FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period__________to__________
Commission file number 0-15658
PETER KIEWIT SONS', INC.
(Exact name of registrant as specified in its charter)
Delaware 47-0210602
(State of Incorporation) (I.R.S. Employer
Identification No.)
1000 Kiewit Plaza, Omaha, Nebraska 68131
(Address of principal executive offices) (Zip Code)
(402)-342-2052
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports(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, 1996:
Class B Common Stock ........................ 263,468 shares
Class C Common Stock ................... 10,743,773 shares
Class D Common Stock ................... 23,180,243 shares
PETER KIEWIT SONS', INC.
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
September 30, September 30,
(dollars in millions,
except per share data) 1996 1995 1996 1995
Revenue $ 770 $ 839 $ 2,157 $ 2,099
Cost of Revenue (633) (699) (1,816) (1,781)
-------- ------- -------- --------
137 140 341 318
General and Administrative Expenses (55) (56) (180) (161)
-------- ------ ------- --------
Operating Earnings 82 84 161 157
Other Income (Expense):
Investment Income, net 24 21 64 50
Interest Expense, net (9) (7) (24) (20)
Other, net 5 (21) 19 154
-------- ------ ------ -------
20 (7) 59 184
Equity Loss in MFS - (46) - (131)
-------- ------ ------ ------
Earnings Before Income Taxes and
Minority Interest 102 31 220 210
Benefit (Provision) for Income Taxes (39) 62 (85) (38)
Minority Interest in Net Income
of Subsidiaries - (3) (1) (11)
-------- ------ ------ -----
Net Earnings $ 63 $ 90 $ 134 $ 161
======== ====== ====== =====
Earnings Attributable to
Class B&C Stock $ 39 $ 39 $ 75 $ 73
======== ====== ====== =====
Earnings Attributable to
Class D Stock $ 24 $ 51 $ 59 $ 88
======== ====== ====== =====
Net Earnings per Common and Common
Equivalent Share:
Class B&C $ 3.64 $ 2.69 $ 7.18 $5.18
======== ======= ====== =====
Class D $ .98 $ 2.38 $ 2.52 $4.13
======== ======= ====== =====
Cash Dividends per Common Share:
Class B&C $ - $ - $ .60 $ .45
======== ======= ====== =====
Class D $ - $ - $ - $ -
======== ======= ====== =====
See accompanying notes to consolidated condensed financial statements.
PETER KIEWIT SONS', INC.
Consolidated Condensed Balance Sheets
September 30, December 30,
1996 1995
(dollars in millions,
except per share data) (unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 449 $ 457
Marketable securities 555 593
Receivables, less allowance of $12 and $12 373 329
Costs and earnings in excess of
billings on uncompleted contracts 121 78
Investment in construction joint ventures 65 73
Deferred income taxes 87 66
Other 42 47
------- ------
Total Current Assets 1,692 1,643
Property, Plant and Equipment,
less accumulated depreciation and
amortization of $750 and $710 823 782
Investments 647 553
Intangible Assets, net 351 363
Other Assets 82 114
------- ------
$ 3,595 $ 3,455
======= =======
See accompanying notes to consolidated condensed financial statements.
PETER KIEWIT SONS', INC.
Consolidated Condensed Balance Sheets
September 30, December 30,
1996 1995
(dollars in millions,
except per share data) (unaudited)
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 210 $ 240
Short-term borrowings - 45
Current portion of long-term debt:
Telecommunications 73 36
Other 2 6
Accrued costs and billings in excess
of revenue on uncompleted contracts 212 121
Accrued insurance costs 78 79
Other 145 127
------- -------
Total Current Liabilities 720 654
Long-Term Debt, less current portion:
Telecommunications 210 264
Other 123 106
Deferred Income Taxes 223 236
Retirement Benefits 50 54
Accrued Reclamation Costs 97 100
Other Liabilities 207 220
Minority Interest 220 214
Stockholders' Equity:
Preferred stock, no par value, authorized
250,000 shares: no shares outstanding - -
Common stock, $.0625 par value,
$1.5 billion aggregate redemption value:
Class B, authorized 8,000,000 shares:
263,468 outstanding in 1996 and 1995 - -
Class C, authorized 125,000,000 shares:
10,744,633 outstanding in 1996 and
10,616,901 in 1995 1 1
Class D, authorized 50,000,000 shares:
23,181,650 outstanding in 1996 and
23,027,974 in 1995 1 1
Additional paid-in capital 234 210
Foreign currency adjustment (6) (6)
Net unrealized holding gain 16 17
Retained earnings 1,499 1,384
------- ------
Total Stockholders' Equity 1,745 1,607
$ 3,595 $ 3,455
======== =======
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) 1996 1995
Cash flows from continuing operations:
Net cash provided by continuing operations $ 229 $ 291
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 318 369
Purchases of marketable securities (287) (325)
Proceeds from sale of property, plant
and equipment, and other investments 25 21
Capital expenditures (138) (141)
Acquisitions and investments in affiliates (96) (182)
Other 3 -
------- -----
Net cash used in investing activities (175) (258)
Cash flows from financing activities:
Proceeds from long-term debt borrowings 35 23
Payments on long-term debt, including
current portion (40) (26)
Net change in short-term borrowings (45) -
Repurchases of common stock (15) (7)
Dividends paid (25) (13)
Issuance of common stock 28 27
-------- -----
Net cash provided by (used in)
financing activities (62) 4
Cash flows from proceeds due to sales of
discontinued packaging operations - 29
Cash and cash equivalents of MFS at beginning
of period - (22)
Effect of exchange rates on cash - 2
------- -----
Net change in cash and cash equivalents (8) 46
Cash and cash equivalents at beginning of period 457 400
------ -----
Cash and cash equivalents at end of period $ 449 $ 446
====== ======
Noncash investing activities:
Conversion of CalEnergy Convertible Debentures
to CalEnergy Common Stock $ 66 $ -
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 30, 1995 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 30,
1995.
Marketable securities at September 30, 1996 and December 30, 1995
include approximately $57 million and $62 million, respectively, of
investments which are being held by the owners of various construction
projects in lieu of retainage. Receivables at September 30, 1996 and
December 30, 1995 include approximately $64 million and $50 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 they are 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,
1996 1995 1996 1995
Class B&C 11,013,724 14,740,972 10,542,158 14,219,168
Class D 23,181,785 21,326,218 23,207,898 21,283,397
Pursuant to the Certificate of Incorporation, the stock price
calculation is computed annually using the number of shares outstanding
at the end of the fiscal year.
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 and materials
operations of Kiewit Construction Group Inc. and certain mining services
provided by Kiewit Mining Group Inc. The Diversified Group contains
coal mining properties owned by Kiewit Coal Properties Inc.,
communications companies owned by C-TEC Corporation ("C-TEC"), a
minority interest in CalEnergy Company, Inc. ("CalEnergy"),
international energy projects and miscellaneous investments, all owned
by Kiewit Diversified Group Inc. ("KDG"). 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.
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
3. Summarized Financial Information:
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 30, 1995 was derived from the audited
financial statements of the respective groups which were exhibits to the
1995 Annual Report. All other summary information was derived from the
unaudited financial statements of the respective groups which are
exhibits to this Form 10-Q. All significant intercompany accounts and
transactions, except those directly between the Construction & Mining
Group and the Diversified Group, have been eliminated.
(in millions, except per share data)
Construction & Mining Group:
Three Months Ended Nine Months Ended
September 30 September 30,
1996 1995 1996 1995
Results of Operations:
Revenue $ 606 $ 689 $ 1,678 $ 1,677
Net earnings 39 39 75 73
Earnings per share 3.64 2.69 7.18 5.18
September 30, December 30,
1996 1995
Financial Position:
Working capital $ 320 $ 248
Total assets 1,081 981
Long-term debt, less current portion 9 9
Stockholders' equity 537 467
Included within the results of operations are mine management fees paid by the
Diversified Group of $9 million and $8 million for the three months ended
September 30, 1996 and 1995 and $24 million and $23 million for the nine
months ended September 30, 1996 and 1995.
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
3. Summarized Financial Information:
(in millions, except per share data)
Diversified Group:
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Results of Operations:
Revenue $ 165 $ 152 $ 482 $ 429
Net earnings 24 51 59 88
Earnings per share .98 2.38 2.52 4.13
September 30, December 30,
1996 1995
Financial Position:
Working capital $ 652 $ 741
Total assets 2,517 2,488
Long-term debt, less current portion 324 361
Stockholders' equity 1,208 1,140
Included within the results of operations are mine management fees paid
to the Construction & Mining Group of $9 million and $8 million for the
three months ended September 30, 1996 and 1995 and $24 million and $23
million for the nine months ended September 30, 1996 and 1995.
4. Acquisitions:
On August 8, 1996, C-TEC announced a plan to rescind the sale of
Residential Communications Network to RCN and acquire the assets of
Liberty from RCN Corporation, ("RCN"), a subsidiary of KDG, and merge
those operations with C-TEC. This action coincided with C-TEC's decision
to close discussions concerning the sale of its cable television unit.
C-TEC agreed to exercise its option to unwind the agreement to sell to
RCN its other non-core assets. On August 30, C-TEC paid RCN $58.3 million,
representing the cost of RCN's investment in Liberty and Residential
Communications Network and interest of $1.7 million.
5. Investments:
In February 1996, the Company exercised 1.5 million CalEnergy options at
a price of $9 per share. In September 1996, the Company converted its
$66 million of 9.5% Convertible Subordinated Debentures into 3.6
million shares of CalEnergy common stock. These transactions increased
the Company's ownership interest in CalEnergy to 28%.
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
5. Investments:
On October 15, 1996, the Company exercised 3.3 million CalEnergy options
at a price of $12 per share. This transaction brought the Company's
ownership interest to 32%. In addition, the Company has 1 million
options to purchase additional CalEnergy stock at $11.625 per share that
expire in 2001.
6. Other Matters:
At a meeting held October 25, 1996, the Company's Board of Directors
directed management to pursue a listing of the Company's Class D stock
on a major securities exchange or the NASDAQ National Market as soon as
practical during 1998. The Board does not foresee circumstances under
which the Company would list the Class D stock prior to 1998. The Board
believes that a listing will provide the Company with a capital
structure more suitable for the further development of the Diversified
Group's business plan. It would also provide liquidity for Class D
shareholders without impairing the Company's capital base.
The Board's action does not ensure that a listing of Class D stock will
occur in 1998, or at any time. The Board could delay or abandon plans
to list the stock if it determined that such action would be in the best
interests of all the Company's shareholders. In addition, the Company's
ability to list Class D stock will be subject to factors beyond its
control, including the laws, regulations, and listing eligibility
criteria in affect at the time a listing is sought, as well as stock
market conditions at the time. Furthermore, the Board might decide to
couple the listing of Class D stock with a public offering of newly-
issued Class D shares in order to raise additional capital for the
Diversified Group. Such an offering could delay or alter the listing
plan.
At the October meeting, the Company's Board of Directors also declared
dividends of $.70 per share for Class B and Class C Stock and $.50 per
share for Class D Stock, payable on January 4, 1997 to shareholders of
record on January 3, 1997.
On October 28, 1996, CE Electric UK plc ("CE Electric"), made an
unsolicited $1.2 billion offer to acquire Northern Electric plc
("Northern"), a regional electricity distribution and supply company in
the United Kingdom. CE Electric is owned 70% by CalEnergy and 30% by a
KDG subsidiary. Subsequent to the offer, CE Electric has acquired
approximately 30% of Northern's shares in open-market transactions. If
the acquisition is completed, CE Electric will fund the acquisition with
a combination of bank borrowings and capital provided by its
shareholders.
In 1994, several former shareholders of a subsidiary of MFS
Communications Company, Inc. ("MFS") 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.
Plaintiffs allege that MFS fraudulently concealed material information
from them, causing them to sell their shares of the subsidiary to MFS at
an inadequate price. The lawsuit was settled in July, 1996. KDG had
previously agreed to indemnify MFS against any liabilities arising from
this lawsuit. The settlement, net of reserves established, did not
materially affect the Company's financial position or results of
operations.
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, future results
of operations or future cash flows.
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 part of Exhibits 99.A and 99.B to
this report. The Company will furnish a copy of such exhibits without charge
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 1996 vs. Third Quarter 1995
Revenue from each of the Company's business segments for the three months
ended September 30, comprised the following (in millions):
1996 1995
Construction $ 602 $ 686
Mining 65 59
Telecommunications 90 85
Other 13 9
------ -----
$ 770 $ 839
====== ======
Construction. Construction revenue decreased 12% in the third quarter of 1996
compared to the third quarter of 1995. This is a result of several major
projects being completed during the third quarter of 1996. In addition,
several large projects awarded in 1996 are in the early phases of construction
and have not contributed significantly to revenue.
Contract backlog at September 30, 1996 was $2.4 billion, of which 6% is
attributable to foreign operations, principally, Canada, the Philippines and
Indonesia. Projects on the west coast account for 43% of the total backlog.
Contract backlog at September 30, 1995 was $2.2 billion.
Gross margin on construction contracts increased to 11% from 10% during the
same period in 1995. Increased operational efficiencies, primarily on joint
venture projects, favorably affected construction margins. In addition, the
growing materials market continued to have a positive impact on margins.
Mining. Mining revenue for the third quarter of 1996 was $6 million greater
than in the third quarter of 1995. Slightly higher alternate coal sales and
greater spot coal shipments offset the lack of precious metal sales which were
essentially liquidated during 1995. Coal revenue increased primarily due to
the additional alternate source coal needs, of a primary customer and several
new spot coal contracts awarded in 1996.
Operating margins were the same in both time periods. The lack of lower
margin precious metals sales and the increase in higher margin alternate
source coal sales were mitigated by higher shipments of low margin spot coal.
Telecommunications. Telecommunications revenue increased 6% in 1996 compared
to 1995. Revenue for C-TEC's cable group increased $5 million or 15% for the
three months ended September 30, 1996 compared to the same period in 1995.
Increases in subscribers, primarily in its Pennsylvania market, and the
consolidation of Mercom since August 1995, contributed to the improved revenue
figures. C-TEC's telephone group experienced a $3 million or 9% increase in
revenue. Strong access line growth from second-line promotions and growth in
access minutes along with increases in Internet access and video conferencing
revenues primarily accounted for the revenue increase.
PETER KIEWIT SONS', INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations- Third Quarter 1996 vs. Third Quarter 1995
The cost of telecommunications revenue increased 13% in 1996. The cable
group's additional Mercom subscribers, higher programming license fees and the
additional amortization and depreciation expense from the Mercom consolidation
were primarily responsible for the increase. Software expenses due to the
expansion of existing telephone services and the costs associated with the
increase in access lines and the nonregulated services, Internet access and
video conferencing, contributed to the increase in the telephone group's
costs.
C-TEC also announced that RCN Inc., a competitive provider of local, long
distance telephone, video and Internet services, has taken several significant
steps to quickly and efficiently deploy a full package of services to
residential customers in Boston and New York. In September, RCN announced a
partnership with Boston Edison to utilize their fiber optic network to deliver
its communications package to the Boston area. This partnership will
complement RCN's alliance with MFS to utilize their network in downtown
Boston. In October, RCN signed an agreement with DirecTV to deliver direct
broadcast satellite service to multiple dwelling units in New York City. RCN
has also signed comprehensive interconnection agreements with NYNEX and Bell
Atlantic to allow RCN to interconnect with the local exchange networks at
fully reciprocal and identical rates.
General and Administrative Expenses. General and administrative expenses in
1996 were consistent with those in 1995. The additional costs associated with
the development of the RCN business in New York and Boston and the
consolidation of Mercom since August 1995 were offset by lower C-TEC
professional fees.
Investment Income, net. Investment income increased 14% for the third quarter
of 1996 compared to 1995. Improvements in the results of the Company's equity
method investees, particularly CalEnergy, and a decline in the international
development expenses were partially offset by fewer gains on the sale of
marketable securities.
Interest Expense, net. The interest expense on the privately owned toll road
debt, which was capitalized in 1995, and C-TEC's preferred stock which began
accruing interest in 1996 are primarily responsible for the increase in
interest expense.
Other, net. Other income in 1996 primarily relates to gains on sales of
operating assets. The losses in 1995 also include performance based
expenditures of $16 million and costs incurred related to the spin-off of MFS
of $4 million.
Equity Loss in MFS. MFS is a leading provider of communications services to
business. The Company spun-off its investment in MFS to Class D stockholders
on September 30, 1995. Prior to the spin-off, the Company included its
proportionate share of MFS' losses in the statement of earnings. The
significant initial development and roll out expenses associated with
expansion activities adversely affected MFS' 1995 results.
Benefit (Provision) for Income Taxes. The effective income tax rate in 1996
differs from the expected statutory rate of 35% primarily due to state income
taxes. The effective income tax rate for 1995 differs primarily due to $93
million of income tax benefits from the reversal of certain deferred tax
liabilities recognized on gains from previous MFS stock transactions that were
no longer payable due to the tax-free spin-off of MFS, partially offset by
the net operating loss deduction limitations on losses generated by MFS.
PETER KIEWIT SONS', INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Nine Months 1996 vs. Nine Months 1995
Revenue from each of the Company's business segments for the nine months ended
September 30 comprised the following (in millions):
1996 1995
Construction $ 1,667 $ 1,652
Mining 183 186
Telecommunications 273 237
Other 34 24
------- -------
$ 2,157 $ 2,099
======= =======
Construction. Construction and materials revenues increased by $15 million or
1% during the first nine months of 1996 compared to the same period in 1995.
The increase in materials sales, due to more favorable weather and market
conditions, contributed largely to the increase.
Gross margins on construction and materials projects increased to 9% for the
first nine months of 1996 versus 8% for the same time period in 1995.
Mining. Mining revenue decreased $3 million in the first three quarters of
1996 from the same period in 1995. This decrease was the net result of lower
precious metal sales in 1996 which were essentially liquidated in 1995,
partially offset by higher alternate source coal and spot coal sales.
Operating margins in the first nine months of 1996 increased 3% when compared
to 1995. A decrease in lower-margin precious metal sales in 1996 and higher
alternate source coal sales combined to increase margins.
Telecommunications. Telecommunications revenue increased 15% in 1996 compared
to 1995. Revenue for C-TEC's cable group increased $29 million or 33% for the
first nine months of 1996 compared to the same period in 1995. The
consolidations of Twin County and Mercom and subscriber growth in its
Pennsylvania market contributed to the improved revenue figure. C-TEC's
telephone group experienced a $8 million or 9% increase in revenue. Strong
access line growth from second-line promotions and growth in access minutes
along with increases in Internet access and video conferencing revenues
primarily accounted for the revenue increase.
The cost of telecommunications revenue increased 23% in 1996. The cable
group's increase is attributable to higher programming expenses and the costs
attributable to consolidation of Mercom and Twin County, including
amortization and depreciation expense. Programming expense increased
primarily due to license fee increases, subscriber growth and channel
additions. The primary reasons for the increase in the telephone group's
costs were higher payroll expense and fees associated with the provision of
internet access services and with consulting services for a variety of other
regulatory and operational matters. Additionally, materials expense increased
in connection with higher video conferencing system sales.
PETER KIEWIT SONS', INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Nine Months 1996 vs. Nine Months 1995
General and Administrative Expenses. General and administrative expenses
increased 12% in 1996 compared to 1995. Costs associated with the
development of the RCN business in New York and Boston, the professional fees
required to explore C-TEC restructuring alternatives, the consolidation of
Twin County and Mercom results, and the commencement of operations at the
privately owned toll road in southern California, all contributed to the
increase in general and administrative expenses.
Investment Income, net. Investment income increased 28% for the nine months
ended September 30, 1996 compared to the same period in 1995. Increases in
gains on the sale of marketable securities, equity earnings primarily from
CalEnergy, and interest income were partially offset by a slight decline in
dividend income.
Interest Expense, net. The interest expense on the toll road debt, which was
capitalized in 1995, and C-TEC's preferred stock which began accruing
interest in 1996 are primarily responsible for the 20% increase in interest
expense.
Other, net. Other income in 1996 primarily relates to gains on sales of
operating assets. Other income in 1995 also includes Whitney Benefit
proceeds, the Kinross transaction gain, performance based expenditures and
costs related to the spin-off of MFS.
Benefit (Provision) for Income Taxes. The effective income tax rate in 1996
differs from the expected statutory rate of 35% primarily due to state income
taxes. The effective income tax rate for 1995 differs primarily due to $93
million of income tax benefits from the reversal of certain deferred tax
liabilities recognized on gains from previous MFS stock transactions that were
no longer payable due to the tax-free spin-off of MFS, partially offset by
the net operating loss deduction limitations on losses generated by MFS.
PETER KIEWIT SONS', INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition - September 30, 1996 vs. December 30, 1995
The Company's working capital decreased $17 million or 2% during the first
nine months of 1996. The decrease was mainly due to cash used to fund
investing and financing activities partially offset by cash provided by
operations.
Investing activities include $96 million of investments and $138 million of
capital expenditures, including $14 million for the construction of a
privately owned toll road. The investments primarily include KDG's $4
million investment in a Philippine power project, $37 million investment in
three Indonesian power projects, the exercise of CalEnergy options to purchase
CalEnergy stock for $14 million, and C-TEC's $27 million outlay for Liberty.
These capital outlays were partially offset by $31 million of net proceeds
from the sale of marketable securities and $25 million of proceeds from the
sale of property, plant and equipment and other assets.
Financing sources include $27 million for the issuance of Class C Stock,
$16 million of long-term debt borrowings for the construction financing of a
privately owned toll road and $19 million of C-TEC borrowings from its
revolving credit agreement. Financing uses primarily consisted of $45
million for the repayment of short-term borrowings, C-TEC's $34 million
outlay for the payment of long-term debt, $15 million for stock repurchases
and $25 million of cash dividends.
The Company anticipates making significant investments in its construction,
infrastructure, telecommunications and energy businesses - including its joint
venture agreement with CalEnergy covering international power project
development activities - and searching for opportunities to acquire businesses
which provide for long-term growth. Other long-term liquidity uses include
payment of income taxes and repurchases of the Company's stock. The Company's
current financial condition and borrowing capacity should be sufficient for
immediate operating and investing activities.
In October, the Company's Board of Directors declared dividends of $.70 per
share for Class B and Class C Stock and $.50 per share for Class Class D
Stock, payable on January 4, 1997 to shareholders of record on
January 3, 1997.
On August 8, 1996, C-TEC announced a plan to rescind the 1996 sale of
Residential Communications Network to RCN and acquire the assets of
Liberty Cable from RCN and merge those operations with C-TEC. This action
coincides with C-TEC's decision to close discussions concerning the sale
of its cable television unit. C-TEC has also agreed in principle to
exercise its option to unwind the agreement to sell to RCN its other non-core
assets. On August 30, C-TEC paid RCN $58.3 million, representing the cost of
RCN's investment in Liberty and Residential Communications Network and
interest of $1.7 million. C-TEC will continue to explore ways to increase its
profitability and value which could include a restructuring transaction.
PETER KIEWIT SONS', INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition - September 30, 1996 vs. December 30, 1995
On October 28, 1996 CE Electric UK plc made an unsolicited $1.2 billion
offer to acquire Northern Electric plc, a regional electricity distribution
and supply company in the United Kingdom. CE Electric is owned 70% by
CalEnergy and 30% by a KDG subsidiary. Subsequent to the offer, CE
Electric has acquired approximately 30% of Northern's shares in open-market
transactions. If the acquisition is completed, CE Electric will
fund the acquisition with a combination of bank borrowings and capital
provided by its shareholders.
At a meeting held October 25, 1996, the Company's Board of Directors directed
management to pursue a listing of the Company's Class D stock on a major
securities exchange or the NASDAQ National Market as soon as practical during
1998. The Board does not foresee circumstances under which the Company would
list the Class D stock prior to 1998. The Board believes that a listing will
provide the Company with a capital structure more suitable for the further
development of the Diversified Group's business plan. It would also provide
liquidity for Class D shareholders without impairing the Company's capital
base.
The Board's action does not ensure that a listing of Class D stock will occur
in 1998, or at any time. The Board could delay or abandon plans to list the
stock if it determined that such action would be in the best interests of all
the Company's shareholders. In addition, the Company's ability to list Class
D stock will be subject to factors beyond its control, including the laws,
regulations, and listing eligibility criteria in affect at the time a listing
is sought, as well as stock market conditions at the time. Furthermore, the
Board might decide to couple the listing of Class D stock with a public
offering of newly-issued Class D shares in order to raise additional capital
for the Diversified Group. Such an offering could delay or alter the listing
plan
PETER KIEWIT SONS', INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
MFS Litigation.
In 1994, several former shareholders of a subsidiary of MFS
Communications Company, Inc. ("MFS") 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.
Plaintiffs allege that MFS fraudulently concealed material information
from them, causing them to sell their shares of the subsidiary to MFS at
an inadequate price. The lawsuit was settled in July 1996. KDG had
previously agreed to indemnify MFS against any liabilities arising from
this lawsuit. The settlement, net of reserves established, did not
materially affect the Company's financial position or results of
operations.
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) Report on Form 8-K filed October 30, 1996 reported CE Electric UK
plc's unsolicited offer to purchase Northern Electric plc for $1.2
billion.
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, 1996 \s\ Richard R. Jaros
Richard R. Jaros
Executive Vice President and
Chief Financial Officer
PETER KIEWIT SONS', INC.
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, 1996 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-28-1996
<PERIOD-END> SEP-30-1996
<CASH> 449
<SECURITIES> 555
<RECEIVABLES> 383
<ALLOWANCES> 10
<INVENTORY> 16
<CURRENT-ASSETS> 1,692
<PP&E> 1,573
<DEPRECIATION> 750
<TOTAL-ASSETS> 3,595
<CURRENT-LIABILITIES> 720
<BONDS> 333
2
0
<COMMON> 0
<OTHER-SE> 1,743
<TOTAL-LIABILITY-AND-EQUITY> 3,595
<SALES> 1,850
<TOTAL-REVENUES> 2,157
<CGS> 1,607
<TOTAL-COSTS> 1,816
<OTHER-EXPENSES> 180
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24
<INCOME-PRETAX> 220
<INCOME-TAX> 85
<INCOME-CONTINUING> 134
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134
<EPS-PRIMARY> $7.18<F1>
<EPS-DILUTED> $7.18<F1>
<FN>
<F1>$7.18 represents Class C Stock earnings per share, Class D Stock earnings per
share $2.52.
</FN>
</TABLE>
Exhibit 99.A
KIEWIT CONSTRUCTION & MINING GROUP
Index to Financial Statements and
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Statements:
Condensed Statements of Earnings for the three months
ended September 30, 1996 and 1995 and the nine months ended
September 30, 1996 and 1995
Condensed Balance Sheets as of September 30, 1996 and
December 30, 1995
Condensed Statements of Cash Flows for the nine months
ended September 30, 1996 and 1995
Notes to Condensed Financial Statements
Management's Discussion and Analysis of Financial Condition
and Results of Operations
KIEWIT CONSTRUCTION & MINING GROUP
Condensed Statements of Earnings
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
(dollars in millions, except
per share data) 1996 1995 1996 1995
Revenue $ 606 $ 689 $ 1,678 $1,677
Cost of Revenue (536) (615) (1,525) (1,541)
------ ------ ------- ------
70 74 153 136
General and Administrative Expenses (26) (26) (85) (86)
------- ------ ------- ------
Operating Earnings 44 48 68 50
Other Income (Expense):
Investment Income, net 7 4 15 10
Interest Expense - (1) (2) (2)
Other, net 12 8 41 54
------- ------ ------ ------
19 11 54 62
------- ------ ------ ------
Earnings Before Income Taxes 63 59 122 112
Provision for Income Taxes (24) (20) (47) (39)
------- ------ ------ ------
Net Earnings $ 39 $ 39 $ 75 $ 73
====== ====== ====== ======
Earnings per Common and Common
Equivalent Share $ 3.64 $ 2.69 $ 7.18 $ 5.18
====== ======= ====== ======
See accompanying notes to condensed financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Condensed Balance Sheets
September 30, December 30,
1996 1995
(dollars in millions) (unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 126 $ 94
Marketable securities 108 120
Receivables, less allowance of $9 and $10 295 258
Costs and earnings in excess of
billings on uncompleted contracts 121 78
Investment in construction joint ventures 65 73
Deferred income taxes 77 61
Other 11 13
-------- -------
Total Current Assets 803 697
Property, Plant and Equipment, less accumulated
depreciation and amortization of $418 and $421 174 161
Investments 86 83
Other Assets 18 40
-------- -------
$ 1,081 $ 981
======== =======
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, including retainage
of $33 and $42 $ 150 $ 179
Short-term borrowings - 45
Current portion of long-term debt - 2
Accrued construction costs and billings in excess
of revenue on uncompleted contracts 201 111
Accrued insurance costs 78 79
Other 54 33
-------- --------
Total Current Liabilities 483 449
Long-Term Debt, less current portion 9 9
Other Liabilities 52 56
Stockholders' Equity (Redeemable common stock,
$350 million current aggregate redemption value):
Common equity 544 471
Net unrealized holding gain (loss) (2) 1
Foreign currency adjustment (5) (5)
-------- --------
Total Stockholders' Equity 537 467
-------- --------
$ 1,081 $ 981
======== ========
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) 1996 1995
Cash flows from operations:
Net cash provided by operations $ 117 $ 91
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 174 177
Purchases of marketable securities (165) (137)
Proceeds from sales of property, plant and equipment 21 11
Acquisitions (3) -
Capital expenditures (60) (60)
Other 3 (2)
------ -----
Net cash used in investing activities (30) (11)
Cash flows from financing activities:
Payments on long-term debt, including current portion (2) (4)
Net change in short-term borrowings (45) -
Issuance of common stock 27 24
Repurchases of common stock (4) (4)
Dividends paid (12) (13)
Exchange of Class B&C Stock for Class D Stock, net (19) (154)
------ ------
Net cash used in financing activities (55) (151)
Effect of exchange rates on cash - 1
------ -----
Net change in cash and cash equivalents 32 (70)
Cash and cash equivalents at beginning of period 94 70
------ -----
Cash and cash equivalents at end of period $ 126 $ -
====== =====
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 30, 1995 has been condensed from the Group's
audited balance sheet as of that date. All other financial statements
contained herein are unaudited and have been prepared using the
historical amounts included in the Peter Kiewit Sons', Inc. ("PKS")
consolidated condensed financial statements. The Group's accounting
policies and certain other disclosures are set forth in the notes to the
financial statements contained in PKS' Annual Report on Form 10-K as an
exhibit for the year ended December 30, 1995.
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, 1996 and December 30, 1995
include approximately $57 million and $62 million, respectively, of
investments which are being held by the owners of various construction
projects in lieu of retainage. Receivables at September 30, 1996 and
December 30, 1995 include approximately $64 million and $50 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. 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 they
are not materially different from primary earnings per share. The
number of shares used in computing earnings per share was 11,013,724 and
14,740,972 for the three months ended September 30, 1996 and 1995 and
10,542,158 and 14,219,168 for the nine months ended September 30, 1996
and 1995.
Pursuant to the Certificate of Incorporation of PKS, the stock price
calculation is computed annually using the number of shares outstanding
at the end of the fiscal year.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Condensed Financial Statements
3. Summarized Financial Information:
The Group's 50% portion of PKS' corporate assets and liabilities and
related transactions, which are not separately identified with the
ongoing operations of the Construction & Mining Group or the Diversified
Group, and items attributable to the Group are as follows:
(dollars in millions)
September 30, December 30,
1996 1995
Cash and cash equivalents $ - $ 4
Marketable securities 5 10
Property, plant and equipment, net 5 5
Other assets 1 4
------ -----
Total Assets $ 11 $ 23
====== =====
Accounts payable $ - $ 10
Long-term debt, including current portion 9 11
====== =====
Total Liabilities $ 9 $ 21
====== =====
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Other income (expense), net $ - $ 1 $ (1) $ -
Corporate general and administrative costs have been allocated to the
Group. These allocations were less than $1 million for the three months
ended September 30, 1996 and 1995 and $1 million for the nine months
ended September 30, 1996 and 1995.
Mine management income received from the Diversified Group was $9
million and $8 million for the three months ended September 30, 1996 and
1995 and $24 million and $23 million for the nine months ended September
30, 1996 and 1995.
4. Other Matters:
In October 1996, the PKS Board of Directors declared a dividend
of $.70 per share on Class B and Class C Stock, payable on January 4, 1997 to
shareholders of record on January 3, 1997.
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, future results of operations or future
cash flows.
KIEWIT CONSTRUCTION & MINING GROUP
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Third Quarter 1996 vs. Third Quarter 1995
Revenue from each of the Group's business segments for the three months ended
September 30, was (in millions):
1996 1995
Construction $ 602 $ 686
Other 4 3
------ ------
$ 606 $ 689
====== ======
Construction. Construction revenue decreased 12% in the third quarter of 1996
compared to the third quarter of 1995. This is a result of several major
projects being completed during the third quarter of 1996. In addition,
several large projects awarded in 1996 are in the early phases of construction
and have not contributed significantly to revenue.
Contract backlog at September 30, 1996 was $2.4 billion, of which 6% is
attributable to foreign operations, principally, Canada, the Philippines and
Indonesia. Projects on the west coast account for 43% of the total backlog.
Contract backlog at September 30, 1995 was $2.2 billion.
Gross margin on construction contracts increased to 11% from 10% during the
same period in 1995. Increased operational efficiencies, primarily on joint
venture projects, favorably affected construction margins. In addition, the
growing materials market continued to have a positive impact on margins.
General and Administrative Expenses. General and administrative expenses in
1996 were consistent with those of 1995. An increase in compensation expense
was offset by decreases in computer outsourcing costs and other administrative
expenses.
Investment Income, net. Investment income increased 75% for the three months
ended September 30 compared to the same period in 1995. Additional earnings
from the Group's equity method investees, particularly ME Holding Inc. and
Pacific Rock Products, were primarily responsible for the increase in income.
Other, net. The increase in other income is primarily attributable to higher
gains on the disposal of operating assets and increases in the mine
management fee income from the Diversified Group.
Provision for Income Taxes. The effective income tax rate for the Group was
38% and 35% for the third quarter of 1996 and 1995. In 1996, the effective
rate is higher than the expected statutory rate primarily due to state income
taxes.
Results of Operations - Nine Months 1996 vs. Nine Months 1995
Revenue from each of the Group's business segments for the nine months ended
September 30, was (in millions):
1996 1995
Construction $ 1,667 $ 1,654
Other 11 23
------- ---------
$ 1,678 $ 1,677
======= =========
KIEWIT CONSTRUCTION & MINING GROUP
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Construction. Construction and materials revenue increased by $13 million or
1% during the first nine months of 1996 compared to the same period in 1995.
The increase in materials sales, due to more favorable weather and market
conditions, contributed largely to the increase.
Gross margins on construction and materials projects increased to 9% for the
first nine months of 1996 versus 8% for the same time period in 1995.
General and Administrative Expenses. General and administrative expenses
declined slightly in 1996. The closing of the Mexico office and declines in
other administrative functions were partially offset by an increase in
compensation expense.
Investment Income, net. Improvements in earnings for the Group's equity
method investees, primarily ME Holding Inc. and Pacific Rock Products, in
addition to the elimination of losses on the sales of marketable securities
were primarily responsible for the increase in investment income.
Other, net. Other income is primarily comprised of $24 million of mine
management income and $16 million of gains on the sale and disposition of
construction equipment in 1996. In 1995 mine management income was $23
million, gains on equipment disposals were $9 million and the gain on the
Kinross transaction was $21 million.
Provision for Income Taxes. The effective income tax rate for the Group was
38% and 35% for the first nine months of 1996 and 1995. In 1996, the
effective rate is higher than the expected statutory rate primarily due to
state income taxes.
Financial Condition - September 30, 1996 vs. December 30, 1995
The Group's working capital increased $72 million or 29% during the first nine
months of 1996. Cash and cash equivalents increased primarily due to the
issuance of common stock totaling $27 million, net proceeds from the sale
of marketable securities of $9 million, proceeds from the sale of property,
plant and equipment and other assets of $21 million and $117 million of cash
provided by operations. Partially offsetting these sources were capital
expenditures of $60 million, the repayment of $45 million of short-term
borrowings, the exchange for Class D Stock and repurchase of Class B & C
stock totaling $23 million and dividend payments of $12 million.
The Group anticipates investing between $40 and $75 million annually in its
construction business, including opportunities to acquire additional
businesses and may purchase additional shares of the electrical contractor, ME
Holding, Inc. Other long term liquidity uses include the payment of income
taxes, repurchases and conversions of common stock and the payment of
dividends. The Group's current financial condition and borrowing capacity
together with anticipated cash flows from operations should be sufficient for
immediate cash requirements and future investing activities.
In October, the PKS Board of Directors declared a dividend of $.70
per share on Class B and Class C Stock, payable on January 4, 1997 to
shareholders of record on January 3, 1997.
KIEWIT DIVERSIFIED GROUP
Index to Financial Statements and
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Financial Statements:
Condensed Statements of Earnings for the
three months ended September 30, 1996 and 1995 and
the nine months ended September 30, 1996 and 1995
Condensed Balance Sheets as of September 30, 1996
and December 30, 1995
Condensed Statements of Cash Flows for the
nine months ended September 30, 1996 and 1995
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,
except per share data) 1996 1995 1996 1995
Revenue $ 165 $ 152 $ 482 $429
Cost of Revenue (98) (86) (295) (247)
----- ---- ----- ----
67 66 187 182
General and Administrative Expenses (38) (38) (119) (98)
----- ----- ----- ----
Operating Earnings 29 28 68 84
Other Income (Expense):
Investment Income, net 17 17 49 40
Interest Expense, net (9) (6) (22) (18)
Other, net 2 (21) 3 123
------ ----- ---- ----
10 (10) 30 145
Equity Loss in MFS - (46) - (131)
------- ----- ---- ----
Earnings (Loss) Before Income
Taxes and Minority Interest 39 (28) 98 98
Benefit (Provision) for Income Taxes (15) 82 (38) 1
Minority Interest in Net Income
of Subsidiaries - (3) (1) (11)
------- ----- ---- ----
Net Earnings $ 24 $ 51 $ 59 $ 88
======= ===== ==== ====
Earnings Per Common & Common
Equivalent Share $ .98 $2.38 $2.52 $4.13
======= ===== ===== =====
See accompanying notes to condensed financial statements.
KIEWIT DIVERSIFIED GROUP
Condensed Balance Sheets
September 30, December 30,
1996 1995
(dollars in millions) (unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 323 $ 363
Marketable securities 447 473
Receivables, less allowance of $3 and $2 78 81
Other 41 39
------ ------
Total Current Assets 889 956
Property, Plant and Equipment,
less accumulated depreciation and
amortization of $332 and $289 649 621
Investments 561 470
Intangible Assets, net 336 347
Other Assets 82 94
------ ------
$2,517 $2,488
====== ======
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 60 $ 61
Current portion of long-term debt:
Telecommunications 73 36
Other 2 4
Accrued costs and billings in excess
of revenue on uncompleted contracts 11 10
Accrued reclamation and other mining costs 20 18
Other 71 86
------- ------
Total Current Liabilities 237 215
Long-Term Debt, less current portion:
Telecommunications 210 264
Other 114 97
Deferred Income Taxes 230 235
Retirement Benefits 50 54
Accrued Reclamation Costs 96 99
Other Liabilities 152 170
Minority Interest 220 214
Stockholders' Equity (Redeemable common stock
$1,147 million current aggregate
redemption value):
Common equity 1,191 1,125
Foreign currency adjustment (1) (1)
Net unrealized holding gain 18 16
------- -------
Total Stockholders' Equity 1,208 1,140
------- -------
$ 2,517 $ 2,488
======= =======
See accompanying notes to condensed financial statements.
KIEWIT DIVERSIFIED GROUP
Condensed Statements of Cash Flows
(unaudited)
Nine Months Ended
September 30,
(dollars in millions) 1996 1995
Cash flows from continuing operations:
Net cash provided by continuing operations $ 125 $ 200
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities and investments 144 192
Purchases of marketable securities (122) (188)
Capital expenditures (78) (81)
Acquisitions and investment in affiliates (109) (180)
Proceeds from sale of assets and other 7 10
----- -----
Net cash used in investing activities (158) (247)
Cash flows from financing activities:
Proceeds from long-term debt borrowings 35 23
Payments on long-term debt, including
current portion (38) (22)
Issuance of subsidiary Class D common stock 1 3
Repurchases of common stock (11) (3)
Exchange of Class B&C Stock for Class D Stock, net 19 154
Payments of dividends (13) -
----- -----
Net cash provided by (used in) financing activities (7) 155
Cash flows from proceeds due to sales of
discontinued packaging operations - 29
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 (40) 116
Cash and cash equivalents at beginning of period 363 330
----- -----
Cash and cash equivalents at end of period $ 323 $ 446
===== =====
Noncash investing activities:
Conversion of CalEnergy Convertible Debentures
to CalEnergy Common Stock $ 66 $ -
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 30, 1995 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 30, 1995.
Although the financial statements of PKS' Construction & Mining Group
and Diversified Group separately report the assets, liabilities and
stockholders' equity of PKS attributed to each such group, legal title
to such assets and responsibility for such liabilities will not be
affected by such attribution. Holders of Class B&C Stock and Class D
Stock are stockholders of PKS. Accordingly, the PKS consolidated
condensed financial statements and related notes as well as those of the
Kiewit Construction & Mining Group should be read in conjunction with
these financial statements.
Where appropriate, items within the condensed financial statements have
been reclassified from the previous periods to conform to current year
presentation.
2. Earnings Per Share:
Primary earnings per share of common stock have been computed using the
weighted average number of shares outstanding during each period. Fully
diluted earnings per share have not been presented because they are not
materially different from primary earnings per share. The number of
shares used in computing earnings per share was 23,181,785 and
21,326,218 for the three months ended September 30, 1996 and 1995 and
23,207,898 and 21,283,397 for the nine months ended September 30, 1996
and 1995.
Pursuant to the Certificate of Incorporation of PKS, the stock price
calculation is computed annually using the number of shares outstanding
at the end of the fiscal year.
KIEWIT DIVERSIFIED GROUP
Notes to Condensed Financial Statements
3. Summarized Financial Information:
The Group's 50% portion of PKS' corporate assets and liabilities and
related transactions, which are not separately identified with the
ongoing operations of the Construction & Mining Group or the Diversified
Group, and specifically attributable items are as follows:
(dollars in millions)
September 30, December 30,
1996 1995
Marketable securities $ 5 $ 10
Property, plant and equipment, net 5 5
Other assets 2 3
------ -----
Total Assets $ 12 $ 18
====== =====
Accounts payable $ 10 $ 23
Long-term debt, including current portion 1 3
------ -----
Total Liabilities $ 11 $ 26
====== =====
Three Months Ended Nine Months Ended
September 30, September, 30,
1996 1995 1996 1995
Other income (expense), net $ - $ (1) $ (1) $ -
Corporate general and administrative costs have been allocated to the
Group. These allocations were $2 million for the three months ended
September 30, 1996 and 1995 and $5 million and $4 million for the nine
months ended September 30, 1996 and 1995.
Mine management fees paid to the Construction & Mining Group were $9
million and $8 million for the three months ended September 30, 1996 and
1995 and $24 million and $23 million for the nine months ended September
30, 1996 and 1995.
4. Acquisitions:
On August 8, 1996, C-TEC announced a plan to rescind the 1996 sale of
Residential Communications Network to RCN Corporation, ("RCN"), a subsidiary
of KDG, and acquire the assets of Liberty Cable from RCN and merge those
operations with C-TEC. This action coincides with C-TEC's decision to close
discussions concerning the sale of its cable television unit. C-TEC also
agreed to exercise its option to unwind the agreement to sell to RCN its
other non-core assets. On August 30, C-TEC paid RCN $58.3 million,
representing the cost of RCN's investment in Liberty and Residential
Communications Network and interest of $1.7 million.
KIEWIT DIVERSIFIED GROUP
Notes to Condensed Financial Statements
5. Investments:
In February 1996, the Group exercised 1.5 million CalEnergy Company,
Inc. ("CalEnergy") options at a price of $9 per share. In September
1996, the Group converted its $66 million of 9.5% Convertible
Subordinated Debentures into 3.6 million shares of CalEnergy common
stock. These transactions increased the Group's ownership interest in
CalEnergy to 28%.
On October 15, 1996 the Group exercised 3.3 million CalEnergy options at
a price of $12 per share. This transaction brought the Group's
ownership interest to 32%. In addition, the Group has 1 million options
to purchase additional CalEnergy stock at $11.625 per share that expire
in 2001.
6. Other Matters:
At a meeting held on October 25, 1996, the PKS Board of Directors
directed management to pursue a listing of PKS' Class D stock on a major
securities exchange or the NASDAQ National Market as soon as practical
during 1998. The Board does not foresee circumstances under which PKS
would list the Class D stock prior to 1998. The Board believes that a
listing will provide PKS with a capital structure more suitable for the
further development of the Diversified Group's business plan. It would
also provide liquidity for Class D shareholders without impairing PKS'
capital base.
The Board's action does not ensure that a listing of Class D stock will
occur in 1998, or at any time. The Board could delay or abandon plans
to list the stock if it determined that such action would be in the best
interests of all PKS' shareholders. In addition, PKS' ability to list
Class D stock will be subject to factors beyond its control, including
the laws, regulations, and listing eligibility criteria in affect at the
time a listing is sought, as well as stock market conditions at the
time. Furthermore, the Board might decide to couple the listing of
Class D stock with a public offering of newly-issued Class D shares in
order to raise additional capital for the Diversified Group. Such an
offering could delay or alter the listing plan.
At the October meeting, the PKS Board of Directors also declared a
dividend of $.50 per share for Class D stock, payable on January 4, 1997
to shareholders of record on January 3, 1997.
On October 28, 1996 CE Electric UK plc ("CE Electric"), made an
unsolicited $1.2 billion offer to acquire Northern Electric plc
("Northern"), a regional electricity distribution and supply company in
the United Kingdom. CE Electric is owned 70% by CalEnergy and 30% by
the Group. Subsequent to the offer, CE Electric has acquired
approximately 30% of Northern's shares in open-market transactions. If
the acquisition is completed, CE Electric will fund the acquisition with
a combination of bank borrowings and capital provided by its
shareholders.
In 1994, several former shareholders 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. Plaintiffs allege that MFS fraudulently concealed material
information about its plans from them, causing them to sell their shares
of the subsidiary to MFS at an inadequate price. The MFS lawsuit was
settled in July 1996. KDG had previously agreed to indemnify MFS
against any liabilities arising from this lawsuit. The settlement, net
of reserves established, did not materially affect the Group's financial
position or results of operations.
The Group is involved in other various lawsuits, claims and regulatory
proceedings incidental to its business. Management believes that any
resulting liability for legal proceedings beyond that provided should
not materially affect the Group's financial position, future results of
operations or future cash flows.
KIEWIT DIVERSIFIED GROUP
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations - Third Quarter 1996 vs. Third Quarter 1995
Revenue from each of the Group's business segments for the three months ended
September 30, comprised the following (in millions):
1996 1995
Mining $ 61 $ 56
Telecommunications 90 85
Other 14 11
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$ 165 $ 152
===== =====
Mining. Mining revenue for the third quarter was $5 million greater than in
the third quarter of 1995. Mining revenue increased primarily due to
additional alternate source coal needs of a primary customer and new
spot coal contracts awarded in 1996.
Operating margins for the third quarter of 1996 were 2% lower than in the
third quarter of 1995. Higher shipments of low margin spot coal were
partially offset by an increase in high margin alternate source coal sales.
Telecommunications. Telecommunications revenue increased 6% in 1996 compared
to 1995. Revenue for C-TEC's cable group increased $5 million or 15% for the
third quarter of 1996 compared to the same period in 1995. Increases in
subscribers, primarily in its Pennsylvania market, and the consolidation of
Mercom since August 1995, contributed to the improved revenue figures. C-
TEC's telephone group experienced a $3 million or 9% increase in revenue.
Strong access line growth from second-line promotions and growth in access
minutes along with increases in Internet access and video conferencing
revenues primarily accounted for the revenue increase.
The cost of telecommunications revenue increased 13% in 1996. The cable
group's additional Mercom subscribers, higher programming license fees and the
additional amortization and depreciation expense from the Mercom consolidation
were primarily responsible for the increase. Software expenses due to the
expansion of existing telephone services and the costs associated with the
increase in access lines and the nonregulated services, Internet access and
video conferencing, contributed to an increase in the telephone group's costs.
C-TEC also announced that RCN Inc., a competitive provider of local, long
distance telephone, video and Internet services, has taken several significant
steps to quickly and efficiently deploy a full package of services to
residential customers in Boston and New York. In September, RCN announced a
partnership with Boston Edison to utilize their fiber optic network to deliver
its communications package to the Boston area. This partnership will
complement RCN's alliance with MFS Communications to utilize their network in
downtown Boston. In October, RCN signed an agreement with DirecTV to deliver
direct broadcast satellite service to multiple dwelling units in New York
City. RCN has also signed comprehensive interconnection agreements with NYNEX
and Bell Atlantic to allow RCN to interconnect with the local exchange
networks at fully reciprocal and identical rates.
General and Administrative Expenses. General and administrative expenses in
1996 were consistent with those of 1995. The costs associated with the
development of the RCN business in New York and Boston and the consolidation
of Mercom since August, 1995 were offset by lower C-TEC professional fees.
KIEWIT DIVERSIFIED GROUP
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Investment Income, net. Investment income for the three months ended
September 30, 1996 was consistent with that of the same period in 1995.
Declines in international development expenses were offset by a decline in
gains on the sale of marketable securities.
Interest Expense, net. The interest expense on the toll road debt, which was
capitalized in 1995, and C-TEC's preferred stock which began accruing
interest in 1996 are primarily responsible for the increase in interest
expense.
Other, net. The improvement in other income is primarily attributable to
the absence of 1995 performance based expenditures of $16 million and costs
incurred related to the spin-off of MFS of $4 million.
Equity Loss in MFS. MFS is a leading provider of communications services to
business. PKS spun-off its investment in MFS to Class D stockholders on
September 30, 1995. Prior to the spin-off, the Group included its
proportionate share of MFS' losses in the statement of earnings. The
significant initial development and roll out expenses associated with
expansion activities adversely affected MFS' results.
Provision for Income Taxes. The effective income tax rate in 1996 differs
from the expected statutory rate of 35% primarily due to state income taxes.
The effective income tax rate for the three months ended September 30, 1995
differs primarily due to $93 million of income tax benefits from the reversal
of certain deferred tax liabilities recognized on gains from previous MFS
stock transactions that were no longer payable due to the tax-free spin-off of
MFS, partially offset by the net operating loss deduction limitations on
losses generated by MFS.
Results of Operations - Nine Months 1996 vs. Nine Months 1995
Revenue from each of the Group's business segments for the nine months ended
September 30 comprised the following (in millions):
1996 1995
Mining $ 172 $ 163
Telecommunications 273 237
Other 37 29
------ ------
$ 482 $ 429
====== ======
Mining. Mining revenue increased $9 million in the first three quarters of
1996 when compared to the same period in 1995. This increase was primarily
due to an increase in alternate source coal sales and spot coal sales.
Operating margins were the same in both time periods. The increase in high
margin alternate source sales was mitigated by higher shipments of low margin
spot coal.
Telecommunications. Telecommunications revenue increased 15% in 1996 compared
to 1995. Revenue for C-TEC's cable group increased $29 million or 33% for the
first nine months of 1996 compared to the same period in 1995. The
consolidations of Twin County and Mercom and subscriber growth in its
Pennsylvania market contributed to the improved revenue figure. C-TEC's
telephone group experienced a $8 million or 9% increase in revenue. Strong
access line growth from second-line promotions and growth in access minutes
along with increases in Internet access and video conferencing revenues
primarily accounted for the revenue increase.
The cost of telecommunications revenue increased 23% in 1996. The cable
group's increase is attributable to higher programming expenses and the costs
attributable to consolidation of Mercom and Twin County, including
amortization and depreciation expenses. Programming expense increased
primarily due to license fee increases, subscriber growth and channel
additions. The primary reasons for the increase in the telephone group's
costs were higher payroll expense and fees associated with the provision of
internet access services and with consulting services for a variety of other
regulatory and operational matters. Additionally, materials expense increased
in connection with higher video conferencing system sales.
General and Administrative Expenses. General and administrative expenses
increased 21% in 1996 compared to 1995. The costs associated with the
development of the RCN business in New York and Boston, the professional fees
required to explore C-TEC restructuring alternatives, the consolidation of
Twin County and Mercom and the commencement of operations at the privately
owned toll road in southern California all contributed to the increase in
general and administrative expenses.
Investment Income, net. Investment income increased 22% for the nine months
ended September 30, 1996 compared to the same period in 1995. Increases in
gains on the sale of marketable securities, equity earnings, primarily
CalEnergy, and interest income were partially offset by a slight decline in
dividend income.
Interest Expense, net. The interest expense on the toll road debt, which was
capitalized in 1995, and C-TEC's preferred stock which began accruing
interest in 1996 are primarily responsible for the 22% increase in interest
expense.
Other, net. The decline of other income in 1996 is primarily attributable to
the 1995 settlement of the Whitney litigation and the absence of performance
based expenditures and costs related to the spin-off of MFS.
Provision for Income Taxes. The effective income tax rate in 1996 differs
from the expected statutory rate of 35% primarily due to state income taxes.
The effective income tax rate for the nine months ended September 30, 1995
differs primarily due to $93 million of income tax benefits from the reversal
of certain deferred tax liabilities recognized on gains from previous MFS
stock transactions that were no longer payable due to the tax-free spin-off of
MFS, partially offset by the net operating loss deduction limitations on losses
generated by MFS.
KIEWIT DIVERSIFIED GROUP
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Financial Condition - September 30, 1996 vs. December 30, 1995
Due to the significant investing activities described below, the Group's
working capital decreased $89 million or 12% in the first nine months of 1996.
Investing activities include $109 million of investments and $78 million of
capital expenditures, including $14 million for the construction of a
privately owned toll road. The investments primarily include C-TEC's $13
million outlay for a note from Kiewit Construction and Mining Group, which is
receivable from Mazon Corporativo, S.A. de C.V. and a $27 million investment
in Liberty, KDG's $4 million investment in a Philippine power project, $37
million investment in three Indonesian power projects and the exercise of
CalEnergy options to purchase CalEnergy stock for $14 million. These capital
outlays were partially offset by net proceeds from the sale of marketable
securities of $22 million and $4 million of proceeds from the sale of
property, plant and equipment and other assets.
Financing sources include $19 million for the exchange of Class B&C Stock for
Class D Stock and $16 million for the construction financing of a privately
owned toll road and $12 million of C-TEC net borrowings under its revolving
credit agreement. Financing uses primarily consist of $13 million for the
payment of dividends, $11 million for stock repurchases, $19 million of
payments on C-TEC Senior Secured notes, and $2 million of payments on
stockholder notes and C-TEC's $15 million outlay for the payment of long-term
debt.
The Group anticipates making significant investments in its infrastructure,
telecommunications and energy businesses - including its joint venture
agreement with CalEnergy covering international power project development
activities - and searching for opportunities to acquire businesses which
provide for long-term growth. The Group exercised 3.3 million CalEnergy
options at $12 per share in October 1996. 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 immediate operating and investing activities.
At its October meeting, the PKS Board of Directors also declared a dividend of
$.50 per share for Class D Stock, payable on January 4, 1997 to shareholders
of record on January 3, 1997.
On August 8, C-TEC announced a plan to rescind the 1996 sale of Residential
Communications Network to RCN and acquire the assets of Liberty Cable from RCN
and merge those operations with C-TEC. This action coincided with C-TEC's
decision to close discussions concerning the sale of its cable television
unit. C-TEC also agreed in principle to exercise its option to unwind the
agreement to sell to RCN its other non-core assets. On August 30, C-TEC paid
RCN $58.3 million, representing the cost of RCN's investment in Liberty and
Residential Communications Network and interest of $1.7 million. C-TEC will
continue to explore ways to increase its profitability and value which could
include a restructuring transaction.
On October 28, 1996, CE Electric UK plc ("CE Electric"), made an unsolicited
$1.2 billion offer to acquire Northern, a regional electricity distribution
and supply company in the United Kingdom. CE Electric is owned 70% by
CalEnergy and 30% by the Group. Subsequent to the offer, CE Electric has
acquired approximately 30% of Northern's shares in open-market transactions.
If the acquisition is completed, CE Electric will fund the acquisition with
a combination of bank borrowings and capital provided by its shareholders.
KIEWIT DIVERSIFIED GROUP
Management's Discussion and Analysis of Financial Condition
and Results of Operations
At a meeting held on October 25, 1996, the PKS Board of Directors directed
management to pursue a listing of PKS' Class D stock on a major securities
exchange or the NASDAQ National Market as soon as practical during 1998. The
Board does not foresee circumstances under which PKS would list the Class D
stock prior to 1998. The Board believes that a listing will provide
PKS with a capital structure more suitable for the further development of the
Diversified Group's business plan. It would also provide liquidity for Class
D shareholders without impairing PKS' capital base.
The Board's action does not ensure that a listing of Class D stock will occur
in 1998, or any time. The Board could delay or abandon plans to list the
stock if it determined that such action would be in the best interests of all
PKS' shareholders. In addition, PKS' ability to list Class D stock will be
subject to factors beyond its control, including the laws, regulations, and
listing eligibility criteria in affect at the time a listing is sought, as
well as stock market conditions at the time. Furthermore, the Board might
decide to couple the listing of Class D stock with a public offering of newly-
issued Class D shares in order to raise additional capital for the Diversified
Group. Such an offering could delay or alter the listing plan.
