Document/Exhibit Description Pages Size
1: 10-K/A Amendment to Annual Report 88± 344K
2: EX-3 Articles of Incorporation/Organization or By-Laws 20± 79K
3: EX-10 Material Contract 32± 124K
4: EX-10 Material Contract 3± 14K
5: EX-21 Subsidiaries of the Registrant 3± 12K
6: EX-23 Consent of Experts or Counsel 1 8K
7: EX-27 Financial Data Schedule (Pre-XBRL) 2± 10K
8: EX-27 Financial Data Schedule (Pre-XBRL) 2± 17K
9: EX-99 Miscellaneous Exhibit 32± 123K
10: EX-99 Miscellaneous Exhibit 68± 256K
Table of Contents
Business Description
Market for Common Equity and Related Stockholder Matters
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and
Results Of Operations
Financial Statements and Supplementary Data
KIEWIT CONSTRUCTION & MINING GROUP
Kiewit Construction Group Inc. ("KCG") is primarily engaged
in the construction business. KCG is a wholly owned subsidiary
of Peter Kiewit Sons', Inc. ("PKS"). KCG is a Delaware
corporation formed in 1985. PKS is a Delaware corporation formed
in 1941. Both have principal offices in Omaha, Nebraska.
PKS has two principal classes of common stock, Class C
Construction & Mining Group Restricted Redeemable Convertible
Exchangeable Common Stock, par value $.0625 per share (the "Class
C stock") and Class D Diversified Group Convertible Exchangeable
Common Stock par value $.0625 per share (the Class D stock").
The value of Class C stock is linked to the Company's
construction and materials operations (the "Construction Group").
The value of Class D stock is linked to the operations of Level 3
Communications, Inc., a wholly owned subsidiary of PKS (the
"Diversified Group"), under the terms of the Company's charter.
All Class C shares and historically most Class D shares have been
owned by current and former employees of the Company and their
family members.
On December 8, 1997, the Company's stockholders ratified the
decision of the Company's Board of Directors (the "PKS Board") to
separate the business conducted by the Construction Group and the
business conducted by the Diversified Group (collectively, the
"Business Groups") into two independent companies. In connection
with the consummation of this transaction, the PKS Board declared
a dividend of eight-tenths of one share of the Company's newly
created Class R Convertible Common Stock, par value $.01 per
share ("Class R stock") with respect to each outstanding share of
Class C stock. The Class R stock is convertible in shares of
Class D stock pursuant to a defined formula. In addition, the
Company has announced that effective March 31, 1998, the Company,
through a resolution of the PKS Board, shall cause each
outstanding share of Class C stock to be mandatorily exchanged
(the "Share Exchange") pursuant to provisions of the PKS Restated
Certificate of Incorporation (the "PKS Certificate") for one
outstanding share of Common Stock, par value $.01 per share, of
PKS Holdings, Inc. ("PKS Holdings"), a recently formed, direct,
wholly owned subsidiary of PKS, to which the eight-tenths of one
share of Class R Stock would attach (collectively, the
"Transaction"). In connection with the consummation of the
Transaction, the Company will change its name to Level 3
Communications, Inc. and PKS Holdings, Inc. will change its name
to Peter Kiewit Sons', Inc. The Company has announced that the
PKS Board has approved in principle a plan to force conversion of
all 6,538,231 shares of Class R Stock outstanding. Due to
certain provisions of the Class R stock, conversion will not be
forced prior to May 1998, and the final decision to force
conversion would be made at that time. The decision may be made
not to force conversion if it were decided that conversion is not
in the best interest of the then stockholders of the Company.
The Transaction is intended to separate the Business Groups
into two independent companies. The PKS Board believes that
separation of the Business Groups will (i) permit Level 3 to
attract and retain the senior management and employees needed to
implement and develop Level 3's expansion plan (which is
discussed below), (ii) enable Level 3 to access the capital
markets in order to fund its expansion plan on more advantageous
terms than would be available to Level 3 as part of the Company,
(iii) enable Level 3 to pursue strategic investments and
acquisitions, as part of the expansion plan, which could be
foreclosed to Level 3 as part of the Company and (iv) allow the
directors and management of each Business Group to focus their
attention and financial resources on that Business Group's
business. Except for the anticipated effect of the Transaction
on the management of the construction business, the PKS Board
does not believe that the Transaction will have any other
significant effect on the construction business.
Additional financial information about the construction
segment, including revenue, operating earnings, identifiable
assets, capital expenditures and depreciation, depletion and
amortization, as well as foreign operations information, is
contained in Note 3 to Kiewit Construction & Mining Group's
financial statements.
KIEWIT CONSTRUCTION GROUP
CONSTRUCTION OPERATIONS
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 1997
were distributed among the following construction markets:
transportation (including highways, bridges, airports, railroads,
and mass transit) -- 62%, power, heat, cooling -- 18%, commercial
buildings -- 8%, water supply -- 2%, mining -- 2%, sewage and
waste disposal -- 1% and other markets -- 7%.
KCG primarily performs its services as a general contractor.
As a general contractor, KCG 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 performs its construction work under
various types of contracts, including fixed unit or lump-sum
price, guaranteed maximum price, and cost-reimbursable contracts.
Contracts are either competitively bid and awarded or negotiated.
KCG's public contracts generally provide for the payment of a
fixed price for the work performed. Profit on a fixed-price
contract 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.
Government Contracts. Public contracts accounted for 74% of
the combined prices of contracts awarded to KCG during 1997.
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 1997, KCG had backlog (anticipated
revenue from uncompleted contracts) of $3.9 billion, an increase
from $2.3 billion at the end of 1996. Of current backlog,
approximately $1.0 billion is not expected to be completed during
1998. In 1997 KCG was low bidder on 226 jobs with total contract
prices of $3.5 billion, an average price of $15.3 million per
job. There were 19 new projects with contract prices over $25
million, accounting for 76% 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 1997 Engineering News
Record, a construction trade publication, ranked KCG as the 9th
largest U.S. contractor in terms of 1996 revenue and 12th largest
in terms of 1996 new contract awards. It ranked KCG 1st in the
transportation market in terms of 1996 revenue.
Joint Ventures. KCG frequently 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 1997 KCG derived 70% of its joint venture revenue from
sponsored joint ventures and 30% from non-sponsored joint
ventures. KCG's share of joint venture revenue accounted for 28%
of its 1997 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 20 principal operating offices located throughout the U.S.
and Canada, with headquarters in Omaha, Nebraska. Through its
decentralized system of management, KCG has been able to quickly
respond to changes in the local markets. At the end of 1997, KCG
had current projects in 33 states and 6 Canadian provinces. KCG
also participates in the construction of geothermal power plants
in the Philippines and Indonesia.
Properties. KCG has 20 district offices, of which 16 are in
owned facilities and 4 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 950 portable offices, shops, and transport
trailers. KCG has a large equipment fleet, including
approximately 4,500 trucks, pickups, and automobiles, and 2,000
heavy construction vehicles, such as graders, scrapers, backhoes,
and cranes.
MATERIALS OPERATIONS
Several KCG subsidiaries, primarily in Arizona and Oregon,
produce construction materials, including ready-mix concrete,
asphalt, sand and gravel. KCG also has quarrying operations in
New Mexico and Wyoming, which produce landscaping materials and
railroad ballast. Kiewit Mining Group Inc. ("KMG"), a subsidiary
of KCG, provides mine management services to Kiewit Coal
Properties Inc., a subsidiary of PKS. KMG also owns a 48%
interest in an underground coal mine near Pelham, Alabama.
OTHER MATTERS
Under a 1992 mine management agreement, Kiewit Coal
Properties Inc. ("KCP"), a subsidiary of Level 3, pays a KCG
subsidiary an annual fee equal to 30% of KCP's adjusted operating
income. The fee in 1997 was $32 million. The Business Groups
are currently discussing a potential revision to the mine
management agreement for periods following the Transaction.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information. As of December 27, 1997, the Company's
common stock is not listed on any national securities exchange or
the Nasdaq National Market. However, the Class D stock is
currently quoted on the National Association of Securities
Dealers, Inc.'s OTC Bulletin Board. During the fourth quarter of
1997, the only quarter during which this trading occurred, the
range of the high and low bid information for the Class D stock
was $24.60 to $29.00. The Company has announced that the common
stock of Level 3 Communications, Inc. (renamed from Peter Kiewit
Sons', Inc. in connection with the Transaction) will begin
trading on the Nasdaq National Market on April 1, 1998.
Company Repurchase Duty. Pursuant to the current terms of
the PKS Certificate, the Company is generally required to
repurchase shares at a formula price upon demand. Under the PKS
Certificate 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 stock, and Class D stock. There are no
outstanding Class B stock; the last Class B stock were converted
into Class D stock on January 1, 1997. Class C stock 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 Group. The Company is generally required to
repurchase Class C stock for cash upon stockholder demand. Class
D stock has a formula price based on the year-end book value of
the Diversified Group. The Company must generally repurchase
Class D stock for cash upon stockholder demand at the formula
price, unless the Class D stock become publicly traded.
Formula values. The formula price of the Class D stock is
based on the book value of Level 3 and its subsidiaries, plus
one-half of the book value, on a stand-alone basis, of the parent
company, PKS. The formula price of the Class C stock is based on
the book value of the Construction Group and its subsidiaries,
plus one-half of the book value of the unconsolidated parent
company. A significant element of the Class C formula price is
the subtraction of the book value of property, plant, and
equipment used in construction activities ($122 million in 1997).
Conversion. Under the PKS Certificate, Class C stock is
convertible into Class D stock 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 stock determined
as of the last Saturday in December, that is, the last day in the
Company's fiscal year. Class D stock may be converted into Class
C stock only as part of an annual offering of Class C stock to
employees. Instead of purchasing the offered shares for cash, an
employee owning Class D stock may convert such shares into Class
C stock at the applicable conversion ratio.
Restrictions. Ownership of Class C stock is generally
restricted to active Company employees. Upon retirement,
termination of employment, or death, Class C stock must be resold
to the Company at the applicable formula price, but may be
converted into Class D stock if the terminating event occurs
during the annual conversion period. Class D stock is not
subject to ownership or transfer restrictions.
Dividends and Prices. During 1996 and 1997 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
Declared Dividend Paid Per Share Class Price Adjusted Stock Price
Oct. 27, 1995 Jan. 5, 1996 $0.60 C Dec. 30, 1995 $32.40
Apr. 26, 1996 May 1, 1996 0.60 C May 1, 1996 31.80
Oct. 25, 1996 Jan. 4, 1997 0.70 C Dec. 28, 1996 40.70
Apr. 23, 1997 May 1, 1997 0.70 C May 1, 1997 40.00
Oct. 22, 1997 Jan. 5, 1998 0.80 C Dec. 27, 1997 51.20
The Company's current dividend policy is to pay a regular
dividend on Class C stock of about 15% to 20% of the prior year's
ordinary earnings of the Construction Group, with any special
dividends to be based on extraordinary earnings. Although the
PKS Board announced in August 1993 that the Company did not
intend to pay regular dividends on Class D stock for the
foreseeable future, the PKS Board declared a special dividend of
$0.50 per share of Class D stock in both October 1995 and 1996.
A dividend of 4 shares of Class D Stock for each share of
Class D Stock was effected on December 26, 1997.
Stockholders. On March 15, 1998, and after giving effect to
a dividend of 4 shares of Class D Stock for each outstanding
share of Class D stock effected on December 26, 1997, the Company
had the following numbers of stockholders and outstanding shares
for each class of its common stock:
Class of Stock Stockholders Shares Outstanding
B - -
C 996 7,681,020
D 2,121 146,943,752
Recent Sales of Unregistered Securities. On April 1, 1997,
the Company sold 10,000 shares of Class D stock to Charles Harper
and Robert Daugherty and 8,000 shares of Class D stock to Peter
Kiewit Jr. at a sale price of $49.50 per share. Each of Messrs
Harper, Daugherty and Kiewit are members of the PKS Board of
Directors. The sale was effected pursuant to an exemption from
registration under the Securities Act of 1933 contained in
Section 4(2) of such Act.
SELECTED FINANCIAL DATA
The following selected financial data for each of the years in
the period 1993 to 1997 have been derived from audited financial
statements. The historical financial information for the Kiewit
Construction & Mining and 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) 1997 1996 1995 1994 1993
Results of Operations:
Revenue $ 2,764 $ 2,303 $ 2,330 $ 2,175 $ 1,783
Net earnings 155 108 104 77 80
Per Common Share:
Net earnings
Basic 15.99 10.13 7.78 4.92 4.63
Diluted 15.35 9.76 7.62 4.86 4.59
Dividends (1) 1.50 1.30 1.05 0.90 0.70
Stock price (2) 51.20 40.70 32.40 25.55 22.35
Book value 64.38 51.02 42.90 31.39 27.43
Financial Position:
Total assets 1,341 1,038 976 967 889
Current portion of
long-term debt 5 - 2 3 4
Long-term debt, less
current portion 22 12 9 9 10
Stockholders' equity (3) 652 562 467 505 480
(1) The 1997, 1996, 1995, 1994 and 1993 dividends include $.80,
$.70, $.60, $.45 and $.40 for dividends declared in 1997,
1996, 1995, 1994 and 1993, respectively, but paid in
January of the subsequent year.
(2) Pursuant to the Certificate of Incorporation, the stock
price calculation is computed annually at the end of the
fiscal year.
(3) Ownership of the Class 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 C Stock at the amount computed, when put to PKS by a
stockholder, pursuant to the Certificate of Incorporation.
The aggregate redemption value of the Class C Stock at
December 27, 1997 was $527 million.
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 of Peter
Kiewit Sons', Inc. and certain PKS corporate assets and
liabilities and related transactions. 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 5 to the Group's financial statements.
This document contains forward looking statements and
information that are based on the beliefs of management as well
as assumptions made by and information currently available to the
Group. When used in this document, the words "anticipate",
"believe", "estimate" and "expect" and similar expressions, as
they relate to the Group or its management, are intended to
identify forward-looking statements. Such statements reflect the
current views of the Group with respect to future events and are
subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may
vary materially from those described in this document.
Results of Operations 1997 vs. 1996
Construction. The Construction and Mining Group's operations
can be separated into two components; construction and materials.
Construction revenues increased $414 million during 1997 compared
to 1996. The consolidation of ME Holding Inc. (due to the
increase in ownership from 49% to 80%) ("ME Holding") contributed
$261 million, almost two-thirds of the increase. In addition to
ME Holding, several large projects and joint ventures became
fully mobilized during the latter part of the year and were well
into the "peak" construction phase.
Material revenues increased 19% to $290 million in 1997 from
$243 million in 1996. The acquisition of additional plant sites
accounts for 22% of the increase in sales. The remaining
increase was a result of the strong market for material products
in Arizona. This raised sales volume from existing plant sites
and allowed for slightly higher selling prices. The inclusion of
$10 million of revenues from the Oak Mountain facility in Alabama
also contributed to the increase.
Contract backlog at December 1997 was $3.9 billion of which 7%
is attributable to foreign operations located primarily in
Indonesia and Canada. Domestic projects are spread
geographically throughout the U.S. Included in backlog is $668
million for the "I-15" project awarded in late March. The Group
is the sponsoring partner on the design-build joint venture
reconstructing 16 miles of Interstate 15 through the Salt Lake
City, Utah area. It is expected to be completed in December 2001
and includes an optional 10- year maintenance contract.
In September, a Presidential Decree was issued in Indonesia
affecting the start-up dates for a number of private power
projects. As a result of the Decree and the continued
fluctuations in the value of the Indonesian currency, several
projects in Indonesia for CalEnergy Company, Inc. ("CalEnergy"),
included in contract backlog at $76 million, could be terminated
by the Indonesian government or CalEnergy. The Group does not
anticipate that termination will have a material adverse effect
as payment has been received for all work performed and the costs
of demobilizing the projects would not be significant.
Construction margins increased to 13% of revenue in 1997 as
compared to 10% in 1996. The favorable resolution of project
uncertainties, several change order settlements, and cost savings
or early completion bonuses received during the year contributed
to this increase.
Material margins decreased from 10% of revenue in 1996 to 4% in
1997. Losses at the Oak Mountain facility in Alabama were the
source of the decrease. The materials margins from sources other
than Oak Mountain remained stable as higher unit sales and
selling prices were offset by increases in raw materials costs.
General and Administrative Expenses. General and
administrative expenses increased 11% in 1997 after deducting $17
million of expenses attributable to ME Holding. Compensation and
profit sharing expenses increased $9 million and $2 million,
respectively, from 1996. The increase in these costs is a direct
result of higher construction earnings.
Investment Income. Investment income declined 16% in 1997 to
$16 million. The decrease is primarily attributable to the
consolidation of ME Holding in 1997. In 1996, equity earnings
attributable to ME Holding was $4 million. Partially offsetting
this decline was a slight increase in income from the sale of
marketable securities.
Interest Expense. The decline in interest expense is due to
the absence of short-term borrowings which were repaid in 1996.
Other Income. Other income is primarily comprised of gains and
losses on the disposition of construction equipment and mine
management fees paid by the Diversified Group. A $6 million
increase in gains on the sale of equipment and additional
miscellaneous income were partially offset by a decline in mine
management fee income.
Provision for Income Taxes. The effective income tax rates in
1997 and 1996 differ from the expected statutory rate of 35%
primarily due to state income taxes and prior year tax
adjustments.
Results of Operations - 1996 vs. 1995
Construction. Revenue from construction decreased 1% to $2,303
million in 1996. This resulted from the completion of several
major projects during the year, while many new contracts were
still in the start-up phase. The Group's share of joint venture
revenue remained at 30% of total revenues in 1996. Contract
backlog at December 28, 1996 was $2.3 billion, of which 4% was
attributable to foreign operations, principally Canada and the
Philippines. Projects on the west coast accounted for 42% of the
total backlog. Revenue from materials increased by less than 1%
in 1996. Increased demand for aggregates in the Arizona market
was offset by a decline in precious metal sales. The Group sold
its gold and silver operations in Nevada to Kinross Gold
Corporation ("Kinross") and essentially liquidated its metals
inventory in 1995.
Opportunities in the construction and materials industry
continued to expand along with the economy. Because of the
increased opportunities, the Group was able to be selective in
the construction projects it pursued. Gross margins for
construction increased from 8% in 1995 to 10% in 1996. This
resulted from the completion of several large projects and
increased efficiencies in all aspects of the construction
process. Gross margins for materials declined from 13% in 1995
to 10% in 1996. The lack of higher margin precious metals sales
in 1996 combined with slightly lower construction materials
margins produced the reduction in operating margin.
General and Administrative Expenses. General and
administrative expenses increased 1% in 1996. Increases in
compensation and travel expenses were partially offset by lower
insurance, computer operations and other administrative expenses.
Investment Income. Investment income increased 12% in 1996
compared to 1995. The increase was primarily due to ME Holding's
equity earnings increasing from $2 million in 1995 to $4 million
in 1996 and $2 million from other equity investments. Partially
offsetting this increase was a slight decline in interest income,
due to a decrease in the average cash balance during the year.
Interest Expense. The increase in interest expense of $2
million in 1996 was primarily attributable to the short-term
borrowings outstanding during the year.
Other, net. In 1995, the exchange of the Group's gold and
silver operations in Nevada for 4,000,000 shares of common stock
of Kinross led to a $21 million gain for the Group. The gain
was the difference between the Group's book value in the gold and
silver operations and the market value of the Kinross shares at
the time of the exchange. Other income was also primarily
comprised of mine management fees from the Diversified Group, of
$37 million and $30 million in 1996 and 1995, and gains on the
disposition of property, plant and equipment and other assets of
$17 million and $12 million in 1996 and 1995.
Provision for Income Taxes. The effective income tax rate for
1996 differed from the statutory rate of 35% primarily because of
adjustments to prior year tax provisions and state taxes. In
1995, the rate was higher than 35% due primarily to state income
taxes.
Financial Condition - December 27, 1997
Working capital for the Group increased 30% to $478 million in
1997. Cash provided by operations, of $154 million, was
partially offset by investing and financing activities.
Investing activities include capital expenditures of $107 million
and investments and acquisitions of $21 million. Partially
funding these activities was the net sale of securities for $34
million and $36 million from the sale of property, plant and
equipment. Financing activities include $72 million to convert
Class C Stock to Class D Stock and $12 million paid in
dividends. These financing uses were partially offset by $34
million of proceeds from the sale of common stock, $8 million of
proceeds from long-term borrowings and $9 million of
distributions from investments.
The Group anticipates investing between $40 and $75 million
annually in its construction business. In 1997, the Group
invested $107 million in new equipment. This amount is higher
than normal primarily due to $25 million of equipment purchases
for a highway project located in a part of the country where
existing equipment was not available. The Group is also
exploring opportunities to acquire additional materials
businesses. Other long-term liquidity uses include the payment
of income taxes, repurchases of common stock and the payment of
dividends. The Group's current financial condition and borrowing
capacity together with anticipated cash flows from operations
should be sufficient for immediate cash requirements and future
investing activities.
In October 1997, the PKS Board of Directors declared a dividend
of $.80 per share on Class C Stock, payable on January 5, 1998.
Also in January 1998, approximately 2.3 million shares of Class C
Stock, with a redemption value of $122 million, were converted
into Class D Stock. During the first quarter of 1998, the Group
also repurchased $25 million of stock from Class C shareholders.
In order to partially fund these financing activities, the Group
borrowed $20 million in January, 1998. The Group expects to
repay these borrowings during the first half of 1998.
The separation of the Group from the Diversified Group, as
described below, will prohibit the conversion of Class C Stock to
Class D Stock in the future.
In October 1996, the PKS Board of Directors directed PKS
management to pursue a listing of Class D Stock as a way to
address certain issues created by PKS' two-class capital stock
structure and the need to attract and retain the best management
for PKS' businesses. During the course of its examination of the
consequences of a listing of Class D Stock, management concluded
that a listing of Class D Stock would not adequately address
these issues, and instead began to study a separation of the
Construction and Mining Group from the Diversified Group through
a spin-off of the Construction and Mining Group ("the
Transaction"). At a special meeting on August 14, 1997, the
Board approved the Transaction.
The separation of the Construction and Mining Group and the
Diversified Group was contingent upon a number of conditions,
including the favorable ratification by a majority of both Class
C and Class D shareholders and the receipt by the Company of an
Internal Revenue Service ruling or other assurance acceptable to
the Board that the separation would be tax-free to U.S.
shareholders. On December 8, 1997, PKS' Class C and Class D
shareholders approved the transaction and on March 5, 1998 PKS
received a favorable ruling from the Internal Revenue Service.
The Transaction is anticipated to be effective on March 31, 1998.
KIEWIT CONSTRUCTION & MINING GROUP
Index to Financial Statements
and Financial Statement Schedule
Report of Independent Accountants
Financial Statements as of December 27, 1997 and December 28, 1996 and
for the three years ended December 27, 1997:
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 27, 1997:
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 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 27,
1997 and December 28, 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 27, 1997 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 30, 1998
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Earnings
For the three years ended December 27, 1997
(dollars in millions, except per share data) 1997 1996 1995
Revenue $ 2,764 $ 2,303 $ 2,330
Cost of Revenue (2,427) (2,079) (2,127)
-------- ------- ------
337 224 203
General and Administrative Expenses (147) (117) (116)
-------- ------- ------
Operating Earnings 190 107 87
Other Income (Expense):
Investment Income 16 19 17
Interest Expense (3) (4) (2)
Other, net 59 58 62
-------- ------- ------
72 73 77
------- ------- ------
Earnings Before Income Taxes 262 180 164
Provision for Income Taxes (107) (72) (60)
------- ------- -------
Net Earnings $ 155 $ 108 $ 104
======= ======= =======
Net Earnings Per Share:
Basic $ 15.99 $ 10.13 $ 7.78
======= ======= =======
Diluted $ 15.35 $ 9.76 $ 7.62
======== ======= =======
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Balance Sheets
December 27, 1997 and December 28, 1996
(dollars in millions) 1997 1996
Assets
Current Assets:
Cash and cash equivalents $ 232 $ 173
Marketable securities 26 54
Receivables, less allowance of $9 and $17 430 289
Costs and earnings in excess of billings on
uncompleted construction contracts 119 80
Investment in construction joint ventures 176 91
Deferred income taxes 61 64
Other 13 13
------ -------
Total Current Assets 1,057 764
Property, Plant and Equipment, at cost:
Land 18 15
Buildings 40 37
Equipment 585 542
------ -------
643 594
Less accumulated depreciation and amortization (446) (429)
------ -------
Net Property, Plant and Equipment 197 165
Other Assets 87 109
----- -------
$1,341 $ 1,038
====== =======
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Balance Sheets
December 27, 1997 and December 28, 1996
(continued)
(dollars in millions) 1997 1996
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, including retainage of
$37 and $33 $ 208 $ 164
Current portion of long-term debt 5 -
Accrued construction costs and billings in
excess of revenue on uncompleted contracts 217 112
Accrued insurance costs 76 81
Other 73 40
------ -------
Total Current Liabilities 579 397
Long-term Debt, less current portion 22 12
Other Liabilities 77 67
Minority Interest 11 -
Stockholders' Equity (Redeemable Common Stock,
$527 million aggregate redemption value):
10,132,343 shares outstanding in 1997 and
11,006,641 shares outstanding in 1996
Common equity 670 568
Foreign currency adjustment (7) (5)
Unrealized holding loss (11) (1)
------ ------
Total Stockholders' Equity 652 562
------ ------
$1,341 $1,038
====== ======
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Cash Flows
For the three years ended December 27, 1997
(dollars in millions) 1997 1996 1995
Cash flows from operations:
Net earnings $ 155 $ 108 $ 104
Adjustments to reconcile net earnings to
net cash provided by operations:
Depreciation and amortization 66 61 56
Gain on sale of property, plant and
equipment and other investments (24) (17) (33)
Equity (earnings) loss, net 2 (8) (3)
Change in other noncurrent liabilities 18 18 6
Deferred income taxes - (6) -
Change in working capital items:
Receivables (113) 37 -
Costs and earnings in excess of
billings on uncompleted construction
contracts (39) (1) 23
Investment in construction joint ventures (82) (18) (4)
Other current assets 7 2 (3)
Accounts payable 27 (18) 3
Accrued construction costs and billings
in excess of revenue on
uncompleted contracts 102 1 5
Other liabilities 27 11 4
Other 8 (7) (6)
------ ----- -----
Net cash provided by operations 154 163 152
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 73 160 82
Purchases of marketable securities (39) (157) (42)
Proceeds from sale of property,
plant and equipment 36 25 15
Capital expenditures (107) (72) (79)
Investments and acquisitions, net of
cash acquired (21) (6) (10)
Distributions from investees 9 6 8
Sale of note receivable and other - 14 -
------ ----- -----
Net cash used in investing activities $ (49) $ (30) $ (26)
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Cash Flows
For the three years ended December 27, 1997
(continued)
(dollars in millions) 1997 1996 1995
Cash flows from financing activities:
Long-term debt borrowings $ 8 $ 3 $ 3
Short-term debt borrowings, net - (45) 45
Payments on long-term debt, including
current portion - (2) (4)
Issuances of common stock 34 27 24
Repurchases of common stock (2) (5) (3)
Dividends paid (12) (12) (13)
Exchange of Class C Stock for
Class D Stock, net (72) (20) (155)
------ ------ ------
Net cash used in financing activities (44) (54) (103)
Effect of exchange rates on cash (2) - 1
------ ------ ------
Net change in cash and cash equivalents 59 79 24
Cash and cash equivalents at beginning
of year 173 94 70
------ ------ ------
Cash and cash equivalents at end of year $ 232 $ 173 $ 94
====== ====== ======
Supplemental disclosures of cash
flow information:
Taxes paid $ 94 $ 78 $ 69
Interest paid 2 2 2
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 27, 1997
(dollars in millions, except per share data) 1997 1996 1995
Common equity:
Balance at beginning of year $ 568 $ 471 $ 513
Issuances of stock 34 27 24
Repurchases of stock (2) (5) (3)
Exchange of Class C Stock for Class D Stock, net (72) (20) (155)
Net earnings 155 108 104
Dividends (per share: $1.50 in 1997,
$1.30 in 1996 and $1.05 in 1995)(a) (13) (13) (12)
------ ------- -------
Balance at end of year 670 568 471
Other equity adjustments:
Balance at beginning of year (6) (4) (8)
Foreign currency adjustment (2) - 2
Unrealized holding (loss) gain (10) (2) 2
------ ------ ------
Balance at end of year (18) (6) (4)
------ ------ ------
Total stockholders' equity $ 652 $ 562 $ 467
====== ====== ======
(a) Dividends include $.80, $.70, and $.60 for dividends declared in 1997,
1996 and 1995 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 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 and materials businesses ("Construction & Mining
Group") and its other businesses ("Diversified Group"), respectively.
Dividends on the Class 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 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 and materials businesses held by its wholly-owned
subsidiary, Kiewit Construction Group Inc., and certain PKS corporate
assets and liabilities and related transactions. 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 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. (See Note 3)
(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.
In 1997, the Group increased its ownership in ME Holding Inc. ("ME Holding")
an electrical contractor, from 49% to 80%. The Group consolidated ME
Holding in its 1997 financial statements and accounted for it using the
equity method in 1996 and 1995.
The Group invests in various portfolios of the Kiewit Mutual Fund, ("KMF"), a
registered investment company. KMF is not consolidated in the Group's
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 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.
Earnings Per Share
In 1997, the Group adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share". The Statement establishes standards for
computing and presenting earnings per share and requires the restatement of
prior per share data presented. Basic earnings per share have been computed
using the weighted average number of shares outstanding during each period.
Diluted earnings give effect to convertible debentures considered to be dilutive
common stock equivalents. Dilutive potential common shares are calculated
in accordance with the "if converted" method. This method assumes that the
after-tax interest expense associated with the debentures is an addition to
income and the debentures are converted into equity with the resulting common
shares being aggregated with the weighted average shares outstanding.
1997 1996 1995
Net income available to common
shareholders (in millions) $ 155 $ 108 $ 104
Add: Interest expense, net of tax effect
associated with convertible debentures 1 -* -*
------ ------- ---------
Net income for diluted shares $ 156 $ 108 $ 104
Total number of weighted average shares
outstanding used to compute basic earnings
per share (in thousands) 9,728 10,656 13,384
Additional dilutive shares assuming
conversion of convertible debentures 441 437 312
------ ------- --------
Total number of shares used to compute
diluted earnings per share 10,169 11,093 13,696
======= ======== ========
Net Income
Basic earnings per share $ 15.99 $ 10.13 $ 7.78
======= ======== ========
Diluted earnings per share $ 15.35 $ 9.76 $ 7.62
======= ======== ========
*Interest expense attributable to convertible debentures was less than $1
million in 1996 and 1995.
Income Taxes
Deferred income taxes are provided for the temporary 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.
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income", which requires that changes in
comprehensive income be shown in a financial statement that is displayed
with the same prominence as other financial statements.
Also in 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which changes the way public companies
report information about segments. SFAS No. 131, which is based on the
management approach to segment reporting includes requirements to report
selected segment information quarterly, and entity wide disclosures about
products and services, major customers, and geographic data.
These statements are effective for financial statements for periods beginning
after December 15, 1997. Management does not expect adoption of these
statements to materially affect the Group's financial statements.
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 1997, 1996 and 1995.
(3) Reorganization
In October 1996, the PKS Board of Directors directed PKS management to pursue
a listing of Class D Stock as a way to address certain issues created by
PKS' two-class capital stock structure and the need to attract and retain
the best management for PKS' businesses. During the course of its
examination of the consequences of a listing of Class D Stock, management
concluded that a listing of Class D Stock would not adequately address these
issues, and instead began to study a separation of the Construction and
Mining Group and the Diversified Group. At the regular meeting of the
Board on July 23, 1997, management submitted to the Board for consideration a
proposal for separation of the Construction and Mining Group from the
Diversified Group through a spin-off of the Construction and Mining Group
("the Transaction"). At a special meeting on August 14, 1997, the Board
approved the Transaction.
The separation of the Construction and Mining Group and the Diversified Group
was contingent upon a number of conditions, including the favorable
ratification by a majority of both Class C and Class D shareholders and the
receipt by PKS of an Internal Revenue Service ruling or other assurance
acceptable to the Board that the separation would be tax-free to U.S.
shareholders. On December 8, 1997, PKS' Class C and Class D shareholders
approved the transaction and on March 5, 1998 PKS received a favorable
ruling from the Internal Revenue Service. The Transaction is anticipated to
be effective on March 31, 1998.
(4) Acquisitions:
In April, 1997 the Group and a partner each invested $15 million to acquire a
96% interest in Oak Mountain Energy LLC, ("Oak Mountain"). Oak Mountain
then acquired the existing assets of an underground coal mine located in
Alabama for approximately $18 million and assumed approximately $14 million
of related liabilities. Oak Mountain used cash and $18 million of
nonrecourse bank borrowings to retire the existing debt and develop and
modernize the mine.
Oak Mountain's results are consolidated with those of the Group on a
pro-rata basis since the date of acquisition. Due to higher than
anticipated costs in modernizing and operating the mine, Oak Mountain
incurred operating losses in 1997. Production at the mine has been
significantly below anticipated levels, and as a result of this and other
factors, Oak Mountain is not in compliance with certain covenants of the
bank borrowings. Those events caused the Group to assess whether its
investment is impaired. Upon considering estimated cash flow levels, including
additional funding necessary to operate the mine, and assessments of the
fair value of the net assets of the mine based upon potential recovery
though a sale, the Group recognized an impairment loss of $8 million.
This loss along with the operating losses, reduced the Group's investment
to zero. The impairment has been included in Cost of Revenue in the
Statement of Earnings.
In 1997, the Group paid $5 million to increase its ownership in ME Holding from
49% to 80%. The Group's investment in ME Holding exceeds its proportionate
share of ME Holding equity by $3 million. The goodwill is being amortized
over 5 years.
Construction revenue for ME Holding was $247 million in 1996, however the net
operating results of ME Holding was not significant relative to the Group's
results in 1996.
(5) Corporate Activities
Financial Structure
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 7of the Group or the Diversified
Group. The items attributable to the Group and the Group's 50% portion of
PKS are as follows:
(dollars in millions) 1997 1996
Cash and cash equivalents $ 8 $ 8
Marketable securities 3 5
Property, plant and equipment, net 5 5
Other assets 2 2
------ ------
Total Assets $ 18 $ 20
====== ======
Accounts payable $ 10 $ 8
Long-term debt and other noncurrent liabilities 17 13
------ ------
Total Liabilities $ 27 $ 21
====== ======
1997 1996 1995
Net investment expense $ 1 $ - $ -
Corporate General and Administrative Costs
A portion of PKS' corporate general and administrative costs has been
allocated to the Group based upon certain measures of business activity,
such as employment, investments and sales, which management believes to be
reasonable. The allocations were $1 million in 1997, 1996 and 1995.
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.
(6) Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to determine classification
and fair values of financial instruments:
Cash and Cash Equivalents
Cash equivalents generally consist of funds invested in the Kiewit Mutual
Fund-Money Market Portfolio and 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 marketable 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.
The following summarizes the amortized cost, unrealized holding gains and
losses, and estimated fair values of marketable securities and marketable
non-current investments at December 27, 1997 and December 28, 1996.
Unrealized Unrealized
Amortized Holding Holding Fair
(dollars in millions) Cost Gains Losses Value
1997
Kiewit Mutual Fund:
Short-term government $ 10 $ - $ - $ 10
Intermediate term bond 1 - - 1
Tax exempt 1 - - 1
U.S. debt securities 14 - - 14
------ ------- ------- ------
$ 26 $ - $ - $ 26
====== ======= ======= ======
Non-current investments:
Equity securities $ 30 $ - $ (18) $ 12
====== ======= ====== ======
1996
Kiewit Mutual Fund:
Short-term government $ 22 $ - $ - $ 22
Intermediate term bond 10 - - 10
Tax exempt 9 - - 9
U.S. debt securities 13 - - 13
----- ------ ------ ------
$ 54 $ - $ - $ 54
===== ====== ====== ======
Non-current investments:
Equity securities $ 30 $ - $ (2) $ 28
===== ===== ===== ======
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 1997, 1996 and 1995.
The contractual maturities of the debt securities are as follows:
Amortized Cost Fair Value
U.S. debt securities:
less than 1 year $ 6 $ 6
1-5 years 8 8
------- --------
$ 14 $ 14
======= ========
Maturities for the mutual fund and equity securities 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 and approximates the
carrying amount.
(7) Retainage on Construction Contracts
Receivables at December 27, 1997 and December 28, 1996 include approximately
$88 million and $86 million of retainage on uncompleted projects, the
majority of which is expected to be collected within one year. Included in
accounts receivable are $44 million and $53 million of securities which
are being held by the owners of various construction projects in lieu of
retainage. These securities are carried at fair value which is determined
based on quoted market prices for the securities on hand or for similar
investments. Net unrealized holding gains and losses, if any, are reported as
a separate component of stockholders' equity, net of tax.
(8) 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.
Summary joint venture financial information follows:
Financial Position (dollars in millions) 1997 1996
Total Joint Ventures
Current assets $ 659 $ 435
Other assets (principally construction equipment) 123 47
------ ------
782 482
Current liabilities (515) (347)
------ ------
Net assets $ 267 $ 135
====== ======
Group's Share
Equity in net assets $ 156 $ 73
Receivable from joint ventures 20 18
------ ------
Investment in construction joint ventures $ 176 $ 91
====== ======
Operations (dollars in millions) 1997 1996 1995
Total Joint Ventures
Revenue $ 1,490 $ 1,370 $ 1,211
Costs 1,332 1,201 1,108
-------- ------- --------
Operating income $ 158 $ 169 $ 103
======== ======= ========
Group's Share
Revenue $ 786 $ 689 $ 691
Costs 690 621 625
------- ------ -------
Operating income $ 96 $ 68 $ 66
======= ====== =======
(9) Other Assets
Other assets consist of the following at December 27, 1997 and
December 28, 1996:
(dollars in millions) 1997 1996
ME Holding Inc. $ - $ 33
Equity securities of Kinross Gold Corporation
(Note 6) 12 28
Aker-Gulf Marine 18 15
Goodwill 23 15
Deferred income taxes 12 2
Other 22 16
------ -------
$ 87 $ 109
====== =======
Other assets include marketable equity securities classified as non-current,
an equity method investment in a partnership which fabricates offshore oil
platforms, and the net goodwill recognized in the APAC, ME Holdings and
other acquisitions. In 1997 ME Holding is accounted for as a consolidated
subsidiary. In 1996, ME Holding was accounted for using the equity method.
(10) Long-Term Debt
At December 27, 1997 and December 28, 1996, long-term debt consisted of a
portion of PKS' notes to former stockholders which have been allocated to
the Group and the Diversified Group and convertible debentures as follows:
(dollars in millions) 1997 1996
6.25%-8.75% Convertible debentures, 2003-2007 $ 13 $ 10
BICC Cables Corp. Note 6 -
ME Holdings Note 5 -
Stockholder notes and other 3 2
------ ------
27 12
Less current portion 5 -
------ ------
$ 22 $ 12
====== ======
The convertible debentures are convertible during October of the fifth year
preceding their maturity date. Each annual series may be redeemed in its
entirety prior to the due date except during the conversion period.
Debentures were converted into 51,314 and 59,935 shares of Class C Stock in
1997 and 1995, respectively. At December 27, 1997, 478,394 shares of Class
C Stock are reserved for future conversions.
In 1997, ME Holding borrowed $6 million from BICC Cables Corp. ("BICC").
BICC is affiliated with a joint venture partner of ME Holding. The note is
payable in full in 1999 and requires quarterly interest payments at a rate
equal to one month LIBOR. The proceeds from the note were used for working
capital requirements.
In 1997, the Group issued a note payable in the amount of $5 million, payable
on demand to the minority shareholder, as part of the ME Holding acquisition.
The note and accrued interest were paid on January 5, 1998.
Scheduled maturities of long-term debt through 2002 are as follows
(in millions): 1998 - $5; 1999 - $7; 2000 - $1; 2001 - $1 and $- in 2002.
(11) Income Taxes
An analysis of the (provision) benefit for income taxes relating to earnings
for the three years ended December 27, 1997 follows:
(dollars in millions) 1997 1996 1995
Current:
U.S. federal $ (88) $ (62) $ (58)
Foreign (9) (5) 4
State (10) (11) (6)
------- ------- ------
(107) (78) (60)
Deferred:
U.S. federal 1 7 6
Foreign (1) (3) (7)
State - 2 1
------- ------- ------
- 6 -
------- ------- ------
$ (107) $ (72) $ (60)
======= ======= ======
The United States and foreign components of earnings, for tax reporting
purposes, before income taxes follows:
(dollars in millions) 1997 1996 1995
United States $ 226 $ 155 $ 159
Foreign 36 25 5
------- ------- -------
$ 262 $ 180 $ 164
======= ======= =======
A reconciliation of the actual (provision) benefit 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 27, 1997 follows:
(dollars in millions) 1997 1996 1995
Computed tax at statutory rate $ (92) $ (63) $ (57)
State income taxes (8) (6) (8)
Prior year tax adjustments (5) (4) 5
Other (2) 1 -
------- ------ -------
$ (107) $ (72) $ (60)
======= ====== =======
Possible taxes, beyond those provided, on remittances of undistributed
earnings of foreign subsidiaries, are not expected to be material.
The components of the net deferred tax assets for the years ended December
27, 1997 and December 28, 1996 were as follows:
(dollars in millions) 1997 1996
Deferred tax assets:
Construction accounting $ 24 $ 15
Investments in construction joint ventures 26 30
Insurance claims 31 32
Compensation - retirement benefits 8 6
Other 7 10
------ ------
Total deferred tax assets 96 93
Deferred tax liabilities:
Investments in securities 1 7
Other 22 20
------ ------
Total deferred tax liabilities 23 27
------ ------
Net deferred tax assets $ 73 $ 66
====== ======
(12) 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 the cost of revenue.
Under federal law, the Group may be liable for a portion of future plan
deficiencies; however, there are no known deficiencies.
Substantially all employees of the Group are covered under the Group's profit
sharing plans. The expense related to these plans was $5 million in 1997 and
$3 million in 1996 and 1995.
(13) Stockholders' Equity
Ownership of the Class 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 C
Stock at the amount computed pursuant to the Certificate of Incorporation.
Issuances and repurchases of common shares, including conversions, for the
three years ended December 27, 1997 were as follows:
Class C
Stock
Shares issued in 1995 1,021,875
Shares repurchased in 1995 6,228,934
Shares issued in 1996 896,604
Shares repurchased in 1996 770,368
Shares issued in 1997 893,924
Shares repurchased in 1997 1,768,222
(14) 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) 1997 1996 1995
Revenue:
United States $ 2,594 $ 2,017 $ 2,007
Canada 90 175 237
Other 80 111 86
------- ------- -------
$ 2,764 $ 2,303 $ 2,330
======= ======= =======
Operating earnings:
United States $ 153 $ 86 $ 70
Canada 10 7 7
Other 27 14 10
------- ------- ------
$ 190 $ 107 $ 87
======= ======= ======
Identifiable assets:
United States $ 1,230 $ 924 $ 866
Canada 94 92 90
Other 17 22 20
------- ------ ------
$ 1,341 $1,038 $ 976
======= ====== ======
(15) Related Party Transaction
The Group performs certain mine management services for the Diversified Group.
The income from these services was $32 million in 1997, $37 million in 1996
and $30 million in 1995 and is recorded in other income in the statements
of earnings.
(16) 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, 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 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 23 years aggregate $18
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. The
Group has informal arrangements with a number of banks to provide such
commitments. As of December 27, 1997, the Group had outstanding letters of
credit of approximately $125 million.
(17) Subsequent Events
On December 31, 1997, the convertible debentures issued from 1993-1996 were
converted to equity as part of the reorganization. In conjunction with this
transaction, the Group provided non-interest bearing loans to the debenture
holders for a period equal to the original terms of the debentures.
In January 1998, approximately 2.3 million shares of Class C Stock, with a
redemption value of $122 million, were converted into approximately 10.5
million shares of Class D Stock. During the first quarter of 1998, the Group
also repurchased $25 million of stock from Class C stockholders. In order
to partially fund these financing activities, the Group incurred short-term
borrowings of $20 million in January, 1998. The Group expects to repay
these borrowings during the first half of 1998.
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 27, 1997
Allowance for doubtful
trade accounts $ 17 $ 3 $ (11) $ - $ 9
Reserves:
Insurance claims 81 7 (12) - 76
Year ended December 28, 1996
Allowance for doubtful
trade accounts $ 10 $ 12 $ (5) $ - $ 17
Reserves:
Insurance claims 79 22 (20) - 81
Year ended December 30, 1995
Allowance for doubtful
trade accounts $ 7 $ 5 $ (2) $ - $ 10
Reserves:
Insurance claims 75 18 (14) - 79
Dates Referenced Herein and Documents Incorporated by Reference
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