SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended Commission File
December 30, 1995 Number 0-15658
PETER KIEWIT SONS', INC.
(Exact name of registrant as specified in its charter)
Delaware 47-0210602
(State of Incorporation) (I.R.S. Employer
Identification No.)
1000 Kiewit Plaza, Omaha, Nebraska 68131
(Address of principal executive offices) (Zip Code)
(402) 342-2052
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Class B Construction & Mining Group Nonvoting Restricted
Redeemable Convertible Exchangeable Common Stock, par value
$.0625
Class C Construction & Mining Group Restricted Redeemable
Convertible Exchangeable Common Stock, par value $.0625
Class D Diversified Group Convertible Exchangeable
Common Stock, par value $.0625
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The registrant's stock is not publicly traded, and therefore
there is no ascertainable aggregate market value of voting stock
held by nonaffiliates.
As of March 15, 1996, the number of outstanding shares of each
class of the Company's common stock was:
Class B -263,468
Class C -9,957,413
Class D -23,222,259
Portions of the Company's definitive Proxy Statement for the 1996
Annual Meeting of Stockholders are incorporated by reference into
Part III of this Form 10-K.
PART I
ITEM 1. BUSINESS.
Peter Kiewit Sons', Inc. (the "Company") is one of the largest
construction contractors in North America and also owns energy,
telecommunications, and infrastructure businesses. The Company
pursues these activities through two subsidiaries, Kiewit
Construction Group Inc. ("KCG") and Kiewit Diversified Group Inc.
("KDG"). The organizational structure is shown by the following
chart.
Peter Kiewit Sons', Inc.
Kiewit Construction Group Inc.
Kiewit Construction company
Construction Operations
Kiewit Mining Group Inc.
Kiewit Diversified Group Inc.
PKS Information Services, Inc.
Kiewit Energy Group Inc.
Kiewit Coal Properties Inc.
CalEnergy Company, Inc. (24%)
Energy Projects
Infrastructure Projects
RCN Corporation
C-TEC Corporation (58%)
The Company has two principal classes of common stock, Class
C Construction & Mining Group stock and Class D Diversified Group
stock. The value of each class is linked to the separate
operations of each Group, under terms of the Company's charter (see
Item 5 below). All Class C shares and most Class D shares are
owned by current employees of the Company; almost all of the
remaining shares are owned by former employees and family members.
The Company was incorporated in Delaware in 1941 to continue a
construction business founded in Omaha, Nebraska in 1884. The
Company entered the coal mining business in 1943 and
the telecommunications business in 1988. Through subsidiaries, the
Company owns 58% of the voting stock of a telecommunications
company, C-TEC Corporation ("C-TEC"), and now owns 24% of the
voting stock of CalEnergy Company, Inc. ("CE"). C-TEC and CE are
publicly traded companies and more detailed information about each
of them is contained in their separate Forms 10-K.
MFS Spin-off. On September 30, 1995, the Company made a tax-
free distribution of its entire ownership interest in MFS
Communications Company, Inc. ("MFS") to its Class D stockholders.
the Company distributed 40.1 million shares of MFS common stock and
15 million shares of MFS Series B Convertible Preferred Stock
("Preferred Stock"). For each Class D share, holders received
1.741 shares of MFS common stock and .651 share of MFS Preferred
Stock.
The Company completed an exchange offer before the Spin-off.
Four million Class B and Class C shares were exchanged for
1,666,384 Class D shares, following principles derived from the
Company's certificate of incorporation concerning annual stock
conversion rights (see Item 5 below). The exchange ratio was
calculated using relative stock formula values. Each share of
Class B stock or Class C stock ($25.10) was exchanged for .416598
share of Class D stock ($60.25).
Segment information. The Company reports financial
information about three business segments: construction, mining,
and telecommunications. Additional financial information about the
Company's business segments, including operating earnings,
identifiable assets, capital expenditures and depreciation,
depletion and amortization, as well as foreign operations
information, is contained in Note 16 to the Company's consolidated
financial statements.
CONSTRUCTION
The construction business is conducted by operating
subsidiaries of Kiewit Construction Group Inc. (collectively,
"KCG"). KCG and its joint ventures perform construction services
for a broad range of public and private customers primarily in the
United States and Canada. New contract awards during 1995 were
distributed among the following construction markets:
transportation, including highways, bridges, and airports (54%),
marine (10%), sewer and waste disposal (9%), water supply systems
(7%), residential (4%), mining (4%), dams and reservoirs (3%), oil
and gas (3%), and commercial buildings (2%).
A general contractor is responsible for the overall direction
and management of construction projects and for completion of each
contract in accordance with terms, plans, and specifications. KCG
plans and schedules the projects, procures materials, hires workers
as needed, and awards subcontracts. KCG generally requires
performance and payment bonds or other assurances of operational
capability and financial capacity from its subcontractors.
Contract Types. KCG's government contracts generally provide
for the payment of a fixed price for the work performed. Profit is
realized on the difference between the contract price and the
actual cost of construction, and the contractor bears the risk that
it may not be able to perform all the work for the specified
amount. Construction contracts generally provide for progress
payments as work is completed, with a retainage to be paid when
performance is substantially complete. Construction contracts
frequently contain penalties or liquidated damages for late
completion and infrequently provide bonuses for early completion.
KCG's private contracts are generally "cost plus" contracts; the
contractor is reimbursed for its costs and also receives a flat fee
or a fee based on a percentage of its costs. KCG also performs
"guaranteed maximum" contracts, under which the contractor and
owner share in savings if costs are less than the maximum price.
Government Contracts. Public contracts accounted for 67% of
the combined prices of contracts awarded to KCG during 1995. Most
of these contracts were awarded by government and quasi-government
units under fixed price contracts after competitive bidding. Most
public contracts are subject to termination at the election of the
government. In the event of termination, the contractor is
entitled to receive the contract price on completed work and
payment of termination related costs.
Backlog. At the end of 1995, KCG had backlog (anticipated
revenue from uncompleted contracts) of $2.0 billion, a decline from
$2.2 billion at the end of 1994. Of current backlog, $300 million
is not expected to be completed during 1996. In 1995 KCG was low
bidder on 229 jobs with total contract prices of $1.5 billion, an
average price of $6.7 million per job. There were 16 new projects
with contract prices over $25 million, accounting for 58% of the
successful bid volume.
Competition. A contractor's competitive position is based
primarily on its prices for construction services and its
reputation for quality, timeliness, experience, and financial
strength. The construction industry is highly competitive and
lacks firms with dominant market power. In 1995, Engineering News
Record, a construction trade publication, ranked KCG as the 9th
largest U.S. contractor in terms of 1994 revenue and 13th largest
in terms of 1994 new contract awards. It ranked KCG 2nd in the
transportation market by 1994 revenue. The U.S. Department of
Commerce reports that the total value of construction put in place
in 1995 was $527 billion. KCG's U.S. revenues for the same period
were $2.0 billion, or 0.4% of the total domestic market.
Joint Ventures. KCG enters into joint ventures to
efficiently allocate expertise and resources among the venturers
and to spread risks associated with particular projects. In most
joint ventures, if one venturer is financially unable to bear its
share of expenses, the other venturers may be required to pay those
costs. KCG prefers to act as the sponsor of its joint ventures.
The sponsor generally provides the project manager, the majority of
venturer-provided personnel, and accounting and other
administrative support services. The joint venture generally
reimburses the sponsor for such personnel and services on a
negotiated basis. The sponsor is generally allocated a majority of
the venture's profits and losses and usually has a controlling vote
in joint venture decision making. In 1995 KCG derived 83% of its
joint venture revenue from sponsored joint ventures and 17% from
non-sponsored ventures. KCG's share of joint venture revenue
accounted for 30% of its 1995 total revenue.
Demand. The volume and profitability of KCG's construction
work depends to a significant extent upon the general state of the
economies of the United States and Canada, and the volume of work
available to contractors. Fluctuating demand cycles are typical of
the industry, and such cycles determine to a large extent the
degree of competition for available projects. KCG's construction
operations could be adversely affected by labor stoppages or
shortages, adverse weather conditions, shortages of supplies, or
governmental action. The volume of available government work is
affected by budgetary and political considerations. A significant
decrease in the amount of new government contracts, for whatever
reasons, would have a material adverse effect on KCG.
Locations. KCG structures its construction operations around
19 principal operating offices located throughout the U.S. and
Canada, with headquarters in Omaha, Nebraska. Through its
decentralized system of management, KCG has been able to quickly
respond to changes in the local markets. At the end of 1995, KCG
had current projects in 30 states and 5 provinces.
Internationally, KCG participates in the construction of a tunnel
under Denmark's Great Belt Channel and a geothermal power plant in
the Philippines.
Properties. KCG has 19 district offices, of which 14 are in
owned facilities and 5 are leased. KCG owns or leases numerous
shops, equipment yards, storage facilities, warehouses, and
construction material quarries. Since construction projects are
inherently temporary and location-specific, KCG owns approximately
800 portable offices, shops, and transport trailers. KCG has a
large equipment fleet, including approximately 3,000 trucks,
pickups, and automobiles, and 1,500 heavy construction vehicles,
such as graders, scrapers, backhoes, and cranes.
MINING
The Company is engaged in coal mining through its
subsidiaries, Kiewit Mining Group Inc. ("KMG") and Kiewit Coal
Properties Inc. ("KCP"). KCP has a 50% interest in three mines,
which are operated by KMG. Decker Coal Company ("Decker") is a
joint venture with Western Minerals, Inc., a subsidiary of The RTZ
Corporation PLC. Black Butte Coal Company ("Black Butte") is a
joint venture with Bitter Creek Coal Company, a subsidiary of Union
Pacific Corporation. Walnut Creek Mining Company ("Walnut Creek")
is a general partnership with Phillips Coal Company, a subsidiary
of Phillips Petroleum Company. The Decker Mine is located in
southeastern Montana, the Black Butte Mine is in southwestern
Wyoming, and the Walnut Creek Mine is in east-central Texas. KCP
also owns two smaller coal mines. KMG manages all the coal mines,
as well as KCG's construction aggregate quarries. In 1995, KMG
exchanged its interests in a Nevada precious minerals mine for
publicly traded stock of Kinross Gold Corporation.
Production and Distribution. The coal mines use the surface
mining method. During surface mining operations, topsoil is
removed and stored for later use in land reclamation. After
removal of topsoil, overburden in varying thicknesses is stripped
from above coal seams. Stripping operations are usually conducted
by means of large, earth-moving machines called draglines, or by
fleets of trucks, scrapers and power shovels. The exposed coal is
fractured by blasting and is loaded into haul trucks or onto
overland conveyors for transportation to processing and loading
facilities. Coal delivered by rail from Decker originates on the
Burlington Northern Railroad. Coal delivered by rail from Black
Butte originates on the Union Pacific Railroad. Coal is also
hauled by trucks from Black Butte to the nearby Jim Bridger Power
Plant. Coal is delivered by trucks from Walnut Creek to the
adjacent facilities of the Texas-New Mexico Power Company.
Customers. The coal is sold primarily to electric utilities,
which burn coal in order to generate steam to produce electricity.
Approximately 94% of sales are made under long-term contracts, and
the remainder are made on the spot market. Approximately 80%, 71%,
and 84% of KCP's revenues in 1995, 1994, and 1993, respectively,
were derived from long-term contracts with Commonwealth Edison
Company (with Decker and Black Butte) and The Detroit Edison
Company (with Decker). The sole customer of Walnut Creek is the
Texas-New Mexico Power Company.
Contracts. Customers enter into long-term contracts for coal
primarily to secure a reliable source of supply at a predictable
price. KCP's major long-term contracts have remaining terms
ranging from 2 to 33 years. A majority of KCP's long-term
contracts provide for periodic price adjustments. The price is
typically adjusted through the use of various indices for items
such as materials, supplies, and labor. Other portions of the
price are adjusted for changes in production taxes, royalties, and
changes in cost due to new legislation or regulation, and in most
cases, such cost items are passed through directly to the customer
as incurred. In most cases the price is also adjusted based on the
heating content of the coal.
Decker has a sales contract with Detroit Edison Company which
provides for the delivery of a minimum of 47 million tons of low
sulphur coal during the period 1996 through 2005, with annual
shipments ranging from 5.2 million tons in 1996 to 1.7 million tons
in 2005.
KCP and its mining ventures have entered into various
agreements with Commonwealth Edison Company ("Commonwealth") which
stipulate delivery and payment terms for the sale of coal. The
agreements as amended provide for delivery of 103 million tons
during the period 1996 through 2015, with annual shipments ranging
from 1.6 million tons to 10 million tons. These deliveries include
15 million tons of coal reserves previously sold to Commonwealth.
Since 1993, the amended contract between Commonwealth and Black
Butte provides that Commonwealth's delivery commitments will be
satisfied, not with coal produced from the Black Butte mine, but
with coal purchased from three unaffiliated mines in the Powder
River Basin of Wyoming and Decker. The contract amendment allows
Black Butte to purchase alternate source coal at a price below its
production costs, and to pass the cost savings through to
Commonwealth while maintaining the profit margins available under
the original contract.
The contract between Walnut Creek Coal Company and Texas-New
Mexico Power Company provides for delivery of between 42 and 90
million tons of coal during the period 1989 through 2017. The
actual tons provided will depend on the number of power units
constructed and operated by TNP. The maximum amount KCP is
expecting to ship in any one year is between 1.6 and 3.2 million
tons.
KCP also has other sales commitments, including those with
Sierra Pacific, Idaho Power, Solvay Minerals, and Pacific Power &
Light, that provide for the delivery of approximately 9 million
tons through 2005.
Coal Production. Coal production commenced at the Decker,
Black Butte, and Walnut Creek mines in 1972, 1979, and 1989,
respectively. KCP's share of coal mined in 1995 at the Decker,
Black Butte, and Walnut Creek mines was 5.2, 0.5, and 1.0 million
tons, respectively.
Revenue. KCP's total revenue in 1995 was $216 million.
Revenue attributable to the Decker, Black Butte, and Walnut Creek
entities was $109 million, $90 million, and $17 million,
respectively.
Backlog. At the end of 1995, the backlog of coal sold under
KCP's long-term contracts was approximately $1.6 billion, based on
December 1995 market prices. Of this amount, $205 million is
expected to be sold in 1996.
Reserves. At the end of 1995, KCP's share of assigned coal
reserves at Decker, Black Butte, and Walnut Creek was 124, 49, and
33 million tons, respectively. Of these amounts, KCP's share of
the committed reserves of Decker, Black Butte, and Walnut Creek was
57.3, 3.8, and 20.4 million tons, respectively. Assigned reserves
represent coal which can be mined using KCP's current mining
practices. Committed reserves (excluding alternate source coal)
represent KCP's maximum contractual amounts. These coal reserve
estimates represent total proved and probable reserves.
Leases. The coal reserves and deposits of the mines are held
pursuant to leases with the federal government through the Bureau
of Land Management, with two state governments (Montana and
Wyoming), and with numerous private parties.
Competition. The coal industry is highly competitive. KCP
competes not only with other domestic and foreign coal suppliers,
some of whom are larger and have greater capital resources than
KCP, but also with alternative methods of generating electricity
and alternative energy sources. In 1994, KCP's production
represented 1.4% of total U.S. coal production.
Demand for KCP's coal is affected by economic, political and
regulatory factors. For example, recent "clean air" laws may
stimulate demand for low sulphur coal. KCP's western coal reserves
generally have a low sulfur content (less than one percent) and are
currently useful principally as fuel for coal-fired steam-electric
generating units. KCP's sales of its western coal, like sales by
other western coal producers, typically provide for delivery to
customers at the mine. A significant portion of the customer's
delivered cost of coal is attributable to transportation costs.
Most of the coal sold from KCP's western mines is currently shipped
by rail to utilities outside Montana and Wyoming. The Decker and
Black Butte mines are each served by a single railroad. Many of
their western coal competitors are served by two railroads and such
competitors' customers often benefit from lower transportation
costs because of competition between railroads for coal hauling
business. Other western coal producers, particularly those in the
Powder River Basin of Wyoming, have lower stripping ratios (i.e.
the amount of overburden that must be removed in proportion to the
amount of minable coal) than the Black Butte and Decker mines,
often resulting in lower comparative costs of production. As a
result, KCP's production costs per ton of coal at the Black Butte
and Decker mines can be as much as four and five times greater than
production costs of certain competitors. KCP's production cost
disadvantage has contributed to its agreement to amend its long-
term contract with Commonwealth Edison Company to provide for
delivery of coal from alternate source mines rather than from Black
Butte. Because of these cost disadvantages, KCP does not expect
that it will be able to enter into long-term coal purchase
contracts for Black Butte and Decker production as the current
long-term contracts expire. In addition, these cost disadvantages
may adversely affect KCP's ability to compete for spot sales in the
future.
Environmental Regulation. The Company is required to comply
with various federal, state and local laws and regulations
concerning protection of the environment. KCP's share of land
reclamation expenses in 1995 was $5.7 million. KCP's share of
accrued estimated reclamation costs was $100 million at the end of
1995. The Company does not expect to make significant capital
expenditures for environmental compliance in 1996. The Company
believes its compliance with environmental protection and land
restoration laws will not affect its competitive position since its
competitors in the industry are similarly affected by such laws.
Intergroup Transactions. KCP, an indirect subsidiary of KDG,
contains the coal mining joint ventures and related long-term coal
contracts, mining properties, and equipment. KMG, an indirect
subsidiary of KCG, is the employer of senior management involved in
mining operations. KMG manages the coal mines for KCP. KCP pays
KMG an annual coal mining management fee equal to 30% of KCP's
adjusted operating income. The fee in 1995 was $30 million. The
financial results of KCP are reflected in the formula value of
Class D Diversified Group common stock, while the financial results
of KMG are reflected in the formula value of the Class B&C
Construction and Mining Group common stock.
TELECOMMUNICATIONS
C-TEC CORPORATION
C-TEC Corporation. In 1993 the Company purchased a
controlling interest in C-TEC Corporation ("C-TEC"). Through its
subsidiary, RCN Corporation ("RCN"), the Company owns 44% of the
outstanding shares of C-TEC common stock and 60% of the C-TEC Class
B common stock. Holders of common stock are entitled to one vote
per share; holders of Class B stock are entitled to 15 votes per
share. The Company thus owns 49% of the outstanding shares, but is
entitled to 58% of the available votes. C-TEC common stock is
traded on the NASDAQ National Market System, and the Class B Stock
is quoted on NASDAQ and traded over the counter. C-TEC is a
Pennsylvania corporation and traces its origin to 1897 with the
founding of Commonwealth Telephone Company. C-TEC has its
executive offices in Princeton, New Jersey. In 1995 C-TEC had
revenue of $325 million, net income of $23 million, total assets of
$952 million, long-term debt of $263 million, and stockholders'
equity of $370 million. The four operating groups of C-TEC and
their 1995 revenues are: telephone ($129 million), cable ($127
million), long distance ($39 million), and communications services
($29 million).
Telephone Group. The Telephone Group consists of a
Pennsylvania public utility providing local telephone service to a
19 county, 5,067 square mile service territory in Pennsylvania.
The Telephone Group services 226,000 main access lines, of which
174,000 are residential and 52,000 are business related. In
addition to providing local telephone service, this Group provides
network access and long distance services to interexchange
carriers. Revenue is also derived from equipment sales and
internet access services.
Cable Group. The Cable Group is a cable television operator
with cable television systems located in New York, New Jersey,
Michigan, and Pennsylvania. The Cable Group owns and operates
cable television systems serving approximately 334,000 customers
and manages cable television systems with an additional 39,000
customers, ranking it among the top 20 multiple system operators in
the United States.
The Cable Group made several acquisitions in 1995. In
January, the Cable Group purchased the assets of Higgins Lake
Cable, Inc., which provides cable television service to
approximately 3,200 subscribers in northern Michigan. Also in
January, C-TEC purchased a 40% equity position in Megacable, S.A.
de C.V., Mexico's second largest cable television operator,
currently serving 174,000 subscribers in 12 cities. The Cable
Group acquired Twin County Trans Video, Inc., which provides cable
television service to approximately 74,000 subscribers in eastern
Pennsylvania. As a result of a stock rights offering in August
1995, the Group now owns 62% (an increase from 43%) of the voting
stock of Mercom, Inc., which provides cable television service in
Michigan and Florida.
The Cable Group must periodically seek renewal of franchise
agreements from local government authorities. To date, all of the
Group's franchises have been renewed or extended, generally at or
prior to their stated expirations and on acceptable terms.
Competition for the Cable Group's services traditionally has come
from providers of broadcast television, video rentals, and direct
broadcast satellite received on home dishes. Future competition is
expected from telephone companies.
Long Distance Group. The Long Distance Group principally
operates in Pennsylvania. The Group began operations in 1990 by
servicing the local service area of the Telephone Group. In 1992
and 1993, sales offices were opened in other areas of Pennsylvania.
The Long Distance Group provides switched services, is a reseller
of several types of services, and employs the networks of several
long distance providers on a wholesale basis.
Communications Services Group. The Communications Services
Group provides telecommunications-related engineering and technical
services in the northeastern U.S.
Regulation. Effective in February, the Federal
Telecommunications Act of 1996 established a framework for
deregulation of the communications industry. The Federal
Communications Commission ("FCC") and state regulators must work
out the specific implementation process. The Act should foster
competition by telephone companies in the cable television business
and cable companies in the telephone business. The Company's local
exchange telephone subsidiary, Commonwealth Telephone Company
("CTCo"), is subject to a rate-making process regulated by the
Pennsylvania Public Utility Commission ("PPUC"). Consequently, the
ability of the Telephone Group to generate increased income is
largely dependent on its ability to increase its subscriber base,
obtain higher message volumes and control its expenses.
The Cable Group is subject to the Federal Cable Television
Consumer Protection and Competition Act of 1992, which regulated
certain subscriber rates, mandatory carriage of local broadcast
stations, and retransmission consent. The most significant
provision of the Act requires the FCC to establish rules to ensure
that rates for basic services are reasonable for subscribers in
areas without effective competition. Few municipalities served by
C-TEC are subject to effective competition. The overall effect of
the Act's provisions on Cable Group's operations is not yet
determinable.
Restructuring. In November 1995, C-TEC announced that it had
engaged an investment banker to assist with evaluating strategic
alternatives for its various business units with a view toward
enhancing shareholder value. C-TEC is now planning to distribute
to its shareholders in a tax-free spin-off the Telephone Group, the
Communications Services Group, and certain other assets. Following
the spin-off, C-TEC plans to combine its remaining businesses,
which will consist of its domestic Cable Group, with a third party
pursuant to a tax-free, stock-for-stock transaction. C-TEC has
received a number of inquiries regarding its domestic Cable Group
and is holding discussions with interested parties.
Subsequent Event -- Sale of Certain Businesses to RCN. Under
the terms of an agreement dated March 27, 1996, RCN will pay C-TEC
approximately $123 million for certain of C-TEC's assets, including
the Long Distance Group, C-TEC International, which holds the 40%
interest in Megacable, S.A. de C.V., and Residential Communications
Network, a start-up joint effort with RCN which plans to provide
telecommunications services to the residential market. RCN will
purchase Residential Communications Network for cash in a
transaction expected to close in April 1996. RCN's purchase of the
other businesses for cash or C-TEC stock, at RCN's option, is
expected to close in the second half of 1996. The transactions are
subject to certain conditions including the receipt of all
necessary regulatory approvals. The agreement with RCN contains a
repurchase option under which C-TEC can reacquire the businesses if
a restructuring of C-TEC's main businesses does not occur.
Additionally, C-TEC retains a warrant to reacquire a six percent
stake in Residential Communications Network. The agreement with
RCN was approved by a special committee of the board of directors
of C-TEC, composed of directors unaffiliated with either RCN or the
Company.
RCN CORPORATION
On February 20, 1996, RCN entered into an asset purchase
agreement, along with other ancillary agreements, with Liberty
Cable Company, Inc. ("Liberty") to purchase an 80% interest in
certain private cable systems in New York City and selected areas
of New Jersey. These cable systems provide subscription television
services using microwave frequencies. RCN paid the sellers $27
million on the closing date, March 6, 1996. In addition, RCN
delivered a $15 million note that it expects to pay in full during
1996.
OTHER OPERATIONS
CALENERGY COMPANY, INC.
CalEnergy Company, Inc. ("CE"), formerly named California
Energy Company, Inc., develops, constructs, and operates electric
power production facilities, primarily utilizing geothermal
resources, in the western United States, the Philippines, and
Indonesia. CE is a Delaware corporation formed in 1971 and has its
headquarters in Omaha, Nebraska. CE common stock is traded on the
New York, Pacific, and London Stock Exchanges. In 1995, CE had
revenue of $399 million, net income of $63 million, before
preferred dividends, total assets of $2,654 million, long-term debt
of $1,294 million, and stockholders' equity of $544 million.
Kiewit Energy Company ("KEC") currently owns 24% (12.3 million
shares, including 1.5 million shares purchased in February 1996) of
CE's outstanding common stock. KEC has options to purchase 3.3
million common shares at $12 per share and 1 million common shares
at $11.625. KEC holds $64,850,000 of debentures paying 9.5%
interest, convertible into 3.5 million common shares at a
conversion price of $18.375 per share. If KEC were to exercise all
its options and convert its debentures, it would own approximately
34% of CE's common shares. A 1991 agreement entitles KEC to have
three members on CE's board of directors. KEC accounts for its
investment in CE common shares by the equity method, i.e. the
amount included in KEC's net earnings is CE's net earnings
multiplied by the percentage of CE's common shares owned by KEC,
adjusted for income taxes and goodwill and amortization.
Following its acquisition of Magma Power Company in early
1995, CE became the largest independent geothermal power producer
in the world. Power production facilities are measured in terms of
megawatts (MW) of net electric generating capacity. Most of CE's
facilities are co-owned and CE's fractional ownership interest can
be expressed in terms of MWs. CE's has projects in three stages:
operational (and managed by CE), under construction (and financed),
and developmental (with executed and awarded power sales
contracts). CE owns 358 MW of operating facilities having 575 MW
of aggregate capacity; most of the operating facilities are in
Southern California. Under construction are four geothermal power
projects in the Philippines with aggregate capacity of 540 MW; CE
owns 449 MW in the four projects; and KEC owns 74 MW in one
project. Also under construction in the Philippines is a 150 MW
hydroelectric power project, in which CE and KEC own 52 MW each.
In the development stage are seven projects in Indonesia, the
Philippines, and the United States with potential aggregate
capacity of 1,478 MW; CE expects to own 786 MW in the developmental
projects; and KEC expects to own 508 MW in the Indonesian projects
only.
In 1993, KDG and KCG (together "Kiewit") and CE signed a joint
venture agreement concerning their international activities, which
provides that if both Kiewit and CE agree to participate in a
project, they will share all development costs equally. Kiewit and
CE will each provide 50% of the equity required for financing a
project developed by the joint venture and CE will operate and
manage such project. The agreement creates a joint development
structure under which, on a project by project basis, CE will be
the development manager, managing partner and/or project operator,
an equal equity participant with Kiewit and a preferred participant
in the construction consortium and Kiewit will be an equal equity
participant and the preferred turnkey construction contractor.
The Company participates in the Mahanagdong project in the
Philippines in three ways: through KCG, the lead member of the
construction consortium, through KEC as a direct equity investor,
and indirectly through KEC's ownership interest in CE. In the
Casecnan project in the Philippines, KCG does not participate in
construction, but KEC participates as both a direct equity investor
and indirectly as an equity investor through its CE ownership. KEC
also owns $20 million of bonds issued in connection with the
project. Kiewit expects to be a co-developer and an equal equity
participant with CE in the Dieng, Patuha, and Bali projects in
Indonesia.
Geothermal power production process. First, the developer
locates suitable geothermal resources, drills test wells, secures
permits, negotiates long-term power contracts with an electric
utility, and arranges financing. Second, the project is
constructed. Third, the facility is operated and maintained.
Project revenues from the sale of electricity are applied to
operating costs, rent or royalties, and principal and interest
payments on debt incurred for acquisition and construction costs.
Geothermal resources suitable for commercial extraction require an
underground water reservoir heated to high temperatures.
Production wells are drilled to release the heated fluid under high
pressure. Wells are usually located within one or two miles of the
power plant. From well heads, fluid flows through pipelines to a
series of separators where it is separated into water, brine, and
steam. The steam is passed through a turbine which drives a
generator to generate electricity. Once the steam has passed
through the turbine, it is then cooled and condensed back into
water which is reinjected through wells back into the geothermal
reservoir. Under proper conditions, the geothermal power is
renewable energy source, with minimal emissions compared to fossil
fuel power plants. The utilization of geothermal power is
preferred by certain governments in order to minimize the import
(e.g., the Philippines), or maximize the export (e.g., Indonesia)
of hydrocarbons. Geothermal power facilities also enjoy federal
tax benefits and favorable utility regulatory treatment in the
United States.
Operations/United States. Most of CE's operating revenues
come from geothermal power plants in Southern California, three in
the Coso area and seven in the Imperial Valley. These operations
have certain common features. Each plant involves a partnership or
joint venture in which CE has an approximately one-half interest
and is the operator of the plant. Each plant has long-term
contract to supply electric power to Southern California Edison
Company ("Edison"). The agreements provide for both capacity
payments and energy payments for a term of between 20 and 30 years.
During the first ten years, energy payments are based on a pre-set
schedule. Thereafter, while the basis for the capacity payment
remains the same, the required energy payment is Edison's then-
current published "avoided cost of energy" as determined by the
California Public Utility Commission. The initial ten-year periods
expire beginning in 1996 for the first plant and in 2000 for the
tenth plant. CE cannot predict the likely level of Edison's
avoided cost of energy prices at the expiration of the fixed-price
periods, but it is currently substantially below the current energy
prices under CE's contracts. For 1995, the time period-weighted
average of Edison's avoided cost of energy was 2.1 cents per kWh,
compared to CE's comparable selling price for energy of 11.34 cents
per kWh. Thus, the revenue generated by each of CE's ten
facilities is likely to decline significantly after the expiration
of the fixed-price period.
The Coso projects were refinanced through the sale of notes in
a 1992 private placement. The outstanding balance of the notes at
the end of 1995 was $203 million. Assets of the Coso projects are
pledged to satisfy repayment of the notes, but the obligations are
non-recourse to CE. Six of the seven Imperial Valley projects are
subject to financing agreements. The combined outstanding balances
of the notes at the end of 1995 was $507 million. All of the
obligations are non-recourse to CE.
CE has five other operating plants, one each in Arizona, Utah,
and Nevada, and two in California. An expansion to an Imperial
Valley plant is under construction. In addition, two projects are
in the development stage.
Construction Stage/Philippines. CE has four projects in the
Philippines under construction.
Mahanagdong. In 1994 construction began on the Mahanagdong
Project, a 180 gross MW geothermal project on the Philippine island
of Leyte. The Mahanagdong Project will be built, owned and
operated by CE Luzon Geothermal Power Company, Inc. ("CE Luzon"),
a Philippine corporation that during construction is indirectly
owned 50% by CE and 50% by KEC. Up to a 10% financial interest in
CE Luzon may be sold at completion to another industrial company at
the option of such company. The Mahanagdong Project will sell 100%
of its capacity on a "take-or-pay" basis (described below) to PNOC-
Energy Development Corporation ("EDC"), which will in turn sell the
power to the National Power Corporation of the Philippines ("NPC"),
for distribution to the island of Luzon. NPC is the government-
owned and controlled corporation that is the primary supplier of
electricity in the Philippines.
Mahanagdong has a total project cost of $320 million,
including interest during construction, project contingency costs
and a debt service reserve fund. The capital structure consists of
a project financing construction and term loan of $240 million
provided by the Overseas Private Investment Corporation ("OPIC"),
the Export-Import Bank of the United States ("Exim Bank"), and a
consortium of international banks, and approximately $80 million in
equity contributions. Political risk insurance from Exim Bank has
been obtained for the commercial lenders. KEC and CE will each
make an equity investment in the Mahanagdong Project of
approximately $40 million. KEC and CE have arranged for political
risk insurance on their equity investments through OPIC. The
financing is collateralized by all the assets of the project.
The Mahanagdong Project is being constructed by subsidiaries
of KCG and CE under fixed-price, date-certain, turnkey supply and
construction contracts. KCG and CE subsidiaries have 80% and 20%
interests, respectively, in the contracts.
Under the terms of an energy conversion agreement, executed on
September 18, 1993 (the "Mahanagdong ECA"), CE Luzon will build,
own and operate the Mahanagdong Project during the estimated three-
year construction period and a ten-year cooperation period. At the
end of the cooperation period, the facility will be transferred to
EDC at no cost. The Mahanagdong Project will be located on land
provided by EDC at no cost. It will take geothermal steam and
fluid, also provided by EDC at no cost, and convert its thermal
energy into electrical energy to be sold to EDC on a "take-or-pay"
basis. Specifically, EDC will be obligated to pay for the electric
capacity that is nominated each year by CE Luzon, irrespective of
whether EDC is willing or able to accept delivery of such capacity.
EDC will pay to CE Luzon a fee (the "Capacity Fee") based on the
plant capacity nominated to EDC in any year (which, at the plant's
design capacity, is approximately 97% of total contract revenues)
and a fee (the "Energy Fee") based on the electricity actually
delivered to EDC (approximately 3% of total contract revenues).
The Capacity Fee serves to recover the capital costs of the
project, to recover fixed operating costs and to cover return on
investment. The Energy Fee is designed to cover all variable
operating and maintenance costs of the power plant. Payments under
the Mahanagdong ECA will be denominated in U.S. dollars, or
computed in U.S. dollars and paid in Philippine pesos at the then-
current exchange rate, except for the Energy Fee, which will be
used to pay Philippine peso-denominated expenses. The
convertibility of Philippine peso receipts into U.S. dollars is
insured by OPIC. Significant portions of the Capacity Fee and
Energy Fee will be indexed to U.S. and Philippine inflation rates,
respectively. EDC's payment requirements, and its other
obligations under the Mahanagdong ECA, are supported by the
Government of the Philippines through a performance undertaking.
Upper Mahiao. In 1994 construction began on the Upper Mahiao
Project, a 128 gross MW geothermal project on Leyte. The Upper
Mahiao Project will be built, owned and operated by CE Cebu
Geothermal Power Company, Inc. ("CE Cebu"), a Philippine
corporation that is approximately 100% indirectly owned by CE. It
will sell 100% of its capacity on a "take-or-pay" basis to EDC, on
substantially the same terms as described above for the Mahanagdong
Project, which will in turn sell the power to NPC for distribution
to the island of Cebu, located about 40 miles west of Leyte. The
Upper Mahiao Project will have a total project cost of $218
million. A consortium of international banks has committed to
provide $162 million in a project-financed construction loan. The
largest portion of the term loan for the project will also be
provided by Exim Bank. CE's equity contribution to the Upper
Mahiao Project is $56 million.
Malitbog. In 1994 construction began on the Malitbog Project,
a 231 gross MW geothermal project on Leyte. The Malitbog Project
will be built, owned and operated by Visayas Geothermal Power
Company ("VGPC"), a Philippine general partnership that is wholly
owned, indirectly, by CE. VGPC will sell 100% of its capacity, on
substantially the same terms as described above for the Mahanagdong
Project, to EDC, which will in turn sell the power to NPC. The
Malitbog Project has a total project cost of $280 million. A
consortium of international banks and OPIC have provided a total of
$210 million of construction and term loan facilities. CE's equity
contribution was $70 million.
Casecnan. In November 1995 CE closed the financing and
started construction on the combined irrigation and hydroelectric
power generation project (the "Casecnan Project"), a 150 gross MW
hydroelectric power project located in the central part of the
island of Luzon. The Casecnan Project will include diversion
structures in the Casecnan and Denip Rivers that will divert water
into a 14 mile long tunnel. The tunnel will transfer the water
from the Casecnan and Denip Rivers into the Pantabangan Reservoir
for irrigation and hydroelectric use in the Central Luzon area. An
underground powerhouse at the end of the water tunnel will house a
power plant with 150 MW capacity.
CE Casecnan Water and Energy Company, Inc., a Philippine
corporation ("CE Casecnan") is developing the Casecnan Project
under the terms of the project agreement between CE Casecnan and
the National Irrigation Administration ("NIA"). CE and KEC have
minimum and maximum ownership interests in CE Casecnan of 35% to
50% each. Two other shareholders, who have no financial
commitments and will not participate in construction or operations,
may receive interests of as much as 15% each, depending on
projected returns from the project. Under the project agreement,
CE Casecnan will develop, finance and construct the Casecnan
Project over an estimated four-year construction period, and
thereafter own and operate the Casecnan Project for a 20 year
cooperation period. During the cooperation period, NIA is
obligated to accept all deliveries of water and energy, and so long
as the Casecnan Project is physically capable of operating, NIA
will pay the CE Casecnan a guaranteed fee for the delivery of water
and a guaranteed fee for the delivery of electricity, regardless of
the amount of water or electricity actually delivered. In
addition, NIA will pay a fee for all electricity delivered in
excess of a threshold amount up to a specified amount. NIA will
sell the electric energy it purchases to NPC, although NIA's
obligations to CE Casecnan under the Project Agreement are not
dependent on NPC's purchase of the electricity from NIA. All fees
to be paid by NIA to CE Casecnan are payable in U.S. dollars. The
guaranteed fees for the delivery of water and energy are expected
to provide approximately 70% of CE Casecnan's revenues. At the end
of the cooperation period, the Casecnan Project will be transferred
to NIA and NPC for no additional consideration on an "as is" basis.
The Republic of the Philippines has provided a performance
undertaking under which NIA's obligations under the Project
Agreement are guaranteed by the full faith and credit of the
Republic of the Philippines. The total cost of the Casecnan
Project, including development, construction, testing and startup,
is estimated to be approximately $495 million.
Construction Stage/Indonesia
Dieng. In December 1994, Himpurnia California Energy Ltd.
("HCE") executed a joint operation contract (the "Dieng JOC") for
the development of the geothermal steam field and geothermal power
facilities at the Dieng geothermal field, located in Central Java
(the "Dieng Project") with Pertamina, the Indonesian national oil
company, and executed a "take-or-pay" energy sales contract (the
"Dieng ESC") with both Pertamina and PLN, the Indonesian national
electric utility. HCE was formed with an Indonesian partner to
develop the Dieng Project (the "Dieng JV"). CE, KEC, and the
Indonesian partner have 47%, 47%, and 6% interests, respectively,
in the Dieng JV.
Pursuant to the Dieng JOC and ESC, Pertamina will grant to the
Dieng JV the geothermal field and wells and other facilities
presently located thereon and the Dieng JV will build, own and
operate power production units with an aggregate capacity of up to
400 MW. HCE will accept the field operation responsibility for
developing and supplying the geothermal steam and fluids required
to operate the plants. The Dieng JOC is structured as a build-own-
transfer agreement and will expire (subject to extension by mutual
agreement) on the date which is the later of (i) 42 years following
effectiveness of the Dieng JOC and (ii) 30 years following the date
of commencement of commercial generation of the final unit
completed. Upon the expiration of the proposed Dieng JOC, all
facilities will be transferred to Pertamina at no cost. The Dieng
JV is required to pay Pertamina a production allowance equal to
three percent of Dieng JV's net operating income from the Dieng
Project, plus a further amount based upon the negotiated value of
existing Pertamina geothermal production facilities that are
expected to be made available by Pertamina.
Pursuant to the Dieng ESC, PLN agreed to purchase and pay for
all of the Project's capacity and energy output on a "take-or-pay"
basis regardless of PLN's ability to accept such energy made
available from the Dieng Project for a term equal to that of the
Dieng JOC. The price paid for electricity includes a base energy
price per kWh multiplied by the number of kWhs the plants deliver
or are "capable of delivering," whichever is greater. Energy price
payments are also subject to adjustment for inflation. PLN will
also pay a capacity payment based on plant capacity. All such
payments are payable in U.S. dollars.
Construction of an initial 55 MW unit is expected to begin in
the second quarter of 1996. A consortium consisting of KCG and CE
will construct the Dieng Project and provide all related design,
engineering and supply work pursuant to fixed price, date certain,
turnkey construction and supply contracts. HCE will be responsible
for operating and managing the Dieng Project. CE and KEC presently
intend to proceed on a modular basis with construction of three
additional units to follow Dieng Unit I, resulting in an aggregate
first phase net capacity at this site of 220 MW. The total project
cost of these units is estimated to be $450 million. The next
phase is expected to expand the total capacity to 400 MW. The cost
of the full Dieng Project is estimated to be approximately $1
billion. It is anticipated that most of the capital needed to
construct and operate the Dieng projects and the development stage
projects described below will be raised by project-financed debt,
i.e. the loans will be repaid from revenues generated by the output
of the plants.
Development Stage Projects.
Patuha. CE and KEC are co-developing a geothermal power plant
at the Patuha geothermal field in Java, Indonesia. They intend to
proceed on a modular basis similar to the Dieng Project, with an
aggregate capacity of up to 400 MW. The total cost is estimated to
be $1 billion. Construction of the first unit is expected to begin
in 1996. Bali. CE and KEC are co-developing geothermal resources
on the island of Bali, Indonesia. They intend to proceed on a
modular basis similar to the Dieng Project, with an aggregate
capacity of up to 400 MW. The total cost of the Bali project is
estimated to be $1 billion. Construction of the first unit is
expected to begin in 1997. Alto Peak. CE is developing a 70 net
MW geothermal project on the Philippine island of Leyte. KEC is
not a participant in this project.
INFORMATION SERVICES
PKS Information Services, Inc. ("PKSIS"), provides computer
outsourcing and systems integration services to customers on a
nationwide basis. PKSIS provides its outsourcing services to firms
that desire to focus resources on their core businesses while
avoiding the capital and overhead costs of operating their own
computer centers. Systems integration services help customers
define, develop, and implement cost-effective information systems.
PKSIS manages a wide-area network (WAN) on a nationwide basis and
is engaged in the design, installation, and maintenance of high-
performance local area networks (LANs) and multi-tiered distributed
architectures that utilize the latest hardware and software
technologies. PKSIS develops a unified architecture of hardware,
software, and communications technologies in order to meet the
customer's specific design, operational, and management objectives.
Better service and better value are the result of a total focus on
integrating capital, technology, and expert people on a scale
basis. PKSIS' operations and computing equipment are located in an
89,000 square foot computer center in Omaha, Nebraska. The PKSIS
computer center was engineered to: (i) ensure fault tolerance, and
(ii) enable scale economies in hardware, software, and people. The
first point ensures non-stop operation for the customers. The
second promises more cost-effective computing services than most
organizations can deliver themselves. In 1995, 83 percent of
PKSIS' revenue was from external customers and the remainder was
from affiliates.
ENERGY PROJECTS
Kiewit Fuels. Kiewit Fuels Inc., an 80% owned KDG subsidiary,
has acquired a patented, low-cost process to produce additives
known as renewable ethers (EtBE and MtBE) to make cleaner burning
gasoline. Kiewit Fuels is investigating opportunities to utilize
the process.
INFRASTRUCTURE PROJECTS
California Private Transportation Company. KDG has invested
$12 million in California Private Transportation Company, which
developed, arranged financing, constructed, and now operates the
SR91 tollroad in Orange County. The tollroad opened for traffic in
December 1995.
United Infrastructure Company. KDG is investigating North
American infrastructure privatization opportunities through United
Infrastructure Company, an equal partnership with Bechtel
Infrastructure Enterprises, Inc.
KIEWIT MUTUAL FUND
Kiewit Mutual Fund, a registered investment company, was
formed in 1994. Initially formed to manage the Company's internal
investments, shares in Kiewit Mutual Fund are now available for
purchase by the general public. The Fund's investors currently
include individuals and unrelated companies, as well as Kiewit-
affiliated joint ventures, pension plans, and subsidiaries. Kiewit
Mutual Fund has five series: Money Market Portfolio, Short-Term
Government Portfolio, Intermediate-Term Bond Portfolio, Tax-Exempt
Portfolio, and the Equity Portfolio. The registered investment
adviser of Kiewit Mutual Fund is Kiewit Investment Management
Corp., a subsidiary of KDG (60%) and KCG (40%).
GENERAL INFORMATION
Environmental Protection. Compliance with federal, state,
and local provisions regulating the discharge of materials into the
environment, or otherwise relating to the protection of the
environment, has not and is not expected to have a material effect
upon the capital expenditures, earnings, or competitive position of
the Company and its subsidiaries.
Employees. At the end of 1995, the Company and its
majority-owned subsidiaries employed approximately 14,300 people --
10,400 in Construction, 2,000 in Mining, 1,400 in
Telecommunications, 200 in Information Services, and 300 in
corporate positions.
ITEM 2. PROPERTIES.
The properties used in the construction segment are described
under a separate heading in Item 1 above. Properties relating to
the Company's mining segment are described as part of the general
business description of that segment in Item 1 above. The
properties of the telecommunications segment include those of C-
TEC's Telephone Group (switching centers, cables and wires
connecting the telephone company to its customers, and other
telephone instruments and equipment), C-TEC's Cable Group (head-
end, distribution and subscriber equipment), and various office and
storage buildings. The Company considers its properties to be
adequate for its present and foreseeable requirements.
ITEM 3. LEGAL PROCEEDINGS.
General. The Company and its subsidiaries are parties to
many pending legal proceedings. Management believes that any
resulting liabilities for legal proceedings, beyond amounts
reserved, will not materially affect the Company's financial
condition, future results of operations, or future cash flows.
Environmental Proceedings. In a large number of proceedings,
the Company, its subsidiaries, or their predecessors are among
numerous defendants who may be "potentially responsible parties"
liable for the cleanup of hazardous substances deposited in
landfills or other sites. Management believes that any resulting
liabilities for environmental legal proceedings, beyond amounts
reserved, will not materially affect the Company's financial
condition, future results of operations, or future cash flows.
Whitney Litigation. In May 1995, the lawsuit titled Whitney
Benefits, Inc. and Peter Kiewit Sons' Co. v. The United States was
settled. In 1983, plaintiffs alleged that the enactment of the
Surface Mining Control and Reclamation Act of 1977 had prevented
the mining of their Wyoming coal deposits and constituted a
government taking without just compensation. In settlement of all
claims, plaintiffs agreed to deed the coal deposits to the
government and the government agreed to pay plaintiffs $200
million, of which Peter Kiewit Sons' Co., a KDG subsidiary,
received approximately $135 million in June 1995.
MFS Litigation. In March 1994, several former stockholders
of an MFS subsidiary filed a lawsuit against MFS, KDG, and the
chief executive officer of MFS, in the United States District Court
for the Northern District of Illinois, Case No. 94C-1381. These
shareholders sold shares of the subsidiary to MFS in September
1992. MFS completed an initial public offering in May 1993.
Plaintiffs allege that MFS fraudulently concealed material
information about its plans from them, causing them to sell their
shares at an inadequate price. Plaintiffs have alleged damages of
at least $100 million. Defendants have meritorious defenses and
have vigorously contested this lawsuit. Defendants expect that a
trial will be held in 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's liabilities
pursuant to the indemnification agreement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during
the fourth quarter of 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT.
The table below shows information as of March 15, 1996 about
each executive officer of the Company, including his business
experience during the past five years (1991-1996). The Company
considers its executive officers to be its directors who are
employed by the Company or one of its subsidiaries. The Company's
directors and officers are elected annually and each was elected on
June 10, 1995 to serve until his successor is elected and qualified
or until his death, resignation or removal.
Name Business Experience (1991-1996) Age
Walter Scott, Jr. Chairman of the Board and President 64
William L. Grewcock Vice Chairman 70
Robert E. Julian Executive Vice President; Chief Financial 56
Officer (1991-1995); Treasurer (1991-1993)
Kenneth E. Stinson Executive Vice President 53
Richard Geary Executive Vice President, KCG; President, 61
Kiewit Pacific Co.
Leonard W. Kearney Vice President, KCG; President, Kiewit 55
Construction Company and Kiewit
Western Co.
Richard R. Jaros Executive Vice President (since 1993); 44
Chief Financial Officer (since 1995);
Vice President (1991-1992); President
and COO of CE (1992-3)
George B. Toll, Jr. Executive Vice President, KCG (since 59
1994); Vice President, Kiewit Pacific
Co. (1991-1994)
Richard W. Colf Vice President, Kiewit Pacific Co. 52
Bruce E. Grewcock President (since 1992), Sr. Vice President 42
(1991-1992), Vice President (1991) of
Kiewit Mining Group Inc.
Tait P. Johnson President, Gilbert Southern Corp. 46
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Market Information. There is no established public trading
market for the Company's common stock. However, the Company is
generally required to repurchase shares at a formula price upon
demand.
Company repurchase duty. Under the Company's Certificate of
Incorporation effective January 1992, the Company has three classes
of common stock: Class B Construction & Mining Group Nonvoting
Restricted Redeemable Convertible Exchangeable Common Stock ("Class
B"), Class C Construction & Mining Group Restricted Redeemable
Convertible Exchangeable Common Stock ("Class C"), and Class D
Diversified Group Convertible Exchangeable Common Stock ("Class
D"). Class B and Class C ("Class B&C") shares can be issued only
to Company employees and can be resold only to the Company at a
formula price based on the year-end book value of the Construction
& Mining Group. The Company is generally required to repurchase
Class B&C shares for cash upon stockholder demand. Class D shares
have a formula price based on the year-end book value of the
Diversified Group. The Company must generally repurchase Class D
shares for cash upon stockholder demand at the formula price,
unless the Class D shares become publicly traded.
Formula values. The formula price of the Class D shares is
based on the book value of Kiewit Diversified Group Inc. ("KDG")
and its subsidiaries, plus one-half of the book value, on a stand-
alone basis, of the parent company, Peter Kiewit Sons', Inc. The
formula price of the Class B&C shares is based on the book value of
Kiewit Construction Group Inc. ("KCG") and its subsidiaries,
including Kiewit Mining Group Inc.("KMG"), plus one-half of the
book value of the unconsolidated parent company. A significant
element of the Class B&C formula price is the subtraction of the
book value of property, plant and equipment used in construction
activities ($110 million in 1995). A significant annual
intercompany transaction reduces the value of the Class D shares
and increases the value of the Class B&C shares. The primary
assets of the Company's mining segment are coal mining leases and
long-term coal contracts owned by Kiewit Coal Properties
Inc.("KCP"), a subsidiary of KDG. However, the coal mining
properties are managed and operated by KMG. KCP paid mine
management fees of $30 million to KMG in 1995.
Conversion. Class C shares are convertible into Class D
shares at the end of each year. Between October 15 and December 15
of each year a Class C stockholder may elect to convert some or all
of his or her shares. Conversion occurs on the following January
1. The conversion ratio is the relative formula prices of Class C
and Class D shares determined as of the last Saturday in December,
i.e. the last day in the Company's fiscal year. Class D shares may
be converted into Class C shares only as part of an annual offering
of Class C shares to employees. Instead of purchasing the offered
shares for cash, an employee owning Class D shares may convert such
shares into Class C shares at the applicable conversion ratio.
Restrictions. Ownership of Class C shares is generally
restricted to active Company employees. Upon retirement,
termination of employment, or death, Class C shares must be resold
to the Company at the applicable formula price, but may be
converted into Class D shares if the terminating event occurs
during the annual conversion period. Class D shares are not
subject to ownership or transfer restrictions.
Dividends and Prices. During 1994 and 1995 the Company
declared or paid the following dividends on its common stock. The
table also shows the stock price after each dividend payment or
other valuation event.
Dividend
Dividend Dividend Per Price Stock
Declared Paid Share Class Adjusted Price
Oct. 29, 1993 Jan. 6, 1994 $ 0.40 B&C Dec. 25, 1993 $22.35
Apr. 22, 1994 May 1, 1994 0.45 B&C May 1, 1994 21.90
Oct. 21, 1994 Jan. 5, 1995 0.45 B&C Dec. 31, 1994 25.55
Apr. 28, 1994 May 1, 1995 0.45 B&C May 1, 1995 25.10
Oct. 27, 1995 Jan. 5, 1996 0.60 B&C Dec. 30, 1995 32.40
D Dec. 25, 1993 59.40
D Dec. 31, 1994 60.25
Sep. 25, 1995* Sep. 30, 1995* 19.85* D Sep. 30, 1995 40.40
Oct. 27, 1995 Jan. 5, 1996 0.50 D Dec. 30, 1995 49.50
* MFS Spin-off (see p. 2)
Although the Board of Directors announced in August 1993 that the
Company did not intend to pay regular dividends on Class D shares
in the foreseeable future, on October 27, 1995, the Board declared
a special dividend of $0.50 per share on Class D shares payable on
January 5, 1996 to stockholders of record on that date.
Stockholders. On March 15, 1996, the Company had the
following numbers of stockholders and outstanding shares for each
class of its common stock:
Class Stockholders Shares Outstanding
B 4 263,468
C 1,140 9,957,413
D 1,723 23,222,259
ITEM 6. SELECTED FINANCIAL DATA.
PETER KIEWIT SONS', INC.
SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Financial Data of Peter Kiewit Sons', Inc. ("PKS"),
the Kiewit Construction & Mining Group ("B&C Stock") and the
Kiewit Diversified Group ("D Stock") appear below and on the next
four pages. The consolidated data of PKS are presented below
with the exception of per common share data which is presented in
the Selected Financial Data of the respective groups.
(dollars in millions, Fiscal Year Ended
except per share amounts)1995 1994 1993 1992 1991
Results of Operations:
Revenue (1) $ 2,902 $ 2,704 $ 2,050 $ 1,918 $ 2,049
Earnings from continuing
operations 244 110 261 162 49
Net earnings (2) 244 110 261 181 441
Financial Position:
Total assets (1) 3,463 4,492 3,634 2,549 2,632
Current portion of
long-term debt (1) 42 33 15 3 15
Long-term debt, less
current portion (1) 370 908 462 30 110
Stockholders' equity (3)1,607 1,736 1,671 1,458 1,396
(1) In September 1995, the Company dividended its investment
in MFS to Class D Shareholders. MFS' results of
operations have been classified as a single line item on
the statements of earnings. MFS is consolidated in the
1994-1991 balance sheets.
In October 1993, the Company acquired 35% of the
outstanding shares of C-TEC Corporation that have 57% of
the available voting rights. In December 1994, the
Company increased its ownership to 49% and 58%,
respectively.
In January 1994, MFS Communications Company, Inc.
("MFS"), issued $500 million of 9.375% Senior Discount
Notes.
(2) In 1993, through two public offerings, the Company
sold 29% of its subsidiary, MFS, resulting in a $137 million
after-tax gain. In 1995 and 1994, additional MFS stock
transactions resulted in $2 million and $35 million
after-tax gains to the Company and reduced its ownership
in MFS to 66% and 67%.
(3) The aggregate redemption value of common stock at
December 30, 1995 was $1.5 billion.
KIEWIT CONSTRUCTION & MINING GROUP
SELECTED FINANCIAL DATA
The following selected financial data for each of the years in
the period 1991 to 1995 have been derived from audited financial
statements. The historical financial information for the Kiewit
Construction & Mining and Kiewit Diversified Groups supplements
the consolidated financial information of PKS and, taken
together, includes all accounts which comprise the corresponding
consolidated financial information of PKS.
(dollars in millions, Fiscal Year Ended
except per share amounts)1995 1994 1993 1992 1991
Results of Operations:
Revenue $ 2,330 $ 2,175 $ 1,783 $ 1,675 $ 1,834
Net earnings 104 77 80 82 23
Per Common Share (1):
Net earnings 7.78 4.92 4.63 4.48 1.12
Dividends (2) 1.05 0.90 0.70 0.70 0.30
Stock price (3) 32.40 25.55 22.35 18.70 14.40
Book value 42.90 31.39 27.43 23.31 19.25
Financial Position:
Total assets 987 963 889 862 849
Current portion of
long-term debt 2 3 4 2 7
Long-term debt, less
current portion 9 9 10 12 13
Stockholders' equity (4) 467 505 480 437 400
KIEWIT CONSTRUCTION & MINING GROUP
SELECTED FINANCIAL DATA
(continued)
(1) In connection with the January 1992 reorganization, each
share of previous Class B and Class C Stock was exchanged
for one share of new Class B&C Stock and one share of new
Class D Stock. Therefore, for purposes of computing Class
B&C Stock per share data, the number of shares for 1991 is
assumed to be the same as the corresponding number of
shares of previous Class B and Class C Stock. Fully
diluted earnings per share have not been presented because
it is not materially different from earnings per share.
(2) The 1995, 1994 and 1993 dividends include $.60, $.45 and
$.40 for dividends declared in 1995, 1994 and 1993,
respectively, but paid in January of the subsequent year.
1991 reflects dividends paid by PKS on its previous Class
B and Class C Stock that have been attributed to Kiewit
Construction & Mining Group and Kiewit Diversified Group
based upon the relative formula values of each group which
were determined at the end of the preceding year.
Accordingly, the dividends may bear no relationship to the
dividends that would have been declared by the Board in
that year had the new Class B&C Stock and the Class D
Stock been outstanding.
(3) Pursuant to the Restated Certificate of Incorporation, the
stock price calculation is computed annually at the end of
the fiscal year.
(4) Ownership of the Class B&C Stock is restricted to certain
employees conditioned upon the execution of repurchase
agreements which restrict the employees from transferring
the stock. PKS is generally committed to purchase all
Class B&C Stock at the amount computed, when put to PKS by
a stockholder, pursuant to the Restated Certificate of
Incorporation. The aggregate redemption value of the B&C
Stock at December 30, 1995 was $359 million.
KIEWIT DIVERSIFIED GROUP
SELECTED FINANCIAL DATA
The following selected financial data for each of the years in
the period 1991 to 1995 have been derived from audited financial
statements. The historical financial information for the Kiewit
Diversified and Kiewit Construction & Mining Groups supplements
the consolidated financial information of PKS and, taken
together, includes all accounts which comprise the corresponding
consolidated financial information of PKS.
(dollars in millions, Fiscal Year Ended
except per share amounts)1995 1994 1993 1992 1991
Results of Operations:
Revenue (1) $ 580 $ 537 $ 267 $ 243 $ 215
Earnings from
continuing operations 140 33 181 80 26
Net earnings (2) 140 33 181 99 418
Per Common Share (3):
Earnings from
continuing operations 6.45 1.63 9.08 3.95 1.26
Net earnings 6.45 1.63 9.08 4.92 20.30
Dividends (4) .50 - .50 1.95 0.70
Stock price (5) 49.50 60.25 59.40 50.65 47.85
Book value 49.49 60.36 59.52 50.75 47.93
Financial Position:
Total assets (1) 2,490 3,537 2,759 1,709 1,801
Current portion of
long-term debt (1) 40 30 11 1 8
Long-term debt,
less current portion (1)361 899 452 18 97
Stockholders' equity (6)1,140 1,231 1,191 1,021 996
KIEWIT DIVERSIFIED GROUP
SELECTED FINANCIAL DATA
(continued)
(1) In September 1995, the Group dividended its investment in
MFS to Class D Shareholders. MFS' results of operations
have been classified as a single line item on the
statements of earnings. MFS is consolidated in the 1994-
1991 balance sheets.
In October 1993, the Group acquired 35% of the outstanding
shares of C-TEC Corporation that have 57% of the available
voting rights. In December 1994, the Group increased its
ownership to 49% and 58%, respectively.
In January 1994, MFS issued $500 million of 9.375% Senior
Discount Notes.
(2) In 1993, through two public offerings, the Group sold 29%
of MFS, resulting in a $137 million after-tax gain. In
1995 and 1994, additional MFS stock transactions resulted
in $2 million and $35 million after-tax gains to the
Group and reduced its ownership in MFS to 66% and 67%.
(3) In connection with the January 1992 reorganization, each
share of previous Class B and Class C Stock was exchanged
for one share of new Class B&C Stock and one share of
new Class D Stock. Therefore, for purposes of computing
Class D Stock per share data, the number of shares for
1991 is assumed to be the same as the corresponding
number of shares of previous Class B and Class C Stock.
Fully diluted earnings per share have not been presented
because it is not materially different from earnings per
share.
(4) The 1995 and 1992 dividends include $.50 for dividends
declared in 1995 and 1992 but paid in January of the
subsequent year. 1991 reflects dividends paid by PKS on
its previous Class B and Class C Stock that have been
attributed to Kiewit Diversified Group and Kiewit
Construction & Mining Group based upon the relative
formula values of each group which were determined at the
end of the preceding year. Accordingly, the dividends
may bear no relationship to the dividends that would have
been declared by the Board in that year had the new
Class D Stock and the new Class B&C Stock been
outstanding.
(5) Pursuant to the Restated Certificate of Incorporation,
the stock price calculation is computed annually at the
end of the fiscal year.
(6) Unless Class D Stock becomes publicly traded, PKS is
generally committed to purchase all Class D Stock at the
amount computed, in accordance with the Restated
Certificate of Incorporation, when put to PKS by a
stockholder. The aggregate redemption value of the Class
D Stock at December 30, 1995 was $1,151 million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This item contains information about Peter Kiewit Son's, Inc.
(the "Company") as a whole. Separate reports containing
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 Form 10-K. 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.
The following discussion of Results of Operations should be
read in conjunction with the Consolidated Financial Statements.
Results of Operations 1995 vs. 1994
Construction. Construction revenue increased by $154
million or 7% in 1995. Contributing to the increase were joint
venture revenues and the inclusion of two additional months of
materials revenue generated by the APAC-Arizona ("APAC")
companies which were acquired on February 28, 1994. The
Company's share of joint venture revenue rose by 32% in 1995 and
accounted for 30% of total construction revenue in 1995 and 24%
in 1994. The San Joaquin Toll Road Joint Venture ("San Joaquin")
in southern California contributed $225 million and $111 million
to revenue in 1995 and 1994. Contract backlog at December 30,
1995 was $2 billion, of which 10% is attributable to foreign
operations, principally, Canada and the Philippines. Projects on
the west coast account for 36% of the total backlog which
includes San Joaquin backlog of $133 million. San Joaquin is
scheduled for completion in 1997.
In 1995, gross margins rose 16% from $170 million in 1994 to
$197 million in 1995. The growing materials market had a
significant effect on margins. Increased operational
efficiencies, as well as joint ventures, including substantial
claim settlements, also impacted margins.
Mining. Mining revenue in 1995 increased slightly from
1994. Spot sales were lower in 1995 due to reduced demand in the
Company's spot market area because of a mild winter and high
hydro-electricity generation in the Western United States. Sales
of precious metals were greater in 1995 when compared to 1994 as
a result of the liquidation of essentially all of the precious
metal inventory. Alternate source coal sales were also higher in
1995 due to the acceleration of coal shipments to the current
year from future years and the shifting of certain coal shipments
from mined coal to alternate source coal.
Direct costs, as a percentage of revenue, declined 2% in
1995 as a result of the additional alternate source coal sales.
Lower margin metal sales and renegotiated coal contracts
partially offset the higher margins on additional alternate
source coal sales.
Telecommunications. With the spin-off of MFS, the
Telecommunications segment now consists solely of C-TEC
Corporation ("C-TEC"). C-TEC's primary operations are telephone
and cable. In 1995 telecommunication revenue increased 12% over
1994. Sales of the telephone group increased $7 million to $129
million, a 6% increase over 1994. Increases in access lines for
local network service and rate increases for intrastate access
traffic were primarily responsible for the improvement. Sales
for the cable group increased 34% to $127 million in 1995. The
acquisition of Twin County Trans Video, Inc. and the
consolidation of Mercom, Inc.'s results since August contributed
$18 million and $6 million to C-TEC's revenue in 1995. In
addition, subscriber increases of approximately 16,000 over 1994
and rate increases effective in April 1995 account for an $8
million increase in cable revenue. Revenues from other operating
groups increased $17 million or 32% compared to 1994 primarily
due to the resale of long distance telephone services to another
long distance reseller, improvements in switched business, 800
service sales and third party revenues from C-TEC's communication
services business. The arrangement with the third party reseller
terminated in the second quarter of 1995. Partially offsetting C-
TEC's increase in revenue was the sale of the mobile services
group in 1994 which contributed $23 million in revenue that year.
C-TEC's direct costs increased $30 million or 15% in 1995. The
telephone group's costs of revenue increased primarily because of
higher payroll expenses and higher depreciation expense. The
acquisitions of Mercom and Twin County led to a 37% increase in
direct costs for the cable group. In addition, higher basic
programming costs resulting from increased subscribers, channel
additions and rate increases contributed to the increase. Direct
expenses for C-TEC's other operating groups increased because of
costs associated with the resale of long distance services and
communication services work performed for third parties.
Partially offsetting these increases was the elimination of
direct costs associated with the mobile services group which was
sold in 1994.
General and Administrative Expenses. General and
administrative expenses increased 18% in 1995. An increase in
expenses for environmental and legal matters was partially
offset by lower payroll expenses and an overall decline in C-
TEC's general and administrative costs.
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 Company in 1995. In 1994 the Company 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 statement of
earnings. With the Spin-off of MFS, these types of gains will no
longer be recognized for MFS transactions.
Investment Income, net. Investment income increased 84% to
$79 million in 1995. Improvements in interest income and equity
earnings, primarily from CalEnergy Company, Inc. ("CE"), and
declines in losses on the sales of securities and international
energy project development expenses all contributed to the
increase in investment income. Proceeds from the C-TEC rights
offering and the sale of its mobile services group, along with
the Whitney Benefits settlement contributed to a higher average
portfolio balance and increased interest income. The Company
also recognized equity earnings, net of goodwill amortization,
from CE of $10 million in 1995 compared to $5 million in 1994.
This increase is primarily attributable to the successful merger
of Magma Energy operations into CE in 1995. In 1995, losses on
the sale of securities declined 87% from 1994 primarily due to
the reallocation of the Company's investment portfolio from fixed
rate securities to mutual funds portfolios with differing
investment objectives. Developmental expenses declined 75% in
1995 primarily due to the reimbursement of prior year expenses
and the capitalization of current year amounts.
Interest Expense, net. Interest expense in 1995 decreased
33% compared to 1994. The decline is primarily due to C-TEC's
prepayment of senior secured notes in December 1994.
Other, net. In 1995, other income primarily includes a $21
million gain on the exchange of the Company's gold operations in
Nevada for the common stock of Kinross Gold Corporation and
settlement proceeds of $135 million from the Whitney Benefits
litigation. Other income also includes gains and losses from the
disposition of property, plant and equipment and other assets in
1995 and 1994.
Equity 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 no longer includes MFS' results in its
financial statements.
Income Tax Benefit (Provision). The effective income tax
rate for 1995 differs from the statutory rate of 35% due
primarily to $93 million of income tax benefits from the reversal
of certain deferred tax liabilities originally recognized on
gains from previous MFS stock transactions that are no longer
required due to the tax-free spin-off of MFS and adjustments of
prior year tax provisions. In 1994, the rate is lower than 35%
primarily due to adjustments to prior year tax provisions.
Results of Operations 1994 vs. 1993
Construction. Construction revenue increased by $386
million or 22% in 1994. The Company's share of joint venture
revenue also rose 22% in 1994 and accounted for 24% of total
construction revenue in 1994 and 1993. Several large contracts
awarded in 1992 and early 1993 contributed to the overall
increase in revenues, the largest of which was San Joaquin. Also
contributing to the increase were revenues generated from the
APAC acquisition. Contract backlog at December 31, 1994 was $2.2
billion, of which 16% was attributable to foreign operations,
principally, Canada and the Philippines. Projects on the west
coast accounted for 40% of the total backlog.
Direct costs associated with construction contracts increased
$404 million or 26% to $2.0 billion in 1994. Costs as a
percentage of revenue were approximately 92% and 89% for 1994 and
1993.
In 1994, the margins were adversely affected by cost overruns
and a more competitive market environment. A $20 million
reduction of reserves previously established for the Denmark
tunnel project favorably impacted 1993 margins.
Mining. Mining revenue increased $16 million or 7% in
1994. This increase was primarily due to an increase in spot
sales. Mining gross profits were 46% in 1994 and 47% in 1993.
Alternate source coal sales by Black Butte and Decker in 1994
were consistent with 1993. Alternate source coal consists of
coal purchased from unaffiliated mines located in the Powder
River Basin area of Wyoming and from a mine in which the Company
has a 50% interest. In 1994, alternate source coal sales
accounted for 30% of revenues and 47% of gross profits compared
to 31% and 51% in 1993.
Telecommunications. C-TEC generated telecommunications
revenue for the Company of $291 million and $48 million in 1994
and 1993. The 1993 figures represent activity from the
acquisition date. C-TEC's telephone group and cable group had
revenue of $122 million and $95 million. The cellular group,
sold in 1994, the long distance group and communications services
group generated the balance. Overall, C-TEC's revenues increased
5% in 1994. Increases in interstate access revenues for the
telephone group, 9,300 additional subscribers for the cable group
and increased business and residential market penetration for the
long distance group all contributed to the increase in revenue.
The cost of revenue for C-TEC included in the Company's
results was $189 million and $42 million in 1994 and 1993. The
costs in 1994 are primarily attributable to the telephone group -
$57 million and the cable group - $71 million. C-TEC's cost of
revenue increased at a higher rate than revenue in 1994. The
costs associated with developing the long distance business,
primarily the opening of four new sales offices in late 1993,
advertising expenses and promotional and discount campaigns
designed to obtain a greater market share were the reasons for
the increase.
General and Administrative Expenses. General and
administrative expenses in 1994 exceeded those of 1993 by 46%.
The inclusion of a full year of C-TEC's operations is responsible
for the majority of the increase. Overall, C-TEC's general and
administrative expenses remained fairly consistent in 1994. The
remaining increase in general and administrative expenses was
attributable to an increase in payroll expenses partially offset
by lower professional fees.
Gain on Subsidiary's Stock Transactions, net. In 1994,
the Company settled a contingent purchase price adjustment
resulting from MFS' 1990 purchase of 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 MFS issuance of stock for the
Cylix and RealCom acquisitions and MFS employee stock options,
resulted in a $54 million pre-tax gain to the Company. Deferred
taxes were provided on these gains.
Investment Income, net. The improvement in investment
income was directly attributable to a decline of $38 million in
losses from the sale and writedown of derivative and other
securities. Partially offsetting the decline in losses was a $5
million decrease in interest and dividend income, and the
recognition of $4 million of developmental expenses associated
with the international energy projects being jointly developed by
the Company and CE.
Interest Expense, net. Interest expense increased
significantly in 1994. The interest on the debt assumed in the
C-TEC acquisition, $33 million, was primarily responsible for the
increase.
Other, net. Debt prepayment penalties incurred by C-TEC
were primarily responsible for the decline.
Income Tax Benefit (Provision). The effective income tax
rate for 1994 and 1993 differed from the statutory rate of 35%
due primarily to adjustments of prior year tax provisions.
Dividend exclusions and mineral depletion deductions also
contributed to the lower effective rate in 1993.
Financial Condition - December 30, 1995
The Company's working capital, exclusive of MFS, decreased
$19 million or 2% during 1995. The decrease was mainly due to
cash used to fund investing activities. The decrease was
partially offset by cash flows from operations, including the
receipt of the Whitney settlement of $135 million.
Investing activities include $161 million of capital
expenditures, $260 million of investments and $36 million of
deferred development costs. The investments primarily include C-
TEC's $84 million outlay for 40% of Megacable and $37 million
outlay for Twin County, KDG's $85 million investment in two
Philippine power projects, $29 million purchase of CE stock, $8
million investment in geothermal power plants in Indonesia and $6
million for a 19% interest in a healthcare software development
company. These outlays were partially offset by $29 million of
proceeds from the sale of property, plant and equipment and other
investments.
Financing sources include $30 million of long-term debt
borrowing for the construction financing of a privately owned
toll road, $45 million of short-term borrowings and $25 million
from the sale of the Company's common stock. Financing uses
consisted of C-TEC's $27 million outlay for the net payment of
long-term debt, $6 million of payments on stockholders' notes, $6
million for stock repurchases and $13 million of Class B&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 telecommunications activities described
below, the Company anticipates investing between $45 and $85
million annually in its construction and mining businesses,
including opportunities to acquire additional materials
businesses. The Company also anticipates making significant
investments in its infrastructure and energy businesses -
including its joint venture agreement with CE 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 Company's 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.
In November 1995, C-TEC announced that it had engaged an
investment banker to assist with evaluating strategic alternatives
for its various business units with a view toward enhancing
shareholder value. C-TEC is now planning to distribute to its
shareholders in a tax-free spin-off the Telephone Group, the
Communications Services Group, and certain other assets. Following
the spin-off, C-TEC plans to combine its remaining businesses,
which will consist of its domestic Cable Group, with a third
party pursuant to a tax-free, stock-for-stock transaction. C-TEC
has received a number of inquiries regarding its domestic Cable
Group and is holding discussions with interested parties.
In March, under the terms of an agreement, RCN Corporation
("RCN") will pay C-TEC approximately $123 million for certain of
C-TEC's assets, including the Long Distance Group, C-TEC International,
which holds the 40% interest in Megacable, S.A. de C.V., and Residential
Communications Network, a start-up joint effort with RCN which plans to
provide telecommunications services to the residential market. RCN will
purchase Residential Communications Network for cash in a transaction
expected to close in April 1996. RCN's purchase of the other businesses for
cash or C-TEC stock, at RCN's option, is expected to close in the
second half of 1996. The transactions are subject to certain conditions
including the receipt of all necessary regulatory approvals. The agreement
with RCN contains a repurchase option under which C-TEC can reacquire
the businesses if a restructuring of C-TEC's main businesses does not
occur. Additionally, C-TEC retains a warrant to reacquire a six percent
stake in Residential Communications Network. The agreement with RCN was
approved by a special committee of the board of directors of C-TEC, composed
of directors unaffiliated with either RCN or the Company.
Also in March, RCN entered into an asset purchase
agreement, along with other ancillary agreement, with Liberty
Cable Company, Inc. ("Liberty") to purchase an 80 percent
interest in certain private cable systems in New York City and
selected areas of New Jersey. The transaction closed on March 6,
1996. The cable systems provide subscription television
services using microwave frequencies. RCN deposited $27
million in an escrow account which was released on the closing date.
In addition, RCN issued a $15 million promissory note that is
expected to be paid in 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements and supplementary financial information
for Peter Kiewit Sons', Inc. and Subsidiaries begin on page P1.
Separate financial statements and financial statement schedules for
the Kiewit Construction & Mining Group and the Kiewit Diversified
Group have been filed as Exhibits 99.A and 99.B to this report. The
Company will furnish 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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Part III is incorporated by
reference from the Company's definitive proxy statement for the
Annual Meeting of Stockholders to be held on June 8, 1996. However,
certain information is set forth under the caption "Executive
Officers of the Registrant" following Item 4 above.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
(a) Financial statements and financial statement schedules
required to be filed for the registrant under Items 8 or 14 are set
forth following the index page at page P1.
Exhibits filed as a part of this report are listed below.
Exhibits incorporated by reference are indicated in parentheses.
Exhibit
Number Description
3.1 Restated Certificate of Incorporation, effective
January 8, 1992 (Exhibit 3.1 to Company's Form 10-K for
1991).
3.4 By-laws, composite copy, including all amendments, as
of March 19, 1993 (Exhibit 3.4 to Company's Form 10-K
for 1992).
21 List of subsidiaries of the Company.
27 Financial data schedules.
99.A Kiewit Construction & Mining Group Financial Statements
and Financial Statement Schedules and Management's
Discussion and Analysis of Financial Condition and
Results of Operations.
99.B Kiewit Diversified Group Financial Statements and
Financial Statement Schedules and Management's
Discussion and Analysis of Financial Condition and
Results of Operations.
(b) No Form 8-K was filed during the fourth quarter of 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 29th day of March, 1996.
PETER KIEWIT SONS', INC.
By: /s/ Richard R. Jaros
Richard R. Jaros
Executive Vice President
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated on the
29th day of March, 1996.
/s/ Walter Scott, Jr. Chairman of the Board and President
Walter Scott, Jr. (principal executive officer)
/s/ Richard R. Jaros Director, Executive Vice President-
Richard R. Jaros Chief Financial Officer
(principal financial officer)
/s/ Eric J. Mortensen Controller
Eric J. Mortensen (principal accounting officer)
/s/ Richard W. Colf
Richard W. Colf, Director
/s/ James Q. Crowe /s/ Tait P. Johnson
James Q. Crowe, Director Tait P. Johnson, Director
/s/ Robert B. Daugherty /s/ Robert E. Julian
Robert B. Daugherty, Director Robert E. Julian, Director
/s/ Richard Geary /s/ Leonard W. Kearney
Richard Geary, Director Leonard W. Kearney, Director
/s/ Bruce E. Grewcock /s/ Peter Kiewit, Jr.
Bruce E. Grewcock, Director Peter Kiewit, Jr., Director
/s/ William L. Grewcock /s/ Kenneth E. Stinson
William L. Grewcock, Director Kenneth E. Stinson, Director
/s/ Charles M. Harper /s/ George B. Toll, Jr.
Charles M. Harper, Director George B. Toll, Jr., Director
LIST OF SUBSIDIARIES
OF
PETER KIEWIT SONS', INC.
DECEMBER 30, 1995
Peter Kiewit Sons', Inc. (Delaware)
Kiewit Construction Group Inc. (Delaware)
Kiewit Construction Company (Delaware)
Kiewit Pacific Co. (Delaware)
Kiewit Mining Group Inc. (Delaware)
Kiewit Western Co. (Delaware)
Gilbert Southern Corp. (Delaware)
Kiewit Diversified Group Inc. (Delaware)
PKS Information Services, Inc. (Delaware)
Continental Holdings Inc. (Wyoming)
CCC Canada Holding, Inc. (Delaware)
The Continental Group of Canada, Inc.
(Ontario)
Continental Kiewit Inc. (Delaware)
Kiewit Energy Group Inc. (Delaware)
Kiewit Coal Properties Inc. (Delaware)
Black Butte Coal Company (50%)
(joint venture)
Decker Coal Company (50%) (joint venture)
Kiewit Energy Company (Delaware)
CalEnergy Company, Inc. (24%) (Delaware)
Peter Kiewit Sons' Co. (Nebraska)
RCN Corporation (90%) (Delaware)
C-TEC Corporation (50%) (Pennsylvania)
Commonwealth Telephone Company
(Pennsylvania)
C-TEC Cable Systems, Inc. (Delaware)
The subsidiaries listed above include "significant" subsidiaries as
defined in Rule 1-02(w) of Regulation S-X, and certain other
subsidiaries.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Index to Financial Statements
and Financial Statement Schedule
Report of Independent Accountants
Consolidated Financial Statements as
of December 30, 1995 and December 31, 1994
and for the three years ended December 30, 1995:
Consolidated Statements of Earnings
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Stockholders' Equity
Notes to Consolidated Financial Statements
Consolidated Financial Statement Schedule for the
three years ended December 30, 1995:
II--Valuation and Qualifying Accounts and Reserves
Schedules not indicated above have been omitted because of the
absence of the conditions under which they are required or
because the information called for is shown in the consolidated
financial statements or in the notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Peter Kiewit Sons', Inc.
We have audited the consolidated financial statements and the
financial statement schedule of Peter Kiewit Sons', Inc. and
Subsidiaries as listed in the index on the preceding page of this
Form 10-K. These financial statements and the financial
statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Peter Kiewit Sons', Inc. and Subsidiaries
as of December 30, 1995 and December 31, 1994, and the
consolidated results of their operations and their cash flows for
each of the three years in the period ended December 30, 1995 in
conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included
therein.
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
March 19, 1996
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
For the three years ended December 30, 1995
(dollars in millions, except per share data) 1995 1994 1993
Revenue $ 2,902 $ 2,704 $ 2,050
Cost of Revenue (2,474) (2,314) (1,742)
------- ------- --------
428 390 308
General and Administrative Expenses (266) (225) (154)
------ ----- -----
Operating Earnings 162 165 154
Other Income (Expense):
Gain on Subsidiary's Stock Transactions, net 3 54 211
Investment Income, net 79 43 17
Interest Expense, net (25) (38) (14)
Other,net 157 16 24
----- ---- ----
214 75 238
Equity Loss in MFS (131) (102) (13)
----- ----- ----
Earnings Before Income Taxes and
Minority Interest 245 138 379
Income Tax Benefit (Provision) 11 (29) (118)
Minority Interest in Net (Income) Loss of
Subsidiaries (12) 1 -
----- ---- -----
Net Earnings $ 244 $ 110 $ 261
======= ===== =====
Net Earnings Attributable to Class
B&C Stock $ 104 $ 77 $ 80
======= ===== =====
Net Earnings Attributable to Class D Stock $ 140 $ 33 $ 181
======= ===== =====
Net Earnings Per Common and Common
Equivalent Share:
Class B&C $ 7.78 $4.92 $4.63
======= ===== =====
Class D $ 6.45 $1.63 $9.08
======= ====== =====
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 30, 1995 and December 31, 1994
(dollars in millions, except per share data) 1995 1994
Assets
Current Assets:
Cash and cash equivalents $ 457 $ 400
Marketable securities 604 910
Receivables, less allowance of $12 and $9 329 414
Note receivable from sale of discontinued
operations - 29
Costs and earnings in excess of billings on
uncompleted contracts 78 126
Investment in construction joint ventures 73 69
Deferred income taxes 66 74
Other 59 81
---- ----
Total Current Assets 1,666 2,103
Property, Plant and Equipment, at cost:
Land 33 30
Buildings 98 206
Equipment 1,246 1,739
----- -----
1,377 1,975
Less accumulated depreciation and amortization (710) (731)
----- -----
Net Property, Plant and Equipment 667 1,244
Investments 538 313
Intangible Assets, net 515 749
Other Assets 77 83
------- -------
$ 3,463 $ 4,492
======= =======
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 30, 1995 and December 31, 1994
(dollars in millions, except per share data) 1995 1994
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 240 $ 344
Short-term borrowings 45 -
Current portion of long-term debt:
Telecommunications 36 26
Other 6 7
Accrued costs and billings in excess of
revenue on uncompleted contracts 121 143
Accrued insurance costs 79 75
Other 139 206
------ ------
Total Current Liabilities 666 801
Long-Term Debt, less current portion:
Telecommunications 264 827
Other 106 81
Deferred Income Taxes 236 302
Retirement Benefits 54 67
Accrued Reclamation Costs 100 103
Other Liabilities 216 127
Minority Interest 214 448
Stockholders' Equity:
Preferred stock, no par value, authorized
250,000 shares:
no shares outstanding in 1995 and 1994 - -
Common stock, $.0625 par value,
$1.5 billion aggregate redemption value:
Class B, authorized 8,000,000 shares: 263,468
outstanding in 1995 and 1,000,400
outstanding in 1994 - -
Class C, authorized 125,000,000 shares:
10,616,901 outstanding in 1995 and
15,087,028 outstanding in 1994 1 1
Class D, authorized 50,000,000 shares:
23,024,974 outstanding in 1995 and
20,391,568 outstanding in 1994 1 1
Additional paid-in capital 210 182
Foreign currency adjustment (6) (7)
Net unrealized holding gain (loss) 17 (8)
Retained earnings 1,384 1,567
----- -----
Total Stockholders' Equity 1,607 1,736
----- -----
$ 3,463 $ 4,492
======= =======
See accompanying notes to consolidated financial statements
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three years ended December 30, 1995
(dollars in millions) 1995 1994 1993
Cash flows from continuing operations:
Net Earnings $ 244 $ 110 $ 261
Adjustments to reconcile net
earnings to net cash provided by
continuing operations:
Depreciation, depletion and amortization 152 217 99
(Gain) loss on sale of property, plant
and equipment, and other investments (40) 5 23
Gain on subsidiary's stock transactions,
net (3) (54) (211)
Equity (earnings) loss 116 (10) (10)
Noncash interest expense - 40 -
Minority interest in subsidiaries 12 (50) (3)
Decline in market value of investments - - 21
Retirement benefits paid (2) (6) (17)
Deferred income taxes (147) (40) 57
Change in working capital items:
Receivables 3 (49) 9
Other current assets 19 (67) (48)
Payables - 42 47
Other liabilities 80 19 13
Other - 8 45
----- ----- -----
Net cash provided by continuing operations 434 165 286
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 605 1,876 4,927
Purchases of marketable securities (613) (1,718) (5,231)
Acquisitions, excluding cash acquired (231) (254) (146)
Proceeds from sale of cellular properties - 182 -
Proceeds from sale of property, plant and
equipment, and other investments 29 20 38
Capital expenditures (161) (513) (192)
Investments in affiliates (29) (34) (14)
Acquisition of minority interest - (6) (2)
Deferred development costs and other (38) (49) (35)
----- ----- -----
Net cash used in investing activities $ (438) $ (496) $ (655)
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three years ended December 30, 1995
(continued)
(dollars in millions) 1995 1994 1993
Cash flows from financing activities:
Long-term debt borrowings $ 52 $ 693 $ 21
Payments on long-term debt,
including current portion (52) (309) (8)
Net change in short-term borrowings 45 - (80)
Issuances of common stock 25 21 24
Issuances of subsidiaries' stock - 70 458
Repurchases of common stock (6) (31) (54)
Dividends paid (13) (13) (27)
----- ----- -----
Net cash provided by financing activities 51 431 334
Cash flows from discontinued packaging
operations:
Proceeds from sales of discontinued
packaging operations 29 5 110
Other cash provided by
discontinued packaging operations - - 20
----- ----- -----
Net cash provided by discontinued
packaging operations 29 5 130
Cash and cash equivalents of MFS
at beginning of year (22) - -
Effect of exchange rates on cash 3 (1) (2)
----- ----- ------
Net increase in cash and cash equivalents 57 104 93
Cash and cash equivalents at
beginning of year 400 296 203
----- ----- -----
Cash and cash equivalents at end of year $ 457 $ 400 $ 296
===== ===== ======
Supplemental disclosure of cash
flow information:
Taxes $ 201 $ 115 $ 83
Interest 35 41 7
Noncash investing and financing activities:
Dividend of investment in MFS $399 $ - $ -
Issuance of C-TEC redeemable preferred
stock for acquisition 39 - -
Disposition of gold operations in
exchange of Kinross common stock 21 - -
Issuance of MFS stock for acquisitions - 71 -
MFS stock transactions to settle contingent
purchase price adjustment - 25 -
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the three years ended December 30, 1995
Class Class Net
B & C D Additional Foreign Unrealized
Common Common Paid-in Currency Holding Retained
Stock Stock Capital Adjustment Gain (Loss) Earnings Total
(dollars in millions)
Balance at
December 26,
1992 $ 1 $ 1 $ 145 $ 3 $ - $ 1,308 $1,458
Issuances
of stock - - 24 - - - 24
Repurchases
of stock - - (5) - - (49) (54)
Foreign
currency
adjustment - - - (6) - - (6)
Net
unrealized
holding gain - - - - 9 - 9
Net earnings - - - - - 261 261
Dividends:(a)
Class B&C
($.70 per
common share) - - - - - (11) (11)
Class D ($.50
per common
share) - - - - - (10) (10)
----- ----- ---- ---- ---- ---- ----
Balance at
December 25,
1993 1 1 164 (3) 9 1,499 1,671
Issuances of
stock - - 21 - - - 21
Repurchases
of stock - - (3) - - (28) (31)
Foreign
currency
adjustment - - - (4) - - (4)
Net
unrealized
holding
(loss) - - - - (17) - (17)
Net
earnings - - - - - 110 110
Dividends:(b)
Class B&C
($.90 per
common
share) - - - - - (14) (14)
------ ----- ----- ---- ---- ----- -----
Balance at
December
31, 1994 $ 1 $ 1 $ 182 $ (7) $ (8) $ 1,567 $ 1,736
See accompanying notes to consolidated financial statements
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the three years ended December 30, 1995
(continued)
Class Class Net
B & C D Additional Foreign Unrealized
Common Common Paid-in Currency Holding Retained
Stock Stock Capital Adjustment Gain (Loss) Earnings Total
Balance at
December
31, 1994 $ 1 $ 1 $ 182 $ (7) $ (8) $ 1,567 $1,736
Issuances
of stock - - 29 - - - 29
Repurchases
of stock - - (1) - - (5) (6)
Foreign
currency
adjustment - - - 1 - - 1
Net
unrealized
holding gain - - - - 25 - 25
Net earnings - - - - - 244 244
Dividends: (c)
Class B&C
($1.05 per
common
share) - - - - - (12) (12)
Class D
($.50 per
common
share) - - - - - (11) (11)
MFS
Dividend - - - - - (399) (399)
Balance
at
December
30, 1995 $ 1 $ 1 $ 210 $ (6) $ 17 $1,384 $ 1,607
(a)Includes $.40 per share for dividends on Class B&C Stock
declared in 1993 but paid in January 1994.
(b)Includes $.45 per share for dividends on Class B&C Stock
declared in 1994 but paid in January 1995.
(c)Includes $.60 and $.50 per share for dividends on Class B&C
Stock and Class D Stock, respectively, declared in 1995 but
paid in January 1996.
See accompanying notes to consolidated financial statements.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts
of Peter Kiewit Sons', Inc. and subsidiaries in which it
owns more than 50% of the voting stock ("PKS" or "the
Company"), which are engaged in enterprises primarily
related to construction, mining and telecommunications.
Fifty-percent-owned mining joint ventures are consolidated
on a pro rata basis. Investments in other companies in
which the Company exercises significant influence over
operating and financial policies and construction joint
ventures are accounted for by the equity method. In
addition, the Company accounts for its investments in
international energy projects using the equity method. The
Company accounts for its share of the operations of the
construction joint ventures on a pro rata basis in the
consolidated statements of earnings. All significant
intercompany accounts and transactions have been
eliminated.
Construction Contracts
The Company operates generally within North America as a
general contractor and engages in various types of
construction projects for both public and private owners.
Credit risk is minimal with public (government) owners
since the Company ascertains that funds have been
appropriated by the governmental project owner prior to
commencing work on public projects. Most public contracts
are subject to termination at the election of the
government. In the event of termination, the Company is
entitled to receive the contract price on completed work
and reimbursement of termination related costs. Credit
risk with private owners is minimized because of statutory
mechanics liens, which give the Company high priority in
the event of lien foreclosures following financial
difficulties of private owners.
The construction industry is highly competitive and lacks
firms with dominant market power. A substantial portion of
the Company's business involves construction contracts
obtained through competitive bidding. The volume and
profitability of the Company's construction work depends to
a significant extent upon the general state of the
economies in which it operates and the volume of work
available to contractors. The Company's construction
operations could be adversely affected by labor stoppages
or shortages, adverse weather conditions, shortages of
supplies, or other governmental action.
The Company recognizes revenue on long-term construction
contracts and joint ventures on the
percentage-of-completion method based upon engineering
estimates of the work performed on individual contracts.
Provisions for losses are recognized on uncompleted
contracts when they become known. Claims for additional
revenue are recognized in the period when allowed. It is
at least reasonably possible that engineering estimates of
the work performed on individual contracts will be revised
in the near term.
Assets and liabilities arising from construction
activities, the operating cycle of which extends over
several years, are classified as current in the financial
statements. A one-year time period is used as the basis
for classification of all other current assets and
liabilities.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
Coal Sales Contracts
The Company's coal is sold primarily under long-term
contracts with electric utilities, which burn coal in order
to generate steam to produce electricity. A substantial
portion of the Company's coal sales were made under long-
term contracts during 1995, 1994 and 1993. The remainder
of the Company's sales are made on the spot market where
prices are substantially lower than those in the long-term
contracts. As the long-term contracts expire, a higher
proportion of the Company's sales will occur on the spot
market.
The coal industry is highly competitive. The Company
competes not only with other domestic and foreign coal
suppliers, some of whom are larger and have greater capital
resources than the Company, but also with alternative
methods of generating electricity and alternative energy
sources. Many of the Company's competitors are served by
two railroads and, due to the competition, often benefit
from lower transportation costs than the Company which is
served by a single railroad. Additionally, many
competitors have lower stripping ratios than the Company,
often resulting in lower comparative costs of production.
The Company is also required to comply with various
federal, state and local laws concerning protection of the
environment. The Company believes its compliance with
environmental protection and land restoration laws will not
affect its competitive position since its competitors are
similarly affected by such laws.
The Company and its mining ventures have entered into
various agreements with its customers which stipulate
delivery and payment terms for the sale of coal. Prior to
1993, one of the primary customers deferred receipt of
certain commitments by purchasing undivided fractional
interests in coal reserves of the Company and the mining
ventures. Under the arrangements, revenue was recognized
when cash was received. The agreements with this customer
were renegotiated in 1992. In accordance with the
renegotiated agreements, there were no sales of interests
in coal reserves subsequent to January 1, 1993. The Company
has the obligation to deliver the coal reserves to the
customer in the future if the customer exercises its
option. If the option is exercised, the Company presently
intends to deliver coal from unaffiliated mines and a mine
in which the Company has a 50% interest. In the opinion of
management, the Company has sufficient coal reserves to
cover the above sales commitments.
The Company's coal sales contracts are with several
electric utility and industrial companies. In the event
that these customers do not fulfill contractual
responsibilities, the Company would pursue the available
legal remedies.
Telecommunications Revenues
C-TEC Corporation's ("C-TEC"), most significant operating
groups are its local telephone service and cable system
operations. C-TEC's telephone network access revenues are
derived from net access charges, toll rates and settlement
arrangements for traffic that originates or terminates
within C-TEC's local telephone company. Revenues from
telephone services and basic and premium cable programming
services are recorded in the month the service is provided.
The telecommunications industry is subject to local, state
and federal regulation. Consequently, the ability of the
telephone and cable groups to generate increased volume and
profits is largely
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
dependent upon regulatory approval to expand customer
bases, increase prices and limit expenses.
Competition for the cable group's services traditionally
has come from broadcast television, video rentals and
direct broadcast satellite received on home dishes. Future
competition is expected from telephone companies.
Concentration of credit risk with respect to accounts
receivable are limited due to the dispersion of customer
base among geographic areas and remedies provided by terms
of contracts and statutes.
Depreciation and Amortization
Property, plant and equipment are recorded at cost.
Depreciation and amortization for the majority of the
Company's property, plant and equipment are computed on
accelerated and straight-line methods. Depletion of
mineral properties is provided primarily on an
units-of-extraction basis determined in relation to
estimated reserves.
In accordance with industry practice, certain telephone
plant owned by C-TEC valued at $233 million is depreciated
based on the estimated remaining lives of the various
classes of depreciable property and straight-line composite
rates. When property is retired, the original cost, plus
cost of removal, less salvage, is charged to accumulated
depreciation.
Intangible Assets
Intangible assets primarily include amounts allocated upon
purchase of existing operations, franchise and subscriber
lists and development costs. These assets are amortized on
a straight-line basis over the expected period of benefit,
which does not exceed 40 years.
The Company reviews the carrying amount of intangible
assets for impairment whenever events or changes in cir-
cumstances indicate that the carrying amount may not be
recoverable. Measurement of any impairment would include a
comparison of estimated future operating cash flows
anticipated to be generated during the remaining life of
the asset to the net carrying value of the asset.
Pension Plans
The Company maintains defined benefit plans primarily for
packaging employees who retired prior to the disposition of
the packaging operations. Benefits paid under the plans
are based on years of service for hourly employees and
years of service and rates of pay for salaried employees.
Substantially all of C-TEC's employees are included in a
trusteed noncontributory defined benefit plan. Upon
retirement, employees are provided a monthly pension based
on length of service and compensation.
The plans are funded in accordance with the requirements of
the Employee Retirement Income Security Act of 1974.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
Reserves for Reclamation
The Company follows the policy of providing an accrual for
reclamation of mined properties, based on the estimated
cost of restoration of such properties, in compliance with
laws governing strip mining. It is at least reasonably
possible that the estimated cost of restoration will be
revised in the near-term.
Foreign Currencies
The local currencies of foreign subsidiaries are the
functional currencies for financial reporting purposes.
Assets and liabilities are translated into U.S. dollars at
year-end exchange rates. Revenue and expenses are
translated using average exchange rates prevailing during
the year. Gains or losses resulting from currency
translation are recorded as adjustments to stockholders'
equity.
Subsidiary Stock Sales and Issuances
The Company recognizes gains and losses from the sales and
issuances of stock by its subsidiaries.
Earnings Per Share
Primary earnings per share of common stock have been
computed using the weighted average number of shares
outstanding during each year. 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 were as
follows:
1995 1994 1993
Class B & C 13,384,434 15,697,724 17,290,971
Class D 21,718,792 20,438,806 19,941,885
Income Taxes
Deferred income taxes are provided for the differences
between the financial reporting and tax basis of the
Company's assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected
to reverse.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
Reclassifications
Where appropriate, items within the consolidated financial
statements and notes thereto have been reclassified from
previous years to conform to current year presentation.
Fiscal Year
The Company's fiscal year ends on the last Saturday in
December. There were 52 weeks in fiscal years 1995 and
1993 and 53 weeks in the fiscal year 1994.
C-TEC has a calendar fiscal year.
(2) 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 subsequently distributed to the Class D
stockholders.
PKS completed an exchange offer prior to the Spin-off
whereby 4,000,000 shares of Class B Stock and Class C Stock
(Class B&C") were exchanged for 1,666,384 shares of Class
D Stock on terms similar to those under which Class B&C
Stock can be converted into Class D Stock during the annual
conversion period provided for in the Company's Certificate
of Incorporation. The conversion ratio used in the exchange
was calculated using final 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 investment in MFS distributed on September 30, 1995
was approximately $399 million.
The results of operations of MFS have been classified as a
single line item on the statements of earnings for the
three years ended December 30, 1995. MFS is consolidated
in the 1994 balance sheet and the 1994 and 1993 statements
of cash flows.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
Operating results of MFS through September 30, 1995 and for
fiscal years 1994 and 1993 are summarized as follows:
(dollars in millions) 1995 1994 1993
Revenue $ 412 $ 287 $ 141
Loss from operations (176) (136) (31)
Net loss (196) (151) (16)
PKS' share of loss in MFS (131) (102) (13)
Included in the income tax benefit on the consolidated
statement of earnings for the year ended December 30, 1995,
is $93 million of tax benefits from the reversal of certain
deferred tax liabilities, recognized on gains from previous
MFS stock transactions, that will not be taxed due to the
Spin-off.
(3) Acquisitions
During 1995, the Company and its subsidiaries acquired the
entities described below. The Company has accounted for
the transactions as purchases and consolidated the
operating results since the acquisition dates. Purchase
prices in excess of the fair market values of net assets
acquired have been recorded as goodwill, in intangible
assets.
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.
The preferred stock has a stated dividend rate of 5%,
beginning January 1, 1996. The fair value of the preferred
stock, as determined by an independent appraiser, is $39
million and is recorded in other liabilities. Goodwill of
$18 million is being amortized over 10 years.
Pursuant to a stock rights offering in August 1995, C-TEC
acquired majority voting control of Mercom, Inc. ("Mercom")
through the exercise of stock rights and over subscription
privileges. Immediately prior to the rights offering, C-
TEC owned 43% of the outstanding common stock of Mercom and
accounted for it under the equity method. For the
aggregate consideration of approximately $7 million, C-TEC
increased its ownership interest to 62% and accordingly
consolidated Mercom in its financial statements. C-TEC's
total investment exceeded the underlying equity of Mercom
by $11 million which is amortized over 15 years.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
The following unaudited pro forma information shows the
results of the Company as though the C-TEC acquisitions
occurred at the beginning of 1995 and 1994. These results
include certain adjustments, primarily increased
amortization, and do not necessarily indicate future
results, nor the results of historical operations had the
acquisitions actually occurred on the assumed dates.
(in millions, except per share data) 1995 1994
Revenue $ 2,920 $ 2,741
Net Earnings 239 102
Earnings Per Share of Class D Stock 6.23 1.26
(4) Gain on Subsidiary's Stock Transactions, net
In May 1993, MFS sold 12.7 million shares of common stock
to the public at an initial offering price of $20 per share
for $233 million, net of certain transaction costs. An
additional 4.6 million shares were sold to the public in
September 1993, at a price of $50 per share for $218
million, net of certain transaction costs. Substantially
all of the net proceeds from the offerings funded MFS'
growth.
In 1994, the Company settled a contingent purchase price
adjustment resulting from MFS' 1990 purchase of Chicago
Fiber Optic Corporation ("CFO"). The former shareholders
of CFO accepted MFS stock previously held by the Company,
valued at current market prices, as payment of the
obligation.
The above transactions, along with the stock issuances by
MFS for acquisitions and employee stock options, reduced
the Company's ownership in MFS to 71%, 67% and 66% at the
end of 1993, 1994 and at September 30, 1995. As a result,
the Company recognized gains of $211 million, $54 million
and $3 million in 1993, 1994 and 1995 representing the
increase in its proportionate share of MFS equity.
Deferred income taxes had been established on these gains
prior to the Spin-off.
(5) Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to
determine classification and fair values of financial
instruments:
Cash and Cash Equivalents
Cash equivalents generally consist of highly liquid
instruments purchased with an original maturity of three
months or less. The securities are stated at cost, which
approximates fair value.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
Marketable Securities and Non-current Investments
The Company has classified all marketable securities and
non-current investments not accounted for under the equity
method as available-for-sale. The amortized cost of the
securities used in computing unrealized and realized gains
and losses is determined by specific identification. Fair
values are estimated based on quoted market prices for the
securities on hand or for similar investments. Fair values
of certificates of deposit approximate cost. Net
unrealized holding gains and losses are reported as a
separate component of stockholders' equity, net of tax.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
The following summarizes the cost, unrealized holding gains
and losses, and estimated fair values of marketable
securities and non-current investments at December 30, 1995
and December 31, 1994.
Unrealized Unrealized
Amortized Holding Holding Fair
(dollars in millions) Cost Gains Losses Value
1995
Kiewit Mutual Fund:
Short-term government $ 121 $ 2 $ - $ 123
Intermediate term bond 90 5 - 95
Tax exempt 138 4 - 142
Equity 10 2 - 12
Equity securities 8 3 - 11
U.S. debt securities 58 - - 58
Federal agency securities 8 - - 8
Municipal debt securities 14 - - 14
Corporate debt securities 134 - - 134
Collateralized mortgage
obligations - 2 - 2
Certificates of deposit 5 - - 5
---- ---- ---- ----
$ 586 $ 18 $ - $ 604
===== ====== ===== =====
Non-current Investments:
Equity securities $ 68 $ 10 $ - $ 78
===== ===== ===== =====
1994
Kiewit Mutual Fund:
Short-term government $ 69 $ - $ 1 $ 68
Intermediate term bond 232 - 5 227
Tax exempt 39 - 1 38
Equity securities 4 - 1 3
U.S. Debt securities 322 - 3 319
Federal agency securities 77 - - 77
Municipal debt securities 15 - - 15
Corporate debt securities 145 - 2 143
Collateralized mortgage
obligations 12 1 3 10
Certificates of deposit 10 - - 10
----- ---- ---- ----
$ 925 $ 1 $ 16 $910
===== ===== ==== ====
Non-current Investments:
Equity securities $ 59 $ 5 $ 2 $ 62
===== ===== ==== ====
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
For debt securities, amortized costs do not vary
significantly from principal amounts. Realized gains and
losses on sales of marketable securities were $1
million and $3 million in 1995, $2 million and $18 million
in 1994 and $31 million and $64 million in 1993.
At December 30, 1995 the contractual maturities of the debt
securities are as follows:
(dollars in millions) Amortized Cost Fair Value
U.S. debt securities:
Less than 1 year $ 42 $ 42
1-5 years 16 16
-------- -------
$ 58 $ 58
======== ========
Federal agency securities:
Less than 1 year $ 8 $ 8
======== =======
Municipal debt securities:
1-5 years $ 11 $ 11
5-10 years - -
Over 10 years 3 3
------- -------
$ 14 $ 14
======== ========
Corporate debt securities:
Less than 1 year $ 33 $ 33
1-5 years 81 81
5-10 years 20 20
------- -------
$ 134 $ 134
======= =======
Certificates of deposit:
Less than 1 year $ 4 $ 4
1-5 years 1 1
------- -------
$ 5 $ 5
======= =======
Maturities for the mutual fund, equity securities and
collateralized mortgage obligations have not been presented as
they do not have a single maturity date.
Short-term Borrowings.
Short-term borrowings approximate fair value due to the
short period of time to maturity.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
Long-term Debt
The fair value of debt was estimated using the incremental
borrowing rates of the Company for debt of the same
remaining maturities. With the exception of C-TEC, the fair
value of debt approximates the carrying amount. C-TEC's Senior
Secured Notes and the Credit Agreement with National Bank
for Cooperatives have an aggregate fair value of $253
million.
(6) Retainage on Construction Contracts
Marketable securities at December 30, 1995 and December 31,
1994 include approximately $62 million and $61 million of
investments which are being held by the owners of various
construction projects in lieu of retainage.
Receivables at December 30, 1995 and December 31, 1994
include approximately $50 million and $48 million of
retainage on uncompleted projects, the majority of which is
expected to be collected within one year.
(7) Investment in Construction Joint Ventures
The Company has entered into a number of construction joint
venture arrangements. Under these arrangements, if one
venturer is financially unable to bear its share of the
costs, the other venturers will be required to pay those
costs.
Summary joint venture financial information follows:
Financial Position (dollars in millions) 1995 1994
Total Joint Ventures
Current assets $ 655 $ 563
Other assets (principally construction
equipment) 52 50
------- -------
707 613
Current liabilities (584) (503)
------- -------
Net assets $ 123 $ 110
======= ======
Company's Share
Equity in net assets $ 67 $ 67
Receivable from joint ventures 6 2
------- ------
Investment in construction joint ventures $ 73 $ 69
======= ======
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
Operations (dollars in millions) 1995 1994 1993
Total Joint Ventures
Revenue $ 1,211 $ 1,034 $ 906
Costs 1,108 937 841
------- ------- -----
Operating income $ 103 $ 97 $ 65
======= ======= =====
Company's Share
Revenue $ 691 $ 523 $ 430
Costs 622 473 372
------- ------ -----
Operating income $ 69 $ 50 $ 58
======= ====== =====
Management of the nonsponsored Denmark tunnel project
completed a cost estimate in 1993 which indicated a
favorable variance in the estimated costs of the project. As
a result of this cost estimate and negotiations with the
owner, the Company's management reduced reserves by $20
million which had been maintained to provide for the
Company's share of estimated losses on the project. Based on
1995 estimates, management believes that the resolution of
the uncertainties in completing the tunnel should not
materially affect the Company's financial position, future
results of operations or future cash flows.
(8) Investments
In February 1995, CalEnergy Company, Inc. ("CE"), formerly
named California Energy Company Inc., 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 CE 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 CE. At December 30, 1995, the
Company owns 21% of CE's outstanding common stock and has a
cumulative investment in CE common stock of $153 million,
$37 million in excess of the Company's proportionate share
of CE's equity. The excess investment is being amortized
over 20 years. Equity earnings, net of goodwill
amortization, were $10 million, $5 million and $7 million in
1995, 1994 and 1993. CE common stock is traded on the New
York Stock Exchange. On December 30, 1995, the market value
of the Company's investment in CE common stock was $211
million.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
In 1995, 1994 and 1993, the Company also recorded dividends
in kind of $1 million, $5 million and $5 million declared by
CE consisting of voting convertible preferred stock. The
stock dividends brought the Company's total investment in
convertible preferred stock to $65 million. In March 1995,
CE exchanged the preferred stock for 9.5% Convertible
Subordinated Debentures (the "Debentures") that pay interest
semi-annually. The Debentures mature in December 2003 and
are convertible into CE common stock at a conversion price
of $18.375 per share any time prior to maturity. CE may
prepay the Debentures if the share price of CE stock is at
least 150% of the conversion price for any 20 trading days
out of any 30 consecutive trading days.
On February 20, 1996 the Company exercised 1.5 million CE
options at a price of $9 per share. The transaction
increased the Company's ownership interest in CE to 24%. In
addition, the Company has 4.3 million options to purchase
additional CE stock at prices of $11.625 - $12 per share
The following is summarized financial information of
CalEnergy Company Inc.:
Financial Position (dollars in millions) 1995 1994
Current assets $ 418 $ 518
Other assets 2,236 613
-------- ------
Total assets 2,654 1,131
Current liabilities 564 309
Other liabilities 1,546 578
Redeemable preferred stock - 64
------ ----
Total liabilities 2,110 951
------ ----
Net assets $ 544 $ 180
======== =====
Operations (dollars in millions) 1995 1994 1993
Revenue $ 399 $ 186 $ 132
====== ===== =====
Net income available to common
stockholders $ 62 $ 32 $ 43
====== ===== =====
In 1995, a $3 million purchase increased the Company's
interest in an electrical contracting business to 49%. The
cumulative investment in common stock, accounted for on the
equity method, totals $26 million, $3 million in excess of
the Company's share of equity. The excess investment is
being amortized over 15 years. The contracting business is
not publicly traded and does not have a readily determinable
market value. The Company is committed to acquire 80%
ownership by 1997.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
In January 1995, C-TEC purchased, for $84 million in cash, a
40% equity position in Megacable, S.A. De C.V.
("Megacable"), Mexico's second largest cable television
operator with 174,000 subscribers in twelve cities. C-TEC
accounts for its investment using the equity method. The
excess cost over the underlying net assets of Megacable,
approximately $94 million, is being amortized on a straight
line basis over 15 years. C-TEC's share of Megacable's
earnings, net of goodwill amortization was a $3 million loss
in 1995.
Pursuant to a joint venture agreement with CE, the Company
is an equity investor in the Mahanagdong geothermal
power project and the Casecnan power/irrigation project in
the Philippines. Both projects are under construction. To
date the Company has invested $89 million in the Philippine
projects. The Company also expects to be an equity investor
with CE in additional geothermal projects in Indonesia. To
date investments in these projects total $9 million.
Investments also include equity securities classified as
non-current and carried at the fair value of $78 million.
(9) Intangible Assets
Intangible assets consist of the following at December 30, 1995
and December 31, 1994:
(dollars in million) 1995 1994
Goodwill $ 216 $ 483
Franchise and subscriber lists 224 145
Licenses and right-of-way - 15
Noncompete agreements 86 15
Deferred development costs 47 65
Toll road franchise costs 109 75
Other 4 19
---- -----
686 817
Less accumulated amortization (171) (68)
----- -----
$ 515 $ 749
===== =====
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(10) Short-Term Borrowings
The Company has established lines of credit with Union Bank
of Switzerland for $35 million, Bank of America for $50
million and Banque de Nationale de Paris for $30 million.
Under these agreements the Company had $45 million
outstanding at December 30, 1995 at a weighted average
interest rate of 5.78%.
(11) Long-Term Debt
At December 30, 1995 and December 31, 1994, long-term debt
was as follows:
(dollars in millions) 1995 1994
Telecommunications:
C-TEC Long-term Debt (with recourse only to C-TEC):
Credit Agreement - National Bank for Cooperatives
(7.51% due 2009) $ 119 $ 128
Senior Secured Notes -
( 9.65% due 1999)
(includes unamortized premium of $5 and $6 based on
imputed rate of 6.12%) 150 156
Term Credit Agreement - Morgan Guaranty Trust Company
(7% due 2002) 19 -
Promissory Note - Twin County Acquisition
(5% due 2003) 4 -
Revolving Credit Agreements and Other 8 4
MFS Long-term Debt (with recourse only to MFS):
9.375% Senior Discount Notes, Due 2004,
with semi-annual interest payments 1999-2004 - 549
Notes Payable, Due 1995, (Prime plus 1.5%) - 16
----- -----
300 853
Other PKS Long-term Debt:
9.5% to 11.1% Notes to former stockholders due 1996-2001 6 12
6.25% to 8.75% Convertible debentures due 2002-2005 8 8
Construction loans and other 98 68
---- ----
112 88
---- ----
412 941
Less current portion (42) (33)
---- -----
$ 370 $ 908
===== =====
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
In March 1994, C-TEC's telephone group entered into a $135
million Credit Agreement with the National Bank for
Cooperatives ("National"). The funds were used to prepay
outstanding borrowings with the United States of America.
Substantially all the assets of C-TEC's telephone group are
subject to liens under this Credit Agreement. In addition,
the telephone group is restricted from paying dividends in
excess of the prior year net income.
The Senior Secured notes are collateralized by pledges of
the stock of C-TEC's cable group. The notes contain
restrictive covenants which require, among other things,
specific debt to cash flow ratios.
Mercom, a consolidated subsidiary of C-TEC, has pledged the
common stock of its operating subsidiaries as collateral for
the Term Credit Agreement ("Agreement") with Morgan Guaranty
Trust Company ("Morgan"). In addition, a first lien on
certain material assets of Mercom and its subsidiaries has
been granted to Morgan. The Agreement contains a
restrictive covenant which requires Mercom to maintain a
specified debt to cash flow ratio.
In connection with the acquisition of Twin County Trans
Video, Inc., C-TEC Cable Systems, Inc., a wholly owned
subsidiary of C-TEC, issued a $4 million 5% promissory note.
The note is unsecured.
C-TEC's cable group has Revolving Credit agreements which
are collateralized by a pledge of the stock of the cable
group subsidiaries. At December 30, 1995 the borrowings
available under the agreement total $12 million. The
commitments are reduced on a quarterly basis through
maturity in September 1996. The cable group had borrowings
of $7 million (6.7% weighted average interest rate) as of
December 1995.
The convertible debentures are convertible during October of
the fifth year preceding their maturity date. Each annual
series may be redeemed in its entirety prior to the due date
except during the conversion period. Debentures were
converted into 59,935, 12,594 and 14,322 shares of Class C
common stock and 69,022, 12,594 and 14,322 shares of Class
D common stock in 1995, 1994 and 1993 . As part of the
exchange offer completed prior to the MFS Spin-off, all
holders of 1990 and 1991 debentures and 1993 D debentures
converted their debentures into Class C and Class D common
stock. At December 30, 1995, 360,453 shares of Class C
common stock are reserved for future conversions.
Other PKS debt consists primarily of construction financing
of a privately owned toll road which will be converted to
term debt upon completion of the project. Variable interest
rates on this debt ranged from 7% to 10% at December 30,
1995. The Company capitalized $7 million of interest in
1995.
Scheduled maturities of long-term debt through 2000 are as
follows (in millions): 1996 - $42; 1997 - $57; 1998 - $63;
1999 - $64 and $17 in 2000.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(12) Income Taxes
An analysis of the income tax benefit (provision) before
minority interest for the three years ended December 30,
1995 follows:
(dollars in millions) 1995 1994 1993
Current:
U.S. federal $ (127) $ (54) $ (52)
Foreign - (10) (2)
State (9) (5) (7)
------ ----- ------
(136) (69) (61)
Deferred:
U.S. federal 146 27 (59)
Foreign (4) 5 1
State 5 8 1
------- ----- -----
147 40 (57)
------- ----- -----
$ 11 $ (29) $ (118)
====== ====== ======
The United States and foreign components of earnings, for
tax reporting purposes, before equity loss in MFS (recorded
net of tax), minority interest and income taxes follow:
(dollars in millions) 1995 1994 1993
United States $ 370 $ 224 $ 385
Foreign 6 16 7
------ ------ -----
$ 376 $ 240 $ 392
====== ======= =====
A reconciliation of the actual income tax benefit
(provision) and the tax computed by applying the U.S.
federal rate (35%) to the earnings before equity loss in MFS
(recorded net of tax), minority interest and income taxes
for the three years ended December 30, 1995 follows:
(dollars in millions) 1995 1994 1993
Computed tax at statutory rate $ (132) $ (84) $ (137)
State income taxes (8) (3) (4)
Depletion 3 4 4
Dividend exclusion - 3 4
Tax exempt interest 3 4 -
Prior year tax adjustments 56 54 13
MFS deferred tax 93 - -
Goodwill amortization (4) (2) 1
Other - (5) 1
------- ------- ------
$ 11 $ (29) $ (118)
======= ======= =======
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
The Company files a consolidated federal income tax return
including its domestic subsidiaries as allowed by the
Internal Revenue Code. Possible taxes, beyond those provided
on remittances of undistributed earnings of foreign
subsidiaries, are not expected to be material.
The components of the net deferred tax liabilities for the
years ended December 30, 1995 and December 31, 1994
were as follows:
(dollars in millions) 1995 1994
Deferred tax liabilities:
Investments in securities $ 15 $ (5)
Investments in joint ventures 8 69
Investments in subsidiaries 10 99
Asset bases - accumulated depreciation 194 200
Deferred coal sales 39 11
Other 26 32
------- -------
Total deferred tax liabilities 292 406
Deferred tax assets:
Construction accounts 3 12
Insurance claims 37 39
Compensation - retirement benefits 28 21
Provision for estimated expenses 24 10
Net operating losses of subsidiaries 5 84
Alternative minimum tax credits of
subsidiary 5 13
Other 26 51
Valuation allowance (6) (52)
------- --------
Total deferred tax assets 122 178
------- --------
Net deferred tax liabilities $ 170 $ 228
======= ========
(13) Employee Benefit Plans
The Company makes contributions, based on collective
bargaining agreements related to its construction
operations, to several multi-employer union pension plans.
These contributions are included in the cost of revenue.
Under federal law, the Company may be liable for a portion
of plan deficiencies; however, there are no known
deficiencies.
The Company's defined benefit pension plans cover primarily
packaging employees who retired prior to the disposition of
the packaging operations. The expense related to these
plans was approximately $7 million, $1 million and $7
million in 1995, 1994 and 1993.
C-TEC maintains a separate defined benefit plan for
substantially all of its employees. The prepaid pension
cost and expense related to this plan is not significant at
December 30, 1995 and December 31, 1994, and for the three
years ended December 30, 1995.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
The Company also had a long-term incentive plan, consisting
of stock appreciation rights, for certain employees. This
plan concluded in 1994. The expense related to this plan
was $2 million and $3 million in 1994 and 1993.
Substantially all employees of the Company, with the
exception of C-TEC employees, are covered under the
Company's profit sharing plans. The expense related to these
plans was $3 million, $2 million and $2 million in 1995,
1994 and 1993.
(14) Postretirement Benefits
In addition to providing pension and other supplemental
benefits, the Company provides certain health care and life
insurance benefits primarily for packaging employees who
retired prior to the disposition of certain packaging
operations and C-TEC employees who retired prior to 1993.
Employees become eligible for these benefits if they meet
minimum age and service requirements or if they agree to
contribute a portion of the cost. These benefits have not
been funded.
In March 1995, the Company settled its liability with
respect to certain postretirement life insurance benefits.
The Company purchased insurance coverage from a third party
insurance company for approximately $14 million to be paid
over seven years. The settlement did not have a material
impact on the Company's financial position, results of
operations or cash flows.
The net periodic costs for health care benefits were less
than $1 million in 1995, $1 million in 1994 and $4 million
in 1993. In all years, the costs related primarily to
interest on accumulated benefits.
The accrued postretirement benefit liability as of December
30, 1995 was as follows:
Health
(dollars in millions) Insurance
Retirees $ 31
Fully eligible active plan participants -
Other active plan participants -
------
Total accumulated postretirement
benefit obligation 31
Unrecognized prior service cost 19
Unrecognized net loss (7)
------
Accrued postretirement benefit liability $ 43
======
The unrecognized prior service cost resulted from certain
modifications to the postretirement benefit plan for
packaging employees which reduced the accumulated
postretirement benefit obligation. The Company may make
additional modifications in the future.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
A 7.7% increase in the cost of covered health care benefits
was assumed for fiscal 1995. This rate is assumed to
gradually decline to 6.2% in the year 2020 and remain at
that level thereafter. A 1% increase in the health care
trend rate would increase the accumulated postretirement
benefit obligation ("APBO") by less than $1 million at
year-end 1995. The weighted average discount rate used in
determining the APBO was 6.75%.
(15) Stockholders' Equity
Class B and Class C shares can be issued only to Company
employees and can be resold only to the Company at a formula
price based on the book value of the Construction & Mining
Group. The Company is generally required to repurchase
Class B and Class C shares for cash upon stockholder demand.
Class D shares have a formula price based on the book value
of the Diversified Group. The Company must generally
repurchase Class D shares for cash upon stockholder demand
at the formula price, unless the Class D shares become
publicly traded. Although almost all the Class D shares are
owned by employees and former employees, such shares are not
subject to ownership or transfer restrictions.
For the three years ended December 30, 1995, issuances
and repurchases of common shares, including conversions,
were as follows:
Class B Class C Class D
Common Common Common
Stock Stock Stock
Shares issued in 1993 - 1,027,657 748,026
Shares repurchased in 1993 76,600 2,217,122 841,808
Shares issued in 1994 - 1,018,144 777,556
Shares repurchased in 1994 180,000 2,247,186 396,684
Shares issued in 1995 - 1,021,875 2,675,553
Shares repurchased in 1995 736,932 5,492,002 42,147
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(16) Industry and Geographic Data
The Company operates primarily in three reportable
segments: construction, mining and telecommunications.
MFS' results have been classified as a single line item on
the statements of earnings and consolidated on the balance
sheet in 1994 and 1993.
A summary of the Company's operations by geographic area
and industry follows:
Geographic Data (dollars in millions) 1995 1994 1993
Revenue:
United States $ 2,535 $ 2,425 $ 1,823
Canada 281 233 175
Other 86 46 52
------- ------- -------
$ 2,902 $ 2,704 $ 2,050
======= ======= =======
Operating earnings:
United States $ 145 $ 151 $ 129
Canada 7 14 3
Other 10 - 22
------- ------- -------
$ 162 $ 165 $ 154
======= ======= =======
Identifiable assets:
United States $ 2,521 $ 3,832 $ 2,901
Canada 90 102 82
Other 116 27 29
Corporate (1) 736 531 622
------- ------- -------
$ 3,463 $ 4,492 $ 3,634
======= ======= =======
(1) Principally cash, cash equivalents, marketable
securities, notes receivable from sales of discontinued
operations and investments in all years.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
Industry Data (dollars in millions) 1995 1994 1993
Revenue:
Construction $ 2,297 $ 2,143 $ 1,757
Mining 247 246 230
Telecommunications 325 291 48
Other 33 24 15
------- ------- -------
$ 2,902 $ 2,704 $ 2,050
======= ======= =======
Operating earnings:
Construction $ 81 $ 55 $ 85
Mining 107 106 98
Telecommunications 37 27 6
Other (63) (23) (35)
------- ------- -------
$ 162 $ 165 $ 154
======= ======= =======
Identifiable assets:
Construction $ 910 $ 896 $ 816
Mining 415 396 440
Telecommunications 1,141 2,551 1,682
Other 261 118 74
Corporate (1) 736 531 622
------- ------ ------
$ 3,463 $ 4,492 $ 3,634
======= ======= =======
Capital expenditures:
Construction $ 79 $ 61 $ 48
Mining 4 3 5
Telecommunications 72 426 127
Other 6 12 5
Corporate - 11 7
------- ------ -------
$ 161 $ 513 $ 192
======= ======= =======
Depreciation, depletion and amortization:
Construction $ 56 $ 49 $ 43
Mining 7 11 13
Telecommunications 81 149 35
Other 5 6 6
Corporate 3 2 2
------- ------- ------
$ 152 $ 217 $ 99
======= ======= =======
(1) Principally cash, cash equivalents, marketable
securities, notes receivable from sales of discontinued
operations and investments in all years.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(17) Summarized Financial Information
Holders of Class B&C Stock (Construction & Mining Group) and
Class D Stock (Diversified Group) are stockholders of PKS.
The Construction & Mining Group contains the Company's
traditional construction and materials operations performed
by Kiewit Construction Group Inc. and certain mining
services performed by Kiewit Mining Group Inc. The
Diversified Group contains coal mining properties owned by
Kiewit Coal Properties Inc., communications companies owned
by C-TEC, a minority interest in CE and miscellaneous
investments. Corporate assets and liabilities which are not
separately identified with the ongoing operations of the
Construction & Mining Group or the Diversified Group are
allocated equally between the groups.
A summary of the results of operations and financial
position for the Construction & Mining Group and the
Diversified Group follows. These summaries were derived
from the audited financial statements of the respective
groups which are exhibits to this Annual Report.
All significant intercompany accounts and transactions,
except those directly between the Construction & Mining
Group and the Diversified Group, have been eliminated.
(dollars in millions except per share) 1995 1994 1993
Construction & Mining Group:
Results of Operations:
Revenue $ 2,330 $ 2,175 $ 1,783
======= ======= =======
Net Earnings $ 104 $ 77 $ 80
======= ======= =======
Earnings Per Share $ 7.78 $ 4.92 $ 4.63
======= ======= =======
Working capital $ 248 $ 333 $ 372
Total assets 987 963 889
Long-term debt,less current portion 9 9 10
Stockholders' equity 467 505 480
Included within the results of operations is mine management
income from the Diversified Group of $19 million, after-tax, in 1995,
1994 and 1993.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
(dollars in millions except share data) 1995 1994 1993
Diversified Group:
Results of Operations:
Revenue $ 580 $ 537 $ 267
====== ===== =====
Net Earnings $ 140 $ 33 $ 181
====== ===== =====
Earnings per Share $ 6.45 $1.63 $9.08
====== ===== =====
Financial Position:
Working capital $ 752 $ 969 $ 993
Total assets 2,490 3,537 2,759
Long-term debt, less current portion 361 899 452
Stockholders' equity 1,140 1,231 1,191
Included within results of operations is mine management fees paid
to the Construction & Mining Group of $19 million, after-tax, in 1995,
1994 and 1993.
(18) Other Matters
In June 1995, the Company exchanged its interest in a wholly-
owned subsidiary involved in gold mining activities for
4,000,000 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. This gain is included in other income
in the consolidated statements of earnings.
In May 1995, the lawsuit titled Whitney Benefits, Inc. and
Peter Kiewit Sons' Co. v. The United States was settled.
In 1983, plaintiffs alleged that the enactment of the
Surface Mining Control and Reclamation Act of 1977 had
prevented the mining of their Wyoming coal deposits and
constituted a government taking without just compensation.
In settlement of all claims, plaintiffs agreed to deed the
coal deposits to the government and the government agreed to
pay plaintiffs $200 million, of which Peter Kiewit Sons'
Co., a KDG subsidiary, received approximately $135 million
in June 1995 and recorded it in other income on the
consolidated statement of earnings.
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 be held in 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.
PETER KIEWIT SONS', INC.
Notes to Consolidated Financial Statements
The Company is involved in various other lawsuits, claims
and regulatory proceedings incidental to its business.
Management believes that any resulting liability, beyond
that provided, should not materially affect the Company's
financial position, future results of operations or future
cash flows.
In many pending proceedings, the Company is one of numerous
defendants who may be "potentially responsible parties"
liable for the cleanup of hazardous substances deposited in
landfills or other sites. The Company has established
reserves to cover its probable liabilities for environmental
cases and believes that any additional liabilities will not
materially affect the Company's financial condition, future
results of operations or future cash flows.
It is customary in the Company's industries to use various
financial instruments in the normal course of business.
These instruments include items such as letters of credit.
Letters of credit are conditional commitments issued on
behalf of the Company in accordance with specified terms and
conditions. As of December 30, 1995, the Company had
outstanding letters of credit of approximately $140
million.
A subsidiary of the Company, Continental Holdings Inc.,
remains contingently liable as a guarantor of $53 million of
debt relating to various businesses which have been sold.
The Company leases various buildings and equipment under
both operating and capital leases. Minimum rental payments
on buildings and equipment subject to noncancelable
operating leases during the next 29 years aggregate $88
million.
In November 1995, C-TEC announced that it had engaged an
investment banker to assist with evaluating strategic
alternatives for its various business units with a view
toward enhancing shareholder value. C-TEC is now planning
to distribute to its shareholders in a tax-free spin-off the
Telephone Group, the Communications Services Group, and
certain other assets. Following the spin-off, C-TEC plans
to combine its remaining businesses, which will consist of
its domestic Cable Group, with a third party pursuant to a
tax-free, stock-for-stock transaction. C-TEC has received
a number of inquiries regarding its domestic Cable Group
and is holding discussions with interest parties.
(19) Subsequent Events
In March 1996, RCN Corporation ("RCN") a subsidiary of KDG,
entered into an asset purchase agreement, along with other
ancillary agreements, with Liberty Cable Company, Inc.
("Liberty") to purchase an 80 percent interest in certain
private cable systems in New York City and selected areas of
New Jersey. The transaction closed on March 6, 1996. The
cable systems provide subscription television services using
microwave frequencies. RCN deposited $27 million in an
escrow account which was released on the closing date.
In addition, RCN issued a $15 million promissory note
that is expected to be paid during 1996.
In March, under the terms of an agreement, RCN will pay C-TEC
approximately $123 million for certain of C-TEC's assets, including
Long Distance Group, C-TEC International, which holds the 40%
interest in Megacable, S.A. de C.V., and Residential Communications
Network, a start-up joint effort with RCN which plans to provide
telecommunications services to the residential market. RCN will
purchase Residential Communications Network for cash in a
transaction expected to close in April 1996. RCN's purchase of
the other business for cash or C-TEC stock, at RCN's option, is
expected to close in the second half of 1996. The transactions
are subject to certain conditions including the receipt of all
necessary regulatory approvals. The agreement with RCN contains
a repurchase option under which C-TEC can reacquire the businesses
if a restructuring of C-TEC's main businesses does not occur.
Additionally, C-TEC retains a warrant to reacquire a six percent
stake in Residential Communications Network. The agreement with
RCN was approved by a special committee of the board of directors
of C-TEC, composed of directors unaffiliated with either RCN or
the Company.
SCHEDULE II
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Additions Amounts
Balance, Charged to Charged Balance
Beginning Costs and to End of
(dollars in millions) of Period Expenses Reserves Other Period
Year ended December 30, 1995
Allowance for doubtful
trade accounts $ 9 $ 5 $ (2) $ - $ 12
Reserves:
Insurance claims 75 18 (14) - 79
Retirement benefits 67 3 (2) (14) (a) 54
Year ended December 31, 1994
Allowance for doubtful
trade accounts $ 7 $ 5 $ (3) $ - $ 9
Reserves:
Insurance claims 67 19 (11) - 75
Retirement benefits 71 2 (6) - 67
Year ended December 25, 1993
Allowance for doubtful
trade accounts $ 7 $ 5 $ (6) $ 1 $ 7
Reserves:
Insurance claims 66 14 (13) - 67
Retirement benefits 74 12 (17) 2 71
(a) The Company settled its liability with respect to certain
postretirement life insurance benefits by purchasing insurance
coverage from a third party insurance company.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-K for the period ending December 30, 1995 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> DEC-30-1995
<CASH> 457
<SECURITIES> 604
<RECEIVABLES> 341
<ALLOWANCES> 12
<INVENTORY> 18
<CURRENT-ASSETS> 1,666
<PP&E> 1,377
<DEPRECIATION> 710
<TOTAL-ASSETS> 3,463
<CURRENT-LIABILITIES> 666
<BONDS> 370
<COMMON> 2
0
0
<OTHER-SE> 1,605
<TOTAL-LIABILITY-AND-EQUITY> 3,463
<SALES> 2,547
<TOTAL-REVENUES> 2,902
<CGS> 2,230
<TOTAL-COSTS> 2,474
<OTHER-EXPENSES> 266
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> 245
<INCOME-TAX> (11)
<INCOME-CONTINUING> 244
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 244
<EPS-PRIMARY> $7.78<F1>
<EPS-DILUTED> $7.78<F1>
<FN>
<F1>$7.78 represents Class C Stock earnings per share, Class D Stock earnings per
share $6.45.
</FN>
</TABLE>
EXHIBIT 99.A
KIEWIT CONSTRUCTION & MINING GROUP
Index to Financial Statements
and Financial Statement Schedule and
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Report of Independent Accountants
Financial Statements as of December 30, 1995 and
December 31,1994 and for the three years ended
December 30, 1995:
Statements of Earnings
Balance Sheets
Statements of Cash Flows
Statements of Changes in Stockholders' Equity
Notes to Financial Statements
Financial Statement Schedule for the three years
ended December 30, 1995:
II--Valuation and Qualifying Accounts and Reserves
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Schedules not indicated above have been omitted because of the
absence of the conditions under which they are required or because
the information called for is shown in the financial
statements or in the notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Peter Kiewit Sons', Inc.
We have audited the financial statements and the financial
statement schedule of Kiewit Construction & Mining Group, a
business group of Peter Kiewit Sons', Inc. (as defined in Note 1
to these financial statements) as listed in the index on the
preceding page of this exhibit to Form 10-K. These financial
statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, when
read in conjunction with the consolidated financial statements of
Peter Kiewit Sons', Inc. and Subsidiaries, present fairly, in all
material respects, the financial position of Kiewit Construction
& Mining Group as of December 30, 1995 and December 31, 1994, and
the results of its operations and its cash flows for each of the
three years in the period ended December 30, 1995 in conformity
with generally accepted accounting principles. In addition, in
our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
March 19, 1996
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Earnings
For the three years ended December 30, 1995
(dollars in millions, except per share data) 1995 1994 1993
Revenue $ 2,330 $ 2,175 $ 1,783
Cost of Revenue (2,127) (1,995) (1,588)
-------- -------- --------
203 180 195
General and Administrative Expenses (116) (121) (113)
-------- ------- -------
Operating Earnings 87 59 82
Other Income (Expense):
Investment Income (Loss) 17 13 (1)
Interest Expense (2) (2) (3)
Other, net 62 46 40
-------- ------- -------
77 57 36
-------- ------- -------
Earnings Before Income Taxes 164 116 118
Provision for Income Taxes (60) (39) (38)
-------- ------- -------
Net Earnings $ 104 $ 77 $ 80
======== ======= =======
Net Earnings Per Common and Common
Equivalent Share $ 7.78 $ 4.92 $ 4.63
======== ======= =======
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Balance Sheets
December 30, 1995 and December 31, 1994
(dollars in millions) 1995 1994
Assets
Current Assets:
Cash and cash equivalents $ 94 $ 70
Marketable securities 120 156
Receivables, less allowance of $10 and $7 258 260
Costs and earnings in excess of billings on
uncompleted construction contracts 78 101
Investment in construction joint ventures 73 69
Deferred income taxes 61 59
Other 23 23
------- -------
Total Current Assets 707 738
Property, Plant and Equipment, at cost:
Land 16 15
Buildings 38 36
Equipment 528 484
------- ------
582 535
Less accumulated depreciation and
amortization (421) (395)
------- ------
Net Property, Plant and Equipment 161 140
Other Assets 119 85
------- ------
$ 987 $ 963
======= ======
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Balance Sheets
December 30, 1995 and December 31, 1994
(dollars in millions) 1995 1994
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, including retainage
of $42 and $41 $ 179 $ 179
Short-Term borrowings 45 -
Current portion of long-term debt 2 3
Accrued construction costs and billings
in excess of revenue on uncompleted contracts 111 106
Accrued insurance costs 79 73
Other 43 44
------ -----
Total Current Liabilities 459 405
Long-Term Debt, less current portion 9 9
Other Liabilities 52 44
Stockholders' Equity (Redeemable Common Stock,
$359 million aggregate redemption value)
Common equity 471 513
Foreign currency adjustment (5) (7)
Unrealized holding gain (loss) 1 (1)
----- -----
Total Stockholders' Equity 467 505
----- -----
$ 987 $ 963
===== =====
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Cash Flows
For the three years ended December 30, 1995
(dollars in millions) 1995 1994 1993
Cash flows from operations:
Net earnings $ 104 $ 77 $ 80
Adjustments to reconcile net
earnings to net cash provided
by operations:
Depreciation and amortization 56 52 48
(Gain) loss on sale of property,
plant and equipment and other
investments (33) (11) 15
Change in other noncurrent
liabilities 6 5 7
Deferred income taxes - (3) 4
Change in working capital items:
Receivables 1 (21) 5
Costs and earnings in excess of
billings on uncompleted
construction contracts 23 (26) (22)
Investment in construction
joint ventures (4) 12 (33)
Other current assets (3) (5) 7
Accounts payable 3 19 (9)
Accrued construction costs
and billings in excess of
revenue on uncompleted contracts 5 19 (8)
Other liabilities 4 (3) 3
Other (9) (19) (10)
----- ------ -----
Net cash provided by operations 153 96 87
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 197 266 773
Purchases of marketable securities (158) (245) (741)
Proceeds from sale of property,
plant and equipment 15 26 14
Capital expenditures (79) (76) (54)
APAC-Arizona, Inc. acquisition - (47) -
Investment in affiliates (2) (1) (9)
Other - - (3)
----- ----- -----
Net cash used in investing
activities $ (27) $ (77) $ (20)
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Cash Flows
For the three years ended December 30, 1995
(continued)
(dollars in millions) 1995 1994 1993
Cash flows from financing activities:
Long-term debt borrowings $ 3 $ 2 $ 2
Short-term debt borrowings 45 - -
Payments on long-term debt,
including current portion (4) (4) (2)
Issuances of common stock 24 20 16
Repurchases of common stock (3) (11) (14)
Dividends paid (13) (13) (10)
Exchange of Class B&C Stock for
Class D Stock, net (155) (42) (26)
Other - 1 -
----- ----- -----
Net cash used in financing activities (103) (47) (34)
Effect of exchange rates on cash 1 (1) (2)
----- ----- -----
Net increase (decrease) in cash and
cash equivalents 24 (29) 31
Cash and cash equivalents at
beginning of year 70 99 68
----- ----- -----
Cash and cash equivalents at
end of year $ 94 $ 70 $ 99
===== ===== =====
Supplemental disclosures of cash
flow information:
Taxes $ 69 $ 49 $ 54
Interest 2 2 3
Noncash investing activity:
Disposition of gold operations
in exchange for Kinross
common stock, net $ 21 $ - $ -
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Changes in Stockholders' Equity
For the three years ended December 30, 1995
(dollars in millions, except per share data) 1995 1994 1993
Common equity:
Balance at beginning of year $ 513 $ 483 $ 438
Issuances of stock 24 20 16
Repurchases of stock (3) (11) (14)
Exchange of Class B&C Stock for
Class D Stock, net (155) (42) (26)
Net earnings 104 77 80
Dividends (per share: $ 1.05 in 1995, $.90 in
1994, and $.70 in 1993) (a) (12) (14) (11)
------ ----- -----
Balance at end of year $ 471 $ 513 $ 483
Other equity adjustments:
Balance at beginning of year $ (8) $ (3) $ (1)
Foreign currency adjustment 2 (4) (2)
Unrealized holding gain (loss) 2 (1) -
------ ------ ------
Balance at end of year $ (4) $ (8) $ (3)
------ ------ ------
Total stockholders' equity $ 467 $ 505 $ 480
====== ====== ======
(a) Dividends include $.60, $.45, and $.40 for dividends
declared in 1995, 1994 and 1993 but paid in January of the
subsequent year.
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(1) Basis of Presentation
The Class B&C Stock and the Class D Stock are designed to
provide stockholders with separate securities reflecting the
performance of Peter Kiewit Sons', Inc.'s ("PKS")
construction business and certain mining services
("Construction & Mining Group") and its other businesses
("Diversified Group"), respectively. Dividends on the Class
B&C Stock are limited to the legally available funds of PKS
less the Class D formula value which is to be reduced by any
dividends on Class D Stock declared during the current year.
Subject to this limitation, the Board of Directors intends to
declare and pay dividends on the Class B&C Stock based
primarily on the Construction & Mining Group's separately
reported financial condition and results of operations.
The financial statements of the Construction & Mining Group
include the financial position, results of operations and
cash flows for PKS' construction business and certain mining
service businesses held by its wholly-owned subsidiary, Kiewit
Construction Group Inc., and a portion of the PKS corporate
assets and liabilities and related transactions which are not
separately identified with the ongoing operations of the
Construction & Mining Group or the Diversified Group. These
financial statements have been prepared using the historical
amounts included in the PKS consolidated financial
statements.
Although the financial statements of PKS' Construction &
Mining Group and Diversified Group separately report the
assets, liabilities and stockholders' equity of PKS
attributed to each such group, legal title to such assets and
responsibility for such liabilities will not be affected by
such attribution. Holders of Class B&C Stock and Class D
Stock are stockholders of PKS. Accordingly, the PKS
consolidated financial statements and related notes should be
read in conjunction with these financial statements.
(2) Summary of Significant Accounting Policies
Principles of Group Presentation
These financial statements include the accounts of the
Construction & Mining Group ("the Group"). The Group's and
Diversified Group's financial statements, taken together,
comprise all the accounts included in the PKS consolidated
financial statements. All significant intercompany accounts
and transactions, except those directly between the Group and
the Diversified Group, have been eliminated. Investments in
construction joint ventures and other companies in which the
Group exercises significant influence over operating and
financial policies are accounted for by the equity method.
The Group accounts for its share of the operations of the
construction joint ventures on a pro rata basis in the
statements of earnings.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
Construction Contracts
The Group operates generally within the United States and
Canada as a general contractor and engages in various types
of construction projects for both public and private owners.
Credit risk is minimal with public (government) owners
since the Group ascertains that funds have been
appropriated by the governmental project owner prior to
commencing work on public projects. Most public contracts
are subject to termination at the election of the government.
In the event of termination, the Group is entitled to receive
the contract price on completed work and reimbursement of
termination related costs. Credit risk with private owners is
minimized because of statutory mechanics liens, which give
the Group high priority in the event of lien foreclosures
following financial difficulties of private owners.
The construction industry is highly competitive and lacks
firms with dominant market power. A substantial portion of
the Group's business involves construction contracts obtained
through competitive bidding. The volume and profitability of
the Group's construction work depends to a significant extent
upon the general state of the economies in which it operates
and the volume of work available to contractors. The Group's
construction operations could be adversely affected by labor
stoppages or shortages, adverse weather conditions, shortages
of supplies, or other governmental action.
The Group recognizes revenue on long-term construction
contracts and joint ventures on the percentage-of-completion
method based upon engineering estimates of the work performed
on individual contracts. Provisions for losses are recognized
on uncompleted contracts when they become known. Claims for
additional revenue are recognized in the period when allowed.
It is at least reasonably possible that engineering estimates
of the work performed on individual contracts will be revised
in the near term.
Assets and liabilities arising from construction activities,
the operating cycle of which extends over several years, are
classified as current in the financial statements. A
one-year time period is used as the basis for classification
of all other current assets and liabilities.
Depreciation and Amortization
Property, plant and equipment are recorded at cost.
Depreciation and amortization are computed on accelerated and
straight-line methods.
Foreign Currencies
The local currencies of foreign subsidiaries are the
functional currencies for financial reporting purposes.
Assets and liabilities are translated into U.S. dollars at
year-end exchange rates. Revenue and expenses are translated
using average exchange rates prevailing during the year.
Gains or losses resulting from currency translation are
recorded as adjustments to stockholders' equity.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
Earnings Per Share
Primary earnings per share of Class B&C Stock have been
computed using the weighted average number of shares
outstanding during each year. The number of shares used in
computing primary earnings per share was 13,384,434 in 1995,
15,697,724 in 1994 and 17,290,971 in 1993. Fully diluted
earnings per share have not been presented because it is not
significantly different from primary earnings per share.
Income Taxes
Deferred income taxes are provided for the differences
between the financial reporting basis and tax basis of the
Group's assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
reverse.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
Reclassifications
Where appropriate, items within the financial statements and
notes thereto have been reclassified from previous years to
conform to current year presentation.
Fiscal Year
The Group's fiscal year ends on the last Saturday in
December. There were 52 weeks in fiscal years 1995 and 1993
and 53 weeks in the fiscal 1994.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(3) Corporate Activities
Financial Structure
Cash, cash equivalents and marketable securities were
allocated to the Group and the Diversified Group based on the
desired capital structure of the two groups at December 28,
1991. Financial statement impacts of dividends paid to
holders of Class B&C Stock and repurchases and issuances of
Class B&C Stock in 1995, 1994 and 1993 were reflected in
their entirety in the Group's financial statements.
PKS, in addition to specifically attributable items, has corporate
assets, liabilities and related income and expense which are not
separately identified with the ongoing operations of the Group
or the Diversified Group. The items attributable to the Group and
the Group's 50% portion of PKS is as follows:
(dollars in millions) 1995 1994
Cash and cash equivalents $ 4 $ 7
Marketable securities 10 15
Accounts receivable 1 61
Property, plant and equipment, net 5 5
Other assets 3 8
------- -------
Total Assets $ 23 $ 96
======= =======
Accounts payable $ 10 $ 39
Long term debt including current portion 11 12
Other liabilities - 2
------- -------
Total Liabilities $ 21 $ 53
======= =======
1995 1994 1993
Net investment income (expense) $ - $ 6 $ 4
Other income (expense) - (1) 1
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
Corporate General and Administrative Costs
A portion of corporate general and administrative costs has
been allocated to the Group based upon certain measures of
business activities, such as employment, investments and
sales, which method management believes to be reasonable.
The allocations were $1 million, $21 million, and $26 million
in 1995, 1994 and 1993. Due to a realignment of the
corporate overhead departments, substantially all of the
administrative functions and personnel previously allocated
to the Group are now located at the Group.
Income Taxes
All domestic members of the PKS affiliated group are included
in the consolidated U.S. income tax return filed by PKS as
allowed by the Internal Revenue Code. Accordingly, the
provision for income taxes and the related payments or
refunds of tax are determined on a consolidated basis.
The financial statement provision and actual cash tax
payments have been reflected in the Group's and the
Diversified Group's financial statements in accordance with
PKS' tax allocation policy for such groups. In general, such
policy provides that the consolidated tax provision and
related cash flows and balance sheet amounts are allocated
between the Group and the Diversified Group, for group
financial statement purposes, based principally upon the
financial income, taxable income, credits, preferences and
other amounts directly related to the respective groups. The
provision for estimated United States income taxes for the
Group does not differ materially from that which would have
been determined on a separate return basis.
(4) Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to determine
classification and fair values of financial instruments:
Cash and Cash Equivalents
Cash equivalents generally consist of highly liquid
instruments purchased with an original maturity of three
months or less. The securities are stated at cost, which
approximates fair value.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
Marketable Securities and Non-current Investment
The Group has classified all marketable securities and non-
current investments not accounted for under the equity method
as available-for-sale. The amortized cost of the securities
used in computing unrealized and realized gains and losses
are determined by specific identification. Fair values are
estimated based on quoted market prices for the securities on
hand or for similar investments. Fair values of certificates
of deposit approximate cost. Net unrealized holding gains and
losses, if any, are reported as a separate component of
stockholders' equity, net of tax.
The following summarizes the cost, unrealized holding gains
and losses, and estimated fair values of marketable
securities and non-current investments at December 30, 1995
and December 31, 1994.
Unrealized Unrealized
Amortized Holding Holding Fair
(dollars in millions) Cost Gains Losses Value
1995
Kiewit Mutual Fund:
Short-term government $ 22 $ - $ - $ 22
Intermediate term bond 13 1 - 14
Tax exempt 8 1 - 9
U.S. debt securities 57 - - 57
Municipal debt securities 13 - - 13
Certificates of deposit 5 - - 5
------ ----- ------ -------
$ 118 $ 2 $ - $ 120
====== ===== ====== ======
Non-current investments:
Equity securities $ 30 $ - $ - $ 30
======= ===== ======= =======
1994
Kiewit Mutual Fund:
Short-term government $ 27 $ - $ - $ 27
Intermediate term bond 30 - 1 29
Tax exempt 34 - 1 33
U.S. debt securities 46 - - 46
Municipal debt securities 11 - - 11
Certificates of deposit 10 - - 10
------ ----- ------ -----
$ 158 $ - $ 2 $ 156
====== ===== ====== ======
For debt securities, amortized costs do not vary
significantly from principal amounts. Realized gains and
losses on sales of marketable securities were each less than
$1 million in 1995, $1 million and $2 million in 1994 and $2
million and $25 million in 1993.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
The contractual maturities of the debt securities are as
follows:
Amortized Cost Fair Value
U.S. debt securities:
less than 1 year $ 41 $ 41
1-5 years 16 16
------- -------
$ 57 $ 57
======= =======
Municipal debt securities:
less than 1 year $ 4 $ 4
1-5 years 7 7
5-10 years - -
over 10 years 2 2
-------- --------
$ 13 $ 13
======== ========
Certificates of deposit:
less than 1 year $ 4 $ 4
1-5 years 1 1
--------- -------
$ 5 $ 5
========= ========
Maturities for the mutual fund and equity securities have not
been presented as they do not have a single maturity date.
Short-term Borrowing
Short-term borrowings approximate fair value due to the short
period of time to maturity.
Long-term Debt
The fair value of debt was estimated using the incremental
borrowing rates of the Group for debt of the same remaining
maturities and approximates the carrying amount.
(5) Retainage on Construction Contracts
Marketable securities at December 30, 1995 and December 31,
1994 include approximately $62 million and $61 million,
respectively of investments which are being held by the
owners of various construction projects in lieu of retainage.
Receivables at December 30, 1995 and December 31, 1994
include approximately $50 million and $48 million,
respectively, of retainage on uncompleted projects, the
majority of which is expected to be collected within one
year.
(6) Investment in Construction Joint Ventures
The Group has entered into a number of construction joint
venture arrangements. Under these arrangements, if one
venturer is financially unable to bear its share of the
costs, the other venturers will be required to pay those
costs.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
Summary joint venture financial information follows:
Financial Position (dollars in millions) 1995 1994
Total Joint Ventures
Current assets $ 655 $ 563
Other assets (principally
construction equipment) 52 50
----- ------
707 613
Current liabilities (584) (503)
----- -----
Net assets $ 123 $ 110
====== =====
Group's Share
Equity in net assets $ 67 $ 67
Receivable from joint ventures 6 2
------- -------
Investment in construction
joint ventures $ 73 $ 69
======= =======
Operations (dollars in millions) 1995 1994 1993
Total Joint Ventures
Revenue $ 1,211 $ 1,034 $ 906
Costs 1,108 937 841
------- -------- --------
Operating income $ 103 $ 97 $ 65
======= ======== ========
Group's Share
Revenue $ 691 $ 523 $ 430
Costs 625 473 372
-------- -------- -------
Operating income $ 66 $ 50 $ 58
======== ======== ========
Management of the nonsponsored Denmark tunnel project
completed a cost estimate in 1993 which indicated a favorable
variance in the estimated costs of the project. As a result
of this cost estimate and negotiations with the owner, the
Group's management reduced reserves by $20 million which
had been maintained to provide for the Group's share of
estimated losses on the project. Based on 1995 estimates,
management believes that the resolution of the uncertainties
in completing the tunnel should not materially affect the
Group's financial position, future results of operations or
future cash flows.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(7) Other Assets
Other assets includes the Group's equity method investments,
equity securities classified as non-current, investment in
partnerships and the net goodwill recognized in the APAC
acquisition. In 1995, a $3 million purchase increased
the Group's interest in an electrical contracting business
to 49%. The cumulative investment in common stock, accounted
for on the equity method, totals $26 million, $3 million
in excess of the Group's share of equity. The excess investment
is being amortized over 15 years. The contracting business is
not publicly traded and does not have a readily determinable
market value. The Group is committed to acquire 80% ownership
by 1997. Other assets also include securities classified as non-
current and carried at the fair value of $30 million.
(8) Short-Term Borrowings
The Group has established lines of credit with Union Bank of
Switzerland for $35 million, Bank of America for $50 million,
and Banque de Nationale de Paris for $30 million. Under
these credit agreements the Group had $45 million outstanding
on December 30, 1995 at a weighted average interest rate of
5.78%.
(9) Long-Term Debt
At December 30, 1995 and December 31, 1994, long-term debt
consisting of a portion of PKS' notes to former stockholders
and convertible debentures which have been allocated to the
Group and the Diversified Group as follows:
(dollars in millions) 1995 1994
9.5%-11.1% Notes to former stockholders,
1996-2001 $ 3 $ 6
6.25%-8.75% Convertible debentures, 2002-2005 8 6
------ -----
11 12
Less current portion (2) (3)
----- -----
$ 9 $ 9
===== =====
The convertible debentures are convertible during October of
the fifth year preceding their maturity date. Each annual
series may be redeemed in its entirety prior to the due date
except during the conversion period. Debentures were
converted into 59,935, 12,594 and 14,322 shares of Class C
common stock in 1995, 1994, and 1993, respectively. As part
of the exchange offer completed prior to the MFS Spin-off (See
Note 15), all holders of 1990 and 1991 debentures converted
their debentures into Class C and Class D common stock. At
December 30, 1995, 360,453 shares of Class C common stock are
reserved for future conversions.
Scheduled maturities of long-term through 2000 are as follows
(in millions): 1996 - $2; 1997 - $1; 1998 - $1; 1999 - $3
and $4 in 2000.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(10) Income Taxes
An analysis of the provision for income taxes
relating to earnings for the three years ended December 30,
1995 follows:
(dollars in millions) 1995 1994 1993
Current:
U.S. federal $ (58) $ (33) $ (28)
Foreign 4 (8) (2)
State (6) (1) (4)
------- -------- --------
(60) (42) (34)
Deferred:
U.S. federal 6 - (4)
Foreign (7) 1 (1)
State 1 2 1
-------- -------- -------
- 3 (4)
-------- -------- -------
$ (60) $ (39) $ (38)
======== ======== ========
The United States and foreign components of earnings, for tax
reporting purposes, before income taxes follow:
(dollars in millions) 1995 1994 1993
United States $ 159 $ 101 $ 111
Foreign 5 15 7
------ ------ ------
$ 164 $ 116 $ 118
====== ====== ======
A reconciliation of the actual provision for income
taxes and the tax computed by applying the U.S. federal rate
(35%) to the earnings before income taxes for the three years
ended December 30, 1995 follows:
(dollars in millions) 1995 1994 1993
Computed tax at statutory rate $ (57) $ (41) $ (41)
State income taxes (8) (3) (1)
Prior year tax adjustments 5 3 -
Other - 2 2
Effect of federal income tax
rate change - - 2
------ -------- -------
$ (60) $ (39) $ (38)
======== ======== ========
Possible taxes, beyond those provided, on remittances of
undistributed earnings of foreign subsidiaries are not
expected to be material.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
The components of the net deferred tax assets as of December
30, 1995 and December 31, 1994 were as follows:
(dollars in millions) 1995 1994
Deferred tax assets:
Construction accounts $ 3 $ 12
Investments in construction joint ventures 28 14
Insurance claims 32 29
Compensation - retirement benefits 4 6
Other 7 14
----- -----
Total deferred tax assets 74 75
Deferred tax liabilities:
Investments in securities 8 -
Other 7 12
------ ------
Total deferred tax liabilities 15 12
------ ------
Net deferred tax assets $ 59 $ 63
====== =======
No valuation allowance has been recorded relating to the
deferred tax assets because they are realizable under the tax
sharing policy of PKS.
(11) Employee Benefit Plans
The Group makes contributions, based on collective bargaining
agreements related to its construction operations, to several
multi-employer union pension plans. These contributions are
included in construction contract costs. Under federal law,
the Group may be liable for a portion of future plan
deficiencies; however, there are no known deficiencies.
The Group also had a long-term incentive plan, stock
appreciation rights, for certain employees. The plan
concluded in 1994. The expense related to this plan was $1
million in 1994 and $2 million in 1993. Substantially all
employees of the Group are covered under the Group's profit
sharing plans. The expense related to these plans was $3 million
in 1995 and $1 million in 1994 and 1993.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(12) Stockholders' Equity
Ownership of the Class B&C Stock is restricted to certain
employees conditioned upon the execution of repurchase
agreements which restrict the employees from transferring the
stock. PKS is generally committed to purchase all Class B&C
Stock at the amount computed pursuant to the Restated
Certificate of Incorporation. Issuances and repurchases of
common shares, including conversions, for the three years
ended December 30, 1995 were as follows:
B&C
Stock
Shares issued in 1993 1,027,657
Shares repurchased in 1993 2,293,722
Shares issued in 1994 1,018,144
Shares repurchased in 1994 2,427,186
Shares issued in 1995 1,021,875
Shares repurchased in 1995 6,228,934
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(13) Industry and Geographic Data
The Group's operations are primarily conducted in one
business segment; construction contracting. The following is
derived from geographic information in the PKS consolidated
financial statements as it relates to the Group.
Geographic Data (dollars in millions) 1995 1994 1993
Revenue:
United States $ 1,963 $ 1,896 $ 1,556
Canada 281 233 175
Other 86 46 52
------ ------ -------
$ 2,330 $ 2,175 $ 1,783
======= ======= =======
Operating earnings:
United States $ 70 $ 45 $ 57
Canada 7 14 3
Other 10 - 22
------- ------- -------
$ 87 $ 59 $ 82
======= ======= =======
Identifiable assets:
United States $ 878 $ 847 $ 794
Canada 90 102 82
Other 19 14 13
------- ------- -------
$ 987 $ 963 $ 889
======= ======= =======
(14) Related Party Transaction
The Group performs certain mine management services for the
Diversified Group. The income from these services was $30 million
in 1995 and $29 million in 1994 and 1993.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(15) Other Matters
In June 1995, the Group exchanged its interest in a wholly-
owned subsidiary involved in gold mining activities for
4,000,000 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.
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. ("KDG"), a wholly owned first tier subsidiary of
PKS, 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
subsequently distributed to the D stockholders.
PKS completed an exchange offer prior to the Spin-off whereby
4,000,000 shares of Class B&C Stock were exchanged for
1,666,384 shares of Class D Stock on terms similar to those
upon which Class B&C Stock can be converted into Class D
Stock during the annual conversion period provided for in
PKS' Certificate of Incorporation. The conversion ratio
used in the exchange was calculated using final 1994 stock
prices adjusted for 1995 dividends.
The Group is involved in various lawsuits and claims
incidental to its business. Management believes that any
resulting liability, beyond that provided, should not
materially affect the Group's financial position, future
results of operations or future cash flows.
The Group leases various buildings and equipment under both
operating and capital leases. Minimum rental payments on
buildings and equipment subject to noncancellable operating
leases during the next 29 years aggregate $12 million.
It is customary in the Group's industry to use various
financial instruments in the normal course of business.
These instruments include items such as letters of credit.
Letters of credit are conditional commitments issued on
behalf of the Group in accordance with specified terms and
conditions. As of December 30, 1995, the Group had
outstanding letters of credit of approximately $105 million.
SCHEDULE II
KIEWIT CONSTRUCTION & MINING GROUP
Valuation and Qualifying Accounts and Reserves
Additions Amounts
Balance Charged to Charged Balance
Beginning Costs and to End of
(dollars in millions) of Period Expenses Reserves Other Period
Year ended December
30, 1995
Allowance for doubtful
trade accounts $ 7 $ 5 $ (2) $ - $ 10
Reserves:
Insurance claims 73 18 (14) 2 79
Year ended December
31, 1994
Allowance for doubtful
trade accounts $ 5 $ 4 $ (2) $ - $ 7
Reserves:
Insurance claims 65 19 (11) - 73
Year ended December
25, 1993
Allowance for doubtful
trade accounts $ 2 $ 4 $ (1) $ - $ 5
Reserves:
Insurance claims 66 13 (13) (1) 65
KIEWIT CONSTRUCTION & MINING GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The financial statements of the Construction & Mining Group (the
"Group") include the financial position, results of operations
and cash flows for the construction business and certain mining
services of Peter Kiewit Sons', Inc. ("PKS") and a portion of the
corporate assets and liabilities and related transactions which
are not separately identified with ongoing operations of the
Construction & Mining Group or the Diversified Group. The
Group's share of corporate assets and liabilities and related
transactions includes amounts to reflect certain financial
activities, corporate general and administrative costs and income
taxes. See Notes 1 and 3 to the Group's financial statements.
Revenue from each of the Group's business segments was (in
millions):
1995 1994 1993
Construction $ 2,299 $ 2,148 $ 1,757
Other 31 27 26
------- ------- -------
$ 2,330 $ 2,175 $ 1,783
======= ======= =======
Results of Operations - 1995 vs. 1994
Construction. Construction revenue increased by $151 million or
7% in 1995. Contributing to the increase were joint venture
revenues and the inclusion of two additional months of materials
revenue generated by the APAC-Arizona ("APAC") companies which
were acquired on February 28, 1994. The Group's share of joint
venture revenue rose by 32% in 1995 and accounted for 30% of
total construction revenue in 1995 and 24% in 1994. The San
Joaquin Toll Road Joint Venture ("San Joaquin") in southern
California contributed $225 million and $111 million to revenue
in 1995 and 1994. Contract backlog at December 30, 1995 was $2
billion, of which 10% is attributable to foreign operations,
principally, Canada and the Philippines. Projects on the west
coast account for 36% of the total backlog which includes San
Joaquin backlog of $133 million. San Joaquin is scheduled for
completion in 1997.
In 1995, gross margins rose 16% from $170 million in 1994 to $197
million in 1995. The growing materials market had a significant
effect on margins. Increased operational efficiencies, as well
as joint ventures, including substantial claim settlements, also
impacted margins.
General and Administrative Expenses. General and administrative
expenses decreased 4% in 1995. Declines in payroll, computer
operations and depreciation expense were partially offset by
higher insurance and professional service fees.
Investment Income. Slight improvements in interest income,
earnings from equity investments and fewer losses on the sale of
securities contributed to the increase in investment income.
Other, net. In 1995 the exchange of the Group's gold operations
in Nevada for 4,000,000 shares of common stock of the Kinross
Gold Corporation led to a $21 million gain for the Group. The
gain was the difference between the Group's basis in the gold
operations and the market value of the Kinross shares at the time
of the exchange. Other income is also primarily comprised of
mine management fees from the Diversified Group, $30 million and
$29 million in 1995 and 1994, and gains on the disposition of
property, plant and equipment and other assets.
KIEWIT CONSTRUCTION & MINING GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Income Taxes. The effective income tax rate for the Group was
37% and 34% in 1995 and 1994. In 1995 the effective rate was
higher than the statutory rate primarily because of state income
taxes.
Results of Operations - 1994 vs. 1993
Construction. Construction revenue increased by $391 million or
22% in 1994. The Group's share of joint venture revenue also
rose by 22% in 1994 and accounted for 24% of total construction
revenue in 1994 and 1993. Several large contracts awarded in
1992 and early 1993 contributed to the overall increase in
revenue, the largest of which was San Joaquin. Also contributing
to the increase were revenues generated from the APAC
acquisition. Contract backlog at December 31, 1994 was $2.2
billion, of which 16% is attributable to foreign operations,
principally, Canada and the Philippines. Projects on the west
coast account for 40% of the total backlog.
Direct costs associated with construction contracts increased
$409 million or 26% to $2.0 billion in 1994. Costs as a
percentage of revenue approximated 92% and 89% for 1994 and 1993,
respectively.
In 1994, the margins were adversely affected by cost overruns and
a more competitive market environment. A $20 million reduction
of reserves previously established for the Denmark tunnel project
favorably impacted 1993 margins.
General and Administrative Expenses. Moderate increases in
professional services fees, insurance costs and other
administrative departments were primarily responsible for the 7%
increase in general and administrative costs.
Investment Income. Investment income increased to $13 million in
1994 from a $1 million loss in 1993. The improvement is directly
attributable to the decline in losses from the sale and writedown
of derivative and other securities from $18 million in 1993 to $2
million in 1994.
Other, net. Significantly higher equipment sales led an
increase in the gains recognized on the sale of property, plant
and equipment in 1994 to $13 million from $8 million in 1993.
Income Taxes. The effective income tax rate for the Group was
34% and 32% in 1994 and 1993. In 1993, the effective rate is
lower than the expected statutory rate due to the effect of the
Federal income tax rate change on deferred tax assets.
KIEWIT CONSTRUCTION & MINING GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition - December 30, 1995
The Group's working capital decreased $85 million or 26% during
1995. The decline was primarily due to the conversion and
repurchase of 6.2 million shares of Class B&C stock totaling $158
million and dividend payments of $13 million. These financing
activities were partially offset by $24 million in proceeds from
the sale of stock and $45 million of short-term borrowings. In
addition to the cash used in financing activities, the Group had
capital expenditures, net of sales proceeds, of $64 million.
Partially funding these outflows was $153 million of cash
provided by operations and $39 million of net proceeds on the
sale and maturity of marketable securities.
The Group anticipates investing between $40 and $75 million
annually in its construction business, including opportunities to
acquire additional materials businesses 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. 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 1995, the PKS Board of Directors declared a $.60 per
share dividend on Class B&C Stock payable in January 1996.
EXHIBIT 99.B
KIEWIT DIVERSIFIED GROUP
Index to Financial Statements
and Financial Statement Schedule and
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Report of Independent Accountants
Financial Statements as of December 30, 1995 and
December 31, 1994 and for the three years
ended December 30, 1995:
Statements of Earnings
Balance Sheets
Statements of Cash Flows
Statements of Changes in Stockholders' Equity
Notes to Financial Statements
Financial Statement Schedule for the three years ended December
30, 1995:
II--Valuation and Qualifying Accounts and Reserves
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Schedules not indicated above have been omitted because of the
absence of the conditions under which they are required or
because the information called for is shown in the financial
statements or in the notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Peter Kiewit Sons', Inc.
We have audited the financial statements and the financial
statement schedule of Kiewit Diversified Group, a business group
of Peter Kiewit Sons', Inc. (as defined in Note 1 to these
financial statements) as listed in the index on the preceding
page of this exhibit to Form 10-K. These financial statements
and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, when
read in conjunction with the consolidated financial statements of
Peter Kiewit Sons', Inc. and Subsidiaries, present fairly, in all
material respects, the financial position of Kiewit Diversified
Group as of December 30, 1995 and December 31, 1994 and the
results of its operations and its cash flows for each of the
three years in the period ended December 30, 1995 in conformity
with generally accepted accounting principles. In addition, in
our opinion the financial statement schedule referred to above,
when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
March 19, 1996, March 19, 1996,
except for Note 18, as to
which the date is March 27, 1996.
KIEWIT DIVERSIFIED GROUP
Statements of Earnings
For the three years ended December 30, 1995
(dollars in millions, except per share data) 1995 1994 1993
Revenue $ 580 $ 537 $ 267
Cost of Revenue (358) (327) (154)
------ ------ ------
222 210 113
General and Administrative Expenses (180) (133) (70)
------ ------ ------
Operating Earnings 42 77 43
Other Income (Expense):
Gain on Subsidiary's Stock Transactions, net 3 54 211
Investment Income, net 62 30 18
Interest Expense, net (23) (36) (11)
Other, net 128 (1) 13
----- ----- -----
170 47 231
Equity Loss in MFS (131) (102) (13)
------ ----- -----
Earnings Before Income Taxes and
Minority Interest 81 22 261
Income Tax Benefit (Provision) 71 10 (80)
Minority Interest in Net (Income)
Loss of Subsidiaries (12) 1 -
------ ----- -----
Net Earnings $ 140 $ 33 $ 181
====== ===== =====
Net Earnings Per Common and
Common Equivalent Share $ 6.45 $1.63 $9.08
====== ===== =====
See accompanying notes to financial statements.
KIEWIT DIVERSIFIED GROUP
Balance Sheets
December 30, 1995 and December 31, 1994
(dollars in millions) 1995 1994
Assets
Current Assets:
Cash and cash equivalents $ 363 $ 330
Marketable securities 484 754
Receivables, less allowance of $2 and $2 81 157
Note receivable from sale of
discontinued operations - 29
Deferred income taxes 5 15
Other 36 83
------- -----
Total Current Assets 969 1,368
Property, Plant and Equipment, at cost:
Land 17 15
Buildings 61 171
Equipment 717 1,254
------ ------
795 1,440
Less accumulated depreciation
and amortization (289) (336)
------ ------
Net Property, Plant and Equipment 506 1,104
Investments 459 258
Intangible Assets, net 499 733
Other Assets 57 74
------- ------
$ 2,490 $ 3,537
======= =======
See accompanying notes to financial statements.
KIEWIT DIVERSIFIED GROUP
Balance Sheets
December 30, 1995 and December 31, 1994
(dollars in millions) 1995 1994
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 61 $ 165
Current portion of long-term debt:
Telecommunications 36 26
Other 4 4
Accrued costs and billings in excess of
revenue on uncompleted contracts 10 37
Accrued reclamation and other mining costs 18 20
Other 88 147
------ ------
Total Current Liabilities 217 399
Long-Term Debt, less current portion:
Telecommunications 264 827
Other 97 72
Deferred Income Taxes 235 306
Retirement Benefits 54 67
Accrued Reclamation Costs 99 102
Other Liabilities 170 85
Minority Interest 214 448
Stockholders' Equity (Redeemable Common Stock,
$1,151 million aggregate redemption value)
Common equity 1,125 1,238
Foreign currency adjustment (1) -
Net unrealized holding gain (loss) 16 (7)
----- ------
Total Stockholders' Equity 1,140 1,231
------ --------
$2,490 $ 3,537
====== ========
See accompanying notes to financial statements.
KIEWIT DIVERSIFIED GROUP
Statements of Cash Flows
For the three years ended December 30, 1995
(dollars in millions) 1995 1994 1993
Cash flows from continuing operations:
Net earnings $ 140 $ 33 $ 181
Adjustments to reconcile net earnings
to net cash provided by continuing
operations:
Depreciation, depletion and amortization 96 165 51
(Gain) loss on sale of property, plant
and equipment, and other investments (7) 16 8
Gain on subsidiary's stock transactions,
net (3) (54) (211)
Equity (earnings) loss 119 (7) (13)
Non-cash interest expense - 40 -
Minority interest in subsidiaries 12 (50) (3)
Decline in market value of investments - - 25
Retirement benefits paid (2) (6) (17)
Deferred income taxes (147) (37) 53
Change in working capital items:
Receivables 11 (28) 8
Other current assets - (48) -
Payables (3) 23 51
Other liabilities 69 (2) 36
Other (4) 24 27
------ ------ ------
Net cash provided by continuing
operations 281 69 196
Cash flows from investing activities:
Proceeds from sales and maturities
of marketable securities 408 1,610 4,155
Purchases of marketable securities (455) (1,473) (4,490)
Acquisitions, excluding cash acquired (229) (207) (146)
Proceeds from sale of cellular properties - 182 -
Proceeds from sale of property, plant
and equipment, and other investments 14 7 25
Capital expenditures (82) (450) (139)
Investments in affiliates (29) (33) (3)
Acquisition of minority interest - (6) -
Deferred development costs and other (38) (49) (36)
------- ------- ------
Net cash used in investing activities $ (411) $ (419) $ (634)
See accompanying notes to financial statements
KIEWIT DIVERSIFIED GROUP
Statements of Cash Flows
For the three years ended December 30, 1995
(dollars in millions) 1995 1994 1993
Cash flows from financing activities:
Long-term debt borrowings $ 49 $ 691 $ 19
Payments on long-term debt, including
current portion (49) (305) (7)
Net change in short-term borrowings - - (80)
Issuances of common stock 2 1 8
Issuances of subsidiaries' stock - 70 458
Repurchases of common stock (3) (20) (40)
Dividends paid - - (17)
Exchange of Class B&C Stock for Class D
Stock, net 155 42 26
Other - (1) 3
----- ----- ----
Net cash provided by financing activities 154 478 370
Cash flows from discontinued
packaging operations:
Proceeds from sales of discontinued
packaging operations 29 5 110
Other cash provided by discontinued
packaging operations - - 20
----- ----- ----
Net cash provided by discontinued
packaging operations 29 5 130
Cash and cash equivalents of MFS at
beginning of year (22) - -
Effect of exchange rates on cash 2 - -
----- ----- ----
Net increase in cash and cash equivalents 33 133 62
Cash and cash equivalents at
beginning of year 330 197 135
----- ----- ----
Cash and cash equivalents at end of year $ 363 $ 330 $ 197
===== ===== =====
Supplemental disclosure of cash
flow information:
Taxes $ 132 $ 66 $ 29
Interest 33 39 4
Noncash investing and financing activities:
Dividend of investment in MFS $ 399 $ - $ -
Issuance of C-TEC redeemable preferred stock
for acquisition 39 - -
Issuances of MFS stock for acquisitions - 71 -
MFS stock transactions to settle contingent
purchase price adjustment - 25 -
See accompanying notes to financial statements.
KIEWIT DIVERSIFIED GROUP
Statements of Changes in Stockholders' Equity
For the three years ended December 30, 1995
(dollars in millions, except per share data) 1995 1994 1993
Common equity:
Balance at beginning of year $ 1,238 $ 1,182 $ 1,017
Issuances of stock 5 1 8
Repurchases of stock (3) (20) (40)
Exchange of Class B&C Stock for Class
D Stock, net 155 42 26
Net earnings 140 33 181
Dividend of investment in MFS (399) - -
Dividends (per share: $.50 in 1995(a),
$.50 in 1993) (11) - (10)
--------- ------ ------
Balance at end of year 1,125 1,238 1,182
Other equity adjustments:
Balance at beginning of year (7) 9 4
Foreign currency adjustment (1) - (4)
Net unrealized holding gain (loss) 23 (16) 9
-------- ------ -----
Balance at end of year 15 (7) 9
-------- ------ -----
Total stockholders' equity $ 1,140 $ 1,231 $ 1,191
======== ======== ========
(a) Dividend declared in 1995 but paid in January 1996.
See accompanying notes to financial statements.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(1) Basis of Presentation
The Class B&C Stock and the Class D Stock are designed to
provide stockholders with separate securities reflecting the
performance of Peter Kiewit Sons', Inc.'s ("PKS")
construction business and certain mining services
("Construction & Mining Group") and its other businesses
("Diversified Group").
The financial statements of the Diversified Group include the
financial position, results of operations and cash flows for
PKS' businesses other than its Construction & Mining Group
businesses, held by a wholly-owned subsidiary, Kiewit
Diversified Group Inc. ("KDG") and a portion of the PKS
corporate assets and liabilities and related transactions
which are not separately identified with the ongoing
operations of the Diversified Group or the Construction &
Mining Group. These financial statements have been prepared
using the historical amounts included in the PKS consolidated
financial statements.
Although the financial statements of PKS' Diversified Group
and Construction & Mining Group separately report the assets,
liabilities and stockholders' equity of PKS attributed to
each such group, legal title to such assets and
responsibility for such liabilities will not be affected by
such attribution. Holders of Class D Stock and Class B&C
Stock are stockholders of PKS. Accordingly, the PKS
consolidated financial statements and related notes should be
read in conjunction with these financial statements.
(2) Summary of Significant Accounting Policies
Principles of Group Presentation
These financial statements include the accounts of the
Diversified Group ("the Group"). The Group's and Construction
& Mining Group's financial statements, taken together,
comprise all of the accounts included in the PKS consolidated
financial statements. The Group's enterprises include coal
mining, telecommunications, data management services, energy
production and timberland sales. The Group's only reportable
segments are coal mining and telecommunications.
Fifty-percent-owned mining joint ventures are consolidated on
a pro rata basis. Investments in other companies in which
the Group exercises significant influence over operating and
financial policies are accounted for by the equity method. In
addition, the Group accounts for its investments in
international energy projects using the equity method. All
significant intercompany accounts and transactions, except
those directly between the Group and the Construction &
Mining Group, have been eliminated.
Coal Sales Contracts
The Group's coal is sold primarily under long-term contracts
with electric utilities, which burn coal in order to generate
steam to produce electricity. A substantial portion of the
Group's sales were made under long-term contracts during 1995,
1994 and 1993. The remainder of the Group's sales are made on the
spot market where prices are substantially lower than those in
the long-term contracts. As the long-term contracts expire, a
higher proportion of the Group's sales will occur on the spot market.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
The coal industry is highly competitive. The Group competes
not only with other domestic and foreign coal suppliers, some
of whom are larger and have greater capital resources than
the Group, but also with alternative methods of generating
electricity and alternative energy sources. Many of the
Group's competitors are served by two railroads and, due to
the competition, often benefit from lower transportation
costs than the Group which is served by a single railroad.
Additionally, many competitors have lower stripping ratios
than the Group, often resulting in lower comparative costs of
production.
The Group is also required to comply with various
federal, state and local laws concerning protection of the
environment. The Group believes its compliance with
environmental protection and land restoration laws will not
affect its competitive position since its competitors are
similarly affected by such laws.
The Group and its mining ventures have entered into
various agreements with its customers which stipulate
delivery and payment terms for the sale of coal. Prior to
1993, one of the primary customers deferred receipt of
certain commitments by purchasing undivided fractional
interests in coal reserves of the Group and the mining
ventures. Under these arrangements revenue was recognized
when cash was received. The agreements with this
customer were renegotiated in 1992. In accordance with
the renegotiated agreements, there were no sales of
interests in coal reserves subsequent to January 1, 1993.
The Group has the obligation to deliver the coal reserves to
the customer in the future if the customer exercises its
option. If the option is exercised, the Group
presently intends to deliver coal from unaffiliated mines
and a mine in which the Group has a 50% interest. In the
opinion of management, the Group has sufficient coal reserves
to cover the above sales commitments.
The Group's coal sales contracts are with several electric
utility and industrial companies. In the event that these
customers do not fulfill contractual responsibilities, the
Group would pursue the available legal remedies.
Telecommunications Revenues
C-TEC Corporation's, ("C-TEC"), most significant operating
groups are its local telephone service and cable system
operations. C-TEC's telephone network access revenues are
derived from net access charges, toll rates and settlement
arrangements for traffic that originates or terminates within
C-TEC's local telephone company. Revenues from telephone
services and basic and premium cable programming services are
recorded in the month service is provided.
The telecommunications industry is subject to local, state
and federal regulation. Consequently, the ability of the
telephone and cable groups to generate increased volume and
profits is largely dependent upon regulatory approval to
expand customer bases, increase prices and limit expenses.
Competition for the cable group's services traditionally
has come from broadcast television, video rentals and direct
broadcast satellite received on home dishes. Future
competition is expected from telephone companies.
Concentration of credit risk with respect to accounts
receivable are limited due to the dispersion of customer base
among geographic areas and remedies provided by the terms of
contracts and statutes.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
Depreciation and Amortization
Property, plant and equipment are recorded at cost.
Depreciation and amortization for the majority of the Group's
property, plant and equipment are computed on accelerated and
straight-line methods. Depletion of mineral properties is
provided primarily on an units-of-extraction basis determined
in relation to estimated reserves.
In accordance with industry practice, certain telephone plant
owned by C-TEC valued at $233 million is depreciated based on
the estimated remaining lives of the various classes of
depreciable property and straight-line composite rates. When
property is retired, the original cost, plus cost of removal,
less salvage, is charged to accumulated depreciation.
Intangible Assets
Intangible assets primarily consist of amounts allocated upon
purchase of existing operations, franchise and subscriber
lists and development costs. These assets are amortized on a
straight-line basis over the expected period of benefit,
which does not exceed 40 years.
The Group reviews the carrying amount of intangible assets
for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be
recoverable. Measurement of any impairment would include a
comparison of estimated future operating cash flows
anticipated to be generated during the remaining life of the
asset to the net carrying value of the asset.
Pension Plans
The Group maintains defined benefit plans primarily for
packaging employees who retired prior to the disposition of
the packaging operations. Benefits paid under the plans are
based on years of service for hourly employees and years of
service and rates of pay for salaried employees.
Substantially all of C-TEC's employees are included in a
trusteed noncontributory defined benefit plan. Upon
retirement, employees are provided a monthly pension based on
length of service and compensation.
The plans are funded in accordance with the requirements of
the Employee Retirement Income Security Act of 1974.
Reserves for Reclamation
The Group follows the policy of providing an accrual for
reclamation of mined properties, based on the estimated cost
of restoration of such properties, in compliance with laws
governing strip mining. It is at least reasonably possible
that the estimated cost of restoration will be revised in the
near term.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
Foreign Currencies
The local currencies of foreign subsidiaries are the
functional currencies for financial reporting purposes.
Assets and liabilities are translated into U.S. dollars at
year-end exchange rates. Revenue and expenses are
translated using average exchange rates prevailing during the
year. Gains or losses resulting from currency translation are
recorded as adjustments to stockholders' equity.
Subsidiary Stock Sales and Issuances
The Group recognizes gains and losses from the sales and
issuances of stock by its subsidiaries.
Earnings Per Share
Primary earnings per share of Class D Stock have been
computed using the weighted average number of shares
outstanding during each year. The number of shares used in
computing primary earnings per share were 21,718,792,
20,438,806 and 19,941,885 in 1995, 1994 and 1993. Fully
diluted earnings per share have not been presented because it
is not significantly different from primary earnings per
share.
Income Taxes
Deferred income taxes are provided on the temporary
differences between the financial reporting basis and the tax
basis of the Group's assets and liabilities using enacted tax
rates in effect for the year in which the differences are
expected to reverse.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
Reclassifications
Where appropriate, items within the financial statements and
notes thereto have been reclassified from previous years to
conform to current year presentation.
Fiscal Year
The Group's fiscal year ends on the last Saturday in December.
There were 52 weeks in fiscal years 1995 and 1993 and 53 weeks
in the 1994 fiscal year.
C-TEC has a calendar fiscal year.
KIEWIT DIVERSIFIED GROUP
Notes to 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 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 subsequently
distributed to the Class D stockholders.
PKS completed an exchange offer prior to the Spin-off whereby
4,000,000 shares of Class B and Class C Stock ("Class B&C
Stock) were exchanged for 1,666,384 shares of Class D Stock
on terms similar to those upon which Class B&C Stock can be
converted into Class D Stock during the annual conversion
period provided for in the Company's Certificate of
Incorporation. The conversion ratio used in the exchange was
calculated using final 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 investment in MFS distributed on September 30, 1995
was approximately $399 million.
The results of operations of MFS have been classified as a
single line item on the statements of earnings for the three
years ended December 30, 1995. MFS is consolidated in the
1994 balance sheet and the 1994 and 1993 statements of cash
flows.
Operating results of MFS through September 30, 1995 and for
fiscal years 1994 and 1993 are summarized as follows:
(dollars in millions) 1995 1994 1993
Revenue $ 412 $ 287 $ 141
Loss from operations (176) (136) (31)
Net loss (196) (151) (16)
Group's share of loss in MFS (131) (102) (13)
Included in the income tax benefit on the statement of
earnings for the year ended December 30, 1995, is $93 million
of tax benefits from the reversal of certain deferred tax
liabilities, recognized on gains from previous MFS stock
transactions, that will not be taxed due to the Spin-off.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(4) Corporate Activities
Financial Structure
Cash, cash equivalents and marketable securities were
allocated between the Groups based upon the desired capital
structure of the two Groups at December 28, 1991. Financial
statement impacts of dividends paid to holders of Class D
Stock and repurchases and issuances of Class D Stock in
1995, 1994 and 1993 were reflected in their entirety in the
Diversified Group's financial statements.
PKS, in addition to specifically attributable items, has
corporate assets, liabilities and related income and expense
which are not separately identified with the ongoing
operations of the Group or the Construction & Mining Group.
The items attributable to the Group and the Group's 50%
portion of PKS is as follows:
(dollars in millions) 1995 1994
Cash and cash equivalents $ - $ 86
Marketable securities 10 15
Property, plant and equipment, net 5 5
Other assets 3 14
------ ------
Total Assets $ 18 $ 120
====== ======
Accounts payable $ 23 $ 67
Long-term debt, including current portion 3 7
Other liabilities - 2
------ ------
Total Liabilities $ 26 $ 76
====== ======
1995 1994 1993
Net investment income (expense) $ - $ 7 $ 6
Other income (expense) - (4) (1)
Corporate General and Administrative Costs
A portion of corporate general and administrative costs has
been allocated to the Group based upon certain measures of
business activities, such as employment, investments and
sales, which method management believes to be reasonable.
These allocations were $5 million, $8 million and $10
million in 1995, 1994 and 1993. Due to a realignment of the
corporate overhead departments, a portion of the
administrative functions and personnel previously allocated
to the Group are now located at the Group.
Income Taxes
All domestic members of the PKS affiliated group are
included in the consolidated U.S. income tax return filed by
PKS as allowed by the Internal Revenue Code. Accordingly,
the provision for income taxes and the related payments or
refunds of tax are determined on a consolidated basis.
The financial statement provision and actual cash tax
payments have been reflected in the Group's and Construction
& Mining Group's financial statements in accordance with
PKS' tax allocation policy for such groups. In general,
such policy provides that the consolidated tax provision and
related cash flows and balance sheet amounts are allocated
between the Group and the Construction & Mining Group,
for group financial statement purposes, based principally
upon the financial income, taxable income, credits,
preferences and other amounts directly related to the
respective groups. The provision for estimated United States
income taxes for the Group does not differ materially from that
which would have been determined on a separate return basis.
(5) Acquisitions
During 1995, the Group and its subsidiaries acquired the
entities described below. The Group has accounted for the
transactions as purchases and consolidated the operating
results since the acquisition dates. Purchase prices in
excess of the fair market values of net assets acquired have
been recorded as goodwill, in intangible assets.
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. The preferred
stock has a stated dividend rate of 5%, beginning January 1,
1996. The fair value of the preferred stock, as determined
by an independent appraiser, is $39 million and is recorded
in other liabilities. Goodwill of $18 million is being
amortized over 10 years.
Pursuant to a stock rights offering in August 1995, C-TEC
acquired majority voting control of Mercom, Inc. ("Mercom")
through the exercise of stock rights and over subscription
privileges. Immediately prior to the rights offering, C-TEC
owned 43% of the outstanding common stock of Mercom and
accounted for it under the equity method. For the aggregate
consideration of approximately $7 million, C-TEC increased
its ownership interest to 62% and accordingly consolidated
Mercom in its financial statements. C-TEC's total investment
exceeded the underlying equity of Mercom by $11 million,
which is being amortized over 15 years.
The following unaudited pro forma information shows the
results of the Group as though the C-TEC acquisitions
occurred at the beginning of 1995 and 1994. These results
include certain adjustments, primarily increased
amortization, and do not necessarily indicate future results,
nor the results of historical operations had the acquisitions
actually occurred on the assumed dates.
(in millions, except per share data) 1995 1994
Revenue $ 598 $ 574
Net earnings 135 25
Earnings per share of Class D stock 6.23 1.26
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(6) Gain on Subsidiary's Stock Transactions, net
In May 1993, MFS sold 12.7 million shares of common stock to
the public at an initial offering price of $20 per share for
$233 million, net of certain transaction costs. An
additional 4.6 million shares were sold to the public in
September 1993, at a price of $50 per share for $218
million, net of certain transaction costs. Substantially
all of the net proceeds from the offerings funded MFS'
growth.
In 1994, the Group settled a contingent purchase price
adjustment resulting from MFS' 1990 purchase of Chicago
Fiber Optic Corporation ("CFO"). The former shareholders of
CFO accepted MFS stock previously held by the Group, valued
at current market prices, as payment of the obligation.
The above transactions, along with the stock issuances by
MFS for acquisitions and employee stock options, reduced the
Group's ownership in MFS prior to the Spin-off in 1995 to
66% and to 67% and 71% at the end of 1994 and 1993. As a
result, the Group recognized gains of $3 million, $54
million and $211 million in 1995, 1994 and 1993 representing
the increase in the Group's proportionate share of MFS
equity. Deferred income taxes had been established on these
gains prior to the Spin-off.
(7) Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to determine
classification and fair values of financial instruments:
Cash and Cash Equivalents
Cash equivalents generally consist of highly liquid
instruments purchased with an original maturity of three
months or less. The securities are stated at cost, which
approximates fair value.
Marketable Securities and Non-current Investments
The Group has classified all marketable securities and non-
current investments not accounted for under the equity method
as available-for-sale. The amortized cost of the securities
used in computing unrealized and realized gains and losses is
determined by specific identification. Fair values are
estimated based on quoted market prices for the securities on
hand or for similar investments. Net unrealized holding
gains and losses are reported as a separate component of
stockholders' equity, net of tax.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
At December 30, 1995 and December 31, 1994 the cost,
unrealized holding gains and losses and estimated fair values
of marketable securities and noncurrent investments were as
follows:
Unrealized Unrealized
Amortized Holding Holding Fair
(dollars in millions) Cost Gains Losses Value
1995:
Kiewit Mutual Fund:
Short-term government $ 99 $ 1 $ - $ 100
Intermediate term bond 76 4 - 80
Tax exempt 130 4 - 134
Equity 10 2 - 12
Equity securities 8 3 - 11
U.S. debt securities 2 - - 2
Federal agency securities 8 - - 8
Municipal debt securities 1 - - 1
Corporate debt securities 134 - - 134
Collateralized mortgage
obligations - 2 - 2
----- ----- ----- -----
$ 468 $ 16 $ - $ 484
===== ===== ===== =====
Non-current Investments:
Equity securities $ 38 $ 10 $ - $ 48
===== ===== ===== =====
1994:
Kiewit Mutual Fund:
Short-term government $ 42 $ - $ 1 $ 41
Intermediate term bond 202 - 4 198
Tax exempt 5 - - 5
Equity securities 4 - 1 3
U.S. debt securities 275 - 3 272
Federal agency securities 77 - - 77
Municipal debt securities 5 - - 5
Corporate debt securities 145 - 2 143
Collateralized mortgage
obligations 12 1 3 10
---- ----- ---- -----
$ 767 $ 1 $ 14 $ 754
===== ===== ==== =====
Non-current investments:
Equity securities $ 59 $ 5 $ 2 $ 62
===== ===== ==== =====
For debt securities, amortized costs do not vary
significantly from principal amounts. Realized gains and
losses on sales of marketable securities were $1 million and
$2 million in 1995, $2 million and $16 million in 1994, and
$29 million and $39 million in 1993.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
At December 30, 1995, the contractual maturities of the debt
securities are as follows:
(dollars in millions) Amortized Cost Fair Value
U.S. debt securities:
Less than 1 year $ 2 $ 2
====== =====
Federal agency securities:
Less than 1 year $ 8 $ 8
====== =====
Municipal debt securities:
1-5 years $ - $ -
5-10 years - -
Over 10 years 1 1
------ -----
$ 1 $ 1
====== =====
Corporate debt securities:
Less than 1 year $ 33 $ 33
1-5 years 81 81
5-10 years 20 20
------ -----
$ 134 $ 134
====== =====
Maturities for the mutual fund, equity securities and
collateralized mortgage obligations have not been presented
as they do not have a single maturity date.
Long-term Debt
The fair value of debt was estimated using the incremental
borrowing rates of the Group for debt of the same remaining
maturities. With the exception of C-TEC, the fair value of
debt approximates the carrying amount. C-TEC's Senior
Secured Notes and the Credit Agreement with National Bank of
Cooperatives have an aggregate fair value of $253 million.
(8) Investments
In February 1995, CalEnergy Company, Inc. ("CE"), formerly
named California Energy Company, Inc., 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 CE 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 CE. At December 30, 1995, the Group owned
21% of CE's outstanding common stock and had a cumulative
investment in CE common stock of $153 million, $37 million in
excess of the Group's proportionate share of CE's equity.
The excess investment is being amortized over 20 years.
Equity earnings, net of goodwill amortization, were $10
million, $5 million and $7 million in 1995, 1994 and 1993.
CE common stock is traded on the New York Stock Exchange. On
December 30, 1995, the market value of the Group's investment
in CE common stock was $211 million.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
In 1995, 1994 and 1993, the Group also recorded dividends in
kind, of $1 million, $5 million and $5 million declared by CE
consisting of voting convertible preferred stock. The stock
dividends brought the Group's total investment in convertible
preferred stock to $65 million. In March 1995, CE exchanged
the preferred stock for 9.5% Convertible Subordinated
Debentures (the "Debentures") that pay interest semi-
annually. The Debentures mature in December 2003 and are
convertible into CE common stock at a conversion price of
$18.375 per share any time prior to maturity. CE may prepay
the Debentures if the share price of CE stock is at least
150% of the conversion price for any 20 trading days out of
any 30 consecutive trading days.
On February 20, 1996 the Group exercised 1.5 million CE
options at a price of $9 per share. The transaction
increased the Group's ownership interest in CE to 24%. In
addition, the Group has 4.3 million options to purchase
additional CE stock at prices of $11.625-$12 per share.
The following is summarized financial information of
CalEnergy Company Inc.:
Financial Position (dollars in millions) 1995 1994
Current assets $ 418 $ 518
Other assets 2,236 613
------ -----
Total assets 2,654 1,131
Current liabilities 564 309
Other liabilities 1,546 578
Redeemable preferred stock - 64
------ -----
Total liabilities 2,110 951
------ -----
Net assets $ 544 $ 180
======= =====
Operations (dollars in millions) 1995 1994 1993
Revenue $ 399 $ 186 $ 132
===== ===== ======
Net income available to
common stockholders $ 62 $ 32 $ 43
===== ===== ======
In January 1995, C-TEC purchased, for $84 million in
cash, a 40% equity position in Megacable S.A. De C.V.
("Megacable"), Mexico's second largest cable television
operator with 174,000 subscribers in twelve cities. C-TEC
accounts for its investment using the equity method. The
excess cost over the underlying assets of Megacable,
approximately $94 million, is being amortized on a straight
line basis over 15 years. C-TEC's share of Megacable's
earnings, net of goodwill amortization was approximately a $3
million loss in 1995.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
Pursuant to a joint venture agreement with CE, the Group is
an equity investor with CE in the Mahanagdong geothermal
power project and the Casecnan power/irrigation project in
the Philippines. Both projects are under construction. To
date the Group has invested $89 million in the Philippine
projects. The Group also expects to be an equity investor
with CE in additional geothermal projects in Indonesia. To
date investments in these projects total $9 million.
Investments also include equity securities classified as non-
current and carried at the fair value of $48 million.
(9) Intangible Assets
Intangible assets consist of the following at December 30,
1995 and December 31, 1994:
(dollars in millions) 1995 1994
Goodwill $ 199 $ 466
Franchise and subscriber lists 224 145
Noncompete agreements 86 15
Licenses and rights-of-ways - 15
Deferred development costs 47 65
Toll road franchise costs 109 75
Other 4 19
------ -----
669 800
Less accumulated amortization (170) (67)
------ -----
$ 499 $ 733
====== =====
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(10) Long-Term Debt
At December 30, 1995 and December 31, 1994, long-term debt
was as follows::
(dollars in millions) 1995 1994
Telecommunications:
C-TEC Long-term Debt (with recourse only
to C-TEC):
Credit Agreement - National Bank for
Cooperatives (7.51% due 2009) $ 119 $ 128
Senior Secured Notes -
(9.65%, due 1999)
(includes unamortized premium of $5 and
$6 based on imputed rate of 6.12%) 150 156
Term Credit Agreement - Morgan Guaranty
Trust Company
(7% due 2002) 19 -
Promissory Note - Twin County Acquisition
(5% due 2003) 4 -
Revolving Credit Agreements and Other 8 4
MFS Long-term Debt (with recourse only to MFS):
9.375% Senior Discount Notes, Due 2004,
with semi-annual interest payments 1999-2004 - 549
Notes Payable, Due 1995, (Prime plus 1.5%) - 16
----- -----
300 853
Other Long-term Debt:
9.5% to 11.1% Notes to former stockholders
due 1996-2001 3 6
6.25% to 8.75% Convertible debentures - 2
Construction loans and other 98 68
----- -----
401 929
Less current portion (40) (30)
----- -----
$ 361 $ 899
===== =====
In March 1994, C-TEC's telephone group entered into a $135
million Credit Agreement with the National Bank for
Cooperatives ("National"). The funds were used to prepay
outstanding borrowings with the United States of America.
Substantially all the assets of C-TEC's telephone group are
subject to liens under this Credit Agreement. In addition,
the telephone group is restricted from paying dividends in
excess of the prior year net income.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
The Senior Secured notes are collateralized by pledges of the
stock of C-TEC's cable group. The notes contain restrictive
covenants which require, among other things, specific debt to
cash flow ratios.
Mercom, a consolidated subsidiary of C-TEC, has pledged the
common stock of its operating subsidiaries as collateral for
the Term Credit Agreement ("Agreement") with Morgan Guaranty
Trust Company ("Morgan"). In addition, a first lien on
certain material assets of Mercom and its subsidiaries has
been granted to Morgan. The Agreement contains a restrictive
covenant which requires Mercom to maintain a specified debt
to cash flow ratio.
In connection with the acquisition of Twin County Trans
Video, Inc., C-TEC Cable Systems, Inc., a wholly owned
subsidiary of C-TEC, issued a $4 million 5% promissory note.
The note is unsecured.
C-TEC's cable group has Revolving Credit agreements which are
collateralized by a pledge of the stock of the cable group
subsidiaries. At December 30, 1995, the borrowings available
under the agreement total $12 million. The commitments are
reduced on a quarterly basis through maturity in September
1996. The cable group had borrowings of $7 million (6.7%
weighted average interest rate) as of December 1995.
The convertible debentures are convertible during October of
the fifth year preceding their maturity date. Each annual
series may be redeemed in its entirety prior to the due date
except during the conversion period. Debentures were
converted into 69,022, 12,594 and 14,322 shares of Class D
common stock in 1995, 1994, and 1993. As a part of the
exchange offer completed prior to the MFS Spin-off, all
holders of 1990 and 1991 debentures and 1993 D debentures
converted their debentures into Class C and Class D common
stock.
Other long-term debt consists primarily of construction
financing of a privately owned toll road which will be
converted to term debt upon completion of the project.
Variable interest rates on this debt ranged from 7% to 10% at
December 30, 1995. The Group capitalized $7 million of
interest in 1995.
Scheduled maturities of long-term debt through 2000 are as
follows (in millions): 1996 - $40; 1997 - $56; 1998 - $62;
1999 - $61 and $13 in 2000.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(11) Income Taxes
An analysis of the income tax benefit (provision) before
minority interest for the three years ended December 30, 1995
follows:
(dollars in millions) 1995 1994 1993
Current:
U.S. federal $ (69) $ ( 21) $ (24)
Foreign (4) (2) -
State (3) (4) (3)
------ ------- -------
(76) (27) (27)
Deferred:
U.S. federal 140 27 (53)
Foreign 3 4 -
State 4 6 -
------ ------ ------
147 37 (53)
------ ------ ------
$ 71 $ 10 $ (80)
====== ====== ======
The United States and foreign components of earnings for tax
reporting purposes, before equity loss in MFS, (recorded net
of tax), minority interest and income taxes follow:
(dollars in millions) 1995 1994 1993
United States $ 211 $ 123 $ 274
Foreign 1 1 -
------ ----- -----
$ 212 $ 124 $ 274
====== ===== =====
A reconciliation of the actual income tax benefit (provision)
and the tax computed by applying the U.S. federal rate (35%)
to the earnings before equity loss in MFS, (recorded net of
tax), minority interest and income taxes for the three years
ended December 30, 1995 follows:
(dollars in millions) 1995 1994 1993
Computed tax at statutory rate $ (74) $ (43) $ (96)
State income taxes - - (3)
Depletion 2 3 3
Dividend exclusion - 2 3
Goodwill amortization (3) (2) 1
Tax exempt interest 2 3 -
Prior year tax adjustments 51 51 12
MFS deferred tax 93 - -
Other - (4) -
----- ------ -----
$ 71 $ 10 $ (80)
====== ======= =======
Possible taxes beyond those provided on remittances of
undistributed earnings of foreign subsidiaries are not expected
to be material.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
The components of the net deferred tax liabilities for the
years ended December 30, 1995 and December 31, 1994 were as
follows:
(dollars in millions) 1995 1994
Deferred tax liabilities:
Investments in securities $ 7 $ -
Investments in joint ventures 37 83
Investments in subsidiaries 9 101
Asset bases - accumulated depreciation 191 196
Deferred coal sales 39 11
Other 23 24
---- -----
Total deferred tax liabilities 306 415
Deferred tax assets:
Insurance claims 5 10
Compensation - retirement benefits 24 16
Provision for estimated expenses 22 10
Net operating losses of subsidiaries 5 84
Alternative minimum tax credits of subsidiary 5 13
Other 19 43
Valuation allowances (4) (52)
---- ----
Total deferred tax assets 76 124
---- ----
Net deferred tax liabilities $ 230 $ 291
====== ======
(12) Employee Benefit Plans
The Group's defined benefit pension plans cover primarily
packaging employees who retired prior to the disposition of
the packaging operations. The expense related to these plans
was approximately $7 million, $1 million and $7 million in
1995, 1994 and 1993.
C-TEC maintains a separate defined benefit plan for
substantially all of its employees. The prepaid cost and
expense related to this plan is not significant at December
30, 1995 and December 31, 1994, and for the three years ended
December 30, 1995.
The Group also had a long-term incentive plan, consisting of
stock appreciation rights, for certain employees. This plan
concluded in 1994. The expense related to this plan was $1
million in 1994 and 1993.
Substantially all employees of the Group, with the exception
of C-TEC employees, are covered under the Group's profit
sharing plans. The expense related to these plans was less
than $ 1 million in 1995 and $1 million in 1994 and 1993.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(13) Postretirement Benefits
In addition to providing pension and other supplemental
benefits, the Group provides certain health care and life
insurance benefits primarily for packaging employees who
retired prior to the disposition of certain packaging
operations and C-TEC employees who retired prior to 1993.
Employees become eligible for these benefits if they meet
minimum age and service requirements or if they agree to
contribute a portion of the cost. These benefits have not
been funded.
In March 1995, the Group settled its liability with respect
to certain postretirement life insurance benefits. The Group
purchased insurance coverage from a third party insurance
company for approximately $14 million to be paid over seven
years. The settlement did not have a material impact on the
Group's financial position, or results of operations or cash
flows.
The net periodic costs for health care benefits were less
than $1 million in 1995, $1 million in 1994 and $4 million in
1993. In all years, the costs related primarily to interest
on accumulated benefits.
The accrued postretirement benefit liability as of December
30, 1995 was as follows:
Health
(dollars in millions) Insurance
Retirees $ 31
Fully eligible active plan participants -
Other active plan participants -
------
Total accumulated postretirement benefit obligation 31
Unrecognized prior service cost 19
Unrecognized net loss (7)
-----
Accrued postretirement benefit liability $ 43
======
The unrecognized prior service cost resulted from certain
modifications to the postretirement benefit plan for
packaging employees which reduced the accumulated
postretirement benefit obligation. The Group may make
additional modifications in the future.
A 7.7% increase in the cost of covered health care benefits
was assumed for fiscal 1995. This rate is assumed to
gradually decline to 6.2% in the year 2020 and remain at that
level thereafter. A 1% increase in the health care trend
rate would increase the accumulated postretirement benefit
obligation ("APB") by less than $1 million at year-end 1995.
The weighted average discount rate used in determining the
APB was 6.75%.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(14) Stockholders' Equity
PKS is generally committed to purchase all Class D Stock in
accordance with the Restated Certificate of Incorporation.
Issuances and repurchases of common shares, including
conversions, for the three years ended December 30, 1995 were
as follows:
D Stock
Shares issued in 1993 748,026
Shares repurchased in 1993 841,808
Shares issued in 1994 777,556
Shares repurchased in 1994 396,684
Shares issued in 1995 2,675,553
Shares repurchased in 1995 42,147
(15) Industry and Geographic Data
The Group's operations are conducted domestically in two
reportable business segments: mining and telecommunications.
In 1995, 1994 and 1993 Commonwealth Edison Company accounted
for 23%, 22% and 44% of the Group's revenues
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
The information below summarizes the Group's operations in
different industries:
Industry Data (dollars in millions) 1995 1994 1993
Revenue:
Mining $ 216 $ 225 $ 210
Telecommunications 325 291 48
Other 39 21 9
------- -------- --------
$ 580 $ 537 $ 267
======= ======== ========
Operating earnings (loss):
Mining $ 77 $ 76 $ 75
Telecommunications 37 27 6
Other (72) (26) (38)
------ -------- --------
$ 42 $ 77 $ 43
====== ======== ========
Identifiable assets:
Mining $ 374 $ 370 $ 420
Telecommunications 1,142 2,551 1,682
Other 259 118 68
Corporate (1) 715 498 589
------ ------- -------
$2,490 $ 3,537 $ 2,759
====== ======= =======
Capital Expenditures:
Mining $ 4 $ 3 $ 5
Telecommunications 72 426 127
Other 6 16 3
Corporate - 5 4
------ ------- -------
$ 82 $ 450 $ 139
====== ======= =======
Depreciation, depletion and amortization:
Mining $ 7 $ 11 $ 12
Telecommunications 81 149 35
Other 5 4 3
Corporate 3 1 1
------ ------ ------
$ 96 $ 165 $ 51
====== ====== =======
(1) Principally cash, cash equivalents, marketable
securities, notes receivable from sales of discontinued
operations and investments in all years.
(16) Related Party Transaction
The Group receives certain mine management services from the
Construction & Mining Group. The expense for these services
was $30 million for 1995 and $29 million for 1994 and 1993.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(17) Other Matters
In May 1995, the lawsuit titled Whitney Benefits, Inc. and
Peter Kiewit Sons' Co. v. The United States was settled. In
1983, plaintiffs alleged that the enactment of the Surface
Mining Control and Reclamation Act of 1977 had prevented the
mining of their Wyoming coal deposits and constituted a
government taking without just compensation. In settlement
of all claims, plaintiffs agreed to deed the coal deposits to
the government and the government agreed to pay plaintiffs
$200 million, of which Peter Kiewit Sons' Co., a KDG
subsidiary, received approximately $135 million in June 1995
and recorded it in other income on the statement of earnings.
In 1994, several former stockholders of an MFS subsidiary
filed a lawsuit against MFS, KDG and the chief executive
officer of MFS, in the United States District Court for the
Northern District of Illinois, Case No. 94C-1381. These
shareholders sold shares of the subsidiary to MFS in
September 1992. MFS completed an initial public offering in
May 1993. Plaintiffs allege that MFS fraudulently concealed
material information about its plans from them, causing them
to sell their shares at an inadequate price. Plaintiffs have
alleged damages of at least $100 million. Defendants have
meritorious defenses and intend to vigorously contest this
lawsuit. Defendants expect that a trial will be held in
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.
The Group is involved in various other 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.
In many pending proceedings, the Group is one of numerous
defendants who may be "potentially responsible parties"
liable for the cleanup of hazardous substances deposited in
landfills or other sites. The Group has established
reserves to cover its probable liabilities for environmental
cases and believes that any additional liabilities will not
materially affect the Group's financial position, future
results of operations or future cash flows.
A subsidiary of the Group, Continental Holdings Inc., remains
contingently liable as a guarantor of $53 million of debt
relating to various businesses which have been sold.
The Group leases various buildings and equipment under both
operating and capital leases. Minimum rental payments on
buildings and equipment subject to noncancelable operating
leases during the next 8 years aggregate $76 million.
It is customary in the Group's industries to use various
financial instruments in the normal course of business.
These instruments include items such as letters of credit.
Letters of credit are conditional commitments issued on
behalf of the Group in accordance with specified terms and
conditions. As of December 30, 1995, the Group had
outstanding letters of credit of approximately $35 million.
In November 1995, C-TEC announced that it had engaged an investment
banker to assist with evaluating strategic alternatives for its
various business units with a view toward enhancing shareholder
value. C-TEC is now planning to distribute to its shareholders in
a tax-free spin-off the telephone group, the communications services
group, and certain other assets. Following the spin-off, C-TEC plans
to combine its remaining businesses, which will consiste of its
domestic cable group, with a third party pursuant to a tax-free, stock-
for-stock transaction. C-TEc has received a number of inquiries
regarding its domestic cable group and is holding discussions with
interested parties.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(18) Subsequent Event
In 1996, RCN Corporation ("RCN"), a majority owned subsidiary,
entered into an asset purchase agreement, along with other
ancillary agreements, with Liberty Cable Company, Inc. ("Liberty")
to purchase an 80 percent interest in certain private cable
systems in New York City and selected areas of New Jersey.
The transaction closed on March 6, 1996. These cable
systems provide subscription television services using microwave
frequencies. RCN deposited $27 million in an escrow account which
was released on the closing date. In addition, RCN issued a
$15 million promissory note that is expected to be paid during
1996.
Under the terms of an agreement dated March 27, 1996, RCN will pay
C-TEC approximately $123 million for certain of C-TEC's assets,
including the long distance group, C-TEC International, which holds
the 40% interest in Megacable, S.A. de C.V., and Residential
Communications Network, a start-up joint effort with RCN which plans
to provide telecommunications services to the residential market. RCN
will purchase Residential Communications Network for cash in a
transaction expected to close in April 1996. RCN's purchase of the
other businesses for cash or C-TEC stock, at RCN's option, is expected to
close in the second half of 1996. The transactions are subject to
certain conditions including the receipt of all necessary regulatory
approvals. The agreement with RCN contains a repurchase option under
which C-TEC can reacquire the businesses if a restructuring of C-TEC's
main businesses does not occur. Additionally, C-TEC retains a warrant
to reacquire a six percent stake in Residential Communications Network.
The agreement with RCN was approved by a special committee of the board
of directors of C-TEC, composed of directors unaffiliated with either
RCN or the Group.
SCHEDULE II
KIEWIT DIVERSIFIED GROUP
Valuation and Qualifying Accounts and Reserves
Additions
Balance Charged to Amounts Balance
Beginning Costs and Charged to End of
(dollars in millions) of Period Expenses Reserves Other Period
Year ended December 30, 1995
Allowance for doubtful
trade accounts $ 2 $ - $ - $ - $ 2
Reserves:
Retirement benefits 67 3 (2) (14)(a) 54
Year ended December 31, 1994
Allowance for doubtful
trade accounts $ 2 $ 1 $ (1) $ - $ 2
Reserves:
Retirement benefits 71 2 (6) - 67
Year ended December 25, 1993
Allowance for doubtful
trade accounts $ 5 $ 1 $ (4) $ - $ 2
Reserves:
Retirement benefits 74 12 (17) 2 71
(a)The Group settled its liability with respect to certain
postretirement life insurance benefits by purchasing insurance
coverage from a third party insurance company.
KIEWIT DIVERSIFIED GROUP
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The financial statements of the Diversified Group ("the Group")
include the financial position, results of operations and cash
flows for the businesses of PKS other than its construction
business and certain mining service businesses, and include a
portion of the corporate assets and liabilities and related
transactions which are not separately identified with ongoing
operations of the Group or the Construction & Mining Group. The
Group's share of corporate assets and liabilities and related
transactions includes amounts to reflect certain financial
activities, corporate general and administrative costs, common
stock transactions and income taxes. See Notes 1 and 3 to the
Group's financial statements.
Results of Operations 1995 vs. 1994
Mining. Mining revenue decreased 4% in 1995 primarily due to a
decrease in spot sales. Spot sales were lower due to reduced
demand in the Group's spot market area because of a mild winter
and high hydro-electricity generation in the Western United
States. The decrease in spot sales was partially offset by an
increase in alternate source coal sales due to the acceleration
of coal shipments to the current year from future years and the
shift of certain coal shipments from mined coal to alternate
source coal.
Direct costs, as a percentage of revenue, decreased 4% as a
result of the additional alternate source coal sales.
Telecommunications. With the Spin-off of MFS, the
Telecommunications segment is now solely comprised of C-TEC. C-
TEC's primary operations are telephone and cable. In 1995,
telecommunication revenue increased 12% over 1994. Sales of the
telephone group increased $7 million to $129 million, a 6%
increase over 1994. Increases in access lines for the local
network service and rate increases for intrastate access traffic
were primarily responsible for the improvement. Sales for the
cable group increased 34% to $127 million in 1995. The
acquisition of Twin County Trans Video, Inc. and the
consolidation of Mercom, Inc.'s results since August contributed
$18 million and $6 million to C-TEC's revenue in 1995. In
addition, subscriber increases of approximately 16,000 over 1994
and rate increases effective in April 1995 account for an $8
million increase in cable revenue. Revenues from other operating
groups increased $17 million, a 32% increase over 1994 primarily
due to the resale of long distance telephone services to another
long distance reseller, improvements in switched business, 800
service sales and third party revenues from C-TEC's communication
services business. The arrangement with the third party reseller
terminated in the second quarter of 1995. Partially offsetting C-
TEC's increase in revenue was the sale of the mobile services
group in 1994 which contributed $23 million in revenue that year.
C-TEC's direct costs increased $30 million or 15% in 1995. The
telephone group's cost of revenue increased primarily because of
higher payroll expenses and higher depreciation expense. The
acquisitions of Mercom and Twin County led to a 37% increase in
direct costs for the cable group. In addition, higher basic
programming costs resulting from increased subscribers, channel
additions and rate increases contributed to the increase.
Direct expenses for C-TEC's other operating groups increased
because of costs associated with the resale of long distance
services and communication services work performed for third
parties.
KIEWIT DIVERSIFIED GROUP
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Partially offsetting these increases was the elimination of
direct costs associated with the mobile services group.
General and Administrative Expenses. General and administrative
expenses increased 35% in 1995. An increase in expenses for
environmental and other legal matters was partially offset by
an overall decline in C-TEC's general and administrative costs.
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 statement of earnings. With the Spin-off of
MFS, these types of gains will no longer be recognized for MFS
transactions.
Investment Income, net. Investment income increased 107% to $62
million in 1995. Improvements in interest and dividend income,
equity earnings, primarily from CE and declines in losses on the
sales of securities and international energy project development
expenses all contributed to the increase in investment income.
Proceeds from the C-TEC rights offering and the sale of its
mobile services group along with the Whitney Settlement proceeds
all contributed to a higher average portfolio balance and
increased interest income. The Group also recognized equity
earnings, net of goodwill amortization from CE of $10 million in
1995 compared to $5 million in 1994. This increase is primarily
attributable to the successful merger of Magma Energy operations
into CE in 1995. In 1995, losses on the sale of securities
declined 92% from 1994 primarily due to the reallocation of its
portfolio from fixed rate securities to mutual fund portfolios
with differing investment objectives. Developmental expenses
declined 75% in 1995 primarily due to the reimbursement of prior
year expenses and the capitalization of current year amounts.
Interest Expense, net. Interest expense in 1995 decreased 36% as
compared to 1994. The decline is primarily due to C-TEC's
prepayment of the senior secured notes in December 1994.
Other, net. In 1995, other income primarily includes settlement
proceeds of $135 million from the Whitney Benefits litigation.
Other income also includes gains and losses from the disposition
of property, plant and equipment and other assets in 1995 and
1994.
KIEWIT DIVERSIFIED GROUP
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Equity 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 in its financial
statements.
Income Tax Benefit (Provision). The effective income tax rate
for 1995 differs from the statutory rate of 35% due primarily to
$93 million of income tax benefits from the reversal of certain
deferred tax liabilities originally recognized on gains from
previous MFS stock transactions that are no longer required due
to the tax-free spin-off of MFS and adjustments of prior year tax
provisions. In 1994, the rate is lower than 35% primarily due to
adjustments to prior year tax provisions.
Results of Operations 1994 vs. 1993
Mining. Mining revenue increased 7% in 1994. This increase was
primarily due to an increase in spot sales. Mining gross profits
were 47% in 1994 and 50% in 1993.
Alternate source coal sales by Black Butte and Decker in 1994
were consistent with 1993. Alternate source coal consists of
coal purchased from unaffiliated mines located in the Powder
River Basin area of Wyoming and from a mine in which the Company
has a 50% interest. In 1994, alternate source coal sales
accounted for 33% of revenues and 50% of gross profits compared
to 34% and 54% in 1993.
Telecommunications. C-TEC generated telecommunications revenue
for the Group of $291 million and $48 million in 1994 and 1993.
The 1993 figures represent activity from the acquisition date. C-
TEC's telephone group and cable group had revenue of $122 million
and $95 million. The mobile services group, sold in 1994, the
long distance group and communications services group
generated the balance. Overall C-TEC's revenues increased 5% in
1994. Increases in interstate access revenues for the telephone
group, 9,300 additional subscribers for the cable group and
increased business and residential market penetration for the
long distance group all contributed to the increase in revenue.
The cost of revenue for C-TEC included in the Group's results was
$189 million and $42 million in 1994 and 1993. The costs in 1994
are primarily attributable to the telephone group - $57 million
and the cable group - $71 million. C-TEC's cost of revenue
increased at a higher rate than revenue in 1994. The costs
associated with developing the long distance business, primarily
the opening of four new sales offices in late 1993, advertising
expenses and promotional and discount campaigns designed to
obtain a greater market share were the reasons for the increase.
General and Administrative Expenses. General and administrative
expenses in 1994 exceeded those of 1993 by 90%. The inclusion of
a full year of C-TEC's operations is responsible for the majority
of the increase. Overall, C-TEC's general and administrative
expenses remained fairly consistent in 1994. The remaining
increase in general and administrative expenses was attributable
to an increase in payroll expenses partially offset by lower
professional fees.
KIEWIT DIVERSIFIED GROUP
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Gain on Subsidiary's Stock Issuances, net. In 1994, the Group
settled a contingent purchase price adjustment resulting from
MFS' 1990 purchase of 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 MFS issuance of stock for the Cylix and Realcom
acquisitions and MFS employee stock options, resulted in a $54
million pre-tax gain to the Group. Deferred taxes were provided
on these gains.
Investment Income, net. The improvement in investment income was
directly attributable to a decline of $22 million in losses from
the sale and writedown of derivative and other securities.
Partially offsetting these items was a $3 million decrease in
interest and dividend income and the recognition of $4 million of
developmental expenses associated with the international energy
projects being jointly developed by the Group and CE.
Interest Expense, net. Interest expense increased significantly
in 1994. The interest on the debt assumed in the C-TEC
acquisition, $33 million, was primarily responsible for the
increase.
Other, net. Debt prepayment penalties incurred by C-TEC were
primarily responsible for the decline.
Income Tax Benefit (Provision). The effective income tax rate
for 1994 and 1993 differed from the statutory rate of 35% due to
adjustments of prior year tax provisions. Dividend exclusions
and mineral depletion deductions also contributed to the lower
effective rate in 1993.
KIEWIT DIVERSIFIED GROUP
Financial Condition - December 30, 1995
The Group's working capital, exclusive of MFS, increased $66
million or 9% during 1995. The increase was mainly due to cash
flows from operations, including the receipt of the Whitney
settlement of $135 million and the net proceeds from stock
conversions. The increase was partially offset by the use of
cash for investing activities.
Investing activities include $82 million of capital expenditures,
$258 million of investments, $36 million of deferred development
costs and net purchases of marketable securities of $47 million.
The investments primarily include C-TEC's $84 million outlay for
40% of Megacable and $37 million outlay for Twin County, KDG's
$85 million investment in two Philippine power projects, $29
million purchase of CE's stock, $8 million investment in
geothermal power plants in Indonesia and $6 million for a 19%
interest in a healthcare software development company. The
capital outlays were partially offset by $14 million of proceeds
from the sale of property, plant and equipment and other
investments.
Financing sources include $157 million of stock conversions and
sales and $30 million for the construction financing of a
privately owned toll road. Financing uses consisted of C-TEC's
$27 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 investments in its infrastructure,
telecommunications and energy businesses - including its joint
venture agreement with CE 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 Class D shareholders in
January 1996.
In November 1995, C-TEC announced that it had engaged an investment
banker to assist with evaluating strategic alternatives for its
various business units with a view toward enhancing shareholder
value. C-TEC is now planning to distribute to its shareholders
in a tax-free spin-off the telephone group, the communications
services group, and certain other assets. Following the spin-off
C-TEC plans to combine its remaining businesses, which will consist
of its domestic cable group,with a third party pursuant to a tax-free,
stock-for-stock transaction. C-TEC has received a number of inquiries
regarding its domestic cable group and is holding discussions with
interested parties.
In March 1996, under the terms of an agreement, RCN will pay C-TEC
approximately $123 million for certain of C-TEC's assets, including
the long distance group, C-TEC International, which holds the 40%
interest in Megacable, S.A. de C.V., and Residential Communications
Network, a start-up joint effort with RCN which plans to provide
telecommunications services to the residential market. RCN will
purchase Residential Communications Network for cash in a transaction
expected to close in April 1996. RCN's purchase of the other asset
for cash or C-TEC stock, at RCN's option, is expected to close in the
second half of 1996. The transactions are subject to certain
conditions including the receipt of all necessary regulatory
approvals. The agreement with RCN contains a repurchase option under
which C-TEC can reacquire the businesses if a restructuring of C-TEC's
main businesses does not occur. Additionally, C-TEC retains a warrant to
reacquire a six percent stake in Residential Communications Network. The
agreement with RCN was approved by a special committee of the board of
directors of C-TEC, composed of directors unaffiliated with either RCN
or the Group.
Also in March 1996, RCN entered into an asset purchase
agreement, along with other ancillary agreements, with Liberty
Cable Company, Inc. ("Liberty") to purchase an 80 percent
interest in certain private cable systems in New York City and
selected areas of New Jersey. The transaction closed on March 6,
1996. These cable systems provide subscription television
services using microwave frequencies. RCN deposited $27
million in an escrow account which was released on the closing
date. In addition, RCN issued a $15 million promissory note that
is expected to be paid during 1996.
