KIEWIT DIVERSIFIED 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:
V--Property, Plant and Equipment
VI--Accumulated Depreciation, Depletion and Amortization
of Property, Plant and Equipment
VIII--Valuation and Qualifying Accounts and Reserves
IX--Short-Term Borrowings
X--Supplementary Income Statement Information
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 Diversified Group, a business group of Peter Kiewit
Sons', Inc. (as defined in Note 1 to these financial statements) as listed in
the index on the preceding page of this exhibit to Form 10-K. These
financial statements and financial statement 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 Diversified 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 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 DIVERSIFIED GROUP
Statements of Earnings
For the three years ended December 25, 1993
(dollars in millions, except per share data) 1993 1992 1991
____________________________________________________________________________
Revenue $ 402 $ 349 $ 252
Other Income 47 87 84
_______ _______ _______
449 436 336
Costs and Expenses:
Cost of revenue 285 228 184
Selling and administrative 113 92 62
Interest 11 9 42
_______ _______ _______
409 329 288
_______ _______ _______
40 107 48
Gain on Sale of Subsidiary's Stock 211 - -
_______ _______ _______
Earnings from Continuing Operations Before
Income Taxes, Minority Interest and
Cumulative Effect of Change in Accounting
Principle 251 107 48
Provision for Incomes Taxes (73) (26) (22)
Minority Interest in Loss of Subsidiaries 3 - -
_______ _______ _______
Earnings from Continuing Operations Before
Cumulative Effect of Change in
Accounting Principle 181 81 26
Cumulative Effect of Change in
Accounting Principle - (1) -
_______ _______ _______
Earnings from Continuing Operations 181 80 26
Discontinued Operations:
Earnings from discontinued
operations net of income taxes
of $- and $26 in 1992 and
1991, respectively - 1 19
Gain on disposal of discontinued
operations net of income taxes
(benefit) of $(19) and $221
in 1992 and 1991, respectively - 18 373
_______ _______ _______
Net Earnings $ 181 $ 99 $ 418
======= ======= =======
____________________________________________________________________________
See accompanying notes to financial statements.
KIEWIT DIVERSIFIED GROUP
Statements of Earnings (continued)
For the three years ended December 25, 1993
(dollars in millions, except per share data) 1993 1992 1991
____________________________________________________________________________
Earnings Per Common and Common Equivalent
Share:
Continuing Operations:
Earnings Before Cumulative Effect of
Change in Accounting Principle $ 9.08 $ 4.00 $ 1.26
Cumulative Effect of Change in
Accounting Principle - (.05) -
_______ _______ _______
Earnings from Continuing Operations 9.08 3.95 1.26
Discontinued Operations:
Earnings - .04 .94
Gain on disposal - .93 18.10
_______ _______ _______
Net Earnings $ 9.08 $ 4.92 $ 20.30
======= ======= =======
____________________________________________________________________________
See accompanying notes to financial statements.
KIEWIT DIVERSIFIED GROUP
Balance Sheets
December 25, 1993 and December 26, 1992
(dollars in millions) 1993 1992
____________________________________________________________________________
Assets
Current Assets:
Cash and cash equivalents $ 197 $ 135
Marketable securities 899 657
Receivables, less allowance of $2 and $5 81 67
Note receivable from sale of discontinued
operations 5 60
Deferred income taxes 18 3
Other 40 77
_______ _______
Total Current Assets 1,240 999
Property, Plant and Equipment, at cost:
Land 15 12
Buildings 172 26
Equipment 802 461
_______ _______
989 499
Less accumulated depreciation and amortization (252) (209)
_______ _______
Net Property, Plant and Equipment 737 290
Note Receivable from Sale of Discontinued
Operations 29 84
Investments 233 180
Intangible Assets, net 415 75
Other Assets 155 131
_______ _______
$ 2,809 $ 1,759
======= =======
____________________________________________________________________________
See accompanying notes to financial statements.
KIEWIT DIVERSIFIED GROUP
Balance Sheets
December 25, 1993 and December 26, 1992
(dollars in millions) 1993 1992
___________________________________________________________________________
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 113 $ 55
Short-term borrowings - 80
Current portion of long-term debt:
Telecommunications 7 -
Other 4 1
Accrued costs and billings in excess of revenue
on uncompleted contracts 20 12
Accrued reclamation and other mining costs 23 16
Other 80 39
_______ _______
Total Current Liabilities 247 203
Long-Term Debt, less current portion:
Telecommunications 420 -
Other 32 18
Deferred Income Taxes 394 272
Retirement Benefits 71 74
Accrued Reclamation Costs 92 94
Other Liabilities 64 65
Minority Interest 298 12
Stockholders' Equity (Redeemable Common Stock,
$1.2 billion aggregate redemption value)
Common equity 1,182 1,017
Foreign currency adjustment - 4
Net unrealized holding gain 9 -
_______ _______
Total Stockholders' Equity 1,191 1,021
_______ _______
$ 2,809 $ 1,759
======= =======
___________________________________________________________________________
See accompanying notes to financial statements.
KIEWIT DIVERSIFIED GROUP
Statements of Cash Flows
For the three years ended December 25, 1993
(dollars in millions) 1993 1992 1991
__________________________________________________________________________
Cash flows from operations:
Earnings from continuing operations $ 181 $ 80 $ 26
Adjustments to reconcile earnings from
continuing operations to net cash
provided by continuing operations:
Cumulative effect of change in
accounting principle - 1 -
Depreciation, depletion and
amortization 51 39 28
(Gain) loss on sale of property,
plant and equipment,
and other investments 8 (7) 3
Gain on sale of subsidiary's stock (211) - -
Decline in market value of
investments 25 12 -
Retirement benefits paid (17) (8) (5)
Change in retirement benefits and
other noncurrent liabilities 1 3 54
Deferred income taxes 45 8 18
Change in working capital items:
Receivables 8 (14) 8
Other current assets - 16 (30)
Payables 51 13 5
Other liabilities 36 (29) (11)
Other 18 (5) (27)
_______ _______ _______
Net cash provided by continuing
operations 196 109 69
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 4,155 5,611 3,112
Purchases of marketable securities (4,490) (5,646) (3,431)
Proceeds from sale of property, plant
and equipment, and other investments 25 12 11
Capital expenditures (139) (89) (63)
Investments in affiliates (3) (26) (135)
Acquisition of C-TEC, excluding
cash acquired (146) - -
Acquisition of minority interest - (27) -
Deferred development costs and other (36) 11 (4)
_______ _______ _______
Net cash used in investing
activities (634) (154) (510)
Cash flows from financing activities:
Long-term debt borrowings 19 1 11
Payments on long-term debt, including
current portion (7) (89) (179)
Net change in short-term borrowings (80) 80 (231)
Issuances of common stock 8 - 16
Issuances of subsidiary's stock 458 - -
Repurchases of common stock (40) (64) (105)
Dividends paid (17) (33) (15)
Dividend to parent - - (58)
Exchange of B&C Stock for Class
D Stock, net 26 32 -
Other 3 (1) (3)
_______ _______ _______
Net cash provided by (used in)
financing activities 370 (74) (564)
___________________________________________________________________________
KIEWIT DIVERSIFIED GROUP
Statements of Cash Flows
For the three years ended December 25, 1993 (continued)
(dollars in millions) 1993 1992 1991
__________________________________________________________________________
Cash flows from discontinued packaging
operations:
Proceeds from sales of discontinued
packaging operations 110 163 1,285
USW ERISA Litigation settlement
installment payment - - (207)
Other cash provided by (used in)
discontinued packaging operations 20 (34) (105)
_______ _______ _______
Net cash provided by discontinued
packaging operations 130 129 973
_______ _______ _______
Net increase (decrease) in cash and
cash equivalents 62 10 (32)
Cash and cash equivalents at
beginning of year 135 125 157
_______ _______ _______
Cash and cash equivalents at
end of year $ 197 $ 135 $ 125
======= ======= =======
Supplemental disclosure of cash flow
information for continuing and
discontinued operations:
Taxes $ 29 $ 117 $ 206
Interest 4 11 48
__________________________________________________________________________
See accompanying notes to financial statements.
KIEWIT DIVERSIFIED GROUP
Statements of Changes in Stockholders' Equity
For the three years ended December 25, 1993
(dollars in millions except per share data) 1993 1992 1991
___________________________________________________________________________
Common equity:
Balance at beginning of year $ 1,017 $ 989 $ 733
Issuances of stock 8 - 16
Repurchases of stock (40) (64) (105)
Exchange of Class B&C Stock for Class
D Stock, net 26 32 -
Net earnings 181 99 418
Dividends (per share: $.50 in 1993,
$1.95 in 1992, and $.70 in 1991) (a) (10) (39) (15)
Dividend to parent - - (58)
_______ _______ _______
Balance at end of year $ 1,182 $ 1,017 $ 989
======= ======= =======
Other equity adjustments:
Balance at beginning of year $ 4 $ 7 $ 102
Foreign currency adjustment (4) (3) (95)
Net unrealized holding gain 9 - -
_______ _______ _______
Balance at end of year $ 9 $ 4 $ 7
======= ======= =======
Total stockholders' equity $ 1,191 $ 1,021 $ 996
======= ======= =======
___________________________________________________________________________
(a) 1992 includes $.35 per share for dividends declared in 1992 but paid in
1993. 1991 reflects dividends paid by PKS on its previous common stock
that have been attributed to the Diversified Group and the Construction &
Mining 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 DIVERSIFIED GROUP
Notes to Financial Statements
(1) Basis of Presentation
_____________________
The Class B&C Stock and the Class D Stock are designed to provide
stockholders with separate securities reflecting the performance of
Peter Kiewit Sons', Inc.'s ("PKS") construction business and certain
mining services ("Construction & Mining Group") and its other businesses
("Diversified Group"), respectively.
The financial statements of the Diversified Group include the
financial position, results of operations and cash flows for PKS'
businesses other than its Construction & Mining Group businesses, held
by a wholly-owned subsidiary, Kiewit Diversified Group Inc. ("KDG") and
a portion of the PKS corporate assets and liabilities and related
transactions which are not separately identified with the ongoing
operations of the Diversified Group or the Construction & Mining Group.
These financial statements have been prepared using the historical
amounts included in the PKS consolidated financial statements. 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' Diversified Group and
Construction & Mining Group separately report the assets, liabilities
and stockholders' equity of PKS attributed to each such group, legal
title to such assets and responsibility for such liabilities will not
be affected by such attribution. Holders of Class D Stock and Class B&C
Stock are stockholders of PKS. Accordingly, the PKS consolidated
financial statements and related notes should be read in conjunction
with these financial statements.
(2) Summary of Significant Accounting Policies
__________________________________________
Principles of Group Presentation
________________________________
These financial statements include the accounts of the Diversified Group
("the Group"). The Group's and Construction & Mining Group's financial
statements, taken together, comprise all of the accounts included in the
PKS consolidated financial statements. The Group's enterprises include
coal mining properties, telecommunications, energy production facilities
and timberlands. The Group's only reportable segments are coal mining
properties and telecommunications. See Note 4 with respect to
discontinued packaging operations. Fifty-percent-owned mining joint
ventures are consolidated on a pro rata basis. All significant
intercompany accounts and transactions, except those directly between
the Group and the Construction & Mining Group, have been eliminated.
Investments in other companies in which the Group exercises significant
influence over operating and financial policies are accounted for by
the equity method.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies (continued)
______________________________________________________
Coal Sales Contracts
____________________
The Group and its mining ventures have entered into various agreements
with its customers which stipulate delivery and payment terms for
the sale of coal. Prior to 1993, one of the primary customers deferred
receipt of certain commitments by purchasing undivided fractional
interests in coal reserves of the Group and the mining ventures. Under
these arrangements revenue was recognized when cash was received. The
agreements with this customer were renegotiated in 1992. In accordance
with the renegotiated agreements, there were no sales of interests
in coal reserves subsequent to January 1, 1993. The Group has the
obligation to extract and deliver the coal reserves to the customer in
the future if the customer exercises its option. If the option is
exercised, the Group presently intends to deliver coal from an
unaffiliated mine. In the opinion of management, the Group has
sufficient coal reserves to cover the above sales commitments.
The Group's coal sales contracts are with several electric utility and
industrial companies. In the event that these customers do not fulfill
contractual responsibilities, the Group would pursue the available legal
remedies.
Telecommunications Revenues
___________________________
A subsidiary of the Group, MFS Communications Company, Inc. ("MFS"),
provides private line and special access telecommunications services to
major businesses, governmental entities and long distance carriers in
major metropolitan areas of the United States through a competitive
access provider subsidiary. Another subsidiary of MFS is a network
systems integrator that designs, engineers, develops and installs
telecommunications networks and systems and also provides facilities
management services. MFS recognizes revenue on telecommunications
services in the month the related service is provided. Network systems
integration revenue is recognized on the percentage-of-completion
method of accounting.
In October 1993, the Group acquired 34.5.% of the outstanding shares
of C-TEC Corporation ("C-TEC") that have 56.6% of the available
voting rights. C-TEC's results of operations have been consolidated
from the acquisition date. C-TEC's most significant operating groups
are its local telephone service and cable system operations. C-TEC's
telephone network access revenues are derived from net access
charges, toll rates and settlement arrangements for traffic that
originates or terminates within C-TEC's local telephone company.
Revenues from basic and premium cable programming services are
recorded in the month service is provided.
Concentration of credit risk with respect to accounts receivable are
limited due to the dispersion of customer base among different
industries and geographic areas and remedies provided by the terms of
contracts and statutes.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies (continued)
______________________________________________________
Depreciation and Amortization
_____________________________
Depreciation and amortization for the majority of the Group's property,
plant and equipment are computed on accelerated and straight-line
methods. Depletion of mineral properties is provided primarily on a
unit-of- extraction basis determined in relation to estimated reserves.
In accordance with industry practice, certain telephone plant owned by
C-TEC valued at $216 million is depreciated based on the estimated
remaining lives of the various classes of depreciable property and
straight-line composite rates. At the time property is retired, the
original cost, plus cost of removal, less salvage, is charged to
accumulated depreciation.
Intangible Assets
_________________
Intangible assets consist of amounts allocated upon purchase of assets
of existing operations and development costs. These assets are
amortized on a straight-line basis over the expected period of benefit,
which does not exceed 40 years.
Pension Plans
_____________
The Group maintains defined benefit plans primarily for retired packaging
employees. Benefits paid under the plans are based on years of service
for hourly employees and years of service and rates of pay for
salaried employees.
Substantially all of C-TEC's employees are included in a trusteed
noncontributory defined benefit plan. Upon retirement, employees are
provided a monthly pension based on length of service and compensation.
The plans are funded in accordance with the requirements of the Employee
Retirement Income Security Act of 1974.
Reserves for Reclamation
________________________
The Group follows the policy of providing an accrual for reclamation of
mined properties, based on the estimated cost of restoration of such
properties, in compliance with laws governing strip mining.
Foreign Currencies
__________________
The local currencies of foreign subsidiaries are the functional
currencies for financial reporting purposes. Assets and liabilities
are translated into U.S. dollars at year-end exchange rates. Revenue
and expenses are translated using average exchange rates prevailing
during the year. Gains or losses resulting from currency translation
are recorded as adjustments to stockholders' equity.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies (continued)
______________________________________________________
Subsidiary Stock Sales
______________________
The Group recognizes gains and losses from the sales of stock by its
subsidiaries.
Earnings Per Share
__________________
Primary earnings per share of Class D Stock have been computed using the
weighted average number of shares outstanding during each year. For
periods prior to January 8, 1992, the number of Class D shares are
assumed to be the same as the total corresponding weighted average
shares of PKS. The number of shares used in computing primary earnings
per share was 19,941,885 in 1993, 20,126,768 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 and Investments
_____________________________________
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.
At December 25, 1993, a net unrealized holding gain of $9 million net
of income taxes, was reported in stockholders' equity. See Note 8 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 for 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
expense of $1 million, which represented the increase in the net deferred
tax liabilities as a result of the accounting change. This amount has
been reflected in the statements of earnings as a cumulative effect of a
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.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies (continued)
______________________________________________________
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.
MFS and C-TEC's fiscal years end on December 31.
(3) Corporate Activities
____________________
Financial structure - Cash, cash equivalents and marketable securities
have been allocated to the Group and the Construction & Mining Group
based upon the desired capital structure of the two at December 28,
1991. Financial statement impacts of dividends paid to holders of
Class D Stock and repurchases and issuances of Class D Stock in 1993 and
1992 were reflected in their entirety in the Diversified 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 Construction & Mining 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 Construction
& Mining 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 Construction & Mining
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 Group consisted of the remaining
equity of PKS and provided equity and liquidity to allow the
Group the opportunity to invest in capital intensive businesses, a
primary objective of the Reorganization. In order to attain the desired
capital structure, the Group dividended $58 million of equity to PKS
which was contributed by PKS to the Construction & Mining Group.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(3) Corporate Activities (continued)
________________________________
PKS has corporate assets, liabilities and related income and expense
which are not separately identified with the ongoing operations of the
Group or the Construction & Mining Group. The Group's 50% portion is
as follows (in millions):
1993 1992
____ ____
Cash and cash equivalents $ 47 $ 45
Marketable securities 11 13
Property, plant and equipment, net 12 8
Other assets 11 15
____ ____
Total Assets $ 81 $ 81
==== ====
Accounts payable $ 27 $ 25
Convertible debentures 2 3
Notes to former stockholders 8 8
Liability for stock appreciation rights 2 2
Other liabilities 5 6
____ ____
Total Liabilities $ 44 $ 44
==== ====
1993 1992 1991
_____________________
Net investment income (expense) $ (1) $ 3 $ 4
Depreciation (2) (1) (2)
Stock appreciation rights costs (1) (1) (2)
Other income (expense) 4 3 (1)
Corporate general and administrative costs - a portion of corporate
general and administrative costs has been allocated to the Group
based upon certain measures of business activities, such as employment,
investments and sales, which method management believes to be
reasonable. These allocations were $10 million, $13 million and $25
million in 1993, 1992 and 1991, respectively.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(3) Corporate Activities (continued)
________________________________
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 Construction & Mining Group's financial
statements in accordance with PKS' tax allocation policy for such
groups. In general, such policy provides that the consolidated tax
provision and related cash flows and balance sheet amounts are allocated
between the Group and the Construction & Mining Group, for group
financial statement purposes, based principally upon the financial
income, taxable income, credits, preferences and other amounts directly
related to the respective groups. The provision for estimated United
States income taxes for the Group does not differ materially from that
which would have been determined on a separate return basis.
(4) Discontinued Operations
_______________________
In 1990, the Group's management authorized the disposition of
its packaging businesses. As a result, the financial statements
reflect the packaging businesses as discontinued operations.
Discontinued Packaging Operations for the year ended December
26, 1992 reflect the equity earnings of the Group's investment in a
plastics joint venture, net of tax at the statutory rate. Summary
financial information relative to the discontinued packaging
operations, which primarily reflects earnings from packaging
operations which were sold during 1991 for the year ended December
28, 1991 is provided below:
(dollars in millions) 1991
______________________________________________________________________
Revenue $ 1,145
Earnings Before Income Taxes 45
Net Earnings 19
______________________________________________________________________
The effective income tax rate for 1991 is higher than the statutory
rate of 34%, primarily resulting from the effects of purchase
accounting, state income taxes, higher taxes on foreign earnings and
minority interest.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(5) Acquisitions
____________
In October 1993, the Group acquired 34.5% of the outstanding shares
of C-TEC that have 56.6% of the available voting rights.
The acquisition of C-TEC for $207 million in cash was accounted for
as a purchase, and accordingly, the purchase price was allocated to
the assets acquired and liabilities assumed, as follows:
Assets:
Cash and cash equivalents $ 61
Other current assets 49
Property, plant and equipment 354
Investments 17
Intangible assets 303
Other 8
Liabilities:
Current liabilities (64)
Deferred income taxes (46)
Other liabilities (8)
Long-term debt (427)
Minority interest (40)
______
$ 207
======
Results of C-TEC operations are included in the Group's results of
operations since the date of acquisition.
The following unaudited pro forma information shows the results of
the Group as though the acquisition occured at the beginning of 1992.
These results include certain adjustments, primarily increased
amortization, and are not necessarily indicative of what the results
would have been had the acquisition been made as of that date or
future results.
1993 1992
_______ _______
Revenue $ 638 $ 606
Net Earnings 175 93
Earnings Per Share 8.78 4.63
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(6) MFS Stock Sales
_______________
In May 1993, MFS sold 12.7 million shares of common stock to the public
at an initial offering price of $20 per share for $233 million, net of
certain transaction costs. An additional 4.6 million shares were sold
to the public in September 1993 at a price of $50 per share for
$218 million, net of certain transaction costs. These transactions
have reduced the Company's ownership interest in MFS to 71% at
December 25, 1993. Substantially all of the net proceeds from the
offerings are intended to fund MFS' growth. Prior to the initial
public offering, MFS was a wholly-owned subsidiary of the Group. The
29% outside ownership interest has been included in minority interest.
As a result of the above transactions, the Group recognized a gain of
$211 million representing the increase in the Group's equity in the
underlying net assets of MFS. Deferred income taxes have been provided
on this gain.
(7) Disposal of Packaging Businesses
________________________________
In July 1992, the Group sold its equity investment in a plastics joint
venture to Ball Corporation for $7 million. No significant gain or loss
was recognized as a result of this transaction. The gain on disposal of
discontinued operations in 1992 resulted from a $19 million adjustment
to prior year tax estimates and an $8 million payment, net of tax,
received from BTR Nylex Limited and a $1 million accrual, net of tax,
relating to additional sales proceeds from the sale of Continental PET
Technologies, Inc. This gain was partially offset by miscellaneous
sales adjustments related to the 1991 and 1990 sales of certain
discontinued packaging operations.
In April 1991, certain subsidiaries of the Group sold their European
packaging operations ("Europe") to VIAG Aktiengesellschaft, a German
company. The transaction closed in June 1991. Europe was engaged in
developing, manufacturing and marketing metal and plastic containers,
closures and related packaging products principally in western Europe.
Revenue from these businesses was $818 million prior to the transaction
close in 1991. Europe's net earnings for this same period was $34
million. The net proceeds were $853 million in cash. With the net
proceeds, the Group repaid in July 1991 short-term borrowings of $252
million. The short-term borrowings consisted of $123 million which was
borrowed in June 1991 to repay intercompany loans made to the Group
by a subsidiary of Europe and $129 million which was directly related
to financing Europe's capital expenditures.
In May 1991, the Group sold Continental Can International Corporation
("CCIC"), a wholly-owned subsidiary that held the Group's interests in
metal packaging operations in Latin America, the Far East and the
Middle East, to Crown Cork & Seal Company, Inc. Revenue and net
earnings were not material during the period prior to closing in 1991.
Proceeds from the transaction consisted of $35 million paid in cash at
closing and a receivable of $94 million which was collected in November
1991.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(7) Disposal of Packaging Businesses (continued)
____________________________________________
In August 1991, the Group sold Continental White Cap, Inc. ("White
Cap"), a wholly-owned subsidiary that manufactured metal, plastic and
composite closures for food vacuum-packed in both glass and plastic
containers to Schmalbach Lubeca A.G., a German company, for $279
million, after certain adjustments. Revenue from this business was
$119 million prior to the transaction close in 1991. Net earnings for
this same period was $13 million. The proceeds consisted of a
promissory note, with interest at the LIBOR rate plus .625%,
receivable in installments over the next five years with the final
installment due on December 31, 1995. The first installment payment of
$50 million was received in October 1991. Additional payments
totalling $25 million were received in December 1991 and January
1992, $60 million was received in December 1992, and $110 million was
received in 1993.
In November 1991, the Group sold Continental Plastic Containers, Inc.
and Continental Caribbean Containers, Inc. (collectively "PCD"),
two wholly-owned subsidiaries that manufactured blow-molded rigid
plastic containers for household, automotive, industrial and food
products, to Plastic Containers, Inc., a newly formed corporation, for
approximately $150 million, after adjustments. Revenue from this
business was $190 million prior to the transaction close in 1991. Net
earnings for this same period were $4 million. The proceeds consisted
of $50 million in cash at the closing and a $100 million bridge note
receivable which was collected in April 1992.
The table below summarizes the gain on disposal for each sale
and for the combined sales (in millions) during 1991:
Europe CCIC White Cap PCD Total
______ ____ _________ _____ _______
Net Proceeds $ 853 $ 129 $ 279 $ 150 $ 1,411
Financial Reporting Basis 560 41 109 96 806
_____ _____ _____ _____ _______
Pre-Tax Gain 293 88 170 54 605
Estimated Tax Provision 94 33 78 28 233
_____ _____ _____ _____ _______
Gain on Disposal $ 199 $ 55 $ 92 $ 26 $ 372
===== ===== ===== ===== =======
The effective income tax rates differ from the expected statutory income
tax rates due to state income taxes and the tax bases being different
than the financial reporting bases.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(7) Disposal of Packaging Businesses (continued)
____________________________________________
Included in the gain on disposal of Europe is $43 million of cumulative
translation adjustments, consisting of $95 million of foreign currency
adjustments, recorded at December 29, 1990, offset by $52 million of
foreign currency losses incurred in 1991.
The difference between the gain summarized above and the gain per the
statements of earnings is $1 million, net of tax, consisting of the
following (in millions):
Purchase price adjustment for Continental PET
Technologies, Inc. $ 17
Gain on sale of investment in unconsolidated subsidiary 6
Reserves for various sales of discontinued packaging
operations (22)
_____
$ 1
=====
During 1991, the Group received $176 million in cash related to the
remaining receivable, along with accrued interest, from the sale
of the Group's domestic Beverage and Food packaging business in 1990.
In December 1990, the Group sold Continental PET Technologies, Inc.
("PET") to BTR Nylex Limited ("BTR"), an Australian company.
Closing date proceeds, subject to adjustment, approximated $110
million. BTR paid an additional $40 million for revenue recognized
by PET during 1991-1993 from certain new products. At closing,
the Group received a note receivable of $110 million, which was
collected in cash in January 1991.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(8) 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 an original maturity of three months or less. The
securities are stated at cost, which approximates fair value.
Marketable Securities and Investments
_____________________________________
The Group has classified all marketable securities and non-current
investments not accounted for under the equity method as
available-for-sale. The amortized cost of the securities used in
in computing unrealized and realized holding 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 are
reported as a separate component of stockholders' equity, net of tax.
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 and
noncurrent investments are as follows:
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
_________ __________ __________ _____
Marketable securities:
Equity securities $ 50 $ 2 $ 2 $ 50
U.S. debt securities 496 - - 496
State and political
subdivision debt
securities 88 - - 88
Foreign government
debt securities 84 - - 84
Corporate debt
securities 155 - - 155
Collateralized
mortgage obligations 25 - - 25
Certificates of
deposit 1 - - 1
_____ _____ _____ _____
$ 899 $ 2 $ 2 $ 899
===== ===== ===== =====
Non-current investments:
Equity securities $ 80 $ 13 $ - $ 93
===== ===== ===== =====
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(8) Disclosures about Fair Value of Financial Instruments (continued)
_________________________________________________________________
For debt securities, amortized costs do not vary significantly from
principal amounts. Realized gains and losses on sales of marketable
securities were $29 million and $39 million, 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 $ 494 $ 494
1-5 years 2 2
_____ _____
$ 496 $ 496
===== =====
State and political subdivision
debt securities:
less than 1 year $ 2 $ 2
1-5 years 74 74
5-10 years 5 5
over 10 years 7 7
_____ _____
$ 88 $ 88
===== =====
Foreign government debt securities:
1-5 years $ 67 $ 67
5-10 years 17 17
_____ _____
$ 84 $ 84
===== =====
Corporate debt securities:
less than 1 year $ 62 $ 62
1-5 years 57 57
5-10 years 16 16
over 10 years 20 20
_____ _____
$ 155 $ 155
===== =====
Certificates of deposit:
less than 1 year $ 1 $ 1
===== =====
Maturities for the collateralized mortgage obligations have not been
presented as they do not have a single maturity date
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(8) Disclosures about Fair Value of Financial Instruments (continued)
_________________________________________________________________
Note Receivable from Sale of Discontinued Operations:
____________________________________________________
The carrying amount approximates fair value for both the current and
the long-term portion due to the interest rate provided in the note.
Short-term Borrowings and 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, except for certain Rural Telephone
Bank debt which C-TEC may refinance. (See Note 11).
(9) Investments
___________
During 1992, the Group purchased additional shares of California
Energy Company, Inc. ("California Energy") common stock for $23
million, increasing its ownership to 21%. The cumulative investment
in common stock, accounted for on the equity method, totals $80
million. The Group has certain options to purchase additional shares
of California Energy common stock. The excess purchase price over
the underlying equity is being amortized over 20 years. Equity
earnings, net of the amortization of the excess purchase price over
the underlying equity, were $7 million, $4 million and $3 million in
1993, 1992 and 1991, respectively. California Energy common stock is
traded on the New York Stock Exchange. On December 25, 1993, the
market value of the Group's investment in California Energy common
stock was $138 million, based on the closing price.
In 1993 and 1992, the Group also recorded dividends in kind declared
by California Energy, consisting of voting convertible preferred stock
valued at $5 million and $4 million, respectively. The stock dividends
brought the Group's total investment in convertible preferred stock to
$59 million at December, 25, 1993.
Investments also include equity securities classified as noncurrent
and carried at the fair value of $93 million. See Note 8.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(10) Intangible Assets
_________________
Intangible assets consist of the following at December 25, 1993 and
December 26, 1992 (dollars in millions):
1993 1992
_____ _____
Goodwill $ 234 $ 52
Franchise and subscriber lists 60 5
Noncompete agreements 36 -
Licenses and rights-of-ways 32 11
Deferred development costs 64 13
_____ _____
426 81
Less accumulated amortization (11) (6)
_____ _____
$ 415 $ 75
===== =====
Amortization expense for these assets was $6, $3 and $2 in 1993, 1992
and 1991, respectively.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(11) Long-Term Debt and Unutilized Borrowing Arrangements
____________________________________________________
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
Construction & Mining Group, and specifically attributed debt was as
follows:
(dollars in millions) 1993 1992
______________________________________________________________________
C-TEC Long-term Debt (with recourse only to C-TEC)
____________________
Mortgage notes payable to the United States of
America -
Rural Telephone Bank (RTB)
5% - 6.05%, with monthly payments through 2009 $ 64 $ -
6.5% - 7%, with quarterly sinking fund
payments through 2015 58 -
Federal Financing Bank (FFB)
7.69% - 8.36%, with quarterly sinking fund
payments through 2012 14 -
Senior Secured Notes
9.65%, with annual principal payments,
1996 through 1999 (includes unamortized
premium of $7 based on imputed rate of
6.12%) 157 -
9.52%, with annual principal payments
1996 through 2001 (includes unamortized
premium of $4 based on imputed rate of
6.93%) 104 -
Revolving Credit Agreements and Other 30 -
_____ _____
427 -
Other Long-term Debt
____________________
7.5% to 11.6% Notes to former stockholders
due 1994-2001 8 8
6.25% to 10.5% Convertible debentures
due 1999-2003 4 3
Other 24 8
_____ _____
36 19
_____ _____
463 19
Less current portion (11) (1)
_____ _____
$ 452 $ 18
===== =====
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(11) Long-Term Debt and Unutilized Borrowing Arrangements (continued)
________________________________________________________________
Substantially all of the assets of C-TEC's telephone group ($353
million) collateralize the mortgage notes payable to the United
States of America. These note agreements restrict telephone
group dividends.
The Senior Secured notes are collateralized by pledges of the stock
of C-TEC's telephone, mobile services, and cable group subsidiaries.
The notes contain restrictive covenants which require, among other
things, specific debt to cash flow ratios.
C-TEC's Revolving Credit agreements are collaterlized by a pledge of
the stock of C-TEC's telephone and mobile services subsidiaries.
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 D common stock in 1993, 1992 and 1991,
respectively. At December 25, 1993, 86,736 shares of Class D common
stock are reserved for future conversions.
Other long-term debt consists primarily of construction financing
of a privately owned toll road which will be converted to term debt
upon completion of the project. Variable interest rates on this
debt ranged from 5% to 9% at December 25, 1993.
Scheduled maturities of long-term debt through 1998 are as follows (in
millions): 1994 - $11; 1995 - $25; 1996 - $56; 1997 - $68 and $70 in
1998.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(11) Long-Term Debt and Unutilized Borrowing Arrangements (continued)
_______________________________________________________________
The Group has the following unutilized borrowing arrangements at
December 25, 1993:
C-TEC's telephone group's agreement with the RTB provides for an
additional $23 million of borrowings. The agreement requires C-TEC
to invest in RTB stock for approximately 5% of the available amount.
C-TEC's Revolving Credit agreements provide for an additional $11
million of borrowings collateralized by stock pledges. The total
commitments are reduced on a quarterly basis through maturity in
September 1996.
An additional $50 million Credit Agreement collaterlized by stock
pledges may be utilized by C-TEC. The agreement provides revolving
borrowings through June 1, 1994 at which time the outstanding balance
converts to a term loan with quarterly payments through 1997. Under
the arrangement, C-TEC must maintain specified debt to cash flow
ratios.
C-TEC also has an unused line of credit for $13 million under which
unsecured borrowings may be made. Unused lines are cancelable at
the option of the lenders.
MFS has a $75 million secured revolving credit agreement dependent
in part on their ability to attain certain cash flow requirements.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(12) Income Taxes
____________
An analysis of the provision for income taxes related to continuing
operations before minority interest and 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 $ 24 $ 15 $ 2
State 4 3 2
____ ____ ____
28 18 4
____ ____ ____
Deferred:
U.S. federal 45 8 18
____ ____ ____
$ 73 $ 26 $ 22
==== ==== ====
___________________________________________________________________
The United States and foreign components of earnings for tax reporting
purposes from continuing operations before minority interest, income
taxes and cumulative effect of change in accounting principle follow:
(dollars in millions) 1993 1992 1991
___________________________________________________________________
United States $ 251 $ 105 $ 46
Foreign - 2 2
_____ _____ _____
$ 251 $ 107 $ 48
===== ===== =====
___________________________________________________________________
The components of the deferred income tax provision, prior to
adopting SFAS No. 109, in 1991 were as follows:
(dollars in millions) 1991
___________________________________________________________________
Depreciation and fixed assets $ 3
Retirement benefits and other compensation 2
Mining revenue and costs 5
Equity earnings 4
Accrued revenue 4
____
$ 18
====
___________________________________________________________________
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(12) 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, 34% in 1992
and 1991) to the earnings from continuing operations before minority
interest, 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 $ 88 $ 36 $ 16
State income taxes 3 2 2
Depletion (3) (4) (3)
Dividend exclusion (3) (3) (2)
Equity earnings - (2) -
Nondeductible expense - - 4
Prior year tax adjustments (12) - 4
Other - (3) 1
____ ____ ____
$ 73 $ 26 $ 22
==== ==== ====
___________________________________________________________________
Possible taxes, beyond those provided, on remittances of undistributed
earnings of foreign subsidiaries are not expected to be material.
The components of the net deferred tax liabilities as of December 25,
1993 and December 26, 1992 were as follows:
(dollars in millions) 1993 1992
_____________________________________________________________________
Deferred tax liabilities:
Investments in joint ventures $ 126 $ 126
Asset bases - accumulated depreciation 198 148
Investment in subsidiaries 84 -
Deferred coal sales 26 25
Other 38 35
______ ______
Total deferred tax liabilities 472 334
______ ______
Deferred tax assets:
Compensation - retirement benefits 16 32
Net operating losses realizable by subsidiaries 52 7
Alternative minimum tax credits realizable
by subsidiary 11 -
Provision for estimated expenses 8 10
Other 26 23
Valuation allowances (17) (7)
______ ______
Total deferred tax assets 96 65
______ ______
Net deferred tax liabilities $ 376 $ 269
====== ======
_____________________________________________________________________
The Group's subsidiaries have federal income tax net operating loss
carryforwards of $120 million which begin to expire in 2001.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(13) Employee Benefit Plans
______________________
The Group's defined benefit pension plans cover primarily packaging
employees who retired prior to the disposition of the packaging
operations. The expense related to these plans was approximately
$7 million in 1993 and $1 million in 1992 and 1991.
C-TEC maintains a separate defined benefit plan for substantially
all of its employees. The prepaid cost and income related to this
plan is not significant at December 25, 1993 or for the period from
the aquisition date due through December 25, 1993.
Substantially all employees of the Group, with the exception of
stockholders and MFS and C-TEC employees, are covered under the
Group's profit sharing plans. The expense related to these plans was
$1 million in each of the three years in the period ended December 25,
1993.
(14) Postretirement Benefits
________________________
In addition to providing pension and other supplemental benefits, the
Group provides certain health care and life insurance benefits
primarily for packaging employees who retired prior to the disposition
of certain packaging operations and C-TEC employees. Employees become
eligible for these benefits if they meet minimum age and service
requirements or if they agree to contribute a portion of the cost.
These benefits have not been funded.
The net periodic costs for health care benefits were $4 million
in 1993, 1992 and 1991. The net periodic costs for life insurance
benefits were $2 million, $2 million, and $1 million in 1993, 1992
and 1991, respectively. In all years, the costs related entirely
to interest on accumulated benefits.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(14) Postretirement Benefits (continued)
____________________________________
The accrued postretirement benefit liability as of December 25, 1993
was as follows:
(dollars in millions)
_____________________________________________________________________
Health Life
Insurance Insurance
_________ _________
Retirees $ 34 $ 17
Fully eligible active plan participants - -
Other active plan participants - -
______ ______
Total accumulated postretirement
benefit obligation 34 17
Unrecognized prior service cost 24 1
Unrecognized net loss (7) (2)
______ ______
Accrued postretirement benefit liability $ 51 $ 16
====== ======
_____________________________________________________________________
The unrecognized prior service cost resulted from certain modifications
to the postretirement benefit plan which reduced the accumulated post-
retirement benefit obligation. The Group may make additional
modifications in the future.
An 8.3% increase in the cost of covered health care benefits was assumed
for fiscal 1993. This rate is assumed to gradually decline to 6.2% in
the year 2020 and remain at that level thereafter. A 1% increase in
the health care trend rate would increase the accumulated postretirement
benefit obligation ("APBO") by $1 million at year-end 1993. The
weighted average discount rate used in determining the APBO was 7.0%.
(15) Stockholders' Equity
____________________
PKS is generally committed to purchase all Class D Stock in
accordance with the Restated Certificate of Incorporation. Issuances
and repurchases of common shares including conversions for the three
years ended December 23, 1993 (1991 are attributed shares) were as
follows:
_____________________________________________________________________
D
Stock
_________
Shares issued in 1991 514,518
Shares repurchased in 1991 3,103,335
Shares issued in 1992 1,019,553
Shares repurchased in 1992 1,693,353
Shares issued in 1993 748,026
Shares repurchased in 1993 841,808
_____________________________________________________________________
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(16) Other Income
____________
Other income includes net investment income of $19 million, $66
million, and $89 million in 1993, 1992 and 1991, respectively,
gains and losses on sales of property, plant and equipment and other
assets, and other miscellaneous income. In 1993, the Group
recognized $35 million of losses on the sale and permanent writedown
of certain derivative securities.
(17) Industry and Geographic Data
____________________________
The Diversified Group's continuing operations are conducted
domestically in two reportable business segments: mining and
telecommunications. The packaging segment is reported as discontinued
operations.
In 1993 and 1992, three customers individually accounted for 10% or
more of the Group's revenues. In 1993, Commonwealth Edison Company,
Detroit Edison Company and the Department of General Services - State
of Iowa accounted for 29%, 10%, and 11%, respectively, of revenue.
In 1992, these same entities accounted for 26%, 11%, and 13% of
revenue. Commonwealth Edison Company and Detroit Edison Company
accounted for 33% and 16% of revenue in 1991.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(17) Industry and Geographic Data (continued)
________________________________________
The information below summarizes the Diversified Group's operations in
different industries:
Industry Data (dollars in millions) 1993 1992 1991
_______________________________________________________________________
Revenue:
Mining $ 210 $ 234 $ 211
Telecommunications 189 109 37
Other 3 6 4
_______ _______ _______
$ 402 $ 349 $ 252
======= ======= =======
Operating earnings:
Mining $ 75 $ 77 $ 71
Telecommunications (26) (12) (27)
Other (35) (26) (27)
_______ _______ _______
14 39 17
Gain on Sale of Subsidiary's Stock 211 - -
Interest income, net 31 48 25
Nonoperating income (expense), net (5) 20 6
_______ _______ _______
Earnings from continuing operations
before minority interest, income
taxes and cumulative effect of
change in accounting principle $ 251 $ 107 $ 48
======= ======= =======
Identifiable assets:
Mining $ 185 $ 198 $ 194
Telecommunications 1,682 363 192
Other 62 26 47
Corporate (1) 880 1,172 1,356
Discontinued Operations - - 12
_______ _______ _______
$ 2,809 $ 1,759 $ 1,801
======= ======= =======
Capital Expenditures:
Mining $ 5 $ 8 $ 6
Telecommunications 127 80 51
Other - - 5
Corporate 7 1 1
_______ _______ _______
$ 139 $ 89 $ 63
======= ======= =======
Depreciation, depletion and amortization:
Mining $ 12 $ 12 $ 11
Telecommunications 35 21 12
Other 2 3 3
Corporate 2 3 2
_______ _______ _______
$ 51 $ 39 $ 28
======= ======= =======
______________________________________________________________________
(1) Principally cash, cash equivalents, marketable securities, notes
receivable from sales of discontinued operations and investments in
all years.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(18) Related Party Transaction
_________________________
The Group receives certain mining services from the Construction &
Mining Group. The expense for these services was $29 million in 1993,
$29 million in 1992 and $8 million in 1991.
(19) Other Matters
_____________
The Group is involved in various lawsuits, claims and regulatory
proceedings incidental to its business. Management believes that any
resulting liability, beyond that provided, should not materially affect
the Group's financial position or results of operations.
In many pending proceedings, the Group is one of numerous defendants
who may be "potentially responsible parties" liable for the cleanup of
hazardous substances deposited in landfills or other sites.
The Group has established reserves to cover its probable liabilities
for environmental cases and believes that any additional liabilities
will not materially affect the Group's financial condition or results
of operations.
On March 4, 1994, several former stockholders of an MFS subsidiary
filed a lawsuit against MFS, KDG and the chief executive officer of
MFS, in the United States District Court for the Northern District of
Illinois, Case No. 94C-1381. These shareholders sold shares of the
subsidiary to MFS in September 1992. MFS completed an initial public
offering in May 1993. Plaintiffs allege that MFS fraudulently
concealed material information about its plans from them, causing
them to sell their shares at an inadequate price. Plaintiffs have
alleged damages of at least $100 million. Defendants have
meritorious defenses and intend to vigorously contest this lawsuit.
Prior to the initial public offering, KDG agreed to indemnify MFS
against any liabilities arising from the September 1992 sale; if MFS
is deemed to be liable to plaintiffs, KDG will be required to satisfy
MFS' liabilities pursuant to the indemnity agreement. Any settlement
amount would be treated as an adjustment of the original purchase price
and recorded as additional goodwill.
In 1974, a subsidiary of the Company ("Kiewit"), entered into a lease
agreement with Whitney Benefits, Inc., a Wyoming charitable
corporation ("Whitney"). Whitney is the owner, and Kiewit is the
lessee, of a coal deposit underlying approximately a 1,300 acre tract
in Sheridan County, Wyoming. The coal was rendered unmineable by
the Surface Mining Control and Reclamation Act of 1977 ("SMCRA"), which
prohibited surface mining of coal in certain alluvial valley floors
significant to farming. In 1983, Whitney and Kiewit filed an action
now titled Whitney Benefits, Inc. and Peter Kiewit Sons', Co. v. The
United States, in the U.S. Court of Federal Claims ("Claims Court")
alleging that the enactment of SMCRA constituted a taking of their
coal without just compensation. In 1989, the Claims Court ruled that
a taking had occurred and awarded plaintiffs the 1977 fair market
value of the property ($60 million) plus interest. In 1991, the
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(19) Other Matters (continued)
_________________________
U.S. Court of Appeals for the Federal Circuit Court affirmed the
decision of the claims court. In 1991, the U.S. Supreme Court
denied certiorari. On February 10, 1994, the Claims Court issued an
opinion which provided that the $60 million judgement would bear
interest compounded annually from 1977 until payment. Interest for
the 1977-1993 period is $230 million. Kiewit and Whitney have agreed
that Kiewit and Whitney will receive 67.5 and 32.5 percent,
respectively, of any award.
The government filed two-post trial motions in the Claims Court
during 1992. The government requested a new trial to redetermine the
value of the property. The government also filed a motion to reopen
and set aside the 1989 judgement as void and to dismiss plaintiff's
complaint for lack of jurisdiction. In August 1992, the Claims
Court indicated that both motions would be denied. A written order
has not yet been entered. The government may appeal from the order,
as well as the order regarding compound interest.
It is not presently known when these proceedings will be concluded,
what amount Kiewit will ultimately receive, nor when payment of that
amount will occur.
A subsidiary of the Group, Continental Holdings Inc., remains
contingently liable as a guarantor of $111 million of debt relating
to various businesses which have been sold.
The Group leases various buildings and equipment under both the
operating and capital leases. Minimum rental payments on buildings
and equipment subject to noncancelable operating leases during the
next 24 years aggregate $94 million.
It is customary in the Group's industries to use various financial
instruments in the normal course of business. These instruments
include items such as letters of credit. Letters of credit are
conditional commitments issued on behalf of the Group in accordance
with specified terms and conditions. As of December 25, 1993, the
Group had outstanding letters of credit of approximately $63 million.
C-TEC has an outstanding interest rate swap agreement which expires in
December 1994. Under this agreement, the Group received a fixed rate
of 9.52% on $100 million and pays a floating rate of LIBOR plus 502
basis points (8.52% at December 31, 1993), as determined in six-month
intervals. The transaction effectively changes C-TEC's interest rate
exposure from a fixed-rate to a floating-rate basis on the $100
million underlying debt. The counter-party to the interest swap
contract is a major financial institution. C-TEC is exposed to
economic loss in the event of nonperformance by the counter-party,
however, it does not anticipate such non-performance.
KIEWIT DIVERSIFIED GROUP
Notes to Financial Statements
(20) Subsequent Event
________________
On January 19, 1994, MFS issued 9 3/8% Senior Discount Notes due
January 15, 2004. Cash interest will not accrue on the notes prior
to January 15, 1999. Commencing July 15, 1999 cash interest will
be payable semi-annually. Accordingly, MFS will initially record
the proceeds it received from the offering of $500 million and
accrue to the principal amount of the notes of $788 million
through January 1999. On or after January 15, 1999, the notes will
be redeemable at the option of MFS, in whole or in part, as
stipulated in the note agreement. The notes contain certain
covenants which, among other things, will restrict MFS' ability to
incur additional debt, create liens, enter into sale and leaseback
transactions with affiliates, and sell assets or merge with
another company.
On March 16, 1994, MFS made an offer to purchase all outstanding
shares of common stock and associated preferred share purchase
rights of Centex Telemanagement, Inc. at $9 per share. The
aggregate consideration of the offer approximates $150 million.
The offer, which will expire on April 12, 1994, is conditioned upon,
among other things, acquiring a majority of the common shares and
the preferred share purchase rights being redeemed or invalidated.
SCHEDULE V
KIEWIT DIVERSIFIED GROUP
Property, Plant and Equipment
Balance Additions Balance
(dollars in Beginning at Retire- End of
millions) of Period Cost ments Other (a) Period
___________________________________________________________________________
Year ended
December 25,
1993
______________
Land $ 12 $ - $ - $ 3 $ 15
Buildings 26 2 - 144 172
Equipment 461 137 (6) 210 802
______ ______ _____ _____ ______
$ 499 $ 139 $ (6) $ 357 $ 989
====== ====== ===== ===== ======
Year ended
December 26,
1992
______________
Land $ 11 $ - $ - $ 1 $ 12
Buildings 25 - - 1 26
Equipment 380 89 (8) - 461
______ ______ _____ _____ ______
$ 416 $ 89 $ (8) $ 2 $ 499
====== ====== ===== ===== ======
Year ended
December 28,
1991
______________
Land $ 5 $ - $ - $ 6 $ 11
Buildings 20 - - 5 25
Equipment 292 63 (5) 30 380
______ ______ _____ _____ ______
$ 317 $ 63 $ (5) $ 41 $ 416
====== ====== ===== ===== ======
___________________________________________________________________________
(a) Primarily network and equipment obtained in the acquisitions of
telecommunications businesses.
SCHEDULE VI
KIEWIT DIVERSIFIED GROUP
Accumulated Depreciation and Amortization of Property, Plant and Equipment
Additions
Balance, Charged to Balance
(dollars in Beginning Costs and Retire- End of
millions) of Period Expenses ments Other Period
___________________________________________________________________________
Year ended December
25, 1993
___________________
Buildings $ 25 $ 2 $ - $ 2 $ 29
Equipment 184 41 (4) 2 223
______ ______ _____ _____ ______
$ 209 $ 43 $ (4) $ 4 $ 252
====== ====== ===== ===== ======
Year ended December
26, 1992
___________________
Buildings $ 24 $ 1 $ - $ - $ 25
Equipment 164 29 (7) (2) 184
______ ______ _____ _____ ______
$ 188 $ 30 $ (7) $ (2) $ 209
====== ====== ===== ===== ======
Year ended December
28, 1991
___________________
Buildings $ 18 $ 1 $ - $ 5 $ 24
Equipment 137 25 (5) 7 164
______ ______ _____ _____ ______
$ 155 $ 26 $ (5) $ 12 $ 188
====== ====== ===== ===== ======
___________________________________________________________________________
The estimated service lives used to calculate depreciation are 15 to 40 years
for buildings and improvements and 3 to 25 years for equipment.
Improvements to leased properties are amortized over the lives of the leases
or the estimated useful lives of the improvements, whichever is less.
SCHEDULE VII
KIEWIT DIVERSIFIED 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 25, 1993
_________________
Allowance for doubtful
trade accounts $ 5 $ 1 $ (4) $ - $ 2
Reserves:
Retirement benefits 74 12 (17) 2 71
Year ended
December 26, 1992
_________________
Allowance for doubtful
trade accounts $ 5 $ - $ - $ - $ 5
Reserves:
Retirement benefits 58 8 (8) 16 (a) 74
Year ended
December 28, 1991
_________________
Allowance for doubtful
trade accounts $ 6 $ - $ (1) $ - $ 5
Reserves:
Retirement benefits 21 37 (5) 5 58
_____________________________________________________________________________
(a) In 1992, adjustment made in accordance with SFAS No. 109 to adjust
remaining retirement benefits, acquired in prior business acquisitions,
recorded net of tax, to their pre-tax amounts.
SCHEDULE IX
KIEWIT DIVERSIFIED GROUP
Short-Term Borrowings
Weighted Maximum Weighted
Average Month-End Average Average
Interest Amount Amount Interest
Balance, Rate, Outstanding Outstanding Rate
End of End of During the During the During the
(dollars in millions) Period Period Period Period (a) Period
_____________________________________________________________________________
Year ended December
25, 1993
___________________
Bank Borrowings $ - -% $ 50 $ 24 3.4%
Year ended December
26, 1992
___________________
Bank Borrowings $ 80 3.4% $ 80 $ - -%
Year ended December
28, 1991
___________________
Bank Borrowings $ - -% $ 264 $ 92 10.8%
_____________________________________________________________________________
(a) Determined on the basis of average daily balances of short-term
borrowings. The 1992 bank borrowings were made the last week of the
year.
The bank borrowings provided for interest at various rates and
matured on various dates within one year.
SCHEDULE X
KIEWIT DIVERSIFIED GROUP
Supplementary Income Statement Information
Charged to Costs and Expenses
_____________________________________
(dollars in millions) 1993 1992 1991
____________________________________________________________________________
Royalties (a) $ 22 $ 27 $ 24
Production taxes (a) 16 26 19
Federal Black Lung taxes (b) 4 5 4
____________________________________________________________________________
(a) The Company incurred royalty costs and production taxes with respect
to its mining operations based on the tons of coal mined or sold from
various properties.
(b) Federal Black Lung taxes were assessed on the various mines based on
the tons of coal mined.
Advertising costs, amortization of intangible assets, and taxes other than
payroll and income taxes are not presented as such amounts represent less
than one percent of revenue as reported in the related statements of
earnings or because the information called for is shown in the financial
statements or in the notes thereto.
Maintenance and repair costs in 1993 and 1992 were less than one percent of
revenue. Maintenance and repair costs, primarily related to the Group's
discontinued packaging operations, were $50 million in 1991.
KIEWIT DIVERSIFIED GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
________________________________________________
The financial statements of the Diversified Group ("the Group")
include the financial position, results of operations and cash flows for the
businesses of PKS other than its construction business and certain mining
service businesses, and include a portion of the corporate assets and
liabilities and related transactions which are not separately identified with
ongoing operations of the Group or the Construction & Mining Group. The
Group's share of corporate assets and liabilities and related transactions
includes amounts to reflect certain financial activities, corporate general
and administrative costs, common stock transactions and income taxes. See
Notes 1 and 3 to the Group's financial statements.
Results of Operations - 1993 vs. 1992
_____________________________________
Mining
______
Mining revenue decreased 10% in 1993. The renegotiation of
agreements with Commonwealth Edison Company ("Commonwealth"), ceased sales of
undivided interests in coal reserves. Such sales accounted for approximately
$40 million or 17% of the total mining revenue recognized in 1992. The
absence of the sale of undivided interests to Commonwealth in 1993, was
partially offset by a rise in tonnage shipped and an approximate $4 increase
in average price per ton of coal shipped.
Alternate source coal sales by the Black Butte mine produced the
increase in the average price per ton of coal shipped. Alternate source coal
consists of coal purchased from two unaffiliated mines located in the Powder
River Basin area of Wyoming and from the Group's Decker mine. The purchased
coal is sold to Commonwealth under terms of the renegotiated agreements.
Alternate source coal sales in 1993 comprised 35% of 1993 mining revenue.
The gross margin on mining revenue increased to 49% in 1993 from
44% in 1992. Alternate source coal sales, which result in larger margins
than mined coal, led to the increase.
See "Legal Proceedings" with respect to the Whitney Benefits case.
Telecommunications
__________________
In 1993, the components of telecommunications revenue were as follows:
37% - MFS Communications Company, Inc. ("MFS") telecommunications services;
38% - MFS network systems integration and facilities management services; and
25% - C-TEC operations. In 1992, revenue was comprised of 44%
telecommunications services and 56% network systems integration and
facilities management services.
KIEWIT DIVERSIFIED GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
________________________________________________
Results of Operations - 1993 vs. 1992 (continued)
________________________________________________
Telecommunications (continued)
______________________________
MFS telecommunications revenue increased from $48 million to $70
million, an increase of 46%. The majority of the increase resulted from
sales of additional services to existing customers and, to a lesser extent,
further market penetration. The growth of services in New York City,
the expansion of networks in Boston, Chicago and the Washington, D.C.
metropolitan area, and new services provided by MFS Datanet and MFS
MFS Intelenet also contributed to the revenue increase.
Third party revenue from services offered by the Company's network
systems integration and facilities management segment increased from $61
million in 1992 to $71 million in 1993, a 16% increase. The increase
primarily resulted from network system integration projects in the United
Kingdom and for the State of Iowa. MFS purchased the other 50% interest in
a partnership providing network systems integration services to customers
in the United Kingdom, thereby increasing revenue from that country. The
network system integration and facilities management services segment had
third party backlog of $110 million at December 31, 1993.
Two months of C-TEC activity accounted for $48 million of
telecommunications revenues. The telephone and cable television groups
generated the majority of the revenues.
Telecommunications operating expenses increased 78% in 1993. Components
of 1993 operating expenses were: 45% - MFS telecommunications services;
32% - MFS network systems integration and facilities management services;
and 23% - C-TEC operating expenses. In 1992, operating expenses were 51% MFS
telecommunication services and 49% MFS network systems integration and
facilities management services.
MFS telecommunications operating expenses incresed from $48 million
to $80 million in 1993, a 67% increase. The increase reflects operating
costs associated with MFS Datanet and MFS Intelenet services and higher costs
associated with the new and expanded networks. Increased depreciation of
of existing networks accounts for nearly 41% of the increase.
MFS network systems integration and facilities management services
operating expenses increased from $49 million to $55 million in 1993, a
12% increase. The increase directly relates to increased activity on
several network systems integration projects, primarily direct costs
associated with the projects in the United Kingdom and for the State of Iowa.
Two months of C-TEC activity accounted for $42 million of
telecommunications expenses. The telephone and cable television groups
generated the majority of these costs.
Progress on the network systems integration project for the State
of Iowa was delayed in June and July 1993 by significant rainfall and
flooding. Management believes that any additional cost resulting from the
floods will not materially impact the Group's telecommunications operations.
KIEWIT DIVERSIFIED GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
________________________________________________
Results of Operations - 1993 vs. 1992 (continued)
________________________________________________
Other Income
____________
Other income decreased from $87 million in 1992 to $47 million in
1993, a decrease of 46%. The decline primarily relates to a $21 million
increase in realized losses and permanent valuation adjustments on
marketable securities, including certain derivatives. Interest income
declined by $16 million due to lower interest rates and to a change in
portfolio mix. Dividend income decreased by $10 million due to dividends
accrued in 1992 on an investment in United States Can Company preferred stock
redeemed in March of 1993. Slight increases in equity earnings and
miscellaneous income partially offset the declines noted above.
Selling and Administrative
__________________________
Selling and administrative expenses increased 23% in 1993. Costs
incurred in developing MFS Datanet and MFS Intelenet account for a large portion
of the increase. MFS expects to incur significant expense developing
the high-speed data communications and integrated, single-source
telecommunication services in 1994. Increased legal costs, primarily reserves
established for environmental matters (See "Legal Proceedings"), also
contributed to the increase.
Interest Expense
________________
Interest expense increased by $2 million or 22% in 1993. The
increase is due to the C-TEC debt assumed in the acquisition. Interest
on C-TEC debt during the last two months approximated $6 million. The
extinguishment of significant debt in 1992 partially offset the additions of
C-TEC interest. The Group anticipates significant increases in interest
due to the C-TEC acquisition and the MFS debt issuance of $500 million in
January 1994.
Gain on Sale of Subsidiary's Stock
__________________________________
In May 1993, MFS sold 12.7 million shares of common stock to the
public at an initial offering price of $20 per share for $233 million, net
of certain transaction costs. An additional 4.6 million shares were sold
to the public in September 1993 at price of $50 per share for $218
million, net of certain transaction costs. These transactions have reduced
the Group's ownership interest in MFS to 71% at December 25, 1993.
Substantially all of the net proceeds from the offerings are intended to
fund MFS' growth. Prior to the initial public offering, MFS was a
wholly-owned subsidiary of the Group.
As a result of the above transactions, the Group recognized a
pre-tax gain of $211 million representing the increase in the Group's
equity in the underlying net assets of MFS. Deferred income taxes have been
provided on this gain.
KIEWIT DIVERSIFIED GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
________________________________________________
Results of Operations - 1993 vs. 1992 (continued)
________________________________________________
Income Taxes
____________
The effective income tax rate for earnings from continuing operations
is 29% in 1993 and 24% in 1992. An adjustment to prior year tax provisions
significantly impacted the effective rate in 1993. The increase in
effective rates from 1992 to 1993 is due to dividend exclusions, mineral
depletion expenses, and equity earnings being a larger percentage of
taxable income in the prior year. The 1993 Federal Income tax rate
change did not have a material impact to the Group's financial results.
Results of Operations - 1992 vs. 1991
_____________________________________
Mining
______
Mining revenue increased 12% in 1992. The increase was due to the
mines collectively shipping 20% more tons of coal and lignite in 1992. The
increase in tonnage was due principally to new short-term contracts at the
Black Butte mine and sales on the spot market. This increase was partially
offset by a 4% decrease in the average price per ton, the result of increased
lower-priced spot sales from the Decker mine. Revenue recognition on
previously consummated sales of undivided interests in coal reserves to be
mined in the future represented $40 million of 1992 revenue and $39 million
of 1991 revenue. The gross margin on mining revenue (including coal reserves)
approximated 44% in 1992, which is higher than the gross margin in 1991. The
1991 gross margin was unfavorably impacted by certain one-time charges for
production taxes and additional reclamation costs, and expenses incurred to
repair a dragline.
In 1992, the contracts with Commonwealth Edison Company ("Commonwealth")
were renegotiated. Beginning January 1, 1993, the Black Butte mine discontinued
coal shipments to Commonwealth. Coal is now purchased from two unaffiliated
mines located in the Powder River Basin area of Wyoming and from the Group's
Decker mine to satisfy the delivery commitments under the renegotiated
Commonwealth agreements. In accordance with the renegotiation, there will be
no sales of interests in coal reserves subsequent to January 1, 1993. The
Group does not expect that the financial impact of the renegotiation will be
material to its mining operations, cash flows, or financial position.
Telecommunications
__________________
Revenue in 1992 was comprised of 56% network systems integration and
facilities management and 44% telecommunications services. Revenue in 1991
was comprised of 38% network systems integration and facilities management and
62% telecommunications services. Network systems integration and facilities
management's backlog at December 26, 1992 was $74 million, of which $16
million relates to the United Kingdom joint venture and the remainder relates
mainly to the State of Iowa project. Revenue increased from $37 million in
1991 to $109 million in 1992, representing a 192% increase. Of the
increase, 66% was from network systems integration and facilities management.
This increase resulted primarily from network systems integration projects in
Iowa, Minnesota and the United Kingdom. Telecommunications services
accounted for the remaining increase in total revenue. This increase in
revenue primarily reflects increased services provided on networks in New York
KIEWIT DIVERSIFIED GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
________________________________________________
Results of Operations 1992 vs. 1991 (continued)
_______________________________________________
Telecommunications (continued)
_____________________________
City and Dallas which commenced operations in early 1991 and a full year of
results for the Washington, D.C. metropolitan area network which was acquired
in October 1991. The balance of the increase in telecommunications services
revenue resulted from continued market growth of other networks. The Atlanta
network became operational during the fourth quarter of 1992, but generated
insignificant revenues.
The cost of revenue in 1992 increased 112% compared to 1991.
Seventy-three percent of the increase relates to direct costs incurred on
network systems integration and facilities management projects for third
parties. Another 17% of the increase is due to increased depreciation and
amortization expense primarily on the telecommunications networks in
Washington, D.C., New York City and Dallas. The balance of the increase
relates to an increase in other costs associated directly with network
operations; primarily from the Washington, D.C., New York City and Dallas
networks. The cost of revenue, as a percentage of total revenue, has
decreased from 123% in 1991 to 89% in 1992. This change resulted generally
from increased utilization of existing network capacity.
Other Income
____________
The Group recognized investment income of $78 million in 1992 and $89
million in 1991. The decrease in investment income is generally attributable
to the collection of various receivables from the sales of the discontinued
packaging operations. In 1992, the Group recognized $11 million of interest
on these receivables compared to $20 million in 1991. Included in 1992
investment income are $4 million of dividends in kind received from an
investment in California Energy Company, Inc. ("California Energy") preferred
stock and $11 million of dividends accrued on an investment in United States
Can Company ("U.S. Can") preferred stock which was redeemed in March 1993.
Included in 1991 investment income is $12 million of dividends received from
U.S. Can preferred stock. Other Income in 1992 and 1991 also reflects gains
on the sales of timberlands of $5 million and $3 million, respectively, net
equity earnings from an investment in California Energy of $4 million and $3
million, respectively, and information services income of $4 million and $2
million, respectively. The increase in Other Income in 1992 was partially
offset by a decline in market value considered to be other than temporary of
$12 million recorded for two of the Group's marketable securities, one of
which was sold in 1993. Generally gains and losses from miscellaneous asset
dispositions made up the remaining balance of Other Income.
KIEWIT DIVERSIFIED GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
________________________________________________
Results of Operations 1992 vs. 1991 (continued)
______________________________________________
Selling and Administrative
__________________________
Selling and administrative expenses increased 48% in 1992 as compared to
1991. The increase was primarily due to a $21 million increase in mine
management fees paid to the Construction & Mining Group and increases within the
telecommunications operations relating to the development of new
telecommunications services. Significant increases in mine management fees are
not expected to continue in the future. The new agreement, effective as of the
beginning of 1992, provided that the Group pay a percentage of the operating
income from mining operations to the Construction & Mining Group.
Interest Expense
________________
Interest expense in 1992 reflects the anticipated decrease due to the
significant reductions during 1991 in both short-term borrowings and long-term
debt. All short-term borrowings were repaid in July 1991 and no new borrowings
were incurred until December 1992. The Group also redeemed $150 million of debt
in October 1991 and extinguished $73 million of debt in 1992 with no new
material debt incurred since year-end 1991.
Taxes
_____
The effective income tax rate, with respect to continuing operations
before cumulative effect of change in accounting principle, is 24% in 1992
and 46% in 1991. The 1992 rate is lower than the 1991 rate primarily
due to nondeductible expenses and prior year tax adjustments in 1991. In
both 1992 and 1991, dividend exclusions and mineral depletion expenses
reduced the overall effective rate.
Discontinued Packaging Operations
_________________________________
The gain on disposal of discontinued operations in 1992 resulted from
a $19 million adjustment to prior year tax estimates and an $8 million payment,
net of tax, received from BTR Nylex Limited and a $1 million accrual, net of
tax, relating to additional sales proceeds from the 1990 sale of Continental
PET Technologies, Inc. The gain was partially offset by miscellaneous sales
adjustments related to the 1991 and 1990 sales of certain discontinued packaging
operations. The gain on disposal of discontinued operations in 1991 reflects
the sales of the European packaging operations, Continental Can International
Corporation, Continental White Cap, Inc. and Continental Plastic Containers,
Inc. The significant decrease in 1992 in earnings from discontinued
operations is due to the sales of the remaining packaging operations in 1991.
Earnings in 1992 reflect the equity earnings from the Company's investment in a
plastics joint venture, which was sold to Ball Corporation in July 1992. No
significant gain or loss was recognized as a result of this transaction.
KIEWIT DIVERSIFIED GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
________________________________________________
Financial Condition - December 25, 1993
_______________________________________
The Group's working capital increased $197 million or 25% to $993
million in 1993.
During 1993, the Group generated $196 million in cash from operating
activities, an $87 million increase from the prior year.
The Group's 1993 net investing activities used $634 million in
cash. Net purchases of marketable securities expended $335 million while
capital expenditures for fixed assets and other investments and the acquisition
of C-TEC accounted for $139 million and $146 million of cash outlays,
respectively. These investments were necessary to support existing
operations and develop opportunities for future growth.
In 1993, the Group generated $370 million in cash from financing
activities. The Group raised $451 million in cash from the sale of 17.3
million shares of MFS' common stock in two public offerings. The net
proceeds will fund MFS growth. The Group also raised $8 million in cash
from the sale of Class D common stock and $26 million in cash from the net
exchange of Class B&C stock for Class D stock, to be used for general
corporate purposes.
Financing activities requiring cash during 1993 consisted of
dividends of $17 million, stock repurchased of $40 million, and short-term
borrowing repayments of $80 million. Throughout 1993, the Group borrowed
funds to meet short-term liquidity needs. All borrowings were repaid.
During 1993, the Group collected $110 million related to notes receivable
from sales of discontinued operations.
The Group's working capital position at the end of 1993, together
with anticipated cash flows from operations and existing borrowing capacity,
should be sufficient for 1994 cash requirements. It is expected that C-TEC
will be able to independently finance its working capital and investment
requirements in 1994.
The Group anticipates that it will invest between $5 million and $10
million annually in its mining business, make significant investments in its
energy business - including its joint venture agreement with California
Energy covering international power project development activities - and
searching for opportunities to acquire capital intensive operating
businesses which provide for long-term growth. Investigation of other
investment opportunities continues.
These investments, along with the payment of income taxes and
repurchases of common stock will be the significant long-term uses of liquidity.
The Group's existing cash and cash equivalents, marketable securities, cash
flows from future operations and existing borrowing capacity are expected
to fund these expenditures.
KIEWIT DIVERSIFIED GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
________________________________________________
Financial Condition - December 25, 1993
_______________________________________
MFS requires significant capital to fund future building, expansion
or acquisition of communications networks in major metropolitan areas. In
January 1994, MFS issued $500 million of Senior Discount Notes due in 2004.
In June 1993, MFS entered into a secured revolving credit agreement in the
amount of $75 million. The indenture pursuant to which the Senior Discount
Notes were issued permits MFS to have a $150 million secured credit facility.
These transactions will provide liquidity to fund future expansion,
including the proposed acquisition of Centex Telemanagement, Inc., for net
consideration of approximately $150 million, announced by MFS on March 16,
1994. MFS may fund future capital expenditures and acquisitions through
additional issuances of debt and equity securities. MFS intends to invest
$250 million in 1994 and in excess of $1 billion over the next five years
to expand its networks to an additional 55 markets.
In July 1993, financing was approved to construct a 10-mile
privately-owned toll road in southern California. The Group has a 65%
interest in this project. Management expects $107 million of third party
debt to be incurred by the project's completion in 1995.