-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MBnWzzKVatrKyVLv/AMjf9dTGPs/s+kRGfcdYa91CV+kTmxVoatJa0rnj62gRqoD lliNXdF04HeXoGip4uoBUQ== 0001044430-00-000005.txt : 20000320 0001044430-00-000005.hdr.sgml : 20000320 ACCESSION NUMBER: 0001044430-00-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991225 FILED AS OF DATE: 20000317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PETER KIEWIT SONS INC /DE/ CENTRAL INDEX KEY: 0001044430 STANDARD INDUSTRIAL CLASSIFICATION: HEAVY CONSTRUCTION OTHER THAN BUILDING CONST - CONTRACTORS [1600] IRS NUMBER: 911842817 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-23943 FILM NUMBER: 572698 BUSINESS ADDRESS: STREET 1: 1000 KIEWIT PLAZA STREET 2: 3555 FARNAM STREET CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4029431321 MAIL ADDRESS: STREET 1: 1000 KIEWIT PLAZA STREET 2: 3555 FARNAM STREET CITY: OMAHA STATE: NE ZIP: 68131 FORMER COMPANY: FORMER CONFORMED NAME: PKS HOLDINGS INC DATE OF NAME CHANGE: 19970813 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission file number December 25, 1999 000-23943 PETER KIEWIT SONS', INC. (Exact name of registrant as specified in its charter) Delaware 91-1842817 (State of Incorporation) (I.R.S. Employer Identification No.) Kiewit Plaza, Omaha Nebraska 68131 (Address of principal executive offices) (Zip Code) (402)342-2052 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.01 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The registrant's stock is not publicly traded, and therefore, there is no ascertainable market value of voting stock held by non-affiliates. 31,943,578 shares of the registrant's $0.01 par value Common Stock were issued and outstanding on March 14, 2000. Portions of the registrant's definitive proxy statement for its 2000 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K. TABLE OF CONTENTS Page Part I Item 1. Business 1 Item 2. Properties 4 Item 3. Legal Proceedings 4 Item 4. Submissions of Matters to a Vote of Security Holders 4 Item 4A. Executive Officers of the Registrant 5 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 6 Item 6. Selected Financial Data 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 11 Item 8. Financial Statements and Supplementary Data 12 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 37 Part III Item 10. Directors and Executive Officers of the Registrant 37 Item 11. Executive Compensation 37 Item 12. Security Ownership of Certain Beneficial Owners and Management 37 Item 13. Certain Relationships and Related Transactions 37 Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 37 PART I Item 1. Business. Forward Looking Statements. This document contains forward looking statements and information that are based on the beliefs of management as well as assumptions made by and information currently available to the Company. When used in this document, the words "anticipate," "believe," "estimate," "expect" and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this document. General. Peter Kiewit Sons', Inc. and its subsidiaries ("PKS" or the "Company") is one of the largest construction contractors in North America. The Company was incorporated in Delaware in 1997 to continue a construction business founded in Omaha, Nebraska in 1884. On March 31, 1998, the Company's former parent, Level 3 Communications, Inc. ("Level 3") transferred all of the issued and outstanding shares of common stock of Kiewit Construction Group Inc. ("KCG"), as well as certain other assets and liabilities related to Level 3's construction and materials businesses, which together with such common stock comprised all of the construction and materials businesses of Level 3 (the "Construction and Materials Businesses"), to the Company in exchange for all of the Company's then outstanding shares of $0.01 par value common stock ("Common Stock"). Level 3 then distributed all of such Common Stock to the holders of Level 3's Class C Construction & Mining Group Restricted Redeemable Convertible Exchangeable Common Stock ("Class C Stock"), in exchange for such shares of Class C Stock. As a result of such transactions (collectively, the "Transaction"), the Company is now owned by the former holders of Level 3's Class C Stock, and now conducts the Construction and Materials Businesses. In connection with the Transaction, the Company's name was changed from "PKS Holdings, Inc." to "Peter Kiewit Sons', Inc." and Level 3's name was changed from "Peter Kiewit Sons', Inc." to "Level 3 Communications, Inc." The Company is organized into two business segments, the Construction Business and the Materials Business. Information about the Company's business segments for the years ended December 25, 1999, December 26, 1998 and December 27, 1997 is included in Note 10 of the "Notes to the Consolidated Financial Statements," located on page 32 of this Annual Report on Form 10- K. The Company has filed various documents with the Securities and Exchange Commission pursuant to which the Company is proposing to spin-off the Materials Business to its shareholders in a transaction that is intended to be tax-free for U.S. Federal income tax purposes. The Construction Business. The Construction Business is conducted by operating subsidiaries of Kiewit Construction Group Inc. ("KCG"). The Company, its joint ventures and partnerships perform construction services for a broad range of public and private customers primarily in the United States and Canada. New contract awards during 1999 were distributed among the following construction markets (approximately, by number): power, heat, cooling -- 34%; transportation (including highways, bridges, airports, railroads, and mass transit) -- 33%; commercial buildings -- 27%; water supply/dams -- 3%; oil and gas -- 2%; and other markets -- 1%. The Company primarily performs its services as a general contractor. As a general contractor, the Company is responsible for the overall direction and management of construction projects and for completion of each contract in accordance with its terms, plans, and specifications. The Company plans and schedules the projects, procures materials, hires workers as needed, and awards subcontracts. The Company generally requires performance and payment bonds or other assurances of operational capability and financial capacity from its subcontractors. Contract Types. The Company performs its construction work under various types of contracts, including fixed unit or lump-sum price, guaranteed maximum price, and cost-reimbursable contracts. Contracts are either competitively bid and awarded or negotiated. The Company's public contracts generally provide for the payment of a fixed price for the work performed. Profit on a fixed-price contract is realized on the difference between the contract price and the actual cost of construction, and the contractor bears the risk that it may not be able to perform all the work for the specified amount. Construction contracts generally provide for progress payments as work is completed, with a retainage to be paid when performance is substantially complete. Construction contracts frequently contain penalties or liquidated damages for late completion and infrequently provide bonuses for early completion. Government Contracts. Public contracts accounted for approximately 76% of the combined prices of contracts awarded to the Company during 1999. Most of these contracts were awarded by government and quasi-government units under fixed price contracts after competitive bidding. Most public contracts are subject to termination at the election of the government. In the event of termination, the contractor is entitled to receive the contract price on completed work and payment of termination related costs. Competition. A contractor's competitive position is based primarily on its prices for construction services and its reputation for quality, timeliness, experience, and financial strength. The construction industry is highly competitive and lacks firms with dominant market power. In 1999, Engineering News Record, a construction trade publication, ranked the Company as the eighth largest United States contractor in terms of 1998 revenue and 14th largest in terms of 1998 new contract awards. It ranked the Company first in the transportation market in terms of 1998 revenue. Demand. The volume and profitability of the Company's construction work depends to a significant extent upon the general state of the economies of the United States and Canada, and the volume of work available to contractors. Fluctuating demand cycles are typical of the industry, and such cycles determine to a large extent the degree of competition for available projects. The Company's construction operations could be adversely affected by labor stoppages or shortages, adverse weather conditions, shortages of supplies, or governmental action. The volume of available government work is affected by budgetary and political considerations. A significant decrease in the amount of new government contracts, for whatever reason, would have a material adverse effect on the Company. Backlog. At the end of 1999, the Company had backlog (anticipated revenue from uncompleted contracts) of approximately $4 billion, a decrease from approximately $4.9 billion at the end of 1998. Of current backlog, approximately $1 billion is not expected to be completed during 2000. In 1999, the Company was low bidder on 168 jobs with total contract prices of approximately $1.5 billion, an average price of approximately $9.1 million per job. There were 19 new projects with contract prices over $20 million, accounting for approximately 63% of the successful bid volume. Joint Ventures. The Company frequently enters into joint ventures to efficiently allocate expertise and resources among the venturers and to spread risks associated with particular projects. In most joint ventures, if one venturer is financially unable to bear its share of expenses, the other venturers may be required to pay those costs. The Company prefers to act as the sponsor of its joint ventures. The sponsor generally provides the project manager, the majority of venturer- provided personnel, and accounting and other administrative support services. The joint venture generally reimburses the sponsor for such personnel and services on a negotiated basis. The sponsor is generally allocated a majority of the venture's profits and losses and usually has a controlling vote in joint venture decision making. In 1999, the Company derived approximately 62% of its joint venture revenue from sponsored joint ventures and approximately 38% from non-sponsored joint ventures. The Company's share of joint venture revenue accounted for approximately 25% of its 1999 total construction revenue. Significant Customer. During 1999, the Company earned 21.7% of revenues from a single customer. Locations. The Company structures its construction operations around 20 principal operating offices located throughout North America, including its headquarters located in Omaha, Nebraska. Through its decentralized system of management, the Company has been able to quickly respond to changes in the local markets. At the end of 1999, the Company had current projects in 47 states, Puerto Rico, Washington, D.C. and 8 Canadian provinces. Financial information about geographic areas for the years ended December 25, 1999, December 26, 1998 and December 27, 1997 is included in Note 10 of the "Notes to the Consolidated Financial Statements," located on page 32 of this Annual Report on Form 10-K. The Materials Business. The Materials Business is conducted by operating subsidiaries of Kiewit Materials Company ("KMC"). KMC operations consist of aggregate, ready mix and asphalt products. Aggregate products are used as highway construction materials, railroad ballast, decorative landscape rock, roofing aggregate and building stone. In 1999, KMC produced in excess of 28 million tons of construction materials and generated approximately $432 million of revenue. Locations. KMC operates in Arizona, Washington, Oregon, California, Wyoming, Utah and New Mexico, with primary operations in Arizona, centered in the Phoenix and Tucson metropolitan areas and in the Pacific Northwest, centered in the Vancouver, Washington and Portland, Oregon metropolitan areas. KMC also provides construction services in and around Yuma, Arizona, focusing mainly on paving and related projects. Financial information about geographic areas for the years ended December 25, 1999, December 26, 1998 and December 27, 1997 is included in Note 10 of the "Notes to the Consolidated Financial Statements," located on page 32 of this Annual Report on Form 10-K. Products. Aggregates. KMC primarily sells to third parties and utilizes internally various types of aggregate products. The production of these products typically involves extracting the material, crushing and sizing the material and shipping it to the customer using either trucks or rail. Approximately 37% of the aggregates produced in 1999 were used internally in the production of value-added concrete and asphalt products. Ready-mix Concrete. KMC produces ready-mix concrete by combining aggregates, cement, water and additives. The additives allow KMC to customize the product to customer specifications for overall strength, drying speed and other properties. Product ingredients are combined at a batch plant site and loaded into a mixer truck for delivery to the customer's location. Asphalt. KMC also produces and sells asphalt products. Asphalt is a mixture of aggregates and asphalt oil. The asphalt oil is heated and combined at a plant site and then loaded into dump trucks for transit to the customer's location. Customer specifications can require the use of certain types or sizes of aggregates and/or varying proportions of aggregates and asphalt oil. Customers. KMC markets to a wide variety of customers including street and highway contractors, industrial and residential contractors, public works contractors, wholesalers and retailers of decorative rock products, interstate railroads and manufacturers of concrete block products. A substantial amount of produced material is used in publicly funded projects, but no single customer accounts for more than 3% of sales. Competition. Due to the high cost of transportation, the construction materials business is highly dependent on the availability of high quality aggregates proximate to customers and production facilities. While price is an important factor in the customer's purchase decision, qualitative factors such as response time, reliability and product quality influence the purchase decision as well. With much of the industry consisting of small to medium sized independent firms, economies of scale, good site locations and technical knowledge will often provide a competitive advantage. While KMC believes it possesses these attributes in the markets it serves, in certain segments of those markets it competes directly with integrated materials companies that have greater financial resources. It is also possible that competitors with a lower cost structure or a willingness to accept lower margins than KMC may have an advantage on price sensitive projects. Environmental Protection. Compliance with federal, state, and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not and is not expected to have a material effect upon the capital expenditures, earnings, or competitive position of the Company and its subsidiaries. Employees. At the end of 1999, the Company and its majority- owned subsidiaries employed approximately 20,300 people, approximately 2,300 of which were employed in the Materials Business. The Company considers relations with its employees to be good. Item 2. Properties. Construction Business. The Company's headquarters facilities are located in Omaha, Nebraska and are owned by the Company. The Company also has 19 principal district offices located in Arizona, California, Colorado, Georgia, Massachusetts, Nebraska, New Jersey, Texas, Washington, Alberta and Quebec, 15 of which are located in owned facilities and 4 of which operate from leased facilities. The Company also has 14 area offices located in Alaska, California, Colorado, Florida, Hawaii, Illinois, Maryland, Nebraska, Nevada, New Mexico, Utah, British Columbia and Ontario, 2 of which are owned facilities and 12 of which are leased facilities. The Company owns or leases numerous shops, equipment yards, storage facilities, warehouses, and construction material quarries. Since construction projects are inherently temporary and location-specific, the Company owns approximately 1,000 portable offices, shops and transport trailers. The Company has a large equipment fleet, including approximately 5,100 trucks, pickups and automobiles and 3,800 heavy construction vehicles, such as graders, scrapers, backhoes and cranes. Joint ventures in which the Company is a participant own approximately 100 of portable offices, shops and transport trailers, 600 trucks, pickups and automobiles and 1,000 heavy construction vehicles. Materials Business. KMC's headquarters are located in the Company's headquarters facilities in Omaha, Nebraska. KMC also has three principal district offices located in Arizona and Washington. KMC operates 60 ready-mix batch plants or asphalt plants at 21 locations in Arizona, Oregon and Washington. Its aggregates operations are located in Arizona, California, New Mexico, Utah, Washington and Wyoming. KMC has a truck fleet of approximately 1,000 vehicles, 900 of which are owned and 100 of which are either leased on a long-term basis or managed on a day- to-day rental basis. Reserves. KMC estimates that its total recoverable aggregates reserves are in excess of 550 million tons. The yield from the mining of these reserves is based on an estimate of volume that can be economically extracted to meet current market and product applications. KMC's mining plans are developed by experienced mining engineers and operating personnel using drilling and geological studies in conjunction with mine planning software. In certain instances, reserve extraction is limited to phases or yearly amounts. Various properties also have reserves under lease that have not been included in a mining permit. These reserves have been excluded from KMC's recoverable reserve estimate. KMC owns about 170 million tons of aggregates reserves and leases another 380 million tons of aggregates reserves. KMC's leases usually require royalty payments based on either revenue derived from the location or an amount for each ton of materials removed and sold from a site and have terms ranging from one year to 27 years. Most of its long-term leases also provide an option for the lease to be renewed. Item 3. Legal Proceedings. The Company and its subsidiaries are parties to many pending legal proceedings incidental to the business of such entities. It is not believed that any resulting liabilities for legal proceedings, beyond amounts reserved, will materially affect the financial condition, future results of operation, or future cash flows of the Company. Item 4. Submission of Matters to a Vote of Security Holders. None during the three months ended December 25, 1999. Item 4A. Executive Officers of the Registrant. The table below shows information as of March 17, 2000, about each executive officer of the Company, including his business experience during the past five years. The Company's executive officers are elected annually to serve until their successors are elected and qualified or until their death, resignation or removal. Name Business Experience Age John B. Chapman Mr. Chapman has been Vice President 54 of Human Resources and Administration of the Company since August 1997. Mr. Chapman was Vice President of Human Resources for KCG for more than five years prior to August 1997. Roy L. Cline Mr. Cline has been an Executive Vice 62 President of the Company since June 1999. Mr. Cline is also a director of the Company and is a member of the Executive Committee of the Company. Mr. Cline was the President of Kiewit Industrial Co., a subsidiary of the Company, from March 1992 until June 1999. Richard W. Colf Mr. Colf has been an Executive Vice 56 President of the Company since July 1998. Mr. Colf is also a director of the Company and is a member of the Executive Committee of the Company. Mr. Colf has been an Executive Vice President of Kiewit Pacific Co., a subsidiary of the Company, since September 1998, was a Senior Vice President of Kiewit Pacific Co. from October 1995 to September 1998 and was a Vice President of Kiewit Pacific Co. for more than five years prior to October 1995. Bruce E. Grewcock Mr. Grewcock has been an Executive Vice 46 President of the Company since August 1997. Mr. Grewcock is also a director of the Company and is a member of the Executive Committee of the Company. Mr. Grewcock has been the President of Kiewit Western Co., a subsidiary of the Company, since July 1997. Mr. Grewcock was an Executive Vice President of KCG from July 1996 to June 1998, and President of KMG from January 1992 to July 1996. Mr. Grewcock is currently also a director of Kinross Gold Corporation. Kenneth M. Jantz Mr. Jantz has been a Vice President and 57 Treasurer of the Company since August 1997. Mr. Jantz was a Vice President of KCG from May 1994 to June 1998. Allan K. Kirkwood Mr. Kirkwood has been an Executive Vice 56 President of the Company since July 1998. Mr. Kirkwood is also a director of the Company and is a member of the Executive Committee and the Audit Committee of the Company. Mr. Kirkwood has been an Executive Vice President of Kiewit Pacific Co. since September 1998, was a Senior Vice President of Kiewit Pacific Co. from October 1995 to September 1998 and was a Vice President of Kiewit Pacific Co. for more than five years prior to October 1995. Ben E. Muraskin Mr. Muraskin has been a Vice President of 36 the Company since January 2000. Mr. Muraskin was a partner of Alston & Bird LLP from January 1999 to December 1999, and an associate at that firm from May 1992 to January 1999. Gerald S. Pfeffer Mr. Pfeffer has been a Vice President 54 of the Company since April 1998. Mr. Pfeffer was a Vice President of KCG from December 1997 to June 1998. Mr. Pfeffer was Vice President of Kiewit SR91 Corp., a subsidiary of Level 3, from January 1993 to December 1997. Rodney K. Rosenthal Mr. Rosenthal has been the Controller of 46 the Company since March 1998. Mr. Rosenthal was Controller of KCG from October 1995 to June 1998. Mr. Rosenthal was Corporate Accounting Manager of KCG from April 1991 to October 1995. Tobin A. Schropp Mr. Schropp has been a Vice President, 38 General Counsel and Secretary of the Company since September 1998. Mr. Schropp was Director of Taxes of the Company from March 1998 to September 1998. Mr. Schropp was Director of Taxes of Level 3 from August 1996 to March 1998, and Director of Research, Planning and Audit of Level 3 from September 1993 to August 1996. Stephen A. Sharpe Mr. Sharpe has been a Vice President of 48 the Company since August 1997. Mr. Sharpe was a Vice President of KCG from October 1996 to June 1998. Mr. Sharpe was a Vice President of U.S. Generating Company for more than five years prior to October 1996. Kenneth E. Stinson Mr. Stinson has been President of the 57 Company since August 1997 and Chairman and Chief Executive Officer of the Company since March 1998. Mr. Stinson is also a director of the Company and is the Chairman of the Executive Committee of the Company. Mr. Stinson has been the Chairman and Chief Executive Officer of KCG for more than the last five years. Mr. Stinson was Executive Vice President of Level 3 from June 1991 to August 1997. Mr. Stinson is also currently a director of ConAgra, Inc., Valmont Industries, Inc. and Level 3. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Market Information. As of December 25 1999, the Common Stock is not listed on any national securities exchange or the NASDAQ National Market and there is no established public trading market for the Common Stock. Company Repurchase Obligation. Pursuant to the terms of the Company's Restated Certificate of Incorporation ("Certificate"), the Company is generally required to repurchase shares of Common Stock at a formula price upon demand. Common Stock can be issued only to employees of the Company and its subsidiaries and can be resold only to the Company at a formula price based on the year-end book value of the Company. Formula Price. The formula price of the Common Stock is based on the book value of the Company. A significant element of the Common Stock formula price is the subtraction of the book value of property, plant, and equipment used in the Company's construction activities (approximately $109 million in 1999). Restrictions. Ownership of Common Stock is generally restricted to active Company employees. Upon retirement, termination of employment, or death, Common Stock must be resold to the Company at the applicable formula price. Stockholders. On March 14, 2000, the Company had the following numbers of stockholders and outstanding shares: Class of Stock Stockholders Outstanding Shares Common Stock 1,314 31,943,578 Dividends and Prices. As a result of the Transaction, the Construction and Materials Businesses were distributed to the Company. Level 3's former Class C Stock was linked to the performance of the Construction and Materials Businesses. Consequently, for presentation purposes, the chart below sets forth the dividends declared or paid on Level 3's Class C Stock and the Common Stock during 1998 and 1999, respectively, and the stock price after each dividend payment, in each case adjusted retroactively to reflect a dividend of 3 shares of Common Stock for each outstanding share of Common Stock effected on January 15, 1999. Dividend Dividend Declared Dividend Paid Per Share Price Adjusted Stock Price October 22, 1997 January 5, 1998 $0.20 December 28, 1997 $12.80 April 24, 1998 May 1, 1998 $0.20 April 25, 1998 $12.60 October 30, 1998 January 6, 1999 $0.225 December 27, 1998 $15.90 April 30, 1999 May 1, 1999 $0.25 May 1, 1999 $15.65 October 29, 1999 January 5, 2000 $0.27 December 26, 1999 $20.63
The Company's current dividend policy is to pay a regular dividend on Common Stock based on a percentage of the prior year's ordinary earnings, with any special dividends to be based on extraordinary earnings. Sales of Unregistered Securities. The Company's former parent, Level 3, acquired 100 shares of Common Stock on November 1, 1997 for $1.00. Such shares of Common Stock were acquired without registration based upon reliance of Section 4(2) of the Securities Act of 1933, as a transaction by an issuer not involving a public offering. On March 31, 1998, in connection with the Transaction, Level 3 transferred the Construction and Materials Businesses to the Company in exchange for 30,711,680 shares of Common Stock. Such shares of Common Stock were acquired without registration based upon reliance of Section 4(2) of the Securities Act of 1933, as a transaction by an issuer not involving a public offering. Item 6. Selected Financial Data. The following table presents selected historical financial data of the Company as of and for the fiscal years ended 1995 through 1999, and is derived from the Company's historical consolidated financial statements and the notes to those financial statements included elsewhere herein. Fiscal Year Ended 1999 1998 1997 1996 1995 (dollars in millions, except per share amounts) Results of Operations: Revenue $4,013 $3,379 $2,742 $2,303 $2,330 Net earnings 165 136 155 108 104 Per Common Share: Net earnings Basic 4.81 4.07 4.00 2.53 1.95 Diluted 4.71 4.02 3.84 2.44 1.91 Dividends(1) .52 .43 .38 .33 .26 Formula price(2) 20.63 15.90 12.80 10.18 8.10 Book value 24.01 19.35 16.10 12.76 10.73 Financial Position: Total assets 1,599 1,379 1,342 1,039 978 Current portion of long-term debt 4 8 5 - 2 Long-term debt, net of current portion 18 13 22 12 9 Redeemable Common Stock(3) 837 691 652 562 467 (1) The 1999, 1998, 1997, 1996 and 1995 dividends include $.27, $.225, $.20, $.175, and $.15 for dividends declared in 1999, 1998, 1997, 1996 and 1995 respectively, but paid in January of the subsequent year. (2) Pursuant to the Certificate, the formula price calculation is computed annually at the end of the fiscal year, except that adjustments to reflect dividends are made when declared. (3) Ownership of the Common Stock is restricted to certain employees conditioned upon the execution of repurchase agreements which restrict the employees from transferring the stock. The Company is generally required to purchase all Common Stock at the formula price. The aggregate redemption value of Common Stock at December 25, 1999 was $720 million. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations 1999 vs. 1998 Revenue from each of the Company's segments was (in millions): 1999 1998 Construction $3,594 $3,057 Materials 419 322 ------ ------ $4,013 $3,379 ====== ====== Construction. Revenues for the construction business increased $537 million or 18% from the same time period in 1998. The increase is due to favorable market conditions in the business sectors that the Company operates. Contract backlog at December 25, 1999 was nearly $4 billion, of which 6% was attributable to foreign operations located primarily in Canada. Domestic projects are spread geographically throughout the U.S. Margins on construction projects as a percentage of revenue for the twelve months ended December 25, 1999 were consistent with margins in the same period in 1998, increasing from 8.6% to 8.7%. Materials. Revenues for the materials business increased $97 million or 30% from the same time period in 1998. A continued strong market for materials products in the Southwest that resulted in additional unit sales of ready mix concrete, asphalt and aggregates accounted for part of the increase. Additional ballast sales at quarries located in Utah and Wyoming plus the consolidation of Pacific Rock Products L.L.C. ("Pacific Rock") due to the increase in ownership from 40% to 100%, which contributed revenues of $54 million, account for the balance of the increase. Margins increased from 7% to 11% when compared to the same time period last year. Increased volumes, the consolidation of Pacific Rock and the elimination of losses taken in 1998 for the Oak Mountain coal operations contributed to the increase. General and Administrative Expenses. General and administrative expenses for the twelve months ended December 25, 1999 were consistent with 1998, increasing from $142 million to $144 million. Investment Income and Equity Earnings, Net. During 1999, the Company determined that the decline in market value of an investment security was other-than-temporary. This investment was written down to market value and a loss of $18 million was recognized in the Statement of Earnings. This investment had previously been carried at market value and the write-down had been recorded as an unrealized loss as a separate component of other comprehensive income. As a result, this write-down had no effect on total comprehensive income or total redeemable common stock. Subsequent changes in the market value of the security will be included as a separate component of comprehensive income. Other, Net. Other income is primarily comprised of mine management fee income from Level 3 and gains and losses on the disposition of property, plant and equipment and other assets. The Company manages certain coal mines for Level 3. Fees for these services were $33 million in 1999 and $34 million in 1998. The Company's fee is a percentage of adjusted operating earnings of the coal mines, as defined. The mines managed by the Company for Level 3 earn the majority of their revenues under long-term contracts. The remainder of the mines' sales are made on the spot market where prices are substantially lower than those of the long-term contracts. After a significant long-term contract expires next year, adjusted operating earnings at the mines will decrease substantially, thereby similarly decreasing the management fee earned by the Company. Additionally, the Minerals Management Service and Montana Department of Revenue have issued assessments to the Level 3 mines for the underpayment of royalties and production taxes. Level 3 is vigorously contesting the assessments. If Level 3 pays these assessments, the payments could materially decrease future mine management fees, but will not affect fees previously received. Provision for Income Taxes. The effective income tax rates in 1999 and 1998 differ from the federal statutory rate of 35% due primarily to state income taxes. Results of Operations 1998 vs. 1997 Revenue from the Company's segments for the twelve months ended December 26, 1998 and December 27, 1997 was (in millions): 1998 1997 Construction $3,057 $2,474 Materials 322 268 ------ ------ $3,379 $2,742 ====== ====== Construction. Revenues for the construction business increased $583 million or 23.6% from the same time period in 1997. $210 million of the increase in revenues resulted from several new domestic cogeneration facilities. Joint ventures performing electrical work on railway systems contributed another $82 million. Another major factor was the "I-15" project, a $1.4 billion (the Company's share is $780 million) design build joint venture to reconstruct 16 miles of interstate through the Salt Lake City, Utah area which contributed $135 million to the increase. Several new projects account for the remainder of the increase. Contract backlog at December 26, 1998 was nearly $5 billion, of which 3.5% was attributable to foreign operations located primarily in Canada. Domestic projects are spread geographically throughout the U.S. Margins on construction projects as a percentage of revenue for the twelve months ended December 26, 1998 decreased to 8.6% from 13% for the same time period in 1997. Favorable resolutions of project uncertainties, change order settlements and bonuses for cost savings and early completion increased margins for the twelve months ended December 27, 1997. Margins in 1996 and 1995 were 9.6% and 7.7%, respectively. Materials. Revenues for the materials business were up 20%, from $268 million to $322 million, for the twelve months ended December 26, 1998 as compared to the same time period in 1997. Greater sales volume and higher average selling prices for aggregates, ready mix concrete and asphalt products resulted in a 27% increase which was offset by the decrease in revenues from the Oak Mountain Coal operations. The investment in Oak Mountain was sold on June 9, 1998. The Oak Mountain investment was previously written off as an impaired asset in December 1997. In 1998, the Company realized operating losses of $3 million. Margins from materials sales as a percentage of revenue for the twelve months ended December 26, 1998 increased from 4% in 1997 to 6.5% in 1998. The increase in margins was attributable to higher average selling prices and improvements in the performance of recent acquisitions. Also contributing to the increase was the reduction of losses from the Oak Mountain Coal operations. General and Administrative Expenses. General and administrative expenses decreased in 1998. General and administrative expenses, as a percent of revenue, decreased from 5.4% in 1997 to 4.2% in 1998, as a proportionate increase in administration costs were not necessary to support the Company's revenue growth. Investment Income and Equity Earnings, Net. Net investment income and equity earnings decreased by $5 million. The decrease was partially due to the increased interest expense on long-term debt and gains on sales of marketable securities in 1997 which were nonrecurring items. Other, Net. Other income is primarily comprised of mine management fee income from Level 3 and gains and losses on the disposition of property, plant and equipment and other assets. The mine management fee increased by $2 million while a decrease in the amount of equipment sold during 1998 resulted in a $3 million decrease in gains from sales. The Company manages certain coal mines for Level 3. Fees for these services were $34 million in 1998 and $32 million in 1997. The Company's fee is a percentage of adjusted operating earnings of the coal mines, as defined. The mines managed by the Company for Level 3 earn the majority of their revenues under long-term contracts. The remainder of the mines' sales are made on the spot market where prices are substantially lower than those of the long-term contracts. As the long-term contracts expire in two years, adjusted operating earnings at the mines will decrease substantially, thereby similarly decreasing the management fee earned by the Company. Additionally, the Minerals Management Service and Montana Department of Revenue have issued assessments to the Level 3 mines for the underpayment of royalties and production taxes. Level 3 is vigorously contesting the assessments. If Level 3 pays these assessments, the payments could materially decrease future mine management fees, but will not affect fees previously received. Provision for Income Taxes. The effective income tax rates in 1998 and 1997 differ from the expected rate of 35% primarily due to state income taxes and prior year tax adjustments. Financial Condition - December 25, 1999 The Company's working capital increased $93 million or 19% during 1999. Sources of cash primarily included $192 million of cash provided by operations, $32 million in proceeds from the sale of property, plant and equipment and $25 million from the issuance of Common Stock. Uses of cash primarily included stock repurchases of $39 million, dividends of $16 million, purchases of marketable securities of $7 million, net repayment of debt of $17 million, $36 million for the acquisition of materials operations and $75 million for the purchase of property, plant and equipment. The Company anticipates investing between $50 and $100 million annually in its construction and materials businesses. The Company continues to explore opportunities to acquire additional businesses. Other long-term liquidity uses include the payment of income taxes and the payment of dividends. The Company'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. New Accounting Pronouncement. In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and for hedging activities. This statement is effective for all fiscal years beginning after June 15, 2000. Management does not expect adoption of this statement to materially affect the Company's financial statements as the Company has no significant derivative instruments or hedging activities. Year 2000 Update The Company's Year 2000 effort, which was comprised of internal updating and replacement of computer systems and external coordination with its customers was completed on schedule. The Company has not experienced any material Year 2000 related difficulties. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. The Company does not believe that its business is subject to significant market risks arising from interest rates, foreign exchange rates or equity prices. Item 8. Financial Statements and Supplementary Data. REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Stockholders Peter Kiewit Sons', Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, of changes in redeemable common stock and comprehensive income, and of cash flows present fairly, in all material respects, the consolidated financial position of Peter Kiewit Sons', Inc. and Subsidiaries at December 25, 1999, and December 26, 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 25, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Omaha, Nebraska March 17, 2000 PETER KIEWIT SONS', INC. AND SUBSIDIARIES Consolidated Statements of Earnings For the three years ended December 25, 1999 (dollars in millions, except per share data) 1999 1998 1997 Revenue $ 4,013 $ 3,379 $ 2,742 Cost of revenue (3,655) (3,095) (2,408) ------- ------- ------- 358 284 334 General and administrative expenses (144) (142) (148) ------- ------- ------- Operating earnings 214 142 186 Other income (expense): Investment income and equity earnings - 17 20 Interest expense (4) (5) (3) Other, net 56 61 61 ------ ------ ------- 52 73 78 ------ ------ ------- Earnings before income taxes and minority interest 266 215 264 Minority interest in net earnings of subsidiaries (1) (1) (2) Provision for income taxes (100) (78) (107) ------ ------ ------ Net earnings $ 165 $ 136 $ 155 ====== ====== ====== Net earnings per share: Basic $ 4.81 $ 4.07 $ 4.00 ====== ====== ====== Diluted $ 4.71 $ 4.02 $ 3.84 ====== ====== ====== See accompanying notes to consolidated financial statements. PETER KIEWIT SONS', INC. AND SUBSIDIARIES Consolidated Balance Sheets December 25, 1999 and December 26, 1998 (dollars in millions) 1999 1998 Assets Current assets: Cash and cash equivalents $ 338 $ 227 Marketable securities 12 9 Receivables, less allowance of $7 and $5 507 457 Unbilled contract revenue 73 88 Contract costs in excess of related revenue 31 26 Investment in construction joint ventures 197 190 Deferred income taxes 60 64 Other 21 15 ------ ------ Total current assets 1,239 1,076 Property, plant and equipment, at cost: Land 40 19 Buildings 51 42 Equipment 660 640 ------ ------ 751 701 Less accumulated depreciation and amortization (508) (489) ------ ------ Net property, plant and equipment 243 212 Other assets 117 91 ------ ------ $1,599 $1,379 ====== ====== See accompanying notes to consolidated financial statements. PETER KIEWIT SONS', INC. AND SUBSIDIARIES Consolidated Balance Sheets December 25, 1999 and December 26, 1998 (dollars in millions) 1999 1998 Liabilities and Redeemable Common Stock Current liabilities: Accounts payable, including retainage of $50 and $47 $ 270 $ 183 Current portion of long-term debt 4 8 Accrued costs on construction contracts 120 125 Billings in excess of related costs and earnings 122 132 Accrued insurance costs 84 81 Other 62 63 ------ ------ Total current liabilities 662 592 Long-term debt, less current portion 18 13 Deferred income taxes 2 1 Other liabilities 67 70 Minority interest 13 12 Preferred stock, no par value, 250,000 shares authorized, no shares outstanding - - Redeemable common stock ($720 million aggregate Redemption value): Common stock, $.01 par value, 125 million shares authorized 34,876,718 and 35,692,820 outstanding - - Additional paid-in capital 175 161 Accumulated other comprehensive income (10) (22) Retained earnings 672 552 ------ ------ Total redeemable common stock 837 691 ------ ------ $1,599 $1,379 ====== ====== See accompanying notes to consolidated financial statements. PETER KIEWIT SONS', INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the three years ended December 25, 1999 (dollars in millions) 1999 1998 1997 Cash flows from operations: Net earnings $ 165 $ 136 $ 155 Adjustments to reconcile net earnings to net cash provided by operations: Depreciation and amortization 73 71 67 Gain on sale of property, plant and equipment and other investments, net (2) (20) (24) Equity (earnings) loss, net of distributions (13) - 11 Change in other noncurrent liabilities - (7) 18 Deferred income taxes (1) 6 - Change in working capital items: Receivables (41) (6) (114) Unbilled contract revenue and contract costs in excess of related revenue 10 5 (39) Investment in construction joint ventures (8) (13) (82) Other current assets 9 - 7 Accounts payable 42 (6) 10 Accrued construction costs and billings in excess of revenue on uncompleted contracts (16) 28 102 Other liabilities (8) 5 23 Other (18) (3) 8 ------ ------ ------ Net cash provided by operations 192 196 142 Cash flows from investing activities: Proceeds from sales and maturities of marketable securities 3 24 73 Purchases of marketable securities (7) (7) (39) Proceeds from sale of property, plant and equipment 32 25 36 Capital expenditures (75) (87) (107) Investments and acquisitions, net of cash acquired (36) (13) (21) Additions to notes receivable (2) (20) - Payments received on notes receivable 5 5 - ------ ------ ------ Net cash used in investing activities (80) (73) (58) See accompanying notes to consolidated financial statements. PETER KIEWIT SONS', INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the three years ended December 25, 1999 (dollars in millions) 1999 1998 1997 Cash flows from financing activities: Long-term debt borrowings $ 5 $ 4 $ 12 Short-term debt borrowings, net - (5) - Payments on long-term debt (22) - - Issuances of common stock 25 67 34 Repurchases of common stock (39) (35) (2) Dividends paid (16) (13) (12) Exchange of Class C Stock for Level 3's Class D Stock, net - (122) (72) Change in outstanding checks in excess of funds on deposit 43 (21) 17 ----- ----- ----- Net cash used in financing activities (4) (125) (23) Effect of exchange rates on cash 3 (3) (2) ----- ----- ----- Net change in cash and cash equivalents 111 (5) 59 Cash and cash equivalents at beginning of year 227 232 173 ----- ----- ----- Cash and cash equivalents at end of year $ 338 $ 227 $ 232 ====== ====== ====== Supplemental disclosures of cash flow information: Taxes paid $ 95 $ 91 $ 94 Interest paid 4 5 2 Non-cash financing activities: Conversion of convertible debentures to common stock $ - $ (10)$ - See accompanying notes to consolidated financial statements. PETER KIEWIT SONS', INC. AND SUBSIDIARIES Consolidated Statements of Changes in Redeemable Common Stock and Comprehensive Income For the three years ended December 25, 1999 Accumulated Total Redeemable Additional Other Redeemable Common Paid-in Comprehensive Retained Common Stock Capital Income Earnings Stock Balance at December 28, 1996 $ 1 $ 100 $ (6) $ 467 $ 562 Dividends (a) - - - (13) (13) Issuance of stock - 34 - - 34 Repurchase of stock - - - (2) (2) Exchange of Class C Stock for Class D stock, net - (17) - (55) (72) Comprehensive income: Net earnings - - - 155 155 Other comprehensive income: Foreign currency adjustment - - (2) - (2) Change in unrealized holding loss, net of tax - - (10) - (10) ----- Total other comprehensive income (12) ----- Total comprehensive income 143 ----- ----- ----- ----- ----- Balance at December 27, 1997 1 117 (18) 552 652 ----- ----- ----- ----- ----- Dividends (a) - - - (13) (13) Issuance of stock - 77 - - 77 Repurchase of stock - (7) - (28) (35) Exchange of class C stock for Class D stock, net - (27) - (95) (122) Change in par value of common stock (1) 1 - - - Comprehensive income: Net earnings - - - 136 136 Other comprehensive income: Foreign currency adjustment - - (1) - (1) Change in unrealized holding loss, net of tax - - (3) - (3) ----- Total other comprehensive income (4) ----- Total comprehensive income 132 ----- ----- ----- ----- ----- Balance at December 26, 1998 - 161 (22) 552 691 ----- ----- ----- ----- -----
See accompanying notes to consolidated financial statements. PETER KIEWIT SONS', INC. AND SUBSIDIARIES Consolidated Statements of Changes in Redeemable Common Stock and Comprehensive Income For the three years ended December 25, 1999 Accumulated Total Redeemable Additional Other Redeemable Common Paid-in Comprehensive Retained Common Stock Capital Income Earnings Stock Dividends (a) - - - (17) (17) Issuance of stock - 25 - - 25 Repurchase of stock - (11) - (28) (39) Comprehensive income: Net earnings - - - 165 165 Other comprehensive income: Foreign currency adjustment - - 1 - 1 Change in unrealized holding loss, net of tax - - 11 - 11 --- Total other comprehensive income 12 --- Total comprehensive income 177 ----- ----- ----- ----- --- Balance at December 25, 1999 $ - $ 175 $ (10) $ 672 $ 837 ===== ===== ===== ===== =====
(a) Dividends include $.27, $.225 and $.20 for dividends declared in 1999, 1998 and 1997 but paid in January of the following year See accompanying notes to consolidated financial statements. PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation: Peter Kiewit Sons', Inc. (the "Company") was formed by its former parent, Level 3 Communications, Inc. (formerly Peter Kiewit Sons', Inc.) ("Level 3"), in connection with a transaction (the "Transaction") intended to separate the Construction and Materials Businesses and the diversified business of Level 3 into two independent companies. On March 31, 1998, pursuant to the terms of a Separation Agreement between the Company, Level 3 and certain other parties (the "Separation Agreement"), Level 3 consummated the Transaction by: (i) transferring 100 shares of the $100 par value common stock ("KCG Stock") of Kiewit Construction Group Inc. ("KCG"), representing all of the issued and outstanding shares of KCG Stock, as well as certain other assets and liabilities related to the construction and materials businesses which together comprised the Construction and Mining Group (the "Construction & Mining Group"), to the Company in exchange for 30,711,680 shares of the $.01 par value common stock of the Company ("Common Stock") (125 million shares authorized) and (ii) distributing 100% of its shares of the Common Stock to the holders of Level 3's $0.0625 par value Class C Construction & Mining Group Restricted Redeemable Convertible Exchangeable Common Stock ("Class C Stock") as of March 31, 1998, in exchange for such shares of Class C Stock. Prior to the Transaction, the Company was a wholly-owned subsidiary of Level 3. As a result of the Transaction, the Company became owned by the former holders of Level 3's Class C Stock. Prior to consummation of the Transaction, Level 3's Class C Common stock was convertible to Level 3's Class D Common Stock ("Class D Stock"). As the Construction & Mining Group comprised all of the net assets and operations of the Company at the time of the Transaction, the Construction & Mining Group is the Company's predecessor. Thus, the term "the Company", as used herein, refers to Peter Kiewit Sons', Inc., its predecessor, and its consolidated subsidiaries. 2. Summary of Significant Accounting Policies: Principles of Consolidation: The consolidated financial statements include the accounts of the Company and subsidiaries in which it has control, which are engaged in enterprises primarily related to construction and materials. Investments in construction joint ventures and partnerships in which the Company exercises significant influence over operating and financial policies are accounted for by the equity method in the consolidated balance sheet. The Company accounts for its share of the operations of the construction joint ventures and partnerships on a pro rata basis in the consolidated statements of earnings. Investments in materials limited liability companies in which the Company exercises significant influence over operations and financial policies are accounted for by the equity method. The Company accounts for its share of a materials joint venture on a pro rata basis. All significant intercompany accounts and transactions have been eliminated. PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 2. Summary of Significant Accounting Policies, Continued: Construction Contracts: The Company operates as a general contractor throughout North America and engages in various types of construction projects for both public and private owners. Credit risk is minimal with public (government) owners since the Company 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. However, in the event of termination, the Company 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 Company 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 Company's business involves construction contracts obtained through competitive bidding. The volume and profitability of the Company's construction work depends to a significant extent upon the general state of the economies of North America and the volume of work available to contractors. The Company's construction operations could be adversely affected by labor stoppages or shortages, adverse weather conditions, shortages of supplies or other governmental action. The Company uses the percentage of completion method of accounting on long-term construction contracts and joint ventures. Under the percentage of completion method, an estimated percentage for each contract, as determined by the Company's engineering estimate based on the amount of work performed, is applied to total estimated revenue. Provision is made for the entire amount of future estimated losses on contracts and joint ventures in progress; claims for additional contract compensation, however, are not reflected in the accounts until the year in which such claims are allowed. Revisions in cost and profit estimates during the course of the work are reflected in the accounting period in which the facts which require the revision become known. It is at least reasonably possible that cost and profit estimates will be revised in the near-term. In accordance with industry practice, amounts realizable and payable under contracts which may extend beyond one year are included in current assets and liabilities. Depreciation: Property, plant and equipment are recorded at cost. Depreciation for the majority of the Company's property, plant and equipment is calculated using accelerated methods. Intangible Assets: Intangible assets primarily consist of amounts allocated upon purchase of existing operations. Those assets are amortized on a straight-line basis over the expected period of benefit, which does not exceed 20 years. Long-Lived Assets: The Company reviews the carrying amount of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Measurement of any impairment would include a comparison of the present value of the estimated future operating cash flows anticipated to be generated during the remaining life of the assets to the net carrying value of the assets. PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 2. Summary of Significant Accounting Policies, Continued: 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 accumulated other comprehensive income. Earnings Per Share: Basic earnings per share have been computed using the weighted average number of shares outstanding during each period. Diluted earnings per share give effect to convertible debentures considered to be dilutive common stock equivalents. The potentially dilutive convertible debentures are calculated in accordance with the "if converted" method. This method assumes that the after-tax interest expense associated with the debentures is an addition to income and the debentures are converted into equity with the resulting common shares being aggregated with the weighted average shares outstanding. 1999 1998 1997 Net earnings available to common stockholders (in millions) $ 165 $ 136 $ 155 Add: Interest expense, net of tax effect, associated with convertible debentures * * 1 ------ ------ ------ Net earnings for diluted shares $ 165 $ 136 $ 156 ====== ====== ====== Total number of weighted average shares outstanding used to compute basic earnings per share (in thousands) 34,299 33,396 38,912 Additional dilutive shares assuming conversion of convertible debentures 753 432 1,764 ------ ------ ------ Total number of shares used to compute diluted earnings per share 35,052 33,828 40,676 ====== ====== ====== Net earnings Basic earnings per share $ 4.81 $ 4.07 $ 4.00 ====== ====== ====== Diluted earnings per share $ 4.71 $ 4.02 $ 3.84 ====== ====== ====== * Interest expense attributable to convertible debentures was less than $.5 million. Income Taxes: Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 2. Summary of Significant Accounting Policies, Continued: 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. Recent Pronouncements: In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which establishes accounting and reporting standards for derivative instruments and for hedging activities. This statement is effective for all fiscal years beginning after June 15, 2000. Management does not expect adoption of this statement to materially affect the Company's financial statements as the Company has no significant derivative instruments or hedging activities. Stock Split: On January 11, 1999, the Company declared a four-for-one stock split in the form of a stock dividend of three shares of Common Stock for each share issued and outstanding, payable on January 15, 1999. All share and per share amounts for all periods presented have been retroactively restated to reflect the stock split. Fiscal Year: The Company has a 52-53 week fiscal year which ends on the last Saturday in December. 1999, 1998 and 1997 were all 52 week years. Reclassifications: When appropriate, items within the consolidated financial statements have been reclassified in the previous periods to conform to current year presentation. Additionally, the 1998 and 1997 financial statements differ from those originally issued because of certain reclassifications related to the presentation of operating results of materials limited liability companies. Such reclassifications had no impact on redeemable common stock or net earnings. 3. Disclosures about Fair Value of Financial Instruments: The following methods and assumptions were used to determine classification and fair values of financial instruments: PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 3. Disclosures about Fair Value of Financial Instruments, Continued: Cash and Cash Equivalents: Cash equivalents generally consist of funds invested in Wilmington Trust-Money Market Portfolio and highly liquid instruments purchased with original maturities of three months or less. The securities are stated at cost, which approximates fair value. Outstanding checks in excess of funds on deposit in the amount of $100 million and $57 million at December 25, 1999 and December 26, 1998 have been reclassified to accounts payable. Marketable Securities and Non-current Investments: The Company has classified all marketable securities and marketable non-current investments not accounted for under the equity method as available-for-sale. The amortized cost of the securities used in computing unrealized and realized gains and losses is determined by specific identification. Fair values are estimated based on quoted market prices for the securities on hand or for similar investments. Net unrealized holding gains and losses are reported as a separate component of accumulated other comprehensive income, net of tax. The following summarizes the amortized cost, unrealized holding gains and losses, and estimated fair values of marketable securities and marketable non-current investments at December 25, 1999 and December 26, 1998: Unrealized Unrealized Amortized Holding Holding Fair (dollars in millions) Cost Gains Losses Value 1999 Marketable securities: U.S. debt securities $ 12 $ - $ - $ 12 ===== ===== ===== ===== Non-current investments: Equity securities $ 12 $ - $ (4) $ 8 ===== ===== ===== ===== 1998 Marketable securities: U.S. debt securities $ 9 $ - $ - $ 9 ===== ===== ===== ===== Non-current investments: Equity securities $ 30 $ - $ (21) $ 9 ===== ===== ===== ===== 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 1999, 1998 and 1997. The contractual maturities of the debt securities are from one to five years. PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 3. Disclosures about Fair Value of Financial Instruments, Continued: During 1999, the Company determined that the decline in market value of an investment security was other-than-temporary. This investment was written down to market value and a loss of $18 million was recognized in the Statement of Earnings. This investment had previously been carried at market value and the write-down had been recorded as an unrealized loss as a separate component of other comprehensive income. As a result, this write-down had no effect on total comprehensive income or total redeemable common stock. Subsequent changes in the market value of the security will be included as a separate component of comprehensive income. Retainage on Construction Contracts: Receivables at December 25, 1999 and December 26, 1998 include approximately $90 million and $86 million of retainage on uncompleted projects, the majority of which is expected to be collected within one year. Included in the retainage amounts are $29 million and $26 million, respectively, of securities which are being held by the owners of various construction projects in lieu of retainage. Also included in accounts receivable are $15 million and $15 million, respectively, of securities held by the owners which are now due as the contracts are completed. These securities are carried at fair value which is determined based on quoted market prices for the securities on hand or for similar investments. Net unrealized holding gains and losses, if any, are reported as a separate component of accumulated other comprehensive income, net of tax. Long-term Debt: The fair value of debt was estimated using the incremental borrowing rates of the Company for debt of the same remaining maturities and approximates the carrying amount. PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 4. Investment in Construction Joint Ventures and Partnership: The Company has entered into a number of construction joint venture arrangements and owns a 49% interest in a partnership, Aker-Gulf Marine. The partnership engages in the engineering, construction, fabrication and installation of steel and concrete structures. Under these arrangements, if one venturer is financially unable to bear its share of the costs, the other venturers will be required to pay those costs. Summary joint venture and partnership financial information follows: Financial Position (dollars in millions) 1999 1998 Total Joint Ventures and Partnership Current assets $ 866 $ 917 Other assets (principally construction equipment) 105 145 ------ ------ 971 1,062 Current liabilities (600) (703) ------ ------ Net assets $ 371 $ 359 ====== ====== Company's Share Equity in net assets $ 192 $ 199 Receivable from joint ventures and Partnership 52 15 ------ ------ 244 214 Less: Construction partnership (note 5) (47) (24) ------ ------ Investment in construction joint ventures $ 197 $ 190 ====== ====== - ----------------------------------------------------------------- Operations (dollars in millions) 1999 1998 1997 Total Joint Ventures and Partnership Revenue $1,841 $2,237 $1,635 Costs 1,692 2,082 1,461 ------ ------ ------ Operating income $ 149 $ 155 $ 174 ====== ====== ====== Company's Share Revenue $ 908 $1,116 $ 857 Costs 833 1,024 753 ------ ------ ------ Operating income $ 75 $ 92 $ 104 ====== ====== ====== Depreciation is computed by the joint ventures and partnership using straight-line and declining balance methods over the estimated useful lives of the assets which range from 2 to 20 years. PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 5. Other Assets: Other assets consist of the following at December 25, 1999 and December 26, 1998: (dollars in millions) 1999 1998 Marketable securities (note 3) $ 8 $ 9 Equity method investments 5 14 Construction partnership (note 4) 47 24 Goodwill, net of accumulated amortization of $15 and $12 40 26 Land option 2 - Notes receivable 15 18 ----- ----- $ 117 $ 91 ===== ===== The marketable securities are an investment in a publicly traded company. The notes receivable are primarily non-interest bearing employee notes. The equity method investments consists of a 33% interest in a concrete products business that is not publicly traded and does not have a readily determinable market value and a 40% interest in Pacific Rock Products, L.L.C. and a 40% interest in Pacific Rock Products Trucking, L.L.C. (formerly River City Machinery, L.L.C.) (collectively "Pacific Rock") in 1998 and 1997. In 1999, Pacific Rock became a wholly-owned subsidiary. Pacific Rock is engaged in the mining of rock products. Financial data relating to the equity method investments are summarized below: (dollars in millions) 1999 1998 1997 Current assets $ 11 $ 28 Property, plant and equipment, net 6 38 Other noncurrent assets - 1 ----- ----- 17 67 ----- ----- Current liabilities (4) (11) Noncurrent liabilities - (13) ----- ----- Net assets $ 13 $ 43 ===== ===== Equity in net assets $ 5 $ 14 ===== ===== Revenue $ 37 $ 80 $ 81 ===== ===== ===== Gross margin $ 7 $ 21 $ 19 ===== ===== ===== Net earnings $ 3 $ 16 $ 13 ===== ===== ===== Equity in net earnings $ 1 $ 6 $ 5 ===== ===== ===== PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 6. Long-Term Debt: At December 25, 1999 and December 26, 1998, long-term debt consisted of the following: (dollars in millions) 1999 1998 7.35% - 8.03% Convertible debentures, 2007-2009 $ 14 $ 8 BICC Cables Corp. note - 6 Stockholder notes and other 8 7 ----- ----- 22 21 Less current portion 4 8 ----- ----- $ 18 $ 13 ===== ===== 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. At December 25, 1999, 1,032,069 shares of stock were reserved for future conversions. In 1997, the Company borrowed $6 million from BICC Cables Corp. ("BICC"). BICC is affiliated with a joint venture partner of the Company. The note was paid in full in 1999 and required quarterly interest payments at a rate equal to one month LIBOR. The proceeds from the note were used for working capital requirements. In 1998, $9 million of convertible debentures were converted to common stock. Scheduled maturities of long-term debt are as follows (in millions): 2000 - $4; 2001 - $1; 2002 - $1; 2003 - $0; 2004 - $0 and 2005 and thereafter - $16. PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 7. Income Taxes: An analysis of the income tax (provision) benefit relating to earnings for the three years ended December 25, 1999 follows: (dollars in millions) 1999 1998 1997 Current: U.S. federal $ (85) $ (55) $ (88) Foreign (4) (5) (9) State (12) (12) (10) ------ ------ ------ (101) (72) (107) Deferred: U.S. federal 5 (8) 1 Foreign (2) 2 (1) State (2) - - ------ ------ ------ 1 (6) - ------ ------ ------ $ (100) $ (78) $ (107) ====== ====== ====== The United States and foreign components of earnings, for tax reporting purposes, before minority interest and income taxes follows: (dollars in millions) 1999 1998 1997 United States $ 267 $ 213 $ 228 Foreign (1) 2 36 ------ ------ ------ $ 266 $ 215 $ 264 ====== ====== ====== A reconciliation of the actual (provision) benefit for income taxes and the tax computed by applying the U.S. federal rate (35%) to the earnings before minority interest and income taxes for the three years ended December 25, 1999 follows: (dollars in millions) 1999 1998 1997 Computed tax at statutory rate $ (93) $ (75) $ (92) State income taxes (9) (7) (8) Prior year tax adjustments 2 - (5) Other - 4 (2) ------ ------ ------ $ (100) $ (78) $ (107) ======= ====== ====== Possible taxes, beyond those provided, on remittances of undistributed earnings of foreign subsidiaries, are not expected to be material. PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 7. Income Taxes, Continued: The components of the net deferred tax assets for the years ended December 25, 1999 and December 26, 1998 were as follows: (dollars in millions) 1999 1998 Deferred tax assets: Construction accounting $ 26 $ 27 Investments in construction joint ventures 24 27 Insurance claims 34 33 Compensation - retirement benefits 2 8 Other 9 2 ------ ------ Total deferred tax assets 95 97 Deferred tax liabilities: Asset bases/accumulated depreciation 15 14 Other 22 20 ------ ------ Total deferred tax liabilities 37 34 ------ ------ Net deferred tax assets $ 58 $ 63 ====== ====== 8. Employee Benefit Plans: The Company makes contributions, based on collective bargaining agreements related to its construction operations, to several multi-employer union pension plans. These contributions are included in the cost of revenue. Under federal law, The Company may be liable for a portion of future plan deficiencies; however, there are no known deficiencies. Approximately 16% of the employees of the Company are covered under the Company's profit sharing plan. The expense related to the profit sharing plan was $4 million in 1999, $3 million in 1998 and $5 million in 1997. 9. Redeemable Common Stock: Ownership of Common Stock is restricted to certain employees conditioned upon the execution of repurchase agreements which restrict the employees from transferring the Common Stock. The Company is generally committed to purchase all stock at the amount computed pursuant to its Restated Certificate of Incorporation. Issuances and repurchases of Common Stock, including conversions, for the three years ended December 25, 1999, were as follows: Balance at December 28, 1996 44,026,564 Shares issued in 1997 3,575,696 Shares repurchased in 1997 (7,072,888) ----------- Balance at December 27, 1997 40,529,372 Shares issued in 1998 6,852,196 Shares repurchased in 1998 (11,688,748) ----------- Balance at December 26, 1998 35,692,820 Shares issued in 1999 1,622,550 Shares repurchased in 1999 (2,438,652) ----------- Balance at December 25, 1999 34,876,718 =========== PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 10. Segment and Geographic Data: The Company is managed and operated in two segments, Construction and Materials. The Construction segment performs services for a broad range of public and private customers primarily in North America. Construction services are performed in the following construction markets: transportation (including highways, bridges, airports, railroads and mass transit), commercial buildings, water supply, sewage and waste disposal, dams, mining, power, heat and cooling, and oil and gas. The Materials segment primarily operates in the Southwest and Northwest portions of the United States. This segment produces construction materials including ready-mix concrete, asphalt and sand and gravel, landscaping materials and railroad ballast. Intersegment sales are recorded at cost. Operating earnings is comprised of net sales less all identifiable operating expenses, allocated general and administrative expenses, depreciation and amortization. Interest income, interest expense and income taxes have been excluded from segment operations. The management fee earned by the Company as described in Note 11 is excluded from the segment information that follows as it is included in other income on the Statement of Earnings and not included in operating earnings. Segment asset information has not been presented as it is not reported to or reviewed by the chief operating decision maker. Segment Data 1999 1998 1997 (dollars in millions) Construction Materials Construction Materials Construction Materials Revenue External customers $3,594 $422 $3,057 $346 $2,474 $290 Intersegment - 10 - 6 - 8 ------ ------ ------ ------ ------ ------ Total revenues 3,594 432 3,057 352 2,474 298 Equity earnings adjustment (1) - (3) - (24) - (22) Elimination of intersegment revenues - (10) - (6) - (8) ------ ------ ------ ------ ------ ------ Total consolidated revenues $3,594 $419 $3,057 $322 $2,474 $268 ====== ====== ====== ====== ====== ====== Depreciation and amortization $ 56 $ 17 $ 65 $ 6 $ 61 $ 6 ====== ====== ====== ====== ====== ====== Operating earnings $ 178 $ 36 $ 124 $ 18 $ 178 $ 8 ====== ====== ====== ====== ====== ======
(1) Adjust revenue of limited liability companies accounted for by the equity method. Geographic Data (dollars in millions) 1999 1998 1997 Revenue, by location of services provided: United States $3,907 $3,282 $2,572 Canada 87 77 90 Other 19 20 80 ------ ------ ------ $4,013 $3,379 $2,742 ====== ====== ====== Long-lived assets: United States $ 239 $ 208 Canada 4 4 ------ ------ $ 243 $ 212 ====== ====== During 1999, the Company earned 21.7% of revenues from a single customer. PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 11. Management Fees: The Company manages certain coal mines for Level 3. Fees for these services were $33 million in 1999, $34 million in 1998 and $32 million in 1997. The Company's fee is a percentage of adjusted operating earnings of the coal mines, as defined. The mines managed by the Company for Level 3 earn the majority of their revenues under long-term contracts. The remainder of the mines' sales are made on the spot market where prices are substantially lower than those of the long-term contracts. After a significant long-term contract expires next year, adjusted operating earnings at the mines will decrease substantially, thereby similarly decreasing the management fee earned by the Company. Additionally, the Minerals Management Service and Montana Department of Revenue have issued assessments to the Level 3 mines for the underpayment of royalties and production taxes. Level 3 is vigorously contesting the assessments. If Level 3 pays these assessments, the payments could materially decrease future mine management fees, but will not affect fees previously received. PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 12. Other Comprehensive Income: Other comprehensive income consisted of the following (dollars in millions): Tax (Expense) Before Tax of Benefit After Tax For the year ended December 27, 1997 Foreign currency translation adjustments $ (3) $ 1 $ (2) ----- ----- ----- Unrealized holding loss: Unrealized holding losses arising during the period (14) 5 (9) Plus reclassification adjustment for gains realized in net earnings (1) - (1) ----- ----- ----- (15) 5 (10) ----- ----- ----- Other comprehensive income December 27, 1997 $ (18) $ 6 $ (12) ===== ===== ===== For the year ended December 26, 1998 Foreign currency translation adjustments $ (2) $ 1 $ (1) ----- ----- ----- Unrealized holding loss: Unrealized holding losses arising during the period (4) 1 (3) Plus reclassification adjustment for gains realized in net earnings - - - ----- ----- ----- (4) 1 (3) ----- ----- ----- Other comprehensive income December 26, 1998 $ (6) $ 2 $ (4) ===== ===== ===== For the year ended December 25, 1999 Foreign currency translation adjustments $ 1 $ - $ 1 ----- ----- ----- Unrealized holding loss: Unrealized holding losses arising during period (1) - (1) Less reclassification adjustment for losses realized in net earnings 18 (6) 12 ----- ----- ----- 17 (6) 11 ----- ----- ----- Other comprehensive income December 25, 1999 $ 18 $ (6) $ 12 ===== ===== ===== PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 12. Other Comprehensive Income, Continued: Accumulated other comprehensive income consisted of the following (dollars in millions): Foreign Unrealized Accumulated Currency Holding Other Translation Gain/(Loss) Comprehensive Adjustments on Securities Income Balance at December 28, 1996 $ (5) $ (1) $ (6) Change during the year (2) (10) (12) ----- ----- ----- Balance at December 27, 1997 (7) (11) (18) Change during the year (1) (3) (4) ----- ----- ----- Balance at December 26, 1998 (8) (14) (22) Change during the year 1 11 12 ----- ----- ----- Balance at December 25, 1999 $ (7) $ (3) $ (10) ===== ===== ===== 13. Other Matters: In connection with the Transaction, the Company and Level 3 entered into various agreements including a Separation Agreement, a Tax-Sharing Agreement and an amended Mine Management Agreement. The Separation Agreement provides for the allocation of certain risks and responsibilities between Level 3 and the Company and for cross-indemnifications that are intended to allocate financial responsibility to the Company for liabilities arising out of the construction business and to allocate to Level 3 financial responsibility for liabilities arising out of the non- construction businesses. The Separation Agreement also provides for the payment, by the Company, of a majority of the third party costs and expenses associated with the Transaction. Under the Tax Sharing Agreement, with respect to periods, or portions thereof, ending on or before the closing date of the Transaction, Level 3 and the Company generally will be responsible for paying the taxes relating to such periods, including any subsequent adjustments resulting from the redetermination of such tax liabilities by the applicable taxing authorities, that are allocable to the non-construction businesses and construction businesses, respectively. The Tax Sharing Agreement also provides that Level 3 and the Company will indemnify the other from certain taxes and expenses that would be assessed if the Transaction was determined to be taxable, but solely to the extent that such determination arose out of the breach by Level 3 or the Company, respectively, of certain representations made to the Internal Revenue Service in connection with the ruling issued with respect to the Transaction or made in the Tax-Sharing Agreement. If the Transaction were determined to be taxable for any other reason, those taxes ("Transaction Taxes") would be allocated 50% to Level 3 and 50% to the Company. Finally, under certain circumstances, Level 3 would make certain liquidated damage payments to the Company if the Transaction was determined to be taxable in order to take into account the fact that the Transaction is taxable to the holders of Common Stock. PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 13. Other Matters, Continued: Additionally, the Mine Management Agreement, pursuant to which the Company provides mine management and related services to Level 3's coal mining operations, was amended to provide the Company with a right of offer in the event that Level 3 would determine to sell any or all of its coal mining properties. Under the right of offer, Level 3 would be required to offer to sell those properties to the Company at the price that Level 3 would seek to sell the properties to a third party. If the Company declined to purchase the properties at that price, Level 3 would be free to sell them to a third party for an amount greater than or equal to that price. If Level 3 sold the properties to a third party, thus terminating the Mine Management Agreement, it would be required to pay the Company an amount equal to the discounted present value of the Mine Management Agreement, determined, if necessary, by an appraisal process. In 1997, the Company and a partner each invested $15 million to acquire a 96% interest in Oak Mountain Energy LLC, ("Oak Mountain"). Oak Mountain then acquired the existing assets of an underground coal mine located in Alabama for approximately $18 million and assumed approximately $14 million of related liabilities. Oak Mountain used cash and $18 million of nonrecourse bank borrowings to retire the existing debt and develop and modernize the mine. Oak Mountain's results are consolidated with those of the Company on a pro-rata basis since the date of acquisition. Due to higher than anticipated costs in modernizing and operating the mine, Oak Mountain incurred operating losses since acquisition. Production at the mine was significantly below anticipated levels, and as a result of this and other factors, Oak Mountain fell out of compliance with certain covenants of the bank borrowings. Those events caused the Company to assess whether its investment was impaired. In 1997, the Company determined its investment in Oak Mountain was impaired and reduced the Company's investment to zero. In June 1998, the Company disposed of its investment in Oak Mountain. In 1998, the Company realized operating losses of $3 million. On February 28, 1999, the Company purchased the remaining 60% of a materials operation in the Portland, Oregon/Vancouver, Washington area. Goodwill recognized on the purchase is being amortized over 20 years. Had the results of operations of this acquisition been consolidated for the periods prior to acquisition, there would have been no material impact to the Company's results. The Company and certain other defendants are party to certain litigation involving repairs to runways at Denver International Airport. In December 1998, a jury determined that the defendants were liable for compensatory and punitive damages. The Company intends to appeal the verdict. Management believes that any resulting liability, beyond that provided, should not materially affect the Company's financial position, future results of operations or future cash flows. The Company is involved in various other lawsuits and claims incidental to its business. Management believes that any resulting liability, beyond that provided, should not materially affect the Company's financial position, future results of operations or future cash flows. The Company 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 20 years aggregate $32 million. It is customary in the Company'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 Company in accordance with specified terms and conditions. The Company has informal arrangements with a number of banks to provide such commitments. As of December 25, 1999, the Company had outstanding letters of credit of approximately $201 million. PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 14. Subsequent Events: The Company has filed various documents with the Securities and Exchange Commission pursuant to which the Company is proposing to spin-off the Materials Business to its shareholders in a transaction that is intended to be tax-free for U.S. Federal income tax purposes. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures. None. PART III Item 10. Directors and Executive Officers of the Registrant. Item 11. Executive Compensation. Item 12. Security Ownership of Certain Beneficial Owners and Management. Item 13. Certain Relationships and Related Transactions. The information required by Part III is incorporated by reference to the Company's definitive proxy statement for the 2000 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission. However, certain information is set forth in Item 4A "Executive Officers of the Registrant" above. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) The following documents are filed as part of this report: 1. Consolidated Financial Statements as of December 25, 1999 and December 26, 1998 and for the three years ended December 25, 1999: Report of Independent Accountants dated March 17, 2000 of PricewaterhouseCoopers LLP Consolidated Statements of Earnings Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Changes in Redeemable Common Stock and Comprehensive Income Notes to Consolidated Financial Statements 2. Financial Statement Schedules for the three years ended December 25, 1999: II - Valuation and Qualifying Accounts and Reserves Schedules not indicated above have been omitted because of the absence of the conditions under which they are required or because the information called for is shown in the consolidated financial statements or the notes thereto. 3. Exhibits required by Item 601 of Regulation S-K. Exhibits incorporated by reference are indicated in parentheses: Exhibit Number Description 3.1 Restated Certificate of Incorporation, effective June 19, 1999 (Exhibit 3.1 to the Company's Quarterly Report on Form 10Q for the quarter ended June 30, 1999). 3.2 Amended and Restated By-laws, effective June 19, 1999 (Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999). 4.1 Form of Stock Repurchase Agreement for Employee Stockholders (Exhibit 1 to the Company's Registration Statement on Form 8-A filed March 24, 1998). 4.2 Indenture dated as of July 1, 1986, as amended pursuant to a First Supplemental Indenture dated as of March 31, 1998 (Exhibit 4.3 to the Company's Registration Statement on Form S-8 filed October 5, 1998). 4.3 Form of Debenture (Exhibit 4.4 to the Company's Registration Statement on Form S-8 filed October 5, 1998). 4.4 Form of Repurchase Agreement for Convertible Debentures (Exhibit 4.5 to the Company's Registration Statement on Form S-8 filed October 5, 1998). 21 List of Subsidiaries of the Company. 27 Financial Data Schedule. (b) No reports on Form 8-K have been filed during the last quarter of 1999. Report of Independent Accountants The Board of Directors and Stockholders Peter Kiewit Sons', Inc. Our audits of the consolidated financial statements referred to in our report dated March 17, 2000 appearing on page 12 of this Form 10-K also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Omaha, Nebraska March 17, 2000 Schedule II 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, 1999 Allowance for doubtful trade accounts $ 5 $ 3 $ (1) $ - $ 7 Reserves: Insurance claims 81 23 (20) - 84 Year ended December 26, 1998 Allowance for doubtful trade accounts $ 9 $ - $ (4) $ - $ 5 Reserves: Insurance claims 76 15 (10) - 81 Year ended December 27, 1997 Allowance for doubtful trade accounts $ 17 $ 3 $ (11) $ - $ 9 Reserves: Insurance claims 81 7 (12) - 76 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PETER KIEWIT SONS', INC. By: /s/ Tobin A. Schropp Date: March 17, 2000 Tobin A. Schropp, Vice President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Title Date /s/ Kenneth E. Stinson Chairman of the Board and President (Principal Executive Officer) March 17, 2000 Kenneth E. Stinson /s/ Kenneth M. Jantz Vice President (Principal Financial Officer) March 17, 2000 Kenneth M. Jantz /s/ Rodney K. Rosenthal Controller (Principal Accounting Officer) March 17, 2000 Rodney K. Rosenthal /s/ Mogens C. Bay Director March 17, 2000 Mogens C. Bay /s/ Roy L. Cline Director March 17, 2000 Roy L. Cline /s/ Richard W. Colf Director March 17, 2000 Richard W. Colf /s/ James Q. Crowe Director March 17, 2000 James Q. Crowe /s/ Richard Geary Director March 17, 2000 Richard Geary /s/ Bruce E. Grewcock Director March 17, 2000 Bruce E. Grewcock /s/ William L. Grewcock Director March 17, 2000 William L. Grewcock /s/ Peter Kiewit, Jr. Director March 17, 2000 Peter Kiewit, Jr. /s/ Allan K. Kirkwood Director March 17, 2000 Allan K. Kirkwood /s/ Walter Scott, Jr. Director March 17, 2000 Walter Scott, Jr. /s/ George B. Toll, Jr. Director March 17, 2000 George B. Toll, Jr. EX-21 2 EXHIBIT 21 PETER KIEWIT SONS', INC. AND SUBSIDIARIES March 17, 2000 Bell Cement Tools, L.L.C. Ben Holt Company Bentson Contracting Company Bibb and Associates, Inc. Construcciones Kiewit, S.A. de C.V. Constructora Kiewit, C.A. GBV-Texas, L.P. GMF 1 L.L.C. Gilbert/CBE Indonesia L.L.C. Gilbert Central Corp. Gilbert Frontier, Inc. Gilbert Industrial Corporation Gilbert Marine L.L.C. Gilbert Network Services, L.P. Gilbert Southern Corp. Gilbert Texas Construction Corp. Gilbert Western Corp. Global Surety & Insurance Co. Guernsey Construction Company Guernsey Stone Company Gulf Marine Fabricators, Inc. Gulf Maritime, L.P. Kiewit Alabama Mining Company Kiewit Construction Company Kiewit Construction Group Inc. Kiewit Constructors Inc. Kiewit Engineering Co. Kiewit Engineering Canada Ltd. Kiewit Financial Services B.V. Kiewit/Holt Indonesia L.L.C. Kiewit/Holt Philippines, L.P. Kiewit Industrial Co. Kiewit Industrial Canada Ltd. Kiewit International Inc. Kiewit International Services Inc. Kiewit International Services Ltd. Kiewit Investment Management Corp. Kiewit Management Limited Kiewit Materials Company Kiewit Materials Leasing L.L.C. Kiewit Mazon Constructores, S.A. de C.V. Kiewit Mining Group Inc. Kiewit Mining Services Inc. Kiewit Network Services Co. Kiewit Pacific Co. Kiewit Pipelines Ltd. Kiewit Venezuela Inc. Kiewit Western Co. Lac De Gras Excavation Inc. Les Entreprises Kiewit Ltee Mass. Electric Construction Co. Mass. Electric Securities Corp., Inc. ME Holding Inc. MECC Rail Mexicana, S.A. de C.V. Metro Concrete Pumping Company Midwest Agencies, Inc. MIL Offshore Inc. Newsham Hybrids (USA), Inc. Northwest Materials Holding Company PT Kiewit International Pacific Rock Products, L.L.C. Pacific Rock Products Trucking, L.L.C. Peter Kiewit Sons Co. Ltd. Quality Ready Mix, Inc. Servitec de Sonora, S.A. de C.V. Solano Concrete Co., Inc. Tanner Companies (Yuma) Inc. Twin Mountain Construction Company Twin Mountain Construction II Company Twin Mountain Rock Company United Metro Materials Inc. V.K. Mason Construction Ltd. V.K. Mason Inc. Western Equipment Co. EX-27 3
5 1,000,000 12-MOS DEC-25-1999 DEC-25-1999 338 12 507 7 0 1,239 751 508 1,599 662 18 0 0 0 837 1,599 4,013 4,013 3,655 3,655 144 0 4 266 100 165 0 0 0 165 4.81 4.71
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