KIEWIT CONSTRUCTION & MINING GROUP
Index to Financial Statements
and Financial Statement Schedules and
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Pages
____________________________________________________________________________
Report of Independent Accountants
Financial Statements as of December 25, 1993 and
December 26, 1992 and for the three years ended
December 25, 1993:
Statements of Earnings
Balance Sheets
Statements of Cash Flows
Statements of Changes in Stockholders' Equity
Notes to Financial Statements
Financial Statement Schedules for the three years ended
December 25, 1993:
VIII--Valuation and Qualifying Accounts and Reserves
Management's Discussion and Analysis of Financial
Condition and Results of Operations
____________________________________________________________________________
Schedules not indicated above have been omitted because of the absence of the
conditions under which they are required or because the information called
for is shown in the financial statements or in the notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Peter Kiewit Sons', Inc.
We have audited the financial statements and the financial statement
schedules 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 schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedules
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 25,
1993 and December 26, 1992, and the results of its operations and its cash
flows for each of the three years in the period ended December 25, 1993 in
conformity with generally accepted accounting principles. In addition, in
our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
As discussed in Note 2 to the financial statements, the Group has changed
its method of accounting for income taxes in 1992, and its method of accounting
for certain investments in debt and equity securities in 1993.
COOPERS & LYBRAND
Omaha, Nebraska
March 18, 1994
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Earnings
For the three years ended December 25, 1993
(dollars in millions, except per share data) 1993 1992 1991
____________________________________________________________________________
Revenue $ 1,777 $ 1,671 $ 1,834
Other Income 45 70 49
_______ _______ _______
1,822 1,741 1,883
Costs and Expenses:
Cost of revenue 1,583 1,513 1,725
Selling and administrative 118 114 111
Interest 3 2 5
_______ _______ _______
1,704 1,629 1,841
_______ _______ _______
Earnings from Continuing Operations
Before Income Taxes and Cumulative
Effect of Change in Accounting
Principle 118 112 42
Provision for Income Taxes 38 43 19
_______ _______ _______
Earnings Before Cumulative Effect
of Change in Accounting Principle 80 69 23
Cumulative Effect of Change in
Accounting Principle - 13 -
_______ _______ _______
Net Earnings $ 80 $ 82 $ 23
======= ======= =======
Net Earnings Per Common and Common
Equivalent Share:
Earnings Before Cumulative Effect
of Change in Accounting Principle $ 4.63 $ 3.79 $ 1.12
Cumulative Effect of Change in
Accounting Principle - .69 -
_______ _______ _______
Net Earnings $ 4.63 $ 4.48 $ 1.12
======= ======= =======
____________________________________________________________________________
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Balance Sheets
December 25, 1993 and December 26, 1992
(dollars in millions) 1993 1992
___________________________________________________________________________
Assets
Current Assets:
Cash and cash equivalents $ 99 $ 68
Marketable securities 183 248
Receivables, less allowance of $5 and $2 215 220
Costs and earnings in excess of billings on
uncompleted construction contracts 75 53
Investment in construction joint ventures 81 48
Deferred income taxes 48 52
Other 18 14
______ ______
Total Current Assets 719 703
Property, Plant and Equipment, at cost:
Land 14 14
Buildings 28 22
Equipment 449 434
______ ______
491 470
Less accumulated depreciation and amortization (384) (366)
______ ______
Net Property, Plant and Equipment 107 104
Deferred Income Taxes 9 5
Other Assets 54 50
______ ______
$ 889 $ 862
====== ======
___________________________________________________________________________
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Balance Sheets
December 25, 1993 and December 26, 1992
(dollars in millions) 1993 1992
_____________________________________________________________________________
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, including retainage of $37 and $35 $ 148 $ 159
Current portion of long-term debt 4 2
Accrued construction costs and billings in excess
of revenue on uncompleted contracts 87 95
Accrued insurance costs 65 66
Other 43 39
______ ______
Total Current Liabilities 347 361
Long-Term Debt, less current portion 10 12
Other Liabilities 52 52
Stockholders' Equity (Redeemable Common Stock,
$391 million aggregate redemption value)
Common equity 483 438
Foreign currency adjustment (3) (1)
______ ______
Total Stockholders' Equity 480 437
______ ______
$ 889 $ 862
====== ======
_____________________________________________________________________________
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Cash Flows
For the three years ended December 25, 1993
(dollars in millions) 1993 1992 1991
_____________________________________________________________________________
Cash flows from operations:
Net earnings $ 80 $ 82 $ 23
Adjustments to reconcile net earnings to
net cash provided by operations:
Cumulative effect of change in
accounting principle - (13) -
Depreciation and amortization 48 47 54
(Gain) loss on sale of property, plant
and equipment, and other assets 15 (11) (14)
Change in other noncurrent liabilities 7 16 14
Deferred income taxes 4 (12) (22)
Change in working capital items:
Receivables 5 (9) 5
Costs and earnings in excess of
billings on uncompleted
construction contracts (22) 18 4
Investment in construction joint
ventures (33) (3) 25
Other current assets 7 1 5
Accounts payable (9) (9) 18
Accrued construction costs and
billings in excess of revenue
on uncompleted contracts (8) (21) (21)
Other liabilities 3 (6) 42
Other (10) 11 (11)
______ ______ ______
Net cash provided by operations 87 91 122
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 773 931 605
Purchases of marketable securities (741) (983) (685)
Proceeds from sale of property, plant
and equipment 14 19 23
Capital expenditures (54) (40) (57)
Investment in affiliates (9) (16) -
Other (3) (5) (4)
______ ______ ______
Net cash used in investing activities (20) (94) (118)
______________________________________________________________________________
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Cash Flows (continued)
For the three years ended December 25, 1993
(dollars in millions) 1993 1992 1991
_____________________________________________________________________________
Cash flows from financing activities:
Long-term debt borrowings $ 2 $ 2 $ 10
Payments on long-term debt, including
current portion (2) (9) (20)
Issuances of common stock 16 24 5
Repurchases of common stock (14) (21) (32)
Dividends paid (10) (7) (6)
Exchange of Class B&C Stock for Class
D Stock, net (26) (32) -
Contribution from parent - - 58
______ ______ ______
Net cash provided by (used in)
financing activities (34) (43) 15
Effect of exchange rates on cash (2) (4) -
______ ______ ______
Net increase (decrease) in cash and
cash equivalents 31 (50) 19
Cash and cash equivalents at beginning
of year 68 118 99
______ ______ ______
Cash and cash equivalents at end of year $ 99 $ 68 $ 118
====== ====== ======
Supplemental disclosures of cash
flow information:
Taxes $ 54 $ 66 $ 7
Interest 3 3 5
_____________________________________________________________________________
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Changes in Stockholders' Equity
For three years ended December 25, 1993
(dollars in millions, except per share data) 1993 1992 1991
_____________________________________________________________________________
Common equity:
Balance at beginning of year $ 438 $ 398 $ 350
Issuances of stock 16 24 5
Repurchases of stock (14) (21) (32)
Exchange of Class B&C Stock for Class D
Stock, net (26) (32) -
Net earnings 80 82 23
Dividends (per share: $.70 in 1993, $.70 in
1992 and $.30 in 1991) (a) (11) (13) (6)
Contribution from parent - - 58
______ ______ ______
Balance at end of year $ 483 $ 438 $ 398
====== ====== ======
Other equity adjustments:
Balance at beginning of year $ (1) $ 2 $ -
Foreign currency adjustment (2) (3) 2
______ ______ ______
Balance at end of year $ (3) $ (1) $ 2
====== ====== ======
Total stockholders' equity $ 480 $ 437 $ 400
====== ====== ======
______________________________________________________________________________
(a) 1993 and 1992 dividends include $.40 and $.30 for dividends declared in
1993 and 1992, respectively, but paid in January of the subsequent year. 1991
reflects dividends paid by PKS on its previous common stock that have been
attributed to the Construction & Mining Group and the Diversified Group based
upon the relative formula values of each group which were determined at the
end of each preceding year. Accordingly, the dividends reflected for those
years may bear no relationship to the dividends that would have been declared
by the Board in such years had the D Stock and B&C Stock been outstanding.
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(1) Basis of Presentation
_____________________
The Class B&C Stock and the Class D Stock are designed to provide
stockholders with separate securities reflecting the performance of
Peter Kiewit Sons', Inc.'s ("PKS") construction business and
certain mining services ("Construction & Mining Group") and its other
businesses ("Diversified Group"), respectively. Dividends on the
Class B&C Stock are limited to the legally available funds of PKS
less the Class D formula value which is to be reduced by any dividends
on Class D Stock declared during the current year. Subject to this
limitation, the Board of Directors intends to declare and pay dividends
on the Class B&C Stock based primarily on the Construction & Mining
Group's separately reported financial condition and results of
operations.
The financial statements of the Construction & Mining Group include the
financial position, results of operations and cash flows for PKS'
construction business and certain mining service businesses held by
wholly-owned subsidiaries, Kiewit Construction Group Inc. and Kiewit
Mining Group Inc., respectively, and a portion of the PKS corporate
assets and liabilities and related transactions which are not
separately identified with the ongoing operations of the Construction
& Mining Group or the Diversified Group. These financial statements
have been prepared using the historical amounts included in the PKS
consolidated financial statements. Corporate amounts reflected in these
financial statements are determined based upon methods which management
believes to be reasonable (Note 3).
Although the financial statements of PKS' Construction & Mining Group
and Diversified Group separately report the assets, liabilities
and stockholders' equity of PKS attributed to each such group, legal
title to such assets and responsibility for such liabilities will not
be affected by such attribution. Holders of Class B&C Stock and Class
D Stock are stockholders of PKS. Accordingly, the PKS consolidated
financial statements and related notes should be read in conjunction
with these financial statements.
(2) Summary of Significant Accounting Policies
_________________________________________
Principles of Group Presentation
________________________________
These financial statements include the accounts of the Construction &
Mining Group ("the Group"). The Group's and Diversified Group's
financial statements, taken together, comprise all the accounts
included in the PKS consolidated financial statements. All significant
intercompany accounts and transactions, except those directly between
the Group and the Diversified Group, have been eliminated. Investments
in construction joint ventures and other companies in which the Group
exercises significant influence over operating and financial policies
are accounted for by the equity method. The Group accounts for its
share of the operations of the construction joint ventures on a pro rata
basis in the statements of earnings.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies (continued)
______________________________________________________
Construction Contracts
______________________
The Group operates generally within North America as a general
contractor and engages in various types of construction projects
for both public and private owners. Credit risk is minimal with
public (government) owners since the 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, plus a
reasonable profit on such 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 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.
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.
The costs to repair equipment used on construction contracts are charged
against such contracts and included in cost of revenue.
Depreciation and Amortization
_____________________________
Depreciation and amortization are computed on accelerated and
straight-line methods.
Foreign Currencies
__________________
The local currencies of certain construction company subsidiaries are
the functional currencies for financial reporting purposes. Assets and
liabilities are translated into U.S. dollars at year-end exchange rates.
Revenue and expenses are translated using average exchange rates
prevailing during the year. Gains or losses resulting from currency
translation are recorded as adjustments to stockholders' equity.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies (continued)
______________________________________________________
Earnings Per Share
__________________
Primary earnings per share of Class B&C Stock have been computed using
the weighted average number of shares outstanding during each year. For
purposes of computing earnings per share data for periods prior to
January 8, 1992, the number of Class B&C shares are assumed to be the
same as the aggregate number of previous Class B and Class C shares.
The number of shares used in computing primary earnings per share was
17,290,971 in 1993, 18,262,680 in 1992 and 20,588,236 in 1991. Fully
diluted earnings per share have not been presented because it is not
significantly different from primary earnings per share.
Marketable Securities
_____________________
On December 25, 1993, the Group adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," which addresses the accounting and reporting of
investments in equity securities with readily determinable fair values
and all investments in debt securities. The statement does not apply to
investments in equity securities accounted for under the equity method
nor to investments in consolidated subsidiaries. No significant impact
resulted from adopting SFAS No. 115. See Note 4 for additional
disclosures.
Income Taxes
____________
At the beginning of 1992, the Group adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included
in the financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between
the financial and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to
reverse. In 1992, the Group recorded income of $13 million, which
represented the increase in the net deferred tax assets, as a result of
the accounting change. This amount has been reflected in the statements
of earnings as a cumulative effect of change in accounting principle.
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 each in the fiscal years 1993, 1992 and 1991.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(3) Corporate Activities
____________________
Financial structure - Cash, cash equivalents and marketable securities
were allocated to the Group and the Diversified Group based on the
desired capital structure of the two groups at December 28, 1991.
Financial statement impacts of dividends paid to holders of Class B&C
Stock and repurchases and issuances of Class B&C Stock in 1993 and 1992
were reflected in their entirety in the Group's financial statements.
The value of common stock issuances and repurchases and related dividends
in 1991 were generally attributed to the Group and the Diversified Group
based upon the relative formula values of each group, which were
determined at the end of 1990.
The desired capital structure at December 28, 1991 for the Group was
stockholders' equity of $400 million. It was determined by PKS
management that this was the appropriate level of equity at December 28,
1991 necessary for the Group to continue its traditional construction
and mining service businesses, based upon certain factors such as
contract volume, prequalification requirements to bid on projects,
bonding requirements of its outside insurance company, and working
capital requirements. The capital structure of the Diversified Group
consisted of the remaining equity of PKS and provided the equity and
liquidity to allow the Diversified Group the opportunity to invest in
capital intensive businesses, a primary objective of the reorganization.
In order to attain the desired capital structure, PKS contributed $58
million of equity to the Group on December 28, 1991.
PKS has corporate assets, liabilities and related income and expense
which are not separately identified with the ongoing operations of the
Group or the Diversified Group. The Group's 50% portion is as follows
(in millions):
1993 1992
_____ _____
Cash and cash equivalents $ 47 $ 45
Marketable securities 11 12
Property, plant and equipment, net 12 9
Deferred taxes and other 11 15
_____ _____
Total Assets $ 81 $ 81
===== =====
Accounts payable $ 27 $ 25
Convertible debentures 2 2
Notes to former stockholders 8 9
Liability for stock appreciation rights 2 3
Other liabilities 5 5
_____ _____
Total Liabilities $ 44 $ 44
===== =====
1993 1992 1991
____ ____ ____
Net investment income (expense) $(1) $ 3 $ 4
Depreciation (2) (2) (1)
Stock appreciation rights costs (1) (1) (3)
Other income (expense) 4 4 (2)
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(3) Corporate Activities (continued)
________________________________
Corporate general and administrative costs - a portion of corporate
general and administrative costs has been allocated to the Group
based upon certain measures of business activities, such as employment,
investments and sales, which method management believes to be
reasonable. The allocations were $26 million, $27 million, and
$25 million in 1993, 1992 and 1991, respectively.
Income taxes - All domestic members of the PKS affiliated group are
included in the consolidated U.S. income tax return filed by PKS.
Accordingly, the provision for income taxes and the related payments
or refunds of tax are determined on a consolidated basis.
The financial statement provision and actual cash tax payments have been
reflected in the Group's and the Diversified Group's financial statements
in accordance with PKS' tax allocation policy for such groups. In
general, such policy provides that the consolidated tax provision and
related cash flows and balance sheet amounts are allocated between the
Group and the Diversified Group, for group financial statement purposes,
based principally upon the financial income, taxable income, credits,
preferences and other amounts directly related to the respective groups.
The provision for estimated United States income taxes for the Group
does not differ materially from that which would have been determined
on a separate return basis.
(4) Disclosures about Fair Value of Financial Instruments
_____________________________________________________
The following methods and assumptions were used to determine
classification and fair values of financial instruments:
Cash and Cash Equivalents
_________________________
Cash equivalents generally consist of highly liquid debt instruments
purchased with a maturity of three months or less. The securities are
stated at cost, which approximates fair value.
Marketable Securities
_____________________
The Group has classified all marketable securities as available-
for-sale. The amortized cost of the securities used in computing
unrealized and realized gains and losses are determined by
specific identification. Fair values are estimated based on
quoted market prices for the securities on hand or for similar
investments. Fair values of certificates of deposit approximate cost.
Net unrealized holding gains and losses, if any, are reported as a
separate component of stockholders' equity, net of tax.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(4) Disclosures about Fair Value of Financial Instruments (continued)
_________________________________________________________________
At December 26, 1992 the cost of marketable securities approximated fair
value. At December 25, 1993 the cost, unrealized holding gains and
losses, and estimated fair values of marketable securities are as follows:
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
_________ __________ __________ _____
Equity securities $ 29 $ - $ - $ 29
U.S. debt securities 40 - - 40
State and political
subdivision debt
securities 48 1 - 49
Corporate debt securities 49 - 1 48
Collateralized
mortgage obligations 2 - - 2
Certificates of deposit 15 - - 15
_______ _____ _____ _____
$ 183 $ 1 $ 1 $ 183
======= ===== ===== =====
For debt securities, amortized costs do not vary significantly from
principal amounts. Realized gains and losses on sales of marketable
securities were $2 and $25, respectively, in 1993.
The contractual maturities of the debt securities are as follows:
Amortized Cost Fair Value
______________ __________
U.S. debt securities:
less than 1 year $ 23 $ 23
1-5 years 17 17
_____ _____
$ 40 $ 40
===== =====
State and political subdivision
debt securities:
less than 1 year $ 2 $ 2
1-5 years 40 41
5-10 years - -
over 10 years 6 6
_____ _____
$ 48 $ 49
===== =====
Corporate debt securities:
less than 1 year $ 3 $ 3
1-5 years 46 45
_____ _____
$ 49 $ 48
===== =====
Certificates of deposit:
less than 1 year $ 15 $ 15
===== =====
Maturities for the collateralized mortgage obligations have not been
presented as they do not have a single maturity date.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(4) Disclosures about Fair Value of Financial Instruments (continued)
_________________________________________________________________
Long-term Debt:
_______________
The fair value of debt was estimated using the incremental
borrowing rates of the Group for debt of the same remaining
maturities and approximates the carrying amount.
(5) Retainage on Construction Contracts
___________________________________
Marketable securities at December 25, 1993 and December 26, 1992
include approximately $56 million and $48 million, respectively of
investments which are being held by the owners of various construction
projects in lieu of retainage.
Receivables at December 25, 1993 and December 26, 1992 include
approximately $37 million and $35 million, respectively, of retainage
on uncompleted projects, the majority of which is expected to be
collected within one year.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(6) Investment in Construction Joint Ventures
_________________________________________
The Group has entered into a number of construction joint venture
arrangements. Under these arrangements, if one venturer is financially
unable to bear its share of costs, the other venturers will be
required to pay those costs.
Summary joint venture financial information follows:
Financial Position (dollars in millions) 1993 1992
______________________________________________________________________
Total Joint Ventures
Current assets $ 563 $ 395
Other assets (principally construction
equipment) 71 39
______ ______
634 434
Current liabilities (481) (181)
______ ______
Net assets $ 153 $ 253
====== ======
Group's Share
Equity in net assets $ 80 $ 51
Receivable (payable) from (to) joint
ventures 1 (3)
______ ______
Investment in construction joint
ventures $ 81 $ 48
====== ======
______________________________________________________________________
Operations (dollars in millions) 1993 1992 1991
______________________________________________________________________
Total Joint Ventures
____________________
Revenue $ 906 $ 575 $ 565
Costs 841 522 703
______ ______ ______
Operating income (loss) $ 65 $ 53 $ (138)
====== ====== ======
Group's Share
_____________
Revenue $ 430 $ 269 $ 337
Costs 372 243 352
______ ______ ______
Operating income (loss) $ 58 $ 26 $ (15)
====== ====== ======
______________________________________________________________________
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(6) Investment in Construction Joint Ventures (continued)
_____________________________________________________
Management of the nonsponsored Denmark tunnel project completed a cost
estimate in 1993 which indicated a favorable variance in the estimated
costs of the project. As a result of this cost estimate and negotiations
with the owner, the Group's management has reduced reserves by $20
million which had been maintained to provide for the Group's share of
estimated losses on the project. Management believes that the
resolution of the uncertainties in completing the tunnel, primarily
due to adverse soil conditions, should not materially affect the
Group's financial position.
Operating income in 1991 was unfavorably impacted by losses on certain
joint venture contracts including recording estimated losses on a
nonsponsored Denmark tunnel project of $32 million.
(7) Other Assets
____________
In 1992 the Group purchased a 30% ownership interest in an electrical
contracting business for approximately $16 million. In 1993 the Group
purchased an additional 6% ownership interest for approximately $3
million. The investment is accounted for on the equity method.
(8) Long-Term Debt
______________
At December 25, 1993 and December 26, 1992, long-term debt consisting
of a portion of PKS' notes to former stockholders and convertible
debentures which have been allocated equally to the Group and the
Diversified Group, and specifically attributed debt was as follows:
(dollars in millions) 1993 1992
_____________________________________________________________________
7.5%-11.6% Notes to former stockholders, 1994-2001 $ 8 $ 9
6.25%-10.50% Convertible debentures, 1999-2003 3 2
Other 3 3
_____ _____
14 14
Less current portion (4) (2)
_____ _____
$ 10 $ 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 14,322, 10,468 and 36,598
shares of Class C common stock in 1993, 1992 and 1991, respectively.
At December 25, 1993, 215,180 shares of Class C common stock are
reserved for future conversions.
Assuming conversion of debentures, scheduled maturities of long-term
through 1998 are as follows (in millions): 1994 - $4, 1995 - $3;
1996 - $3; 1997 - $1, and 1998 - $1.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(9) Income Taxes
____________
An analysis of the provision for income taxes relating to earnings
before cumulative effect of change in accounting principle for the
three years ended December 25, 1993 follows:
(dollars in millions) 1993 1992 1991
___________________________________________________________________
Current:
U.S. federal $ 28 $ 47 $ 30
Foreign 2 5 7
State 4 3 4
_____ _____ _____
34 55 41
_____ _____ _____
Deferred:
U.S. federal 4 (10) (22)
Foreign 1 (4) -
State (1) 2 -
_____ _____ _____
4 (12) (22)
_____ _____ _____
$ 38 $ 43 $ 19
===== ===== =====
___________________________________________________________________
The United States and foreign components of earnings for tax reporting
purposes, before income taxes and cumulative effect of change in
accounting principle follow:
(dollars in millions) 1993 1992 1991
___________________________________________________________________
United States $ 111 $ 110 $ 28
Foreign 7 2 14
_____ _____ _____
$ 118 $ 112 $ 42
===== ===== =====
___________________________________________________________________
The components of the deferred income tax benefit, prior to adopting
SFAS No. 109, in 1991 were as follows:
(dollars in millions) 1991
___________________________________________________________________
Retirement benefits and other compensation $ (1)
Insurance reserves (3)
Construction contract accounting (18)
_____
$ (22)
=====
___________________________________________________________________
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(9) Income Taxes (continued)
________________________
A reconciliation of the actual provision for income taxes and the tax
computed by applying the U.S. federal rate (35% in 1993 and 34% in 1992
and 1991) to the earnings before income taxes and cumulative effect of
change in accounting principle for the three years ended December 25,
1993 follows:
(dollars in millions) 1993 1992 1991
______________________________________________________________________
Computed tax at statutory rate $ 41 $ 38 $ 15
State income taxes 1 3 2
Foreign taxes - - 2
Other (2) 2 -
Effect of federal income tax rate change (2) - -
_____ _____ _____
$ 38 $ 43 $ 19
===== ===== =====
______________________________________________________________________
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 as of December 25, 1993
and December 26, 1992 were as follows:
(dollars in millions) 1993 1992
_____________________________________________________________________
Deferred tax assets:
Construction accounts $ 16 $ 8
Investments in construction joint ventures 13 18
Insurance claims 24 26
Compensation - retirement benefits 6 6
Other 11 6
_____ _____
Total deferred tax assets 70 64
_____ _____
Deferred tax liabilities:
Other 13 7
_____ _____
Total deferred tax liabilities 13 7
_____ _____
Net deferred tax assets $ 57 $ 57
===== =====
_____________________________________________________________________
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(10) Employee Benefit Plans
______________________
The Group makes contributions, based on collective bargaining agreements
related to its construction operations, to several multi-employer union
pension plans. These contributions are included in construction
contract costs. Under federal law, the Group may be liable for a
portion of future plan deficiencies; however, there no known
deficiencies.
The Group also has a long-term incentive plan, stock appreciation
rights, for certain employees. The expense related to this plan was
$2 million in 1993, $4 million in 1992 and $5 million in 1991.
Substantially all employees of the Group, with the exception of
stockholders, are covered under the Group's profit sharing plans.
The expense related to these plans was $1 million, $2 million, and
$1 million in 1993, 1992 and 1991, respectively.
(11) Stockholders' Equity
____________________
Ownership of the Class B&C Stock is restricted to certain employees
conditioned upon the execution of repurchase agreements which
restrict the employees from transferring the stock. PKS is generally
committed to purchase all Class B&C Stock at the amount computed
pursuant to the Restated Certificate of Incorporation. Issuances and
repurchases of common shares including conversions for the three years
ended December 25, 1993 (1991 attributed shares) were as follows:
____________________________________________________________________
B&C
Stock
_________
Shares issued in 1991 514,518
Shares repurchased in 1991 3,103,335
Shares issued in 1992 2,886,418
Shares repurchased in 1992 4,902,161
Shares issued in 1993 1,027,657
Shares repurchased in 1993 2,293,722
____________________________________________________________________
(12) Other Income
____________
Investment income (loss) was $(8) million, $20 million and $19 million
in 1993, 1992 and 1991, respectively. In 1993, losses of $24 million
from the sale and permanent writedown of certain derivative securities
adversely affected the results. Mining service income that the Group
recognized as a result of the Group's mining service arrangements with
the Diversified Group was $29 million in 1993 and 1992 and $8 million
in 1991. Generally, gains from miscellaneous asset dispositions,
including property, plant and equipment, made up the remaining activity
of Other Income.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(13) Industry and Geographic Data
____________________________
The Group's operations are primarily conducted in one business
segment; construction contracting.
The following is derived from geographic information in the PKS
consolidated financial statements as it relates to the Group.
The information below summarizes the Group's operations in different
geographical areas:
Geographic Data (dollars in millions) 1993 1992 1991
_____________________________________________________________________
Revenue:
United States $ 1,550 $ 1,466 $ 1,584
Canada 175 182 238
Other 52 23 12
_______ _______ _______
$ 1,777 $ 1,671 $ 1,834
======= ======= =======
Operating earnings:
United States $ 93 $ 92 $ 31
Canada 4 (2) 13
Other 22 - (32)
_______ _______ _______
119 90 12
Interest income, net 10 15 10
Nonoperating income (expense), net (11) 7 20
_______ _______ _______
Earnings before income taxes and
cumulative effect of change in
accounting principle $ 118 $ 112 $ 42
======= ======= =======
Identifiable assets:
United States $ 530 $ 473 $ 465
Canada 82 90 102
Other areas 13 9 -
Corporate (1) 264 290 282
_______ _______ _______
$ 889 $ 862 $ 849
======= ======= =======
_____________________________________________________________________
(1) Principally cash, cash equivalents and marketable securities.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(14) Other Matters
_____________
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 or results of operations.
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 17 years
aggregate $10 million.
It is customary in the Group's industry to use various financial
instruments in the normal course of business. These instruments
include items such as letters of credit. Letters of credit are
conditional commitments issued on behalf of the Group in accordance
with specified terms and conditions. As of December 25, 1993, the
Group had outstanding letters of credit of approximately $78 million.
(15) Subsequent Events
_________________
On February 28, 1994 the Group completed the purchase of APAC-Arizona,
Inc. ("APAC") from Ashland Oil Company, Inc. for approximately $49
million, subject to adjustments. APAC is engaged in the construction
materials and contracting businesses in Arizona and surrounding states.
The acquisition will be accounted for as a purchase, and accordingly,
the purchase price will be allocated to the assets and liabilities
of APAC based upon their estimated fair values at the acquisition
date. Results of operations of APAC will be included in the Group's
results of operations subsequent to the date of acquisition.
SCHEDULE VIII
KIEWIT CONSTRUCTION & MINING GROUP
Valuation and Qualifying Accounts and Reserves
Additions Amounts
Balance Charged to Charged Balance
(dollars) Beginning Costs and to End of
in millions) of Period Expenses Reserves Other Period
____________________________________________________________________________
Year ended
December 25, 1993
_________________
Alowance for doubtful
trade accounts $ 2 $ 4 $ (1) $ - $ 5
Reserves:
Insurance claims 66 13 (13) (1) 65
Year ended
December 26, 1992
_________________
Allowance for doubtful
trade accounts $ 2 $ 1 $ (1) $ - $ 2
Reserves:
Insurance claims 61 20 (15) - 66
Year ended
December 28, 1991
_________________
Allowance for doubtful
trade accounts $ 2 $ 1 $ (1) $ - $ 2
Reserves:
Insurance claims 45 25 (9) - 61
____________________________________________________________________________
KIEWIT CONSTRUCTION & MINING GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
___________________________________________________________
The financial statements of the Construction & Mining Group (the
"Group") include the financial position, results of operations and cash
flows for the construction business and certain mining services of Peter
Kiewit Sons', Inc. ("PKS") and a portion of the corporate assets and
liabilities and related transactions which are not separately identified
with ongoing operations of the Construction & Mining Group or the
Diversified Group. The Group's share of corporate assets and liabilities
and related transactions includes amounts to reflect certain financial
activities, corporate general and administrative costs and income taxes.
See Notes 1 and 3 to the Group's financial statements.
Results of Operations - 1993 vs. 1992
_____________________________________
Construction
____________
Construction revenue increased by $98 million or 6% in 1993. The
Group's share of joint venture revenue rose by 60% and accounted for 24% of
the total construction revenue for the period as compared to 16% for 1992.
Several large contracts awarded in 1992 and early 1993 contributed to the
overall increase, the largest of which was the San Joaquin Toll Road Joint
Venture ("San Joaquin"). The increase in joint venture revenue was partially
offset by a small decrease in sole contract revenue recognized due to a
decrease in the average size of sole contracts awarded. Contract backlog at
December 25, 1993 was $2.1 billion, of which 6% is attributable to foreign
operations, principally, Canada. Projects on the west coast comprised 50% of
the total backlog of which San Joaquin accounts for $435 million. San Joaquin
is scheduled for completion in 1997.
Direct costs associated with construction contracts increased $66
million or 4% to $1.569 billion in 1993. The increase is net of a $20
million reduction in reserves previously established for the non-sponsored
Denmark tunnel project. The overall rise in costs is directly attributable
to the increase in volume. Costs as a percentage of revenue, excluding
the reduction in reserves, approximated 90% and 91% for 1993 and 1992,
respectively.
Management of the non-sponsored Denmark tunnel projected completed a
cost estimate which indicated a favorable variance in the estimated costs of
the project. As a result of this revised cost estimate and negotiations with
the owner, management reduced reserves maintained to provide for the Group's
share of estimated losses on the project. This reduction contributed to the
increase in gross margin to 11% in 1993 from 9% in 1992.
Other Income
____________
Other income decreased $25 million in 1993. Approximately 90% of the
decline resulted from the realization of losses on the sale of and valuation
adjustments to certain derivative instruments. Slight increases in
miscellaneous income partially offset declines in interest income and net
gains on asset dispositions.
KIEWIT CONSTRUCTION & MINING GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
___________________________________________________________
Results of Operations - 1993 vs. 1992 (continued)
_________________________________________________
Selling and Administrative
__________________________
Selling and administrative expenses increased 4% in 1993 as a result
of moderate increases in several of the Group's operating districts.
Taxes
_____
The effective income tax rates are 32% in 1993 and 38% in 1992. The
rates differ from the statutory rates principally because of the effect of
the Federal income tax rate change on deferred tax assets in 1993 and state
income taxes in 1992.
Results of Operations - 1992 vs. 1991
_____________________________________
Construction
____________
Revenue from construction activity in 1992 decreased 9% compared to
1991. Although the number of new contracts awarded in 1992 increased
approximately 15%, the average size of new contracts, excluding the $520
million contract awarded from the San Joaquin Hills Transportation
Corridor Agency ("San Joaquin"), decreased by approximately 20%. Contract
backlog at December 26, 1992 was $2.2 billion, a $300 million increase from
backlog at December 28, 1991. Of the 1992 backlog, 9% relates to foreign
projects mainly in Canada and the remainder relates to projects in the
United States. Sixty-four percent of the U.S. projects are on the west
coast. The decrease in revenue as well as in contract backlog (excluding
San Joaquin) is the result of the general state of the economy in Canada
and the United States. Fluctuating demand cycles are typical of the
industry. The gross margin was 9% in 1992 and 6% in 1991. The 1991 gross
margin was unfavorably impacted primarily by losses on the Denmark tunnel
project and on several U.S. projects.
Management of the nonsponsored Denmark tunnel project completed
negotiations with respect to the settlement of claims against the project
owner and equipment supplier. The new agreement covered the reimbursement of
certain costs incurred and time extensions due to differing soil conditions
at the site of the tunnels. Costs incurred with respect to the flooding of
two of the four tunnels being drilled as part of the project have been
covered by insurers. Because of the remaining uncertainties involved in
completing the tunnels, due primarily to the adverse soil conditions, no
adjustments were made in 1992 for the Company's share of the estimated losses.
Management believed that the resolution of the uncertainties would not
materially affect on the Company's financial position.
KIEWIT CONSTRUCTION & MINING GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
___________________________________________________________
Results of Operations - 1992 vs. 1991 (continued)
_________________________________________________
Other Income
____________
Other income increased 43% in 1992 compared to 1991. The Group's
investment income of $20 million in 1992 approximated the 1991 amount. The
overall increase in Other Income is principally the result of a $21 million
increase in mine service income that the Group recognized a result of a new
mine management service agreement, effective as of the beginning of 1992, with
the Diversified Group. Significant increases are not expected to continue in
the future. The new agreement provides that a percentage of the Diversified
Group's operating income from mining operations is to be paid to the Group.
Selling and Administrative
__________________________
Selling and administrative expenses increased 3% in 1992 as result
of moderate increases in several of the Group's administrative departments.
Interest Expense
________________
Interest expense decreased from $5 million in 1991 to $2 million in
1992 due primarily to interest incurred in 1991 on settlements of various
tax issues.
Taxes
_____
The effective income tax rates are 38% in 1992 and 45% in 1991,
which are higher than the statutory rate of 34%, primarily due to state
income taxes in 1992 and foreign and state income taxes in 1991.
Financial Condition - December 25, 1993
_______________________________________
In 1993, the Group's working capital increased $30 million or 9% to
$372 million.
For the year, the Group generated $87 million of cash from operating
activities, a decrease of 4% from the prior year.
The Group's 1993 net investing activities used $20 million.
Capital expenditures of $54 million and other outlays of $12 million exceeded
net proceeds from sales and maturities of marketable securities of $32
million and proceeds from sales of fixed assets of $14 million. Future
investing activity includes the acquisition of APAC, purchasing additional
shares of an electrical contractor - the Group is committed to 80% ownership by
1997 - and investing between $40 and $75 million annually in the construction
business.
KIEWIT CONSTRUCTION & MINING GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
___________________________________________________________
Financial Condition - December 25, 1993 (continued)
___________________________________________________
Financing activities reducing cash during 1993 consisted of net
conversions of Class B&C stock for Class D stock of $26 million, stock
repurchases of $14 million and dividends of $10 million. Stock issuances
and long-term debt borrowings generated cash of $16 million and $2 million,
respectively, in 1993. Stock conversions and repurchases, dividends ($6
million paid in January of 1994), and stock issuances will continue as the
Group's major financing activities.
The Group's existing cash and cash equivalents, marketable
securities and operating cash flows, along with existing borrowing capacity,
should suffice for 1994 working capital and capital expenditure
requirements and provide adequate liquidity for the expenditures discussed
above.