EXHIBIT 99.A
KIEWIT CONSTRUCTION & MINING GROUP
Index to Financial Statements
and Financial Statement Schedule and
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Report of Independent Accountants
Financial Statements as of December 30, 1995 and
December 31,1994 and for the three years ended
December 30, 1995:
Statements of Earnings
Balance Sheets
Statements of Cash Flows
Statements of Changes in Stockholders' Equity
Notes to Financial Statements
Financial Statement Schedule for the three years
ended December 30, 1995:
II--Valuation and Qualifying Accounts and Reserves
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Schedules not indicated above have been omitted because of the
absence of the conditions under which they are required or because
the information called for is shown in the financial
statements or in the notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Peter Kiewit Sons', Inc.
We have audited the financial statements and the financial
statement schedule of Kiewit Construction & Mining Group, a
business group of Peter Kiewit Sons', Inc. (as defined in Note 1
to these financial statements) as listed in the index on the
preceding page of this exhibit to Form 10-K. These financial
statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, when
read in conjunction with the consolidated financial statements of
Peter Kiewit Sons', Inc. and Subsidiaries, present fairly, in all
material respects, the financial position of Kiewit Construction
& Mining Group as of December 30, 1995 and December 31, 1994, and
the results of its operations and its cash flows for each of the
three years in the period ended December 30, 1995 in conformity
with generally accepted accounting principles. In addition, in
our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
March 19, 1996
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Earnings
For the three years ended December 30, 1995
(dollars in millions, except per share data) 1995 1994 1993
Revenue $ 2,330 $ 2,175 $ 1,783
Cost of Revenue (2,127) (1,995) (1,588)
-------- -------- --------
203 180 195
General and Administrative Expenses (116) (121) (113)
-------- ------- -------
Operating Earnings 87 59 82
Other Income (Expense):
Investment Income (Loss) 17 13 (1)
Interest Expense (2) (2) (3)
Other, net 62 46 40
-------- ------- -------
77 57 36
-------- ------- -------
Earnings Before Income Taxes 164 116 118
Provision for Income Taxes (60) (39) (38)
-------- ------- -------
Net Earnings $ 104 $ 77 $ 80
======== ======= =======
Net Earnings Per Common and Common
Equivalent Share $ 7.78 $ 4.92 $ 4.63
======== ======= =======
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Balance Sheets
December 30, 1995 and December 31, 1994
(dollars in millions) 1995 1994
Assets
Current Assets:
Cash and cash equivalents $ 94 $ 70
Marketable securities 120 156
Receivables, less allowance of $10 and $7 258 260
Costs and earnings in excess of billings on
uncompleted construction contracts 78 101
Investment in construction joint ventures 73 69
Deferred income taxes 61 59
Other 23 23
------- -------
Total Current Assets 707 738
Property, Plant and Equipment, at cost:
Land 16 15
Buildings 38 36
Equipment 528 484
------- ------
582 535
Less accumulated depreciation and
amortization (421) (395)
------- ------
Net Property, Plant and Equipment 161 140
Other Assets 119 85
------- ------
$ 987 $ 963
======= ======
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Balance Sheets
December 30, 1995 and December 31, 1994
(dollars in millions) 1995 1994
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, including retainage
of $42 and $41 $ 179 $ 179
Short-Term borrowings 45 -
Current portion of long-term debt 2 3
Accrued construction costs and billings
in excess of revenue on uncompleted contracts 111 106
Accrued insurance costs 79 73
Other 43 44
------ -----
Total Current Liabilities 459 405
Long-Term Debt, less current portion 9 9
Other Liabilities 52 44
Stockholders' Equity (Redeemable Common Stock,
$359 million aggregate redemption value)
Common equity 471 513
Foreign currency adjustment (5) (7)
Unrealized holding gain (loss) 1 (1)
----- -----
Total Stockholders' Equity 467 505
----- -----
$ 987 $ 963
===== =====
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Cash Flows
For the three years ended December 30, 1995
(dollars in millions) 1995 1994 1993
Cash flows from operations:
Net earnings $ 104 $ 77 $ 80
Adjustments to reconcile net
earnings to net cash provided
by operations:
Depreciation and amortization 56 52 48
(Gain) loss on sale of property,
plant and equipment and other
investments (33) (11) 15
Change in other noncurrent
liabilities 6 5 7
Deferred income taxes - (3) 4
Change in working capital items:
Receivables 1 (21) 5
Costs and earnings in excess of
billings on uncompleted
construction contracts 23 (26) (22)
Investment in construction
joint ventures (4) 12 (33)
Other current assets (3) (5) 7
Accounts payable 3 19 (9)
Accrued construction costs
and billings in excess of
revenue on uncompleted contracts 5 19 (8)
Other liabilities 4 (3) 3
Other (9) (19) (10)
----- ------ -----
Net cash provided by operations 153 96 87
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 197 266 773
Purchases of marketable securities (158) (245) (741)
Proceeds from sale of property,
plant and equipment 15 26 14
Capital expenditures (79) (76) (54)
APAC-Arizona, Inc. acquisition - (47) -
Investment in affiliates (2) (1) (9)
Other - - (3)
----- ----- -----
Net cash used in investing
activities $ (27) $ (77) $ (20)
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Cash Flows
For the three years ended December 30, 1995
(continued)
(dollars in millions) 1995 1994 1993
Cash flows from financing activities:
Long-term debt borrowings $ 3 $ 2 $ 2
Short-term debt borrowings 45 - -
Payments on long-term debt,
including current portion (4) (4) (2)
Issuances of common stock 24 20 16
Repurchases of common stock (3) (11) (14)
Dividends paid (13) (13) (10)
Exchange of Class B&C Stock for
Class D Stock, net (155) (42) (26)
Other - 1 -
----- ----- -----
Net cash used in financing activities (103) (47) (34)
Effect of exchange rates on cash 1 (1) (2)
----- ----- -----
Net increase (decrease) in cash and
cash equivalents 24 (29) 31
Cash and cash equivalents at
beginning of year 70 99 68
----- ----- -----
Cash and cash equivalents at
end of year $ 94 $ 70 $ 99
===== ===== =====
Supplemental disclosures of cash
flow information:
Taxes $ 69 $ 49 $ 54
Interest 2 2 3
Noncash investing activity:
Disposition of gold operations
in exchange for Kinross
common stock, net $ 21 $ - $ -
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Statements of Changes in Stockholders' Equity
For the three years ended December 30, 1995
(dollars in millions, except per share data) 1995 1994 1993
Common equity:
Balance at beginning of year $ 513 $ 483 $ 438
Issuances of stock 24 20 16
Repurchases of stock (3) (11) (14)
Exchange of Class B&C Stock for
Class D Stock, net (155) (42) (26)
Net earnings 104 77 80
Dividends (per share: $ 1.05 in 1995, $.90 in
1994, and $.70 in 1993) (a) (12) (14) (11)
------ ----- -----
Balance at end of year $ 471 $ 513 $ 483
Other equity adjustments:
Balance at beginning of year $ (8) $ (3) $ (1)
Foreign currency adjustment 2 (4) (2)
Unrealized holding gain (loss) 2 (1) -
------ ------ ------
Balance at end of year $ (4) $ (8) $ (3)
------ ------ ------
Total stockholders' equity $ 467 $ 505 $ 480
====== ====== ======
(a) Dividends include $.60, $.45, and $.40 for dividends
declared in 1995, 1994 and 1993 but paid in January of the
subsequent year.
See accompanying notes to financial statements.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(1) Basis of Presentation
The Class B&C Stock and the Class D Stock are designed to
provide stockholders with separate securities reflecting the
performance of Peter Kiewit Sons', Inc.'s ("PKS")
construction business and certain mining services
("Construction & Mining Group") and its other businesses
("Diversified Group"), respectively. Dividends on the Class
B&C Stock are limited to the legally available funds of PKS
less the Class D formula value which is to be reduced by any
dividends on Class D Stock declared during the current year.
Subject to this limitation, the Board of Directors intends to
declare and pay dividends on the Class B&C Stock based
primarily on the Construction & Mining Group's separately
reported financial condition and results of operations.
The financial statements of the Construction & Mining Group
include the financial position, results of operations and
cash flows for PKS' construction business and certain mining
service businesses held by its wholly-owned subsidiary, Kiewit
Construction Group Inc., and a portion of the PKS corporate
assets and liabilities and related transactions which are not
separately identified with the ongoing operations of the
Construction & Mining Group or the Diversified Group. These
financial statements have been prepared using the historical
amounts included in the PKS consolidated financial
statements.
Although the financial statements of PKS' Construction &
Mining Group and Diversified Group separately report the
assets, liabilities and stockholders' equity of PKS
attributed to each such group, legal title to such assets and
responsibility for such liabilities will not be affected by
such attribution. Holders of Class B&C Stock and Class D
Stock are stockholders of PKS. Accordingly, the PKS
consolidated financial statements and related notes should be
read in conjunction with these financial statements.
(2) Summary of Significant Accounting Policies
Principles of Group Presentation
These financial statements include the accounts of the
Construction & Mining Group ("the Group"). The Group's and
Diversified Group's financial statements, taken together,
comprise all the accounts included in the PKS consolidated
financial statements. All significant intercompany accounts
and transactions, except those directly between the Group and
the Diversified Group, have been eliminated. Investments in
construction joint ventures and other companies in which the
Group exercises significant influence over operating and
financial policies are accounted for by the equity method.
The Group accounts for its share of the operations of the
construction joint ventures on a pro rata basis in the
statements of earnings.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
Construction Contracts
The Group operates generally within the United States and
Canada as a general contractor and engages in various types
of construction projects for both public and private owners.
Credit risk is minimal with public (government) owners
since the Group ascertains that funds have been
appropriated by the governmental project owner prior to
commencing work on public projects. Most public contracts
are subject to termination at the election of the government.
In the event of termination, the Group is entitled to receive
the contract price on completed work and reimbursement of
termination related costs. Credit risk with private owners is
minimized because of statutory mechanics liens, which give
the Group high priority in the event of lien foreclosures
following financial difficulties of private owners.
The construction industry is highly competitive and lacks
firms with dominant market power. A substantial portion of
the Group's business involves construction contracts obtained
through competitive bidding. The volume and profitability of
the Group's construction work depends to a significant extent
upon the general state of the economies in which it operates
and the volume of work available to contractors. The Group's
construction operations could be adversely affected by labor
stoppages or shortages, adverse weather conditions, shortages
of supplies, or other governmental action.
The Group recognizes revenue on long-term construction
contracts and joint ventures on the percentage-of-completion
method based upon engineering estimates of the work performed
on individual contracts. Provisions for losses are recognized
on uncompleted contracts when they become known. Claims for
additional revenue are recognized in the period when allowed.
It is at least reasonably possible that engineering estimates
of the work performed on individual contracts will be revised
in the near term.
Assets and liabilities arising from construction activities,
the operating cycle of which extends over several years, are
classified as current in the financial statements. A
one-year time period is used as the basis for classification
of all other current assets and liabilities.
Depreciation and Amortization
Property, plant and equipment are recorded at cost.
Depreciation and amortization are computed on accelerated and
straight-line methods.
Foreign Currencies
The local currencies of foreign subsidiaries are the
functional currencies for financial reporting purposes.
Assets and liabilities are translated into U.S. dollars at
year-end exchange rates. Revenue and expenses are translated
using average exchange rates prevailing during the year.
Gains or losses resulting from currency translation are
recorded as adjustments to stockholders' equity.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
Earnings Per Share
Primary earnings per share of Class B&C Stock have been
computed using the weighted average number of shares
outstanding during each year. The number of shares used in
computing primary earnings per share was 13,384,434 in 1995,
15,697,724 in 1994 and 17,290,971 in 1993. Fully diluted
earnings per share have not been presented because it is not
significantly different from primary earnings per share.
Income Taxes
Deferred income taxes are provided for the differences
between the financial reporting basis and tax basis of the
Group's assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
reverse.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
Reclassifications
Where appropriate, items within the financial statements and
notes thereto have been reclassified from previous years to
conform to current year presentation.
Fiscal Year
The Group's fiscal year ends on the last Saturday in
December. There were 52 weeks in fiscal years 1995 and 1993
and 53 weeks in the fiscal 1994.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(3) Corporate Activities
Financial Structure
Cash, cash equivalents and marketable securities were
allocated to the Group and the Diversified Group based on the
desired capital structure of the two groups at December 28,
1991. Financial statement impacts of dividends paid to
holders of Class B&C Stock and repurchases and issuances of
Class B&C Stock in 1995, 1994 and 1993 were reflected in
their entirety in the Group's financial statements.
PKS, in addition to specifically attributable items, has corporate
assets, liabilities and related income and expense which are not
separately identified with the ongoing operations of the Group
or the Diversified Group. The items attributable to the Group and
the Group's 50% portion of PKS is as follows:
(dollars in millions) 1995 1994
Cash and cash equivalents $ 4 $ 7
Marketable securities 10 15
Accounts receivable 1 61
Property, plant and equipment, net 5 5
Other assets 3 8
------- -------
Total Assets $ 23 $ 96
======= =======
Accounts payable $ 10 $ 39
Long term debt including current portion 11 12
Other liabilities - 2
------- -------
Total Liabilities $ 21 $ 53
======= =======
1995 1994 1993
Net investment income (expense) $ - $ 6 $ 4
Other income (expense) - (1) 1
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
Corporate General and Administrative Costs
A portion of corporate general and administrative costs has
been allocated to the Group based upon certain measures of
business activities, such as employment, investments and
sales, which method management believes to be reasonable.
The allocations were $1 million, $21 million, and $26 million
in 1995, 1994 and 1993. Due to a realignment of the
corporate overhead departments, substantially all of the
administrative functions and personnel previously allocated
to the Group are now located at the Group.
Income Taxes
All domestic members of the PKS affiliated group are included
in the consolidated U.S. income tax return filed by PKS as
allowed by the Internal Revenue Code. Accordingly, the
provision for income taxes and the related payments or
refunds of tax are determined on a consolidated basis.
The financial statement provision and actual cash tax
payments have been reflected in the Group's and the
Diversified Group's financial statements in accordance with
PKS' tax allocation policy for such groups. In general, such
policy provides that the consolidated tax provision and
related cash flows and balance sheet amounts are allocated
between the Group and the Diversified Group, for group
financial statement purposes, based principally upon the
financial income, taxable income, credits, preferences and
other amounts directly related to the respective groups. The
provision for estimated United States income taxes for the
Group does not differ materially from that which would have
been determined on a separate return basis.
(4) Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to determine
classification and fair values of financial instruments:
Cash and Cash Equivalents
Cash equivalents generally consist of highly liquid
instruments purchased with an original maturity of three
months or less. The securities are stated at cost, which
approximates fair value.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
Marketable Securities and Non-current Investment
The Group has classified all marketable securities and non-
current investments not accounted for under the equity method
as available-for-sale. The amortized cost of the securities
used in computing unrealized and realized gains and losses
are determined by specific identification. Fair values are
estimated based on quoted market prices for the securities on
hand or for similar investments. Fair values of certificates
of deposit approximate cost. Net unrealized holding gains and
losses, if any, are reported as a separate component of
stockholders' equity, net of tax.
The following summarizes the cost, unrealized holding gains
and losses, and estimated fair values of marketable
securities and non-current investments at December 30, 1995
and December 31, 1994.
Unrealized Unrealized
Amortized Holding Holding Fair
(dollars in millions) Cost Gains Losses Value
1995
Kiewit Mutual Fund:
Short-term government $ 22 $ - $ - $ 22
Intermediate term bond 13 1 - 14
Tax exempt 8 1 - 9
U.S. debt securities 57 - - 57
Municipal debt securities 13 - - 13
Certificates of deposit 5 - - 5
------ ----- ------ -------
$ 118 $ 2 $ - $ 120
====== ===== ====== ======
Non-current investments:
Equity securities $ 30 $ - $ - $ 30
======= ===== ======= =======
1994
Kiewit Mutual Fund:
Short-term government $ 27 $ - $ - $ 27
Intermediate term bond 30 - 1 29
Tax exempt 34 - 1 33
U.S. debt securities 46 - - 46
Municipal debt securities 11 - - 11
Certificates of deposit 10 - - 10
------ ----- ------ -----
$ 158 $ - $ 2 $ 156
====== ===== ====== ======
For debt securities, amortized costs do not vary
significantly from principal amounts. Realized gains and
losses on sales of marketable securities were each less than
$1 million in 1995, $1 million and $2 million in 1994 and $2
million and $25 million in 1993.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
The contractual maturities of the debt securities are as
follows:
Amortized Cost Fair Value
U.S. debt securities:
less than 1 year $ 41 $ 41
1-5 years 16 16
------- -------
$ 57 $ 57
======= =======
Municipal debt securities:
less than 1 year $ 4 $ 4
1-5 years 7 7
5-10 years - -
over 10 years 2 2
-------- --------
$ 13 $ 13
======== ========
Certificates of deposit:
less than 1 year $ 4 $ 4
1-5 years 1 1
--------- -------
$ 5 $ 5
========= ========
Maturities for the mutual fund and equity securities have not
been presented as they do not have a single maturity date.
Short-term Borrowing
Short-term borrowings approximate fair value due to the short
period of time to maturity.
Long-term Debt
The fair value of debt was estimated using the incremental
borrowing rates of the Group for debt of the same remaining
maturities and approximates the carrying amount.
(5) Retainage on Construction Contracts
Marketable securities at December 30, 1995 and December 31,
1994 include approximately $62 million and $61 million,
respectively of investments which are being held by the
owners of various construction projects in lieu of retainage.
Receivables at December 30, 1995 and December 31, 1994
include approximately $50 million and $48 million,
respectively, of retainage on uncompleted projects, the
majority of which is expected to be collected within one
year.
(6) Investment in Construction Joint Ventures
The Group has entered into a number of construction joint
venture arrangements. Under these arrangements, if one
venturer is financially unable to bear its share of the
costs, the other venturers will be required to pay those
costs.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
Summary joint venture financial information follows:
Financial Position (dollars in millions) 1995 1994
Total Joint Ventures
Current assets $ 655 $ 563
Other assets (principally
construction equipment) 52 50
----- ------
707 613
Current liabilities (584) (503)
----- -----
Net assets $ 123 $ 110
====== =====
Group's Share
Equity in net assets $ 67 $ 67
Receivable from joint ventures 6 2
------- -------
Investment in construction
joint ventures $ 73 $ 69
======= =======
Operations (dollars in millions) 1995 1994 1993
Total Joint Ventures
Revenue $ 1,211 $ 1,034 $ 906
Costs 1,108 937 841
------- -------- --------
Operating income $ 103 $ 97 $ 65
======= ======== ========
Group's Share
Revenue $ 691 $ 523 $ 430
Costs 625 473 372
-------- -------- -------
Operating income $ 66 $ 50 $ 58
======== ======== ========
Management of the nonsponsored Denmark tunnel project
completed a cost estimate in 1993 which indicated a favorable
variance in the estimated costs of the project. As a result
of this cost estimate and negotiations with the owner, the
Group's management reduced reserves by $20 million which
had been maintained to provide for the Group's share of
estimated losses on the project. Based on 1995 estimates,
management believes that the resolution of the uncertainties
in completing the tunnel should not materially affect the
Group's financial position, future results of operations or
future cash flows.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(7) Other Assets
Other assets includes the Group's equity method investments,
equity securities classified as non-current, investment in
partnerships and the net goodwill recognized in the APAC
acquisition. In 1995, a $3 million purchase increased
the Group's interest in an electrical contracting business
to 49%. The cumulative investment in common stock, accounted
for on the equity method, totals $26 million, $3 million
in excess of the Group's share of equity. The excess investment
is being amortized over 15 years. The contracting business is
not publicly traded and does not have a readily determinable
market value. The Group is committed to acquire 80% ownership
by 1997. Other assets also include securities classified as non-
current and carried at the fair value of $30 million.
(8) Short-Term Borrowings
The Group has established lines of credit with Union Bank of
Switzerland for $35 million, Bank of America for $50 million,
and Banque de Nationale de Paris for $30 million. Under
these credit agreements the Group had $45 million outstanding
on December 30, 1995 at a weighted average interest rate of
5.78%.
(9) Long-Term Debt
At December 30, 1995 and December 31, 1994, long-term debt
consisting of a portion of PKS' notes to former stockholders
and convertible debentures which have been allocated to the
Group and the Diversified Group as follows:
(dollars in millions) 1995 1994
9.5%-11.1% Notes to former stockholders,
1996-2001 $ 3 $ 6
6.25%-8.75% Convertible debentures, 2002-2005 8 6
------ -----
11 12
Less current portion (2) (3)
----- -----
$ 9 $ 9
===== =====
The convertible debentures are convertible during October of
the fifth year preceding their maturity date. Each annual
series may be redeemed in its entirety prior to the due date
except during the conversion period. Debentures were
converted into 59,935, 12,594 and 14,322 shares of Class C
common stock in 1995, 1994, and 1993, respectively. As part
of the exchange offer completed prior to the MFS Spin-off (See
Note 15), all holders of 1990 and 1991 debentures converted
their debentures into Class C and Class D common stock. At
December 30, 1995, 360,453 shares of Class C common stock are
reserved for future conversions.
Scheduled maturities of long-term through 2000 are as follows
(in millions): 1996 - $2; 1997 - $1; 1998 - $1; 1999 - $3
and $4 in 2000.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(10) Income Taxes
An analysis of the provision for income taxes
relating to earnings for the three years ended December 30,
1995 follows:
(dollars in millions) 1995 1994 1993
Current:
U.S. federal $ (58) $ (33) $ (28)
Foreign 4 (8) (2)
State (6) (1) (4)
------- -------- --------
(60) (42) (34)
Deferred:
U.S. federal 6 - (4)
Foreign (7) 1 (1)
State 1 2 1
-------- -------- -------
- 3 (4)
-------- -------- -------
$ (60) $ (39) $ (38)
======== ======== ========
The United States and foreign components of earnings, for tax
reporting purposes, before income taxes follow:
(dollars in millions) 1995 1994 1993
United States $ 159 $ 101 $ 111
Foreign 5 15 7
------ ------ ------
$ 164 $ 116 $ 118
====== ====== ======
A reconciliation of the actual provision for income
taxes and the tax computed by applying the U.S. federal rate
(35%) to the earnings before income taxes for the three years
ended December 30, 1995 follows:
(dollars in millions) 1995 1994 1993
Computed tax at statutory rate $ (57) $ (41) $ (41)
State income taxes (8) (3) (1)
Prior year tax adjustments 5 3 -
Other - 2 2
Effect of federal income tax
rate change - - 2
------ -------- -------
$ (60) $ (39) $ (38)
======== ======== ========
Possible taxes, beyond those provided, on remittances of
undistributed earnings of foreign subsidiaries are not
expected to be material.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
The components of the net deferred tax assets as of December
30, 1995 and December 31, 1994 were as follows:
(dollars in millions) 1995 1994
Deferred tax assets:
Construction accounts $ 3 $ 12
Investments in construction joint ventures 28 14
Insurance claims 32 29
Compensation - retirement benefits 4 6
Other 7 14
----- -----
Total deferred tax assets 74 75
Deferred tax liabilities:
Investments in securities 8 -
Other 7 12
------ ------
Total deferred tax liabilities 15 12
------ ------
Net deferred tax assets $ 59 $ 63
====== =======
No valuation allowance has been recorded relating to the
deferred tax assets because they are realizable under the tax
sharing policy of PKS.
(11) Employee Benefit Plans
The Group makes contributions, based on collective bargaining
agreements related to its construction operations, to several
multi-employer union pension plans. These contributions are
included in construction contract costs. Under federal law,
the Group may be liable for a portion of future plan
deficiencies; however, there are no known deficiencies.
The Group also had a long-term incentive plan, stock
appreciation rights, for certain employees. The plan
concluded in 1994. The expense related to this plan was $1
million in 1994 and $2 million in 1993. Substantially all
employees of the Group are covered under the Group's profit
sharing plans. The expense related to these plans was $3 million
in 1995 and $1 million in 1994 and 1993.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(12) Stockholders' Equity
Ownership of the Class B&C Stock is restricted to certain
employees conditioned upon the execution of repurchase
agreements which restrict the employees from transferring the
stock. PKS is generally committed to purchase all Class B&C
Stock at the amount computed pursuant to the Restated
Certificate of Incorporation. Issuances and repurchases of
common shares, including conversions, for the three years
ended December 30, 1995 were as follows:
B&C
Stock
Shares issued in 1993 1,027,657
Shares repurchased in 1993 2,293,722
Shares issued in 1994 1,018,144
Shares repurchased in 1994 2,427,186
Shares issued in 1995 1,021,875
Shares repurchased in 1995 6,228,934
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(13) Industry and Geographic Data
The Group's operations are primarily conducted in one
business segment; construction contracting. The following is
derived from geographic information in the PKS consolidated
financial statements as it relates to the Group.
Geographic Data (dollars in millions) 1995 1994 1993
Revenue:
United States $ 1,963 $ 1,896 $ 1,556
Canada 281 233 175
Other 86 46 52
------ ------ -------
$ 2,330 $ 2,175 $ 1,783
======= ======= =======
Operating earnings:
United States $ 70 $ 45 $ 57
Canada 7 14 3
Other 10 - 22
------- ------- -------
$ 87 $ 59 $ 82
======= ======= =======
Identifiable assets:
United States $ 878 $ 847 $ 794
Canada 90 102 82
Other 19 14 13
------- ------- -------
$ 987 $ 963 $ 889
======= ======= =======
(14) Related Party Transaction
The Group performs certain mine management services for the
Diversified Group. The income from these services was $30 million
in 1995 and $29 million in 1994 and 1993.
KIEWIT CONSTRUCTION & MINING GROUP
Notes to Financial Statements
(15) Other Matters
In June 1995, the Group exchanged its interest in a wholly-
owned subsidiary involved in gold mining activities for
4,000,000 common shares of Kinross Gold Corporation
("Kinross"), a publicly traded corporation. The Group
recognized a $21 million pre-tax gain on the exchange based
on the difference between the book value of the subsidiary
and the fair market value of the Kinross stock on the date of
the transaction.
The PKS Board of Directors approved a plan to make a tax-free
distribution of its entire ownership interest in MFS
Communications Company, Inc. ("MFS"), effective September 30,
1995, to the Class D stockholders (the "Spin-off") at a
special meeting on September 25, 1995.
The Spin-off was completed after PKS and Kiewit Diversified
Group Inc. ("KDG"), a wholly owned first tier subsidiary of
PKS, agreed with MFS to effect a recapitalization of MFS
pursuant to which KDG exchanged a portion of the MFS Common
Stock held by KDG for certain high-vote convertible preferred
stock. In addition, prior to completing the Spin-off, PKS
purchased additional shares of MFS Common Stock which were
subsequently distributed to the D stockholders.
PKS completed an exchange offer prior to the Spin-off whereby
4,000,000 shares of Class B&C Stock were exchanged for
1,666,384 shares of Class D Stock on terms similar to those
upon which Class B&C Stock can be converted into Class D
Stock during the annual conversion period provided for in
PKS' Certificate of Incorporation. The conversion ratio
used in the exchange was calculated using final 1994 stock
prices adjusted for 1995 dividends.
The Group is involved in various lawsuits and claims
incidental to its business. Management believes that any
resulting liability, beyond that provided, should not
materially affect the Group's financial position, future
results of operations or future cash flows.
The Group leases various buildings and equipment under both
operating and capital leases. Minimum rental payments on
buildings and equipment subject to noncancellable operating
leases during the next 29 years aggregate $12 million.
It is customary in the Group's industry to use various
financial instruments in the normal course of business.
These instruments include items such as letters of credit.
Letters of credit are conditional commitments issued on
behalf of the Group in accordance with specified terms and
conditions. As of December 30, 1995, the Group had
outstanding letters of credit of approximately $105 million.
SCHEDULE II
KIEWIT CONSTRUCTION & MINING GROUP
Valuation and Qualifying Accounts and Reserves
Additions Amounts
Balance Charged to Charged Balance
Beginning Costs and to End of
(dollars in millions) of Period Expenses Reserves Other Period
Year ended December
30, 1995
Allowance for doubtful
trade accounts $ 7 $ 5 $ (2) $ - $ 10
Reserves:
Insurance claims 73 18 (14) 2 79
Year ended December
31, 1994
Allowance for doubtful
trade accounts $ 5 $ 4 $ (2) $ - $ 7
Reserves:
Insurance claims 65 19 (11) - 73
Year ended December
25, 1993
Allowance for doubtful
trade accounts $ 2 $ 4 $ (1) $ - $ 5
Reserves:
Insurance claims 66 13 (13) (1) 65
KIEWIT CONSTRUCTION & MINING GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The financial statements of the Construction & Mining Group (the
"Group") include the financial position, results of operations
and cash flows for the construction business and certain mining
services of Peter Kiewit Sons', Inc. ("PKS") and a portion of the
corporate assets and liabilities and related transactions which
are not separately identified with ongoing operations of the
Construction & Mining Group or the Diversified Group. The
Group's share of corporate assets and liabilities and related
transactions includes amounts to reflect certain financial
activities, corporate general and administrative costs and income
taxes. See Notes 1 and 3 to the Group's financial statements.
Revenue from each of the Group's business segments was (in
millions):
1995 1994 1993
Construction $ 2,299 $ 2,148 $ 1,757
Other 31 27 26
------- ------- -------
$ 2,330 $ 2,175 $ 1,783
======= ======= =======
Results of Operations - 1995 vs. 1994
Construction. Construction revenue increased by $151 million or
7% in 1995. Contributing to the increase were joint venture
revenues and the inclusion of two additional months of materials
revenue generated by the APAC-Arizona ("APAC") companies which
were acquired on February 28, 1994. The Group's share of joint
venture revenue rose by 32% in 1995 and accounted for 30% of
total construction revenue in 1995 and 24% in 1994. The San
Joaquin Toll Road Joint Venture ("San Joaquin") in southern
California contributed $225 million and $111 million to revenue
in 1995 and 1994. Contract backlog at December 30, 1995 was $2
billion, of which 10% is attributable to foreign operations,
principally, Canada and the Philippines. Projects on the west
coast account for 36% of the total backlog which includes San
Joaquin backlog of $133 million. San Joaquin is scheduled for
completion in 1997.
In 1995, gross margins rose 16% from $170 million in 1994 to $197
million in 1995. The growing materials market had a significant
effect on margins. Increased operational efficiencies, as well
as joint ventures, including substantial claim settlements, also
impacted margins.
General and Administrative Expenses. General and administrative
expenses decreased 4% in 1995. Declines in payroll, computer
operations and depreciation expense were partially offset by
higher insurance and professional service fees.
Investment Income. Slight improvements in interest income,
earnings from equity investments and fewer losses on the sale of
securities contributed to the increase in investment income.
Other, net. In 1995 the exchange of the Group's gold operations
in Nevada for 4,000,000 shares of common stock of the Kinross
Gold Corporation led to a $21 million gain for the Group. The
gain was the difference between the Group's basis in the gold
operations and the market value of the Kinross shares at the time
of the exchange. Other income is also primarily comprised of
mine management fees from the Diversified Group, $30 million and
$29 million in 1995 and 1994, and gains on the disposition of
property, plant and equipment and other assets.
KIEWIT CONSTRUCTION & MINING GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Income Taxes. The effective income tax rate for the Group was
37% and 34% in 1995 and 1994. In 1995 the effective rate was
higher than the statutory rate primarily because of state income
taxes.
Results of Operations - 1994 vs. 1993
Construction. Construction revenue increased by $391 million or
22% in 1994. The Group's share of joint venture revenue also
rose by 22% in 1994 and accounted for 24% of total construction
revenue in 1994 and 1993. Several large contracts awarded in
1992 and early 1993 contributed to the overall increase in
revenue, the largest of which was San Joaquin. Also contributing
to the increase were revenues generated from the APAC
acquisition. Contract backlog at December 31, 1994 was $2.2
billion, of which 16% is attributable to foreign operations,
principally, Canada and the Philippines. Projects on the west
coast account for 40% of the total backlog.
Direct costs associated with construction contracts increased
$409 million or 26% to $2.0 billion in 1994. Costs as a
percentage of revenue approximated 92% and 89% for 1994 and 1993,
respectively.
In 1994, the margins were adversely affected by cost overruns and
a more competitive market environment. A $20 million reduction
of reserves previously established for the Denmark tunnel project
favorably impacted 1993 margins.
General and Administrative Expenses. Moderate increases in
professional services fees, insurance costs and other
administrative departments were primarily responsible for the 7%
increase in general and administrative costs.
Investment Income. Investment income increased to $13 million in
1994 from a $1 million loss in 1993. The improvement is directly
attributable to the decline in losses from the sale and writedown
of derivative and other securities from $18 million in 1993 to $2
million in 1994.
Other, net. Significantly higher equipment sales led an
increase in the gains recognized on the sale of property, plant
and equipment in 1994 to $13 million from $8 million in 1993.
Income Taxes. The effective income tax rate for the Group was
34% and 32% in 1994 and 1993. In 1993, the effective rate is
lower than the expected statutory rate due to the effect of the
Federal income tax rate change on deferred tax assets.
KIEWIT CONSTRUCTION & MINING GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition - December 30, 1995
The Group's working capital decreased $85 million or 26% during
1995. The decline was primarily due to the conversion and
repurchase of 6.2 million shares of Class B&C stock totaling $158
million and dividend payments of $13 million. These financing
activities were partially offset by $24 million in proceeds from
the sale of stock and $45 million of short-term borrowings. In
addition to the cash used in financing activities, the Group had
capital expenditures, net of sales proceeds, of $64 million.
Partially funding these outflows was $153 million of cash
provided by operations and $39 million of net proceeds on the
sale and maturity of marketable securities.
The Group anticipates investing between $40 and $75 million
annually in its construction business, including opportunities to
acquire additional materials businesses and purchasing additional
shares of an electrical contractor - the Group is committed to
80% ownership in 1997. Other long term liquidity uses include
the payment of income taxes and repurchases and conversions of
common stock. The Group's current financial condition and
borrowing capacity together with anticipated cash flows from
operations should be sufficient for immediate cash requirements
and future investing activities.
In October 1995, the PKS Board of Directors declared a $.60 per
share dividend on Class B&C Stock payable in January 1996.