases and new channels, however, operating income of the
Cable Group improved in 1995.
The operating income of the Long Distance Group also improved in 1995 as
the increased revenues described above were only partially offset by increased
operating costs. The operating income of C-TEC's Telephone and other groups
were comparable with 1994 balances.
C-TEC's equity in the earnings of Megacable was not significant to C-TEC's
operations for the first nine months of 1995. The interest in Megacable was
acquired in January 1995.
General and Administrative Expenses
General and administrative expenses were unchanged for the nine months
ended September 30, 1995 as compared to the same period in 1994. Overall
declines in overhead costs attributable to C-TEC's operating units and the sale
of C-TEC's mobile services group were offset by increases in professional fees
for environmental issues, corporate overhead and mine management fees.
Gain on Subsidiary's Stock Transactions, net
The issuance of MFS stock for acquisitions by MFS and the exercise of MFS
employee stock options resulted in a $3 million net gain to the Group in 1995.
In 1994 the Group settled a contingent purchase price obligation resulting from
MFS' 1990 purchase of Chicago Fiber Optic Corporation ("CFO"). The former
shareholders of CFO accepted MFS stock previously held by the Group, valued at
market prices, as payment of the obligation. This transaction along with the
issuances of stock for acquisitions and employee stock options, resulted in a
$28 million net gain before taxes. The Group has recognized gains and losses
from sales and issuances of stock by MFS on the condensed statement of earnings.
With the Spin-off of MFS (See note 3), these types of gains will no longer be
recognized for MFS transactions.
Investment Income, net
Proceeds from C-TEC's rights offering, the sale of C-TEC's mobile services
group and the settlement of the Whitney litigation resulted in a higher average
portfolio balance and an increase in interest and dividend income. In addition
to increases in interest income, the Group's realized losses on the sale of
marketable securities declined by $10 million in 1995. Increases in equity
earnings, primarily from California Energy Company, Inc. were offset by
developmental expenses associated with international energy projects.
Interest Expense, net
Interest expense increased 36% in 1995. Tax deficiency interest expense of
$11 million incurred in 1995 was partially offset by a decline in interest
expense incurred by C-TEC due to the repayment of debt in 1994.
Other, net
The resolution of the Whitney litigation and the subsequent payment by the
government in 1995 resulted in $135 million of other income to the Group.
KIEWIT DIVERSIFIED GROUP
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Nine Months 1995 vs. Nine Months 1994 (continued):
Provision for Income Taxes
The effective income tax rate for the nine months ended September 30, 1995
differs from the statutory rate of 35% due primarily to the net operating loss
limitations on losses generated by MFS, $93 million of income tax benefits from
the reversal of certain deferred tax liabilities recognized on gains from
previous MFS stock transactions that are no longer payable due to the tax-free
spin-off of MFS and $4 million of estimated U.S. income taxes attributable to
the distribution of MFS stock to certain non-U.S. Class D stockholders.
Financial Condition - September 30, 1995 vs. December 31, 1994
The Group's working capital, exclusive of MFS, increased $129 million or
19% during the first nine months of 1995. The increase was mainly due to cash
flows from operations, including the receipt of the Whitney settlement of $135
million, and cash provided by financing activities being partially offset by
cash used in investing activities.
Investing activities include $54 million of capital expenditures and $167
million of investments. The majority of the investments include C-TEC's $84
million outlay for 40% of Megacable, $38 million outlay for Twin County and $7
million outlay to obtain a majority interest in Mercom, Inc., KDG's $29 million
purchase of CECI's stock and $8 million outlay for a 19% interest in a
healthcare software development company. Other activities include investments
of $26 million of deferred construction costs on a privately owned toll road
and $12 million on a Philippine power project offset by $9 million of proceeds
from the sale of C-TEC businesses.
Financing sources for the nine months include $157 million of stock
conversions and sales and $23 million for the construction financing of a
privately owned toll road. Financing uses consisted of C-TEC's $19 million
outlay for the net payment of long-term debt, $3 million of payments on
stockholders' notes and $3 million for stock repurchases.
In 1995, the Group received the final payment ($29 million) for the sale of
certain discontinued packaging operations.
In addition to the C-TEC activities described below, the Group anticipates
making significant (over $25 million in 1995) investments in its energy
businesses - including its joint venture agreement with CECI covering
international power project development activities - and searching for
opportunities to acquire capital intensive businesses which provide for
long-term growth. Other long-term liquidity uses include payment of income
taxes and repurchasing the Group's stock. The Group's current financial
condition and borrowing capacity should be sufficient for future operating and
investing activities.
In October, 1995 the PKS Board of Directors declared a special $.50 per
share dividend payable to the Class D shareholders in January, 1996.
On November 8, 1995, C-TEC announced that it is evaluating strategic
options for its various business units with a view toward enhancing shareholder
value. Specifically, C-TEC will evaluate the advisability and feasibility of
separating or restructuring its local telephone business, its cable television
business, and its various other communications businesses. C-TEC has engaged
the investment banking firm Merrill Lynch & Co. to assist with the process. No
assurances can be given that any transactions will be consummated.
See the notes to the condensed financial statements with respect to the MFS
spin-off.
