|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
September 30, 2004                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                        
|PETER KIEWIT SONS, INC.
(Exact name of registrant as specified in its charter)                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                        
|Delaware
(State of Incorporation)                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                        
|Kiewit Plaza, Omaha Nebraska
(Address of principal executive offices)                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                        
|(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 November 5, 2004:                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                        
|Title of Class
Common Stock, $0.01 par value                                                                                                                                                                                                                                                                                                                            







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|PETER KIEWIT SONS, INC.

Index
Page
|------------------------------------
|                                    
|PART I - FINANCIAL INFORMATION      
|                                    
|Item 1.                             
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|                                    
|Item 2.                             
|                                    
|Item 3.                             
|                                    
|Item 4.                             
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|Item 1.                             
|                                    
|Item 2.                             
|                                    
|Item 6.                             
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|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 September 30, 2004, and the related consolidated condensed statements of earnings for the three and nine month periods ended September 30, 2004 and 2003, and the consolidated condensed statements of cash flows for the nine month periods ended September 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|November 5, 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             



1



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|PETER KIEWIT SONS, INC.                                              
|----------------------------------------------------------------------
|                                                                      
|Consolidated Condensed Statements of Earnings                         
|(unaudited)                                                           
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Revenue                                                               
|Cost of revenue                                                       
|                                                                      
|Margin                                                                
|                                                                      
|General and administrative expenses                                   
|Gain on sale of operating assets                                      
|                                                                      
|Operating income                                                      
|                                                                      
|Other income (expense):                                               
|Investment income                                                     
|Interest expense                                                      
|Other, net                                                            
|                                                                      
|                                                                      
|Income before income taxes and cumulative                             
|effect of change in accounting principle                              
|                                                                      
|Income tax expense                                                    
|                                                                      
|Income before cumulative effect of change in                          
|accounting principle                                                  
|                                                                      
|Cumulative effect of change in accounting                             
|principle, net of tax                                                 
|                                                                      
|Net income                                                            
|                                                                      
|Basic earnings per share:                                             
|Income before cumulative effect of change in                          
|accounting principle                                                  
|Cumulative effect of change in accounting                             
|principle                                                             
|                                                                      
|Net income                                                            
|                                                                      
|Diluted earnings per share:                                           
|Income before cumulative effect of change in                          
|accounting principle                                                  
|Cumulative effect of change in accounting                             
|principle                                                             
|                                                                      
|Net income                                                            
|                                                                      
|See accompanying notes to consolidated condensed financial statements.

2



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|PETER KIEWIT SONS, INC.                                                             
|-------------------------------------------------------------------------------------
|                                                                                     
|Consolidated Condensed Balance Sheets                                                
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|ASSETS                                                                               
|                                                                                     
|Current assets:                                                                      
|Cash and cash equivalents                                                            
|Available-for-sale securities                                                        
|Receivables, less allowance of $18 and $7                                            
|Unbilled contract revenue                                                            
|Contract costs in excess of related revenue                                          
|Investment in construction joint ventures                                            
|Deferred income taxes                                                                
|Other                                                                                
|Total current assets                                                                 
|                                                                                     
|Property, plant and equipment, less accumulated                                      
|depreciation and amortization of $542 and $531                                       
|Other assets                                                                         
|                                                                                     
|                                                                                     
|LIABILITIES AND REDEEMABLE COMMON STOCK                                              
|                                                                                     
|Current liabilities:                                                                 
|Accounts payable, including retainage of $57 and $67                                 
|Current portion of long-term debt                                                    
|Accrued costs on construction contracts                                              
|Billings in excess of related costs and earnings                                     
|Distributions and costs in excess of investment in construction joint ventures       
|Accrued insurance costs                                                              
|Accrued payroll                                                                      
|Other                                                                                
|Total current liabilities                                                            
|                                                                                     
|Long-term debt, less current portion                                                 
|Deferred income taxes                                                                
|Accrued reclamation                                                                  
|                                                                                     
|Minority interest                                                                    
|                                                                                     
|Commitments and contingencies                                                        
|                                                                                     
|Preferred stock, no par value, 250,000 shares authorized, no shares outstanding      
|Redeemable common stock ($1,002 million and $981 million aggregate redemption value):
|Common stock, $.01 par value, 125 million shares authorized                          
|31,319,331 and 30,242,689 outstanding                                                
|Additional paid-in capital                                                           
|Accumulated other comprehensive income                                               
|Retained earnings                                                                    
|Total redeemable common stock                                                        
|                                                                                     
|                                                                                     
|See accompanying notes to consolidated condensed financial statements.               

3



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|PETER KIEWIT SONS, INC.                                                 
|-------------------------------------------------------------------------
|                                                                         
|Consolidated Condensed Statements of Cash Flows                          
|(unaudited)                                                              
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Cash flows from operations:                                              
|Net cash provided by operations                                          
|                                                                         
|Cash flows from investing activities:                                    
|Proceeds from maturities of available-for-sale securities                
|Purchases of available-for-sale securities                               
|Proceeds from sale of stock warrants                                     
|Proceeds from sales of property, plant and equipment                     
|Capital expenditures                                                     
|Acquisition                                                              
|Additions to notes receivable                                            
|Payments received on notes receivable                                    
|Net cash used in investing activities                                    
|                                                                         
|                                                                         
|Cash flows from financing activities:                                    
|Long-term debt borrowings                                                
|Payments on long-term debt                                               
|Issuances of common stock                                                
|Repurchases of common stock                                              
|Dividends paid                                                           
|Capital contribution to consolidated joint ventures by minority investors
|Other                                                                    
|Net cash provided by (used in) financing activities                      
|                                                                         
|Effect of exchange rates on cash                                         
|                                                                         
|Net increase in cash and cash equivalents                                
|                                                                         
|Cash and cash equivalents at beginning of period                         
|                                                                         
|Cash and cash equivalents at end of period                               
|                                                                         
|                                                                         
|Non-cash investing activities:                                           
|Stock warrants returned to owner as part of a contract settlement        
|                                                                         
|Non-cash financing activities:                                           
|Owner account receivable converted to note receivable                    
|                                                                         
|See accompanying notes to consolidated condensed financial statements.   

4



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|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, unless otherwise disclosed herein, are those that 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 accounting errors that occurred during 2002 on two construction contracts.  The errors resulted in an understatement of 2002 net income of less than $1 million.  The Company corrected the errors during the nine months ended September 30, 2003.  One correction decreased net income by $4 million during the first quarter of 2003 and the second correction increased net income by $5 million during the third quarter of 2003.  The Company does not believe that the corrections of these errors is material to 2003 operations.  Excluding these adjustments, net income for the three and nine months ended September 30, 2003 was $27 million and $78 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|The results of operations for the nine months ended September 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 entities 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.



5



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|PETER KIEWIT SONS, INC.                                                                                                                                                                                                                                                                                                                                                                                                            
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Notes to Consolidated Condensed Financial Statements  (Continued)                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                    
|3.          Acquisition:                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                    
|On August 20, 2004, the Company acquired the assets and certain liabilities of the Buckskin Mine (Buckskin), a coal mine located near Gillette, Wyoming.  The total purchase price was approximately $75 million.  The results of Buckskins operations have been included in the consolidated financial statements since that date.  The acquisition occurred as part of the Companys plan to expand its coal mining businesses.
|                                                                                                                                                                                                                                                                                                                                                                                                                                    
|The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the date of acquisition.  The Company is in the process of obtaining third-party valuations of the assets and liabilities acquired; thus, the allocation of the purchase price is subject to refinement.  It is not anticipated that any goodwill will result from the final purchase price allocation.                
|                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Current assets                                                                                                                                                                                                                                                                                                                                                                                                                      
|Property and equipment (including mineral rights)                                                                                                                                                                                                                                                                                                                                                                                   
|Total assets                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Current liabilities                                                                                                                                                                                                                                                                                                                                                                                                                 
|Accrued reclamation                                                                                                                                                                                                                                                                                                                                                                                                                 
|Total liabilities                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Net assets                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                    
|The following unaudited, pro-forma financial information assumes the acquisition occurred at the beginning of 2003.  These results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisition been made at the beginning of 2003, or the results which may occur in the future.                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Revenue                                                                                                                                                                                                                                                                                                                                                                                                                             
|Income before cumulative effect of change in                                                                                                                                                                                                                                                                                                                                                                                        
|accounting principle                                                                                                                                                                                                                                                                                                                                                                                                                
|Net income                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Basic earnings per share:                                                                                                                                                                                                                                                                                                                                                                                                           
|Income before cumulative effect of change in                                                                                                                                                                                                                                                                                                                                                                                        
|accounting principle                                                                                                                                                                                                                                                                                                                                                                                                                
|Net income                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Diluted earnings per share:                                                                                                                                                                                                                                                                                                                                                                                                         
|Income before cumulative effect of change in                                                                                                                                                                                                                                                                                                                                                                                        
|accounting principle                                                                                                                                                                                                                                                                                                                                                                                                                
|Net income                                                                                                                                                                                                                                                                                                                                                                                                                          

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|PETER KIEWIT SONS, INC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Notes to Consolidated Condensed Financial Statements  (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4.          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 nine months ended September 30, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|The following unaudited pro forma information reflects the Companys results for the three and nine months ended September 30, 2003 as if the change had been retroactively applied:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Net income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Net earnings per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Basic                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Diluted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

7



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|PETER KIEWIT SONS, INC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Notes to Consolidated Condensed Financial Statements - (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|5.          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.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Net income available to common stockholders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Add:  Interest expense, net of tax effect,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|associated with convertible debentures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Net income for diluted shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Total number of weighted average shares outstanding used                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|to compute basic earnings per share (in thousands)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Additional dilutive shares assuming                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|conversion of convertible debentures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Total number of shares used to compute                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|diluted earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Basic earnings per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Income before cumulative effect of change in                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|accounting principle                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Cumulative effect of change in accounting principle                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Net income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Diluted earnings per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Income before cumulative effect of change in                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|accounting principle                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Cumulative effect of change in accounting principle                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Net income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|* Interest expense attributable to convertible debentures was less than $.5 million, net of tax.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

8



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|PETER KIEWIT SONS, INC.                                                                                                                                              
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                      
|Notes to Consolidated Condensed Financial Statements - (Continued)                                                                                                    
|                                                                                                                                                                      
|                                                                                                                                                                      
|6.          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 September 30, 2004 and December 27, 2003:



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                       | September 30, |  |  |   | December 27,
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | ------------- |  |  | - | ------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                       | 2004          |  |  |   | 2003        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | (dollars in millions)
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                       |               |  |  |   |             
|Escrowed securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | $                     | 37            |  |  | $ | 39          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                       |               |  |  |   |             
|Other retainage held by owners                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                       | 92            |  |  |   | 92          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                       |               |  |  |   |             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | $                     | 129           |  |  | $ | 131         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                       |               |  |  |   |             
|Accounts receivable at September 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 September 30, 2004, the fair value of the forward was a liability of $1 million.  During the three and nine months ended September 30, 2004, the Company recognized losses on the forward of $1 million and $1 million, respectively.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

9



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|PETER KIEWIT SONS, INC.                                                                                                                                                                                                                                                                                                               
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                       
|Notes to Consolidated Condensed Financial Statements  (Continued)                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                       
|7.          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 nine months ended September 30, 2004 and 2003 is as follows:



|                                                | Three Months Ended
September 30, |      | Nine Months Ended
September 30,
|----------------------------------------------- | -------------------------------- | ---- | -------------------------------
|                                                |                                  | 2004 |                                
|                                                | (dollars in millions)           
|                                                |                                  |      |                                
|Net income                                      | $                                | 57   |                                
|Other comprehensive income, before tax:         |                                  |      |                                
|Unrealized gains (losses) arising during period |                                  | 1    |                                
|Foreign currency translation adjustments        |                                  | 6    |                                
|Income tax expense related to items of other    |                                  |      |                                
|comprehensive income                            |                                  | (3   | )                              
|                                                |                                  |      |                                
|Comprehensive income                            | $                                | 61   |                                



|8.          Segment Data:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|The Company primarily operates in the construction industry and currently has one reportable operating segment.  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, mass transit and rail); power, heating, cooling; commercial buildings; sewage and solid waste; water supply/dams; petroleum; and mining.  Sources of revenue for the other category consist primarily of the Companys coal sales.                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Intersegment sales are recorded at cost.  There were no intersegment sales for the three and nine months ended September 30, 2004 and September 30, 2003.  Operating income is comprised of net sales less all identifiable operating expenses, allocated general and administrative expenses, gain on sale of operating assets, depreciation and amortization.  Investment income, interest expense and income taxes have been excluded from segment operations.  The management fee earned by the Company for mine management and related coal mining operations services is excluded from the segment information that follows as it is included in other income on the Consolidated Statement of Earnings and not included in operating income.  Segment asset information has not been presented as it is not reported to or reviewed by the chief operating decision maker.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

10



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|PETER KIEWIT SONS, INC.                                                                                                                                                
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                        
|Notes to Consolidated Condensed Financial Statements  (Continued)                                                                                                      
|                                                                                                                                                                        
|                                                                                                                                                                        
|8.          Segment Data, Continued:                                                                                                                                    
|                                                                                                                                                                        
|                                                                                                                                                                        
|                                                                                                                                                                        
|                                                                                                                                                                        
|                                                                                                                                                                        
|                                                                                                                                                                        
|Revenue  external customers                                                                                                                                            
|                                                                                                                                                                        
|Depreciation and amortization                                                                                                                                           
|                                                                                                                                                                        
|Operating income                                                                                                                                                        
|                                                                                                                                                                        
|Nine Months Ended                                                                                                                                                       
|                                                                                                                                                                        
|                                                                                                                                                                        
|                                                                                                                                                                        
|                                                                                                                                                                        
|Revenue  external customers                                                                                                                                            
|                                                                                                                                                                        
|Depreciation and amortization                                                                                                                                           
|                                                                                                                                                                        
|Operating income                                                                                                                                                        
|                                                                                                                                                                        
|During the three and nine months ended September 30, 2004, revenue recognized from a single owner represented 11% and 12%, respectively, of the Companys total revenue.



|9.          Other Matters:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|On November 19, 2002, a suit was filed in the District Court, City and County of Broomfield, Colorado for an unspecified amount of damages by Gary Haegle, derivatively on behalf of Level 3 Communications, Inc. (Level 3), against Walter Scott, Jr., James Q. Crowe, R. Douglas Bradbury, Charles C. Miller, III, Kevin V. OHara, Mogens C. Bay, William L. Grewcock, Richard Jaros, Robert E. Julian, David C. McCourt, Kenneth E. Stinson, Michael B. Yanney, Colin V. K. Williams (collectively, the Level 3 Directors) and PKS.  The suit alleges that the Level 3 Directors breached their fiduciary duty with respect to various transactions between Level 3 and PKS, and that PKS aided and abetted the Level 3 Directors in their alleged breach of fiduciary duty.  The suit also alleges that PKS exercised improper control over certain of the Level 3 Directors.  On January 27, 2004, the Court issued an order to stay the proceedings until June 17, 2004 pending the results of the investigation of the allegations set forth in the suit by the Special Litigation Committee of the Level 3 Board of Directors.  On June 26, 2004, the Court issued a subsequent order extending the stay which expired on August 2, 2004.  PKS believes that the factual allegations and legal claims made against it are without merit and intends to vigorously defend them.  The Company is currently unable to determine the impact of the suit upon its future financial position, results of operations or cash flows.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



11



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|PETER KIEWIT SONS, INC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Notes to Consolidated Condensed Financial Statements  (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|9.           Other Matters, Continued:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|On August 7, 2003, BBC-MEC, a Joint Venture (the "Joint Venture"), and its two joint venture partners, including Mass. Electric Construction Co., a subsidiary of PKS, received "target letters" from the U.S. Department of Justice and the United States Attorney for the District of Connecticut ("DOJ"), notifying the Joint Venture and its joint venture partners that each was a target of a criminal investigation in connection with a certain portion of the work performed by the Joint Venture to electrify a high speed rail line from New Haven, Connecticut, to Boston, Massachusetts. After several meetings and an extensive exchange of information between the Joint Venture and the DOJ, the DOJ notified The Joint Venture and its partners, by letter dated July 2, 2004, that it had reached a decision not to pursue criminal charges.  The DOJ is also conducting a civil investigation relating to certain proposed change orders and modifications that were issued in conjunction with the work.  In a meeting on July 30, 2004 the DOJ presented its concerns to the Joint Venture, including raising several new issues.  The Joint Venture continues to study the issues in preparation for a response to the DOJ anticipated to take place in January 2005.  The Company is currently unable to determine the impact of the investigation upon the future financial position, results of operations or cash flows of either the Company or the Joint Venture.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|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 standby letters of credit.  Standby letters of credit are conditional commitments issued by financial institutions for the Company naming owners and other third parties as beneficiaries in accordance with specified terms and conditions.  The Company has informal arrangements with a number of banks to provide such commitments.  At September 30, 2004, the Company had issued letters of credit of approximately $174 million.  None of the available letters of credit have been drawn upon.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|At the December 10, 2003 meeting of the PKS' Board of Directors, the Board gave preliminary approval to PKS to undertake the formation of an investment entity (the Fund) in which stockholders of PKS would have the opportunity to participate on a pro rata basis to their respective ownership of PKS $0.01 par value common stock (Common Stock).  As currently contemplated, it is anticipated that between 30% and 40% of the aggregate redemption value of the currently issued and outstanding PKS Stock would be distributed to the stockholders of PKS.  However, the actual value of the distribution would ultimately be determined by the Board based upon a number of factors, including, the level of liquidity necessary to fund the Companys operations. Consequently, there is no assurance that PKS would actually undertake to form the Fund or distribute the Fund interests to stockholders, or whether the actual value of the distribution would be more or less than currently anticipated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Under the terms of a bank loan agreement (the Loan Agreement) dated December 19, 2003, a consolidated partnership of the Company that will own and operate a hydroelectric power plant in Canada (the Hydroelectric Partnership) may borrow up to $9 million primarily for the construction of the power plant. Construction is anticipated to be completed during the fourth quarter of 2004. After completion of the project, the loan will be payable monthly over a 20 year term at a 7.386% fixed rate of interest. Certain provisions of the Loan Agreement require the Hydroelectric Partnership to maintain certain ratios and establish restricted cash reserves among other requirements. Indebtedness under the Loan Agreement is solely collateralized by the assets of the Hydroelectric Partnership and the assets of its partners.  At September 30, 2004, the Hydroelectric Partnership had received cumulative advances of $6 million under this Loan Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|During the second quarter of 2004, the Company entered into an Agreement of Purchase and Sale to acquire a 50% interest in a coal mining entity in Wyoming for $15 million.  The agreement was terminated during the third quarter of 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

12



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|Item 2.   Managements Discussion and Analysis of Financial Condition and Results of Operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|The Company primarily operates in the construction industry and currently has one reportable operating segment.  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, mass transit and rail); power, heating, cooling; commercial buildings; sewage and solid waste; water supply/dams; petroleum; and mining.  Sources of revenue for the other category consist primarily of the Companys coal sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|The construction industry is highly competitive and lacks firms with dominant market power.  A contractors competitive position is based primarily on its prices for construction services, its ability to obtain performance bonds, and in certain instances, its reputation for quality, timeliness, experience, and financial strength.  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.  Public contracts accounted for approximately 70% of the combined prices of contracts awarded to the Company and 72% of revenue earned by the Company for the nine months ended September 30, 2004.  Most of these contracts were awarded by government and quasi-government units under fixed price contracts after competitive bidding. 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. In the event of termination, however, the contractor is entitled to receive the contract price on completed work and payment of termination-related costs.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|The Company, through its subsidiaries, 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|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. 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.  Construction contracts generally provide for progress payments as work is completed, with a retainage, ranging from zero to ten percent, to be paid when performance is substantially complete.  In some instances, the Company is able to substitute bank letters of credit or escrowed securities in lieu of retainage.  Construction contracts frequently contain penalties or liquidated damages for late completion and infrequently provide bonuses for early completion.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

13



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|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.  During the nine months ended September 30, 2004, the Company derived approximately 85% of its joint venture revenue from sponsored joint ventures and approximately 15% from non-sponsored joint ventures.  The Companys share of joint venture revenue accounted for approximately 26% of its revenue for the nine months ended September 30, 2004.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Due to its competitive nature, the construction industry experiences lower margins than many other industries.  As a result, cost control is a primary focus of the Company.  The ability to control costs enables a contractor to bid work more competitively and also to complete the work profitably.  Further, since the formula price of Common Stock is based upon the Companys book value, formula price is primarily driven by the Companys ability to complete projects profitably.  Consequently, the Company views both margin as a percentage of revenue and general and administrative expenses as a percentage of revenue as key measures of operating results.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Results of Operations - Third Quarter 2004 vs. Third Quarter 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Revenue.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Total revenues decreased $11 million or 1% from the same period in 2003.  Certain significant commercial rail, highway and power plant projects were substantially completed during 2003. During the third quarter of 2004, the Company did not experience an offsetting increase in new work for similar projects.  Although the Company added $2.7 billion of backlog during the nine months ended September 30, 2004, much of this work is not contributing revenue at the same pace as the projects that completed during 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Contract backlog was $4.2 billion and $3.7 billion at September 30, 2004 and December 27, 2003, respectively.  Additionally, the Company was low bidder on $782 million and $902 million of jobs that had not been awarded at September 30, 2004 and December 27, 2003, respectively.  Backlog included $2.8 billion for sole contracts and $1.4 billion for the Companys share of joint ventures at September 30, 2004.  Foreign operations, located primarily in Canada, represent 6.6% of backlog at September 30, 2004.  Domestic projects are spread geographically throughout the U.S.  The Companys 10 largest jobs in backlog make up 43% of total backlog at September 30, 2004.  A single owner makes up 18% of total backlog at September 30, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Margin.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Total margin increased $33 million or 31% from the same period in 2003.  Total margin, as a percentage of revenue for the third quarter of 2004 increased to 16% compared to 12% for the same period in 2003.  Although job losses for the third quarter of 2004 were consistent with the same period in 2003, margins on profitable jobs improved as a result of improved cost containment, estimating and bidding efforts.  The Company also experienced an $8 million increase in claim settlements for the third quarter of 2004 from the same period in 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

14



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|General and Administrative Expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|General and administrative expenses for third quarter of 2004 decreased $2 million from the same period in 2003.  As a percentage of revenue, general and administrative expenses for the third quarter of 2004 decreased to 6.3% compared to 6.4% for the same period in 2003.  The Company experienced a decrease in costs related to the proposed corporate conversion to a limited partnership which was abandoned during 2003.                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Gain on Sale of Operating Assets.

Net gains on the disposition of property, plant and equipment and other assets during the third quarter of 2004 decreased $4 million from the same period in 2003.  Gain on sale of operating assets is affected to a large degree by market conditions and the specific types and quantity of pieces of equipment sold.                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Investment Income.

Investment income for the third quarter of 2004 was unchanged from the same period in 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Interest Expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Interest expense for the third quarter of 2004 decreased $4 million from the same period in 2003.  During the third quarter of 2003, the Company recognized $4 million of look back interest expense (interest related to the timing of revenue recognition for income tax purposes for completed construction projects).                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Other, net.

Other income is comprised primarily of mine management fee income.  The Companys fee is a percentage of adjusted operating income of coal mines managed, as defined in a mine management agreement.  Fees for these services for the third quarter of 2004 and 2003 were $2 million and $1 million, respectively.                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Provision for income taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|The effective income tax rates for the third quarter of 2004 and 2003 were 35% and 39%, respectively.  These rates include the U.S. federal statutory rate of 35% increased by state and foreign income taxes, and increased or decreased by the resolution and settlement of prior year income tax liabilities.                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Results of Operations  Nine Months 2004 vs. Nine Months 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Revenue.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Total revenues decreased $208 million or 8% from the same period in 2003.  Certain significant commercial rail, highway and power plant projects were substantially completed during 2003. For the nine months ended September 30, 2004, the Company did not experience an offsetting increase in new work for similar projects.  Although the Company added $2.7 billion of backlog during the nine months ended September 30, 2004, much of this work is not contributing revenue at the same pace as the projects that completed during 2003.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Margin.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Total margin increased $32 million or 12% from the same period in 2003.  Total margin, as a percentage of revenue for the nine months ended September 30, 2004 increased to 13% compared to 10% for the same period in 2003.  Although job losses for the nine months ended September 30, 2004 were consistent with the same period in 2003, margins on profitable jobs improved as a result of improved cost containment, estimating and bidding efforts.                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

15



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|General and Administrative Expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|General and administrative expenses for the nine months ended September 30, 2004 was unchanged from the same period in 2003.  As a percentage of revenue, general and administrative expenses for the nine months ended September 30, 2004 increased to 7.2% compared to 6.6% for the same period in 2003.  The Company experienced an increase in compensation and travel as a result of several operating offices expanding to markets outside of their previous territories and increased estimating efforts.  Offsetting this increase was a decrease in profit sharing expense and a reduction in costs related to the proposed corporate conversion to a limited partnership which was abandoned during 2003.                                                                                                                                                                                                                                                                                 
|Gain on Sale of Operating Assets.

Net gains on the disposition of property, plant and equipment and other assets during the nine months ended September 30, 2004 decreased $7 million from the same period in 2003.  Gain on sale of operating assets is affected to a large degree by market conditions and the specific types and quantity of pieces of equipment sold.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Investment Income.

Investment income decreased $5 million for the nine months ended September 30, 2004 from the same period in 2003.  During the nine months ended September 30, 2003, the Company sold its investment in stock warrants and recognized a $6 million gain (comprised of a $3 million gain on the sale and an unrealized gain of $3 million due to change in market value prior to the sale).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Interest Expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Interest expense for the nine months ended September 30, 2004 decreased $3 million from the same period in 2003. During the nine months ended September 30, 2003, the Company recognized $4 million of look back interest expense (interest related to the timing of revenue recognition for income tax purposes for completed construction projects).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Other, net.

Other income is comprised primarily of mine management fee income.  The Companys fee is a percentage of adjusted operating income of coal mines managed, as defined in a mine management agreement.  Fees for these services for the nine months ended September 30, 2004 and 2003 were $5 million and $3 million, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Provision for income taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|The effective income tax rates for the nine months ended September 30, 2004 and 2003 were 36% and 39%, respectively.  These rates include the U.S. federal statutory rate of 35% increased by state and foreign income taxes, and increased or decreased by the resolution and settlement of prior year income tax liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Financial Condition  September 30, 2004 vs. December 27, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Cash and cash equivalents increased $89 million to $570 million at September 30, 2004 from $481 million at December 27, 2003.  The increase reflects net cash provided by operations of $196 million, $11 million provided by financing activities and effect of foreign exchange rates of $1 million offset by net cash used in investing activities of $119 million.

Net cash provided by operating activities for the nine months ended September 30, 2004 increased by $46 million to $196 million as compared to the same period in 2003.  This increase is primarily attributable to an increase in billings in excess of related costs and earnings as a result of the Companys ability to bill in advance of work completed on certain significant projects.  Cash provided or used by operating activities is affected to a large degree by the mix, timing, stage of completion and terms of individual contracts which are reflected in changes through current assets and liabilities.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

16



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|Net cash used in investing activities for the nine months ended September 30, 2004 increased by $71 million to $119 million as compared to the same period in 2003.  This increase was due primarily to the $75 million Buckskin acquisition, a decrease in proceeds received from the sale of stock warrants during 2003 of $22 million, partially offset by a reduction in capital expenditures of $27 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Capital spending varies due to the nature and timing of jobs awarded.  Management does not expect any material changes to capital spending.  Acquisitions depend largely on market conditions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Net cash provided by financing activities for the nine months ended September 30, 2004 increased by $108 million to $11 million as compared to the same time period in 2003.  This increase was primarily due to a decrease in repurchases of common stock of $57 million, issuances of common stock of $54 million and long-term debt borrowings of $6 million offset by payments on long-term debt of $9 million.  Common stock was issued in August during 2004 and in October during 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Liquidity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|During the nine months ended September 30, 2004 and 2003, the Company expended $143 million and $95 million, respectively, on capital expenditures and acquisitions.  The Company anticipates that its future cash requirements for capital expenditures and acquisitions will not change significantly from these historical amounts.  Cash generated by joint ventures, while readily available, historically is generally not distributed to partners until the liabilities and commitments of the joint ventures have been substantially satisfied.  Other long-term liquidity uses include the payment of income taxes and the payment of dividends.  As of September 30, 2004, the Company had no material firm binding purchase commitments related to its investments other than meeting the normal course of business needs of its construction joint ventures.  The current portion of long-term debt is $1 million.  PKS paid dividends during the nine months ended September 30, 2004 and 2003 of $25 million and $22 million, respectively.  These amounts were determined by the Board of Directors and were paid in January and May of each such year.  The Company also has the commitment to repurchase Common Stock at any time during the year from shareholders.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|During the second quarter of 2004, the Company entered into an Agreement of Purchase and Sale to acquire a 50% interest in a coal mining entity in Wyoming for $15 million.  The agreement was terminated during the third quarter of 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|The Company's current financial condition, together with anticipated cash flows from operations, should be sufficient for immediate cash requirements and future investing activities.  The Company does not presently have any committed bank credit facilities.  In the past, the Company has been able to borrow on terms satisfactory to it.  The Company believes that, to the extent necessary, it will likewise be able to borrow funds on acceptable terms for the foreseeable future.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|At the December 10, 2003 meeting of the PKS' Board of Directors, the Board gave preliminary approval to PKS to undertake the formation of an investment entity (the Fund) in which stockholders of PKS would have the opportunity to participate on a pro rata basis to their respective ownership of Common Stock.  As currently contemplated, it is anticipated that between 30% and 40% of the aggregate redemption value of the currently issued and outstanding PKS Stock would be distributed to the stockholders of PKS.  However, the actual value of the distribution would ultimately be determined by the Board based upon a number of factors, including, the level of liquidity necessary to fund the requirements noted in the preceding paragraphs.  Consequently, there is no assurance that PKS would actually undertake to form the Fund or distribute the Fund interests to stockholders, or whether the actual value of the distribution would be more or less than currently anticipated.                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Off-Balance Sheet Arrangements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|During 2004 and 2003, the Company did not enter into any off-balance sheet arrangements requiring disclosure under this caption.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     



17



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|Item 3.   Quantitative and Qualitative Disclosure about Market Risk.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|The Company holds a diversified portfolio of investments that includes cash, high quality commercial paper with maturities of less than 90 days, U.S. Government debt obligations, tax exempt money market instruments and money market, stock and bond mutual funds.  Except for cash, each of these investments is subject, in varying degrees, to market risks, interest rate risks, economic risks and credit risks.  These risks, among others, can result in loss of principal.  The majority of the Companys investments consist of holdings in a money market mutual fund and tax exempt municipal securities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|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 September 30, 2004, the fair value of the forward was a liability of $1 million.  During the three and nine months ended September 30, 2004, the company recognized losses on the forward of $1 million and $1 million, respectively.  A 10% change in the Canadian/U.S. exchange rate would result in a gain of approximately $1.5 million in the event of an increase in the exchange rate, or a loss of approximately $1.5 million in the event of a decrease.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Item 4.   Controls and Procedures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|As required by Exchange Act Rule 13a-15(b), PKS management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation as of the end of the period covered by this report, of the effectiveness of the Company's disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report. As required by Exchange Act Rule 13a-15(d), PKS management, including the Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of the Company's internal control over financial reporting to determine whether any changes occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Based on that evaluation, there has been no such change during the quarter covered by this report.



|PART II  OTHER INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Item 1.   Legal Proceedings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|On August 7, 2003, BBC-MEC, a Joint Venture (the "Joint Venture"), and its two joint venture partners, including Mass. Electric Construction Co., a subsidiary of PKS, received "target letters" from the U.S. Department of Justice and the United States Attorney for the District of Connecticut ("DOJ"), notifying the Joint Venture and its joint venture partners that each was a target of a criminal investigation in connection with a certain portion of the work performed by the Joint Venture to electrify a high speed rail line from New Haven, Connecticut, to Boston, Massachusetts. After several meetings and an extensive exchange of information between the Joint Venture and the DOJ, the DOJ notified The Joint Venture and its partners, by letter dated July 2, 2004, that it had reached a decision not to pursue criminal charges.  The DOJ is also conducting a civil investigation relating to certain proposed change orders and modifications that were issued in conjunction with the work.  In a meeting on July 30, 2004 the DOJ presented its concerns to the Joint Venture, including raising several new issues.  The Joint Venture continues to study the issues in preparation for a response to the DOJ anticipated to take place in January 2005.  The Company is currently unable to determine the impact of the investigation upon the future financial position, results of operations or cash flows of either the Company or the Joint Venture.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

18



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|Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.                                                                                                                                                                                                                                                                                                                                                                              
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(e)
Issuer purchases of equity securities.                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Period                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|July 1, 2004 through July 31, 2004                                                                                                                                                                                                                                                                                                                                                                                                                  
|August 1, 2004 through August 31, 2004                                                                                                                                                                                                                                                                                                                                                                                                              
|September 1, 2004 through September 30, 2004                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Total                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Ownership of Common Stock is generally restricted to active employees and directors and is conditioned upon the execution of repurchase agreements which restrict the transfer of the Common Stock.  Upon retirement, termination of employment, death, or request of the stockholder, PKS is generally required to repurchase the Common Stock at the applicable formula price.  All purchases of Common Stock were effected under this obligation.



|Item 6.   Exhibits                                                                                                                                                                      
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                        
|(a)
Exhibits required by Item 601 of Regulation S-K.  Exhibits incorporated by reference are indicated in parenthesis:                                                                  
|                                                                                                                                                                                        
|15.1
15.1
Letter re unaudited interim financial information                                                                                                                             
|31.1
31.1
Rule 15d-14(a) Certification of Chief Executive Officer                                                                                                                       
|31.2
31.2
Rule 15d-14(a) Certification of Chief Financial Officer                                                                                                                       
|32
32
Section 1350 Certification of Chief Executive Officer and Chief Financial Officer                                                                                                 
|                                                                                                                                                                                        
|SIGNATURES                                                                                                                                                                              
|                                                                                                                                                                                        
|Pursuant to the requirements 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.
|                                                                                                                                                                                        
|Date:  November 5, 2004                                                                                                                                                                 



19