FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition
period__________to__________
Commission file number 0-15658
PETER KIEWIT SONS', INC.
(Exact name of registrant as specified in its charter)
Delaware 47-0210602
(State of Incorporation) (I.R.S. Employer
Identification No.)
1000 Kiewit Plaza, Omaha, Nebraska 68131
(Address of principal executive offices) (Zip Code)
(402)-342-2052
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was
required to file such reports(s)), and (2) has been
subject to such filing
requirements for the past 90 days. Yes X No
The number of shares outstanding of each class of the issuer's
common stock, as of August 1, 1996:
Class B Common Stock .................. 263,468 shares
Class C Common Stock ............... 10,754,013 shares
Class D Common Stock ............... 23,181,650 shares
PETER KIEWIT SONS', INC.
Part I - Financial Information
Item 1. Financial Statements:
Consolidated Condensed Statements of Earnings
Consolidated Condensed Balance Sheets
Consolidated Condensed Statements of Cash Flows
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II - Other Information
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
Index to Exhibits
PETER KIEWIT SONS', INC.
Consolidated Condensed Statements of Earnings
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
(dollars in millions,
except per share data) 1996 1995 1996 1995
Revenue $ 731 $ 697 $ 1,387 $1,260
Cost of Revenue (607) (591) (1,183) (1,081)
----- ----- ------ -----
124 106 204 179
General and Administrative Expenses (66) (53) (125) (106)
----- ----- ------ -----
Operating Earnings 58 53 79 73
Other Income (Expense):
Investment Income, net 20 14 40 30
Interest Expense, net (7) (6) (15) (13)
Other, net 8 164 14 174
----- ----- ------ ----
21 172 39 191
Equity Loss in MFS - (43) - (85)
----- ----- ------ -----
Earnings Before Income Taxes and
Minority Interest 79 182 118 179
Provision for Income Taxes (32) (79) (46) (100)
Minority Interest in Net Income of
Subsidiaries (1) (6) (1) (8)
----- ----- ----- -----
Net Earnings $ 46 $ 97 $ 71 $ 71
====== ====== ====== ======
Earnings Attributable to
Class B&C Stock $ 29 $ 36 $ 36 $ 34
====== ====== ====== ======
Earnings Attributable to
Class D Stock $ 17 $ 61 $ 35 $ 37
===== ====== ====== ======
Net Earnings per Common and Common
Equivalent Share:
Class B&C $2.79 $ 2.59 $ 3.46 $ 2.44
===== ====== ======= ======
Class D $ .77 $ 2.87 $ 1.54 $ 1.75
===== ====== ======= ======
Cash Dividends per Common Share:
Class B&C $ .60 $ .45 $ .60 $ .45
====== ===== ======= ======
Class D $ - $ - $ - $ -
====== ===== ======= ======
See accompanying notes to consolidated condensed financial statements.
PETER KIEWIT SONS', INC.
Consolidated Condensed Balance Sheets
June 30, December 30,
1996 1995
(dollars in millions, except per share data) (unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 426 $ 457
Marketable securities 555 604
Receivables, less allowance of $18 and $12 351 329
Costs and earnings in excess of
billings on uncompleted contracts 104 78
Investment in construction joint ventures 67 73
Deferred income taxes 78 66
Other 57 59
-------- --------
Total Current Assets 1,638 1,666
Property, Plant and Equipment,
less accumulated depreciation and
amortization of $735 and $710 805 782
Investments 610 542
Intangible Assets, net 363 363
Other Assets 80 114
------- --------
$ 3,496 $ 3,467
======= =======
See accompanying notes to consolidated condensed financial statements.
PETER KIEWIT SONS', INC.
Consolidated Condensed Balance Sheets
June 30, December 30,
1996 1995
(dollars in millions, except per share data) (unaudited)
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 218 $ 240
Short-term borrowings - 45
Current portion of long-term debt:
Telecommunications 30 36
Other 2 6
Accrued costs and billings in excess
of revenue on uncompleted contracts 176 121
Accrued insurance costs 76 79
Other 131 139
------ ------
Total Current Liabilities 633 666
Long-Term Debt, less current portion:
Telecommunications 260 264
Other 114 106
Deferred Income Taxes 234 236
Retirement Benefits 52 54
Accrued Reclamation Costs 97 100
Other Liabilities 203 220
Minority Interest 221 214
Stockholders' Equity:
Preferred stock, no par value, authorized
250,000 shares: no shares outstanding - -
Common stock, $.0625 par value,
$1.5 billion aggregate redemption value:
Class B, authorized 8,000,000 shares:
263,468 outstanding in 1996 and 1995 - -
Class C, authorized 125,000,000 shares:
10,765,050 outstanding in 1996 and
10,616,901 in 1995 1 1
Class D, authorized 50,000,000 shares:
23,182,425 outstanding in 1996 and
23,027,974 in 1995 1 1
Additional paid-in capital 234 210
Foreign currency adjustment (5) (6)
Net unrealized holding gain 15 17
Retained earnings 1,436 1,384
------ -------
Total Stockholders' Equity 1,682 1,607
------ -------
$ 3,496 $ 3,467
======= =======
See accompanying notes to consolidated condensed financial statements.
PETER KIEWIT SONS', INC.
Consolidated Condensed Statements of Cash Flows
(unaudited)
Six Months Ended
June 30,
(dollars in millions) 1996 1995
Cash flows from continuing operations:
Net cash provided by continuing operations $ 137 $ 208
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 196 261
Purchases of marketable securities (156) (203)
Proceeds from sale of property, plant
and equipment, and other investments 20 9
Capital expenditures (80) (103)
Acquisitions and investments in affiliates (86) (172)
Other 2 (1)
------ -----
Net cash used in investing activities (104) (209)
Cash flows from financing activities:
Proceeds from long-term debt borrowings 11 31
Payments on long-term debt, including
current portion (17) (11)
Net change in short-term borrowings (45) -
Repurchases of common stock (15) (6)
Dividends paid (25) (13)
Issuance of common stock 27 26
------ -----
Net cash provided by (used in)
financing activities (64) 27
Cash flows from proceeds due to sales of
discontinued packaging operations - 29
Cash and cash equivalents of MFS at beginning
of period - (22)
Effect of exchange rates on cash - 1
------ -----
Net change in cash and cash equivalents (31) 34
Cash and cash equivalents at beginning of period 457 400
------- -----
Cash and cash equivalents at end of period $ 426 $ 434
======= ======
See accompanying notes to consolidated condensed financial statements.
PETER KIEWIT SONS', INC.
Notes to Consolidated Condensed Financial Statements
1. Basis of Presentation
The consolidated condensed balance sheet of Peter
Kiewit Sons', Inc. ("PKS") and subsidiaries (the
"Company") at December 30, 1995 has been condensed
from the Company's audited balance sheet as of that
date. All other financial statements contained herein
are unaudited and, in the opinion of management,
contain all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation
of financial position and results of operations for the
periods presented. The Company's accounting policies
and certain other disclosures are set forth in the notes
to the consolidated financial statements contained in the
Company's Annual Report on Form 10-K for the year ended
December 30, 1995.
Marketable securities at June 30, 1996 and December 30,
1995 include approximately $60 million and $62
million, respectively, of investments which are being
held by the owners of various construction projects
in lieu of retainage. Receivables at June 30, 1996
and December 30, 1995 include approximately $56
million and $50 million, respectively of retainage
on uncompleted projects, the majority of which is
expected to be collected within one year.
Where appropriate, items within the consolidated
condensed financial statements have been reclassified
from the previous periods to conform to current year presentation.
2. Earnings Per Share:
Primary earnings per share of common stock have
been computed using the weighted average number of
shares outstanding during each period. Fully diluted
earnings per share have not been presented because
they are not materially different from primary earnings per share.
The number of shares used in computing earnings per share was
as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Class B&C 10,353,305 13,998,740 10,305,087 13,954,135
Class D 23,205,830 21,257,541 23,221,026 21,261,632
Pursuant to the Restated Certificate of Incorporation, the stock
price calculation is computed annually using the number of shares
outstanding at the end of the fiscal year.
3. Summarized Financial Information:
Holders of Class B&C Stock (Construction & Mining Group)
and Class D Stock (Diversified Group) are stockholders of
PKS. The Construction & Mining Group contains the Company's
construction and materials operations 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 Corporation ("C-TEC"), a minority
interest in CalEnergy Company, Inc. ("CE"), international
energy projects and miscellaneous investments, all owned by
Kiewit Diversified Group Inc.("KDG"). Corporate assets and
liabilities which are not separately identified with
the ongoing operations of the Construction & Mining
Group or the Diversified Group are allocated equally between the
two groups.
A summary of the results of operations and financial position
for the Construction & Mining Group and the Diversified Group follows.
The summary information for December 30, 1995 was derived from the
audited financial statements of the respective groups which were
exhibits to the 1995 Annual Report. All other summary information
was derived from the unaudited financial statements of the respective
groups which are exhibits to this Form 10-Q. All significant
intercompany accounts and transactions, except those directly between
the Construction & Mining Group and the Diversified Group, have been
eliminated.
(in millions, except per share data)
Construction & Mining Group:
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Results of Operations:
Revenue $ 570 $ 558 $ 1,072 $ 984
Net earnings 29 36 36 34
Earnings per share 2.79 2.59 3.46 2.44
June 30, December 30,
1996 1995
Financial Position:
Working capital $ 287 $ 248
Total assets 1,002 991
Long-term debt, less current portion 9 9
Stockholders' equity 500 467
Included within the results of operations are mine
management fees paid by the Diversified Group of $8
million and $7 million for the three months ended June
30, 1996 and 1995 and $15 million for the six months
ended June 30, 1996 and 1995.
(in millions, except per share data)
Diversified Group:
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Results of Operations:
Revenue $ 162 $ 139 $ 317 $ 278
Net earnings 17 61 35 37
Earnings per share .77 2.87 1.54 1.75
June 30, December 30,
1996 1995
Financial Position:
Working capital $ 718 $ 752
Total assets 2,497 2,490
Long-term debt, less current portion 365 361
Stockholders' equity 1,182 1,140
Included within the results of operations is mine
management fees paid to the Construction & Mining
Group of $8 million and $7 million for the three months
ended June 30, 1996 and 1995 and $15 million for the six
months ended June 30, 1996 and 1995.
4. Acquisitions:
On March 6, 1996, RCN Corporation ("RCN") a subsidiary
of KDG, closed an asset purchase agreement, along with
other ancillary agreements, with Liberty Cable
Company, Inc. ("Liberty") to purchase an indirect 80%
interest in certain private cable systems in New York
City and New Jersey. The cable systems provide
subscription television services using microwave
frequencies. RCN paid sellers $27 million on the closing
date and has a contingent payment obligation of $15
million that it expects to pay in full.
Payment of the obligation is contingent upon Liberty
attaining specific levels of subscribers. The
transaction was accounted for as a purchase and
Liberty's operating results have been consolidated since the acquisition
date. Intangible assets recognized to date are
approximately $18 million, which are being amortized over
periods of 5 to 15 years. Payments of the contingent
obligation will also be included in intangible assets.
Liberty's 1995 and 1996 operating results prior to
the acquisition were not significant relative to the Company's results.
On April 1, 1996, RCN purchased Residential
Communications Network from C-TEC at its book value of
$17.5 million. Residential Communications Network is
a start-up joint effort with RCN which plans to
provide telecommunications services to the residential
market. The transaction was accounted for as a purchase.
On August 8, 1996 C-TEC announced a plan to rescind the sale of Residential
Communications Network to RCN and acquire the assets of Liberty from RCN
and merge those operations with C-TEC. This action coincides with
C-TEC's decision to close discussions concerning the sale of its
cable television unit. C-TEC has also agreed in principle to exercise
its option to unwind the agreement to sell to RCN its other non-core
assets: the long distance group ("CLD") and C-TEC International which
holds the 40% interest in Megacable S.A. de C.V. and a $13 million note
payable by Mazon Corporativo, S.A. de C.V., collateralized by additional
stock of Megacable ("C-TEC International"). The agreement
provides for the assets to be purchased under the same terms and
conditions under which they were sold.
5. Investments:
In February 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 to $12 per share. Of these, 3.3 million
options at $12 per share may be exercised if CE's
common stock trades at or above $24 per share for 180
consecutive days.
6. Other Matters:
In June 1996, the Company's stockholders approved the 1995 Class D Stock
plan. Under the plan, the Company may not grant benefits
with respect to more than 1 million shares of Class D Common
Stock ("Shares") during the 10 year term of the plan. The Company
may not grant benefits with respect to more than 500,000 Shares in
any two year period and may not grant benefits to any one
participant with respect to more than 200,000 Shares. Stock options
must have an exercise price that is not less than the fair market
value of the Shares on the grant date and become exercisable
at a rate of 20% per year over a five year period. On June
30, 1996, 268,000 options, at an exercisable price of
$40.40 have been granted and remain outstanding. The Company has
included the disclosure required in Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation" which establishes a fair value method of accounting for
stock options and other equity instruments. The compensation cost for
the Company's 1995 Class D Stock plan using the Black-Scholes model
and assuming no dividends, 0% volatility, risk-free interest rate of
6.84% and a 10 year life of the option, would not have
a material effect on the Company's financial statements.
In 1994, several former shareholders of a subsidiary of MFS
Communications Company, Inc. ("MFS") filed a lawsuit against MFS,
KDG and the chief executive officer of MFS, in the United States
District Court for the Northern District of Illinois, Case No. 94C-1381.
Plaintiffs allege that MFS fraudulently concealed material
information from them, causing them to sell their shares in the subsidiary
to MFS at an inadequate price. The lawsuit was settled in July
1996. KDG had previously agreed to indemnify MFS against any
liabilities arising from this lawsuit. The settlement, net of reserves
established will not materially affect the Company's financial position
or results of operations.
The Company is involved in various other lawsuits,
claims and regulatory proceedings incidental to its
business. Management believes that any resulting liability
for legal proceedings beyond that provided should
not materially affect the Company's financial position,
future results of operations or future cash flows.
PETER KIEWIT SONS', INC.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Separate management's discussion and analysis of
financial condition and results of operations for the Kiewit
Construction & Mining Group and the Kiewit Diversified Group
have been filed as part of Exhibits 99.A and 99.B to
this report. The Company will furnish a copy of such exhibits without charge
upon the written request of a stockholder addressed to Stock
Registrar, Peter Kiewit Sons', Inc., 1000 Kiewit Plaza, Omaha, Nebraska 68131.
Results of Operations - Second Quarter 1996 vs Second Quarter 1995
Revenue from each of the Company's business segments for
the three months ended June 30, comprised the following
(in millions):
1996 1995
Construction $ 566 $ 547
Mining 62 61
Telecommunications 93 79
Other 10 10
----- -----
$ 731 $ 697
===== =====
Construction. Construction revenue rose 3% in the second
quarter of 1996 compared to the same period in 1995. The
increase is primarily due to new work in the form of joint
ventures as well as increased materials sales. Contract
backlog at June 30, 1996 was $2 billion, of which 7% is
attributable to foreign operations, principally, Canada, the
Philippines and Indonesia. Projects on the west coast account
for 36% of the total backlog which includes San Joaquin Toll
Road backlog of $58 million.
Gross margin on construction contracts increased to 9% from
8% during the same period in 1995. Increased operational
efficiencies, primarily on joint venture projects, as well
as claim settlements favorably affected construction margins.
In addition, the growing materials business continued to have
a positive impact on margins.
Mining. Mining revenue for the second quarter of 1996 was $1
million greater than the second quarter of 1995. Higher
alternate coal sales and greater coal shipments offset
the absence of precious metal sales. The greater coal
shipments were a combination of additional spot and contract
coal sales compared to the second quarter of 1995.
The precious metal inventory was essentially liquidated during
1995 resulting in the sales decline.
Operating margins increased 4% over the same period in 1995.
The absence of lower margin precious metal sales and the
increase in high margin alternate source coal sales combined
to increase operating margins. Higher shipments of
contract coal also contributed to the increase in margins.
Telecommunications. Revenue for C-TEC's telephone
group increased $3 million or 8% during the second quarter of
1996 compared to the same period in 1995. The increase is
primarily due to higher local network revenue, intrastate
access revenue, business sales and internet access
service revenue. Cable revenue increased $10 million or 32%
in 1996. The acquisition of Twin County Trans Video, Inc.
("Twin County") in May 1995, the consolidation of Mercom,
Inc. ("Mercom") in August 1995, and the effects of a rate
increase in February 1996, were primarily responsible for the
improved revenue figures.
The cost of revenue, excluding depreciation and amortization,
for the telephone group increased 21% in 1996. Higher
compensation expense, material costs associated with the
business sales and internet services, and consulting
expenses for a variety of regulatory and operational
matters contributed to the increase. The cable group's costs
increased primarily due to the expenses associated with the
additional Twin County and Mercom subscribers and higher
programming fees. Additional depreciation and
amortization expense resulting from the Twin County and
Mercom acquisitions also contributed to a decline in earnings.
General and Administrative Expenses. General and
administrative expenses increased 24% in 1996. The acquisition
of Twin County, the consolidation of Mercom, the costs
associated with the C-TEC restructuring and higher compensation
expenses all contributed to the increase in expenses.
Investment Income, net. A 43% increase in investment income
is primarily attributable to improved results on the sale
of marketable securities. The Company realized gains of $2
million on the sale of equity securities in 1996 as compared
to a $3 million loss on the disposition of certain securities in 1995.
Other, net. Other income includes gains and losses on
the disposition of property, plant and equipment and other
assets, gains on subsidiary stock transactions and other items.
In 1996, the absence of Whitney Benefit proceeds and the
Kinross transaction gain were partially offset by increased gains on
the sale of construction equipment.
Equity Loss in MFS. MFS is a leading provider of
communications services to business. The Company spun-off its
investment in MFS to Class D stockholders on September 30, 1995.
Prior to the spinoff, the Company included its proportionate
share of MFS' losses in the statement of earnings. The
significant initial development and roll out expenses
associated with the expansion activities announced by MFS in
1993 and 1995 adversely affected MFS' 1995 results.
Provision for Income Taxes. The effective income tax rate
in 1996 differs from the expected statutory rate of 35%
primarily due to state income taxes. In 1995, the net
operating loss limitations of MFS and the settlement of prior
period issues, resulted in the higher effective rate.
Results of Operations - Six Months 1996 vs. Six Months 1995
Revenue from each of the Company's business segments for the
six months ended June 30 comprised the following (in millions):
1996 1995
Construction $ 1,065 $ 966
Mining 118 127
Telecommunications 183 152
Other 21 15
------ ------
$1,387 $1,260
====== ======
Contruction. Construction and materials revenues increased
by $99 million or 10% during the first six months of 1996
compared to the same period in 1995. Materials sales increased
by 18% due to more favorable weather and market conditions. Also
contributing to the increase was a 33% increase in joint
venture revenues primarily from new work and the San Joaquin
Toll Road project.
Gross margins on construction and materials projects increased
to 7% for the first six months of 1996 compared to 6% for the
same period in 1995. Increased operational efficiencies, primarily
on joint venture projects, as well as claim settlements favorably affected
construction margins. In addition, the growing materials business continued
to have a positive impact on margins.
Mining. Mining revenue decreased $9 million in the first half
of 1996 compared to the same period in 1995. The
decrease is the result of fewer precious metal sales.
Precious metal inventory was essentially liquidated in 1995
resulting in the decrease in 1996 when compared to 1995.
Lower spot market sales were offset by an increase in
alternate source coal sales.
Operating margins increased 3% in the first half of 1996
when compared to the same period in 1995. The absence of low
margin precious metal sales combined with the increase in
high margin alternate coal raised operating margins.
Telecommunications. For the six months ended June 30, 1996,
CTEC's telephone group experienced a $5 million or 8% increase
in revenue compared to the same period in 1995. The
increase was primarily due to increases in local network
service, network access revenues, business sales and
internet access service revenue. Cable revenue increased
$24 million or 44% in 1996. The acquisition of Twin County,
the consolidation of Mercom and the effects of rate
increases in April 1995 and February 1996, were primarily
responsible for the increase in revenue.
The cost of revenue, excluding depreciation and amortization,
for the telephone group increased 6% in 1996. The
increase is primarily due to higher payroll expense and
higher consulting fees for regulatory and operational matters.
The cable group's costs increased
primarily due to higher program fees, channel additions,
and subscriber growth associated with the Twin County and
Mercom acquisitions. Also contributing to a decline
in earnings was additional depreciation and amortization
expense resulting from the Twin County and Mercom
acquisitions.
General and Administrative Expenses. General and
administrative expenses increased 18% in 1996. The acquisition
of Twin County, the consolidation of Mercom, the costs
associated with the C-TEC restructuring and higher compensation
expenses all contributed to the increase in expenses.
Investment Income, net. A 33% increase in investment income
is attributable to improved results on the sale of
marketable securities and higher equity earnings. The
Company realized gains of $2 million on the sale of equity
securities in 1996 as compared to a $4 million loss on the
disposition of certain securities in 1995.
Improvements in the net earnings of equity method investees,
primarily CE, Megacable S.A. de C.V. and ME Holding, Inc.
contributed to the improved results.
Other, net. In 1996, the absence of Whitney Benefit
proceeds, Kinross transaction gain and gains on subsidiary stock
transactions were partially offset by increased gains on the sale of
construction equipment.
Financial Condition - June 30, 1996 vs. December 30, 1995
The Company's working capital increased $5 million or 1%
during the first six months of 1996. The increase was mainly
due to cash provided by operations. The increase was offset
by cash used to fund investing and financing activities.
Investing activities include $86 million of investments, and
$80 million of capital expenditures, including $8 million for the
construction of a privately owned toll road. The investments
primarily include KDG's $27 million for an indirect 80% interest in
Liberty, the exercise of CE options to purchase CE stock for
$14 million, $4 million investment in a Philippine power
project and $30 million investment in three Indonesian power
projects. These capital outlays were partially offset by $40
million of net proceeds from the sale of marketable
securities and $20 million of proceeds from the sale of
property, plant and equipment and other assets.
Financing sources include $27 million for the issuance of
Class "C" Stock and $11 million of long-term debt borrowing
for the construction financing of a privately owned toll road.
Financing uses primarily consisted of $45 million for the
repayment of short-term borrowings, C-TEC's $12 million outlay
for the payment of long-term debt, $15 million for stock
repurchases and $25 million of cash dividends.
The Company also anticipates making significant
investments in its construction, infrastructure, telecommunications and energy
businesses including its joint venture agreement with CE covering
international power project development activities - and
searching for opportunities to acquire businesses which
provide for long-term growth. The Company may also exercise
3.3 million CE options at $12 per share if CE's common stock continues
to trade at or above $24 per share for 180 consecutive days.
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
immediate operating and investing activities.
On November 8, 1995, C-TEC announced that it would
evaluate strategic options for its various business units
with a view toward enhancing shareholder value.
Specifically, C-TEC evaluated the advisability and
feasibility of separating or restructuring its local
telephone business, its cable television business, and its
various other communications businesses. C-TEC engaged the
investment banking firm Merrill Lynch & Co. to assist with the
process.
In March 1996, under the terms of an agreement, RCN agreed to
pay C-TEC approximately $123 million for certain of C-TEC's
assets, including CLD, C-TEC International, and
Residential Communications Network. RCN purchased Residential
Communications Network for cash in a transaction that closed on
April 1, 1996.
On August 8, C-TEC announced a plan to rescind the sale of
Residential Communications Network to RCN and acquire the assets of
Liberty Cable from RCN and merge those operations with
C-TEC. This action coincides with C-TEC's decision to close
discussions concerning the sale of its cable television unit.
C-TEC has also agreed in principle to exercise its option to unwind the
agreement to sell to RCN its other non-core assets, CLD and
C-TEC International. The agreement provides for the assets to be purchased
under the same terms and conditions under which they were sold. C-TEC will
continue to explore ways to increase its profitability and
value which could include a restructuring transaction.
PETER KIEWIT SONS', INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
MFS Litigation.
In 1994, several former shareholders of a subsidiary of
MFS Communications Company, Inc. ("MFS") filed a lawsuit
against MFS, KDG and the chief executive officer of MFS, in
the United States District Court for the Northern District of
Illinois, Case No. 94C-1381. Plaintiffs allege that
MFS fraudulently concealed material information from them,
causing them to sell their shares in the subsidiary to MFS
at an inadequate price. The lawsuit was settled in July 1996. KDG had
previously agreed to indemnify MFS against any liabilities arising
from this lawsuit. The settlement, net of reserves established,
will not materially affect the Company's financial position or results
of operations.
Item 4. Submission of Matters to a Vote of Security Holders
The Corporation's annual stockholders meeting was held on
June 8, 1996. Stockholders were asked to vote on three
matters: (1) the election of the Directors; (2) the approval
of the Company's 1996 Bonus Plan; and (3) approval of the
Company's 1995 Class D Stock Plan. Proxies were received
representing 9,813,042 of the 9,939,001 eligible Class C
votes and 22,311,540 of the 23,217,100 eligible Class D
votes.
Election of Directors
Separate elections of Class C and Class D directors were
held. Directors were elected to serve one-year terms. A
slate of nominees was proposed by the incumbent directors.
No additional nominations were received and all the nominees
proposed by the board were elected. The following table
shows the votes counted for each candidate and the votes
counted against (or withheld from) each candidate.
Class C Directors Votes For Votes Against
Richard W. Colf 9,804,242 8,800
Richard Geary 9,804,242 8,800
Bruce E. Grewcock 9,773,453 39,589
William L. Grewcock 9,792,995 20,047
Tait P. Johnson 9,745,714 67,328
Leonard W. Kearney 9,804,242 8,800
Peter Kiewit, Jr. 9,804,242 8,800
Walter Scott, Jr. 9,804,242 8,800
Kenneth E. Stinson 9,804,242 8,800
George B. Toll 9,789,372 23,670
Class D Directors
James Q. Crowe 22,221,681 89,859
Robert B. Daugherty 22,207,171 104,369
Charles M. Harper 22,236,081 75,459
Richard R. Jaros 22,236,081 75,459
Robert E. Julian 22,040,736 270,804
Approval of the 1996 Bonus Plan
The Peter Kiewit Sons', Inc. 1996 Bonus Plan
is intended to serve as a qualified performance-based
compensation program under Section 162(m) of the Internal
Revenue Code, in order to preserve the Company's tax
deduction for compensation paid to certain of the Company's
executive officers. Bonuses are payable only after
satisfaction of pre-set financial goals.
Votes For Votes Against Abstain
28,893,338 2,608,285 622,959
Approval of the 1995 Class D Stock Plan
Stockholders approval of the 1995 Class D Stock Plan (the
"Plan") is necessary under Section 162(m) of the Internal
Revenue Code, in order to preserve the Company's tax
deduction for compensation paid upon the exercise of stock
options granted to certain employees of KDG or PKS. A
maximum of one million shares may be issued during the ten
year term of the Plan. Options must have an exercise price
not less than fair market value of Class D shares at the
date of grant.
Votes For Votes Against Abstain
29,492,825 2,031,255 600,502
Item 6. Exhibits & Reports on Form 8-K
(a) Exhibits filed as part of this report are listed
below.
Exhibit
Number
27 Financial Data Schedule (for electronic filing purposes only)
99.A Kiewit Construction & Mining Group Financial Statements and
Management's Discussion and Analysis of Financial Condition
and Results of Operations.
99.B Kiewit Diversified Group Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results
of Operations.
(b) No reports on Form 8-K were filed by the Company during the
second quarter of 1996.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
PETER KIEWIT SONS', INC.
Dated: August 14, 1996 \s\ Richard R. Jaros
Richard R. Jaros
Executive Vice President and
Chief Financial Officer
INDEX TO EXHIBITS
Exhibit
No.
27 Financial Data Schedule (For electronic filing purposes only)
99.A Kiewit Construction & Mining Group Financial Statements
and Management's Discussion and Analysis of Financial Condition
and Results of Operations.
99.B Kiewit Diversified Group Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q for the period ending June 30, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> JUN-30-1996
<CASH> 426
<SECURITIES> 555
<RECEIVABLES> 369
<ALLOWANCES> 18
<INVENTORY> 17
<CURRENT-ASSETS> 1,638
<PP&E> 1,540
<DEPRECIATION> 735
<TOTAL-ASSETS> 3,496
<CURRENT-LIABILITIES> 633
<BONDS> 374
2
0
<COMMON> 0
<OTHER-SE> 1,680
<TOTAL-LIABILITY-AND-EQUITY> 3,496
<SALES> 1,183
<TOTAL-REVENUES> 1,387
<CGS> 1,042
<TOTAL-COSTS> 1,183
<OTHER-EXPENSES> 125
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> 118
<INCOME-TAX> 46
<INCOME-CONTINUING> 71
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71
<EPS-PRIMARY> $3.46<F1>
<EPS-DILUTED> $3.46<F1>
<FN>
<F1>$3.46 represents Class C Stock earnings per share, Class D Stock earnings per
share $1.54
</FN>
</TABLE>
Exhibit 99.A
KIEWIT CONSTRUCTION & MINING GROUP
Index to Financial Statements and
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Statements:
Condensed Statements of Earnings for the three months
ended June 30, 1996 and 1995 and the six months ended
June 30, 1996 and 1995
Condensed Balance Sheets as of June 30,1996 and
December 30, 1995
Condensed Statements of Cash Flows for the six months
ended June 30, 1996 and 1995
Notes to Condensed Financial Statements
Management's Discussion and Analysis of Financial Condition
and Results of Operations
KIEWIT CONSTRUCTION & MINING GROUP
Condensed Statements of Earnings
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
(dollars in millions,
except per share data) 1996 1995 1996 1995
Revenue $ 570 $ 558 $ 1,072 $ 984
Cost of Revenue (511) (512) (989) (921)
------- ------ ------- -----
59 46 83 63
General and Administrative Expenses (29) (29) (59) (61)
------- ------ ------- -----
Operating Earnings 30 17 24 2
Other Income (Expense):
Investment Income, net 4 3 8 6
Interest Expense, net (1) - (2) (1)
Other, net 15 35 29 46
-------- ------- ------- -----
18 38 35 51
-------- ------- ------- -----
Earnings Before Income Taxes 48 55 59 53
Provision for Income Taxes (19) (19) (23) (19)
-------- ------- ------- -----
Net Earnings $ 29 $ 36 $ 36 $ 34
========= ======== ======== ======
Earnings per Common and Common
Equivalent Share $ 2.79 $ 2.59 $ 3.46 $2.44
========= ======== ======== =====
See accompanying notes to condensed financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Condensed Balance Sheets
June 30, December 30,
1996 1995
(dollars in millions) (unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 99 $ 94
Marketable securities 107 120
Receivables, less allowance of $16 and $10 261 258
Costs and earnings in excess of
billings on uncompleted contracts 104 78
Investment in construction joint ventures 67 73
Deferred income taxes 68 61
Other 20 23
------- -----
Total Current Assets 726 707
Property, Plant and Equipment, less accumulated
depreciation and amortization of $413 and $421 167 161
Investments 90 83
Other Assets 19 40
------- -----
$ 1,002 $ 991
======= =======
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, including retainage
of $33 and $42 $ 162 $ 179
Short-term borrowings - 45
Current portion of long-term debt - 2
Accrued construction costs and billings
in excessof revenue on uncompleted
contracts 164 111
Accrued insurance costs 76 79
Other 37 43
------- -------
Total Current Liabilities 439 459
Long-Term Debt, less current portion 9 9
Other Liabilities 54 56
Stockholders' Equity (Redeemable common stock,
$342 million aggregate redemption value):
Common equity 504 471
Net unrealized holding gain - 1
Foreign currency adjustment (4) (5)
------- ------
Total Stockholders' Equity 500 467
------- ------
$ 1,002 $ 991
======= =======
See accompanying notes to condensed financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Condensed Statements of Cash Flows
(unaudited)
Six Months Ended
June 30,
(dollars in millions) 1996 1995
Cash flows from operations:
Net cash provided by operations $ 73 $ 47
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 67 147
Purchases of marketable securities (57) (89)
Proceeds from sales of property, plant and equipment 16 9
Acquisitions (3) -
Capital expenditures (36) (47)
Other - (4)
----- ----
Net cash provided by (used in) investing activities (13) 16
Cash flows from financing activities:
Payments on long-term debt, including current portion (2) (2)
Net change in short-term borrowings (45) -
Issuance of common stock 27 24
Repurchases of common stock (4) (4)
Dividends paid (12) (13)
Exchange of Class B&C Stock for Class D Stock, net (19) (54)
----- ----
Net cash used in financing activities (55) (49)
----- ----
Net change in cash and cash equivalents 5 14
Cash and cash equivalents at beginning of period 94 70
----- ----
Cash and cash equivalents at end of period $ 99 $ 84
===== =====
See accompanying notes to condensed financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Condensed Financial Statements
1. Basis of Presentation:
The condensed balance sheet of Kiewit Construction & Mining
Group (the "Group") at December 30, 1995 has been condensed
from the Group's audited balance sheet as of that date. All
other financial statements contained herein are unaudited
and have been prepared using the historical amounts included
in the Peter Kiewit Sons', Inc. ("PKS") consolidated
condensed financial statements. The Group's accounting
policies and certain other disclosures are set forth in the
notes to the financial statements contained in PKS' Annual
Report on Form 10-K as an exhibit for the year ended
December 30, 1995.
Although the financial statements of PKS' Construction &
Mining Group and Diversified Group separately report the
assets, liabilities and stockholders' equity of PKS
attributed to each such group, legal title to such assets
and responsibility for such liabilities will not be affected
by such attribution. Holders of Class B&C Stock and Class D
Stock are stockholders of PKS. Accordingly, the PKS
consolidated condensed financial statements and related
notes as well as those of the Kiewit Diversified Group
should be read in conjunction with these financial
statements.
Marketable securities at June 30, 1996 and December 30, 1995
include approximately $60 million and $62 million,
respectively, of investments which are being held by the
owners of various construction projects in lieu of
retainage. Receivables at June 30, 1996 and December 30,
1995 include approximately $56 million and $50 million,
respectively, of retainage on uncompleted projects, the
majority of which is expected to be collected within one
year.
Where appropriate, items within the condensed financial
statements have been reclassified from the previous periods
to conform to current year presentation.
2. Earnings Per Share:
Primary earnings per share of common stock have been
computed using the weighted average number of shares
outstanding during each period. Fully diluted earnings per
share have not been presented because they are not
materially different from primary earnings per share. The
number of shares used in computing earnings per share was
10,353,305 and 13,998,740 for the three months ended June
30, 1996 and 1995 and 10,305,087 and 13,954,135 for the six
months ended June 30, 1996 and 1995.
Pursuant to the Restated Certificate of Incorporation of PKS, the
stock price calculation is computed annually using the number of
shares outstanding at the end of the fiscal year.
3. Summarized Financial Information:
The Group's 50% portion of PKS' corporate assets and
liabilities and related transactions, which are not
separately identified with the ongoing operations of the
Construction & Mining Group or the Diversified Group, and
items attributable to the Group are as follows:
(dollars in millions)
June 30, December 30,
1996 1995
Cash and cash equivalents $ - $ 4
Marketable securities 5 10
Property, plant and equipment, net 5 5
Other assets 4 4
----- -----
Total Assets $ 14 $ 23
====== =====
Accounts payable $ 4 $ 10
Long-term debt, including current portion 9 11
Other liabilities 2 -
------ ------
Total Liabilities $ 15 $ 21
====== ======
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Other income (expense), net $ - $ - $ (1) $ (1)
Corporate general and administrative costs have been
allocated to the Group. These allocations were less than $1
million for the three months ended June 30, 1996 and 1995
and $1 million for the six months ended June 30, 1996 and
1995.
Mine management income from the Diversified Group was $8
million and $7 million for the three months ended June 30,
1996 and 1995 and $15 million for the six months ended June
30, 1996 and 1995.
4. Other Matters:
The Group is involved in various lawsuits, claims and
regulatory proceedings incidental to its business.
Management believes that any resulting liability, beyond
that provided, should not materially affect the Group's
financial position, future results of operations or future
cash flows.
Results of Operations - Second Quarter 1996 vs. Second Quarter 1995
Revenue from each of the Group's business segments for the three
months ended June 30, was (in millions):
Three Months Ended
June 30,
1996 1995
Construction $ 566 $ 547
Other 4 11
------ ------
$ 570 $ 558
Construction. Construction revenue rose 3% in the second quarter
of 1996 compared to the same period in 1995. The increase is
primarily due to new work in the form of joint ventures as well
as increased materials sales. Contract backlog at June 30, 1996
was $2 billion, of which 7% is attributable to foreign
operations, principally, Canada, the Philippines and Indonesia.
Projects on the west coast account for 36% of the total backlog
which includes San Joaquin Toll Road backlog of $58 million.
Gross margin on construction contracts increased to 9% from 8%
during the same period in 1995. Increased operational
efficiencies, primarily on joint venture projects, as well as
claim settlements favorably affected construction margins. In
addition, the growing materials business continued to have a
positive impact on margins.
General and Administrative Expenses. General and administrative
expenses in 1996 were consistent with those in 1995. A decline
in travel expenses was offset by an increase in compensation
expense.
Investment Income, net. The increase in investment income is
primarily attributable to the improved results of the Group's
equity method investee, ME Holding, Inc.
Other, net. Other income includes gains and losses on the
disposition of property, plant and equipment and other assets and
mine management income from the Diversified Group. Gains
on the sale of construction equipment and mine management income
were fairly stable in 1996 as compared to 1995. The decline in
other income is directly attributable to the $21 million gain
recognized on the Kinross transaction in 1995.
Income Taxes. The effective income tax rate for the Group was
39% and 35% for the second quarter of 1996 and 1995. In 1996,
the effective rate is higher than the expected statutory rate primarily due
to state income taxes.
Results of Operations - Six Months 1996 vs. Six Months 1995
Revenue from each of the Group's business segments for the six
months ended June 30, was (in millions):
Six Months Ended
June 30,
1996 1995
Construction $1,065 $968
Other 7 16
------ ----
$1,072 $984
Construction. Construction and materials revenues increased by
$97 million or 10% during the first six months of 1996 compared
to the same period in 1995. Materials sales increased by 18% due
to more favorable weather and market conditions. Also
contributing to the increase was a 33% increase in joint venture
revenues primarily from new work and the San Joaquin Toll Road
project.
Gross margins on construction and materials projects increased to
7% for the first six months of 1996 compared to 6% for the same
period in 1995. Increased operational efficiencies, primarily on joint
venture projects, as well as claim settlements favorably affected
construction margins. In addition, the growing materials business
continued to have a positive impact on margins.
General and Administrative Expenses. General and administrative
expenses declined 3% in the six months ended June 30, 1996
compared to the same period in 1995. An overall decline in
administrative expenses, particularly computer operating
expenses, was partially offset by an increase in compensation
expense.
Investment Income, net. The increase in investment income is primarily
attributable to the improved results of the Group's equity method
investee, ME Holding, Inc., and the absence of losses on the sale
of securities incurred in 1995 of $1 million being partially
offset by a $1 million decline in interest income.
Other, net. Other income is primarily comprised of $15 million
of mine management fees and $12 million of gains on the sale and
disposition of construction equipment in 1996. In 1995 mine
management fees were also $15 million, gains on equipment
disposals were $7 million and the gain on the Kinross transaction
was $21 million.
Income Taxes. The effective income tax rate for the Group was
39% and 35% for the first six months of 1996 and 1995. In 1996,
the effective rate is higher than the expected statutory rate primarily
due to state income taxes.
Financial Condition - June 30, 1996 vs. December 30, 1995
The Group's working capital increased $39 million or 16% during
the first six months of 1996. The increase was primarily due to
the issuance of common stock totaling $27 million, net proceeds
from the sale of marketable securities of $10 million, proceeds
from the sale of property, plant and equipment and other assets of $16
million and $72 million of cash provided by operations. Partially
offsetting these sources were capital expenditures of $36 million,
the repayment of $45 million on short-term borrowings, the exchange
for Class D Stock and repurchase of Class B & C stock totaling $23
million and dividend payments of $12 million.
The Group anticipates investing between $40 and $75 million
annually in its construction business, including opportunities to
acquire additional businesses and may purchase additional shares of
the electrical contractor, ME Holding, Inc. Other long term liquidity
uses include the payment of income taxes, repurchases and conversions
of common stock and the payment of dividends. The Group's
current financial condition and borrowing capacity together with
anticipated cash flows from operations should be sufficient for
immediate cash requirements and future investing activities.
Exhibit 99.B
KIEWIT DIVERSIFIED GROUP
Index to Financial Statements and
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Financial Statements:
Condensed Statements of Earnings for
the three months ended June 30, 1996 and
1995 and the six months ended June 30, 1996 and 1995
Condensed Balance Sheets as of June 30, 1996
and December 30, 1995
Condensed Statements of Cash Flows for the
six months ended June 30, 1996 and 1995
Notes to Condensed Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
KIEWIT DIVERSIFIED GROUP
Condensed Statements of Earnings
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
(dollars in millions,
except per share data) 1996 1995 1996 1995
Revenue $ 162 $ 139 $ 317 $ 278
Cost of Revenue (98) (79) (197) (162)
------ ----- ----- -----
64 60 120 116
General and Administrative Expenses (45) (31) (81) (60)
------ ----- ---- -----
Operating Earnings 19 29 39 56
Other Income (Expense):
Investment Income, net 16 11 32 24
Interest Expense, net (6) (6) (13) (12)
Other, net 2 136 1 143
----- ---- ---- ----
12 141 20 155
Equity Loss in MFS - (43) - (85)
----- ---- ---- ----
Earnings Before Income Taxes and
Minority Interest 31 127 59 126
Provision for Income Taxes (13) (60) (23) (81)
Minority Interest in Net Income
of Subsidiaries (1) (6) (1) (8)
------ ---- ---- ----
Net Earnings $ 17 $ 61 $ 35 $ 37
====== ===== ===== =====
Earnings Per Common & Common
Equivalent Share $ .77 $2.87 $1.54 $1.75
====== ===== ===== =====
See accompanying notes to condensed financial statements.
KIEWIT DIVERSIFIED GROUP
Condensed Balance Sheets
June 30, December 30,
1996 1995
(dollars in millions) (unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 327 $ 363
Marketable securities 448 484
Receivables, less allowance of $2 and $2 90 81
Deferred income taxes 10 5
Other 37 36
----- -----
Total Current Assets 912 969
Property, Plant and Equipment,
less accumulated depreciation and
amortization of $322 and $289 638 621
Investments 520 459
Intangible Assets, net 348 347
Other Assets 79 94
------- -------
$ 2,497 $ 2,490
======= =======
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 56 $ 61
Current portion of long-term debt:
Telecommunications 30 36
Other 2 4
Accrued costs and billings in excess
of revenue on uncompleted contracts 12 10
Accrued reclamation and other mining costs 21 18
Other 73 88
------- --------
Total Current Liabilities 194 217
Long-Term Debt, less current portion:
Telecommunications 260 264
Other 105 97
Deferred Income Taxes 235 235
Retirement Benefits 52 54
Accrued Reclamation Costs 96 99
Other Liabilities 152 170
Minority Interest 221 214
Stockholders' Equity (Redeemable common stock
$1,148 million aggregate redemption value):
Common equity 1,168 1,125
Foreign currency adjustment (1) (1)
Net unrealized holding gain 15 16
----- -----
Total Stockholders' Equity 1,182 1,140
----- -----
$ 2,497 $ 2,490
======= =======
See accompanying notes to condensed financial statements.
KIEWIT DIVERSIFIED GROUP
Condensed Statements of Cash Flows
(unaudited)
Six Months Ended
June 30,
(dollars in millions) 1996 1995
Cash flows from operations:
Net cash provided by continuing operations $ 77 $ 161
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities and investments 129 114
Purchases of marketable securities (99) (114)
Capital expenditures (44) (56)
Acquisitions and investment in affiliates (96) (168)
Proceeds from sale of assets and other 6 (1)
----- -----
Net cash used in investing activities (104) (225)
Cash flows from financing activities:
Proceeds from long-term debt borrowings 11 31
Payments on long-term debt, including
current portion (15) (9)
Issuance of common stock - 2
Repurchases of common stock (11) (2)
Exchange of Class B&C Stock for Class D Stock, net 19 54
Payments of dividends (13) -
----- -----
Net cash provided by (used in) financing activities (9) 76
Cash flows from proceeds due to sales of
discontinued packaging operations - 29
Cash and cash equivalents of MFS at beginning of period - (22)
Effect of exchange rates on cash - 1
----- -----
Net change in cash and cash equivalents (36) 20
Cash and cash equivalents at beginning of period 363 330
----- -----
Cash and cash equivalents at end of period $ 327 $ 350
====== =====
See accompanying notes to condensed financial statements.
KIEWIT DIVERSIFIED GROUP
Notes to Condensed Financial Statements
1. Basis of Presentation:
The condensed balance sheet of Kiewit Diversified Group (the
"Group") at December 30, 1995 has been condensed from the
Group's audited balance sheet as of that date. All other
financial statements contained herein are unaudited and have
been prepared using historical amounts included in the Peter
Kiewit Sons', Inc. ("PKS") consolidated condensed financial
statements. The Group's accounting policies and certain
other disclosures are set forth in the notes to the
financial statements contained in PKS' Annual Report on Form
10-K as an exhibit for the year ended December 30, 1995.
Although the financial statements of PKS' Construction &
Mining Group and Diversified Group separately report the
assets, liabilities and stockholders' equity of PKS
attributed to each such group, legal title to such assets
and responsibility for such liabilities will not be affected
by such attribution. Holders of Class B&C Stock and Class D
Stock are stockholders of PKS. Accordingly, the PKS
consolidated condensed financial statements and related
notes as well as those of the Kiewit Construction & Mining
Group should be read in conjunction with these financial
statements.
Where appropriate, items within the condensed financial
statements have been reclassified from the previous periods
to conform to current year presentation.
2. Earnings Per Share:
Primary earnings per share of common stock have been
computed using the weighted average number of shares
outstanding during each period. Fully diluted earnings per
share have not been presented because they are not
materially different from primary earnings per share. The
number of shares used in computing earnings per share was
23,205,830 and 21,257,541 for the three months ended June
30, 1996 and 1995 and 23,221,026 and 21,261,632 for the six
months ended June 30, 1996 and 1995.
Pursuant to the Restated Certificate of Incorporation of PKS,
the stock price calculation is computed annually using the number of
shares outstanding at the end of the fiscal year.
3. Summarized Financial Information:
The Group's 50% portion of PKS' corporate assets and
liabilities and related transactions, which are not
separately identified with the ongoing operations of the
Construction & Mining Group or the Diversified Group, and
specifically attributable items are as follows:
(dollars in millions)
June 30, December 30,
1996 1995
Cash and cash equivalents $ - $ -
Marketable securities 5 10
Property, plant and equipment, net 5 5
Other assets 5 3
----- -----
Total Assets $ 15 $ 18
===== ======
Accounts payable $ 12 $ 23
Long-term debt, including current portion 2 3
Other liabilities 2 -
----- ------
Total Liabilities $ 16 $ 26
===== ======
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Other income (expense), net $ - $ - $ (1) $ 1
Corporate general and administrative costs have been
allocated to the Group. These allocations were $2 million
and $1 million for the three months ended June 30, 1996 and
1995 and $3 million and $2 million for the six months ended
June 30, 1996 and 1995.
Mine management fees paid to the Construction & Mining Group
were $8 million and $7 million for the three months ended
June 30, 1996 and 1995 and $15 million for the six months
ended June 30, 1996 and 1995.
4. Acquisitions:
On March 6, 1996, RCN Corporation ("RCN") a subsidiary of
KDG, closed an asset purchase agreement, along with other
ancillary agreements, with Liberty Cable Company, Inc.
("Liberty") to purchase an indirect 80% interest in certain
private cable systems in New York City and New Jersey.
The cable systems provide subscription television services
using microwave frequencies. RCN paid sellers $27 million on
the closing date and has a contingent payment obligation of $15
million that it expects to pay in full. Payment of the obligation
is contingent upon Liberty attaining specific levels of subscribers.
The transaction was accounted for as a purchase and Liberty's
operating results have been consolidated since the
acquisition date. Intangible assets recognized to date are
approximately $18 million, which are being amortized over
periods of 5 to 15 years. Payments of the contingent
obligation will also be included in intangible assets.
Liberty's 1995 and 1996 operating results prior to the
acquisition were not significant relative to the Group's results.
On April 1, 1996, RCN purchased Residential Communications
Network from C-TEC at its book value of $17.5 million.
Residential Communications Network is a start-up joint
effort with RCN which plans to provide telecommunications
services to the residential market. The transaction was
accounted for as a purchase.
On August 8, 1996 C-TEC announced a plan to rescind the sale of
Residential Communications Network to RCN and acquire the assets of
Liberty Cable from RCN and merge those operations with C-TEC. This
action coincides with C-TEC's decision to close discussions concerning
the sale of its cable television unit. C-TEC has also agreed in
principle to exercise its option to unwind the agreement to sell to
RCN its other non-core assets: the long distance group ("CLD")
and C-TEC International which holds the 40% interest in Megacable S.A.
de C.V. and a $13 million note payable by Mazon Corporativo, S.A. de
C.V., collateralized by additional stock of Megacable ("C-TEC
International"). The agreement provides for the assets to be
purchased under the same terms and conditions under which they were
sold.
5. Investments:
In February 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 to $12 per share. Of these, 3.3
million options at $12 per share may be exercised if CE's
common stock trades at or above $24 per share for 180
consecutive days.
6. Other Matters:
In June 1996, PKS' stockholders approved the 1995 Class D Stock plan.
Under the plan, PKS may not grant benefits with respect to
more than 1 million shares of Class D Common Stock ("Shares") during the
10 year term of the plan. PKS may not grant benefits with respect
to more than 500,000 Shares in any two year period and may not grant
benefits to any one participant with respect to more than 200,000 Shares.
Stock options must have an exercise price that is not less than the fair
market value of the Shares on the grant date and become exercisable at a
rate of 20% per year over a five year period. On June 30, 1996, 268,000
options, at an exercisable price of $40.40 have been granted and remain
outstanding. The Group has included the disclosure required in Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation" which establishes a fair value of
accounting for stock options and other equity instruments.
The compensation cost for PKS' 1995 Class D Stock plan using the
Black-Scholes model and assuming no dividends, 0% volatility, risk-free
interest rate of 6.84% and a 10 year life of the option, would not have
a material effect on the Group's financial statements.
In 1994, several former shareholders of a MFS subsidiary
filed a lawsuit against MFS, KDG and the chief executive
officer of MFS, in the United States District Court for the
Northern District of Illinois, Case No. 94C-1381. Plaintiffs
allege that MFS fraudulently concealed material information about
its plans from them, causing them to sell their shares of the subsidiary
to MFS at an inadequate price. The MFS lawsuit was settled in July
1996. KDG had previously agreed to indemnify MFS against any
liabilities arising from the lawsuit. The settlement, net of
reserves established, will not materially affect the Group's
financial position or results of operations.
The Group is involved in other various lawsuits, claims and
regulatory proceedings incidental to its business.
Management believes that any resulting liability for legal
proceedings beyond that provided should not materially
affect the Group's financial position, future results of
operations or future cash flows.
Results of Operations - Second Quarter 1996 vs. Second Quarter 1995
Revenue from each of the Group's business segments for the three months
ended June 30, comprised the following (in millions):
1996 1995
Mining $ 58 $ 50
Telecommunications 93 79
Other 11 10
----- ----
$ 162 $139
===== ====
Mining. Mining revenue for the second quarter of 1996 was $8
million greater than the second quarter of 1995. Higher
alternate coal sales and greater coal shipments were responsible
for the increase. The greater coal shipments were a combination
of additional spot and contract coal sales compared to the second
quarter of 1995.
Operating margins increased 1% over the same period in 1995.
Contributing to the increase in margins were increases in high
margin alternate source coal and contract coal sales which were
partially offset by increases in lower margin spot coal sales.
Telecommunications. Revenue for C-TEC's telephone group
increased $3 million or 8% for the second quarter 1996
compared to the same period in 1995. The increase is primarily
due to higher local network revenue, intrastate access revenue,
business sales and internet access service revenue. Cable
revenue increased $10 million or 32% in 1996. The acquisition of
Twin County Trans Video, Inc. ("Twin County") in May 1995 and the
consolidation of Mercom, Inc. ("Mercom") in August 1995 and the
effects of a rate increase in February 1996, were primarily
responsible for the improved revenue figures.
The cost of revenue, excluding depreciation and amortization, for
the telephone group increased 21% in 1996. Higher compensation
expense, material costs associated with the business sales and
internet services, and consulting expenses for a variety of
regulatory and operational matters contributed to the increase.
The cable group's costs increased primarily due to the expenses
associated with the additional Twin County and Mercom subscribers
and higher programming fees. Additional depreciation and
amortization expense resulting from the Twin County and Mercom
acquisitions also contributed to a decline in earnings.
General and Administrative Expenses. General and administrative
expenses increased 45% in 1996. The acquisition of Twin County,
the consolidation of Mercom, the costs associated with the C-TEC
restructuring and higher compensation expenses all contributed to
the increase in expenses.
Investment Income, net. A 45% increase in investment income is
primarily attributable to improved results on the sale of
marketable securities. The Company realized gains of $2 million
on the sale of equity securities in 1996 as compared to a $3
million loss on the disposition of certain securities in 1995.
Other, net. The decline of other income in 1996 is directly
attributable to the 1995 settlement of the Whitney litigation for
$135 million.
Equity Loss in MFS. MFS is a leading provider of communications
services to business. PKS spun-off its investment in MFS to
Class D stockholders on September 30, 1995. Prior to the spin-
off, the Group included its proportionate share of MFS' losses in
the statement of earnings. The significant initial development
and roll out expenses associated with the expansion activities
announced in 1993 and 1995 adversely affected MFS' results.
Provision for Income Taxes. The effective income tax rate in 1996 differs
from the expected statutory rate of 35% primarily due to state income taxes.
In 1995 the net operating loss limitations of MFS and the settlement
of prior period issues, resulted in the higher effective rate.
Results of Operations - Six Months 1996 vs. Six Months 1995
Revenue from each of the Group's business segments for the six months
ended June 30 comprised the following (in millions):
1996 1995
Mining $ 111 $ 111
Telecommunications 183 152
Other 23 15
------ ------
$ 317 $ 278
====== ======
Mining. Mining revenue was flat in the first half of 1996
compared to the first half of 1995. Lower spot market sales,
primarily due to competition within the coal industry and greater
hydro-electric power generation in the western United States was
offset by an increase in alternate source coal sales.
Operating margins increased 2% in the first half of 1996
compared to the first half of 1995. The increase is directly
attributable to the additional higher margin alternate source
coal sales in 1996.
Telecommunications. For the six months ended June 30, 1996,
revenue of C-TEC's telephone group increased $5 million or 8% compared
to the same period in 1995. This increase is primarily
due to increases in local network service, network access
revenues, business sales and internet access service revenue.
Cable revenue increased $24 million or 44% in 1996. The
acquisition of Twin County and the consolidation of Mercom and
the effects of rate increases in April 1995 and February 1996,
were primarily responsible for the increase in revenue.
The cost of revenue, excluding depreciation and amortization, for
the telephone group increased 6% in 1996. The increase is
primarily due to higher payroll expense and higher consulting
fees for regulatory and operational matters. The cable group's costs
increased primarily due to higher program fees, channel additions
and subscriber growth associated with the Twin County and Mercom
acquisitions. Also contributing to the decline in earnings was
additional depreciation and amortization expense resulting from the Twin
County and Mercom transactions.
General and Administrative Expenses. General and administrative
expenses increased 35% in 1996. The acquisition of Twin County,
the consolidation of Mercom, the costs associated with the C-TEC
restructuring and higher compensation expenses all contributed to
the increase in expenses.
Investment Income, net. A 33% increase in investment income is
attributable to improved results on the sale of marketable
securities and higher equity earnings. The Company realized gains
of $2 million on the sale of equity securities in 1996 as
compared to a $4 million loss on the disposition of certain
securities in 1995. Improvements in the net earnings
of equity method investees, primarily CE and Megacable S.A. de
C.V. contributed to the improved results.
Other, net. The decline of other income in 1996 is directly
attributable to the 1995 settlement of the Whitney litigation for
$135 million.
Provision for Income Taxes. The effective income tax rate in 1996 differs
from the expected statutory rate of 35% primarily due to state income taxes.
In 1995 the net operating loss limitations of MFS and the settlement of prior
period issues, resulted in the higher effective rate.
Financial Condition - June 30, 1996 vs. December 30, 1995
Due to the significant investing activities described below, the
Group's working capital decreased $34 million or 5% in the first
six months of 1996.
Investing activities include $96 million of investments and $44
million of capital expenditures, including $8 million for the
construction of a privatley owned toll road. The investments primarily
include C-TEC's $13 million outlay for a note from Kiewit Construction
and Mining Group, which is receivable from Mazon Corporativo, S.A. de C.V.,
KDG's $27 million indirect investment in Liberty, the exercise of
CE options to purchase CE stock for $14 million, $4 million
investment in a Philippine power project and $30 million
investment in three Indonesian power projects. These capital
outlays were partially offset by net proceeds from the sale of
marketable securities of $30 million and $4 million of proceeds
from the sale of property, plant and equipment and other assets.
Financing sources include $19 million for the exchange of Class
B&C Stock for Class D Stock and $11 million for the construction
financing of a privately owned toll road. Financing uses consist
of $13 million for the payment of dividends, $11 million for
stock repurchases and $1 million of payments on stockholder notes
and C-TEC's $12 million outlay for the payment of long-term debt.
The Group anticipates making significant investments in its
infrastructure, telecommunications and energy businesses -
including its joint venture agreement with CE covering
international power project development activities - and
searching for opportunities to acquire businesses which provide
for long-term growth. The Group may also exercise 3.3 million CE
options at $12 per share if CE's common stock continues to trade
at or above $24 per share for 180 consecutive days. Other long-
term liquidity uses include payment of income taxes and
repurchasing the Group's stock. The Group's current financial
condition and borrowing capacity should be sufficient for
immediate operating and investing activities.
On November 8, 1995, C-TEC announced that it would evaluate
strategic options for its various business units with a view
toward enhancing shareholder value. Specifically, C-TEC
evaluated the advisability and feasibility of separating or
restructuring its local telephone business, its cable television
business, and its various other communications businesses. C-TEC
engaged the investment banking firm Merrill Lynch & Co. to assist
with the process.
In March 1996, under the terms of an agreement, RCN agreed to pay
C-TEC approximately $123 million for certain of C-TEC's assets,
including CLD, C-TEC International and Residential Communications
Network. RCN purchased Residential Communications Network for
cash in a transaction that closed on April 1, 1996.
On August 8, C-TEC announced a plan to rescind the sale of Residential
Communications Network to RCN and acquire the assets of Liberty Cable
from RCN and merge those operations with C-TEC. This action
coincides with C-TEC's decision to close discussions concerning
the sale of its cable television unit. C-TEC has also agreed in
principle to exercise its option to unwind the agreement to sell to RCN
its other non-core assets, CLD and C-TEC International. The agreement
provides for the assets to be purchased under the same terms and
conditions under which they were sold. C-TEC will continue to explore
ways to increase its profitability and value which could include
a restructuring transaction.
