UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

June 30, 2004

Commission file number

000-23943

PETER KIEWIT SONS’, INC.

(Exact name of registrant as specified in its charter)

Delaware

(State of Incorporation)

91-1842817

(I.R.S. Employer Identification No.)

Kiewit Plaza, Omaha Nebraska

(Address of principal executive offices)

68131

(Zip Code)

(402) 342-2052

(Registrant’s telephone number, including area code)

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes [X] No [  ]

The number of shares outstanding of each of the registrant’s classes of common stock as of August 6, 2004:

Title of Class

Common Stock, $0.01 par value

Shares Outstanding

29,730,581

PETER KIEWIT SONS’, INC.

Index

Page

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements.

Consolidated Condensed Statements of Earnings for the three and six months ended

June 30, 2004 and 2003

2

Consolidated Condensed Balance Sheets as of June 30, 2004 and December 27, 2003

3

Consolidated Condensed Statements of Cash Flows for the six months ended

June 30, 2004 and 2003

4

Notes to Consolidated Condensed Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

12

Item 3.

Quantitative and Qualitative Disclosure about Market Risk.

17

Item 4.

Controls and Procedures.

17

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings.

18

Item 2.

Changes in Securities and Use of Proceeds.

18

Item 4.

Submission of Matters to a Vote of Security Holders.

19

Item 6.

Exhibits and Reports on Form 8-K.

20

Signatures

20

PART I – FINANCIAL INFORMATION

Item 1.   Financial Statements.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Peter Kiewit Sons’, Inc.:

We have reviewed the consolidated condensed balance sheet of Peter Kiewit Sons’, Inc. and subsidiaries as of June 30, 2004, and the related consolidated condensed statements of earnings for the three and six month periods ended June 30, 2004 and 2003, and the consolidated condensed statements of cash flows for the six month periods ended June 30, 2004 and 2003.  These consolidated condensed financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with standards of the Public Company Accounting Oversight Board (United States).  A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the consolidated condensed financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.  

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Peter Kiewit Sons’, Inc. and subsidiaries as of December 27, 2003, and the related consolidated statements of earnings, changes in redeemable common stock and comprehensive income, and cash flows for the year then ended (not presented herein); and in our report dated March 2, 2004, we expressed an unqualified opinion on those consolidated financial statements.  In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 27, 2003, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

(signed)  KPMG LLP

Omaha, Nebraska

August 6, 2004

PETER KIEWIT SONS’, INC.

Consolidated Condensed Statements of Earnings

(unaudited)

Three Months Ended
June 30,

Six Months Ended
June 30,

2004

2003

2004

2003

(dollars in millions, except per share data)

Revenue

$

829

$

903

$

1,512

$

1,709

Cost of revenue

(739

)

(809

)

(1,348

)

(1,544

)

Margin

90

94

164

165

General and administrative expenses

(56

)

(57

)

(117

)

(115

)

Gain on sale of operating assets

4

6

6

9

Operating income

38

43

53

59

Other income (expense):

   Investment income

3

7

5

10

   Interest expense

(1

)

-

(2

)

(1

)

   Other, net

3

2

5

4

5

9

8

13

Income before income taxes and cumulative

  effect of change in accounting principle

43

52

61

72

Income tax expense

(16

)

(20

)

(23

)

(28

)

Income before cumulative effect of change in

   accounting principle

27

32

38

44

Cumulative effect of change in accounting

   principle, net of tax

-

-

-

3

Net income

$

27

$

32

$

38

$

47

Basic earnings per share:

  Income before cumulative effect of change in

    accounting principle

$

.89

$

1.11

$

1.27

$

1.52

  Cumulative effect of change in accounting

    Principle

-

-

-

.10

Net income

$

.89

$

1.11

$

1.27

$

1.62

Diluted earnings per share:

  Income before cumulative effect of change in

    accounting principle

$

.86

$

1.07

$

1.23

$

1.46

  Cumulative effect of change in accounting

    principle

-

-

-

.10

Net income

$

.86

$

1.07

$

1.23

$

1.56

See accompanying notes to consolidated condensed financial statements.

PETER KIEWIT SONS’, INC.

Consolidated Condensed Balance Sheets

June 30,

2004

December 27,

(unaudited)

2003

(dollars in millions)

ASSETS

Current assets:

  Cash and cash equivalents

$

504

$

481

  Available-for-sale-securities

104

103

  Receivables, less allowance of $22 and $7

356

419

  Unbilled contract revenue

95

79

  Contract costs in excess of related revenue

28

45

  Investment in construction joint ventures

263

251

  Deferred income taxes

80

60

  Other

46

26

Total current assets

1,476

1,464

Property, plant and equipment, less accumulated

  depreciation and amortization of $541 and $531

336

340

Other assets

85

85

$

1,897

$

1,889

LIABILITIES AND REDEEMABLE COMMON STOCK

Current liabilities:

  Accounts payable, including retainage of $55 and $67

$

183

$

225

  Current portion of long-term debt

10

10

  Accrued costs on construction contracts

146

125

  Billings in excess of related costs and earnings

196

195

  Distributions and costs in excess of investment in construction joint ventures

48

28

  Accrued insurance costs

75

70

  Accrued payroll

32

39

  Other

19

21

Total current liabilities

709

713

Long-term debt, less current portion

25

22

Deferred income taxes

43

41

Accrued reclamation

6

6

Minority interest

1

1

Commitments and contingencies

Preferred stock, no par value, 250,000 shares authorized, no shares outstanding

-

-

Redeemable common stock ($953 million and $981 million aggregate redemption value):

  Common stock, $.01 par value, 125 million shares authorized

    29,790,181 and 30,242,689 outstanding

-

-

  Additional paid-in capital

239

243

  Accumulated other comprehensive income

2

4

  Retained earnings

872

859

Total redeemable common stock

1,113

1,106

$

1,897

$

1,889

See accompanying notes to consolidated condensed financial statements.

PETER KIEWIT SONS’, INC.

Consolidated Condensed Statements of Cash Flows

(unaudited)

Six Months Ended

June 30,

2004

2003

(dollars in millions)

Cash flows from operations:

  Net cash provided by operations

$

90

$

104

Cash flows from investing activities:

  Proceeds from maturities of available-for-sale securities

2

-

  Purchases of available-for-sale securities

(4

)

(2

)

  Proceeds from sale of stock warrants

-

22

  Proceeds from sales of property, plant and equipment

21

15

  Capital expenditures

(49

)

(60

)

  Additions to notes receivable

(2

)

(2

)

  Payments received on notes receivable

2

3

      Net cash used in investing activities

(30

)

(24

)

Cash flows from financing activities:

  Long-term debt borrowings

3

-

  Repurchases of common stock

(15

)

(74

)

  Dividends paid

(25

)

(22

)

      Net cash used in financing activities

(37

)

(96

)

  Effect of exchange rates on cash

-

7

Net increase (decrease) in cash and cash equivalents

23

(9

)

Cash and cash equivalents at beginning of period

481

275

Cash and cash equivalents at end of period

$

504

$

266

  Non-cash investing activities:

    Stock warrants returned to owner as part of a contract settlement

$

-

$

3

See accompanying notes to consolidated condensed financial statements.

PETER KIEWIT SONS’, INC.

Notes to Consolidated Condensed Financial Statements

1.          Basis of Presentation:

The consolidated condensed balance sheet of Peter Kiewit Sons', Inc. (“PKS”, which together with its subsidiaries is referred to herein as the "Company") at December 27, 2003 has been condensed from the Company’s audited balance sheet as of that date.  All other financial statements contained herein are unaudited and, in the opinion of management, contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of financial position and results of operations and cash flows for the periods presented.  The Company’s accounting policies and certain other disclosures are set forth in the notes to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K.  Management believes that the disclosures are adequate to make the information presented not misleading.

The Company became aware of an accounting error that occurred during the fourth quarter of 2002 on a nonsponsored joint venture.  The error resulted in an overstatement of 2002 net income by $4 million.  The Company corrected the error during the six months ended June 30, 2003.  The Company does not believe that the correction of this error is material to 2002 operations or to 2003 operations.  Excluding this adjustment, net income for the six months ended June 30, 2003 was $51 million.

The results of operations for the six months ended June 30, 2004 are not necessarily indicative of the results to be expected for the full year.

When appropriate, items within the consolidated condensed financial statements have been reclassified in the previous periods to conform to current year presentation.

2.          Recent Accounting Pronouncements:

In 2003, the Financial Accounting Standards Board “FASB” issued FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities,” (“FIN 46-R”).  FIN 46-R addresses the consolidation of variable interest entities in which the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, or the equity investors lack one or more of the essential characteristics of a controlling financial interest.  FIN 46-R requires enterprises to consolidate and disclose existing unconsolidated variable interest entities in which they are the primary beneficiaries if the entities do not effectively disperse risk among the parties involved. FIN 46-R also requires disclosures by an enterprise holding significant interests in variable interest entit ies in which it is not a primary beneficiary.  FIN 46-R applies to variable interest entities created or in which interest is obtained after December 31, 2003.  The adoption of FIN 46-R has not had a material impact on the Company’s financial statements.  The Company will be required to apply FIN 46-R to all other entities subject to this Interpretation by the beginning of the fiscal year ending December 31, 2005.  The Company is currently assessing the impact of FIN 46-R related to such entities.

PETER KIEWIT SONS’, INC.

Notes to Consolidated Condensed Financial Statements – (Continued)

3.          Change in Accounting Principle:

Effective December 29, 2002, the Company adopted, as required, the provisions of Statement of Financial Accounting Standards No. 143 (SFAS 143), “Accounting for Asset Retirement Obligations.”  SFAS 143 establishes new reporting standards of accounting for the Company’s reclamation liability associated with its coal mining operation. The new reporting standards require retirement obligations to be measured at fair value and displayed as a liability when incurred. Associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and subsequently allocated to expense over the asset’s useful life.  Prior to implementing SFAS 143, reclamation liability was provided without regard to the time value of money.

The cumulative effect of implementing SFAS 143 resulted in an increase in net income of $3 million or $.10 per share for the six months ended June 30, 2003.

The following unaudited pro forma information reflects the Company’s results for the three and six months ended June 30, 2003 as if the change had been retroactively applied:

Three Months Ended

Six Months Ended

June 30,

June 30,

2003

2003

(dollars in millions, except per share data)

Net income

$

32

$

44

Net earnings per share:

  Basic

$

1.11

$

1.52

  Diluted

$

1.07

$

1.46

PETER KIEWIT SONS’, INC.

Notes to Consolidated Condensed Financial Statements - (Continued)

4.          Earnings Per Share:

Basic earnings per share has been computed using the weighted average number of shares outstanding during each period.  Diluted earnings per share gives 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.

Three Months Ended

June 30,

Six Months Ended

June 30,

2004

2003

2004

2003

(dollars in millions, except per share data)

Net income available to common stockholders

$

27

$

32

$

38

$

47

Add:  Interest expense, net of tax effect,

  associated with convertible debentures

*

*

*

*

Net income for diluted shares

$

27

$

32

$

38

$

47

Total number of weighted average shares outstanding used

  to compute basic earnings per share (in thousands)

29,833

28,665

29,903

28,846

Additional dilutive shares assuming

  conversion of convertible debentures

1,295

1,260

1,295

1,272

Total number of shares used to compute

  diluted earnings per share

31,128

29,925

31,198

30,118

Basic earnings per share:

  Income before cumulative effect of change in

    accounting principle

$

.89

$

1.11

$

1.27

$

1.52

  Cumulative effect of change in accounting principle

-

-

-

.10

  Net income

$

.89

$

1.11

$

1.27

$

1.62

Diluted earnings per share:

  Income before cumulative effect of change in

    accounting principle

$

.86

$

1.07

$

1.23

$

1.46

  Cumulative effect of change in accounting principle

-

-

.10

  Net income

$

.86

$

1.07

$

1.23

$

1.56

* Interest expense attributable to convertible debentures was less than $.5 million, net of tax.

PETER KIEWIT SONS’, INC.

Notes to Consolidated Condensed Financial Statements - (Continued)

5.          Disclosures about Fair Value of Financial Instruments:

Retainage on Construction Contracts:

The following summarizes the components of retainage on uncompleted projects which is not yet due included in receivables at June 30, 2004 and December 27, 2003:

  June 30,  

December 27,

2004

2003

(dollars in millions)

Escrowed securities

$

37

$

39

Other retainage held by owners

89

92

$

126

$

131

Accounts receivable at June 30, 2004 and December 27, 2003 also include less than $.5 million of securities held by the owners which are now due as the contracts are completed.

Foreign Currency Forward Contract:

The Company entered into a foreign currency forward contract in June 2004 that has not been designated as a hedging instrument under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities.”  The forward is used to offset the earnings impact of a U.S. dollar denominated liability of a Canadian subsidiary.  The forward is recorded at fair value based upon quoted market prices, and changes in the fair value of the forward are immediately recognized in Other, net in the Consolidated Condensed Statements of Earnings.

The forward matures in June 2005 and will settle based upon the $U.S. 15 million notional amount and the difference between the current exchange rate and the exchange rate in the forward.  At June 30, 2004, the fair value of the forward was a liability of less than $0.5 million.

6.         Comprehensive Income:

Comprehensive income includes net income, unrealized gains (losses) on securities and foreign currency translation adjustments which are charged or credited to the cumulative translation account within Redeemable Common Stock.  Comprehensive income for the three and six months ended June 30, 2004 and 2003 is as follows:

Three Months Ended
June 30,

Six Months Ended
June 30,

2004

2003

2004

2003

(dollars in millions)

Net income

$

27

$

32

$

38

$

47

Other comprehensive income, before tax:

  Unrealized gains (losses) arising during period

(2

)

5

(1

)

5

  Foreign currency translation adjustments